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Indian stock market and companies daily report (October 11, 2012, Thursday)

Contributed by Angel Broking

The Indian markets are expected to open in the green today, tracking a positive opening of the SGX Nifty in early trade. Most of the Asian markets are trading in the negative zone.

The US market moved lower consecutively for the third day with major averages falling to their lowest levels in a month. The US market was weighed down by concerns about the outlook for the global economy. Traders largely shrugged off the release of the Federal ReserveRs.s Beige Book report which said economic activity generally expanded while conditions in the manufacturing sector were described as mixed since the last report. The European markets continued to be under pressure due to concerns over the situation in Greece and Spain. Spanish Prime Minister Mariano Rajoy is due to meet French President Francois Hollande during which they are expected to discuss about the economic scenario in the Eurozone.

Meanwhile, the Indian markets fell sharply on Wednesday after global credit rating agency S&P said that there is a significant chance of it cutting IndiaRs.s credit rating in future, expressing concerns over IndiaRs.s large fiscal and budget deficits.

Markets Today

The trend deciding level for the day is 18,662 / 5,662 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,710 - 18,788 / 5,677 - 5,701 levels. However, if NIFTY trades below 18,662 / 5,662 levels for the first half-an-hour of trade then it may correct up to 18,583 - 18,536 / 5,637 - 5,622 levels.

S&P views Eurozone situation as a main threat to Asia-Pacific sovereigns

Despite decisive actions by Eurozone policymakers, the ratings agency Standard & PoorRs.s (S&P) believes that risks of instability from the euro crisis are still substantial and it is likely to remain the main threat to credit ratings of Asia-Pacific sovereigns during 2012-2013.

In the Indian context, S&P warned that there is a 1 in 3 likelihood of the economy facing a credit rating downgrade in the next 24 months. In its view, a downgrade is likely in case the countryRs.s economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow.

In April 2012, the ratings agency revised IndiaRs.s rating outlook from stable to negative. Amongst others structural reforms, failure to reign in the fiscal deficit which the rating agency has pegged at 6% of GDP is likely to lead to downgrade of the economyRs.s sovereign rating from the lowest investment grade Rs.BBB-Rs. to speculative grade.

However, the ratings agency acknowledged that the recent policy measures taken by the government will support IndiaRs.s medium to long-term growth prospects. In addition, it reaffirmed that the implementation of reforms will remain a key factor in determining the economyRs.s sovereign ratings. We believe that by taking credible measures towards fiscal consolidation and maintaining the momentum on the reform agenda, the government could expect a positive improvement in the longterm growth outlook of the economy.

SIAM lowers growth outlook for automotive industry for FY2013

The Society of Indian Automobile Manufacturers (SIAM) has scaled down its growth projections for the automotive industry for FY2013 in the wake of the slowdown in demand led by macro-economic concerns, increase in vehicle and fuel prices and higher levels of inflation. SIAM now expects total vehicle sales to grow by 5-7% in FY2013 as against 11-1 3% previously. While the growth outlook has been lowered across the segments, outlook for passenger cars sales has been significantly lowered on account of continued slowdown in demand due to high interest rates, slowing economic growth and increase in fuel prices. The outlook for two-wheeler sales has also been revised considerably as demand remains extremely weak led by weak economic environment, lower rural income and sharp increase in fuel prices.

We believe that the scaling down of growth of the automotive sector is on the expected lines as the industry has been reporting weak monthly sales amidst production cuts, temporary plant shutdowns and high levels of dealer inventory. Total industry volumes registered a growth of 2.1% YTD in FY2013 (8.2% in 1QFY2013) with almost all the segments of the industry except light commercial vehicles (LCV, up 16% yoy) and utility vehicles (UV, up 55.6% yoy) seeing significant moderation in demand. Going ahead, we expect the demand environment to remain weak in 2HFY2013 as well; however, festival season buying may lead to slight improvement in volumes.

Tata Steel 2QFY2013 Production numbers

In 2QFY2013 Tata Steel Hot metal production increased by 6.4% yoy to 2.1 mn tonnes, crude steel production increased by 10.6% yoy to 1.9mn tonnes and saleable steel production increased 9.3% yoy to 1.8mn tonnes. The deliveries also increased by 4.9% yoy to 1.7mn tonnes. The company stated that it has ramped up its production and reached an annual run rate of 7.7mn tonnes and the recently commissioned new plants at the Jamshedpur brownfield expansion have achieved their planned targets for 2QFY2013. We maintain our Buy rating on Tata Steel with a target Rs.481.

UB scrip under Sebi lens to check for securities law violation

The capital market regulator, Securities and Exchange Board of India (SEBI), has started a probe into last few monthsRs. stock price movement in companies belonging to Vijay Mallya-controlled UB Group such as United Breweries Holding, United Breweries and United Spirits. SEBI is investigating into the unusual price movements of these stocks to assess if there are any securities law violations such as insider trading. SEBI recently wrote to the UB Group in connection with this probe and the company has responded to all queries raised by the regulator, a spokesperson for the UB Group said on Wednesday. We have a neutral view on United Spirits.

2QFY2013 Result Review

Cera Sanitaryware Ltd (CMP: Rs.362, TP: Rs.411, Upside: 14%)

Cera Sanitaryware Ltd (CSL) reported strong set of numbers for 2QFY2013. Top line soar by 23.1% sequentially to Rs.1 11 cr and was 18.5% higher than our expectations of Rs.94cr. The companyRs.s EBITDA came in at Rs.18.4cr 18.1% higher sequentially attributable mainly to higher top-line. EBITDA margin came in at 16.5%, in-line with our estimate, but was sequentially lower by 70bp. The net raw material cost as percentage of sales rose by 470bps to 42.2% from 37.5% in previous quarter but the impact was offset to some extent owing to dip in employee (224bps) and other expenses (172bps). Net profit rose by 19.7% sequentially to Rs.11cr from Rs.9.2 in prior period. We recommend Accumulate on the stock with a target price of Rs.411, based on a target P/E of 11x for FY2014E.

Economic and Political News

- PM says failure to stop bribery will be punished

- Net Direct tax collections rise 16% during April-September

- India to see strong IT spends: Gartner

Corporate News

- Australian government clears GVKRs.s coal terminal project

- Peninsula land inks deal with Bhattads to develop 19-acre plot in Mumbai

- Vijaya Bank ups deposit rates, cuts home, car loan rates