Reports » India

Indian stock market and companies daily report (October 22, 2012, Monday)

Contributed by Angel Broking

The Indian markets are expected to open flat with a negative bias tracking negative to flat opening in most of the Asian markets.

The U.S. markets closed sharply lower on Friday as traders reacted negatively to the quarterly results from Microsoft, General Electric and McDonaldRs.s. The markets experienced broad based selling pressure, offsetting the strength that was seen earlier in the week. Adding to the negative sentiment, the National Association of RealtorRs.s (NAR) released a report showing a drop in existing home sales in September, with sales pulling back off the two-year high set in the previous month. NAR said existing home sales fell 1.7% to a seasonally adjusted annual rate of 4.75mn in September from an upwardly revised 4.83mn in August.

Meanwhile the Indian markets fell notably on Friday, hurt by weak Asian and European cues and announcement from French President that the EU meeting in Brussels did not discuss a potential aid request from Spain. Looking ahead, earnings news is likely to remain in focus throughout the week. Traders are also likely to keep a close eye on the Federal Reserve, with the central bank due to hold a two-day monetary policy meeting.

Markets Today

The trend deciding level for the day is 18,688 / 5,685 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,764 - 18,846 / 5,711 - 5,737 levels. However, if NIFTY trades below 18,688 / 5,685 levels for the first half-an-hour of trade then it may correct up to 18,606 - 18,530 / 5,659 - 5,634 levels.

Airtel, Vodafone, Idea, Telenor submit applications for 2G auction; RCom, Sistema, Reliance Infotel abstain

Bharti Airtel, Vodafone, Idea Cellular and Telenor are some of the telecom companies which on Friday submitted applications to the Department of Telecom (DoT) for participating in the 2G auction next month, but Reliance Industries and RussiaRs.s Sistema surprised by staying away. Videocon also submitted applications to bid for both GSM and CDMA technologies. As per mdia reports, Vodafone has submitted applications for 1 7 circles in 1 800 MHz band, Bharti Airtel for six circles, Videocon for 15 GSM and around 10 CDMA circles and Tata Teleservices for three circles where it lost its CDMA permits.

October 19 was the last date for companies to submit their application to participate in the auction, which is scheduled to start from November 12. DoT had September 28 issued the notice inviting applications. The final list of bidders will be announced November 6. This will be followed by a mock auction November 7 and 8 and thereafter the e-auction of 1800 MHz band will take place November 12. The start of e-auction of 800 MHz band will happen two days after close of the 1800 MHz band auction. The payment of the successful bid amount will have to be done within 10 days of the close of the respective e-auctions. We maintain our Neutral view on the overall telecom sector.

Vedanta to resume operations at Odisha refinery

Sterlite IndustriesRs. associate Vedanta Aluminium Ltd (VAL) will resume operations at its 1mn-tonne refinery at Lanjigarh in Odisha a week after it had shut down the plant due to shortage of bauxite. Currently, Sterlite Industries owns 29.5% stake in VAL; however, post Sterlite Industries merger with Sesa Goa, it will own 95.0% stake in VAL. VAL has got access to 35,000 tonnes of bauxite from BALCORs.s Kwardha mine in Chhattisgarh. VAL has also ensured bauxite supplies to the tune of 90,000 tonnes from Gujarat Mineral Development Corporation (GMDC). VAL said that with the present arrangement the company will be able to run up to December 5 at reduced capacity utilization of 60-70%. We believe at current aluminium prices VAL will continue to make losses at the net profit level. We maintain our Neutral view on both Sesa Goa and Sterlite.

Bosch to expand vehicle servicing centers to 3,000 in three years

Bosch has announced that it is planning to double its centers to up to 3,000 outlets over the next three years. Currently, Bosch operates a total of 1,500 service centers for different types of vehicles. Of these, 500 are for passenger vehicles, while 800 are for commercial vehicles and 200 are for other types of vehicles. Last week, Bosch automotive aftermarkets had launched 100 service centers in North India with an aim of bridging the large gap in service network in the country. It had opened 10 outlets in Delhi, 47 in Uttar Pradesh and 43 in Punjab, Chandigarh and Panchkula collectively. Recently, the company also forayed into two-wheeler servicing and has opened 11 Rs.Express Bike ServiceRs. (EBS) outlets in Coimbatore and Delhi. These centers will provide service to multi-brand vehicles across different segments. We see this as a positive development for the company and is expected to boost the sales of the automotive aftermarket segment which contributes ~20% of companyRs.s revenue. At Rs.8,851, the stock is trading at 20.3x its CY2013E earnings, which is in-line with its historical average of 20x. We maintain our Neutral rating on the stock.

Result Review

TCS (CMP: Rs.1,290 / TP: Rs.1,410 / Upside: 9%)

TCS reported yet another set of healthy quarterly result, outperforming the streetRs.s as well as our expectations on the revenue as well as the profit front. The most remarkable highlight of the result was the 5.0% qoq volume growth. The dollar revenue grew by 4.6% qoq to US$2,853mn. In INR terms, revenue came in at Rs.15,621cr, up 5.1% qoq. TCSRs.s EBITDA and EBIT margins declined by 71bp and 75bp qoq to 28.4% and 26.8% (a bit lower than expectations), respectively, due to: 1) few transformation projects getting stared which led to onsite effort shift and one-time costs and 2) change in business mix as incremental growth came in from ramp ups in projects from emerging markets where price points are slightly lower from developed markets. The bottom-line of company grew by ~7% qoq to Rs.3,513cr, aided by forex gain of Rs.92cr as against forex loss of Rs.94cr in 1QFY2013.

TCS closed 11 large deals during 2QFY2013. These deals span industry segments as well as geographies. The management sounded confident of growing higher than the industry. The management indicated that it is on track with its guidance of hiring 50,000 gross employees in FY2013, which gives us confidence about the demand environment being witnessed by the company. Also, the company has set campus hiring target of 25,000 people for FY2014, out of which ~12,000 offers have already been given despite an uncertain environment. Over FY2012-14E, we expect TCSRs.s revenue to post a 12.8% (USD terms) and 17.3% (INR terms) CAGR. We value TCS at 18.5x FY2014E EPS of ?76.2 with a target price of Rs.1,410 and maintain our Accumulate rating on the stock.

ITC (CMP: Rs.298/ TP:- /Upside: -)

ITC delivered a stellar set of numbers which was ahead of our estimates. Topline rose by 19.6% on a yoy basis. Cigarettes business posted a 14.0% yoy growth in net sales to Rs.3,385cr, with the volumes remaining flat. Other FMCG business posted a healthy 26.1% yoy growth in net sales to Rs.1,691cr. Agri business surprised with a remarkably good 41.1% yoy growth in net sales to Rs.2,024cr, aided by wheat exports. OPM margin came in at 36.5% up 121bp on yoy basis, with cigarette business posting a healthy margin expansion. However, margins of agri business fell on a high base. EBIT losses of other FMCG business stood at Rs.30cr, down from Rs.56cr in 2QFY2012. Bottomline rose by 21.5% yoy to Rs.1,836cr. We maintain our neutral view on ITC due to its rich valuations.

Ultratech (CMP: Rs.2,010 / TP: - / Upside: -)

UltraTech CementRs.s (Ultraech) 2QFY2013 top-line rose by 20% yoy to Rs.4,700, which was inline with our estimates. The growth was driven mainly by higher realization, as combined sales volume of domestic grey cement (incl clinker) and white cement rose only marginally by 1.6% to 9.3mn tonne. The OPM stood at 22% up 533bp, aided by higher realization, and was inline with estimates. The bottom-line rose by 97% yoy to Rs.550cr, aided by superior operational performance. We remain Neutral on the stock.

Bajaj Auto (CMP: Rs.1,770 / TP: - / Upside: -)

Bajaj Auto (BJAUT) registered an in-line operating performance for 2QFY2013; however, net profit was ahead of our estimates driven by higher-than-expected other income and slightly lower tax rate. The top-line for 2QFY2013 recorded a decline of 4.1% yoy (up 2.2% qoq) which was on the expected lines and was on account of 9.9% yoy (2.8% qoq) decline in total volumes. While domestic volumes (down 11% yoy) were impacted due to the slowdown in the domestic motorcycle segment; export volumes (down 8% yoy) declined due to lower dispatches to Sri Lanka led by hike in import duty. Net average realization though, registered an increase of 7.1% yoy (5.1% qoq) driven by 8.7% and 4.4% yoy increase in domestic and export realization, respectively.

On the operating front, EBITDA margin contracted 41bp yoy to 18.4% (in-line with our estimates) mainly due to increase in other expenditure and employee expense as a percentage of sales by 80bp and 40bp, respectively. However, raw-material expense as a percentage of sales witnessed a decline of 80bp yoy during the quarter. On a sequential basis, EBITDA margins improved 50bp largely due to raw-material cost savings. Adjusted net profit, however, recorded a decline of 9.8% yoy primarily due to reduction in income tax benefits from the Pantnagar plant (tax rate of 28.8% as against 25.7% in 2QFY12). Nonetheless, adjusted net profit was ahead of our estimates by 10.3% driven by higher-than-expected other income and slightly lower tax rate.

Going ahead, we expect export volumes to recover gradually led by price rationalization in Sri Lanka and also expect domestic volumes to benefit from the success of the new launches (Pulsar 200NS and Discover 125 ST). We broadly retain our estimates for the company. At the CMP of Rs.1,764, the stock is trading at 14.5x FY2014E earnings. We maintain our Neutral rating on the stock. We shall release a detailed result update post the conference call with the management which is scheduled today.

Exide Industries (CMP: Rs.148 / TP: - / Upside: -)

Exide Industries (EXID) reported extremely weak bottom-line performance for 2QFY2013 which was significantly below our estimates led by sharp deterioration in operating margins. Top-line though, registered a better-than-expected growth of 29.7% yoy (down 2.1% qoq) to Rs.1,521cr driven by strong growth in the automotive replacement and industrial battery segments. However, demand from the automotive OEMRs.s remained subdued due to slowdown in the industry. On the operating front, EBITDA margins contracted 261 bp sequentially to 12.4% against our expectation of 15.3% on account of increase in raw-material and other expenditure. While raw-material expenses as a percentage of sales jumped 110bp led by INR depreciation; other expenditure as a percentage of sales increased 100bp due to higher fuel expenses. Employee cost as a percentage of sales also grew by 50bp qoq during the quarter. As a result, net profit declined 20.9% qoq to Rs.120cr against our estimates of Rs.134cr. However on a low base of last year, operating margins improved 469bp leading to a 135.2% growth in net profit.

Going ahead, we expect the company to report improvement in its operating performance led by pick-up in demand from the OEM segment and sustained growth in the automotive replacement segment. Further, EXID has hiked battery prices by 5% across the replacement segment which will benefit the operating margins. AT Rs.148, the stock is trading at 1 6.6x FY2014E earnings. We believe that the sharp run-up in the stock price captures the expected positives and provides a limited upside from the current levels. We maintain our Neutral rating on the stock.

Petronet LNG (CMP: Rs.169, TP: -, Upside: -)

Petronet LNG has reported its 2QFY2013 results. Its net sales increased by 40.7% yoy to Rs.7,549cr driven by increase in sales realization (+39.7% to Rs.555/mmbtu) even though volumes were flat yoy at 135TBTU. However, the average cost also increased by 46.9% yoy to Rs.523/mmbtu. Further, other expenditure increased by 52.9% yoy to Rs.80cr. Hence, the EBITDA declined by 19.3% yoy to Rs.404cr. Other income increased by 23.1% yoy to Rs.25cr, while the tax rate increased to 32.3% in 2QFY2013, compared to 30.8% in 2QFY2012. Consequently, the net profit therefore grew by 20.9% yoy to Rs.315cr. We maintain our positive stance on the stock and keep our rating and target price under review.

Indian Bank- (CMP: Rs.184 / TP: - / Upside: -)

During 2QFY2013, Indian Bank reported subdued earnings growth of 5.7% yoy to Rs.462cr, despite flat performance at the pre-provisioning profit levels, largely aided by 8.2% and 9.6% yoy decline in provisioning and tax expenses, respectively.

Advances for the bank grew at a moderate pace of 1 0.8% yoy. On the liability side, growth in deposits was relatively higher at 12.9% yoy. CASA ratio, however declined to 28.96% compared to 29.31% in 1QFY2013. Reported NIMs for the bank declined by 18bp sequentially to 3.12%. Non-interest income grew by 6.2% yoy to Rs.363cr. The bankRs.s asset quality deteriorated during 2QFY2013, with both gross and net NPAs levels increasing on a sequential basis by 27% and 31%, respectively. Gross and Net NPA ratio were higher on a sequential basis by 40bp and 29bp, respectively to 2.06% and 1.33%. The banksRs. PCR declined sequentially by 411 bp to 71%. At CMP, the stock trades at 0.7x FY2014E ABV. We maintain our Neutral recommendation on the stock.

Federal Bank- (CMP: Rs.482/ TP: -/ Upside: -)

Federal Bank posted net profit growth of 12.5% yoy to Rs.215cr. The performance on the operating income front was muted with net interest income growing by 6.6% yoy. Growth in non-interest income came in healthy at 19.2% yoy. Operating expenses were higher by 28.5% yoy to 296cr, which lead to operating profit decline of 3.2% yoy. However, provisioning expenses were significantly lower by 57.8% yoy, leading to a moderate bottom-line growth of 12.5% yoy. On the asset quality front, the bank witnessed stability, with both Gross and Net NPA increasing by marginal 1.9% and 3.7%, qoq respectively.

The bankRs.s valuations at 1.1x FY2014 ABV are higher than the 0.5-0.9x range at which mid-size PSU banks with similar KPIs are trading. Hence, we recommend a Neutral rating on the stock.

South Indian Bank (CMP: 23/ TP: 25/ Upside: 8.3%)

For 2QFY2013, South Indian Bank (SIB) reported a muted net profit growth of 2.3% yoy (down 21.0% qoq) to Rs.97cr, which was lower than our as well as streetRs.s estimates on account of higher provisioning expenses due to a large government account (NAFED, Rs.1 50cr) slipping and due to employee related fraud (Rs.32cr) during the quarter. The bank also had to record Rs.20cr of interest reversal during the quarter due to which the NIMs declined sequentially by 6bp. As a result of higher slippages, the banks gross NPA levels increased by 68.2% qoq, while net NPA levels more than doubled sequentially during the quarter. However, the bank is confident of nearly full recovery from NAFED (being a government account) and also from the employee fraud (maximum loss of Rs.10cr from Rs.32cr as collateral and insurance already in place). The stock has been an underperformer in the banking sector and with expected ROAs of 1.0% for FY2014, at 1.0 FY2014 P/ABV; we believe there is room for some upside in the stock. Hence, we maintain our Accumulate rating on the stock.

Blue Star (CMP: Rs.214 / TP: Rs.249 / Upside: 16%)

Blue Star announced a mixed set of numbers for 2QFY2013. Topline came in at Rs.579cr, 4.3% lower than Rs.605cr in 2QFY2012. However, EBITDA margin expanded by 123bps on a yoy basis from 2.3% in 2QFY2012 to 3.5% in 2QFY2013 aided by improved margins in the EMPPAC division. This led to a PAT of Rs.7cr for the quarter vs. a loss of Rs.21 cr in 2QFY2012. We recommend a Buy rating on the stock with target price ?249 based on a target EV/sales of 0.8x for FY2014E.

Alembic Pharmaceuticals (CMP: Rs.70/ TP: Rs.91/ Upside: 30%)

Alembic Pharmaceuticals (Alembic)Rs.s 2QFY2013 results have come above our expectations on the operating front. On the sales front, the company grossed sales of Rs.406cr, registering a revenue growth of 2.2% yoy, just in line with expectations. Alembic reported revenue growth of 2.2% yoy to Rs.406cr, mainly driven by the domestic formulation business which grew by 11.9% yoy. However, the exports segment de-grew by 18.5% yoy, impacted by de-growth of formulation exports (which de-grew by 28.4% yoy). API exports on the other hand de-grew by 4.7%.

The exports segments, namely the branded exports and international generics, de-grew by 27.9% yoy and 28.5% yoy respectively. The de-growth in the international generic formulations was mainly due to price erosion, product mix and capacity constraints.

The management expects FY2013 to be a strong year for the domestic formulation business, where the company expects to log in a 12-14% yoy growth, driven by the chronic segment.

On the operating front, the company posted an OPM of 15.7% vs an expectation of 14.2%. The gross margins expanded by 235bps on the back of higher contribution from domestic formulations, which aided on the operating front. The margins came in at 15.7% vs 14.2% (our expectation). On a yoy basis, the company posted a 72bps expansion in OPM, lower than the expansion in the gross margins, on account of a higher-than-expected rise in the salary and selling, general and administrative (SG&A) expenses, which grew by 30.7% yoy and 22.5% yoy respectively. On the other hand the other expenditure de-grew by 4.8% yoy which aided the expansion in the OPM. This lead the net profits to come above expectations at Rs.42cr (expectation was of Rs.35cr). At the current market price, the stock is trading at an attractive valuation. Hence, we maintain our Buy recommendation on the stock with a target price of 791.

Force Motors (CMP: Rs.425 / TP: Rs.591/ Upside: 41%)

Force Motors Ltd. (FML) reported healthy set of numbers with robust performance on operating front for 2QFY2013. The companyRs.s top line de-grew by 4.7% yoy and came in at Rs.504cr, lower than our estimate of Rs.534cr. On operating front, EBITDA grew by 1 1.6% yoy and came in at Rs.31 cr and was higher by whooping 78.7% on qoq basis. Operating margins too improved substantially by 89 basis points yoy and 273 basis points on qoq basis and came in at 6.5%. Margin improvement (yoy) is mainly attributable to reduction in employee cost (11.8% vis-a-vis 15%) as well as raw material cost (71.3% vis-a-vis 72.3%) as percentage of sales. Adjusted PAT came in at Rs.19cr, 351% higher yoy, compared to our estimates of Rs.11 cr; owing to strong operating performance coupled with substantial addition made by other income (Rs.13cr vis-a-vis 1.5cr). We maintain our Buy recommendation with target price of Rs.591 based on target PE of 8x for FY2014E.

Tata Sponge Iron (CMP: Rs.322, TP: Rs.384, Upside: 19%)

For 2QFY2013, TSILRs.s reported inline revenue at Rs.196cr, 12.6% higher on a yoy basis from Rs.1 74cr in 2QF2012. Capacity utilization during the quarter stood at 81% (79,000MT) due to a planned shutdown of the manufacturing plant, while volume sales stood at 89,000MT. However, EBITDA margin contracted by 57bp on a yoy basis to 16.6%% inspite of a fall in imported coal prices due to utilization of high cost inventory from previous quarter, which led to an increase in net raw material cost. Net profit increased by 18.6% yoy from Rs.21cr in 2QFY2012 to Rs.26cr currently due to onetime increase in other income during the quarter. Post the open offer by Tata Steel, TSIL has become a subsidiary of the company, which owns a 51% stake in the company. The company has stake in Talcher coal block in Radhikapur and is pending forest approval. According to some media reports, there has been a deduction of the bank guarantees for the coal block; however the management has not received any notification regarding the same. We maintain our Buy recommendation on the stock with a revised target price of Rs.384 based on a target P/B of 0.8x for FY2014E.

Result Preview

HDFC (CMP: Rs.752/ TP: -/ Upside: -)

HDFC is slated to announce its 2QFY2013 results today. We expect HDFC to report a 21.5% yoy growth in net interest income to Rs.1,413cr. Other income is expected to remain moderately by 4.4% yoy to Rs.328cr. We expected provisioning to come in at Rs.36cr and net PAT to grow by 15.2% yoy to Rs.1,118cr. We remain Neutral on the stock.

L&T (CMP: Rs.1,632/ TP: Rs.1,721/ Upside: 5%)

We expect Larsen and Toubro (L&T) to record a revenue of Rs.12,634cr, registering a 12.3% yoy growth for 2QFY2013. This growth can be attributed to the companyRs.s large order book (~Rs.1.4trillion). On the EBITDA front, we expect the companyRs.s margin to witness on expansion of 96bp yoy to 11.4%. We project the net profit to come in at Rs.891 cr, indicating a growth of 11.6% yoy.

At the current market price of Rs.1,139, the stock is trading at 21.4x FY2014E earnings and 3x FY2014E P/BV, on a standalone basis. We have used the sum-of-the-parts (SOTP) methodology to value the company to capture all its business initiatives and investments/stakes in the different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and market cap basis, our target price works out to Rs.1,721. Owing to the surge in the companyRs.s stock price, we recommend an Accumulate rating on the stock.

Cairn India (CMP: Rs.334/ TP: Rs.380 / Upside: - 14%)

Cairn India is slated to report its 2QFY2013 results today. Cairn IndiaRs.s net sales are expected to increase by 66.6% yoy to Rs.4,418cr mainly due to increase in volumes coupled with a higher crude oil realization. Its operating margin is expected to decline by 25bps yoy to 79.1% and its bottom line is expected to increase by 1109.9% yoy to Rs.2,807cr because of a lower base of 2QFY2012. Cairn India had to pay a one-time royalty of Rs.1,355cr in 2QFY2012 which had depressed its bottom-line. We recommend Accumulate rating on the stock with a target price of 7380.

Bank of Baroda- (CMP: Rs.797, TP: Rs.864, Upside: 8.4%)

Bank of Baroda is scheduled to announce its 2QFY2013 results today. We expect the bank to report a NII growth of 14.8% yoy to Rs.2,947cr. Operating expenses are expected to grow much higher by 17.6% yoy to Rs.1,366cr, leading to moderate growth of 10.7% in operating profits to Rs.2,369cr. Provisioning expenses are expected to increase by 25.3% yoy to 622cr, which is expected to result in subdued growth of 4.9% yoy in net profit to Rs.1,223cr. At the CMP, the stock is trading at 0.9x FY2014E ABV. We maintain our Accumulate recommendation on the stock with a target price of T864.

Idea Cellular (CMP: Rs.81 / TP: - / Upside: -)

Idea Cellular is slated to announce its 2QFY2013 results today. We expect the company to record revenue of Rs.5,544cr, up 0.7% qoq. This is expected primarily on the back of almost flat ARPM at Rs.0.41/min and 2.0% qoq decline in MOU to 372min. APRU is expected to decline marginally by 2.3% qoq to Rs.153/month. EBITDA margin of the company is expected to decline by 13bp qoq to 26.0%. PAT is expected at Rs.250cr. We maintain Neutral rating on the stock.

Syndicate Bank- (CMP: Rs.123 / TP: - / Upside: -)

Syndicate Bank is slated to announce its 2QFY2013 results today. We expect the bank to report a subdued Net Interest Income (NII) growth of 4.0% yoy to Rs.1,366cr. Non-interest income is expected to increase by 6.3% yoy to Rs.260cr. Operating expenses of the bank are expected to be higher by 11.5% yoy to Rs.743cr, which would result in flat performance at pre-provisioning profits level. However, net profit is expected to go up by 10.4% yoy to Rs.356cr, largely aided by 17.2% yoy decline in provisioning expenses to Rs.420cr. At the CMP, the stock trades at a valuation of 0.7x FY2014E ABV. We maintain our Neutral recommendation on the stock.

Economic and Political News

- Finance Ministry expects revival in industrial activity as banks cut rates

- Power firms may sign FSAs with Coal India by November end

- Government lifts ban on edible oil exports in branded consumer packs

Corporate News

- BPCL raises US$500mn at 4.6% via bond offering in overseas markets

- Kingfisher AirlinesRs. license suspended by aviation regulator

- Arasu Cable to start operations in Chennai from November

- ONGC looks to hire RILRs.s ununtilised production facilities

- RIL to get higher gas price for KG-D6 gas