Reports » India

Indian stock market and companies daily report (October 23, 2012, Tuesday)

Contributed by Angel Broking

The Indian markets are expected to open flat with a positive bias following flattish start to SGX Nifty and other Asian indices.

The U.S. markets on Monday ended in the green after a lackluster session that saw losses for most of the day amid concerns over slowing corporate earnings growth. The European markets were unable to hold on to early gains on Monday and ended the session with modest losses as the markets were under pressure in the afternoon due to the weak performance of the U.S. markets. Traders also had their eyes on events in Europe, as European leaders continue to work towards a solution to the regionRs.s debt crisis.

The Indian markets rose on Monday, lifted by upbeat earnings results, a stronger rupee and a sharp fall in crude prices over the weekend on global growth worries. However, global cues were mixed, limiting the upside to some extent. 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 18,735 / 5,699 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,868 - 18,943 / 5,740 - 5,762 levels. However, if NIFTY trades below 18,735 / 5,699 levels for the first half-an-hour of trade then it may correct up to 18,660 - 18,526 / 5,676 - 5,635 levels.

DRL intends to make a recommended public offer for OctoPlus N.V

Dr. Reddy's Laboratories Limited ("Dr. Reddy's"), together with its subsidiaries, announces the intended public offer to acquire the issued and outstanding shares of OctoPlus N.V. ("OctoPlus"), a service based specialty pharmaceutical company, for an offer price of € 27.39 mn (cum dividend) in cash, representing 100% of the issued and outstanding ordinary shares. The offer price represents a premium of 30% over the closing price of OctoPlus as on October 19, 2012. Dr. Reddy's currently holds an irrevocable commitment from shareholders representing over 50% of OctoPlusRs.s issued and outstanding shares.

This deal will help expand the expertise and scientific capabilities of Dr. Reddy's. OctoPlus develops formulations for injectables and proprietary drug delivery technologies, and has a fee-for-service business. For the first six months of 2012, it reported a loss of €5.8 mn on revenue of €4.8 mn. While the company is not profitable, the company is looking at the acquisition from long term perspective, as the acquisition will globalize its R & D efforts, along with the ramp up of its technology capabilities in drug delivery.

As, the acquisition does not change our numbers significantly, we maintain our numbers and target on the stock. We recommend an Accumulate on the stock.

Result Review

HDFC (CMP: Rs.750/ TP: -/ Upside: -)

HDFC reported a healthy growth of 17.8% yoy at the net interest income level. Consequently, the growth in PAT came in at a healthy 18.6% yoy. The asset quality continued to be strong with gross NPA ratio at 0.77%, lower than the 0.82% reported in 2QFY2012. The loan book of the company continued to grow at a strong pace of 22.2% yoy, with loans to individuals growing at 23.8% yoy. HDFC has been incrementally growing its individual loan book much faster than its corporate book over the last 6 months in order to improve its margins and noninterest income such as processing fees. Including loans sold, around 80% loans over the last 6 months have been disbursed to the individual segment. On account of high valuations and significant premium to the Sensex, we recommend Neutral on the stock.

L&T (CMP: Rs.1,668/TP: Under review /Upside: -)

Larsen and Toubro (L&T) posted a good set of numbers for 2QFY2013, which were above our and the streetRs.s expectations on both, the revenue and the profitability fronts. The top-line stood at Rs.13,195cr, registering a growth of 17.3% yoy for the quarter, higher than our estimate of Rs.12,634cr. This was mainly driven by pick up in execution in the engineering and construction (E&C) segment. On the EBITDA front, the company reported an EBITDA of Rs.1,406cr indicating a growth of 19.8% yoy. The EBITDA margin came in at 10.7%, an increase of 30bp yoy, and was below our estimate of 11.4%. On the bottom-line front, L&T reported a growth of 42.6% yoy to Rs.1,138cr against our estimate of Rs.891 cr owing to pick up in execution and higher exceptional item arising out of divestment gains.

As of 2QFY2013, L&TRs.s order backlog stands at Rs.1,58,528cr a growth of 11.5% yoy. The company has secured orders worth Rs.20,967cr and Rs.40,561 cr in 2QFY2013 and 1HFY2013 respectively.

For FY2013, the management has reiterated its guidance of 15-20% growth on both - revenue and order inflow. Given the healthy order inflow in 1HFY2012 we believe the company would meet its guidance, both on order inflows and the revenue front.

We believe L&T is best placed to benefit from the gradual recovery in the capex cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to peers. We continue to remain positive on L&T; however owing to surge in its stock price we recommend an Accumulate rating while our target price is under review.

Bank of Baroda (CMP: Rs.785/ TP: Rs.864/ Upside: 10%)

Bank of Baroda reported moderate 11.6% yoy growth in its net profits to Rs.1,301cr during 2QFY2013. Key highlight of the result was the pressure witnessed on the asset quality front, with 10.5% and 29.3% sequential increase in both gross and net NPA levels, respectively.

Advances for the bank grew by healthy pace of 22.2% yoy, while deposits were up by robust 24.0% yoy. CASA ratio for the bank, both global and domestic dipped sequentially by 28bp and 48bp, respectively to 25.8% and 31.7%. On the non-interest income front, growth was moderate at 12.8% yoy largely aided by trading gains. Annualized slippages during the quarter came in at 1.97% as against 1.8% in 1QFY2013 and 1.02% in 2QFY2012. The bank witnessed 142.5% yoy increase in NPA provisioning (largely due to higher write-offs). PCR dipped by 330bp qoq and 625bp yoy to 75.7%. The bank restructured loans worth Rs.993cr during the quarter taking its outstanding domestic restructured book to Rs.16,668cr (5.7% of net advances). At the CMP the stock is trading at 0.9x FY2014 ABV. We maintain our accumulate recommendation on the stock with a target price of Rs.864.

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

Idea Cellular (Idea) reported its 2QFY2013, which were in-line with our estimates on the revenue as well as profitability front. The revenues came in at Rs.5,544cr, down 3.4% qoq, because of 5.3% qoq decline in MOU to 359min. Overall network traffic declined by 4.0% qoq. This was due to decline in overall subscriber base of Idea to 115.4mn from 117.2mn in 1QFY2013. ARPM remained flat qoq at Rs.0.41/month while APRU declined by 5.1% qoq to Rs.148/month. EBITDA margin increased by 70bp qoq to 26.8%. PAT came in at Rs.240cr, up 2.5% qoq. The company remain surrounded by regulatory uncertainties related to spectrum and license fee payments. We maintain Neutral view on the stock.

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

For 2QFY2013, Syndicate Bank reported disappointing operating performance, with 5.4% yoy decline in its operating profits to Rs.843cr. However tax write-back of Rs.100cr as against tax expense of Rs.61cr in 2QFY2012 aided the company to post earnings growth of 43.5% yoy to Rs.463cr.

On the NII front, the performance was subdued with 5.9% yoy growth. Growth in non-interest income was moderate at 10.5% yoy to Rs.270cr. On the asset quality front, the bank witnessed stability with sequential increase in Gross NPA limited to 3.3%, while net NPA declined by 1.7% qoq. Advances for the bank grew by 12.7% yoy, while deposits were up by 10.5% yoy. At the CMP the stock is trading at 0.7x FY2014 ABV. We maintain our neutral recommendation on the stock.

JK Lakshmi Cement (CMP: Rs.125/ TP: -/ Upside: -)

JK Lakshmi Cement (JK Lakshmi) posted a 38.8% yoy improvement in topline, which was ahead of our estimates. The growth in topline was led by higher realization as management indicated only a 7-8% yoy growth in volumes. OPM surged by 1,135bp on a yoy basis and stood at 23% due to the strong performance on the realization front. Robust operating performance resulted in the bottomline expanding by multiple folds to Rs.51 cr (vs. 6.5cr in 2QFY2012). Bottomline was also boosted by ~Rs.9cr of recovery of old dues which were earlier written off. We have a neutral rating on the stock.

Cairn India (CMP: Rs.338/ TP: Rs.380/ Upside: 12%)

Cairn India announced better-than-expected 2QFY2013 results. The companyRs.s top line increased by 67.5% yoy to Rs.4,443cr (in line with our expectation of Rs.4,418cr) led by higher crude oil sales volumes. The companyRs.s gross production averaged 207,245boepd (+21.9% yoy) during the quarter. However, gross crude oil realization decreased by 4.6% yoy to US$98.1/bbl (although in rupee terms realizations were higher). Operating profit grew by 64.0% yoy to Rs.3,452cr, although operating margin contracted by 142bp yoy to 77.7% during the quarter. The company recorded an exceptional forex loss of Rs.786cr on account of forex fluctuation during 2QFY2013. Excluding this exceptional gain, adjusted net profit grew by 1,239.7% yoy to Rs.3,108cr (above our estimate of Rs.2,807cr). Reported net profit grew by 204.3% yoy to Rs.2,322cr. We maintain our Accumulate rating on the stock with a target price of Rs.380.

Result Preview

Hero MotoCorp (CMP: Rs.1,831/ TP: Rs.2,077/ Upside: 13%)

Hero MotoCorp (HMCL) is slated to announce its 2QFY2013 results today. We expect the companyRs.s top-line to post a decline of 11.5% yoy (17.4% qoq) to Rs.5,160cr primarily on account of a 13.7% yoy (18.7% qoq) decline in total volumes. The poor volume performance can be attributed to weak demand in domestic markets coupled with rising inventory at the dealer end. We expect the operating margin (adjusted for change in accounting for royalty payments) to contract 125bp yoy (50bp qoq) to 11% on account of adverse product-mix and reduced operating leverage benefits. As a result, we expect the bottom-line (adjusted) to post a 23.5% yoy decline to Rs.462cr. At Rs.1,831, the stock is trading at 13.7x its FY2014E earnings. Currently, we have an Accumulate rating on the stock with a target price of Rs.2,077.

Sterlite Industries (CMP: Rs.99/ TP: - / Upside: -)

Sterlite Industries is slated to announce its 2QFY2013 results today. The top-line is expected to grow by 9.7% yoy to Rs.1 1,121 cr. However, the EBITDA margin is expected to contract by 477bp yoy to 19.7% due to decrease in realizations and increase in prices of key inputs. The bottom-line is expected to increase by 26.4% yoy to Rs.1,299cr. We maintain our Neutral view on the stock.

Lupin (CMP: Rs.570/ TP: Rs.647/ Upside: 14%)

For 2QFY2013, Lupin is expected to register a revenue growth of 18.2% to end the period at Rs.2,058cr vs Rs.1,742cr in 2QFY2012. OPMs are expected to decline by 234bps during the period, which along with higher interest expenditure would limit the net profit growth to 1.3% yoy. We expect the company to post a net profit of Rs.270cr vs Rs.267cr (in 2QFY2013). We maintain our Accumulate rating on the stock with a target price of Rs.647.

Yes Bank- (CMP: Rs.387 / TP: Rs.452 / Upside: 16.7%)

Yes Bank is slated to announce its 2QFY2013 results today. We expect the bank to report a strong net interest income (NII) growth of 34.6% yoy to Rs.519cr. The noninterest income is expected to increase by 25.5% yoy to Rs.269cr. The operating expenses of the bank are expected to be higher by 46.6% yoy to Rs.313cr. The net profit is expected to increase by 22.6% yoy to Rs.288cr. At the current market price, the stock trades at a valuation of 2.0x FY2014E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.452.

Economic and Political News

- Odisha achieves 84% electrification target by September

- KarnatakaRs.s IT/ITeS sector exempted from Industrial Employment Act till 201 3

- Milk output may touch new high of 135mn tonne next year

Corporate News

- L&T Finance Holdings buys FamilyCredit for Rs.120cr

- Suzlon Group enters Romanian wind energy market

- Vedanta Aluminium resumes Odisha refinery at reduced capacity

- Dr Reddy's to acquire OctoPlus NV for EUR27.4mn