Reports » India
Indian stock market and companies daily report (October 17, 2013, Thursday)
Indian markets are expected to open in green tracking flat to positive opening in most of the Asian markets bolstered by an agreement in Washington to reopen the government and raise the debt ceiling in time to meet a crucial deadline.
US markets moved higher in yesterday's trading session as the Senate reached an agreement to reopen the government and raise the debt ceiling. The House of Representatives also passed the bill and this agreement will fund the government through January 15 and raise the debt limit until February 7. In the meantime, a report from the National Association of Home Builders showed an unexpected drop in homebuilder confidence with the index dropping to 55 in October from 57 in September. Meanwhile, the majority of the European markets ended Wednesday's session in positive territory backed by investor optimism that US lawmakers will be able to strike a last minute agreement to avoid default.
Indian markets fell modestly from a nearly three-year high on Tuesday as investors took some profits off the table and remained focused on Washington, where lawmakers appear to make progress toward reaching an agreement to reopen the US government and raise the federal debt ceiling before the Thursday deadline.
The trend deciding level for the day is 20,584 / 6,101 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,722 - 20,897 / 6,145 - 6,200 levels. However, if NIFTY trades below 20,584 / 6,1 01 levels for the first half-an-hour of trade then it may correct up to 20,41 0 - 20,272 / 6,045 - 6,001 levels.
US Senate votes to avert hitting the debt ceiling
The US Senate has passed legislation with overwhelming majority to end the budget impasse and avert a possible default. The legislation which also has to be cleared by the House of Representatives would permit the treasury to borrow normally through February 7 or perhaps a month longer, and fund the government through January 15. More than two million federal workers would be paid. President Barack Obama has vowed to sign it immediately once it reaches his desk to get things running as soon as possible.
ONGC finds rich reserves in KG basin
Oil and Natural Gas Corporation (ONGC) has discovered gas reserves in Krishna-Godavari which is estimated to hold reserves four times the previous estimate, at 100mn tonnes. Earlier, the block, KG-DWN-98/2, was estimated to hold predominantly gas. ONGC has lined up a massive capital expenditure US$9bn for the block by 2030. Although ONGC has maintained healthy reserve replacement ratios, it has not met its production targets over the past five years. We await further clarity on this matter. We maintain our Buy rating on the stock with a target price of Rs.350.
CBI registers FIR against Hindalco's promoter and Nalco for coal blocks allocation scam
Media reports suggest that the Central Bureau of Investigation has registered a case against Hindalco's promoter, Kumar Mangalam Birla in connection with the coal blocks allocation scam. However, details regarding the allotted coal block under review are not available currently. Hindalco has been allotted several coal blocks including Mahan coal block, Talbira II & III and a block in Auranga coal field. Mahan coal block has received stage-1 Forest clearance and the company has spent ~Rs.10,000cr for setting up 359kt Mahan smelter. However, its other coal blocks are at early stages of getting approvals and no significant capex has been incurred thus far. Also, a similar complaint has been registered for the PSU, Nalco. Until further clarity emerges, we maintain our Neutral ratings on both the stock.
BGR Energy signs contract worth US$246mn
BGR Energy has signed an EPC contract worth US$246mn for 4x125 MW gas-based power project at Nasiriya with the Ministry of Electricity (MoE), Iraq. The EPC contract envisages BOP, civil works and erection, testing and commissioning of gas turbine-generator sets supplied by General Electric. The contract scope also includes operation and maintenance of the power project for six months. We maintain Accumulate rating on the stock with a target price of Rs.124.
TCS (CMP: Rs.2,218/ TP: Rs.2,500/ Upside: 13%)
For 2QFY2014, TCS reported yet another strong set of results with a well rounded growth across all industry verticals, service lines as well as geographies. The dollar revenue grew by 5.4% qoq to US$3,337mn. In constant currency (CC) terms, the revenue grew 6% qoq, aided by a robust volume growth of 7.3% qoq (best in the past nine consecutive quarters). Organically (excluding Alti acquisition), USD revenues grew by 4.2% qoq. In INR terms, the consolidated revenues came in at Rs.20,977cr, up 16.6% qoq. TCSRs. EBITDA and EBIT margins jumped up by 300bp and 314bp qoq to 31.6% and 30.2% respectively, aided by sharp INR depreciation (~300bp qoq gain). In addition, strong improvement in utilization (including trainees), which stood at 75% ( + 251 bp qoq) also aided the operating margins.
TCS closed eight large deals during 2QFY2014 - two in BFSI, two in telecom and one each in utilities, hi-tech, lifesciences and retail & CPG. Management sounded confident of growing higher than the industry. Management indicated that the company has a robust demand pipeline across markets and the company see a unique opportunity to strategically partner and participate with clients. TCS maintained its gross hiring target of 45,000-50,000 employees for FY2014 which is encouraging. In addition, the company added three new clients in US$100mn + revenue bracket (two new clients added in 1QFY2014). We remain positive on TCS which has been a consistent performer and the operational exuberance from the company continues. We recommend an Accumulate rating on the stock with a target price of Rs.2,500.
HDFC Bank (CMP: Rs.651/ TP: Rs.767/ Upside: 17.8%)
HDFC bank delivered yet another quarter of consistent earnings performance, with a growth of 27% yoy to Rs.1,982cr (at the PBT level, growth was higher at 32% yoy). On the operating front, the NII grew by 15% yoy to Rs.4,476cr, as the bank moderated the pace of its advance growth to 16% yoy. Net Interest margins for the bank declined by 25bp qoq to 4.3%, which was largely on account of higher funding costs during the quarter. The bank opted for providing the entire Rs.135cr MTM loss during the quarter (ignoring RBI relaxation of spreading over the MTM loss over balance part of the year), still non-interest income for the bank grew strongly by 25% yoy (partly aided by one-off forex income of roughly Rs.60cr).
Overall, operating income grew by 18% yoy and pre-provisioning profits grew by 27% yoy. On the asset quality front, the absolute gross and net NPA levels for the bank, increased by 8% and 11% qoq, respectively, which given the context of current macro challenges, appears to be a moderate increase. In light of current macro environment, the current earnings trajectory of 27% yoy is impressive and much better than other large private peers, which in our view, justifies a premium valuation multiple. Hence, we recommend a Buy rating on the stock.
Bajaj Auto (CMP: Rs.2,124/ TP: Rs.2,351 Upside: 11%)
Bajaj Auto (BJAUT) recorded a strong 2QFY2014 performance which was ahead of our expectations driven by a robust performance on the exports front aided by favorable currency movement. EBITDA margins at 21.9% (up 341 bp qoq and 347bp yoy) were significantly ahead of our estimates led by favorable exports realization (Rs.60.9/USD as against Rs.55.6/USD in 1QFY2014 and Rs.50/USD in 2QFY2013) and superior product-mix. During the quarter, the company recorded a notional loss of Rs.39cr (Rs.96cr in 1QFY2014) related to forward exchange rate contracts. Adjusting for the same, EBITDA margins surged 222bp qoq and 423bp yoy to 22.6%.
For 2QFY2014, top-line registered a better-than-expected growth of 4.1% yoy (5.4% qoq) to Rs.5,175cr led by an impressive growth of 14.7% yoy (7.2% qoq) in net average realization. The net average realization grew robustly in the domestic as well as the export markets recording gains of 10.3% (10.2% qoq) and 22.7% yoy (2.4% qoq) respectively. While growth in the domestic markets was fuelled by superior product-mix (higher share of premium bikes), exports growth was mainly driven by favorable exchange rate. Total volumes though, declined 8.4% yoy (1.8 qoq) as domestic volumes registered a steep drop of 15% yoy (9.1% qoq) following weakness in the motorcycle and three-wheeler segments. Export volumes however grew by 2.8% yoy (10.6% qoq) led by growth in the motorcycle segment. While exports revenue in USD terms increased by 3.5% yoy (6.7% qoq); INR depreciation versus the USD led to a strong growth of 26% yoy (13.3% qoq) in INR terms. Domestic revenues on the other hand declined 6.2% yoy (flat qoq) during the quarter. On the operating front, EBITDA margins improved 347bp yoy (341bp qoq) to 21.9% as against our expectations of 19.9% driven by better realization on the exports front and also on account of the superior product-mix. Led by a strong operating performance, bottom-line recorded gains of 13% yoy (13.5% qoq) to Rs.837cr. Noticeably other income declined by 25.5% yoy (29.3% qoq) due to fall in investment income which restricted further growth in the bottom-line. Adjusted for the notional forex loss of Rs.39cr, net profit surged 18.3% yoy to Rs.877cr during the quarter.
We revise our volume estimates downwards for FY2014 to factor in the near term headwinds in the domestic and export markets. However, our EBITDA margin estimates are revised upwards reflecting favorable forex hedges for FY2014. At the CMP of Rs.2,124, the stock is trading at 14.5x FY2015E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.2,351.
MindTree (CMP: Rs.1,378/ TP: Under review)
For 2QFY2014, MindTree reported strong set of results, ahead of our as well as street expectations on all fronts. The dollar revenues came in at US$124mn, up 5.4% qoq, on the back of robust 5.8% qoq volume growth. Blended realization dipped by 1% qoq due to change in revenue mix. In INR terms, revenue came in at Rs.770cr, up 19% qoq. MindTree's EBITDA and EBIT margin grew by 238bp qoq and 261 bp qoq despite giving wage hikes during the quarter, which was noteworthy. Operating margins got largely aided by sharp INR depreciation. The PAT came in at Rs.129cr impacted by lower other income (net of forex gain) of Rs.25cr as against Rs.74cr in 1 QFY2014.
MindTree's management indicated that the deal pipeline of the company remains healthy because of pick up in client spending as well as a result of company's greater concentration on mining its focus clients. It has signed ~US$148mn TCV worth of deals during 2QFY2014. We continue to be positive on the stock owing to its diversified revenue portfolio and past performance. The target price is currently under review.
HCL Technologies (CMP: Rs.1,160/ TP: -/ Upside: -)
HCL Technologies is slated to announce its 1QFY2014 numbers today. We expect the company to post revenue of US$1,278mn, up 4.1% qoq. In rupee terms, the revenue is expected to grow by 16% qoq to Rs.8,051cr. EBITDA margin is expected to remain largely flat sequentially at 23.4%, as the gains from INR depreciation are likely to get absorbed due to wage hikes given by the company form 1 July 2013. PAT is expected to come in at Rs.1,251cr, up 4% qoq. Owing to recent runup in the stock price, we maintain our Neutral rating on the stock.
Axis Bank (CMP: Rs.1,081/ TP: Rs.1,293/ Upside: 19.6%)
Axis Bank is slated to announce its 2QFY2014 results today. We expect the bank to report a strong NII growth of 26.6% yoy to Rs.2,945cr, primarily as we expect the bank to post healthy advance growth of 21% yoy. Non-interest income is expected to remain flat yoy at Rs.1,595cr, partly impacted by MTM losses on corporate bond book. Operating expenses are expected to increase by 12.8% yoy to Rs.1,965cr, while provisioning expenses are expected to be higher by 15.1% yoy to Rs.586cr. Hence, we expect the bank to report healthy growth of 20.3% yoy during the quarter to Rs.1,352cr. At the CMP, the stock is trading at 1.2x FY2015E ABV. We recommend a BUY rating on the stock with a target price of Rs.1,293.
DBCorp (CMP: Rs.254/ TP: Rs.282/ Upside: 11%)
DB Corp is slated to announce its 2QFY2014 results. The company is expected to post 13.8% yoy growth in its top-line to Rs.430cr on the back of uptick in advertising revenue as well as double digit growth in circulation revenue. The company's operating margin is expected to expand by 157bp yoy to 24.3%. Consequently, net profit is expected to grow by 27% yoy to Rs.62cr. At the current market price, DB Corp is trading at 15x FY2015E consolidated EPS of Rs.16.9. We recommend Accumulate on the stock with the target price of Rs.282.
South Indian Bank - (CMP: Rs.21/ TP: - / Upside: -)
South Indian Bank is scheduled to announce its 2QFY2014 results today. We expect the bank to report a NII growth of 14.2% yoy to Rs.340cr, on back of expectation of healthy loan growth of 16.0% yoy. Non-interest income is expected to decrease by 5.8% yoy to Rs.69cr. While, operating expenses are expected to grow by 15.8% yoy to Rs.198cr, provisioning expenses are expected to decline to Rs.43cr from Rs.56cr in 2QFY2013. Hence, Net profit is expected to grow at a healthy pace of 20.9% yoy to Rs.11 7cr. At the CMP, the stock is trading at 0.8x FY2015E ABV. We recommend a Neutral rating on the stock.
Infotech Enterprises (CMP: Rs.225/ TP: -/ Upside: -)
Infotech Enterprises is slated to announce its 2QFY2014 results today. We expect the company to post revenues of US$88mn, up 2% qoq. In rupee terms, revenues are expected to come in at Rs.552cr, up 14% qoq. EBITDA margin is expected to inch up by ~25bp qoq to 16.8%. PAT is expected to come in at Rs.59cr. We maintain our Neutral rating on the stock.
Economic and Political News
- DoT-Defence spectrum swap deal likely to add Rs.50,000cr to Government exchequer
- Finance Minister not in favour of tightening FDI norms in pharma
- RBI to hold rates on high inflation, supply side issues: D&B
- Steel consumption grows 0.8% in Apr-Sept period
- Telecom M&A guidelines to be in place by November 1, 201 3
- Airtel, Idea, Vodafone hike mobile Internet rates
- Ashok Leyland likely to bag order from Indian Army
- Apollo asks US court to declare Cooper deal conditions not met
- Bajaj launches Discover 100M
- BGR Energy Systems signs US$246mn contract with Iraq government
- GSM subscriber base up by 4.41mn in September, 2013
- Leyland launches intermediate commercial vehicle Rs.BossRs.
- Mahindra launches tiny tractor Rs.YuvrajRs. for hill farms
- RIL to invest US$3.2bn to bring D34 gas discovery to production
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