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Indian stock market and companies daily report (October 16, 2012, Tuesday)

Contributed by Angel Broking

The Indian markets are expected to open flat with positive bias tracking positive opening in most of the Asian markets with exporters and banks notably advancing after some surprisingly strong U.S. economic data and earnings.

The U.S. markets closed higher yesterday, buoyed by strength in the healthcare and bank sectors after data showed some improvement in the economy and Citigroup Inc. reported core earnings that topped analyst expectations. In the U.S., an economic report showed that retail sales increased by 1.1% in September (expectation - 0.7%) following a revised 1.2% increase in August. A separate report showed that its index of New York manufacturing increased in October compared to the previous month but remained in negative territory. Positive sentiment was also generated by the release of benign inflation data from China, which generated some optimism about the possibility of further stimulus.

Meanwhile the Indian markets reversed early losses to end modestly higher yesterday, supported by firm European cues on hopes that Spain is getting closer to asking a bailout. IndiaRs.s headline inflation rate came in at 7.81% for September, a 10-month high.

Markets Today

The trend deciding level for the day is 18,679 / 5,677 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,761 - 18,809 / 5,704 - 5,720 levels. However, if NIFTY trades below 18,679 / 5,677 levels for the first half-an-hour of trade then it may correct up to 18,631 - 18,549 / 5,661 - 5,635 levels.

WPI inflation expectedly rises to 7.81%

Wholesale Price Index (WPI) inflation for the month of September 2012 surged to a ten-month high, remaining sticky above the 7% level despite a high base. Inflation expectedly inched up to 7.81% during September 2012 as compared to 7.55% in August 2012 and 10.0% in September 2011. The rise in headline inflation is primarily driven by fuel inflation on account of the hike in fuel prices.

Inflation for the month of July 2012 has been revised upwards significantly to 7.52% as compared to provisional estimate of 6.87% due to revision in electricity tariff which led fuel and power inflation to increase to 8.32% as compared to 5.98% reported earlier.

Primary Articles inflation eased to 8.77% in September 2012 as compared to 10.08% during August 2012. Inflation in food articles moderated for the third straight month to 7.86% as compared to 9.14% in the previous month. Fuel and Power inflation surged to 11.88% in September 2012 from 8.32% in the previous month reflecting the impact of hike in fuel price to some extent. Inflation in Manufactured Products, having the highest weightage in the WPI, rose to 6.26% during the month as compared to 6.14% in August 2012 and 8.0% in the corresponding period of the previous year.

On a positive note, inflation in Manufactured Products, on a m-o-m basis, increased by merely 0.54% (and 0.07% on a m-o-m annualized basis) indicating that demand-side pressures are in check. Also, core inflation witnessed stability during the month at around 5.5%.

In our view, in light of the overall high headline inflation, it would be difficult for the RBI to have a meaningful change in stance towards being dovish. The recent reforms by the government have been cited as grounds for the RBI to cut rates in the upcoming policy. While we do not rule out the possibility of such a cut, we do believe that for the fiscal year as a whole rate cuts are unlikely to be more than 25 - 50bps. We believe that the RBIRs.s tone is likely to be largely hawkish and its vigilance on inflation is likely to continue in the near-term.

TTMT's global sales down 3.4% yoy in September 2012

Tata Motors (TTMT) reported a 3.4% yoy decline in total global wholesale volumes for September 2012 to 103,656 units due to a 12% yoy decline in global passenger vehicle (PV) volumes. Sequentially, total volumes increased by 6.6% primarily on account of a 9.3% improvement in global commercial vehicle (CV) sales. Global PV volumes registered a poor performance as domestic PV segment reported sluggish volumes. Jaguar - Land Rover (JLR) too, posted lower-than-expected volumes with total JLR sales witnessing a decline of 4.3% yoy (up 10% yoy) to 26,461 units. The poor JLR performance was due to 49.2% yoy decline in Jaguar volumes to 2,808 units (down 5.1% mom) and also on account of lower production of Range Rover which is set to be re-launched later this year. Land Rover sales on the other hand posted an in-line growth of 7% yoy (strong 12.1% mom) to 23,653 units. On the retail front however, JLR volumes continue to remain strong and registered a 22% yoy growth driven by 51% growth in China and 21% growth in North America. While retail sales of Jaguar declined 7% yoy; Land Rover posted a robust 31% yoy growth on the back of the growth in Evoque.

While the JLR volume growth is expected to remain under pressure ahead of the launch of the new Range Rover, we expect volumes to gain traction post the launch and it will help the company record ~14% volume growth in FY2013. Further, strong growth in China (sales up 98% in FY2012) will also benefit the overall volume growth of JLR. At the current market price of Rs.269, the stock is trading at 6.1x and 3.3x FY2014E earnings and EV/EBITDA, respectively. We maintain our Buy rating on the stock with a SOTP based target price of ?316.

JSW Steel Crude steel production for September 2012 and 2QFY2013

JSW Steel reported robust Crude steel production for September 2012 and 2QFY2013. Crude steel production for the month of September increased 54.0% yoy to 0.73mn tonnes. The high production growth was mainly due to lower base effect as 2QFY2012 production was affected on account of Supreme Court ban on mining in Karnataka. The rolled long production increased by 47.0% yoy to 0.15mn tonnes whereas the rolled flat production increased 15.0% yoy to 0.45mn tonnes due to shutdown of its hot strip mill for capacity expansion in last week of September. For 2QFY2013 the crude steel production grew by 25.0% yoy 2.1mn tonnes. The rolled long production increased by 29.0% yoy to 0.44mn tonnes whereas the rolled flat production increased by 12.0% yoy to 1.45mn tonnes. The companyRs.s crude steel production for 1HFY2013 grew 26.0% yoy to 4.31 mn tonnes. We maintain our Neutral rating on the stock.

Result Review

Reliance Industries (CMP: Rs.823 / TP: - / Upside :-)

Reliance IndustriesRs. (RIL) 2QFY2012 net sales were lower than our expectations while net profit was above our estimates on account of higher-than-expected other income. Net sales increased by 15.0% yoy to Rs.90,335cr, below our estimate of Rs.93,934cr. Net sales growth was mainly driven by Petrochemicals segment (+4.7% yoy to Rs.22,058cr) and Refining segment (+23.1% yoy to Rs.83,878cr). RILRs.s EBITDA decreased by 21.7% yoy to Rs.7,705cr on account of decrease in profits from Petrochemical segment where EBIT decreased 28.2% yoy to Rs.1,740cr and Oil and Gas segment where EBIT decreased 43.4% yoy to Rs.866cr during the quarter. Depreciation expense (including depletion and amortization) decreased by 23.3% yoy to Rs.2,277cr mainly due to lower oil and gas production. Gross refining margins stood at US $9.5/bbl in 2QFY2013 compared to US$10.1/bbl in 2QFY2012 and US$7.6/bbl in 1QFY2013. Production from KG-D6 stood at 93bcf compared to 147bcf in 2QFY2012. Other income increased 91.7% yoy to Rs.2,112cr (higher than our estimate of Rs.1,900cr) which resulted in net profit decreasing by only 5.7% yoy to Rs.5,373cr, above our estimate of Rs.5,013cr.

RIL has lowered its capex estimate for developing areas in its KG D6 block by US$3bn on account of unexpected fall in reserves. We maintain our view Neutral view on the stock.

Axis Bank - (CMP: Rs.1,119 / TP: Rs.1,326 / Upside: 18.4%)

In its 2QFY2013 results, Axis Bank reported a growth of 22.1% on the earnings front, which was in-line with estimates. The growth in net interest income was in-line with our expectation at 15.9% yoy to Rs.2,327cr, while the growth in non-interest income came in unexpectedly strong at 29.0% yoy to Rs.1,593cr. Operating profits grew by a healthy 22.7% yoy to Rs.2,178cr. The bank reported a marginal increase of ~3bp in gross NPA ratio and net NPA ratio to 1.1% and 0.33%, respectively. However, provisioning expenses for the bank grew unexpectedly by 25.6% yoy to Rs.509cr, which aided the bankRs.s PCR to improve by ~1 00bp to 80%.

The stock is currently trading at attractive valuations of 1.5x FY2014E ABV -more than 50% discount to HDFC Bank, despite similar earnings quality, profitability and growth expectations over FY2013-14. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.1,326.

Result Preview

Shree Cement (CMP: Rs.4,080 / TP: - / Upside: -)

Shree Cement is expected to declare its 1QFY2013 results today. The company is expected to post a top-line growth of 46.1% yoy to Rs.1,249cr driven by strong performance of both cement and power businesses. The revenue of the cement business is expected to go up by 36.8% yoy to Rs.1,160cr, both on account of volume growth and better realizations. The revenue of the power business too is expected to grow multi-fold to Rs.89cr (vs Rs.6.9cr in 1QFY2012) aided by higher capacity. The OPM is expected to grow by 431bp yoy to 27.8% aided by better cement realization. The bottom-line is expected to grow by 266.4% yoy to Rs.145cr aided by strong operational performance. We maintain our Neutral view on the stock.

MindTree (CMP: Rs.680 / TP: Rs.772 / Upside: 13%)

MindTree is slated to announce its 2QFY2013 results today. We expect the company to post revenue of US$106.7mn, up 1.1% qoq. In rupee terms, the revenue is expected to come in at Rs.587cr, up 4.2% qoq, aided by INR depreciation against USD. EBITDA margin is expected to expand by 19bp qoq to 21.0%. PAT is expected to come in at Rs.72cr, down by 18.6% qoq, due to hedging losses. We maintain Accumulate rating on the stock with a target price of Rs.772.

Economic and Political News

- GoM may finalize land acquisition bill tomorrow

- Government allows free export of sugar in 201 2-2013

- Indirect tax collections grow 15.6% in Apr-Sep

- SC refuses to stay FDI policy in retail

Corporate News

- GAIL Gas, Vadodara Gas JV to help expand city gas distribution network

- ICICI Bank signs MoU with AfricaRs.s Ecobank

- Mahindra Satyam inks pact with UPES

- ONGC eyes stake in Canada's Athabasca oil sands

- RIL looks to expand refining capacity