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Indian stock market and companies daily report (September 26, 2012, Wednesday)

Contributed by Angel Broking

Indian markets are expected to open in the red today tracing negative opening trades in most of the Asian bourses and the SGX Nifty. Asian markets are trading lower on concerns that stimulus measures by central banks across the US, Asia and Europe would not be enough to boost global economic growth.

The US markets moved sharply lower over the course of the trading day on Tuesday after moving moderately higher in the morning trade. Lingering concerns about the global economic outlook weighed on the markets, which overshadowed upbeat US consumer confidence data. Most of the European bourses closed in positive territory on Tuesday. The markets struggled to find direction ahead of the meeting of German Chancellor Angela Merkel and ECB President Mario Draghi in Berlin.

Meanwhile, Indian markets ended a choppy trading session modestly higher on Tuesday, helped by the recent pullback in commodity prices and the strengthening of the rupee. However, lackluster global cues capped the market's upside.

Markets Today

The trend deciding level for the day is 18,707 / 5,676 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,778 - 18,861 / 5,700 - 5,727 levels. However, if NIFTY trades below 18,707 / 5,676 levels for the first half-an-hour of trade then it may correct up to 18,624 - 18,553 / 5,650 - 5,626 levels.

MM to develop a new vehicle platform with SMC

Mahindra and Mahindra (MM) has announced that it will invest '1,500cr (Korean Won 300bn) to develop a new vehicle platform with its Korean subsidiary Ssangyong Motor Corporation (SMC). MM expects to develop three products jointly with SMC over the next three years and is willing to invest more money over the course of the period. Further, both the companies are also developing a new engine platform (both petrol and diesel) that will be used by both the companies. We believe that the investment plans announced by MM are on the expected line as the company had stated its intentions of working jointly with SMC to leverage upon its technical know-how. Additionally in order to consolidate its position in the domestic utility vehicle space, MM is also launching SMC's Rexton in the domestic markets. We expect MM to sustain the growth momentum in the automotive segment with the new launches, XUV5OO, Quanto and Rexton. At '846, the stock is trading at 15.4x FY2014E earnings. We maintain our Accumulate rating on the stock with revised sum of the parts (SOTP) based target price of '895.

Nissan calls off the ultra-low cost car project with BJAUT

According to media reports, Nissan has called off its alliance with Baja Auto (BJAUT) to develop an ultra-low cost (ULC) car. In 2009, BJAUT had entered into an agreement with Renault-Nissan alliance to design, develop and manufacture the ULC car, which was intended to take on Tata Nano. As part of the agreement, Renault-Nissan alliance was supposed to market and sell the car under their badge. Further, in 2010, Renault-Nissan announced the signing of a memorandum of understanding with BJAUT to take forward their ULC car project. The ULC was first scheduled to hit the roads in India in 2011, but was delayed due to differences between the partners on pricing and design. Since then, BJAUT continued with its development work and earlier this year the company unveiled the RE60, a mini-four wheeler for urban transportation to replace three-wheelers.

While the Nissan-Renault alliance did not mention any reason for calling off the ULC car project, we believe it could be due to the revival of its own low cost car project under the Datsun brand. Meanwhile, BJAUT is planning to launch RE60 by the end of FY2013. At '1,790 the stock is trading at 14.8x FY2014E earnings. Due to limited upside form current levels we maintain our Neutral rating on BJAUT.

MSIL enters into wage settlement agreement with workers

As per media reports, Maruti Suzuki (MSIL) has entered into a wage settlement agreement with the workers at the Gurgaon plant. According to the agreement signed between the company and Maruti Udyog Kamgar Union (MUKU), permanent workers at the Gurgaon plant would be given an increment of '18,000 in their monthly salary spread over a period of three years. Under the three year agreement, to be implemented with retrospective effect from April 2012, the workers will receive 80% of the increased salary in the first year and the rest in the following two years. Besides this, MSIL has also doled out a host of other incentives ranging from increased travel allowance and improved medical coverage.

We see this settlement agreement as a certain positive for the company considering that the solution has been arrived amicably and both the parties have expressed happiness over the agreement. However, the wage settlement agreement with the Manesar employees is still pending due to the absence of union in Manesar. We believe that the current wage agreement should hopefully put to rest any concerns from the labor unrest perspective. We expect the current wage hike to dilute operating margins slightly by 25bp-30bp in FY2013. Nonetheless, the key thing to watch out would be the hikes given to temporary workers going ahead. At '1,321 the stock is trading at 15.1x FY2014 earnings which is in-line with its historical average of 15x. We therefore maintain our Neutral rating on the stock.

United Spirits confirms talks with Diageo

United Spirits (USL) has confirmed that Diageo plc (Diageo) is holding talks with itself and United Breweries Holding (UBH) with regard to acquisition of an interest in USL. This was confirmed by a joint statement issued by USL and Diageo that was filed with BSE regarding the talks and was reiterated by USL's Chairman Vijay Mallya in the company's AGM held yesterday. USL however maintained that nothing has been finalized with regard to the deal. UBH along with its subsidiary Kingfisher Finvest holds 27.7% stake in USL. Meanwhile, media reports have said that the UBH and Diageo are working on a three-way plan, wherein (a) UBH will sell 12% stake in USL (b) Diageo will buy treasury stock equivalent to 3% and (c) Diageo will get another 10% in USL via preferential route. Diageo will follow this with an open offer which will give the company a majority holding in USL. Media reports also added that UBH will hold around 15% in USL and Vijay Mallya will continue to remain the Chairman. USL stock has rallied considerably over the past few days in anticipation of this deal. We continue to remain neutral on USL.

Economic and Political News

- Govt to bring draft model legislation for state discoms

- Debt rejig to increase cash flow of discoms: Rating agencies

- Farm sector biggest beneficiary of FDI in retail: Kamal Nath

Corporate News

- RIL likely to bid for telecom spectrum

- Cairn raises US$910mn from India Unit stake sale

- Yes Bank wants to be party in BCCI-Deccan Chargers tangle