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Indian stock market and companies daily report (October 26, 2012, Friday)

Contributed by Angel Broking

The Indian markets are expected to open in the red following negative start to SGX Nifty and other major Asian indices.

The US markets ended slightly higher on Thursday as several reports indicated a more favorable outlook for the global economy. The initial strength on Wall Street was partly due to a positive reaction to a batch of largely upbeat economic data, including a report showing that the UK emerged from recession in 3QCY2012. The UK economy grew 1% after contracting in each of the three previous quarters. According to the US Labor Department release, initial jobless claims showed a bigger than expected drop to 369,000 from the previous weekRs.s revised figure of 392,000. Additionally, a report from the Commerce Department showed that durable goods orders rebounded by 9.9% in September after tumbling by 13.1% in August. However, pending home sales numbers increased slightly lower-than-expected by 0.3% to a reading of 99.5 in September.

Going ahead, earning releases and economic data may attract attention on Friday. The Commerce Department is scheduled to release its initial report on US GDP in the third quarter.

Markets Today

The trend deciding level for the day is 18,749 / 5,703 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,799 - 18,840 / 5,721 - 5,736 levels. However, if NIFTY trades below 18,749 / 5,703 levels for the first half-an-hour of trade then it may correct up to 18,708 - 18,658 / 5,688 - 5,670 levels.

Sun TV buys IPL franchise

Sun TV has bought the Indian Premier League (IPL) Hyderabad franchise for Rs.85.05 crores per year. The BCCI had set a base price of Rs.300 crore for the 10-year contract for the new IPL team to replace Deccan Chargers. According to media reports, Sun TV has submitted a Rs.20cr performance deposit during the submission of bids, which BCCI would forfeit if they fail to provide an annual bank guarantee of Rs.405.3cr. V C Unnikrishnan, CFO of Sun TV said that the acquisition of IPL team in Hyderabad will be funded through internal accruals. He expected the acquisition to enhance the brand image of Sun TV. We maintain our Neutral view on the stock.

Apollo Tyres workers at Limda plant goes on strike

Apollo TyresRs. Limda plant has witnessed a labor strike due to which the production at the plant has been disrupted from October 23, 2012. The workers have been protesting against the companyRs.s refusal to recognize the newly formed workersRs. union Bharatiya Majdoor Sangh (BMS) within the plant as well as suspension of two employees. According to media reports, workers are unhappy as two committees formed for the welfare of the workers in the past could not address the workerRs.sRs. concerns. As per reports, ~1,500 workers (total strength ~7,000) have stopped going to work since October 23, 2012 and have threatened to go on indefinite strike soon if their demands are not met. The management is making all efforts to resolve the issue. The Limda plant has a production capacity of 475MT/day and manufactures passenger car radial, truck and bus (bias) and off the road tyres. While, we see this as negative for the company; we would await more clarity on this development. At Rs.86, the stock is trading at 6.1x FY2014E earnings. Currently, we have a Buy rating on the stock with a target price of Rs.99.

CESC to acquire controlling stake in Firstsource

CESC has agreed to pay around Rs.400cr for a 49.5% holding in Firstsource. The deal values Firstsource at Rs.795cr on its expanded equity base. At its current stock price, Firstsource has a market capitalization of Rs.613cr. CESC will acquire 34.5% in Firstsource through a preferential allotment and a further 15% from the existing investors (ICICI Bank, Aranda Investment of Temasek Holdings, and Metavante Investments) for Rs.12.2 apiece. CESC will also offer to buy another 26% from public shareholders. We maintain Neutral on the stock.

IRB shocks crashes on reports of Gadkari links

The share price of IRB Infrastructure came under pressure for its improper business link with Nitin Gadkari as alleged in the media reports. IRB has denied this allegation in the clarification issued to the stock exchange. We await for clarity on this matter and continue to maintain our Buy view on the stock since we donRs.t see any serious concerns relating to the companyRs.s fundamentals.

Result Review

Mahindra and Mahindra (CMP: Rs.858/ TP: Rs.944/ Upside: 10%)

Mahindra and Mahindra (MM) reported extremely strong results for 2QFY2013 riding on the robust growth of its automotive segment. For 2QFY2013, top-line registered an in-line growth of 33.4% yoy (4.8% qoq) to Rs.9,813cr driven by 58.3% yoy (13.9% qoq) growth in the automotive segment revenues. Total volumes registered a modest growth of 6.9% yoy (2.9% qoq) as the farm equipment segment volumes declined 13.1% yoy (16.3% qoq) in the wake of a below normal monsoon. Automotive segment volumes, however, posted a strong 16.3% yoy (12.1% qoq) growth led by 31.5% yoy growth in the utility vehicle portfolio backed by XUV5OO. The net average realization jumped 15.6% yoy (down 6% qoq) led by higher share of premium products (mainly XUV5OO) in the volume-mix and price increases over the last one year.

On the operating front, EBITDA margins contracted 60bp yoy (44bp qoq) to 11.4% largely due to raw-material cost pressures. As a result, total raw-material cost as a percentage of sales increased 234bp yoy (flat qoq) to 74.9%. However, employee and other expenditure declined by 1 00bp and 80bp yoy respectively mainly due to operating leverage benefits. EBIT margins in the automotive and farm equipment segments declined by 53bp (up 59bp qoq) and 55bp yoy (90bp qoq) to 9.4% and 14.8%, respectively. Nonetheless, led by strong volume growth in the automotive segment, automotive EBIT registered an impressive growth of 49.9% yoy (21.5% qoq). As a result, MMRs.s adjusted net profit grew strongly by 22.4% yoy (24.3% qoq) to Rs.902cr. The benefits of 30% yoy growth in other income (due to 28.2% increase in dividends from subsidaries) were negated by 41.9% yoy (15.2% qoq) increase in depreciation expense (related to Quanto launch) during the quarter. At Rs.858, the stock is trading at 15.2x FY2014E earnings. Currently we have an Accumulate rating on the stock with a target price of Rs.944. We shall revise our estimates and come up with a detailed result update soon.

Asian paints (CMP: Rs.3,898/ TP: -/Upside: -)

Asian Paints posted a 16.2% yoy growth in its consolidated topline to Rs.2,616cr, which was slightly ahead of our estimates. The topline growth is largely on account of price hikes taken by the company as volume growth is expected to have been muted. OPM fell by 54bp yoy to 13.8%. Bottomline rose by 14.6% yoy to Rs.239cr. We maintain a neutral view on the stock.

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

Nalco reported an operating loss for 2QFY2013 due to lower aluminium prices and higher power and fuel costs. Results were significantly below our expectations. Net sales grew marginally by 0.1% yoy to Rs.1,586cr (below our estimate of Rs.1,890cr). Its aluminium production decreased by 2.9% yoy to 102,000 tonnes while alumina production increased by 2.6% yoy to 398,000 tonnes. Power costs as a percentage of net sales stood at 47.5%, compared to 40.3% in 2QFY2012. Further, other manufacturing expenses as a percentage of net sales stood at 19.4%, compared to 6.3% in 2QFY2012. Hence, Nalco reported an EBITDA loss of Rs.2cr, compared to an EBITDA of Rs.153cr reported in 2QFY2012. Other income, however, grew by 5.3% yoy to Rs.139cr. Consequently, the company reported a net profit of Rs.5cr (significantly above our estimate of Rs.212cr), compared to Rs.1 39cr in 2QFY2012. We recommend Reduce rating on the stock while we keep our target price under review.

OBC (CMP: Rs.314/ TP: -/ Upside: -)

OBC reported a strong performance for 2QFY2013. The bankRs.s net profit grew by a strong 80.2% yoy to Rs.302cr, which were lower than our estimates due to higher tax rate than estimated by us.

The bank has shed ~6,000cr of bulk deposits during the last 6 months leading to slower growth on the advances front. The bank is expected to pick up pace in its loan growth hereon and as per the management excess SLR and traction in retail deposits, despite further reduction in bulk deposits, should be able to fund higher loan growth. Reduction in bulk deposits has led to improvement in margins for the bank on a sequential basis.

The bankRs.s restructuring book increased by Rs.329cr during 2QFY2013, taking the total restructuring book to Rs.11,493cr. The management expects Rs.2,500cr of restructuring during 2QFY2013. Slippages were under control during 2QFY2012 with annualised slippage rate at 2.3%. Gross NPA stood at 2.9% while the net NPA for the bank stood at 2.1%.

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

IPCA LabsRs. results were above expectations. IpcaRs.s top-line grew by 22.6% to Rs.758cr for 2QFY2013. The OPM came just in line with the expectations at 21.8%, a decline of 280bp yoy. However, in spite of the same the net profit came in at Rs125cr, up 60.5% yoy, on account of the higher rise in other income and the interest expenses. We maintain our Neutral rating on the stock.

Bajaj Electricals Ltd (CMP: Rs.215/ TP: Rs.238/ Upside: 10%)

Bajaj Electricals Ltd. (BEL) reported decent set of numbers for 2QFY2013. Top-line grew by 4.7% yoy and 10.2% qoq and came in at Rs.734cr, vis-a-vis our expectation of Rs.830cr. EBITDA stood at Rs.24cr which was lower by 53.7% yoy and 29.6% qoq. Overall operating margins dip by 250bp qoq and 418bp yoy and came in at 3.3%.

Revenue from consumer durables segment grew by 17.5% yoy and came in at Rs.399cr (54.3% of total revenue). EBIT for the segment came in at Rs.37cr, 14.3% higher yoy while the margins declined by 20bp yoy to 9.3%.

Lighting segment grew by 6.6% yoy and came in at Rs.202cr contributing 27.5% to BELRs.s total revenue. Profit for the segment stood at Rs.13cr almost flat yoy while the margins declined by 40bp to 6.5%.

Engineering & Projects segmentRs.s revenue de-grew by 22.5% yoy and came in at Rs.133cr (18% of total revenue) and reported a loss of Rs.27cr which was though offset by onetime income of Rs.24.7cr accrued from sale of BELRs.s entire 50% holdings in Bajaj Ventures to Black and Decker during the quarter. E&P projects which have been hurting the profitability, on account of delay in completion coupled with cost overrun is expected to end 18 of its 24 old sites by FY2013 thereby improving the profitability thereafter.

Tax expense for the quarter was low at Rs.5cr, 1 7% of PBT which helped to sustain the bottom line at Rs.27cr vis-a-vis Rs.25cr in the same quarter previous year and our estimate of Rs.27.6cr. We maintain our Buy recommendation on the stock with target price of Rs.238 based on target PE of 13x for FY2014E.

Result Preview

NTPC (CMP: Rs.170 / TP: - / Upside: - %)

For 2QFY2013, we expect NTPC to record a 4.9% yoy increase in its top line to Rs.16,126cr, driven largely by better realizations. Operating Margins are expected to expand by 114bp yoy to 22.2% due to better plant availability. However, Net profit is expected to decline by a marginal 2.5% yoy to Rs.2,365cr. We remain Neutral on the stock.

ICICI Bank- (CMP: Rs.1,079 / TP: - 1,245/ Upside: - 15.4%)

ICICI Bank is scheduled to announce its 2QFY2013 results today. We expect the bank to report a strong 31.8% yoy growth in Net Interest Income to Rs.3,303cr. Growth in non-interest income is expected to reasonable healthy at 16.9% yoy to Rs.2,033cr. Provisioning expenses are expected to increase by 51.9% yoy to Rs.484cr, hence PAT is expected to grow by a relatively lower, but stills strong 24.2% yoy to Rs.1,868cr.

At the CMP, the stock is trading at 1.7x FY2014E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.1,245.

HUL (CMP: Rs.564/ TP: -/Upside: -)

HUL is expected to announce its 2QFY2013 results today. We expect the topline to grow by 11.5% yoy to Rs.6,1 55cr aided by healthy double-digit growth in both the Soaps & Detergents and the Personal Products segments. OPM is expected to remain flat at 13.3%. Bottomline is expected to grow by 11.4% yoy to Rs.718cr. We maintain a neutral view on the stock.

GAIL (CMP: Rs.360/ TP: -/ Upside: -)

GAIL is expected to announce its 2QFY2013 results today. We expect the companyRs.s top-line to grow by 25.7% yoy to Rs.12,1 96cr. However, the operating margin is expected to contract by 159bp yoy to 15.7% on the back of higher depreciation and interest costs. On the bottom-line front, we expect GAIL to report an increase of 3.2% yoy to Rs.1,129cr due to decrease in operating margins. We maintain our Neutral view on the stock.

Punjab National Bank (CMP: Rs.818 / TP: - 966/ Upside: - 18%)

PNB is scheduled to announce its 2QFY201 3 results today. We expect the bank to report a flat bottom-line growth to Rs.1,210cr. Operating income is expected to grow by moderate 11.1% yoy, driven by 20.9% yoy growth in non-interest income. The bankRs.s asset quality has been deteriorating lately and hence we have factored in a 39.1% yoy growth in provisioning expenses. At the CMP, the stock is trading at 0.8x FY2014E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.966.

Dabur (CMP: Rs.133/ TP: -/ Upside: -)

Dabur is expected to announce its 2QFY2013 results today. We expect the topline to grow by 21.3% yoy to Rs.1,531cr. Topline growth is expected to be driven by both higher volume and price hikes. OPM is expected to decline by 189bp yoy to 16.9%. Bottomline is expected to grow by 9.5% yoy to Rs.190cr. We maintain a neutral view on the stock.

JSW Steel (CPM: Rs.730/ TP: -/ Upside: -)

JSW Steel is slated to announce its 2QFY2013 results on 28.10.2012. We expect its standalone net sales to grow by 9.0% yoy to Rs.8,31 5cr mainly on account of increased sales volumes as well as realizations and operating margin is expected to expand by 220bp yoy to 19.2% mainly on account of lower raw material costs. Nevertheless, the net profit is expected to increase by 27.8% yoy to Rs.818cr. We maintain our Neutral view on the stock.

Sesa Goa (CMP: Rs.169/ TP:-/ Upside :-)

Sesa Goa is slated to announce its 2QFY2013 result today. We expect the companyRs.s top-line to decrease by 8.2% yoy to Rs.725cr and its EBITDA margin to contract by 781bp yoy to 25.1% due to decline in iron ore prices, rising costs and higher export duty. Nevertheless, the bottom-line is expected to grow by 5.1% yoy to Rs.247cr despite a decline in operating profits due to contribution of share of profits from its associate, Cairn India. We maintain our Neutral view on the stock.

Indian Overseas Bank (CMP: Rs.80 / TP: - / Upside: -)

Indian Overseas Bank is slated to announce its 2QFY2013 results today. We expect the bank to report a moderate Net Interest Income (NII) growth of 9.8% yoy to Rs.1,390cr. Non-interest income is expected to decline by 5.9% yoy to Rs.402cr. Operating expenses of the bank are expected to be higher by 11.3% yoy to Rs.876cr. However, Net Profit is expected to go up by strong 44.6% yoy to Rs.300cr, on account of 21.9% yoy decline in provisioning expenses (on high base of 2QFY2012). At the CMP, the stock trades at a valuation of 0.5x FY2014E ABV. We maintain our Neutral recommendation on the stock.

United Bank (CMP: Rs.66 / TP: Rs.81 / Upside: 22.7%)

United Bank is scheduled to announce its 2QFY2013 results today. We expect the bank to report a moderate NII growth of 13.5% yoy to Rs.707cr. Operating expenses are expected to increase by 8.6% yoy, leading to operating profit growth of 7.1% on a yoy basis at Rs.482cr. However, 6.9% yoy decline in provisioning expenses would aid strong Net Profit growth of 30.2% on a yoy basis to Rs.162cr. At the CMP, the stock is trading at 0.5x FY2014E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.81.

Economic and Political News

- Decision on sugar import duty revision after three months: Sharad Pawar

- India seeks Israeli expertise in renewable energy sector

- Commerce ministry to approach Cabinet over tax incentives to SEZs

Corporate News

- Sun TV Network buys new IPL franchise

- Kingfisher Airlines staff agrees to resume work

- Adani to hike stake in power subsidiary to 75%

- Lupin gets USFDA nod to market generic contraceptive tablets