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Indian stock market and companies daily report (November 29, 2012, Thursday)

Contributed by Angel Broking

The Indian market is expected to open in the green today tracing positive opening trades in the SGX Nifty and major Asian indices. Most of the Asian bourses rose as U.S. lawmakers said they are optimistic for an agreement to avoid automatic spending cuts and tax increases and as the leader of opposition party in Japan called for unlimited monetary policy easing.

The US markets after showing a notable move to the downside in early trading, showed a substantial turnaround over the course of the trading day on Wednesday. The rebound reflected optimism about the U.S. potentially avoiding the looming fiscal cliff. Meanwhile, the European bourses ended the trading session on Wednesday with mixed results. The looming fiscal cliff debate in the United States was a source of weakness in early trade. However, the markets came off their early lows after statements made by the House Speaker John Boehner, R-Ohio, which helped to reassure investors that a deal can be reached.

The domestic markets were closed on Wednesday due to a holiday. Meanwhile, they rallied on Tuesday amid all-round buying after global credit rating agency MoodyRs.s maintained India's rating outlook at stable, citing strong GDP growth rate as well as savings and investment rates that exceed emerging market averages. Global cues, particularly agreement to provide more funding for debt-stricken Greece and indication by Indian government that it is was not averse to debate the issue of FDI in multi-brand retail under any rule, also uplifted sentiments.

Markets Today

The trend deciding level for the day is 18,774 / 5,706 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,931 - 19,020 / 5,754 - 5,781 levels. However, if NIFTY trades below 18,774 / 5,706 levels for the first half-an-hour of trade then it may correct up to 18,685 - 18,528 / 5,679 - 5,631 levels.

Government disallows RIL's US$ 1bn expense on KG-D6

Media reports suggest that the government has disallowed US$1 bn expense of Reliance Industries (RIL) on the KG-D6 gas fields for not implementing the approved field development plan. The average gas production from KG-DWN-98/3 (KG-D6 block) currently stands at 29.81mm scmd compared to the targeted 86.73mmscmd in the field development plans for D1, D3 and MA fields in this block, which are currently on production. However, RIL has initiated arbitration proceedings where the company and the government have appointed arbitrators to decide on the issue. We await further clarity on the issue and untill then maintain our Neutral view on the stock.

SBI led consortium agree to recast Suzlon debt

As per media reports, SBI led consortium lenders have agreed to consider Rs.11,000cr corporate debt restructuring proposal of Suzlon and the deal can be expected to get concluded in the next few months. SBI and IDBI, are two largest lender to Suzlon, with unconfirmed exposure of ~Rs.3,600cr and Rs.2,000cr. Other major PSU lenders include BOB (~Rs.970cr) and IOB (~Rs.950cr). Private banks such as Axis, ICICI and Yes have relatively lesser exposure at around Rs.400cr, Rs.380cr and Rs.200cr, respectively. If the deal concludes, these banks will see higher provisioning on their exposure at the rate of 2.75% (which was raised recently by 75bp) in the coming quarter.

MSIL pleads inability to pay Rs.1,200cr more for the Manesar plant land

As per media report, Maruti Suzuki (MSIL) has pleaded inability to pay over Rs.1,200cr by way of enhanced land acquisition dues for 600acres it acquired for the Manesar plant in 2002. The company has urged the Supreme Court to hear it before taking a call on the enhanced compensation amount for farmers. The issue relates to the land acquisition for the Manesar plant which happened over three phases (land for Phase I was acquired in 1994, Phases II and III were acquired in 2002). MSIL has 600acres in Manesar where it has two car manufacturing plants and a third plant is under construction. The total installed capacity at the Manesar plant is 550,000 units and it manufactures products like Swift, Dzire, A Star and SX4. At Rs.1,493, the stock is trading at 15.8x FY2014 earnings. We await more clarity to emerge on this development. Until then, we maintain our Neutral rating on the stock.

Crompton Greaves to set up a new plant

Crompton Greaves(CG), is setting up a greenfield plant in Jigani Industrial Area to manufacture intelligent electronic devices (IEDs), critical in the control and monitoring of power systems. The plant will also assemble control and relay panels using these IEDs, complying with the latest Substation Automation standards. This plant will be the base for manufacturing in India the entire range of protection, control and communication products from CGRs.s Automation Business Unit. Covering 4050 sq m, the plant will employ 30 people in its first year of operations. We maintain our Buy view on the stock with a target price of Rs.145.

APTY to invest US$1bn over next five years

Apollo Tyres (APTY) has announced a major investment plan of US$1 bn over the next five years to expand its global footprint, which will include setting up new plants in South East Asia and Eastern Europe. While the announcement to set up new plants was already made during the 2QFY2013 results conference call; the quantum of investments and capacity details were not announced earlier. The below table gives the details of the expansion plan

The company is looking to start work on the Phase I of the South East Asian plant followed by a greenfield plant in Eastern Europe. As far as the funding is concerned, the company intends to meet the requirement through internal accruals and by raising US$150mn via QIP. We believe that the company will have to go in for additional financing in order to meet its ambitious capex plan. Further, raising of money through QIP is likely to result in equity dilution of ~15%. While the announcement of the expansion plan is certainly positive for the company in the long term; we believe timely execution would be the key. Also massive investments and equity dilution will remain a major overhang on the stock. At Rs.84, the stock is trading at 5.6x FY2014E earnings. Currently we have a Buy rating on the stock with a target price of Rs.104.

Economic and Political News

- India investment grade outlook stable: Moody's

- Indian exports hit by Iran currency crisis

- Cabinet may again discuss hiking ration sugar price

- FM hopeful of early passage of micro-finance Bill

Corporate News

- Telenor in talks to merge India ops with Tata Tele

- Vedanta to offer Rs.fairRs. price for HZL, Balco

- Tata Motors launches passenger cars in Bangladesh

- IT spending of Indian telecom vertical grew 14.3% in FY12