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Indian stock market and companies daily report (November 01, 2013, Friday)
Indian markets are likely to open flat, tracking flat opening in SGX Nifty and most of the Asian markets.
US stocks fluctuated over the course of the trading day on Thursday before coming under pressure in late-day trading and closing mostly lower. The choppy trading seen for most of the session came as Wednesday's announcement from the Federal Reserve generated some uncertainty about the outlook for monetary policy. While the Fed maintained the pace of its asset purchases at $85 billion a month as was widely expected, the accompanying statement was seen as less dovish than anticipated. The statement raised concerns that the Fed might not delay plans to begin tapering its stimulus program for as long as previously anticipated. On the economic front, the Labor Department released a report before the start of trading showing that initial jobless claims fell by less than expected in the week ended October 26th. Meanwhile, the European markets finished Thursday's session with mixed results due to number of weaker than expected earnings reports.
Back home, the Indian markets rose for a third straight session, shrugging off weak global cues even as investors increased bets on Federal Reserve to start tapering its stimulus program sooner rather than later.
The trend deciding level for the day is 21,121 / 6,281 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 21,249 - 21,334 / 6,327 - 6,355 levels. However, if NIFTY trades below 21,121 / 6,281 levels for the first half-an-hour of trade then it may correct up to 21,036 - 20,907 / 6,254 - 6,208 levels.
Fiscal deficit in 1HFY2014 reaches 76% of budgeted estimate
The April - September 2013 the central government's budget deficit has already reached 76% of budgeted estimate (BE) for FY2014 as a whole as compared to 65% of BE in the corresponding period of the previous year. The revenue deficit in 1HFY2014 stands at 84.8% of the BE as against 75% of the BE in the similar period for FY2013. The impact of sluggish pace of economic growth on tax revenues has led to net tax revenues so far in FY2014 decelerating to 34.8% of BE as against 38.1% of BE during the same period in FY2013. This can be attributed to modest growth in income tax and customs duty collection coupled with a contraction in excise duties. The slow progress on disinvestment is reflected in capital receipts on that account garnering merely 2.6% of BE in 1HFY2014 as against 4.6% of BE during the same period in FY2013.
The Finance Minster has time and again reiterated his commitment to restrain the fiscal deficit to 4.8% of GDP during FY2014 from a similar 4.9% of GDP in FY2013. We believe that the expected kick-starting of the divestment program in the second-half of the fiscal year and on the expenditure side cuts in plan spending (similar to the previous fiscal year) and austerity measures announced by the Finance Ministry are likely to aid in containing the fiscal deficit during 2HFY2014. But revenues are unlikely to keep pace with budgeted levels and hence we do expect a slippage of 0.2% of GDP in the fiscal deficit.
During 1QFY2014, even the modest GDP growth was supported to a large extent by the 10.5% growth in government consumption expenditure during the period in the absence of other catalysts. Going ahead however, notwithstanding the government's effort to contain spending we expect overall growth in the economy to be supported by the boost from exports and agricultural production.
Sesa Sterlite (CMP: Rs.202/ TP: Under review/ Upside: Under review)
Sesa Sterlite's (Sesa) 2QFY2014 net profit was in line with street expectations. Actual 2QFY2014 results are not comparable with 2QFY2013 results as the two companies, Sesa Goa and Sterlite Industries were merged during August 2013. Sesa's 2QFY2014 net sales stood at Rs.25,166cr. Its EBITDA stood at Rs.7,224cr. Sesa reported a forex gain of Rs.688cr during the quarter. Adjusting for forex gain, its adjusted net profit stood at Rs.1,706cr, while its reported net profit stood at Rs.2,394cr. There was no iron ore production during the quarter due to ban in Goa and Karnataka; however, the company expects iron ore production in Karnataka to restart soon. The company also remained hopeful that the Supreme Court will resolve the mining suspension in Goa soon. The company's net debt stood at Rs.35,923cr as on September 30, 2013. We keep our rating and target price under review.
Dr Reddys Labs (CMP: Rs.2456 /TP: - /Upside: -)
Dr Reddy's posted better than expected results, during the quarter on operating front and net profit. Dr Reddy's posted a top-line growth of 16.5% yoy to Rs.3,357cr, V/s expected Rs.3,344cr. The growth on the top line was driven by the global generics, which grew by 32.0% yoy. The key market driving the growth during the period was USA was 43% yoy and emerging markets 42% yoy. The Indian market, posted a growth of 8.5% yoy during the period. The PSAI segment on the other hand de-grew by 19% yoy. The company posted an OPM of 28.0%, as against expected 20.8% and 25.9% in the corresponding period of the previous year. Consequently, on the net profit front, the company is expected to post a net profit of Rs.690cr, a yoy growth of 76.0% over the corresponding period of last year, much higher than the expected Rs.438cr. We remain neutral on stock.
Bank of Baroda (CMP: Rs.643/ TP: - / Upside: -)
On the operating front, NII for bank remained flat which was largely in line with our estimates. Operating expenses growth for BOB still remains at higher end compared with relative peers. Opex grew by 33.3% yoy which was 5.5% higher than estimate. Overall the operating profit de-grew by 10.8% yoy. During the quarter, expectations were beaten down due to multiple headwinds such as treasury losses, NPAs and rate hikes by RBI. In that context BOB's sequentially increase in Gross and Net NPAs by 11.5% and 16.1% appears moderate. Though the slippages at Rs.1,600 (though lower qoq) are still on higher side. On the restructuring front, bank restructured advances worth Rs.1,484cr during the quarters which were broadly in line with management guidance. Going ahead, the Management has guided for slippage rate to move from ~Rs.1,600 in 2QFY14 to lower levels in coming quarters. Also the recoveries and upgrades are expected to start inching higher starting 3QFY2014. PBT level Earnings for bank de-grew by 27.6% to Rs.1,248cr, however unexpected 81.0% yoy decline in tax expense limited earnings decline to 10.2% yoy. At CMP, the stock trades at valuations of 0.7x FY2015E ABV. As of now we maintain our Neutral rating on the stock.
Cadila Healthcare - (CMP: Rs.663 /TP: Rs.894 /Upside: 34.8%)
Cadila Healthcare, posted sales more or less in line with expectations, while the OPM and net profit came in below expectations. The sales growth came in at Rs.1,698cr V/s Rs.1,635cr, registering a yoy 12.3%. The main drivers for the sales during the quarter were US which grew by 29% yoy, while Brazil, which grew by 28% yoy and Europe registered a growth of 24% yoy. The OPM, dipped by 5.4% yoy, to end the period, at 12.5%, on back of the 2.1% dip of the Gross Margins.
However, in spite of the same, a 52.3% dip, a 46.1% yoy rise in the other income and tax outgo came down by 85.8%, aided the adj net profit to grow by 92.7% yoy to Rs.183.4cr V/s expected Rs.199.8cr. We recommend a buy on the stock, with a price target of Rs.894.
Bank of India - (CMP: Rs.210 / TP: - / Upside: - )
During the quarter, Bank of India reported better than expected numbers both on the operating as well as on the asset quality front. NII for the bank grew at healthy pace of 15.1% to Rs.2,527cr, though was much lower compared to loan book growth of 30% yoy (4% qoq). Growth in other income was a surprise at 23% yoy to Rs.1,100cr, largely aided by strong performance on the recoveries front (which have more than doubled yoy to Rs.346cr). On the asset quality front, not only did the bank witness sequentially lower slippages (slippages rate of 2% as compared to 2.8% in previous quarter), but they also reported much better recoveries and upgrades performance (around Rs.900cr as compared to Rs.700cr in 1QFY2014 and average quarterly run-rate of Rs.500cr over last four quarters). Given the macroeconomic challenges, the sequential increase in Gross NPAs during the quarter at 5% qoq, is much lower as compared to peer banks. The bank's provisioning expenses had a high base in 2QFY2013 and were expected to decline by 46% yoy, however the provisioning expenses declined by 20.6% yoy to Rs.1,232cr, as the bank provided much higher. As a result, PCR for the bank improved by roughly 250bp and Net NPA levels for the bank declined by 4% qoq. However, given the macro-economic headwinds facing the sector, we maintain our Neutral rating on the stock.
Union Bank - (CMP: Rs.124 / TP: -/ Upside:- )
Union Bank reported weak operating performance during the quarter, with operating profit de-growth of 3.7% to Rs.1,225cr, which was in-line with our estimates. NII for the bank grew at modest 5.6% to Rs.1,954cr, much lower compared to advances growth of 26% yoy (9% qoq). On the asset quality front, the bank witnessed continued pressures, as absolute Gross NPA levels increased 13.6% qoq, while net NPA levels increased relatively much higher by 20.2% qoq (as PCR for the bank declined 300bp qoq to 60.4%). The provisioning expenses for the bank almost doubled on a yoy basis and came in much higher than expectations at Rs.937cr. Overall, the bank reported earnings decline of 62.5% yoy to Rs.208cr. Given the macro-economic challenges, we remain cautious on Indian banking sector in general (PSU banks in particular). Hence, we maintain our Neutral rating on the stock.
Allahabad Bank - (CMP: Rs.92 / TP: -/ Downside:- )
Allahabad Bank reported moderate operating performance during the quarter. NII for the bank grew at 11.5% yoy to Rs.1,309cr, much lower compared to advances growth of 19% yoy. Non-interest income for the bank more than doubled on a yoy basis to Rs.696cr (aided by recovery of a written-off account). On the asset quality front, the bank witnessed moderate pressures, as absolute Gross NPA levels increased 7% qoq, while net NPA levels increased by 3% qoq. PCR for the bank declined 219bp qoq to 46%. The provisioning expenses for the bank increased by 59.8% yoy to Rs.742cr. Overall, the bank reported earnings growth of 1 7.8% yoy to Rs.276cr. Given the macro-economic challenges, we remain cautious on Indian banking sector in general (PSU banks in particular). Hence, we maintain our Neutral rating on the stock.
FAG Bearings (CMP: Rs.1,360/ TP: Rs.1,482/ Upside: 9%)
FAG Bearings (FAG) reported strong results for 3QCY2013, which were significantly ahead of our expectations. The top-line posted a strong growth of 20.8% qoq (5.6% yoy) to Rs.376cr, which was better than our expectations of Rs.308cr. The strong growth in the top-line surprised positively given that the automotive and the industrial sectors which are the key drivers of company's performance continued to remain sluggish during the quarter. EBITDA margins too remained stable sequentially (down 102bp yoy) at 13.5%, slightly ahead of our expectations of 13.1%, primarily due to strict control over costs. Raw-material cost pressures on the other hand persisted due to the INR depreciation. Consequently, operating profit surged 21.7% qoq (down 1.8% yoy) to Rs.51cr. Led by better-than-expected operating performance, and significantly higher other income (up 93.5% qoq and 25.7% yoy) net profit jumped 25.3% qoq to Rs.36cr, ahead of our estimates of Rs.27cr. On a yoy basis, net profit declined 2.8% due to higher depreciation expense and also due to higher tax rate. At Rs.1,360, the stock is trading at 13.8x CY2014E earnings. We maintain our positive stance on FAG, considering its strong parentage, debt-free status and cash balance worth Rs.117/share on the books. We recommend an Accumulate rating on the stock with a target price of Rs.1,482.
Cera Sanitaryware Ltd (CMP: Rs.590, TP: Rs.664, Upside: 12.7%)
Cera Sanitaryware Ltd. (CSL) reported poor set of numbers for 2QFY2014. Top line surged by 42.5% yoy to Rs.159cr, 8.0% higher than our expectation of Rs.147cr. However, EBITDA grew marginally by 4.6% yoy to Rs.19cr lower than our estimate of Rs.22cr. Moreover, EBITDA margin dip by 440 basis point yoy and came in at 12.1%. The dip in margin is attributable mainly to rise in raw material cost by 625 basis points as percentage of sales from 42.2% in the same quarter previous year to 48.4%. Subsequently, net profit dip marginally by 3.4% yoy to Rs.11cr against our estimate of Rs.13cr, while net profit margin came in at 6.7% from 9.9% in 2QFY2013. Due to recent run up in the stock, we recommend Accumulate rating on the stock with a revised target price of Rs.664, based on a target P/E of 13x for FY2015E.
Dishman Pharmaceuticals (CMP: Rs.69 /TP: Rs.107 /Upside: 55.1%)
Dishman Pharmaceuticals, posted better than expected numbers during the quarter, on all fronts. During the quarter, the company posted sales of Rs.353cr, V/s Rs.307cr a yoy growth of 22.0%. The sales growth the period, was mainly driven by the CRAMS segment, which grew by 25.2% yoy, while MM segment grew by 16.0% during the period. On operating front, the Gross margins improved to 75.2% V/s 70.0% during the last corresponding period. This aided the OPMsRs. to expand to 27.0% V/s 20.1% during the last corresponding period and 22.5% expected during the period. The sharp improvement in the operating profit of the Crabogen Amcis, aided the margin improvement. This, aided the net profit to come at Rs.42cr, a yoy growth of 59.1% V/s Rs.21cr expected during the period. We maintain our buy on the stock with a price target of Rs.107.
IFB Agro (CMP: Rs.154 / TP: Rs.211 / Upside: 37%)
For 2QFY2014, IFB Agro reported mixed set of numbers. Total income grew by 21% yoy to Rs.176cr, 43% higher than our estimate of Rs.124cr. However, on the operational front, the EBITDA de-grew by 22.9% yoy to Rs.13cr from Rs.17cr in 2QFY2013 owing to increase in raw material cost as percentage of total income from 70% in 2QFY2013 to 79.8% during the quarter. The EBITDA margin has declined by 423bp yoy to 7.4% from 11.6% in same quarter previous year. Consequently, net profit has declined by 20% yoy to Rs.7.8cr, below our expectation of Rs.8.7cr.
Marine product division reported 46.3% yoy jump to Rs.99.3cr in its total revenue. Spirit and liquor division revenue grew by 23.3% sequentially to Rs.77.2cr and were flat as compare to same quarter previous year. However, the EBIT margins for the spirit and liquor division dipped by 119bp to 10.0% and marine product division reported a 526bp decline to 3.1%. Going forward, we expect improvement in company's overall performance on the back of expansion of bottling capacity and; penetrating in HoReSo and retail segment for its marine products. At the current levels, the stock is trading at a PE of 4.4x its FY2015E earnings and P/BV of 0.6x for FY2015E. We recommend a Buy rating on the stock with a target price of Rs.211 based on a target PE of 6x for FY2015E.
Motherson Sumi Systems (CMP: Rs.270/ TP: -/ Upside: -)
Motherson Sumi Systems (MSS) is scheduled to announce its 2QFY2014 results today. We expect MSS to post a strong set of results for 2QFY2014 driven by improving utilization levels at the new facilities and also due to INR depreciation. On a consolidated front, we expect the top-line to post a strong growth of ~23% yoy to Rs.7,250cr driven by strong growth in Samvardhana Motherson Reflectec (SMR) and Peguform revenues led by the ramping up of the new facilities. We expect EBITDA margins to improve ~160bp yoy to 8.6%, aided by better utilization levels and also due to cost control initiatives. The net profit therefore is expected to register a strong growth of ~57% yoy to Rs.216cr. At the CMP of Rs.270, the stock is trading at 15.9x FY2015E earnings. Currently we have a Neutral rating on the stock.
Economic and Political News
- Govt relaxes outsourcing norms for manufacturing units in SEZs
- Coal ministry's new screening process for allocation of reserves
- Power Ministry awaits Karnataka's response on discom debt recast
- DoT discards Trai clarifications on spectrum charge
- No fresh investments unless all approvals in writing: JSPL
- Power Grid to invest Rs.2,820cr in four projects
- CCI to investigate government tender to GSK, Sanofi
- CERC to hear Adani Power compensatory tariff matter on Nov 13
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