Reports » India

Indian stock market and companies daily report (October 29, 2012, Monday)

Contributed by Angel Broking

The Indian markets are expected to open in the green following positive opening to SGX Nifty and other major Asian indices. Asian stocks however erased gains after the open of Hong Kong trading as developers fell following the cityRs.s decision to impose its first property tax targeting overseas buyers. Asian markets had earlier advanced after the U.S. economy expanded more than economists expected.

The US Stocks ended flat in FridayRs.s trading session. The initial strength on Wall Street was partly due to a positive reaction to the Commerce DepartmentRs.s initial report on third quarter GDP, which showed stronger than expected economic growth. However, Stocks once again failed to sustain an early upward move, reflecting the recent downward momentum for the markets. The European markets finished with mixed results on Friday. The markets had been in negative territory in early trade, following some disappointing earnings results from companies however positive US GDP data pulled back the markets.

Indian shares fell notably on Friday, weighed down by weak global cues and amid mixed earnings results domestically ahead of the upcoming RBI monetary policy meet on Tuesday. Financials bore the brunt of the selling amid apprehensions on whether the RBI will cut interest rates.

Markets Today

The trend deciding level for the day is 18,638 / 5,668 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,717 - 18,809 / 5,694 - 5,723 levels. However, if NIFTY trades below 18,638 / 5,668 levels for the first half-an-hour of trade then it may correct up to 18,546 - 18,466 / 5,638 - 5,612 levels.

Result Review

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

For 2QFY2013, NTPC registered 4.8% yoy increase in its top line to Rs.16,120cr, aided by retrospective tariff revision being booked in this quarter. Operating Margins expanded by 51 4bp yoy to 26.2% on account of 763bp yoy contraction in fuel cost (due to higher supply of domestic coal from Coal India which is much cheaper compared to imported coal). Consequently, Net profit rose by 29.6% yoy to Rs.3,142cr. We remain Neutral on the stock.

ICICI Bank - (CMP: Rs.1,078, TP: 1,270, Upside: 18%)

ICICI Bank reported strong performance for 2QFY2013, with 30.1% growth in Net profit, which was slightly above our estimates. Growth in earnings came largely on account of solid operating performance, with 35.7% yoy higher pre provisioning profits. We maintain our Buy rating on the stock.

Overall NIMs flattish sequentially; Slippages higher for 2QFY2013: During 2QFY2013, advances for the bank increased by 1 7.6% yoy (2.5%% qoq), aided by a strong 38.5% yoy (16.8% qoq) growth in corporate book and 25.1% yoy (decline of 3.3% qoq) growth in SME book. Deposits accretion remained moderate with growth of 14.8% yoy. The growth in CASA deposits, in line with industry trends, was moderate at 10.9% yoy. While savings bank deposits increased by 14.9% yoy, the current account deposits managed to grow only by a muted 2.4% yoy. Reported overall NIM remained flat sequentially to 3.0%, mainly on account of lower international NIMs (1.2% compared to 1.6% in 1QFY2013) despite marginal 10bp qoq improvement in domestic NIMs. During 2QFY2013, non interest income excl. treasury for the bank increased by a muted 2.8% yoy to Rs.1,871cr, on back of continued trends of moderation in the fee income. The bank registered a treasury gain of Rs.172cr compared to a loss of Rs.80cr in 2QFY2012 on account of proprietary trading gains and nil losses on its security receipt portfolio. During 2QY2013, annualized slippages ratio for the bank stood at 1.9%, compared to 1.4% in 1 QFY201 3 and 1.5% in 2QFY2012. The slippages for the quarter stood at Rs.1,220cr, of which Rs.500cr was on account of the Deccan Chronicle account.

Outlook and valuation: The bankRs.s substantial branch expansion in the past 3-4 years is expected to sustain a far more favorable deposit mix going forward. Moreover, a lower risk balance sheet has driven down NPA provisioning costs, which we believe will drive 21.7% CAGR in net profit over FY2012-14E and enable RoE of 15.7% by FY2014E (with further upside from financial leverage). At the CMP, the bankRs.s core banking business (after adjusting Rs.153/share towards value of the subsidiaries) is trading at 1.8x FY2014E ABV (including subsidiaries, the stock is trading at 1.7x FY2014E ABV). We value the bankRs.s subsidiaries at Rs.153/share and the core bank at Rs.1,117/share (2.2x FY2014E ABV). We maintain our Buy rating on the stock with a target price of Rs.1,270.

HUL (CMP: Rs.552 / TP:- / Upside:- )

During 2QFY2013 HUL posted an 11.5% yoy growth in its net sales to Rs.6,155cr which was in-line with our estimates. The domestic consumer business grew by 16%, with the underlying volume growth coming in at a modest 7%. While the soaps and detergents segment grew by 22% yoy, the personal products segment was up 12% yoy. The management indicated that the overall growth in the quarter was impacted by budget rationalization in the canteen stores department (CSD). The OPM stood at 13.3%, which again, was in-line with estimates. The gross margins rose by 123bp yoy aided largely by price hikes. HUL increased its advertising and promotion expenses during the quarter, which went up by Rs.118cr on a yoy basis to Rs.769cr. The bottom-line rose by 25% yoy to Rs.807cr aided by an 83.2% yoy growth in other income to Rs.304cr (vs. Rs.166cr in 2QFY2012). We maintain our Neutral recommendation on HUL.

GAIL (CMP: Rs.365, TP:-, Upside :-)

GAIL's 2QFY2013 result was below our estimates. The companyRs.s top-line grew by 17.1% yoy to Rs.11,361cr (below our estimate of Rs.12,196cr) mainly due to a lower than expected performance from the LPG transmission segment which had a revenue write-back of Rs.123cr due to revision in pipeline tariff by Petroleum and Natural Gas Regulatory Board (PNGRB). The companyRs.s fuel subsidy burden stood at Rs.786cr in 2QFY2013, compared to Rs.567cr in 2QFY2012 and Rs.700cr in 1QFY2013. The natural gas trading and LPG segmentsRs. gross revenue grew by 28.3% yoy and 31.8% yoy to Rs.9,242cr and Rs.1,072cr, respectively. The natural gas transmission and petrochemical segmentsRs. EBIT grew by 8.7% and 3.5% yoy to Rs.605cr and Rs.418cr, respectively. However, natural gas trading and LPG segmentsRs. EBIT decreased 14.6% and 81.1% yoy to Rs.245cr and Rs.66cr, respectively. Consequently, GAILRs.s EBITDA declined 17.6% yoy to Rs.1,380cr in 2QFY2013 and the EBITDA margin contracted by 513bp yoy to 12.1%. The companyRs.s tax rate decreased to 28.3% in 2QFY2013, compared to 30.2% in 2QFY2012. However, the companyRs.s net profit declined 10.0% yoy to Rs.985cr below our estimate of Rs.1,129cr. We maintain our Neutral view on the stock.

Punjab National Bank- (CMP: Rs.749/ TP: Rs.843 / Upside: 12.5%)

PNB registered a disappointing performance during 2QFY2013, with net profit decline of 11.6% yoy. BankRs.s disappointing performance was a result of muted performance on the operating front (operating profit came in flat yoy) and considerably higher provisioning expenses on back of significant deterioration on the asset-quality front evident from elevated slippages (quarterly slippages at a high of 6.2%) and ballooning restructuring.

NIMs decline sequentially, slippages surge: During 2QFY2013, the bankRs.s business grew at healthy pace, with advances and deposits registering a growth of 18.4% and 17.3% yoy, respectively. Growth in CASA deposits came in healthy at 15.6% yoy (current deposits grew by 19.2% yoy, while savings deposits grew by 14.8% yoy). Reported CASA ratio improved by 170bp sequentially to 37.0%. Interest reversal of Rs.163cr on slippages and full effect of base rate reduction in May led the yield on advances to decline by 43bp, which coupled with 6bp decline in yields on investment, resulted in10bp decline in reported NIMs to 3.5%. Noninterest income (excluding treasury) de-grew by 2.4% yoy, due to flat performance on fee income front and lower recoveries. On the asset quality front, the gross and net NPA levels, on an absolute basis, increased significantly by 40.4% and 60.3%, qoq respectively. Annualized slippage ratio came in at high of 6.2% compared to 3.8% in 1QFY2013 and 4.7% in 4QFY2012. Recoveries and upgrades came in at Rs.492cr compared to Rs.1,466cr in 1QFY2013. Going ahead, the management expects slippages to continue in-line with slowing economy. The bank restructured ~Rs.2,770cr during the quarter, thereby taking its outstanding restructured book, which is stated borrower-wise to Rs.27,852cr (9.4% of net advances).

Outlook and valuation: The bankRs.s valuations are currently at low of 0.8x FY2014 ABV compared to its eight year range of 1.0-1.6x and median of 1.4x, due to the asset quality concerns facing the sector, which are likely to persist for the next few quarter for lack of visible macro-economic catalyst for improvement in the near term. The bank structurally has lower cost of deposits than peers and valuations currently are even below the lower end of its historical range factoring in most of the fundamental concerns. Hence, we recommend an Accumulate on the stock with a target price of Rs.843.

Dabur India (CMP:- Rs.130 / TP:- / Upside:-)

For 2QFY2013, Dabur India posted a 20.6% yoy growth in net sales to Rs.1,523cr, which is in-line with our estimates. The domestic consumer business reported a growth of 15.3%, driven by a mix of volume and price increases, with the volume growth coming in at around 9%. During the quarter, domestic sales were affected due to lower procurement by CSD due to budget rationalization. The international business grew by 24.8% yoy during the quarter. The growth in the international business was aided by translation gains due to INR depreciation. On constant currency terms, the international business rose by 16% yoy. The OPM stood at 17.4%, down 147bp on a yoy basis. Although the gross margin improved by 56bp yoy due to the cooling of raw material prices, the companyRs.s advertising expenses went up by 175bp on a yoy basis, resulting in an OPM contraction. The net profit rose by 16.4% yoy to Rs.202cr.We maintain our Neutral view on the stock.

JSW Steel (CMP: Rs.733, TP:-, Upside :-)

JSW SteelRs.s standalone net profit was below our estimates. Net sales increased 15.9% yoy to Rs.8,834cr (above our estimate of Rs.8,315) mainly due to increase in volumes (+25.0% yoy to 2.2mn tonne), partially offset by lower realizations. On account of shortage of iron ore, the companyRs.s capacity utilization stood at 80% during the quarter. Its EBITDA increased by 17.7% yoy to Rs.1,525cr in line with increase in net sales. Interest expenses grew by 59.8% yoy to Rs.421cr mainly due to increase in debt. The company reported exceptional gain related to forex of Rs.422cr in 2QFY2013, compared to loss of Rs.485cr in 2QFY2012. Hence, adjusted net profit decreased by 34.7% yoy to Rs.400cr (below our estimate of Rs.818cr) although reported net profit grew by 546.8% yoy to Rs.822cr. On a consolidated basis, JSW SteelRs.s net profit stood at Rs.691cr, compared to a net loss of Rs.669cr.

JSW SteelRs.s associate JSW Ispat also reported 2QFY2013 results. Net sales fell by 1.4% yoy to Rs.2545cr mainly because of lower sales volumes. The EBITDA fell by 15.6% yoy to Rs.11 cr due to higher input costs. The interest expenses for the company fell by 32.3% to Rs.180cr due to write back of excess interest charged on foreign currency loans. The company an exceptional item of Rs.235cr relating to forex gain and recovery of bad debts. The company reported a net profit of Rs.122cr compared to a loss of Rs.345cr in 2QFY2012. However, the adjusting for exceptional item there is a net loss of Rs.113cr. We maintain Neutral on JSW Steel.

Sesa Goa (CMP: Rs.169/ TP: Rs.183/ Upside: 8%)

For 2QFY2013, Sesa Goa reported disappointing results due to the temporary iron ore ban in Goa. The net sales declined by 62.7% yoy to Rs.294cr (lower than our estimate of Rs.725cr) mainly on account of decline in iron ore sales volumes due to the mining ban in Goa. Iron ore sales volumes declined 87.0% yoy to 0.2mn tonne while iron ore realization was flat yoy to US$85/tonne. The EBITDA de-grew by 97.7% yoy to Rs.6cr mainly due to decline in net sales and higher fixed costs. The EBITDA margin slipped 3,086bp yoy to 2.1%. The company reported an exceptional item related to forex gain and VRS amounting to Rs.188cr. However, the PAT (excluding share of profit from associates) grew by 4,421.1% yoy to Rs.58cr in 2QFY2013 mainly because of lower base of 2QFY2012. The company reported a share of income from associate (Cairn India) of Rs.464cr during 2QFY2013.

Excluding exceptional items and including share of profit from associates, the adjusted PAT increased 42.1 % yoy to Rs.334cr (above our estimate of Rs.247cr).

Considering the ongoing process of group restructuring by the promoter, Vedanta Resources, valuation of Sesa Goa will mirror the valuation of the consolidated company, Sesa Sterlite. We recommend Accumulate on the stock with a SOTP-based target price of Rs.183.

IOB - (CMP: Rs.75, TP: / Upside :)

IOB reported a disappointing set of numbers with net profit declining by 23.6% yoy to Rs.158cr. The bankRs.s yield on advances were lower by 48bp, indicating some amount of interest reversals during the quarter. Consequently, the NIMs were down by 26bp to 2.3%.

Slippages surprised negatively at Rs.1,854cr, more than double the average slippage figures over the preceding 6 quarters. On an absolute basis, the gross and the net NPA figures increased by 34.5% and 57.0% respectively. The bank restructured Rs.1,581 cr worth accounts during the quarter, taking the overall restructuring to Rs.14,775cr (at 9.8% of the overall advances is one of the highest in the industry). On account of continued stress on the loan book, we remain Neutral on the stock.

FAG Bearings (CMP: Rs.1,781/ TP: -/ Upside: -)

FAG Bearings (FAG) registered poor set of results for 3QCY2012 as operating margins plunged 520bp yoy (230bp qoq) primarily on account of raw-material cost pressures. For 3QCY2012, net sales reported a moderate growth of 6.8% yoy (down 6.3% qoq) to Rs.356cr, which was marginally below our expectations of Rs.368cr. The top-line performance during the quarter was impacted by slowdown in the automotive and industrial sectors which are the primary drivers of the companyRs.s performance. However, operating profit fell steeply by 21.6% yoy (19.2% qoq) as margins witnessed a steel fall led by raw-material cost pressures and reduced operating leverage benefits. While, raw-material cost as a percentage of sales jumped 430bp yoy due to sharp depreciation of INR vs. EUR; it declined 90bp sequentially probably on account of stronger INR vs. EUR. However, employee and other expenditure as a percentage of sales increased 30bp (50bp qoq) and 80bp yoy (280bp qoq) respectively during the quarter. Led by weak operating performance, net profit declined 18.7% yoy (20.1% qoq) to Rs.37cr.

We have revised downwards our earnings estimates for CY201 2/1 3 by 7.1%/4.4% primarily to factor in the margin pressures witnessed during the quarter. At the CMP of Rs.1,781, the stock is trading at 14x its CY2013E earnings, which is slightly on the higher side compared to its historical average. Hence, we maintain our Neutral rating on the stock.

United Bank of India - (CMP: Rs.65, TP: - Rs.78, Upside: - 19%)

United Bank of India reported a decent set of numbers for 2QFY2013, with net profit growing by 15.9% yoy to Rs.145cr. The NII was significantly lower than our estimates indicating some amount of interest reversals during the quarter. The non-interest income growth was higher by 49.3% yoy, and above our estimates. Clarification regarding the accounting policy would be needed form the management as many banks have been classifying interest on income tax refunds in other income. Asset quality deteriorated during the quarter with gross NPA ratio increasing by 41bp to 3.9% and net NPA increasing by 18bp to 1.95%. The stock is currently one of the cheapest valued in the industry, despite healthy earnings potential over FY2012-FY2014. Hence, we maintain a Buy rating on the stock

Sarda Energy and Minerals (CMP: Rs.131, TP: Rs.148, Upside: 13%)

Sarda Energy and Minerals (SEML) reported healthy 2QFY2013 numbers. The net sales grew by 39.3% yoy to Rs.351cr mainly driven by healthy performance from steel and ferro alloys segments. The company reported a healthy EBITDA growth of 356.0% to Rs.41 cr. The net profit of the company in 2QFY2013 was Rs.28cr as against a net loss of Rs.1 0cr in 2QFY2012. We maintain our Accumulate rating on the stock.

Result Preview

BHEL (CMP: Rs.242 / TP: - / Upside: - %)

We expect BHEL to post a top-line growth of 16.2% yoy to Rs.11,967cr for 2QFY2013. On the EBITDA front, the companyRs.s margin is expected to remain stable at 18.8% for the quarter. We expect PAT to come in at Rs.1,487cr. We maintain our Neutral recommendation on the stock as we expect weak order inflow to continue for the rest of the year.

Bank of India- (CMP: Rs.287 / TP: - Rs.319/ Upside: - 11.3%)

Bank of India is scheduled to announce its 2QFY2013 results today. We expect the bank to report bottom-line growth of 85.8% yoy to Rs.912cr. Growth in operating profit is expected to be moderate at 13.6% yoy, largely driven by 17.5% yoy growth in net interest income. Provisioning expenses are expected to decline significantly by 55.6% yoy to Rs.513cr, on a high base of 2QFY2012, which would result in the earnings growth of 85.8% yoy. At the CMP, the stock is trading at 0.7x FY2014E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.319.

Colgate Palmolive - (CMP:Rs.l/228/TP:/Upside:-)

Colgate Palmolive is expected to post its 2QFY2013 results today. We expect the top-line to grow by 12.5% yoy to Rs.739cr. The OPM is expected to expand by 388bp to 21% aided by price hikes and a superior sales mix. The bottom-line is expected to grow by 13.5% yoy to Rs.113cr. We maintain our Neutral view on the stock.

Jagran (CMP: Rs.101/TP: Rs.112/Upside: 11%)

Jagran Prakashan is slated to announce its 2QFY2013 results. The companyRs.s topline is expected to grow by 8% yoy to Rs.329cr. Its OPM is expected to contract by 300bp to 22.9%. However, the net profit is expected to increase by 24% yoy to Rs.57cr on account of tax benefit due to accumulated losses at Nai Dunia subsidiary. At the current market price, Jagran Prakashan is trading at 16.2x FY2014E consolidated EPS of Rs.7.1. We maintain Accumulate on the stock.

Economic and Political News

- India, Spain sign pact to amend DTAA

- India, China trade expected to touch $1 00bn by 201 5

- SM Krishna to step down as External Affairs Minister

Corporate News

- Sun Pharma MDRs.s brother-in-law to buy stake in Telenor

- Tata Elxsi writes off $4mn it invested in US JV

- IT healthcare sector gets $1 94mn VC funding in Sept quarter

- CIL puts onus of meeting PMO directive on power firms