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Indian stock market and companies daily report (October 30, 2012, Tuesday)

Contributed by Angel Broking

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

Due to Hurricane Sandy swirling towards the east coast of the U.S., the major stock markets in the US remained closed on Monday. The threats have not receded and hence NYSE Euronext (NYX), the parent of the New York Stock Exchange, said it will close its markets in coordination with all U.S. equities, bonds, options and derivatives markets on Tuesday also. The company said it intend to re-open the U.S. markets Wednesday morning if conditions permit. The European markets largely ended MondayRs.s session with modest losses.

Closer home, many economists expect the Reserve Bank of India to hold policy rates steady, although another CRR cut is possible. Ahead of its monetary policy meeting today, the central bank lauded the government for its new fiscal consolidation strategy but said further measures are necessary to contain the fiscal deficit. Indian shares ended little changed on Monday, mirroring losses elsewhere across Asia and Europe and lower commodity prices after both NYSE and Nasdaq announced the suspension of equity trading due to Hurricane Sandy.

Markets Today

The trend deciding level for the day is 18,650 / 5,670 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,729 - 18,822 / 5,694 - 5,723 levels. However, if NIFTY trades below 18,650 / 5,670 levels for the first half-an-hour of trade then it may correct up to 18,557 - 18,479 / 5,641 - 5,616 levels.

Roadmap on fiscal consolidation

The Finance Minister outlined a five-year roadmap on fiscal consolidation and revised the budget deficit target for FY2013 to 5.3% of GDP as against the budgeted target of 5.1% of GDP. Through a credible fiscal consolidation plan, the finance ministry aims to boost investor confidence and investments so that the economy can the economy can return to the path of Rs.high investment, higher growth, lower inflation and long-term sustainabilityRs.

The recommendations of the Kelkar Committee on fiscal consolidation have been accepted by the government. The positive measures emphasized by the FM include a transition to the Goods and Services Tax (GST), quick review of the Direct Taxes Code (DTC) before its introduction and passing in Parliament, meeting its budgeted disinvestment target of Rs. 30,000 crores for the fiscal, Aadhaar-enabled direct cash transfers of subsidies and rationalization of schemes and strict control and monitoring of expenditure. At the same time, the government indicated that its flagship welfare programmes will be protected and fully provided for.

In our view, the government is unlikely to garner the budgeted level of tax receipts owing to the general slowdown in the economy. We expect the government to kick-start its disinvestment program to generate capital receipts in view of the buoyancy in equity markets. The Cabinet Committee on Economic Affairs (CCEA) has approved sale of shares in Hindustan Copper Ltd., NALCO, SAIL, RINL, BHEL, OIL, MMTC and NMDC for disinvestment purpose. As regards to those companies in our coverage, we reiterate our stance of buy on NMDC with a target price of Rs.214; reduce on NALCO with target price of Rs.44 and neutral on SAIL and BHEL.

We believe that unless there is a meaningful reduction in expenditure particularly on subsidies, the government is likely to miss its revised fiscal deficit target, even if it generates revenues through disinvestment and sticks to its budgeted market borrowing program.

Odisha to allow mining for captive use only

Ten large iron ore miners in Odisha have been directed by the state government to either stop or curtail iron ore mining. As per the directive, Odisha state will permit iron ore mining for captive use only. This is likely to result in shortage of iron ore in the state. Bhushan Steel operates a 2.2mn tonne steel plant; it requires approximately 3.8mn tonne of iron ore which it purchases from merchant miners in Odisha. Although it is difficult to quantify the decline in production of iron ore in the state currently, we believe this would raise cost of iron ore procurement for Bhushan Steel. Further, shortage of iron ore could also result in lower utilization levels for Bhushan Steel. We maintain our Neutral rating on the stock.

Result Review

BHEL (CMP: Rs.227 / TP: - / Upside: - %)

For 2QFY2013, BHELRs.s top-line came in flat at Rs.10,561 cr, much below street expectations as well as our estimates. On the OPM front, the companyRs.s margin declined by 59bp yoy to 18% mainly on account of margin contraction in industrial segment from 27% to 21%. Consequently, PAT declined by 9.7% to Rs.1,275cr. We maintain our Neutral recommendation on the stock since the order inflow has been sluggish in last few quarters.

Colgate (CMP: Rs.1,234/TP: /Upside :-)

Colgate posted a 17.7% yoy growth in its top-line for 2QFY2013 to Rs.774cr, which is ahead of our estimates. The top-line growth was driven by a 10% volume growth on a yoy basis. The company has increased the volume market share of its toothpaste category to 54.3% for the period January-September 2012. It has also registered a strong growth momentum in the toothbrush category with a market share of 39%. The OPM for the quarter expanded by 319bp to 20.3% aided by price hikes and superior sales mix and was in-line with our estimates. The bottom-line rose by 45.5% yoy to Rs.145cr aided by superior operating performance and lower tax rate. We maintain our Neutral view on the stock.

Bank of India- (CMP: Rs.280, TP: Under Review)

During 2QFY2013, BOI registered moderate performance on the operating front, with operating income and operating profit growth of 12.5% and 19.5%, respectively. PBT for the bank de-grew by 24% yoy, as provisioning expenses went up significantly by 34.5% yoy (even on a high base of 2QFY2012) due to stressed asset quality.

Advances for the bank grew at healthy pace of 19.5% yoy, while deposits registered a moderate growth of 11.2% respectively. Growth in domestic CASA deposits came in moderate at 9.8% yoy (domestic savings deposits grew by 11.8% yoy, while current deposits remained flat on a yoy basis). Calculated domestic CASA ratio improved by ~60bp sequentially to 31.8%. Overseas NIMs declined by 23bp to 1.23% due to Interest reversal on slipped accounts. Domestic NIMs improved by 28bp to 2.84%. Non-interest income (excluding treasury) grew at healthy pace of 15.1% yoy, due to higher recoveries. Recoveries from written-off accounts almost doubled to Rs.167cr on a yoy basis. Treasury income for the bank de-grew by 33.4% yoy to Rs.1 03cr.

On the asset quality front, the gross and net NPA levels, on an absolute basis, increased significantly by 31.8% and 1 8.5%, qoq respectively. Slippages during the quarter amounted to Rs.2,700cr, out of which ~80% were accounts more than Rs.5cr largely belonging to large and mid corporates. Annualized slippage ratio came in at 4.4% compared to 2.8% in 1QFY2013 and 5.3% in 2QFY2012. The management exuded confidence in recovering a large part of these slippages going forward. The bank restructured advances worth ~Rs.810cr during the quarter, which included an account from the hospitality industry amounting to Rs.330cr. As per the management, no major advances are in restructuring pipeline. At the CMP, the stock is trading at 0.8x FY2014E ABV. The stock rating is under review.

Jagran (CMP: Rs.100/TP: Rs.112/Upside: 12%)

Jagran Prakashan has announced its 2QFY2013 results. The companyRs.s top-line grew by 5.5% yoy to Rs.322cr on account of a 3.6% yoy growth in advertising revenue and 8.9% yoy growth in circulation revenue. The OPM contracted by 162bp to 24.3%. However, the net profit increased by 51.7% yoy to Rs.69cr 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.

Siyaram Silk Mills (CMP - 299 / TP - 366 / Upside -23%)

For 2QFY2013, Siyaram Silk Mills (SSM) reported mixed set of numbers. The companyRs.s top line grew by 9.3% yoy to Rs.267cr, in-line with our estimate of Rs.268cr for the quarter. The company disappointed on the operating margin front as the margin contracted by 383bp yoy to 9.6% for the quarter due to utilization of high cost inventory from previous quarter, which led to an increase in net raw material cost a percent of net sales from 48.7% in 2QFY2012 to 52.3% in 2QFY2013. The company reported other income of Rs.10cr which includes onetime insurance premium payment from the directors. This resulted in a bottomline of Rs.18cr, growth of 5.5% yoy.

We remain positive on the company and expect the topline to improve with the coming festive and wedding season, which is the major driver of sales. Also, the company is on strong expansion mode in order to take advantage of the growing demand for branded fabric and garments in India. The company has already installed 72 looms in 1HY2013 and expects to add another 50by the end of FY2013E. We maintain our Buy recommendation on the stock with a revised target price of Rs.366 based on a target P/E of 5.0x for FY2014E.

Styrolution ABS Ltd. (CMP-Rs.663/TP-Rs.744/Upside-12%)

Styrolution ABS Ltd (Styrolution) reported a strong set of numbers for its 3QCY2012. The top-line for the quarter grew by 26.5% and came in at Rs.263cr, 10% higher than our estimate of Rs.230cr. The EBITDA was up by a whopping 170% yoy and came in at Rs.33cr, higher by 48% than our estimate of Rs.23cr. The operating margin for the quarter expanded by 670bps yoy to 12.7% mainly due to low base coupled with lower raw material cost as a percentage of sales. The net profit stood at Rs.22cr, 165% higher yoy and higher than our estimates of Rs.15cr owing to a strong operating performance. We continue to maintain our Accumulate recommendation on the stock with a revised target price of Rs.744, based on a PE of 16x for CY2013E.

Result Preview

Maruti Suzuki (CMP: Rs.1,361/ TP: -/ Upside: -)

Maruti Suzuki (MSIL) is scheduled to announce its 2QFY2013 results today. We expect the company to report a healthy top-line growth of 10.6% yoy (down 19.6% qoq) to Rs.8,662cr driven by 21.5% yoy jump in net average realization. The net average realization is expected to improve primarily on account of superior product-mix with higher share of Swift, Dzire and Ertiga in total volumes. Total volumes is expected to register a decline of 8.7% yoy (22.1% qoq) led by sluggish demand for cars in the Mini segment and also on account of production loss due to the month long strike at the Manesar plant. The operating margins are however expected to improve 70bp yoy mainly on account of better product-mix. As a result, the bottom line is expected to increase 18% yoy (down 33.1% qoq) to Rs.284cr. At the CMP of Rs.1,361, the stock is trading at 14.7x FY2014 earnings which is in-line with its historical average of 15x. We maintain our Neutral rating on the stock.

DRL (CMP-Rs.1,696, Target- Rs.1,859, Upside-9.6%)

Dr Reddys Labs: Dr Reddys Labs (DRL) is expected to post strong results during 2QFY2013; DRL is expected to post strong results with a top-line growth of 23.5% to Rs.2,800cr, majorly driven by the US market. The company is expected to see strong traction in its Indian and Russian formulation businesses as well. In terms of the pharmaceuticals services and active ingredients (PSAI) segment, the performance is expected to be lackluster for 2QFY2013.The company is expected to post an OPM of 25.1%, up 387bp yoy. On the net profit front, the company is expected to post a net profit of Rs.507cr, ie a growth of 65.3% over the corresponding period of the previous year. We recommend accumulate on the stock with a target price of Rs.1859.

Mahindra Satyam (CMP: Rs.107 / TP: - / Upside: -)

Mahindra Satyam (Satyam) is slated to announce its 2QFY2013 results today. We expect the company to post revenue of US$352mn, up 2.8% qoq majorly led by volume growth. In rupee terms, the revenue is expected to come in at Rs.1,929cr, up 2.6% qpq. EBITDA margin is expected to decline by 207bp qoq to 19.6%, due to wage hikes given during the quarter. PAT is expected to come in at Rs.273cr. We maintain Neutral rating on the stock

IDBI Bank- (CMP: Rs.95 / TP: Rs.108/ Upside: -14.0%)

IDBI Bank is slated to announce its 2QFY2013 results today. We expect the bank to report a healthy Net Interest Income (NII) growth of 15.3% yoy to Rs.1,294cr. Non-interest income is expected to grow by 6.0% yoy to Rs.508cr. Operating expenses of the bank are expected to be higher by 15.4% yoy to Rs.686cr. However, Net Profit is expected to decline by 3.8% yoy to Rs.496cr, on account of 35.9% yoy increase in provisioning expenses. At the CMP, the stock trades at a valuation of 0.5x FY2014E ABV. At CMP, the stock trades at 0.6x FY2014 BV. We maintain our Accumulate recommendation on the stock with a target price of Rs.108.

Thermax (CMP: Rs.586/TP: -/Upside: - %)

For 2QFY2013, we expect Thermax to report a top-line of Rs.1,238cr, as weak order inflows since the last couple of quarters will keep the companyRs.s revenue under strict check. The companyRs.s EBITDA margin is likely to compress by ~68bp yoy to 10.1%. Falling revenue and margin contraction are expected to result in a y-o-y fall of 18.7% in the companyRs.s PAT to Rs.83cr. We maintain our Neutral rating on the stock.

IRB Infra (CMP: Rs.118 / TP: Rs.166 / Upside: 41%)

IRB is expected to post a good performance in its 2QFY2013 results. We expect an 18.1% yoy growth in the engineering & construction (E&C) segment to Rs.623cr. This would come on the back of a healthy execution pace in the under construction build-operate-transfer (BOT) projects. The BOT segment is also expected to report a decent 16.0% yoy growth to Rs.277cr, leading the overall top-line to Rs.900cr. We expect blended EBITDA margin at 43.4%, a dip of 33bp yoy. The depreciation for the quarter is expected to witness a yoy jump of 81.2%, owing to completion of the Surat-Dahisar project. We project net profit before tax and after tax (post minority interest) at Rs.144cr and Rs.106cr, respectively, after factoring a blended tax rate of 28.8% for the quarter. We recommend Buy on the stock with a target price of Rs.166.

PVR (CMP: Rs.227/TP: -/Upside: - %)

For 2QFY2013, we expect PVR to report robust 34% yoy growth in top-line to Rs.184cr, on back of good performance in movie exhibition business. The companyRs.s EBITDA margin is likely to remain flat at 23.0%. Consequently, Net profit is expected to be flat at Rs.14cr. We maintain our Neutral rating on the stock.

Jyoti Structures (CMP: Rs.47/TP: Rs.54/Upside: 14%)

For 2QFY2013, we expect Jyoti StructuresRs. top-line to remain flat at Rs.651 cr. We expect the companyRs.s EBITDA margin to contract by ~76bp yoy to 10.0%. The interest cost is expected to increase due to higher working capital borrowings. Against this backdrop, the companyRs.s PAT is expected to decline by 18.8% yoy to Rs.18cr. We recommend an Accumulate rating on the stock with a target price of Rs.54.

Economic and Political News

- FinMin expects RBI to take signals from fiscal road map

- New Railway Minister hints at possible fare hike

- IndiaRs.s yarn exports quadruples in 9 months

Corporate News

- TCS to invest Rs.550cr to set up software development campus in Indore

- Sesa Goa likely to miss production target due to mining ban

- Ford launches Quick Lane service model in India

- Venus Remedies gets patent from Mexico for antibiotic drug