Reports » India
Indian stock market and companies daily report (May 22, 2014, Thursday)
The Indian markets are expected to open in the green tracking positive opening in SGX Nifty which is trading higher by 0.3%. Most of the Asian markets too are trading in the positive territory.
After moving sharply lower over the course of Tuesday's trading session, US markets showed a significant rebound during trading on Wednesday. The markets continued to perform well following the release of the minutes of the latest Federal Reserve (Fed) meeting. The markets reacted positively to Fed's minutes which did not indicate an imminent interest rate hike. However, participants of the meeting discussed issues associated with the eventual normalization of the stance and conduct of monetary policy. Meanwhile European stocks rallied on Wednesday, amid renewed hopes that the euro zone recovery can get back on track.
Meanwhile Indian markets fell modestly on Wednesday due to profit booking after the key benchmark indexes hit record highs in recent sessions in response to Narendra Modi's landslide win in general elections.
The trend deciding level for the day is 24,291 / 7,249 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 24,426 - 24,554 / 7,291 - 7,329 levels. However, if NIFTY trades below 24,291 / 7,249 levels for the first half-an-hour of trade then it may correct 24,163 - 24,028 / 7,211 - 7,168 levels.
Supreme Court refuses to stay HC order on US $4bn Sun Pharma-Ranbaxy merger
The Supreme Court censured the way in which the merger process of Mumbai-based Sun Pharmaceutical Industries with Ranbaxy Laboratories Ltd was stalled and asked the Andhra Pradesh High Court to decide the case within two days. The bench observed that the filing of writ petitions in the Andhra Court may signify the abuse of the process of the court and forum shopping in view of the fact that petitions on merger were already pending before high courts of Gujarat and Punjab. The court wondered whether the Andhra High Court would have jurisdiction to deal with the case in writ jurisdiction when substantive petitions on amalgamations were already pending before the other high courts. The bench therefore decided to send the matter back to Andhra High Court first to decide the petitions and said it would finally hear the matter on May 29 against the High Court order. We maintain accumulate with a price target of Rs.643.
USFDA letter to Sun Pharma's response on the import alert on its karkhadi plant
The US Food and Drug Administration (FDA), in a letter dated May7, 2014 warned Sun Pharmaceutical the responses given by it on the import alert on its Karkhadi plant in Gujarat lacked sufficient corrective actions. USFDA officials said the company was found wanting on fundamental raw data necessary to document its analyses. In March, the FDA had issued an import alert, banning formulations and active pharmaceutical ingredients from the factory. USFDA has said it may withhold approval of any new applications or supplements listing at firm's Karkhadi plant as a drug product or an API manufacturer until all corrections have been completed and USFDA has confirmed corrections of the violations and deviations and Sun's compliance with CGMP. Sun was also asked to notify in writing of the specific steps that the company has taken to correct and prevent the recurrence of violations, within fifteen working days of receipt of this letter. Though the said plant contributes negligible to the overall sales of the company, we believe this feedback can delay the clearance process for the company. We maintain accumulate on the stock with a price target of Rs.643.
BJAUT to resume shipments to Egypt as import ban lifted
According to media reports, Egypt government has lifted the ban on imports of two-wheelers and three-wheelers into the country which was in effect since February 2014. This move is expected to benefit Bajaj Auto (BJAUT) as it is one of the biggest exporters of two-wheelers and three-wheelers to Egypt. The company intends to resume its shipments to Egypt from June with deliveries of 5,500 and 3,500 units of three wheelers and two-wheelers respectively. While the Management was hopeful of resuming shipments from October, the lifting of the ban from June itself is positive for the company. We expect the three-wheeler exports to pick-up post the lifting of the ban and now expect three-wheelers exports to grow by 8% in FY2015 from 2% expected earlier. Our expectations for two-wheeler exports too have been revised marginally upwards. We believe that the lifting of the ban is positive for the company given that it will boost overall exports growth and enable to company to offset the underperformance which it is witnessing in the domestic markets. We maintain our positive view on the company. We retain our Buy rating on the stock with a target price of Rs.2,318.
MM announces production cuts at its automotive plants
Mahindra & Mahindra (MM) has announced production cuts at its automotive plants for a period of three days in May 2014 amidst slowdown in the industry demand. The company's subsidiary, Mahindra Vehicle Manufacturers would also observe production shutdown for three days at its Chakan plant. The production cuts have been announced primarily to align the production levels in-line with the market demand which continues to remain weak at the moment. This we believe will help the company curtail costs and prevent build-up of inventory. While the company is facing slowdown in sales across the automotive segments (domestic volumes down ~10% yoy in FY2014), the impact is severe in the passenger vehicle space which has witnessed a volume decline of ~18% yoy in FY2014. At the CMP the stock is trading at 18.6x FY2016E earnings. Currently, we have a Neutral rating on the stock.
UCO Bank- (CMP: Rs.106 / TP: - / Upside: -)
UCO bank reported improvement in asset quality while the operating performance was largely in-line with our estimates. NII for bank grew by 15.7% yoy (flat sequentially). The operating income for bank increased by 21.3% yoy while Preprovisioning profit increased 33.0% yoy. On the asset quality front the bank witnessed improvement, as absolute Gross and Net NPA decreased sequentially by 10.0% and 15.7% yoy respectively. As a result the gross NPA and net NPA ratios decreased by 88bp and 68bp sequentially to 4.3% and 2.4% respectively. Tax expense came at Rs184cr for 4QFY2014 as against Rs.6cr in 4QFY2013. Overall earnings came at Rs.285cr in 4QFY2014 against Rs.50cr in 4QFY2013. UCO Bank's valuation at 0.8x FY2016E ABV remains at a higher end compared to peers. Hence, we maintain our Neutral rating on the stock.
Ashok Leyland (CMP: Rs.29/ TP: -/ Upside: NA)
Ashok Leyland (AL) is slated to announce its 4QFY2014 results today. We expect the company to report a bottom-line loss for the fourth consecutive quarter as continued decline in volume; higher discounts, lower utilization levels and operating margin pressures continue to impact the overall performance. We expect the company to report a bottom-line loss of Rs.155cr during the quarter due to a sharp ~27% yoy decline in the top-line following an ~25% yoy fall in volumes. We expect EBITDA margins to contract substantially by 470bp yoy to 0.6%, largely due to poor operating leverage and higher levels of discounting. We maintain our Neutral rating on the stock.
Motherson Sumi Systems (CMP: Rs.287/ TP: -/ Upside: NA)
Motherson Sumi Systems (MSS) is scheduled to announce its 4QFY2014 results today. We expect MSS to post a strong set of results yet again driven by improving utilization levels at the new facilities and aided further by INR depreciation. At the consolidated level, we expect the top-line to post a strong growth of ~26% yoy to Rs.8,431cr, driven by ~30% yoy growth in Samvardhana Motherson Reflectec (SMR) and Peguform revenues respectively. We expect EBITDA margins to improve ~130bp yoy to 9.8%, aided by better utilization levels and also due to the cost control initiatives. The adjusted net profit therefore is expected to register a robust growth of ~59% yoy to Rs.256cr during the quarter. At the CMP, the stock is trading at 16.3x FY2016E earnings. Currently, we have a Neutral rating on the stock.
Economic and Political News
- RBI simplifies rules for credit to exporters
- RBI relaxes gold import norms
- Highway Ministry has 7,000km road development plan this fiscal
- Alstom T&D India bags order to renovate Bihar grid
- HPCL to buy 11-15% stake in Petronet's east coast terminal
- GCPL gets Bombay High Court relief in case over brand Goodknight
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