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Indian stock market and companies daily report (September 11, 2012, Tuesday)

Contributed by Angel Broking

The Indian markets are expected to open in the red tracking negative opening in most of the Asian markets which matched losses on Wall Street as investors grew cautious ahead of key event risks from the US and Europe later in the week, and with the weak euro hitting exporter stocks in Japan.

The US markets closed lower yesterday as apprehension ahead of the Federal ReserveRs.s upcoming monetary policy meeting contributed to the weakness. The Fed is due to announce its latest decision on monetary policy Thursday afternoon followed by a news conference by Chairman Ben Bernanke. Uncertainty about whether the Fed will announce another round of quantitative easing dragged stocks lower, although selling pressure remained relatively subdued. Some negative sentiment was also generated by disappointing trade data from China, with a report showing an unexpected year-over-year drop in imports in the month of August.

Meanwhile the Indian markets moved in a lackluster manner on Monday, as a lack of progress on fiscal reforms to cut down the governmentRs.s expenditure on wasteful subsidies kept investor mood subdued ahead of industrial output and inflation data due on Wednesday and Friday, respectively.

Markets Today

The trend deciding level for the day is 17,769 / 5,363 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,809 - 17,851 / 5,376 - 5,389 levels. However, if NIFTY trades below 17,769 / 5,363 levels for the first half-an-hour of trade then it may correct up to 17,726 - 17,686 / 5,350 - 5,336 levels.

Infosys acquires Lodestone for US$350mn

Infosys has announced acquisition of Lodestone, a Zurich-based SAP implementation and management consultancy company. This will be an all cash deal valued at 330mn Swiss Franc (US$345 mn), 2/3 of consideration to be paid up-front with the other 1/3 to be paid after 3 years subject to certain conditions. We believe this is a step in the right direction and in tandem with InfosysRs.s strategy to focus more on high-margin software and consulting services and less on laborintensive outsourcing services.

About Lodestone: It is a global consulting firm, headquartered in Switzerland which advises clients on strategy and process optimization and provides business transformation solutions enabled by SAP. Lodestone reported revenues of 207mn Swiss Franc (US$220mn) in FY2011 and has over 850 employees including 750 consultants. Lodestone derives 83% of its revenues from Europe and it has more than 200 clients (negligible overall with InfosysRs. existing client base) across industries including manufacturing (17%), automotive (16%), life sciences (28%), and consumer goods (14%) sector. Lodestone has presence in 17 countries across five continents

The deal: This deal is valued at ~1.3x FY2012 EV/sales, which is decent for a consulting firm. Post acquisition, Infosys will have about a billion dollars coming from its SAP practice. The transaction is expected to close by the end of October 2012, subject to customary closing conditions and will be EPS accretive in 18 months.

Infosys Consulting and Systems Integration business currently has more than 30,000 consultants across 10 industry verticals and accounts for 31% of the companyRs.s revenue. From the revenue side, the gains are not substantial but what works for Infosys with this acquisition is that the company is strengthening its presence in Europe, where its other peers have significant presence. We see this acquisition as a step in the right direction and much needed inorganic booster for the company. We currently maintain our estimates for Infosys as this deal will be EPS accretive in 18 months. We maintain our Accumulate rating on the stock.

Government bans mining in Goa until further notice

Goa government has imposed a ban on iron ore mining in Goa until further review. There are 90 mines which are currently operational in Goa. Sesa Goa operates several mines in Goa with an annual production of 12mn tonne. Sesa Goa generates a significant proportion of its revenues and profit from its Goa mines. However, 2QFY2013 is a seasonally weak quarter for Sesa Goa given that it sells only 10-15% of its annual output during second quarter of a fiscal year on account of monsoon in Goa. The companyRs.s Karnataka mines with annual capacity of 6mn tonne are also facing a ban currently. In the short-term the stock of Sesa Goa is likely to decline due to the ban in Goa. With no clarity on the timelines on lifting the ban on Goa mines, we recommend Neutral rating on the stock.

Over the long-term, however, Sesa GoaRs.s stock price performance will be determined by the operating performance of Sterlite Industries and Sesa Goa (combined) on account of the proposed merger (which will result in new entity Sesa Sterlite). Approximately 22% of valuation of Sesa Sterlite is derived from Sesa Goa operations (mainly iron ore business) in our SOTP based target price. Hence, in light of this, we recommend a Neutral rating on Sterlite Industries until further clarity emerges.

Economic and Political News

- Car sales may miss growth forecast, will revise after September: SIAM

- Modi hits out at CBI for being Rs.hostileRs. to Gujarat

- Power debt restructuring wonRs.t hit IndiaRs.s sovereign rating: S&P

Corporate News

- Adani Power expects to earn Rs.600cr from carbon credits

- Opto CircuitsRs. arm launches new drug eluting stent

- RIL may see larger drop in KG-D6 gas

- Zydus gets FDA nod for Ultracet painkiller