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Indian stock market and companies daily report (March 15, 2013, Friday)

Contributed by Angel Broking

Indian markets are expected to open marginally in the red tracking SGX Nifty, which is currently trading lower by ~0.2%. Most of the Asian markets are trading in the positive territory with gains in the range of 0.1% to 0.8%.

US stocks moved higher on Thursday buoyed by upbeat employment data. The strength on Wall Street came following the release of a report from the Labor Department which showed an unexpected drop in initial jobless claims for the week ended March 9. The report showed that initial jobless claims fell to 332,000, a decrease of 1 0,000 from the previous weekRs.s revised figure of 342,000 and much below the estimates of 350,000. European markets were trading higher on Thursday, ahead of a two-day meeting of European policy makers that begins in Brussels in which EU leaders are expected to endorse plans for structural assessments of national budgets and discuss a bailout for Cyprus.

Meanwhile Indian markets reversed the declines in the past three trading sessions, with the key benchmark indices Sensex and Nifty posting gains of ~1%. The Indian markets rose on hopes of rate cut after WPI inflation data showed the core inflation surprisingly fell to 3.8% in February, its lowest level since March 2010.


Markets Today

The trend deciding level for the day is 19,451/ 5,874 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,724 - 19,877 / 5,955 - 6,002 levels. However, if NIFTY trades below 19,451/ 5,874 levels for the first half-an-hour of trade then it may correct up to 19,298 - 19,026 / 5,827 - 5,745 levels.


Nalco OFS

The government of India is divesting 10% stake in Nalco via an OFS. The OFS comprises an offer for sale of 25.8cr equity shares of face value Rs.5 each. Nalco has fixed the OFS floor price at Rs.40 per share.

Aluminium business continues to make losses: At current aluminium price of US$2,000-2,100/tonne, we expect Nalco to make losses on its Aluminium business. Moreover, prices of key inputs such as coal, caustic soda, CP coke, aluminium fluoride etc continue to remain high. Hence, we expect Nalco to operate its aluminium smelters at lower utilization levels during FY2013-14.

Coal supply issues to continue: Nalco has been facing coal supply issues, which disrupted its operations in the past few quarters. The company sources its annual coal requirement from Mahanadi Coalfields Ltd., but the supply is not evenly distributed. In our view, any disturbance in coal supply would increase the companyRs.s dependence on imported or external coal (which is very expensive compared to linkage coal), thereby negatively affecting its margins.

No clarity on timelines for production from Utkal coal block: Nalco has been allotted Utkal-E coal block which has estimated reserves of 70mn tonnes. Currently, there is no clarity on land acquisition for coal block. Although Nalco expects to commence production from this mine by end of CY2013, our recent experience suggests that it could take a much longer time to acquire land and sign the mining lease with the state government.

Outlook and valuation: NalcoRs.s earnings over the past 6-8 quarters have remained very volatile. Although Nalco has captive bauxite mines, the cost of aluminium production remains very high on account of high power costs. Further, there is lack of clarity over the companyRs.s future expansion plans. At the OFS price, Nalco is trading at 7.4x FY2013E and 5.2x FY2014E EV/EBITDA, which is at a significant premium compared to its peers. Hence, we recommend investors to avoid subscribing to Nalco OFS.


WPI inflation at 6.8% for February 2013

Wholesale Price Index (WPI) inflation for February 2013 edged up to 6.8% as compared to 6.6% yoy in the previous month, rising by 0.6% mom largely driven by the rise in fuel index (3.0% mom). Inflation for the month of December 2012 has been revised marginally upwards to 7.3% yoy as against 7.2% earlier, reflecting the upward revision in fuel inflation.

Inflation in primary articles moderated for the third consecutive month to 9.7% yoy from 10.3% yoy in the previous month as inflation in both food (11.4% yoy) and non food articles (10.1% yoy) moderated. Fuel and power inflation paced higher to 10.5% yoy (3.0% mom) as against 7.1% yoy in the previous month. The rise in fuel inflation was largely expected owing to realignment of diesel prices and capping of subsidized LPG cylinders to 9 per household. Also, fuel inflation for December 2012 has been revised upwards to 10.3% yoy as compared to the earlier estimate of 9.4% yoy. The inflation in LPG component stood at a high of 26.2% yoy (higher by 21.0% on a mom basis) for February 2013. The same was revised considerably upwards to 19.0% yoy for December 2012 from the earlier estimate of 4.0% yoy.

Manufactured products inflation decelerated to a three-year low at 4.5% in February 2013 from 4.8% yoy in the previous month and 5.8% yoy in the corresponding month of the previous year. Even on a 3MMA basis, at 4.8% yoy it eased within the Reserve Bank of India (RBI)Rs.s comfort zone of below-5%. In addition, core inflation ie the non-food manufacturing component of inflation, receded for the sixth straight month to 3.8% yoy as compared to 4.1% yoy in the previous month, reflecting the decline in commodity prices and weak pricing power.

Despite elevated CPI inflation (largely owing to supply-side factors) and the recent rise in WPI inflation, we still expect the RBI to ease the repo rate by 25bp in its March 19 policy review. The RBI is likely to draw comfort from easing inflation in manufactured products (and core inflation in particular), which reflect that demand-side inflationary pressures are in check.

In the growth-inflation dynamics, the RBI has recently adopted a more growth-supportive policy stance in view of the prolonged slowdown in economic growth. Real GDP growth is at a decade low of 4.5% yoy in 3QFY2013 and the CSO estimates a modest 5.0% yoy growth for FY2013, dampened by moderation in consumption, investment and export growth. Further, efforts to curtail the fiscal deficit (at 5.2% of GDP in FY2013 and 4.8% of GDP in FY2014) in the budget are also likely to support a more accommodating monetary policy stance. But at the same time, the current account deficit (at 4.6% of GDP in the first half of FY2013) is expected to widen to a record-high in FY2013 and it is likely to restrict the quantum of policy easing going forward.


GSM operators lose ~2mn subscribers in February

The GSM operators lost 1.97mn subscribers in February 2012, after a modest user addition during the previous month, taking its total base to 655.59mn. This is a 0.30% fall from previous month, according to data by Cellular OperatorsRs. Association of India (COAI). The GSM operators added 0.4mn users in January 2013, arresting losses of previous two months. Uninor, which closed down operations in Mumbai on February 16, lost 8.35mn subscribers during the month. The company, which had a total of 31.77mn users, closed down operations following the Supreme Court order that operators who did not win spectrum in the previous auction should close down services. Aircel lost 698,506 users during the month, dragging its customer base to 60.87mn. Videocon and MTNL were the other operators to record subscriber base erosion, with the companies losing 196,935 and 203,878, respectively. Bharti Airtel continued to the countryRs.s leading operator by subscribers, with the company garnering a total of 186.62mn users. It added 2.43mn subscribers, increasing its market share to 28.47% during the reporting month. Vodafone India added 2.19mn users taking its total user base to 149.89mn, while Idea Cellular added 2.86mn subscribers increasing its subscriber base to 119.26mn. We maintain our Neutral rating on the overall telecom sector.


Infosys bags order from BMW

Infosys has bagged an order from German car-maker BMW group. The five year order will cover services such as maintenance and operations of web infrastructure, content management, SAP basis operations, internal IT system, content management and business intelligence systems. The financial terms of the order were not revealed. To support this order, Infosys will open a new delivery center in Munich which will form an integral part of a global service delivery team from Infosys. Owing to the recent run up in stock price, we maintain our Neutral rating on the stock.


Punj Lloyd bags Rs.314 cr offshore contract

Punj Lloyd has bagged a contract worth Rs.314cr ($57.75 mn) from Al-Khafji Joint Operations for an offshore project in Al-Khafji, Saudi Arabia. The scope of the project includes installation of a new crude transmission pipeline as a replacement for the existing transmission line. We continue to maintain our Neutral rating on the stock.


Economic and Political News

- Cutting Plan spending a compulsion: Chidambaram

- ItRs.s up to RBI to decide on policy rate cut: Rajan

- Pak to give MFN status to India by June-July: Commerce secretary


Corporate News

- CERC asks RPower to meet states in 1 5 days to resolve tariff issue

- Rajasthan Government, HPCL tie-up for Rs.37,230cr refinery

- JSW steel to raise US$600mn from overseas markets in next quarter

- Axis Bank to probe money laundering allegations