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Reports India

Indian stock market and companies daily report (May 23, 2014, Friday)

May 23, 2014, Friday, 05:59 GMT | 01:59 EST | 10:29 IST | 12:59 SGT
Contributed by Angel Broking

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.

US markets rose higher on Thursday adding to the gains made during Wednesday's trading session. The market was buoyed by positive news on the economy front. A report from the National Association of Realtors showed that existing home sales rose for the first time this year in April. Additionally, Markit released a report showing that its preliminary reading on manufacturing activity in May rose by more than expected. The European markets were trading mixed on Thursday, post encouraging data from China and reassuring FOMC minutes from the US.

Indian markets rose modestly on Thursday mirroring firm global cues. The markets gathered strength after minutes from the Federal Reserve's April policy meeting showed that the U.S. central bank would likely be slow in hiking interest rates.

Markets Today

The trend deciding level for the day is 24,409 / 7,285 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 24,491 - 24,607 / 7,311 - 7,346 levels. However, if NIFTY trades below 24,409 / 7,285 levels for the first half-an-hour of trade then it may correct 24,292 - 24,210 / 7,250 - 7,223 levels.

GoI turns down HDFC Bank's proposal to raise FII limit

The government has turned down HDFC Bank's proposal to raise the cap on FII to 67.5% from 49%. DIPP felt the proposal could not be cleared under current policy framework. Earlier RBI had restricted FIIs from further purchasing shares after 49% ceiling was breached in December.

Result Review

Motherson Sumi Systems (CMP: Rs.280/ TP: Under review/ Upside: -)

Motherson Sumi Systems (MSS) recorded strong results for 4QFY2014 driven by robust performance of Samvardhana Motherson Reflectec (SMR) and Samvardhana Motherson Peguform (SMP). SMR and SMP continued to see improved performance with SMR posting record EBITDA margins at 10.6% (up 220bp yoy) and SMP posting a bottom-line profit of Rs.24cr vs. a loss of Rs.17cr in 4QFY2013. Standalone operations too remained healthy as EBITDA margins remained stable.

For 4QFY2014, consolidated revenues grew strongly by 25.9% yoy to Rs.8,407cr, broadly in-line with our estimates of Rs.8,376cr, on the back of the strong growth in SMR and SMP revenues. The revenues at SMR and SMP grew at a robust rate of 29.1% and 32.3% yoy respectively driven by execution of new orders coupled with the favorable currency movement. The standalone entity though posted a modest 1.5% yoy growth in the top-line due to the sluggish demand scenario in the domestic markets. At the consolidated level, while India revenues declined marginally by 1.4% yoy; overseas revenues grew by 32.2% yoy during the quarter. On the operating front, consolidated margins improved 94bp yoy to 9.5%, broadly in-line with our estimates of 9.8%, driven by improving capacity utilization levels at SMR and SMP. While, SMR margins witnessed a sharp improvement of 220bp yoy to 10.6%; standalone margins stood flat at 21.8%. SMP margins surprisingly declined 130bp qoq to 4.6% during the quarter. Nevertheless, led by a strong operating performance, adjusted consolidated bottom-line increased by a strong 43.6% yoy to Rs.232cr.

We retain out positive view on the company as it continues to report sharp improvement in its operating performance, driven by its strategy of increasing the content per car, improvement in utilization levels at the new plants and profitability improvement measures at SMP. Our rating and target price is currently under review.

Ashok Leyland (CMP: Rs.29/ TP: Under review/ Upside: -)

Ashok Leyland (AL) reported better-than-expected results for 4QFY2014 as the operating performance of the company witnessed a turnaround led by superior product-mix and cost control initiatives undertaken over the last one year. The company turned profitable at the operating level registering an EBITDA margin of 6%, significantly ahead of our expectations of 0.6%. The beat on the operating front was driven largely by a sharp fall in the other expenditure, possibly on account of cost control measures and also due to lower advertising expenditure. Top-line for the quarter declined 17.5% yoy to Rs.3,077cr as volumes witnessed a steep decline of 24.9% yoy. However, top-line performance was ahead of our expectations of Rs.2,739cr led by a strong 9.7% yoy (11.6% qoq) growth in net average realization. We attribute this growth to superior product-mix - higher share of exports and higher share of MHCV's in the volume-mix. The company however continued to bleed on the bottom-line front as adjusted net loss stood at Rs.13cr; nevertheless it was significantly better than our expectations of a loss of Rs.155cr. Sharp decline in the top-line coupled with increase in interest cost led to the bottom-line loss. During the quarter, the company recorded an exceptional gain of Rs.376cr attributable to profit on sale of long term investments and profit on sale of immovable property respectively. As a result, reported net profit stood at Rs.363cr.

The company for the first time presented its consolidated results. The consolidated top-line stood at Rs.11,487cr with operating margins at 3.7% and an adjusted bottom-line loss of Rs.685cr.

We believe that the domestic commercial vehicle industry is at the cusp of a revival and expect the demand environment to improve in 2HFY2015 which would be the key trigger of volume growth for the company. We shall release a detailed result note post earnings conference call with the management which is scheduled today. Until then, our rating and target price is under review.

Ramco Cements (CMP: Rs.172/TP:-/Upside:-)

For 4QFY2014, Ramco CementsRs. (Ramco) results were below estimates. The company's top-line remained flat yoy at Rs.924cr. Ramco's performance during the quarter was impacted by low demand and a sharp decline in prices in its key markets which are situated in South India. OPM fell by 779bp on a yoy basis and stood at a low 7.4% impacted by lower realization and increase in operating costs. The company's net profit for the quarter fell by 61% yoy to Rs.25cr. We maintain a neutral rating on the stock.

Jyothy Laboratories (CMP: Rs.207/ TP: -/ Upside: -)

Jyothy Laboratories (JLL) reported mixed set of numbers for 4QFY2014. The company reported top-line in-line with our expectations however operating margin and profit came below our expectations. The top-line grew by 22.3% yoy (15% volume growth and 6% value growth) to Rs.333cr, in line with our estimate. The soap and detergent segment registered yoy growth of 32.2% to Rs.223cr, home care segment grew by 18.0% yoy to Rs.99cr. However, the operating margin for the quarter contracted by 237bp on yoy basis and came in at 10.0%, against our estimate of 14.7%, mainly because of higher than expected raw material cost and advertisement spend. The advertisement cost and selling expense for the quarter stood at Rs.40cr (11.9% of net sales), 81.7% higher than the same quarter last year. Consequently, the company reported a profit of Rs.29cr during the quarter.

For the year the company reported a Rs.1,260cr, 23.6% growth, in-line with our expectation, aided by 15% volume growth and 8% value growth. The operating margin came in at 13.3% with a profit of Rs.106cr.

We continue to be positive on the top-line growth of the company, however, on account of the inflationary condition and planned higher advertisement spend we remain cautious on operating margin and hence profitability of the company. We recommend Neutral on the stock.

JK Lakshmi Cement (CMP:172 Rs./TP:215/Upside:-25%)

For 4QFY2014 JK Lakshmi Cement's results were in-line with estimates. The company's top-line rose by 20.9% yoy to Rs.648cr. The strong performance on the top-line front was due to higher volumes and better realization . OPM stood at 17.3% down 45bp on yoy basis. The company's reported PAT rose by 58.7% yoy to Rs.53cr. During the quarter the company had exceptional expenses of Rs.19cr due to provision made towards old duties and cess. After adjusting for exceptional items, the company's PAT rose by 44% yoy to Rs.71cr.We recommend a buy on the stock with a target price of Rs.215.

Result Preview

ITC (CMP: Rs.345/TP:Rs.382/Upside:10.7%)

ITC is expected to announce its 4QFY2014 results today. We expect the top-line to grow by 15.9% yoy to Rs.9,485cr. Price hikes (~20%) undertaken by the company during FY2014 would aid the revenue growth for cigarette business even though volumes are expected to decline by ~1%. OPM is expected to increase by 29bp yoy to 32.4%. Bottom-line is expected to increase by 17.2% yoy to Rs.2,260cr. We recommend an Accumulate on the stock with a Target Price of Rs.382.

SBI (CMP: Rs.2,512 / TP: - / Upside: -)

State Bank of India is slated to announce its 4QFY2014 results today. We expect the bank to report Net interest income (NII) growth of 19.9% yoy to Rs.13,286cr. Non-interest income is expected to increase moderate 6.5% yoy to Rs.5,910cr. The operating expenses of the bank are expected to increase by 17.1% yoy to Rs.10,384cr. Operating profit for the bank is expected to grow by 13.5% yoy to Rs.8,812cr. Provisioning expenses for the bank is expected to increase by 12.9% yoy to Rs.4,720cr. Overall, we expect bottom-line for the bank to de-grow by 17.5% yoy at Rs.2,722cr. At CMP, the stock trades at a valuation of 1.4x FY2016E ABV. We maintain our Neutral recommendation on the stock.

Economic and Political News

- COAI asks DOT to initiate talks with Defence Min

- GAS Cos hope govt will free up pricing

- Rs.Indian upstream companies to pay $11.4-bn fuel subsidy for FY14Rs.

Corporate News

- RIL plans to raise upto Rs.1 0,000cr debt

- Govt. turns down HDFC banks proposal to raise cap on FII limit

- JSPL hopes to reach 6 mt steel capacity at Angul by 201 5 end