Reports » India
Indian stock market and companies daily report (March 12, 2013, Tuesday)
Indian markets are expected to open in the green tracking positive trade in the major Asian Indices like Nikkei, Hangseng and Shanghai which are higher by 0.4% to 0.6%. SGX Nifty too is currently trading higher by ~0.3%.
US markets which opened marginally lower during the opening trade, ended the day higher after shrugging off some disappointing news from overseas, including weaker than expected readings on Chinese industrial production and retail sales. Lack of major U.S. economic news kept some traders on the sidelines, enabling the upmove in the markets. However, European markets were mixed on Monday with poor economic data from China and downgrade of Italian credit by Fitch resulted in decline of some of the markets.
Meanwhile IndiaRs.s Key benchmark indices fell marginally on Monday snapping the four-day gaining streak. The EXIM data released on Monday indicated that the countryRs.s trade deficit had reduced in February, which is a positive for the economy. The markets would keenly observe the economic data to be released pertaining to IIP and Inflation expected to be released during the week.
The trend deciding level for the day is 19,668/ 5,948 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,733 - 19,820 / 5,966 - 5,989 levels. However, if NIFTY trades below 19,668/ 5,948 levels for the first half-an-hour of trade then it may correct up to 19,581 - 19,516 / 5,925 - 5,907 levels.
IPO Note - REPCO HOME FINANCE
Operates in attractive loan segment - Priority sector home loans: RHFL is largely focused on providing home loans in tier-II and tier-III cities (with a sub-Rs.10lakh average loan ticket size), due to which a large part of its book qualifies as priority sector lending (PSL) for banks. In our view, NBFCs operating in PSL segments enjoy competitive advantages, as most banks (especially in the private sector) have a perennial shortage in meeting their PSL targets, creating favorable demand-supply dynamics for those NBFCs that can source higher-yielding PSL loans at reasonable asset quality.
REPCO's loan book profile also allows it to procure 44% of its total borrowing via low-cost NHB refinance averaging about 7.5-8% (NHB refinance is available under various schemes, primarily for rural loans upto Rs.15lakh and also for low cost urban housing loans up to Rs.10lakhs). Moreover, the funding that it gets from banks in turn largely qualifies as PSL for the banks (loans by banks to NBFCs, which are on-lent as home loans less than Rs.10lakhs qualify as PSL). This makes it attractive for banks to lend to RHFL at a reasonable cost (about 100bps above base rate), as against alternatives such as parking funds under RIDF at extremely low yields, to meet their PSL targets. Relatively low-cost NHB and bank funding enables it to maintain healthy margins and return ratios (NIMs at 3.8% and RoE at 22.2% in 1HFY2013, calculated on an annualized basis)
In terms of borrower profile, around 53% of RHFL's outstanding loan book constituted loans to relatively higher-yielding higher-risk non-salaried segment. To mitigate risks, the company, lends at a low LTV of about 65%, as per the management. In terms of geographical presence, 67% and 98% of its business is concentrated in Tamil Nadu and South India, respectively, largely in tier-II and tier-III cities.
Management expects strong growth to continue: Over FY2008-12, the company grew its loan book at a CAGR of 43.8% (albeit on a small base) to Rs.2,802cr, driving PAT CAGR of 43.3%. As of September 30, 2012, its CRAR stood at a comfortable 15.9% (entirely tier-I). Further, IPO proceeds would increase its capital base by nearly 0.9x, providing enough headroom for maintaining strong loan growth for the next few years as well. Funding mix is also expected to remain stable (In FY2014 NHB refinance facility for Rural housing fund increased by 50% to Rs.6,000cr; bank demand for PSL opportunities is also expected to remain strong and future outlook is favorable, in our view, given governmentRs.s priority sector focus).
Outlook & Valuation: RHFL generated 22.2% RoE in 1 HFY2013E and would trade at 1.8x FY2013E ABV (at the upper end of its price band, based on post-issue networth). Closest comparable peer - Gruh HF (mainly western India, rural and semi-urban focus, largely PSL qualifying home loans) appears extremely expensive at valuations of 7.3x FY2013E BV, notwithstanding its ~30% earnings growth trajectory and ~35% ROEs (FY2013E). Other NBFCs like Mahindra Finance and Shriram Transport Finance operating in different priority sector segments to a varying degree and generating similar return ratios, are trading at 2.6x and 2.3x FY2013E ABV, respectively (but they have larger, relatively more seasoned loan books and longer proven track record). Overall, keeping in mind RHFLRs.s attractive niche loan segment, strong growth prospects and reasonable valuations, we recommend subscribe to the issue at the upper band.
Trade deficit cools down to USD14bn in February 2013 as exports pick up
India's exports gained traction in February 2013 and reported growth for the second straight month at 4.2% yoy (USD26.3bn) as compared to marginal 0.8% yoy growth in January 2013 signaling an improvement in external demand. Moreover, growth in imports during the month decelerated to 2.6% yoy (USD41.2bn) as against 6.1% yoy in January 2013. On account of the positive trend in both imports as well as exports, the trade deficit narrowed to USD14.9bn, the lowest in 10 months, from USD20bn in the previous month and USD15.3bn in February 2012. Oil imports reported 15.5% yoy growth (as against a steep 44.6% yoy growth in February 2012) while non oil imports reported a 3.9% yoy contraction (as against 1 3.2% yoy growth in February 2012).
On a cumulative basis, exports in the April - February 2013 period contracted by 4.0% yoy in USD terms while import growth during the period remain flat to a large extent. The trade deficit in April - February 2013 period, came at USD182.1bn as compared to USD169.8bn in the corresponding period of the previous year widening by 7.2%.
Surging trade deficit at 11.7% of GDP in 2QFY2013 is the primary reason for a record-high current account deficit at 5.4% of GDP in 2QFY2013. As the trade deficit widens, the possibility of CAD reaching a record-high (nearing 5% of GDP) for FY2013 as a whole cannot be ruled out. We believe that the Rs.Foreign Trade PolicyRs. likely to be announced by the end of the month, would aim to enhance export competitiveness by giving some sops to exporters particularly in the manufacturing industry.
CDMA auction over: Sistema bids for eight circles
The second round of CDMA auction has completed. CDMA operator Sistema Shyam Teleservices (SSTL) has bid for eight circles in the auction. However, a detail of which circles the company has bid is yet to be disclosed. SSTL, which is majority owned by Russian conglomerate Sistema, was the lone bidder for this round of auction. According to its application, SSTL intended to acquire 3.75MHz of spectrum each in 11 telecom zones in the 800MHz band. The government had, in November, failed to get any bidder for the 800MHz spectrum and then it had reduced the reserve price by 50%. The government has offered 76.25MHz of spectrum in the 800MHz band across the country. SSTL, which had lost its license in 21 circles due to a Supreme Court order in February 2012, had not bid in November. SSTL has already closed operations in 10 circles, and it is expected to bid for Delhi, Gujarat, Karnataka, Kerala, Kolkata, Maharashtra, Mumbai, Tamil Nadu, UP (East), UP (West) and West Bengal. As per media reports, there have been no bids for Mumbai, Maharashtra and UP (East). SSTL had deposited Rs.613.75cr for the auction, which made it eligible to bid for minimum quantum of 2.5MHz spectrum (two blocks of 1.25MHz airwaves frequency) in 11 circles. However, the company bid for only eight circles, which means it may curtail operations in three more circles. We maintain our Neutral rating on the overall telecom sector.
Economic and Political News
- Animal spirits shouldnRs.t create maneaters: Jairam
- India will grow at 6% next year: World Bank
- Rs.2,800cr free laptop scheme rolls out in UP
- GVK, Aurizon to develop Oz basin infrastructure
- Mahindra bets on maiden e-car launch
- Viacom to buy TV18Rs.s residual stake in ETVRs.s regional play
- ONGC-led consortium to study feasibility of MRs.lore LNG terminal
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