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Indian stock market and companies daily report (October 29, 2013, Tuesday)
Indian markets are expected to open flat with a positive bias, tracking a marginally positive opening in SGX Nifty which is trading higher by ~0.2%. Asian markets are trading in a mixed manner.
US markets showed a lack of direction throughout the trading day on Monday before ending the day roughly flat. Traders seemed reluctant to make any significant moves following the strong upward move seen over the past few weeks. Traders were also likely looking ahead to the two-day meeting of the Federal Reserve's monetary policy committee which is due to begin on Tuesday. Analysts widely expect the recent government shutdown to lead the Fed to delay its plans to begin tapering its asset purchase program for the foreseeable future. Meanwhile, the majority of the European markets ended Monday's session in negative territory.
Meanwhile the Indian markets fell yesterday, ahead of the RBI's policy meeting today. The markets are expecting a 25bp repo rate hike in the policy meeting.
The trend deciding level for the day is 20,631 / 6,121 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,711 - 20,851 / 6,149 - 6,196 levels. However, if NIFTY trades below 20,631 / 6,121 levels for the first half-an-hour of trade then it may correct up to 20,490 - 20,410 / 6,074 - 6,047 levels.
2QFY2014 Monetary Policy Preview
In its Macroeconomic and Monetary Developments report ahead of the 2QFY2014 policy review the RBI reiterated its focus on inflation control. It has stated that Rs.going forward, the good monsoon should have a salutary effect on food inflation, but second-round effects from already high food and fuel inflation could impart upside pressures on prices of other commodities and services. Concerns about inflation emanate not just from high and persistent CPI inflation but also from rising WPI inflationRs.. It adds that high food inflation on account of a number of factors, including high input costs, rising wages and inelastic supply responses could have a destabilizing impact on overall inflation expectations.
The RBI continues to expect the economy to perform better during 2HFY2014 on the back of a good monsoon which has boosted the kharif prospects, pick up in exports and policy action to boost investment. However, it notes that improvements in activity levels are expected to stay modest though recovery could start shaping towards the end of the year. We believe that the RBI is likely to revise its growth forecast for the economy downwards from 5.5% in the July 2013 policy review to about 5%.
It acknowledges that external sector risks have somewhat receded. However, the window of opportunity so created needs to be used to bring about further durable adjustment to lower CAD and encourage its financing through long-term capital inflows, so as to impart greater resilience to large shocks. Responding to the subsiding risks and subsequent appreciation, the MSF rate has already been cut twice within a month in a calibrated manner.
We continue to expect a 25bp hike in the repo rate to 7.75% as WPI inflation has meaningfully picked up over the last three months and CPI inflation remains sticky at near double-digit levels. The INR has appreciated by about 12% from its record low and is now stabilizing at present levels, providing comfort to policymakers on the currency front. In view of this, we believe that the RBI is likely to get some headroom for easing some of the exceptional short-term liquidity tightening measures. We expect the RBI to reduce the marginal standing facility (MSF) rate by 25bp. We thus expect the corridor between the repo and MSF to normalize at 100bp from 150bp currently. The market consensus estimates are also indicating at a 25bp reduction in the MSF coupled with a hike in the repo of the same quantum.
Sun Pharma says it has addressed FDA observations at Caraco factory
Sun Pharmaceutical Industries (Sun) has said it has addressed USFDA's concerns about quality control breaches at a U.S. subsidiary that was shut down by the regulator for three years because of manufacturing flaws. Sun's Detroit-based Caraco Pharmaceutical Laboratories Ltd. unit, said in August 2012 it was allowed to resume drug manufacturing, but had received notifications from the FDA following inspections in January and May this year. This development is positive as according to the company it has resolved issues from its end and hence it found adequate the same should aid the facility getting approval. However, as of now we maintain a neutral rating on the stock.
Maruti Suzuki (CMP: Rs.1,513/ TP: Under Review/ Upside: -)
Maruti Suzuki (MSIL) reported impressive results for 2QFY2014, ahead of our as well as consensus estimates, driven by strong growth in exports (up 67.5% qoq), favorable exchange rate (~100bp impact on EBITDA margins) and cost control measures. The results are not comparable on a yoy basis as performance in 2QFY2013 was impacted due to the labor strike and additionally 2QFY2014 results reflect the impact of the consolidation of Suzuki Power Train India (SPIL) operations.
The top-line recorded a sequential growth of 2.3% to Rs.10,468cr, in-line with our estimates of Rs.10,476cr. The performance was driven entirely by exports with volumes and revenues posting a strong growth of 61.3% and 67.5% qoq respectively. Total volumes during the quarter recorded a modest growth of 3.4% qoq as domestic volumes declined by 1.5% qoq led by weakness in the domestic demand. Net average realization declined by 1.2% qoq due to adverse product-mix (higher share of entry level cars coupled with lower proportion of diesel cars) and higher average discounts (at Rs.17,500/ units as against Rs.13,500/ unit in 1QFY2014). On the operating front, EBITDA margins surprised positively, registering an expansion of 123bp qoq to 12.6%, ahead of our expectations of 10.8%. The surprise was driven primarily due to the lower raw-material expenses (down 1.4% qoq) on account of the cost reduction initiatives and favorable impact of foreign exchange (benefitted to the tune of Rs.105cr). However, increase in employee expenditure due to annual salary hikes and increase in other expenditure limited the margin expansion to some extent. Driven by strong operating performance, net profit registered a healthy growth of 6.1% qoq to Rs.670cr, better than our estimates of Rs.570cr. Other income declined 50.6% qoq restricting the bottom-line growth during the quarter. AT the CMP of Rs.1,513, the stock is trading at 14.5x FY2015E earnings. We recommend an Accumulate rating on the stock; however, our target price is under review.
Dabur India (CMP: Rs.176/TP:-/Upside:-)
For 2QFY2014 Dabur's results were better than estimates. The company's consolidated net sales rose 14.9% yoy to Rs.1,749cr aided by a volume growth of 10.9% yoy. While domestic FMCG business grew by 14.4% yoy, international business grew by 25.8% yoy. Major segments consumer care and foods posted growth of 18.3% and 15.7% respectively. OPM rose by 115bp yoy to 18.5% aided by price hikes and lower raw material costs. Net Profit stood at Rs.250cr up 23.5% on yoy basis. We maintain a neutral rating on the stock.
Syndicate Bank- (CMP: Rs.73 / TP: - / Upside: -)
Syndicate Bank reported weak operating performance for the quarter. NII for the bank remained largely flat yoy (vs. advance growth of 21% yoy), while Noninterest income grew marginally by 2.3% yoy. At the operating profit level, the bank reported decline of 3.8% yoy. On the asset quality front, the bank witnessed significant asset quality stress during the quarter, as Gross NPA levels increased sequentially by around 25.8%. However, the increase in Net NPA levels was much higher at 44.8% qoq. Moreover, the bank's provisioning expenses for the quarter declined by 29.1% yoy, which aided the bank to report PBT level earnings growth of 29.6%. Tax expenses remained at near zero levels as against tax reversals of Rs.100cr in 2QFY2013 resulted in muted PAT growth of 1.5% at Rs.470cr. We await further clarity from the management regarding the asset quality performance during the quarter (incl. provisioning) and the outlook on asset quality and tax rate going ahead. We maintain our Neutral Rating on the stock.
Blue Star (CMP: Rs.149 / TP: Rs.193 / Upside: 29%)
Blue Star reported a marginal 1.1% yoy increase in its net revenue to Rs.585cr for 2QFY2014. On the operational front, EBITDA grew by 12.2% yoy to Rs.22.6cr from Rs.20.2cr in 2QFY2013 owing to reduced raw material cost as percentage of sales. A dip of 137bp in raw material cost is set off by an increase in ~99bp in staff cost and other expenditure resultantly EBITDA margin expanded by mere 38bp yoy to 3.9% from 3.5% in same quarter previous year. Due to 14.3% yoy increase in financial expenses to Rs.12.8cr, bottom line grew by just 3.4% yoy to Rs.7.5cr.
PEIS segment reported ~25% yoy growth while EMPPACS and Cooling Product division were flat yoy basis in 2QFY201 4. Segmental margins for the PEIS segment improved by 1185bps due to a revival in some segments and enhanced business mix from high-margin segments. However, EMPPACs division margins decline by 168bps yoy and for Cooling Product division it remained flat. Carry Forward Order Book as on 1HFY2014 increased marginally by 4% to Rs.1,744cr compared to Rs.1,676cr as at September 30, 2012. We believe that performance for 2QFY2014 was affected mainly due to cyclical nature of business. However, going forward, we expect improvement in company's overall performance with the gradual recovery in macro-economic conditions. We maintain our Buy recommendation on the stock with a target price of Rs.193 based on a target PBV of 3.5x for FY2015E.
Relaxo Footwear (CMP: Rs.878 / TP: Rs.970 / Upside: 10%)
Relaxo reported a below estimate set of numbers for 2QFY2014 due to the economic slowdown and lower discretionary spend. The revenue for the quarter grew by 8.7% yoy and stood at Rs.263cr, 8.2% lower than our expectation of Rs.287cr. With the softening in rubber price in the quarter, the gross margin expanded considerably by 405bp yoy and came in at 56.7%. However, owing to higher other expenses as a percent of net sales, operating margin was flat on yoy basis to 9.9%, against our estimate of 11.3%. Tax for the quarter stood at Rs.6cr (32.2% of PBT). As a result, the net profit for the quarter came in at Rs.12cr, 13.4% higher yoy, and 19.1% lower than our estimate of Rs.14cr.
We remain positive on the company with the growth triggers in place, which includes - 1) sufficient capacity expansion, 2) improving sales mix and 3) increasing brand visibility. At Rs.878, the stock is trading at 11.8x FY2015E earnings. Due to recent run up in stock, we recommend Accumulate rating on the stock with a revised target price of Rs.970, based on a target PE of 13x for FY2015E.
GIPCL (CMP: Rs.58/TP: Rs.65 /Upside: 12.0%)
For 2QFY2014, GIPCL reported a disappointing performance. The company's top-line declined by 10.1% yoy to Rs.324cr and was much below our expectations. This was majorly due to a 21.0% yoy decline in power generation which was at 846MU in 2QFY2014 as compared to 1071MU in 2QFY2013. The EBITDA margin was also below our expectations and was down by 599bp yoy to 29.8%. Consequently, Net Profit came in at Rs.31cr for 2QFY2014 as against a loss of Rs.28cr (excluding prior period items of Rs.60cr) in 2QFY2013. We recommend Accumulate rating on the stock.
Ceat (CMP: Rs.171/ TP: Rs.208/ Upside: 22%)
Ceat reported strong results for 2QFY2014 which were better than our expectations led by sequential improvement in EBITDA margins despite the weak demand environment and cost pressures. The standalone top-line remained flat sequentially at Rs.1,281cr amid the sluggish demand environment (volumes down 0.9% qoq) on the domestic front. Operating profit, however, jumped 9.8% qoq to Rs.165cr driven by 114bp qoq expansion in operating margins to 12.9%, driven by efficient raw-material cost management. The EBITDA margin improvement was driven by superior product-mix and also on account of the better realization on the exports front. Led by better-than-expected operating performance, sharp increase in other income (Rs.11cr as against Rs.3cr sequentially) and lower tax-rate, net profit increased 30% qoq to Rs.76cr ahead of our expectations of Rs.50cr. On a yoy basis, adjusted net profit grew substantially by 352.4% as EBITDA margins increased 624bp led by 776bp decline in raw-material expenditure as a percentage of sales. The company has announced capacity expenditure plans of Rs.650cr over a period o four years to enhance the passenger vehicle radial tyre capacity at the Halol plant by 120TPD. We retain our positive view on Ceat and believe that the company will continue to benefit from the new OEM partnerships and expected stability in raw-material prices. We maintain our Buy rating on the stock with a revised target price of Rs.208.
NTPC (CMP: Rs.144/TP: Rs.163 /Upside: 13.2%)
NTPC is slated to announce its 2QFY2014 results today. The company is expected to post 1.5% yoy growth in its top-line to Rs.16,361 cr. On the operating front, OPM is likely to contract by 41bp yoy to 25.8% while net profit is expected to decline by 3.2% yoy and come in at Rs.3,041cr. NTPC is currently trading at relatively cheap valuations of 1.3x 2015E BV. We maintain Accumulate rating on the stock.
JSW Steel (CPM: Rs.859/ TP:-/ Upside:-)
JSW Steel is slated to announce its 2QFY2014 results today. The results are not comparable with 2QFY2013 as JSW Steel has merged with JSW Ispat during 4QFY2013. We expect its standalone net sales to be Rs.9,764cr. The operating margin is expected to be 17.2% and the net profit is expected to be at Rs.324cr. We maintain our Neutral view on the stock.
Ranbaxy Labs - (CMP: Rs.389 /TP: - /Upside: -)
Ranbaxy is expected to post a 2.6% yoy decline in sales to Rs.2,669cr during 3QCY2013. Its OPM is expected at 8.5% vs 11.7% in 3QCY2012. The net profit is likely to come in at Rs.130.7cr, vs Rs.387.1cr during the corresponding period of last year. We maintain our neutral stance on the stock.
Marico (CMP: Rs.212/TP:-/Upside:-)
Marico is expected to declare its 2QFY2014 results today. We expect the top-line to grow by 9.5% yoy to Rs.1,266cr. OPM is expected to increase by 93bp yoy to 13.7%. Bottom-line is expected to increase by 23.6% yoy to Rs.106cr. We maintain our Neutral recommendation on the stock.
Bank of Maharashtra (CMP: Rs.40 / TP: / Upside: )
Bank of Maharashtra is scheduled to announce its 2QFY2014 results today. We expect the bank to report a strong growth of 26.9% yoy in Net Interest Income (NII) to Rs.913cr. Non-interest income is expected to decline by 5.2% yoy to Rs.168cr. Operating expenses are expected to increase by 11.3% yoy to Rs.471cr. Thus operating profit is expected to grow strong at 28.9% yoy to Rs.610cr. Provisioning expenses are expected to increase by 53.7% yoy to Rs.342cr. Hence Net profit is expected to grow by 6.3% yoy to Rs.177cr. At the CMP, the stock is trading at 0.5x FY2015E ABV. We maintain our Neutral recommendation on the stock.
Ashoka Buildcon (CMP: Rs.43 / TP: Rs.60/ Upside: 40%)
For 2QFY2014, Ashoka Buildcon (ABL) is expected to post a consolidated revenue growth of 8.7% yoy to Rs.332cr on the back of under-construction captive road BOT projects, which will drive its E&C revenue. The E&C segment will continue to dominate the company's revenue composition by contributing Rs.260cr (78%) while the BOT segment's share is expected to be at Rs.72cr (22%). On the margin front, EBITDAM is expected to come in at 22.0% (20.1% in 1QFY2014), registering a decline of 403bp yoy. On the back of lower operating performance and higher interest and depreciation expense, we expect the company to post a 41.9% yoy decline in earnings to Rs.14cr for the quarter. We maintain our Buy recommendation on the stock with a target price of Rs.60.
Economic and Political News
- Govt, clears 13 FDI proposals worth Rs.1,258cr
- Commerce Minister Anand Sharma raises concerns over draft US immigration Bill
- Containing fiscal deficit can be a challenge, says RBI
- Coal India stake sale likely in November or December: Jaiswal
- Moily approves taking away 5 gas discoveries from RIL
- IT companies increasing focus on developing products: Nasscom
- NHPC fixes Nov 8 for share buyback
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