Reports » India
Indian stock market and companies daily report (October 14, 2013, Monday)
Indian markets are expected to open largely flat tracking flat to negative opening in most of the Asian markets as data out over the weekend showed a surprise drop in Chinese exports in September. In addition, August IIP data (for India) released on Friday came in at paltry 0.6% vs 2.8% in July.
US markets moved mostly higher on Friday benefiting from signs that lawmakers in Washington are making progress toward resolving the latest fiscal crisis and House Republicans were proposing a deal that would avert default and end the 11-day-old government shutdown. On the economic front, Thomson Reuters and the University of Michigan released a report showing that US consumer sentiment has continued to deteriorate in the month of October with index coming in at 75.2 compared to the September reading of 77.5. Meanwhile, European markets also ended higher on Friday on optimism that a deal on the debt-ceiling may be soon reached in the US, as the partial government shutdown enters the 11th day.
Indian markets sharply on Friday, with IT and realty stocks leading the rally, after Infosys reported healthy set of earnings results and capital market regulator SEBI issued draft regulations for setting up real estate investment trusts to increase the depth of India's real estate market in the country.
The trend deciding level for the day is 20,485 / 6,083 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,603 - 20,677 / 6,120 - 6,145 levels. However, if NIFTY trades below 20,485 / 6,083 levels for the first half-an-hour of trade then it may correct up to 20,411 - 20,294 / 6,059 - 6,022 levels.
Industrial output disappoints
As per Quick Estimates on the Index of Industrial Production (IIP), industrial output for August 2013 reported marginal growth of 0.6% as compared to 2.8% in the previous month and 2.0% in August 2012. The IIP number disappointed on the back of market expectations of growth of 2.1% during the month based on healthy performance of the core sector output (3.7% growth) and exports (13.0% growth) during the month. The index has surprised for the second consecutive month. However, in July as against consensus estimate of 0.8% decline, the IIP positively came in at 2.6% (Now revised higher to 2.8%). Even the slight growth reported during August 2013 is supported by strong 7.2% growth in electricity sector as production in both the mining and manufacturing sectors contraction. Excluding electricity production the index reported a flat performance. In spite of a low base, on a cumulative basis during April - August of FY2014, the IIP reported growth of 0.1% as compared to 0.2% in the corresponding period of the previous year. IIP data for July 2013 has been revised upwards by 20bp mainly owing to better manufacturing growth of 3.2% as compared to 3.0% reported earlier.
Performance on Sector-wise classification
In terms of sector-wise classification, mining production reported a 0.2% decline as compared contraction of 2.5% in July 2013 and 0.3% in August 2012. The trend of production decline sector continued for the eleventh straight month owing mainly to de-growth in crude and natural gas production. After posting growth of 3.2% in July 2013, production in the Manufacturing sector declined by 0.1% in August 2013. Electricity production continued to report healthy performance for the second straight month. It witnessed growth of 7.2% as compared to 5.2% in the previous month and 1.9% in August 201 2.
Performance in the Use-based category
On a positive note, on a 3MMA basis the production in the basic, intermediate and capital goods has modest gained pace at 0.5%, 2.7% and 2.5% respectively indicating that the overall industrial production is likely to moderately improve going ahead.
The trends in Consumer goods production remained intact for the fourth consecutive month. On account of the steep 7.6% decline in consumer durables, the overall consumer goods index contracted by 0.8%. It continued to be supported from witnessing a steeper decline due to the 5.0% growth in consumer non-durable goods production. Consumer goods production is likely to improve on account of festival season demand going ahead.
The IIP is likely to be boost in the next two months owing to production being ramped up and inventory building on account of festival demand going ahead. Due to this seasonal effect, the IIP posted huge 8.4% growth in October 2012 (even as declined by 0.7% in September 2012) as compared to the overall 1.1% growth in FY2013. Despite the bleak production data, we believe that the tone of monetary policy due on October 29, 2013 is likely to be determined by the upcoming inflation prints on WPI and CPI inflation.
Idea Cellular gets unified license for 7 circles
As per media reports, the Department of Telecom has awarded unified license to Idea Cellular for seven circles. The company has been awarded licenses for Assam, West Bengal, Kolkata, North East, Tamil Nadu, Jammu and Kashmir and Odisha. The company had applied for licenses in seven circles after it emerged as the second biggest winner in the November 2012 spectrum auction. The company won spectrum for all the seven circles where its licenses were cancelled. Idea had earlier refused to sign the unified license agreement that barred operators from entering into 3G intra-circle roaming pact. The DoT had said that it was illegal for telecom operators to sell 3G services in areas where they do not have spectrum. Telecom companies Airtel, Vodafone and Idea Cellular had contested the DoT's point and the matter is now sub-judice. However, the DoT and Idea Cellular later agreed to follow the court order with respect to implementation of norms related to 3G roaming pacts in new licenses. Telecom tribunal TDSAT had given a split verdict on the dispute between DoT and the three operators over 3G intra-circle roaming pacts. This is a positive development for Idea cellular but the stock has run up considerably in the last three months; we maintain our Neutral rating on the stock.
NMDC hikes iron ore lumps prices by 2.3%
NMDC has hiked its iron ore lump prices by Rs.100/tonne for the month of October 2013 to Rs.4,300/tonne. Lumps contribute ~35% of NMDC's product mix. The company has, however, kept the price of iron ore fines unchanged at Rs.2,610/tonne for the month. This is the 1st hike in prices of iron ore in FY2014 as declining steel and sponge iron prices had prompted NMDC to slash prices during CY2014. However, since September, steel prices and sponge iron prices have risen by 3-5%. Moreover, steel majors (including PSUs such as SAIL and RINL) have reported better-than-expected sales volumes for 2QFY2014, indicating some uptick in domestic demand. We maintain our Accumulate rating on the stock with a target price of Rs.148.
Bosch to suspend manufacturing at its plants
Bosch has announced that it will suspend manufacturing at the Bangalore and Jaipur plants in October 2013 in a phased manner. While the operations at the Jaipur plant will be shut on October 12, 19, 28 and November 2, the Bangalore plant will remain closed on October 15 and 31. This is the third straight month during which the company has announced suspension of manufacturing activities at the plants. The shutdown has been announced in the wake of the slowdown in demand and to avoid buildup of inventory and align the production in-line with the market demand. The domestic automotive industry remains the primary driver of company's revenue and weak domestic demand on account of sluggish economic growth, increasing fuel prices and weak consumer sentiments has affected the company's operating performance so far in CY2013. At Rs.8,700, the stock is trading at 21.3x CY2014E earnings. We maintain our Neutral rating on the stock.
Ranbaxy Labs- Ohm Laboratories gets USFDA nod
Ranbaxy's US factory, Ohm Laboratories, has got a clean chit from the American regulator. This US facility was under surveillance of the Food and Drug Administration (FDA) since the end of 2012. This would enable Ranbaxy, to continue supplying from this unit; it could also allow it to shift some pending applications to Ohm from its Mohali unit in India, under an FDA import alert, to avoid delays in product launches. The manufacturing facility had, in December last year, received an FDA Form 483 (observations after an inspection), with a listing of deviations from US good manufacturing norms. However, earlier this month, the FDA issued an Establishment Inspection Report (EIM) to Ohm, indicating closure of the enforcement at the facility. The development is significant as Ohm Labs is the final resort for Ranbaxy to cater to the US market, not only the world's largest in pharmaceuticals but also contributing a huge chunk to the company's consolidated revenues. Ranbaxy's three other FDA-approved manufacturing factories, all located in India - Paonta Sahib (Himachal Pradesh), Dewas (Madhya Pradesh) and Mohali (Punjab) - are under the regulator's import alert and barred from supplying to the US. The US market contributed a little over 40% to Ranbaxy's total revenue last year. While the development is positive and huge relief for the company, we believe until the company is able to take its other three facilities of the company out of the USFDA import alert, huge upsides are difficult in near term, so we maintain our Neutral stance on the stock.
Infosys (CMP: Rs.3,274/ TP: Rs.3,460/Upside: 6%)
Infosys reported a healthy set of results for 2QFY2014 with dollar revenues coming in significantly ahead of estimates. Its USD revenues grew strongly by 3.8% qoq (our estimate was of 2.2%) to US$2,066mn. The constant currency (CC) revenue growth came in at 4.2% qoq led by a 3.1% qoq volume growth (largely offshore led). Reported pricing grew by 0.6% qoq while on CC basis pricing actually went up by ~1% qoq. In INR terms, revenue came in at Rs.12,965cr, up 15% qoq. Growth during the quarter was broadbased - across all geographies as well as industry verticals. InfosysRs. operating margins have been a concern since the last six quarters and during 2QFY2014 the company posted an almost flat EBIT margin (adjusted basis) on a sequential basis at 23.6%, as the gains due to INR depreciation got offset by the negative impact of wage hikes given during the quarter. The company's reported PAT for the quarter came in at Rs.2,407cr, up just 1.4% qoq because the company took a provision of US$35mn (Rs.219cr) due to potential US fines on visa violations; the same is currently under discussion with the US Ministry of Justice. Adjusting for it, the PAT came in at Rs.2,626cr, up 10.6% qoq.
Infosys has revised its USD revenue growth guidance for FY2014 to 9-10% from 610% given earlier. This implies a sequential decline of 1% qoq in run rate in 2HFY2014 at the higher end of the guidance, which is conservative in our view. After the strong 1HFY2014 results reported by Infosys, even if the company posts a flat revenue growth in the next two quarters it will be able to achieve a 10.5% USD revenue growth in FY2014. The Management opined that 2H is traditionally soft for Infosys and that is the reason they are cautiously optimistic for the rest of the year. We believe a healthy 1HFY2014 performance increases the probability of beating the top end of the guidance. We expect Infosys to post a 11.5% USD revenue growth in FY2014. Over FY2013-15E, we expect USD and INR revenue to grow at a CAGR of 11.2% and 17.6%, respectively. We expect the EBIT margin of Infosys to improve moderately in 2HFY2014 and land at 24.0% for FY2014 and improve to 24.5% in FY2015 from 25.8% in FY2013. Over FY2013-15E, we expect an EBIT CAGR of 14.4%.
At the CMP of Rs.3,274, the stock is trading at 18.2x and 15.1x its FY2014E and FY2015E EPS, respectively. We value the stock at 16x FY2015E EPS of 7216.2, which gives us a target price of Rs.3,460. We recommend an Accumulate rating on the stock and believe that the company's initiatives will lead to restoring the predictability and consistency in the performance going ahead.
Reliance Industries (CMP: Rs.863/ TP: - Rs.953/ Upside: 10%)
Reliance Industries Ltd. (RIL) is scheduled to announce its 2QFY2014 results today. We expect the company's top line to increase by 6.4% yoy to Rs.96,117cr due to higher petrochemical prices during the quarter and INR depreciation against the US$. We expect the company's operating margin to contract by 95bp yoy to 7.7% due to lower gas production. The company's bottom-line is expected to increase by only 2.7% yoy to Rs.5,555cr. We maintain our Accumulate rating on the stock.
Economic and Political News
- Around 85% of fuel supply agreements have been signed: Coal Ministry
- Cos raise Rs.1 2,354cr via QIP in first 8 months of 2013
- Fils pull out US$1.2bn from debt market in two weeks
- India's iron ore exports drop 54% to 6.8mn tonne in HY2014
- India's net FDI inflows grew 50% in 1QFY2014 on reforms: PHDCCI
- Crompton Greaves sets up Dubai office
- Now, Airtel will give flexible plans to post-paid customers
- Canara Bank raises US$500mn via medium term notes
- SAT asks SEBI to look at RIL consent plea; next hearing on October 29, 2013
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