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Indian stock market and companies daily report (November 01, 2012, Thursday)

Contributed by Angel Broking

Indian markets are expected to open in the red following weak start to SGX Nifty and most of the Asian indices. Asian stocks fell for the fourth time in five days as Panasonic Corp. forecast a $9.6 billion loss and United Microelectronics Corp. profit missed estimates, spurring concern global electronics demand is weakening.

With the US markets reopening following a two-day shutdown, stocks turned in a relatively lackluster performance during trading on Wednesday. Traders seemed reluctant to make any significant moves ahead of the release of some key economic data later in the week. The choppy trading on Wall Street came as New York City continues to recover from the damage caused by Hurricane Sandy, with travel disruptions in lower Manhattan keeping some traders away from their desks.

The majority of the European markets finished in negative territory Wednesday, following some mixed corporate earnings results. The markets were positive in early trading, but turned around in the afternoon. Meanwhile, Indian shares rose modestly on Wednesday, with firm global cues underpinning sentiment after the previous sessionRs.s sell-off.

Markets Today

The trend deciding level for the day is 18,475 / 5,609 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,552 - 18,598 / 5,635 - 5,650 levels. However, if NIFTY trades below 18,475 / 5,609 levels for the first half-an-hour of trade then it may correct up to 18,429 - 18,352 / 5,594 - 5,568 levels.

MoEF grants stage-I clearance to Mahan coal block

Media reports suggest that Hindalco has secured Stage-I forest clearance from the Government of IndiaRs.s Ministry of Environment and Forests (MoEF) for its Mahan coal block. Earlier, during May 2012, a group of Ministers headed by Finance Minister Mr. Pranab Mukherjee had issued clearance to HindalcoRs.s Mahan coal block. The coal from Mahan coal block will be utilized to feed the upcoming 359ktpa aluminium smelter at Mahan (expected to commission in 2HFY2013). The stage-I clearance of mine is a positive for Hindalco as captive coal mine will result in significantly lower cost of aluminium production. However, the proposal still requires stage-II clearance from the MoEF. Further, we believe it will take atleast 18 months for Hindalco to commence production from Mahan coal block after the receipt of stage-II forest clearance. Until the production commences from the Mahan coal block, the return on equity on the Mahan project will be very low in our view. Hence, we do not expect meaningful impact on HindalcoRs.s profitability due to Mahan coal block during FY2013 and FY2014. We maintain our Neutral view on Hindalco.

Madras high court delays digitization deadline in Chennai till Nov.5

The Madras high court has put on hold mandatory digitization in Chennai till the next hearing scheduled on 5th November. The order is in response to the case filed in the Madras high court by Chennai cable operators for an extension of the 31st October digitization deadline because of non-availability of set-top boxes. According to Chennai Metro Cable TV Operators Association (CMCOA), only 1.1 million out of 4 million households with televisions in the city were digitized, contrary to Union governmentRs.s claim of 69% TV households having set-top boxes in Chennai. Hence, they have filed the case for extending the deadline. If the deadline in Chennai gets extended again, it will be negative for Sun TV. We remain Neutral on Sun TV.

Result Review

LICHF - (CMP: Rs.242, TP: - Rs.301, Upside: - 24%)

LIC reported below estimate net profit growth of 147.0% (low base due to provisioning of standard assets in 2QFY2012) to Rs.243cr. The NIM of the company has been on a declining trend and was lower by 35bp yoy and 8bp qoq at 2.10 for 2QFY2013.

The loan book growth was strong at 23.2% yoy, driven by 27.4% yoy growth in individual loans. The corporate book shrank by 33.1% yoy and now stands at 3.8% of the overall loan book.

The decline in NIMs is a concern as Rs.2,500cr of fixed rate loans would have repriced upwards during the quarter (as per the management commentary in 1QFY2013) which should have given some impetus to the margins. We would get more clarity on the re-pricing in the con-call slated today. Also we would watch for management guidance on the corporate loan book growth as the spread on these loans are much higher than on individual loans.

At the CMP, the stock is trading at a P/ABV multiple of 1.6x FY2014E ABV of Rs.150.7cr. Historically, the stock has traded at 0.8-2.1x one-year forward P/ABV multiple over FY2006-FY2012, with a median of 1.4x, but it has been rerated over the past three years to 1.9x average. Considering that interest rates have a downward bias over the next couple of years and the company has healthy growth prospects, we recommend a Buy rating on the stock with a target price of Rs.301.

Tata Global (CMP: Rs.150/TP: /Upside :-)

Tata Global Beverages (TGBL) posted a 14.3% yoy growth in its topline to Rs.1,843cr, aided by both volume growth (~3-5%) and price growth. The topline was also boosted by favourable foreign currency translation impact. Most of the countries in which the company has operations performed well during the quarter. OPM rose by 111 bp yoy to 7.8%. Bottomline rose by 54.7% yoy to Rs.119cr. We maintain a neutral view on the stock.

Bharat Forge (CMP: Rs.271/ TP: Under review/ Upside: -)

Bharat Forge (BHFC) reported lower-than-expected results for 2QFY2013 led by weakness in the domestic as well as export markets which resulted in a volume decline of 13.8% yoy (9.3% qoq). For 2QFY2013, standalone revenue posted a decline of 4.7% yoy (7.3% qoq) to Rs.868cr led by 13% yoy (7.4% qoq) decline in revenue from domestic markets. The net average realization however, registered a strong growth of 12.1% yoy (2.9% qoq) benefiting from higher share of machining component and better realization on exports on account of weak INR. The weak demand sentiment in the export markets primarily, Europe, led to a sluggish growth in exports revenue (up 8.1% yoy) during the quarter. Non-auto segment too posted a marginal growth of 2.6% yoy led by weakness in the domestic markets. On the operating front, margins declined 162bp yoy (271 bp qoq) to 22.4% which was lower than estimated owing to sharp increase in manufacturing and other expenses. Hence the operating profit and net profit registered a decline of 11.1% (17.3% qoq) and 13.3% yoy (12.4% qoq) respectively.

On the consolidated front, BHFC registered poor results with top-line and operating profit registering a decline of 8.3% and 22.6% yoy respectively. The performance was poor on account of continued severe downturn in the heavy truck market in China and lower demand in Europe. While the wholly owned subsidiaries (ex. China) registered a bottom-line loss of Rs.10.9cr; China operations registered a loss of Rs.12.4cr during the quarter. At Rs.271, the stock is trading at 10.8x FY2014E earnings. The stock rating is currently under review as we wait for clarity on the quarterly performance from the management. We shall release a detailed result update post our interaction with the management.

JKBK - (CMP: Rs.1,225, TP: - , Upside: - %)

JKBK reported a healthy set of numbers with net profit growing by 35.0% yoy. The results were above our estimates because of higher operating income and lower provisioning expenses than estimated by us. NII growth was strong at 23.3% yoy, while non interest income grew by 27.7% yoy. Asset quality remained stable with gross NPA ratio at 1.6% and net NPA ratio at 0.2%. We remain Neutral on the stock.

TVS Motor (CMP: Rs.39/ TP: Rs.49/ Upside: 27%)

TVS Motor Company (TVSL) posted a 41.5% yoy (11.6% qoq) decline in net profit for 2QFY2013 which was in-line with our expectations considering that volumes registered a decline of 19.6% yoy (6.4% qoq).

The top-line registered a decline of 15.1% yoy (7.1% qoq) to Rs.1,691cr mainly due to 19.6% yoy (6.4% qoq) decline in volumes during the quarter. The weak volume performance can be attributed to general slowdown in the two-wheeler industry and also increasing competition from Honda Motorcycle and Scooters India Ltd. (HMSI). As a result, motorcycle and scooters volume registered a sharp decline of 28.4% (11.6% qoq) and 24.4% yoy (up 5.6% qoq) respectively. Three-wheeler sales on the other hand staged a recover posting a 4.5% yoy (34.5% qoq) growth driven by 24.4% yoy (38.9% qoq) growth in the domestic markets.

On the operating front, EBITDA margin came in-line with our estimates at 6%, witnessing a decline of 97bp yoy (flat qoq) primarily due to lower operating leverage benefits. While raw-material cost as a percentage of sales declined 204bp yoy (110bp qoq); employee expenses witnessed a sharp increase of 170bp yoy (80bp qoq). As a result, operating profit and net profit registered a decline of 26.9% (5.8% qoq) and 41.5% yoy (11.6% qoq) respectively.

We broadly retain our revenue and earnings estimates for TVSL. However, we expect the environment to remain challenging for the company due to rising competition in the two-wheeler sector amidst moderation in demand. We believe that the new launches, Phoenix launched in September 2012 and the new scooter to be launched in 4QFY2013 will be crucial for the company to regain volume momentum going ahead. At Rs.39, TVSL is trading at 7.1x FY2014E earnings. We maintain our Buy rating on the stock with a target price of Rs.49.

Result Preview

GSK Consumer (CMP: Rs.3,022/TP: /Upside :-)

GSK Consumer is expected to announce its 3QCY2012 results today. We expect the topline to grow by 10.6% yoy to Rs.797cr. OPM is expected to expand by 21bp yoy to 16.6%. Bottomline is expected to grow by 12.7% yoy to Rs.116cr. We maintain a neutral recommendation on the stock.

Hexaware (CMP: Rs.112 / TP: Rs.140 / Upside: 25%)

Hexaware is slated to announce its 3QCY2012 results today. We expect the company to post revenue growth of 2.6% qoq to US$94mn majorly led by volume growth. In rupee terms, revenues are expected to come in at Rs.515cr, up 2.9% qoq. EBITDA margin is expected to remain almost flat qoq at 23.0%. PAT is expected to come in at Rs.86cr. We maintain our Buy rating on the stock with a target price of Rs.140.

BGR (CMP: Rs.264/TP: -/Upside: - %)

We expect BGR EnergyRs.s (BGR) top-line to grow by 10% yoy to Rs.849cr. The EBITDA margin is expected to decrease by 28bp yoy to 14.0%. Interest cost is expected to remain high (owing to elevated interest rate scenario and enhanced working capital requirements), which is likely to drag the bottom-line slightly down by 1.4% yoy to Rs.51cr. We recommend Neutral on the stock.

Economic and Political News

- Mukesh Ambani, not Manmohan Singh, runs India: IAC  

- Govt launches transparency portal for PDS

- FDI to be encouraged in MSME sector: Muniyappa

Corporate News

- Fraport to exit Delhi airport JV by June

- GE Capital picks up stake in Biocon subsidiary for Rs.125cr

- Private cargo handler ABG pulls out of West Bengal