Reports » India

Indian stock market and companies daily report (October 25, 2012, Thursday)

Contributed by Angel Broking

The Indian markets are expected to open flat with a negative bias following flattish start to SGX Nifty.

The US markets fell modestly on Wednesday after failing to sustain an initial upward move as weak quarterly earnings prompted investors to take a cautious stance. Further, concerns about the outlook for the global economy also weighed on the markets, leading to an extension of the sharp drop seen in the previous session. The investors also reacted negatively to the Federal ReserveRs.s monetary policy statement, with the central bank making no change to its highly accommodative policy. The Fed said it will continue to purchase $40 billion worth of mortgage-backed securities per month and gave no indication it will expand the quantitative easing program before the yearRs.s end. Meanwhile, the Commerce Department in the US reported new home sales rose 5.7% to an annual rate of 389,000 in September from the revised rate of 368,000 in August.

Going ahead, investors would be watchful of the release of some key US economic data like reports on durable goods orders, pending home sales, and weekly jobless claims.

Markets Today

The trend deciding level for the day is 18,737/5,698 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,786 - 18,861/5,714 - 5,737 levels. However, if NIFTY trades below 18,737/5,698 levels for the first half-an-hour of trade then it may correct up to 18,662 - 18,614/ 5,675 - 5,659 levels.

Government approves RILRs.s plans to raise gas production

The Oil Ministry has approved Reliance Industries plans to raise gas production from KG D6 and agreed that CAG cannot pursue performance audit of the block. Earlier, the Oil Ministry had withheld approvals to raise production until the CAG audit was complete. RIL had discovered atleast three new discoveries in the block whose commerciality was not approved by Oil Ministry. Also the Management Committee had approved the revised field development plan in August but it was awaiting clearance from the Oil Ministry. We maintain our Neutral view on the stock.

NMDCRs.s 1HFY2013 production fell 6.9% yoy

NMDC reported a 6.9% fall in 1HFY2013 production to 12.24MT. The fall was mainly due to excessive rains in the month of August and September which hampered the mining and evacuation activity. The sales during 2QFY2013 were also down 22.0% yoy to 5.85MT because of lower off-takes at the e-auctions. We would change our volume estimates for NMDC post the 2QFY2013 results and till then maintain Buy on the stock with a target price of ?212.

NCC to sell land, stake in infrastructure projects to lower debt

As per media report, NCC Ltd is in talks with strategic investors to monetise some of its projects and part of its land bank to raise funds which would help it reduce its debt levels. The company is planning to reduce its stake in its road BOT projects namely Western UP Tollway and Bangalore Elevated Tollway projects, 1320MW power plant and its land bank of 410 acres located in Bangalore, Hyderabad, Chennai, Vishakapatnam and Ranchi. We await further clarity on this matter and maintain our Neutral view on the stock.

Result Review

Hero MotoCorp (CMP: Rs.1,796/ TP: Rs.1,968/ Upside: 10%)

Hero MotoCorp (HMCL) reported marginally lower-than-expected results for 2QFY2013 led by sharp deterioration in operating margins, which declined 188bp yoy (113bp qoq) to 13.9%. Top-line during the quarter registered a decline of 11% yoy (17% qoq) to Rs.5,187cr which was on the expected lines considering that the volumes had declined 13.7% yoy (18.7% qoq) due to demand slowdown and inventory build-up at the dealers end. While total domestic volumes declined 13% yoy (18.6% qoq); export volumes posted a 33.9% yoy (23.5% qoq) decline during the quarter. Net average realization however, increased 3.2% yoy (2.1% qoq) benefitting primarily from strong growth (~15% yoy) in the spare parts revenue.

On the operating front, EBITDA margins declined sharply by 188bp yoy (113bp qoq) to 13.9% on account of unfavorable product-mix (higher share of less than 125cc motorcycles) and lower operating leverage benefits (due to production cuts). As a result, net profit registered a decline of 27% yoy (28.4% qoq) to Rs.441cr, slightly lower-than our estimates of Rs.462cr. At the CMP of Rs.1,796, HMCL is trading at 14.6x FY2014E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.1,968.

Sterlite Industries (CMP: Rs.98/ TP: -/ Upside: -)

Sterlite Industries (Sterlite)Rs. 2QFY2013 net profit was higher-than expected mainly due to better-than-expected performance from its aluminium segment. The net sales increased 8.8% yoy to Rs.11,029cr in line with our estimate of Rs.11,121cr. The growth in net sales was driven by increases in aluminium, power and zinc segmentsRs. revenues. Aluminium, power and zinc segment revenues grew 25.3%, 46.1% and 8.4% yoy to Rs.859cr, Rs.910cr and Rs.3,870cr, respectively. On the operating front, SterliteRs.s EBITDA increased by 1.8% yoy to Rs.2,527cr and EBITDA margins were 22.9% (above our estimate of 19.7%) mainly due to better profitability from aluminium and power segments. The aluminium segment EBIT grew by 106.5% yoy to Rs.43cr and power segment EBIT grew 260.9% yoy to Rs.190cr. The company reported an exceptional item relating to forex gain of Rs.302cr (including that of its associate VAL) compared to a forex gain of Rs.217cr in 2QFY2012. The interest costs this quarter declined by 50.1% yoy to Rs.178cr and other income grew by 41.9% yoy to Rs.848cr. Hence, the adjusted net profit increased 40.2% yoy to Rs.1,441cr, which was above our estimate of Rs.1,299cr. The reported net profit increased 36.7% yoy to Rs.2,383cr.

Considering the ongoing process of group restructuring by the promoter, Vedanta Resources, the valuation of Sterlite will mirror the valuation of the consolidated company, Sesa Sterlite. Sesa GoaRs.s iron ore business in Goa faces a temporary ban currently. Hence, we await further clarity on commencement of mining operations from Goa. Until then, we maintain our Neutral view on the stock.

Lupin (CMP: Rs.563/ TP: Rs.647/ Upside: 15%)

Lupin reported above expected results. For the quarter, the company posted sales of Rs.2239cr, a rise of 28.6% yoy. On the operating front, the Gross and Operating margins came in at 60.3% and 20.3% respectively. The OPMRs.s came in higher than the expectations of 19.1%. The OPM expansion came mainly on back of reduced R&D expense during the period, which declined from Rs138cr in 2QFY2012 to Rs94cr in 2QFY2013. This along with the higher tax along with the deprecations during the quarter aided the net profit to come at Rs.290cr, in comparison to the Rs.270cr estimated for the quarter. We maintain a buy on the stock with a target of Rs.647.

Yes Bank (CMP: Rs.399/ TP: Under Review/ Upside: -)

Yes Bank reported a strong performance for 2QFY2013. The bankRs.s net profit grew by a strong 30.2% yoy to Rs.306cr, higher than our estimates due to lower provisioning expenses than estimated by us.

Total Advances of the bank grew by 22.9% yoy, while growth in customer assets (Loans & Credit Substitutes) was strong at 32.5% yoy. Current and Savings Account (CASA) deposits grew by 86.7% yoy taking the CASA ratio to 17.3%. Saving account deposits continue to witness traction growing by more than 4 times on a yoy basis. The bank has been adding 40,000-45,000 savings bank accounts every month.

The bank has already provided ~Rs.50cr on the Deccan chronicle account and has recovered around ~Rs.60cr through monetization of collateral assets. The net exposure remaining is ~Rs.60-70cr, on which, according to the management, the bank has sufficient collateral in the form on immovable tangible assets. The account is still a servicing one and hence the bank did not treat it as an NPA during the quarter. We maintain a Buy rating on the stock with target price under review.

United Phosphorus (CMP: Rs.118/ TP: Rs.1 70/ Upside: 44%)

United Phosphorus Limited (UPL) reported consol revenues of Rs. 1,802cr, registering a growth of 4.7% yoy. While volume declined by 2%, while price increased by 5% with the balance 2% being contributed by favorable impact of exchange. According to the regions, the main growth came in from Europe where revenues increased by 22%. India reported revenue de-grew by 14.0%, while ROW revenues increased by 22%.

On the operating front, company reported an EBITDA Margin of 15%, same as the last corresponding. However, on account of lower finance cost, the net profit came in at Rs1198cr V/s Rs569.5cr in 2QFY2012.

Going forward, the Management has reaffirmed its guidance of a sales growth of 15% yoy and maintain EBITDA margins of 18-20%. We maintain a buy with a target of Rs.170.

Bank of Maharashtra (CMP: Rs.47/ TP: Under review/ Upside: -)

During 2QFY2013, Bank of Maharashtra reported strong 65.3% yoy growth in net profit to Rs.166cr, higher than our estimates as provisioning expenses came in lower than expected by us and growth in non-interest income came higher than our estimates.

NII for the bank grew at moderate pace of 13.6% yoy to Rs.719cr, while growth in non-interest income was healthy at 22.5% yoy to Rs.177cr. However, operating profit for the bank grew by 11.3% yoy, as growth in operating expenses was higher at 20.0% yoy.

The bank reported strong growth in its business, with advances witnessing a growth of 27.6% yoy and deposits registering a growth of 24.7% yoy. On the asset quality front, the bank witnessed stability sequentially, with Gross NPA remaining flat and Net NPA declining by 2%, on an absolute basis. Gross and Net NPA ratio as of 2QFY2013 stood at 2.0% and 0.9%, respectively witnessing a decline of 24bp and 9bp. The banksRs. PCR improved by 80bp to 80.1%. At CMP, the stock trades at 0.7x FY2014E ABV. The stock rating is currently under review.

Result Preview

Mahindra and Mahindra (CMP: Rs.828/ TP: Rs.944/ Upside: 14%)

Mahindra and Mahindra (MM) will be announcing its 2QFY2013 results today. We expect the companyRs.s top-line to grow by a robust 32.7% yoy (4.3% qoq) to Rs.9,771cr backed by 16.3% yoy (12.1% qoq) growth in automotive volumes led by the new launches XUV5OO and Quanto. Total volumes though, posted a growth of 6.9% yoy (2.9% qoq) as tractor sales witnessed a decline of 13.1% yoy (16.3% qoq) on account of weak domestic demand. On the operating front, the EBITDA margin is expected to witness a decline of 40bp yoy to 11.9% largely due to lower share of tractors in the total volume-mix. Nonetheless, the bottom-line is expected to report a strong growth of 17.8% yoy (24.9% qoq) to Rs.906cr. At Rs.828, the stock is trading at 14.7x FY2014E earnings. Currently, we have an Accumulate rating on the stock with a SOTP based target price of 7944.

Asian paints (CMP: Rs.3,915/ TP: -/ Upside: -)

Asian Paints is expected to declare its 2QFY2013 results today. We expect the company to post a 14.4% yoy growth in its top-line to Rs.2,575cr, aided largely by price hikes taken by the company as volume growth is expected to be muted. The OPM is expected to increase by 65bp yoy to 15%. The bottom-line is expected to increase by 16.5% yoy to Rs.243cr. We maintain a Neutral view on the stock.

Nalco (CMP: Rs.50/ TP: -/ Upside: -)

Nalco is slated to report its 2QFY2013 results today. We expect net sales to increase by 19.1% yoy to Rs.1,890cr mainly due to lower base of 2QFY2012. The EBITDA margin is expected to expand by 676bp yoy to 16.4% due to rise in net sales. The net profit is expected to increase by 52.5% yoy to Rs.212cr mainly because of very low profitability reported in 2QFY2012. We recommend a Neutral rating on the stock.

Oriental Bank of Commerce- (CMP: Rs.294 / TP: - / Upside: -)

Oriental Bank of Commerce is slated to announce its 2QFY2013 results today. We expect the bank to report a healthy net interest income (NII) growth of 21.4% yoy to Rs.1,201 cr. Growth in non-interest income is expected to be muted at 4.7% yoy to Rs.290cr. Operating expenses of the bank are expected to be higher by 24.9% yoy to Rs.635cr. The net profit is expected to grow by 131.8% yoy to Rs.389cr, as provisioning expenses are expected to decline by 23.8% yoy to Rs.370cr. At the current market price, the stock trades at a valuation of 0.6x FY2014E ABV. We maintain our Neutral recommendation on the stock.

IPCA Labs (CMP Rs.463/ TP: -/ Upside: -)

We estimate IpcaRs.s top-line to grow by 19.7% to Rs.740cr for 2QFY2013. The OPM is expected to decline by 280bp yoy to 21.9%. In spite of the same, the adjusted net profit is expected to grow by 37.0% yoy, on the back of lower interest outgo being expected. We maintain our Neutral rating on the stock.

KPIT (CMP: Rs.120/ TP: Rs.140/ Upside: 16%)

KPIT Cummins Infosystems (KPIT) is slated to announce its 2QFY2013 results today. We expect the company to post revenue of US$101mn, up 2.7%. In INR terms, the revenue is expected to come in at Rs.554cr, up 2.9% qoq. The EBITDA margin is expected to increase by 162bp qoq to 16.7. The PAT is expected to come in at Rs.50cr. We maintain our Buy rating on the stock with a target price of Rs.140.

Economic and Political News

- IMG may meet next week to decide fate of 13 coal mines

- Government initiates probe into chemical dumping by EU, Mexico

- TN government mandates 6% solar power purchase for large-scale users

- Oil Min blocks PSUs buying Gujarat Gas stake

- Scarce fuel supply affecting 65,000 MW power capacity

Corporate News

- Lupin eyes 15 new drug launches in US by March 2013

- Maruti SuzukiRs.s new Alto crosses 21,000 bookings

- HCC bags Rs.373cr order from Delhi Metro

- Gati Kausar to ramp up reefer fleet to 350 by 2015

- BhartiRs.s mobile user base in Africa crosses 60mn

- Cheap Chinese import may hit BHELRs.s Rs.2,000cr solar plan