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Reports India

Indian stock market and companies daily report (May 26, 2014, Monday)

May 26, 2014, Monday, 05:26 GMT | 01:26 EST | 09:56 IST | 12:26 SGT
Contributed by Angel Broking


The Indian markets are expected to open flat with a positive bias tracking positive opening in SGX Nifty other Asian markets.

US markets moved mostly higher over the course of the trading day on Friday, extending the upward move seen in the two previous sessions. The continued rally reflected a positive reaction to earnings news from Hewlett-Packard (HPQ) coupled with the release of a report from the Commerce Department showing that new home sales for April jumped by 6.4% and came in above economist estimates generating positive sentiments among investors. Backed by the positive homes sales data, European stocks also rallied on Friday, bouncing back from early losses to extend this week's modest gains.

Meanwhile, Indian shares rallied on Friday on renewed expectations that the new government will kick-start the investment cycle to boost growth. Also, investors were encouraged by the positive economic data from China and the U.S. which spurred optimism about the global economic recovery.


Markets Today

The trend deciding level for the day is 24,637 / 7,347 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 24,803 - 24,912 / 7,401 - 7,434 levels. However, if NIFTY trades below 24,637 / 7,347 levels for the first half-an-hour of trade then it may correct 24,527 - 24,362 / 7,314 - 7,260 levels.


Result Review

ITC (CMP: Rs.342/ TP:Rs.382/ Upside:12%)

For 4QFY2014 ITC's performance was in-line with estimates on the bottom-line front. The company's net sales rose by 11.8% yoy to Rs.9,145cr. Cigarettes business posted a 1 2.6% yoy growth in net sales to Rs.4,079cr aided by the price hikes taken by the company, even though volumes are expected to have de-grown by ~3%. Healthy realizations resulted in Cigarettes business posting a 20.8% yoy growth in its EBIT. Other FMCG business which posted a 13.7% yoy growth in net sales to Rs.2,316cr, posted a EBIT of Rs.43cr. Agri business posted a 8.1% yoy and 14.1% yoy growth in revenue and segmental EBIT respectively. Overall, company's OPM rose by 187bp yoy to 34%. Bottom-line rose by 18.2% yoy to Rs.2,278cr. We recommend a Accumulate on the stock with a Target Price of Rs.382.

SBI (CMP: Rs.2,755/ TP: -/ Upside: -)

SBI reported healthy performance on the asset quality front while operating performance came ahead of our estimates. Slippages for the bank came much lower than expectations at Rs.7,947cr (annualised slippage rate of 3.0%) as against Rs.11,438cr in 3QFY2014 (annualised slippage rate of 4.4%). Recovery and upgrades came much higher at around Rs.8400cr (on back of sale of assets to ARCs at Rs.3,590cr) against Rs.2786cr in 3QFY2014. Lower slippages and healthy recoveries and upgrades resulted in 9.1% sequential decrease in absolute Gross NPA. The Gross and Net NPA ratios during the quarter came lower by 78bp and 67bp qoq respectively to 5.0% and 2.6%.

On the operating front, NII grew by 16.5% yoy (aided by 15.7% advances growth). Domestic margins remained largely flat sequentially at 3.49%. Non-interest income grew healthy by 18.7% yoy. Opex remained largely flat yoy. Preprovisioning operating profit increased by 36.9% yoy. Provisioning expenses grew 40.9% yoy (NPA Provision increased by 48.1% yoy). PBT level earnings grew by 32.3% yoy but tax expense at Rs.1696cr against Rs.280cr in 4QFY2013 resulted in earnings de-growth by 7.8% yoy at Rs.3,041cr.

The bank has witnessed significant asset quality improvement in current quarter. The bank's core strength lies in its high CASA and fee income, which has supported its core profitability in current challenging times. Its strong capital adequacy also provides comfort. In our view, SBI's standalone current valuations 1.3x FY2016E ABV factors in most of positives for the stock. As of now we maintain neutral on the stock as target price is achieved.

Heritage Foods (CMP: Rs.340/ TP: -/ Upside: -)

Heritage Foods Ltd. (HFL) reported disappointing operational performance for 4QFY2014. Top line surged by 11.0% yoy to Rs.438cr, in line with our expectation. However, EBITDA plunged by 32.3% yoy to Rs.18cr way lower than our estimate of Rs.25cr. EBITDA margin dip by 267 basis point yoy to 4.2% which is attributable mainly to rise of 458bp in raw material cost as percentage of sales. Moreover, increased interest cost of 7.0% further dent the bottom line leading to dip of 53.4% yoy to Rs.7cr against our estimate of Rs.13cr.

On segmental front, Dairy segment grew by 9.4% yoy to Rs.334cr (73.4% of total sales) while retail segment registered growth of 12.5% yoy to Rs.100cr (22.0% of total sales). However, Agri segment registered robust growth of 81.1% yoy to Rs.17cr while bakery segment dip by 10.3% yoy. EBIT for dairy segment dip by 399bp to 5.4% while retail and agri segment reported reduction in EBIT losses by 564bp and 398bp to 3.1% and 4.9% respectively.

For FY2014, top-line registered marginal growth of 7.5% to Rs.1,722cr, driven by robust growth of 67.8% in Agri segment and 15.7% in Retail segment. Dairy segment which contributes ~74% to total revenue however grew by mere 3.4%. EBITDA for the year dip by 6.2% to Rs.95cr while margins at 5.5%, 80bp lower, mainly due to increased raw material and employee cost. EBIT margin for Dairy segment dip by 112bp to 7.8% while all other 3 segments reported loss, though, relatively lower vis-a-vis FY2013. Poor operating performance lead to dip in bottom line by 9.6% to Rs.45cr.

Despite poor quarterly performance, we expect the dairy segment to improve going forward owing to the geographical expansion strategy of the company, following which the company plans to set up plant in Delhi. However, the clarity on the same is awaited until which we recommend Neutral rating on the stock.

TVS Srichakra (CMP: Rs.399/ TP: Rs.473/ Upside: 19%)

For 4QFY2014, TVS Srichakra (TVSSL) reported better strong set of numbers. The top-line grew by robust 21.8% on yoy basis to Rs.449cr, 7.3% higher than our estimate of Rs.418cr. The operating margin expanded by 278bp on yoy basis and came in at 7.0% on account of lower raw material cost and employee cost. It was marginally higher than our estimate of 6.7%. To a surprise the company reported interest expense at Rs.9cr, against our estimate of 14cr. The other income for the quarter was Rs.4cr. Consequently, the company reported a profit of Rs.22cr in the quarter, way ahead than our estimate of Rs.8cr.

We expect the company's association with Honda Motorcycle & scooter India Pvt. Ltd. (HMSI) and TVS Motors is a key driver for the company. As we roll over, we upgrade our target price to Rs.473 and recommend Buy on the stock based on a target PE of 6.0x for FY2016E.


Economic and Political News

- Private banks focus on wealth management services as foreign firms exit space

- Coal import rises by 18% to 171mn tones

- IndividualsRs. spending limit abroad may be hiked to US$2lakh

- Banking on Modi, foreign investors to pour US$60bn into India


Corporate News

- DLF raises Rs.525cr through CMBS

- FTIL board to meet on May 30, 201 4 to review MCX stake sale

- GSK India to benefit from swap deal with Novartis

- RIL exposure to Anil-led group MFs jumps to Rs.1,290cr

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