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Reports India

Indian stock market and companies daily report (May 28, 2014, Wednesday)

May 28, 2014, Wednesday, 06:18 GMT | 01:18 EST | 09:48 IST | 12:18 SGT
Contributed by Angel Broking


The Indian markets are expected to open flat with a negative bias tracking SGX Nifty opening in red and mixed opening in other Asian markets.

The U.S. market finished Tuesday with strong gains with the S&P 500 closing to new high for the second straight session. This strength in the market was partly due to the release of a report from the Commerce Department showing an unexpected increase in durable goods orders in the month of April by 0.8% against the expectations of drop of 0.7%. Also, report showing the improvement in the consumer which climbed to 83.0 in May from a downwardly revised 81.7 in April, in line with the economist estimates, added to the positive sentiment among investors. Meanwhile, the European stocks climbed higher on stimulus hopes after comments from ECB President that policy makers will act on June 5th to counter low inflation.

Back home, Indian shares fell as investors booked profits after recent sharp gains as new Prime Minister announced his Cabinet. The new Finance Minister will be focusing on balancing inflation and interest rates, which will boost investor confidence and propel the economic growth.


Markets Today

The trend deciding level for the day is 24,583 / 7,322 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 24,744 - 24,938 / 7,369 - 7,420 levels. However, if NIFTY trades below 24,583 / 7,322 levels for the first half-an-hour of trade then it may correct 24,389 - 24,228 / 7,271 - 7,224 levels.


MSS to buy Stoneridge Inc's wiring harness business for US$65.7mn

Motherson Sumi Systems (MSS) has announced that it will acquire the wiring harness business of Stoneridge Inc. for a total consideration of US$65.7mn and the assumption of certain related liabilities of the wiring harness business. Included in the transaction are six manufacturing facilities located in Mexico as well as an engineering and administrative center located in the US. The transaction involves approximately 4,700 employees and is expected to close in 3QCY2014, subject to customary closing conditions, including required regulatory approvals. The wiring harness business of Stoneridge Inc. designs and manufactures products for sale principally to the commercial, agricultural and off-highway vehicle markets, as well as assembling entire instrument panels that are configured specifically to an OEM customer's specifications in the commercial vehicle market. The business recorded sales of close to US$300mn in CY201 3.

According to the Management, MSS now has access to one of the most experienced wiring harness manufacturing operations in North America which is likely to result in increased customer reach in the region. MSS is looking at North America as the driver of growth for the future and we believe that this acquisition has enabled the company to gain foothold in the region. We believe that the combination of Stoneridge's wiring harness business with MSS will increase the vertical and global integration of the business, providing greater size, scale and additional global capabilities to the company to service customer requirements efficiently. We maintain our positive view on the company; however, we are yet to factor in the impact of the acquisition into our estimates. We retain our Accumulate rating on the stock with a target price of Rs.331.


Result Review

Bharat Forge (CMP: Rs.499/ TP: -/ Upside: -)

Bharat Forge (BHFC) recorded strong performance for 4QFY2014, which was ahead of our expectations, led by a strong growth in volumes. Total volumes surged 29.4% yoy (12.4% qoq) on the back of the improvement in the domestic MHCV demand and also due to strong growth in exports. Net average realization too increased 5.8% yoy on the back of better product-mix and favorable exchange rate. As a result, standalone top-line witnessed an impressive growth of 37.9% yoy to Rs.931cr, ahead of our expectations of Rs.858cr. While domestic revenues grew 16.3% yoy; export revenues grew 63.2% yoy during the quarter. The export performance was boosted by a strong growth across all the key geographies with US and Europe witnessing a growth of 81.7% and 33.9% yoy respectively. EBITDA margins improved 373bp yoy to 24.8% led by cost control measures, favorable realization on the exports front, superior product-mix and operating leverage benefits. However, margins came in lower than our expectations of 25.4% as new business development and certain one-off costs adversely impacted the margins. Led by a strong operating performance and higher other income, adjusted net profit grew 11 2.8% yoy to Rs.107cr, ahead of our expectations of Rs.95cr. During the quarter, the company recorded a net exceptional gain of Rs.12cr, accounting for which the reported net profit stood at Rs.119cr.

We retain our positive view on the company as 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. Additionally, the company continues to witness strong traction in exports, led by improved order inflows from most of the global truck OEMs and also due to the introduction of new products in the auto as well as the not-auto segments. Our rating and target price is currently under review.

Thermax (CMP: Rs.908/ TP: / Upside: )

For 4QFY2014, Thermax's bottom-line performance was better our expectations. On the top-line front, revenues declined by 5.8% yoy to Rs.1,383cr (slightly lower than our estimate of Rs.1,408cr). However, lower than expected consumption of raw materials led to EBITDA margin of 9.7% (yoy contraction of 171bp) compared to our estimate of 9.2%. The company's net profit declined by 8.2% yoy to Rs.106cr (higher than our estimate of Rs.89cr on account of higher other income and higher than expected margins). We recommend Neutral rating on the stock.

Jaiprakash Associates (CMP: Rs.72/ TP: / Upside: )

For 4QFY2014, Jaiprakash Associates (JPA's) top-line and bottom-line performance were lower than expected. Top-line declined by 11.3% yoy to Rs.3,466cr for the quarter. C&EPC revenue declined by 4.5% yoy to Rs.1,463cr while revenue of cement business remained flat at Rs.1,463cr. On the EBITDA front, the company posted 415bp yoy margin expansion in blended EBITDA margin to 27.0% for the quarter. However, 37.8% yoy increase in interest to Rs.77cr led to 18.7% yoy decline in net profit to Rs.100cr (lower than our estimate of Rs.114cr). We recommend Neutral rating on the stock.

Tree House (CMP: Rs.341/ TP: Rs.364/ Upside: 7%)

Tree House Accessories and Education Ltd. (THEAL) reported mixed set of numbers for 4QFY2014. Owing to addition of 46 pre-schools in 4QFY2014, top-line surged by 21.6% yoy to Rs.35.8cr higher than our estimate of Rs.31.6cr. EBITDA grew by 33.8% yoy to Rs.19.0cr while margins expanded by 483bp yoy to 53.1% (owing to reduced other expenses by 647bp). However, due to absence of other income which was ~Rs.2cr in 4QFY2013 and increased interest outgo (Rs.2.5cr vis-a- vis Rs.1.2cr in same quarter previous year), adjusted PAT too reported relatively lower yoy growth of 9.5% to Rs.8.0cr, lower than our estimate of Rs.9.1cr.

On annual front, top-line surged by 37.9% to Rs.158cr on back of robust pre-school expansion plans of the company (11 1 preschools during the year). EBITDA for the year grew by 44.3% to Rs.89cr while margins stood at 58.1%, 405bp higher mainly on account of lower overall expenses. Subsequently, bottom-line for the company grew by 31.8% to Rs.44cr while margins at 31.8%, 54bp lower mainly due to lower other income for the year.

Going forward, with consistent expansion of pre-schools, THEAL is poised to register robust growth ahead. However, considering the recent run-up in the stock price, we recommend Accumulate rating on the stock with target price of Rs.364, based on 19x PE for FY2016E earnings.


Result Preview

BHEL (CMP: Rs.246/ TP: / Upside: )

We expect BHEL to post an 11.5% yoy decline in top-line to Rs.16,996cr in 4QFY2014 due to execution delays (on account of delay in payments by clients as well as delay in obtaining necessary clearances). On the EBITDA front, the company's margin is expected to contract by 636bp yoy to 17.9%. Consequently, we expect its PAT to decline sharply by 36.9% yoy to Rs.2,041cr. We maintain our Neutral recommendation on the stock as declining order backlog limits revenue visibility for BHEL.

Hero MotoCorp (CMP: Rs.2,302/ TP: Rs.2,500/ Upside: 9%)

Hero MotoCorp (HMCL) is slated to announce its 4QFY2014 results today. We expect the top-line to increase by ~5% yoy to Rs.6,451cr, following a ~4% yoy growth in volumes. We estimate EBITDA margins to contract ~60bp yoy to 10.1% due to the unfavorable currency movement on indirect imports and also on account of higher promotional expenses. Led by margin pressures and higher tax rate, the company's net profit is expected to decline ~13% yoy to Rs.501cr. At the CMP, the stock is trading at 13.8x its FY2016E earnings. Currently, we have an Accumulate rating on the stock with a target price of Rs.2,500.

Tata Global (CMP: Rs.156/ TP:-/ Upside:-)

Tata Global is expected to declare its 4QFY2014 results today. We expect the consolidated top-line to grow by 10.7% yoy to Rs.2,005cr. OPM is expected to increase by 59bp yoy to 10.8%. Bottom-line is expected to increase by 36.3% yoy to 131cr. We maintain our Neutral recommendation on the stock.

Jagran (CMP: Rs.113/ TP: Rs.140 / Upside: 24%)

For 4QFY2014, we expect Jagran to post 19.6% yoy growth in top-line to Rs.400cr on account of strong double-digit growth in advertising revenues and consolidation of Nai Dunia financials. On the EBITDA front, the company's margin is expected to expand by 871bp yoy to 22.3%. However, we expect PAT to grow by only 9.3% yoy to Rs.44cr (due to absence of tax benefit, unlike last year corresponding quarter). We recommend Buy on the stock with a target price of Rs.140.

Indoco Remedies (CMP: Rs.147/ TP: -/ Upside: -)

Indoco Remedies is expected to report a top-line growth of 33.7% to Rs.215cr. The growth on the sales would be aided by the domestic and exports growth. The OPM is expected to dip by 20bp yoy to 16.5%. This is expected the net profit to come in at Rs.16cr, a yoy of 21.6%. Currently, we have a Neutral rating on the stock.

Dishman Pharmaceuticals (CMP: Rs.88/ TP: Rs.116/ Upside: 31.8%)

Dishman Pharmaceuticals is expected to report a top-line growth of 3.9% to Rs.359cr. The growth would be driven by the MM segment. The OPM is expected to dip by 150bp yoy to 19.4%. This is expected the net profit to come in at Rs.17cr, a yoy dip of 6.4%. Currently, we have a buy with a target price of Rs.116.


Economic and Political News

- Tamil Nadu to withdraw power restriction from June 1, 2014

- Assocham seeks auction of all available spectrum at earliest

- Finance Ministry watchful of CAD, rupee as global markets still volatile

- Both Government and RBI engaged in curbing inflation: Raghuram Rajan

- Petroleum ministry to divert more natural gas from non-core sectors

- FinMin proposes rationalisation of fertiliser subsidy delivery

- BSE proposes 49% stake in Indian bourses by foreign exchanges


Corporate News

- L&T inks tech transfer pact with Japan Steel Works

- Wipro to expand workforce in Ireland

- India Cements to merge with Trinetra Cements

- Toyota launches all new Corolla Altis priced at Rs.11.99lakh

- Nilkamal to invest Rs.60cr in 3 yrs on capacity expansion