Reports » India

Indian stock market and companies daily report (September 18, 2012, Tuesday)

Contributed by Angel Broking

The Indian markets are expected to open in the green tracking positive cues from the Asian markets. The Reserve Bank of India (RBI) in its mid quarter monetary policy review slashed the cash reserve ratio (CRR) by 25bp from 4.75% to 4.50%, while maintaining the key policy rates unchanged.

The U.S. markets ended on a negative note on Monday after last weekRs.s rally due to profit booking and disappointing manufacturing data, but selling pressure remained relatively subdued limiting the downside for the markets. The New York Federal Reserve report showed that conditions for New York manufacturers have deteriorated at an accelerated rate in the month of September with index falling to a negative 10.41 in September from a negative 5.85 in August.

Indian shares extended their recent steep gains on Monday as the government's decision last week to raise diesel prices and relax norms for foreign direct investment in the retail, aviation, broadcasting and power sectors cheered investors. Going ahead, traders are likely to keep an eye on a report on US homebuilder confidence in September.

Markets Today

The trend deciding level for the day is 18,579/5,616 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,678 - 18,814/5,646 - 5,683 levels. However, if NIFTY trades below 18,579/5,616 levels for the first half-an-hour of trade then it may correct up to 18,444 - 18,345/5,579 - 5,549 levels.

Reserve bank maintains status quo on repo rate, reduces CRR by 25 bps

The Reserve Bank of India (RBI) in its Mid Quarter Monetary Policy Review slashed the cash reserve ratio (CRR) by 25 basis points (bps) from 4.75% to 4.50%. The RBI maintained its key policy rate - the repo rate unchanged at 8.0%, in line with market expectations. Consequently, the reverse repo rate remains at 7.0% and the marginal standing facility (MSF) rate and bank rate remain unchanged at 9.0%. The statutory liquidity ratio (SLR) stands at 23% of banksRs. net demand and time liabilities (NDTL).

The reduction in CRR, effective from September 22, 2012, is expected to inject about Rs.17,000cr of primary liquidity in the banking system. Although liquidity conditions are comfortable, the RBI expects a pick-up in credit demand on account of the combined impact of outflows from advance tax payment and currency demand due to onset of the festival season.

Through a reduction in the CRR, while maintaining the repo rate, we believe, the RBI has signaled that even as it continues to ensure availability of adequate liquidity to the productive sectors of the economy, management of inflation is its top-priority.

We believe that upside risks to inflation will persist in the near-term due to supply-side constraints in agriculture, revision in minimum support prices (MSP) of kharif crops and a rise in core inflation. Coupled with these factors, an increase in global liquidity flows is likely to intensify inflationary pressures by leading to a spike in commodity prices including crude oil. Increase in diesel and LPG prices is likely to be reflected in WPI inflation directly as well as indirectly on account of the passthrough effect in generalized inflation.

Going ahead, we believe that the monetary policy stance will continue to be guided by inflationary pressures in the economy. The RBI's policy marks a slight shift in the RBI's tone, with some concerns regarding growth being expressed in this policy unlike in recent policies. However, we believe the scale is still tilted in favor of inflation control rather than growth at least in the near future, a stance which the RBI may re-assess post December 201 2.

Government likely to raise LPG cap from 6 to 10 cylinders

Media reports suggest that the government is considering a partial rollback of the cap on subsidised LPG cylinders. It is considering raising the limit on the number of subsidized LPG cylinders from six to ten per household per year. However, later on the finance ministry sources stated that there would not be any roll back of subsidized LPG cap or the diesel price hike. On September 13, 2012, the Cabinet Committee of Economic Affairs had decided to cap the number of subsidized cylinder to six per household in a year which would have lowered Oil Marketing Companies. under-recoveries by approximately Rs.5,300cr for the remaining part of FY2013. However, some members of the Congress and its allies (the Trinamool Congress, NCP and DMK) are demanding a rollback of the cap on LPG cylinders. The Delhi government has already announced to raise the cap on LPG cylinders from six to nine for below poverty line (BPL) families. We await further clarity on this matter. Until then, we maintain our under-recoveries estimate of Rs.155,332cr for FY2013.

IMG recommends some more coal block cancellations

Inter-Ministerial Group (IMG) has recommended to cancel coal blocks of SKS Ispat and Power (Rawanwara North) and Bhushan Steel (New Patrapara). Further, IMG stated that Bhushan (Bijahan block), Tata Sponge Iron (Radhikapur; East) and Usha Martin (Lohari) will have to forego their bank guarantee for not meeting milestones of exploring captive mines. For Bhushan Steel, we do not expect any meaningful impact on its financials as the block was in very preliminary stage of getting various approvals. Hence, we maintain our estimates and our Neutral rating on the stock.

TTMT reports 11.2% yoy growth in global sales for August 2012

Tata Motors (TTMT) reported a healthy growth of 11.2% yoy (down 4.3% mom) for August 2012 to 97,225 units driven by a 19.5% yoy (down 12.4% mom) growth in the global passenger vehicle (PV) sales. Global commercial vehicle (CV) sales on the other hand registered a modest growth of 4.3% yoy (4.8% mom) mainly due to weak demand in the domestic medium and heavy commercial vehicle (MHCV) segment. Global PV volumes were boosted by strong growth (up 34.8% yoy) in the domestic passenger vehicle sales led by the Nano. Jaguar Land Rover (JLR) however, posted a lower-than-expected volume growth of 13.3% yoy (down 10.6% mom) to 24,060 units mainly on account of poor volume performance by Jaguar which witnessed a 13.2% yoy (sharp 27.2% mom) decline in volumes. Land Rover sales too registered a slightly lower-than-expected sales growth of 18.3% yoy (down 7.7% mom) probably on account of lower production of Range Rover which is set to be re-launched later in the year.

We expect JLR to sustain its volume momentum (expect a ~14% volume growth in FY2013) driven by the success of the Evoque and the new XF 2.2 coupled with the launch of the new Range Rover and the Jaguar XE in FY2013. Further, a strong growth in China (sales up 98% in FY2012) will also benefit the overall volume growth of the company. At the current market price of Rs.278, the stock is trading at 6.3x and 3.4x FY2014E earnings and EV/EBITDA, respectively. Due to the recent run up in the stock price we recommend Accumulate on the stock with a SOTP based target price of Rs.292.

Tech Mahindra buys 51% stake in Comviva for Rs.260cr

Tech Mahindra has announced the acquisition of 51% stake in mobile software and value added services provider Comviva Technologies (Comviva) for Rs.260cr. The new brand identity will be Mahindra Comviva. As part of this arrangement, Tech Mahindra will make an upfront payment of Rs.125cr to buy the 51% stake from Bharti Group, private-equity firm Sequoia Capital and networking equipment maker Cisco Systems. The balance Rs.135cr will be paid out over a period of five years based on Comviva achieving mutually agreed performance target. Sequoia held 9% stake in Comviva and Cisco held 6%, both of whom have exited the firm after the deal with Tech Mahindra. Tech Mahindra will buy 13% out of 22% stake of private equity firm WestBridge.

Comviva has annual revenues of ~US$70mn with operating margin in mid teens. This deal is valued at ~1.3x sales, which is modest. The topmost customer of Comviva is Bharti Airtel and it continues to remain one of their key customers even after promoters diluting their stake. According to the management, this acquisition will enhance Tech MahindraRs.s capabilities in the mobile VAS domain and will provide access to a marquee client base. It aligns well with the stated strategy of investing in emerging areas like network, mobility, analytics, cloud and security and further focus on non-linear growth. Comviva was founded in 1999 as Bharti Telesoft Ltd which changed its name to Comviva Technologies in 2009. The companyRs.s solutions are deployed with over 130 service providers and banks in over 90 countries across Asia, Africa, Middle East, Latin America and Europe, and powers services to more than a billion mobile subscribers.

The overall annual revenue contribution from this deal to Tech Mahindra is ~3% (negligible) of Tech Mahindra's current revenue run rate. We remain positive on the stock, keeping the target price under review.

BGR Energy wins Rs.1,901cr contract from Damodar Valley Corporation

BGR Energy has been awarded the contract for supply of 2x660MW steam generators from Damodar Valley Corporation for the Raghunathpur Thermal Power Project Phase-II. The order is valued at Euro 109.79mn plus rupee component of Rs.112cr totaling to Rs.1,901cr implying Rs.1.44cr/MW. The contract provides for price variation and foreign exchange changes. The execution period is 58 months. The order book of BGR Energy stands at Rs.14,577cr. At the current market price, the stock is trading at 9.2x FY2014E earnings. We maintain our Neutral view on the stock.

Economic and Political News

- Rain revival not to salvage kharif production loss

- Oil price hike an achievement but will fuel inflation: RBI

- India seeks Canadian expertise on GST reform

- Reforms too small for sovereign credit benefits: MoodyRs.s

- Rs.Multi-brand retail may attract FDI of up to $3bn in 2 years

- Draft steel policy pegs capacity at 244-281 MT by FY2026

Corporate News

- Tech Mahindra set to buy stake in Comviva: sources

- Wockhardt gets USFDA approval for anti-ulcer drug

- Hindalco raises Rs.9,896cr debt for Odisha smelter

- RIL seeks three-fold rise in KG-D6 gas price from April 2014

- Tata Motors launches six commercial vehicles

- Welspun Corp raises Rs.252cr through debentures

- Unitech to reply to TelenorRs.s plea of Rs.6,400cr indemnity