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Reports India

Indian stock market daily morning report (May 29, 2014, Thursday)

May 29, 2014, Thursday, 04:39 GMT | 00:39 EST | 09:09 IST | 11:39 SGT
Contributed by Keynote Capitals

The Indian markets are expected to open in negative territory tracking SGX Nifty opening in red and mixed opening in other Asian markets.

The U.S. market witnessed a choppy session on Wednesday and ended in negative territory ending their four-day winning streak. The modestly lower close came on the heels of the recent upward trend by the markets. Also, the benchmark 10-year Treasury yields plummeted to their lowest closing level since last summer on Wednesday. Traders seemed reluctant to make any significant moves for much of the session ahead of the major economic data like weekly jobless claims, pending home sales and revised reading on first quarter GDP. Meanwhile, the European European stocks drifted lower Wednesday after the recent gains on hopes for ECB action in June. Also, in the absence of any drivers in the market, investors held back on the concerns of conflict in Ukraine.

Back home, Indian market ended marginally higher ahead of the expiration of May series derivative contracts today and GDP data slated for release on Friday.

Markets Today

The trend deciding level for the day is 24,563 / 7,326 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 24,637 - 24,717 / 7,349 - 7,368 levels. However, if NIFTY trades below 24,563 / 7,326 levels for the first half-an-hour of trade then it may correct 24,482 - 24,408 / 7,307 - 7,284 levels.

Result Review

Hero MotoCorp (CMP: Rs.2,350/ TP: Under review/ Upside: -)

Hero MotoCorp's (HMCL) 4QFY2014 net profit at Rs.554cr surpassed our expectations of Rs.501cr. The beat on the bottom-line was driven by better-than-expected growth in net average realization to some extent; however, majority of it was on account of sharp increase in other income and aided further by marginally lower tax-rate.

The top-line recorded a growth of 6% yoy to Rs.6,51 3cr, in-line with our estimates of Rs.6,451 cr, led by a 4.1% yoy growth in volumes and 2.2% yoy growth in net average realization. The volume performance was driven primarily by a strong growth of the scooter segment (15.5% yoy) even though the motorcycle segment registered a modest growth of 2.7% yoy. Exports growth though remained weak due to weakness in the global markets and posted a decline of 11.3% yoy. On the operating front, EBITDA margins expanded 67bp qoq to 13.7%, which was marginally better than our expectations of 13.4%. EBITDA margin expansion was led by growth in net average realization which led to gross margin expansion of 80bp sequentially. Additionally, cost control initiatives too aided margin expansion in our view. On a yoy basis though, EBITDA margins stood flat as the benefits on account of favorable exchange rate were negated by adverse product-mix. Net profit stood at Rs.554cr, ahead of our estimates of Rs.501cr, led by slightly better-than-expected operating performance and benefitting further due to 17.7% yoy increase in other income and slightly lower tax rate (at 25.2% as against 26.9% in 3QFY2014). At the CMP, the stock is trading at 14.1x FY2016E earnings. We maintain our Accumulate rating on the stock; our target price though is under review.

Amara Raja Batteries (CMP: Rs.392/ TP: Rs.436/ Upside: 11%)

Amara Raja Batteries (AMRJ) reported lower-than-expected 4QFY2014 results led by margin pressures primarily on account of the higher raw-material expenses. The top-line surged 10.5% yoy to Rs.888cr, slightly lower than our expectations of Rs.903cr. The performance in our view was driven by continued traction in the automotive replacement segment and increase in supplies to HMSI. However, slowdown in OEM demand and sluggish off-take in the industrial battery segment constrained the growth to certain extent. On the operating front, EBITDA margins contracted 191bp qoq to 15.5%, sharply lower than our expectations of 16.5%, led by raw-material cost pressures which as a percentage of sales surged 133bp sequentially. As a result, operating profit declined 8.4% qoq to Rs.138cr. On a yoy basis though, EBITDA margins surged 159bp driven by price increases in the industrial battery segment, superior product-mix and operating leverage benefits. Adjusted net profit for the quarter stood at Rs.84cr (up 41.3% yoy but down by 11.7% qoq), slightly lower than our expectations of Rs.90cr, primarily due to lower-than-expected operating performance. We remain positive on the stock, led by widening reach, strong product offerings and increasing capacity. At the CMP the stock is trading at 14.4x FY2016E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.436.

Jagran (CMP: Rs.115/ TP: Rs.140/ Upside: 22%)

For 4QFY2014, Jagran posted 14.2% yoy growth in top-line to Rs.392cr on account of strong double-digit growth in advertising revenues. Advertising revenue grew by 16.3% yoy to Rs.228cr while Circulation revenue grew by 13.0% yoy to Rs.76cr. On the EBITDA front, the company's margin expanded by 458bp yoy to 20.3%. Operating margin expansion as well as higher other income led to 51.1% yoy growth in net profit to Rs.58cr. We recommend Buy on the stock with a target price of Rs.140.

Abbott India (CMP: Rs.1,773/ TP: Under Review)

Abbott India (AIL) reported marginally better than expected number for the quarter ending March, 2104. The company reported a sales of Rs.494cr in this quarter against Rs.420cr in same quarter last year, growth of 17.6%, which was marginally higher than our estimate of Rs.463cr. EBITDA margin came in at 10.2% for the quarter, contraction of 75bp vis-a-vis same quarter ending March, 2103, however it contracted by 300bp sequentially. It came in 131 bp lower than our estimate because of higher than expected employee cost and other expenses. Tax expense for the quarter was Rs.18cr (31.7% of PBT). Other income for the quarter stood at Rs.9cr. Consequently, the net profit stood at Rs.38cr against Rs.32cr profit in quarter ending March, 2103, marginally ahead of our expectation of Rs.36cr.

For the year, the company reported 15 months (Jan, 2013-Mar, 2014) numbers as it has changed its accounting year from Calendar year (CY) to Financial year (FY). With clear strategy of pushing its best brands and focus on nutrition and OTC drug portfolios and continuous new launches, we remain positive on the growth outlook of AIL. We continue to maintain Accumulate on the stock, however the target price is Under Review.

Indoco Remedies (CMP: Rs.147/ TP: -/ Upside: -)

Indoco Remedies, reported results better than expected results, except on the sales front. On the sales front, the company posted a top-line growth of 15.8% to Rs.186cr V/s Rs.214.6cr expected. The growth on the sales would be aided by the domestic and exports which grew by 14.3% yoy and 18.2% yoy respectively. The OPM's came in at 18.6% V/s expected 16.5%, posting gains of 2.1% yoy. This came on back of strong GPM, gains which expanded by 680bps to end the period at 67.0%. This aided the net profit to come in at Rs.18.6cr, a yoy of 44.4%, higher than expected Rs.15.6cr. Currently, we have a Neutral rating on the stock.

JK Tyre & Industries (CMP: Rs.232/ TP: Under review/ Upside: -)

JK Tyre & IndustriesRs. (JKI) reported slightly lower-than-expected standalone results owing to raw-material cost pressures which led to sequential decline in margins.

The standalone top-line posted a strong growth of 14.5% yoy to Rs.1,584cr, which was slightly ahead of our expectations. We believe that strong growth in exports and healthy off take in the replacement segment could have attributed to the topline performance amid slowdown in the OEM demand. EBITDA margins contracted sequentially to 9.8%, lower-than-expectations of 10.6% primarily owing to raw-material cost pressures. Raw-material cost as a percentage of sales surged 213bp qoq despite stable natural rubber prices, due to increase in nylon tyre cord, synthetic rubber and carbon black prices. Consequently, adjusted net profit declined 6% qoq to Rs.44cr.

The Mexican subsidiary, Tornel, too, posted weak results as top-line reported a decline of 1% yoy to Rs.332cr and EBIT declined by 27.6% yoy to Rs.32cr with EBIT margins witnessing a sharp contraction of 356bp qoq to 9.7% primarily due to raw-material cost pressures. At the CMP, the stock is trading attractively 3x FY2016E earnings. Our rating and target price is currently under review.

Result Preview

Sun Pharmaceuticals (CMP: Rs.589/ TP: Rs.643/ Upside: 10.1%)

Sun Pharma is likely to clock a 30.2% yoy growth in sales for 4QFY2014, led by both exports and domestic sales. For the quarter the company is expected to post sales of Rs.4000cr. Its OPM would expand by 300bp to around 44.0%. Its net profit is likely to grow to 38.5% yoy during the quarter to end the period at Rs.1,401cr. We recommend an Accumulate on the stock, with a price target of Rs.643.

Tata Motors (CMP: Rs.429/ TP: Rs.496/ Upside: 16%)

Tata Motors (TTMT) will be announcing its 4QFY2014 results today. At the standalone level, we expect the company to register a bottom-line loss of ~Rs.760cr as the volumes registered a declined ~33% yoy. We also expect the company to report an operating loss of ~Rs.100cr led by the ongoing slowdown, adverse product-mix, higher discounts and promotional expenses. Nevertheless, at the consolidated level, we expect TTMT to post a robust top-line growth of ~22% yoy to Rs.68,395cr driven by continued momentum in JLR sales and translation gains. We expect JLR revenues to surge ~12% yoy in GBP terms and ~36% yoy in INR terms. We expect consolidated EBITDA margins to expand ~120bp yoy to 15.1%, largely driven by better product and geography mix at JLR. Consequently, the bottom-line is expected to surge by ~23% yoy to Rs.4,831cr. On a sequential basis though, consolidated earnings are expected to decline ~2% as margins are expected to contract by ~50bp qoq due to unfavorable currency movement. We maintain our Buy rating on the stock with an SOTP target price of Rs.496.

BHEL (CMP: Rs.249/ TP: / Upside: )

We expect BHEL to post an 11.5% yoy decline in top-line to Rs.16,996cr in 4QFY2014 due to execution delays (on account of delay in payments by clients as well as delay in obtaining necessary clearances). On the EBITDA front, the company's margin is expected to contract by 636bp yoy to 17.9%. Consequently, we expect its PAT to decline sharply by 36.9% yoy to Rs.2,041cr. We maintain our Neutral recommendation on the stock as declining order backlog limits revenue visibility for BHEL.

Cipla (CMP: Rs.380/ TP: Rs.495/ Upside: 30.3%)

While the comparable consolidated 4QFY2013 numbers are not available, Cipla is expected to post net sales of Rs.2,382cr. Its OPM (excluding technical know-how fees) is expected to come in at 21.2%; this will aid the net profit to come in at Rs.361cr.Currently, we have a buy with a target price of Rs.495.

Crompton Greaves (CMP: Rs.187/ TP: Rs.225/ Upside: 20.3%)

For 4QFY2014, we project Crompton Greaves to report a 9.6% yoy growth in topline to Rs.3,699cr as the company executes its robust order book. On the EBITDA front, the company's margin is expected to expand by 260bp yoy to 4.9% (aided by a low base of 4QFY2013). Consequently, the company is expected to post a net profit of Rs.68cr compared to Rs.25cr in 4QFY2013. We recommend Buy on the stock with a target price of Rs.225.

IPCA Labs (CMP: Rs.788/ TP: Rs.888/ Upside: 12.6%)

We estimate Ipca LaboratoriesRs. top-line to grow by 29.7% to Rs.854cr for 4QFY2014. The growth in the sales will be driven by the domestic and exports markets. The OPM is expected to expand by 410bp yoy to 23.7%. Inspite of the same, the adjusted net profit is expected to grow by 77.9% yoy, on back of top-line growth. We recommend an Accumulate on the stock, a price target of Rs.888.

Economic and Political News

- GDP growth may go up to 5.5% in FY15: Icra

- NHAI to develop Paradip-Daitary highway

- Sebi wants 25% public holding at PSUs too; government to take call

- India's top 10 food retailers accumulate Rs.1 3,000cr losses: Crisil

Corporate News

- Srinivas, Infy President & Member of Board, quits

- CAG slams OilMin, DGH for poor monitoring of KG-D6

- RIL faces US$1.1bn hit on KG-D6 revenue

- Hindustan Zinc-Balco stake sale on Disinvestment dept's agenda

- HPCL to invest Rs.17,000cr to expand capacities by FY2018

- Punjab National Bank's housing arm plans to raise US$50mn

- IFC plans US$21mn equity investment in SAMHI Hotels

- L&T Construction wins orders worth Rs.2,458cr