Reports » India
Indian stock market and companies daily report (May 16, 2014, Friday)
The Indian Markets are expected witness a volatile trade with positive bias today ahead of the counting of the votes of General Elections. Meanwhile, most of the Asian markets are trading in the negative zone tracking weak closing of the US markets.
US socks moved notably lower during trading on Thursday but managed to end the session off their worst levels of the day. A negative reaction to a mixed batch of US economic data weighed on the markets, with disappointing readings on industrial production and homebuilder confidence seemingly overshadowing an upbeat jobs report. According to a Federal Reserve report, industrial production fell by 0.6% in April against economistsRs. expectations of flat reading. The National Association of Home Builders released a separate report showing that homebuilder confidence (index edged down to 45) unexpectedly deteriorated in the month of May. On the other hand, Labor department report showed that initial jobless claims fell to 297,000, a decrease of 24,000 from the previous week's revised level of 321,000.
Domestic markets ended the volatile Thursday session on a higher note on hopes of Narendra Modi led NDA winning the general elections, results of which are due on Friday. Meanwhile, WPI inflation fell to two month low of 5.25% in April from 5.7% in March, as all three major components of the index - food, fuel and manufactured goods, recorded moderation in prices.
The trend deciding level for the day is 23,873 / 7,119 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 24,004 - 24,102 / 7,156 - 7,189 levels. However, if NIFTY trades below 23,873 / 7,119 levels for the first half-an-hour of trade then it may correct 23,775 - 23,644 / 7,086 - 7,049 levels.
Bajaj Auto (CMP: Rs.1,953/ TP: Under review/ Upside: NA)
For 4QFY2014, Bajaj Auto's (BJAUT) reported net profit at Rs.764cr was sharply lower than our expectations of Rs.835cr largely due to operating margin pressures (down 324bp qoq to 18.9%) and lower-than-expected other income. The operating performance was impacted owing to substantial increase in other expenditure, partly on account of the foreign exchange loss of Rs.37cr which impacted EBITDA margins by ~75bp during the quarter. Adjusted for the forex gains, EBITDA margins stood at 19.6%, lower than our estimates of 20.7% and bottom-line stood at Rs.800cr.
Top-line for the quarter increased marginally by 3.9% yoy to Rs.4,932cr, slightly above our expectations of Rs.4,869cr. The performance was impacted due to a volume decline of 4.6% yoy led by the sluggish performance in the domestic markets which witnessed volume decline of 12.7% yoy. Consequently, domestic revenues declined sharply by 10.1% yoy. Export volumes posted a strong growth of 9% yoy driven by strong growth in the motorcycle segment which coupled with favorable currency movement led to a 30% yoy growth in export revenues. While domestic net average realization increased 3% yoy; exports net average realization surged 19.3% yoy during the quarter.
We expect the domestic performance of the company to remain under pressure in the near term; nevertheless, on the exports front, we expect the company to continue registering strong growth led by market share gains in Africa and Latin America. We maintain our positive stance on the company given its diversified business model, strong focus on profitable growth, widening reach in the export markets and strategic alliances with global majors. We maintain our Buy rating on the stock; however our target price is currently under review.
Bank of India (CMP: Rs.263/ TP: Rs.315/ Upside: 20%)
Bank of India's operating numbers came below ours as well as street's estimates, while asset quality witnessed pressures qoq. On the operating front, NII for bank grew healthy by 23.1% yoy (12.1% growth qoq) on back of 28.1% yoy advances growth. Non-interest income de-grew by 16.5% yoy. Continuing the trend of last three quarters opex grew higher by 31.4% yoy. Overall the Pre-Provisioning operating profit de-grew by 3.8% yoy. On the asset quality front bank faced higher stress compared to its PSU peers as absolute gross NPAs increased by 18.4% qoq while absolute net NPAs increased by 20.7% sequentially. Thus the gross and net NPAs ratios increased by 34bp and 25bp qoq to 3.2% and 2.0% respectively. Overall, earnings for the bank de-grew by 26.3% yoy. At CMP, the stock trades at relatively cheaper valuations of 0.6x FY2016E ABV compared to its peers. We recommend Buy rating on the stock.
JK Bank (CMP: Rs.1,785/ TP: -/ Upside: -)
Jammu and Kashmir Bank reported in line operating performance, while asset quality witnessed stability. On the operating front, Net Interest Income for the bank increased by 10.7% yoy, while non-interest income de-grew by 46.8% yoy, leading to a 3.6% yoy de-growth in operating income which was in-line with our estimates. Operating expenses grew 8.7% yoy, leading to in-line pre-provisioning profit degrowth of 10.5%. Asset quality remained largely stable with absolute Gross and Net NPA increase of 8.0% and 5.3% respectively sequentially. Thus gross and Net NPA remained flat at 1.7% and 0.2% respectively qoq. Provision expenses for bank came in lower at Rs.61cr (on back of higher base in 4QFY201 3) enabling PBT level growth of 17.1% yoy. But bank reported flat earnings yoy due to higher tax expense of Rs.1 70cr in 4QFY201 4. At the CMP, the stock is trading at 1.2x FY2016E ABV which factors in superior asset quality for bank. We recommend Neutral rating on the stock.
Apollo Tyres (CMP: Rs.177/ TP: Under review/ Upside: NA)
Apollo Tyres (APTY) reported extremely strong performance for 4QFY2014, beating consensus as well as our expectations by a wide margin. Though the topline performance was broadly in-line with our expectations; bottom-line surged sharply led by impressive growth in European operations and aided by lower-than-expected tax rate.
Consolidated top-line for the quarter grew 6.2% yoy to Rs.3,229cr aided by 44.9% and 8% yoy growth in Europe and standalone revenues respectively. The strong growth in European operations was led by volume growth of ~13% yoy, net average realization growth of ~5% yoy and further boosted by the I NR depreciation against the Euro. For Indian operations, volumes grew at a healthy rate of ~6% yoy; while net average realization increased by ~2% yoy during the quarter. South Africa revenues however, declined 53.3% yoy as the company sold-off its passenger car tyre plant during 3QFY2014. Consolidated EBITDA margins surprised positively and stood at 14.3%, up 244bp yoy, driven by sharp improvement in operating performance at Europe. EBITDA margins at international operations increased substantially by 835bp yoy to 19.3%; while, margins at Indian operations stood almost flat at 12%. The company continued to enjoy the benefits of lower natural rubber prices and also benefitted from superior product-mix. Led by a strong operating performance, EBITDA surged 28.1% yoy to Rs.461cr. Driven by better-than-expected operating performance and lower-than-expected tax rate (13.9% as against 17.6% in 3QFY2014), consolidated net profit grew strongly by 11 7.9% yoy to Rs.271cr, significantly ahead of our expectations of Rs.209cr.
Meanwhile, the company's board has given its approval to set up a Greenfield facility in Eastern Europe at an approximate cost of €500mn which would be spent over the next four years. The company is currently operating at ~90% utilization levels in Europe and in the near term expects to meet the additional demand from India. We maintain our positive view on the company. Our rating and target price are currently under review.
NCC (CMP: Rs.64 / TP: / Upside: )
For 4QFY2014, NCC's top-line performance was better than our expectations, with top-line growing by 9.9% yoy to Rs.1,913cr. However, the EBITDA margin contracted sharply by 354bp yoy to 5.5% for the quarter due to cost escalation in couple of projects. In spite of margin contraction, the company posted 18.1% yoy increase in net profit to Rs.32cr due to higher other income and tax benefits. We recommend Neutral rating on the stock.
Goodyear India Ltd (CMP: Rs.385/ TP: Rs.472/ Upside: 23%)
For 1QCY2014, Goodyear India Ltd. (GIL) reported good set of results. The topline surged by 15%yoy to Rs.387cr, 10.6% higher than our estimate of Rs.350cr. EBITDA came in 30.4% higher yoy to Rs.40cr while margins expanded by 120bp yoy to 10.2% mainly due to lower employee cost and other expenses (as a percentage of sales). On the back of efficient operating performance coupled with 57.1% yoy increase in other income of Rs.11cr, the net profit came in 34.9% higher yoy to Rs.28cr, in-line with our estimates. Going forward, we maintain our top-line estimate and believe that EBITDA will improve on the back of lower international rubber prices. At the current market price, the stock is trading at a PE of 7.5x for CY2015E and P/B of 1.5x for CY2015E. We recommend Buy rating on the stock with a target price of Rs.472, based on a target P/E of 9.0x for CY2015E.
MM Forgings (CMP: Rs.140/ TP: Rs.148/ Upside: 6%)
MM Forgings (MMFL) reported strong set of numbers for 4QFY2014. The company's top line for the quarter grew by 14.3% yoy to Rs.107cr, in-line with our estimate. To a surprise, the operating margin expanded substantially by 566bp and came in at 20.7%, ahead than our estimate of 16.6%. This sharp expansion in the margin was mainly on account of different energy conservation methods undertaken by the company leading to lower power and fuel costs coupled with lower than expected other expenses. Depreciation and tax outgo for the quarter was Rs.10cr (111.0% higher yoy) and Rs.3cr (30.8% of PBT) respectively. Consequently, the company reported a profit of Rs.8cr, 15.1% higher yoy, against our estimate of Rs.6cr. Due to the recent run up in the stock, we recommendation Accumulate on the stock with the revised target price of Rs.148 based on a target P/E of 4.0x for FY2016E.
Cadila Healthcare (CMP: Rs.940/ TP: Rs.1,064/ Upside: 13.2%)
Cadila is expected to post a strong quarter with 26.4% yoy growth in net sales to Rs.1,979cr on the back of robust growth on the exports front. We expect the company's OPM to expand by 170bp yoy to 17.0% on back of a favorable product mix. However, its net profit is expected to decrease by 24.7% yoy to Rs.198cr, on back of higher tax outgo. We maintain our Accumulate with a price target of Rs.1,064.
Economic and Political News
- April WPI inflation at two-month low of 5.2%
- SMEs need to export more to boost exports growth: Yaduvendra Mathur
- Finance Secretary upbeat about fall in inflation but cautious on El Nino
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- Vedanta's earnings hit by lower metal production, prices
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