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Indian stock market and companies daily report (February 03, 2012, Friday)

2012-02-02T22:00:00.001-08:00

The domestic markets are expected to open flat tracking mixed cues from the global markets. Asian shares were trading lower on increased loss forecasts by Asian companies as Europe’s debt crisis weighed on global sales.
The US markets remained subdued even as the weekly jobless claims report showed that claims fell by more than anticipated in the week ended January 28th as investors preferred to wait for the more definite monthly employment report from the Labor Department due to be released today.
Meanwhile Indian markets continued their good performance on Thursday also. The key thing about the recent rally is the higher volumes being registered, indicating positive investor sentiment and renewed investor appetite.

Markets Today
The trend deciding level for the day is 17,415/5,262 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,521 – 17,611/5,298 – 5,326 levels. However, if NIFTY trades below 17,415/5,262 levels for the first half-an-hour of trade then it may correct up to 17,325 – 17,219/5,234 – 5,198 levels.

2G case verdict: 122 licenses cancelled, auction to follow
The Supreme Court today, in its judgment for the 2G case, cancelled 122 licenses given to telecom firms since January 2008. The cancelled licenses include 9 of Idea Cellular, 3 of Tata Teleservices, 9 of Swan Telecom, 21 of Loop Telecom, 21 of Videocon and 22 of Uninor. Telecom firms can operate the licences for four months at market rate payment. Moreover, Unitech Wireless and Swan Telecom have been fined Rs.5cr. Within two months, the TRAI will recommend fresh guidelines on the grant of new licenses and the government will make its decision after one month post the submission of recommendations.
Of the companies under our coverage, for Bharti Airtel and Reliance Communication none of the licenses were canceled as all licenses to them were issued before 2008. For Idea, the licenses have been cancelled for the following circles – Punjab, Karnataka, Tamil Nadu and Chennai, West Bengal, Orissa, Kolkata, Assam, North East and Jammu & Kashmir. These circles contribute ~10% to Idea’s overall revenue as of now and are EBITDA negative with margin at ~ negative 31%. Subscriber base from these circles is 17% of Idea’s total subscriber base. Idea paid Rs.685cr in January 2008 to acquire licenses in these circles and then invested ~Rs.970cr in the next couple of years to establish network in these circles. These investments done by the company are at a risk now due to the judgment passed. However, we believe if the government conducts an auction of the spectrum, Idea could emerge as one of the potential winners, given its huge subscriber base (~106mn) and better cash flow generation as against all the other players in the industry (ex. Bharti Airtel).
For other telecom players, licenses cancelled are as follows:
We believe this move will increase consolidation in the highly competitive telecom industry and the total number of players operating in the industry can come down to 9-10 from 14 currently. Also, Bharti and Vodafone appear to be the marginal beneficiaries due to the potential for rationalization in competition and further pricing stability. Operators such as Idea and Tata Teleservices may also benefit from this, but they will have to incur additional charges (from re-bidding at market prices) if they intend to maintain their pan-India presence. We remain Neutral on the telecom sector.

Banks unlikely to see a major impact of 2G license cancellation on their books
The Supreme Court has cancelled 122 licenses for mobile networks issued during A. Raja’s tenure as Telecom minister and has asked TRAI to make fresh recommendations on allotment of the licenses within four months.
According to SBI’s management the bank’s funded exposure to the affected companies’ stands at ~Rs.1,100cr, which is only a minor 0.14% of the overall loan book. Also, all loans are not expected to turn into NPAs as all the affected companies are likely to rebid for the licenses within four months. Also, according to the management, the non-funded exposure for the bank in form of guarantees to the affected companies, which are to the tune of Rs.3,400cr, are likely to stand cancelled as these guarantees were issued for the licenses.
According to IDBI’s management, the bank does not have a large exposure to the affected companies, while Central bank of India has exposure to only a couple of affected entities.

AL, BJAUT monthly sales numbers - January 2012
Ashok Leyland (AL)
AL reported better better-than-expected 33.6% yoy growth (13.3% mom) in total volumes to 10,300 units, driven largely by Dost sales, which reported 1,100 units during the month. Excluding Dost, volumes jumped 19.6% yoy (1.5% mom).
Bajaj Auto (BJAUT)
BJAUT posted marginally lower-than-expected 7.7% yoy (up 10.5% mom) growth in total volumes to 337,875 units for January 2012, largely due to modest 6.8% yoy growth in the motorcycle segment. Sequentially volumes improved by 11.7% during the month. Exports momentum also witnessed moderation as exports volumes grew by 13% yoy (down 2.3% mom). Three-wheeler volumes, on the other hand, posted healthy 14.4% yoy (3.4% mom) growth to 43,436 units.

Cement Dispatches – January 2012
ACC’s cement dispatches for January 2012 stood at 2.23mn tonnes, up by healthy 8.8% yoy. Even on mom basis, dispatches were up by 6.7%. Ambuja Cements’ dispatches stood at 1.92mn tonnes, up by modest 4.1% yoy. However, on mom basis, dispatches were flat. UltraTech cement dispatches stood at 3.72mn tonnes, up by strong 11.3% yoy. Higher cement dispatches growth of ACC and UltraTech over Ambuja Cements hints at demand scenario improvement in South India. We continue to remain Neutral on ACC and Ambuja Cements.

3QFY2012 - Result Reviews
Corporation Bank
For 3QFY2012, Corporation Bank registered a moderate set of results, with net profit growing by 5.2% yoy to Rs.402cr. Net interest income of the bank grew by muted 2.3% yoy to Rs.862cr. Non interest income growth, however, was robust at 67.0% yoy. Operating expenses of the bank increased by 29.1% yoy to Rs.826cr, while provisioning expenses increased by 20.6% yoy to Rs.301cr, leading to moderate PAT growth of 5.5% yoy.
The bank’s asset quality deteriorated during 3QFY2012, with both gross and net NPA levels increasing by 15.7% and 18.8% sequentially, respectively. As of 3QFY2012, gross NPA ratio stands at 1.35% (1.32% in 2QFY2012), while net NPA ratio stands at 0.96% (0.91% in 2QFY2012). Provisioning coverage ratio deteriorated by 186bp during 3QFY2012 to 62.9%. We recommend Accumulate on the stock with a target price of Rs.450.
Andhra Bank
For 3QFY2012, Andhra Bank posted a poor set of numbers with net profit declining by 8.4% yoy to Rs.303cr, which was dot in line with our estimates. Net interest income of the bank grew by healthy 17.1% yoy to Rs.984cr, while growth in non interest income was also healthy at 18.4% yoy to Rs.235cr. Relative lower operating expenses growth of 9.6% yoy resulted in PPP growing by healthy 22.5% yoy. However, provisioning expenses of the bank grew substantially by 80.2% yoy to Rs.309cr, which resulted in net profit declining by 8.4% yoy.
The bank’s asset quality remained under pressure with gross NPA ratio standing at 2.4% and net NPA ratio standing at 1.2%. Considering the recent turmoil in asset quality and hefty power exposure (~20% of loan book), we remain Neutral on the stock.
Thermax
Thermax announced its 3QFY2012 results, which were broadly in-line with our (below street) estimates. The top line posted muted growth of 2.3% yoy Rs.1,269cr (Rs.1,241cr), which was 5.4% higher than our estimates. The silent growth was along expected lines, mainly on account of high base created in 3QFY2011. Segment wise, the energy segment posted flat growth to Rs.993.1cr, while the environment segment grew by 2.8% yoy to Rs.302.4cr. On the operating front, EBITDA margin contracted by 114bp yoy to 10.7%, in-line with our estimates. Muted growth and margin compression led to a PAT decline of Rs.4.9% yoy to 95.3cr (Rs.100.2cr), slightly higher than our (below street) estimates of Rs.89.4cr.
Thermax trails its fortune towards industrial capex, especially in sectors such as metals, cement and oil and gas, which form its mainstream arena, for offering products and solutions in captive power and heating solutions. However, the tough macro climate prevailing since quite some time has paused additional investments in major industrial sectors, thereby halting new order disbursements. Likewise, the company has not reported any major order wins during the quarter.
However, with easing of inflationary pressures, the stock has rallied ~25% in the past few days, factoring in the possibility of softening of interest rates from the RBI and, hence, an uptick in industrial investments, post which Thermax will be best placed to gain from the revival. At the CMP, the stock is fairly valued at 14.6x and 15.5x FY2012E and FY2013E EPS, respectively. We would like to hear management's commentary on the company's future outlook and get more details over the quarterly numbers post which we will revise our estimates and recommendation. We maintain our Neutral rating on the stock.
Hexaware
Hexaware reported its 4QCY2011 results, which outperformed street as well as expectations on all the fronts. USD revenue came in at US$84.1mn, up 6.7% qoq, majorly led by 4.8% and 1.3% qoq volume and pricing growth. In INR terms, revenue came in at Rs.432cr, up 18.0% qoq. EBITDA and EBIT margins expanded by 427bp and 455bp qoq to 23.0% and 21.6%, respectively, largely aided by INR deprecation. PAT stood higher at Rs.88cr, up 36.3% qoq. Hexaware has been outperforming in the mid-cap space since six quarters by growing at a scorching 8.1% CQGR over 1QCY2010–4QCY2012. Management has guided for at least 20% yoy revenue growth for CY2012 to US$370mn, which is highest in the industry. This seems easily achievable by the company given the revenue visibility on account of six large deals signed in the past few quarters. We continue to be positive on the stock and maintain our Accumulate rating. The target price is currently under review.
Greenply Industries
Greenply Industries (GIL) announced strong 3QFY2012 numbers. Net sales increased by 32.1% yoy to Rs.419cr (Rs.414cr). The plywood segment registered 21.4 % yoy growth to Rs.243cr, while the laminate segment managed an 11.8% yoy increase to Rs.160. The MDF segment registered strong yoy growth of 373% to Rs.67cr on the back of higher utilization and realization during the quarter. EBITDA increased by 53.8% yoy to Rs.43cr, largely due to margin expansion. EBITDA margin increased by 146bp yoy to 10.4%, mainly due to a decline in raw-material cost, which declined to 52.5% of net sales in 3QFY2012 vs. 57.3% of net sales in 3QFY2011. This decline was partially offset by forex loss of Rs.6cr vs. forex gain of Rs.0.4cr in 3QFY2011. PAT increased by 96.0% yoy to Rs.14cr, while margin increased by 110bp yoy to 3.4%. We will be coming out with a detailed report post management interaction. We continue to maintain our Buy view on the stock with a target price of Rs.284.
Relaxo Footwear
For 3QFY12, Relaxo Footwear reported a 33.5% yoy growth in the topline from Rs.153cr in 3QFY2011 to Rs.204cr. Raw material cost stood at 53.3% of net sales which we expect to come down in the coming quarters with decrease in the rubber price. The operating profit margin came in at 9.3%, a 17bp increase from the same quarter last year. The company reported a profit of Rs.6cr in this quarter, an 80% yoy growth from Rs.3cr in the same quarter last year.
We expect the company’s revenue to increase at a CAGR of 18% to Rs.950cr and profit to increase at a CAGR of 44.3% to Rs.56cr over FY2011-13E. At the CMP of Rs.339, the stock is trading at a PE of 7.3x FY2013E earnings. We maintain our Buy rating on the stock with a target price of Rs.420, based on a target PE of 9x for FY2013E.

3QFY2012 - Result Previews
Madras Cements
Madras Cements is expected to announce its 3QFY2012 results. We expect the company’s top line to grow by 22.6% yoy to Rs.710cr on account of 10.4% yoy growth in dispatches and higher realization growth (10.2% yoy). The company’s operating margin is expected to improve only by 81bp yoy to 27% as cost pressures are expected to erode the entire realization growth. The company’s net profit is expected to grow by 38.9% yoy to Rs.60cr. We maintain our Neutral view on the stock.

Economic and Political News
- Mines Bill may be passed in the Budget session
- Global food prices to ease in 2012: World Bank
- Finance Ministry working on implications of 2G judgment on banks
- Finance Ministry to discuss power gear duty on February 6, 2012
- Panel of Ministers to meet again to finalize ONGC public issue

Corporate News
- Reliance Industries secures US$400mn loan guarantee from Italian SACE
- NTPC in talks with GAIL for sourcing gas supplies
- Coal India proposes Rs.5,684cr dividend to the government for FY2012

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Indian stock market and companies daily report (February 02, 2012, Thursday)

2012-02-01T22:26:00.000-08:00

The domestic markets are expected to open in the green tracking upbeat economic data releases from around the world.
The US markets closed higher as traders reacted positively to the latest batch of economic data. The strength on Wall Street was partly due to the release of a report from payroll processor ADP showing a continued increase in private sector employment in the month of January. A separate report from the Institute for Supply Management showing a continued expansion in manufacturing activity in the month of January also generated buying interest, with the index of activity in the sector reaching a seven-month high.
The release of the ISM report on U.S. manufacturing also came after the release of separate reports showing expansions in manufacturing activity in both Germany and China.
Indian shares ended firm near its 12-week high on Wednesday, as data showing expanding domestic manufacturing activity and upbeat auto sales numbers for January boosted investor sentiment. Indian investors meanwhile would keenly watch out for the weekly inflation numbers due to be released today.

Markets Today
The trend deciding level for the day is 17230 / 5,213 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,398 – 17,495 / 5,267 – 5,299 levels. However, if NIFTY trades below 17,230 / 5,213 levels for the first half-an-hour of trade then it may correct up to 17,132 – 16,964 / 5,182 – 5,128 levels.

Auto sales numbers – January 2012
Maruti Suzuki (MSIL)
MSIL reported better-than-expected volume growth of 5.2% yoy (25.3% mom) to 115,433 units in January 2012, led by 22.4% (24.7% mom) and 54.3% yoy growth in the domestic compact (driven by Swift) and exports segment, respectively. Total domestic volumes, however, remained flat largely due to a 2.4% yoy decline (up 34.8% mom) in sales in the mini segment. Meanwhile, MSIL unveiled the all new compact Swfit Dzire priced at Rs.4.79lakhs (petrol) and Rs.5.8lakhs (diesel) with exciting new features and better fuel efficiency.
Mahindra & Mahindra (MM)
MM registered a healthy 12% yoy (8.3% mom) increase in its total volumes to 64,072 units on account of strong performance by the automotive segment, which grew by 21.8% yoy (4.6% mom). Performance of the automotive segment was driven by continued buoyancy in the four-wheeler pick-up (up 34.7% yoy/flat mom) and passenger UV (up 14.7% yoy/2% mom) segments. The CV segment also recorded strong volume performance, witnessing growth of 50.8% yoy (47.1% mom). The tractor segment posted a 5.6% yoy decline in volumes during the month; however, on a sequential basis, volumes improved by strong 18.1%.
Tata Motors (TTMT)
TTMT posted a strong 16% yoy (6.3% mom) increase in total sales to 87,467 units, driven by 16.3% (down 1.2% mom) and 15.5% yoy (19.6% mom) growth in the commercial vehicle (CV) and passenger vehicle (PV) segments, respectively. The CV segment’s performance was led by healthy 12.6% and 18.7% yoy growth in the medium and heavy commercial vehicle (MHCV) and light commercial vehicle (LCV) segments, respectively. In the PV segment, Nano, Indica and Indigo volumes grew by 15.2%, 8.9% and 9.6% yoy, respectively.
Hero MotoCorp (HMCL)
HMCL reported healthy 11.5% yoy (down 3.7% mom) growth in volumes to 520,272 units, led by continued momentum across all product segments. New product launches and refreshed product ranges continued to drive HMCL’s volume performance.
TVS Motor (TVSL)
TVSL posted a modest 5.1% yoy increase in total sales in January 2012 to 173,514 units, largely due to subdued sales in the motorcycle segment. While two-wheeler volumes grew by 5.8% yoy (1.9% mom), three-wheeler volumes declined by 29.9% yoy (down 4.8% mom). Growth in the two-wheeler segment was led by a strong 20.2% yoy increase in moped sales; however, scooter volume growth slowed down considerably and grew by 1.8% yoy (down 7.4% mom).

3QFY2012 - Result Reviews
Mahindra Satyam
Mahindra Satyam announced its 3QFY2012 results, which were in-line with our expectations on the revenue front but were higher than ours as well as street’s expectations on the operating and bottom-line fronts. Revenue came in at US$325mn, down 1.6% qoq, due to a 1.3% qoq decline in volume. Also, USD revenue of the company was impacted by 1.4% qoq due to unfavorable crosscurrency movement. In INR terms, revenue came in at Rs.1,718cr, up 8.9% qoq. The company’s EBITDA and EBIT margin increased by 87bp and 113bp qoq to 16.2% and 13.9%, respectively, despite giving wage hikes during the quarter because of steep INR depreciation. PAT came in at Rs.308cr, up 29.5% qoq, aided by forex gain of Rs.66cr, which led to other income of Rs.151cr in 3QFY2012 as against Rs.97cr in 2QFY2012. The stock is currently under review.
Ashok Leyland – 3QFY2012
Ashok Leyland (AL) registered poor bottom-line performance during 3QFY2012 due to significant erosion in operating margins, led by higher employee and other expenses. AL reported better-than-expected 29.3% yoy (down 6.9% qoq) growth in its top line to Rs.2,880cr, driven by a 15% yoy (6.1% qoq) increase in net average realization and 12.4% yoy growth in volumes. Average net realization improved to Rs.1,389,528 on account of price increases to mitigate raw-material cost pressures and emission norm changes. On the operating front, EBITDA margin witnessed a steep 340bp qoq contraction to 7.3% against our expectation of 10.1% due to higher employee and other expenses. Other expenditure to net sales ratio unexpectedly increased by 170bp qoq and 100bp yoy during the quarter. Raw-material cost remained more or less stable on a yoy and qoq basis, led by cooling of commodity prices. Driven by weak operating performance, net profit declined by 56.6% sequentially. However, on a yoy basis, net profit grew by 54.3%, largely due to low base of last year. The stock rating is currently under review.
Finolex cables
Finolex Cables announced its 3QFY2012 numbers. The company’s net sales declined by 2.6% yoy to Rs.499cr. The electrical cables segment continued its strong growth, registering 21.6% yoy growth to Rs.417cr. The communication segment, however, registered a 22.7% yoy decline to Rs.41cr. EBITDA for the quarter declined by 18.8% yoy to Rs.41cr, largely due to margin compression. EBITDA margin declined by 165bp yoy to 8.3%, mainly due to higher other expenditure, which increased to 10.4% of net sales in 3QFY2012 vs. 8.3% of net sales in 3QFY2012. During the quarter, PAT declined by 47.7% yoy to Rs.14cr and PAT margin declined by 237bp yoy to 2.7%. The company witnessed forex loss of Rs.8cr during the quarter. We will be coming out with a detailed report post the management call. We continue to maintain our Buy rating on the stock with a target price of Rs.51.

3QFY2012 - Result Previews
Corporation Bank
Corporation Bank is slated to announce its 3QFY2012 results. We expect net interest income of the bank to decline by 9.7% yoy to Rs.760cr. Non-interest income growth is expected to be strong at 40.7% yoy to Rs.372cr. While operating income is expected to be flat, operating expenses are expected to go up by 23.7% yoy to Rs.458cr, leading to pre-provisioning profits declining by 8.4% yoy to Rs.675cr. Provisioning expenses are expected to decline by 22.7% yoy. Net profit is expected to decline by 3.1% yoy to Rs.371cr. Currently, we have an Accumulate rating on the stock with a target price of Rs.450. Thermax
For 3QFY2012, we expect Thermax to report a 3.0% yoy decline in its top line to Rs.1,204cr, as high base effect created in 3QFY2011 and weak order inflows since the last couple of quarters will keep the company's revenue under strict check. The company's EBITDA margin is likely to compress by ~110bp yoy to 10.7% due to higher contribution of low-margin EPC contracts in the company’s aggregate revenue. Lower revenue and margin contraction are expected to drag down the company's PAT by 10.8% yoy to Rs.89.4cr. At the CMP, the stock is trading at 14.1x and 15.0x its FY2012E and FY2013E EPS, respectively. We remain Neutral on the stock.
Hexaware
Hexaware is slated to announce its 4QCY2011 results. We expect the company to post revenue growth of 4.1% qoq to US$82mn, majorly led by volume growth. In rupee terms, revenue is expected to come in at Rs.416cr, up 13.8% qoq. EBITDA margin is expected to expand by 140bp qoq to 20.1%. PAT is expected to come in at Rs.68cr. We maintain our Accumulate view on the stock with a target price of Rs.96.

Economic and Political News
- Manufacturing PMI jumps to 8-month high of 57.5
- December exports up 6.7% to US$25bn
- Fiscal deficit may be about 5.6% in FY2012: PMEAC
- Fertilizer industry wants higher gas price in new urea policy
- Outlook for the textiles industry in 2012 negative to stable: Fitch
- SEBI notifies IPP norms to help promoters dilute stake

Corporate News
- Coal India inks pact with worker unions on 25% hike in wages
- ICICI Bank to recast Rs.1,300cr loans in 4QFY2012
- ABG Shipyard bags Rs.500cr order from Shipping Corp.
- KEC International keen to take more business abroad

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Indian stock market and companies daily report (January 31, 2012, Tuesday)

2012-01-30T22:13:00.000-08:00

The markets are expected to open weak following negative cues from the Asian markets. US Stocks turned in a relatively lackluster performance on Friday as GDP growth came in at 2.8%, below investor’s expectations. Also Economists were disappointed that much of the GDP growth in the fourth quarter was due to a positive contribution from private inventory investment. The U.S. consumer sentiment result which was also released on Friday was better than expected, but failed to lighten the session's negative mood.
Meanwhile Indian markets closed higher on Friday as investors pinned their hopes on the government unveiling a raft of investor-friendly policies in the upcoming budget. Also, weekly food inflation remained in the negative zone for the fourth consecutive week, reinforcing expectations of lower interest rates in the months to come.

Markets Today
The trend deciding level for the day is 17,200/5,195 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,293 – 17,352/5,227– 5,249 levels. However, if NIFTY trades below 17,200/5,195 levels for the first half-an-hour of trade then it may correct up to 17,141 – 17,047/5,172 – 5,140 levels.

ITNL emerges as the lowest bidder for road BOT project worth Rs.1,818cr
IL&FS Transportation Networks Ltd. (ITNL) has emerged as the lowest bidder for four laning of Kiratpur to Ner-Chowk project worth Rs.1,818cr. This BOT project in Himachal Pradesh would be executed on DBFOT basis under Phase III. The project is on toll basis with a concession period of 28 years and construction period of three years. Further, NHAI would provide a grant of Rs.134.6cr to ITNL. This is positive for the company, as ITNL had not won any project in FY2012 owing to the aggressive bidding witnessed in the road sector. Considering the sharp run up in the share price (~39% in one month), we recommend Accumulate on the stock with an SOTP target price of Rs.227.

3QFY2012 - Result Reviews
NTPC
NTPC’s stand-alone top-line rose by 14.2% yoy to Rs.15,332cr aided by higher operational capacity. On a stand-alone basis, the company’s capacity was higher by 2,820MW on a yoy basis during the quarter. However, the OPM’s declined by 812bp yoy to 18.6% impacted by higher fuel costs. The depreciation and interest costs too rose by 26.3% yoy and 38.5% yoy respectively during the quarter. The company’s bottom-line was down by 10.2% yoy to 2,130cr. We recommend an Accumulate on the stock with a Target Price of Rs.199.
BHEL
BHEL’s 3QFY2012 results were broadly in-line with our and street estimates. The top line grew by 19.1% yoy to Rs.10,743cr (Rs.9,023cr), lower by 1.2% than our (above street) expectation of Rs.10,873cr. Growth was largely driven by the power segment, which posted robust growth of 58.3% yoy to Rs.8,711cr (Rs.5,502cr). The strong growth was offset by the industry segment, which posted an unexpected decline of 37.3% yoy to Rs.2,367cr (Rs.3,778cr).
On the operating front, the industry segment witnessed phenomenal EBITM expansion of more than 2,000bp yoy to 31.6% mainly due to execution of high rating orders (embedded with high margins). On the other hand, the power segment’s EBITM came off sharply by ~1200bp yoy mainly due to higher rawmaterial costs and other expenses. On an absolute basis, EBITDAM contracted by 360bp to19.4% (23.0%), in-line with our estimate of 20.0%. Depreciation cost increased by 29.1% yoy to Rs.186.8cr (Rs.144.7cr) partially offset by other income, which came in at Rs.196cr.
Led by the margin dip, PAT growth was subdued at 2.0% yoy to Rs.1,432cr (Rs.1,403cr), 2.2% lower than our (below street) estimate of Rs.1,465cr.
On the order book front, orders worth Rs.5,800cr were cancelled during the quarter and order intake remained dismal (no clarity over total inflow during the quarter), thus making 9MFY2012 order inflow tally at mere Rs.15,273cr. Order backlog of the company stood at Rs.1,45,541cr, a sequential decline of 9.0%. Earnings commentary by the management appeared passive mainly due to concerns outlined in the power sector (such as deepening fuel crisis and environmental clearances). Unlike the previous quarters, management refrained to offer any guidance on revenue as well order inflows, which raises a predicament over the company’s performance estimates for the coming quarters.
The business outlook is also soured given 1) delay in order finalizations amid concerns in the power sector; 2) weak investment capex due to high interest rate regime, which could take more time to gather momentum than earlier predicted; and 3) changing dynamics in the BTG space (read sector related). Given this, the attractive valuation of 9.5x FY2012E EPS and 10.5x FY2013E EPS is largely overshadowed. Given the long-term structural concerns, we remain Neutral on the stock. We will shortly come out with a detailed result update.
Canara Bank
For 3QFY2012, Canara Bank posted a poor set of results, with net profit declining by 20.8% yoy to Rs.876cr. Net-interest income of the bank declined by 9.6% yoy to Rs.1,919cr, as high prevailing interest rates led to higher cost of funds. However, non-interest income registered robust growth of 45.2% yoy to Rs.779cr, leading to operating income growing by muted 1.6% yoy. Although operating expenses declined by 1.9% yoy to Rs.1,121cr, provisioning expenses more than doubled to Rs.501cr, leading to a decline of 20.8% yoy in net profit.
The bank’s asset quality deteriorated during 3QFY2012, with both gross and net NPA levels rising by 5.4% and 4.8% sequentially, respectively. As of 3QFY2012 gross NPA ratio stands at 1.8% (1.7% in 2QFY2012), while net NPA ratio stands at 1.5% (1.4% in 2QFY2012).
At the CMP the stock is trading at 1.0x FY2013 ABV. We recommend a Neutral rating on the stock.
Bank of India
For 3QFY2012, Bank of India registered a moderate set of results, with net profit growing by 9.6% yoy to Rs.716cr. On the operating front, the bank’s performance was mostly muted (up 4.1% yoy); however, a 4.7% yoy decline in operating expenses led to pre-provisioning profit growing by 24.7% yoy to Rs.1,732cr. Higher provisioning expenses (up 39.2% yoy) negatively impacted profitability, leading to lower 9.6% yoy growth in net profit to Rs.716cr.
The bank’s asset quality improved during 3QFY2012, with gross and net NPA levels declining by 2.5% and 3.6% sequentially, respectively. As of 3QFY2012, gross NPA ratio stood at 2.7% (3.0% in 2QFY2012), while net NPA ratio stood at 1.8% (2.0% in 2QFY2012). Provisioning coverage ratio continued to remain low at 60.1% (59.1% in 2QFY2012).
At the CMP, the stock is trading at 1.1x compared to its historical range of 1.05-1.55x, with a median of 1.25x. We recommend Neutral on the stock.
Bhushan Steel
Bhushan Steel reported its 3QFY2012 results. The company's net sales grew by 23.9% yoy to Rs.2,407cr on account of increased realizations and sales volumes. EBITDA grew by 34.7% yoy to Rs.724cr on account of higher net sales. EBITDA margin expanded by 241bp yoy to 30.1%. During the quarter, interest expense grew by 124.6% yoy to Rs.229cr and depreciation expense grew by 165.8% yoy to Rs.152cr, as the company had capitalized its phase II expansion during FY2012. Hence, profit after tax decreased by 1.3% yoy to Rs.277cr. We maintain our Reduce rating on the stock; however, we keep our target price under review.
Indian Overseas Bank
For 3QFY2012, Indian Overseas Bank registered a poor set of results, with net profit declining by 53.3% yoy to Rs.108cr. On the operating front, the bank’s performance was moderate (up 8.1% yoy) as high prevailing interest rates led to higher cost of funds. Non-interest income of the bank increased by 17.0% yoy to Rs.411cr, leading to operating income growth of 10.2% yoy. High operating expenses, which rose by 19.6% yoy, and higher provisioning expenses (up 86.3% yoy) led to net profit declining by 53.3% yoy to Rs.108cr.
The bank’s asset quality remained under stress during 3QFY2012 as well. As of 3QFY2012, gross NPA ratio stood at 3.0%, while net NPA ratio stood at 1.2%. Provisioning coverage ratio continued to remain moderate at 71.7%.
At the CMP, the stock is trading at 0.6x FY2013 ABV. We maintain our Neutral stance on the stock.
Blue Star
Blue Star announced its 3QFY2012 numbers. The company’s net sales declined by 3.9% yoy to Rs.590cr (Rs.613cr). The electromechanical projects and packaged air-conditioning systems (EMPPACS) segment registered a 15.3% yoy decline to Rs.368cr (Rs.434cr), while the cooling product and professional electronic and industrial systems (PEIS) segments registered strong yoy growth of 28.1% and 16.0% to Rs.164cr and Rs.52cr, respectively. EBITDA came in at negative Rs.3cr in 3QFY2012 vs. positive Rs.47cr in 3QFY2011. EBITDA margin declined by 824bp yoy to negative 0.5%, mainly due to increased raw-material cost and other expenditure. Consequently, PAT came in at negative Rs.33cr. The company witnessed Rs.14cr of forex loss during the quarter. We will be coming out with a detailed report. We continue to maintain our Neutral rating on the stock.
Union Bank of India
For 3QFY2012, Union Bank of India posted a disappointing set of numbers, which were far below our as well as streets estimates, primarily due to higherthan- expected provisioning expenses. While NIMs improved by 10bp qoq and gross and net NPAs were largely stable on a sequential basis, substantially higher provisioning expenses dented the overall bottom line. Consequently, net profit took a hit and declined by 66% yoy and 44.1% qoq to Rs.197cr.
The bank’s advances and deposits growth picked up after a sluggish movement in 1HFY2012. Advances registered healthy growth of 6.1% qoq (16.8% yoy) and deposits increased by 5% qoq (10% yoy). CASA deposits of the bank registered healthy growth of 6.5% qoq (moderate 7.6% yoy), leading to a 45bp qoq increase in CASA ratio to 32.5%. Reported NIM of the bank improved by 10bp qoq to 3.3%. Cost-to-income ratio rose further to 45.9% in 3QFY2012 from 44.3% in 2QFY2012 and 40.2% in 3QFY2011. On the asset-quality front, pressures moderated considerably, with slippages declining to Rs.566cr from the average of Rs.940cr over the past four quarters. Gross and net NPAs on an absolute basis were largely stable sequentially. Gross and net NPA ratios improved on a sequential basis, from 3.5% to 3.3% and from 2.0% to 1.9%, respectively. Provision coverage ratio including technical write-offs improved from 60.5% in 2QFY2012 to 63.1% in 3QFY2012.
At the CMP, the stock is trading at 0.9x FY2013E P/ABV. We recommend a Neutral view on the stock.
Jyoti Structures
Jyoti Structures (JSL) announced its 3QFY2012 results, which were lower than our and street estimates. The top line posted modest growth of 6.5% yoy to Rs.587.2cr (Rs.551.3cr), lower by 10.0% from our estimate of Rs.652.7cr. On the EBITDA front, margin compressed by ~130bp yoy to 10.1%, which was along expected lines (est. 10.5%). The margin dip was primarily due to higher sub-contracting expenses, which shot up by ~880bp yoy to 28.3%, as a proportion to sales. Profitability was further impacted by high interest expenses, which soared by 46.5% yoy to Rs.34.7cr. This resulted into PAT plunging by 44.1% yoy to Rs.13.8cr (Rs.24.7cr) against our (below street) estimates of Rs.20.8cr.
At CMP, the stock trades cheaply at 3.5x and 4.1x, FY2012E and FY2013E, EPS respectively. The pessimism, viz. high interest expenses, low profitability and elongated working capital cycle, has clearly factored in the stock’s performance. We would like to get more insights from the earnings conference call, post which we will revise our estimates and recommendation. Meanwhile, we maintain our Buy recommendation on the stock with a target price of Rs.61.
Tata Sponge Iron Ltd.
For 3QFY2012, TSIL’s reported a 23.3% yoy decline in its revenue to Rs.131cr, as compared to Rs.170cr in 2QFY2011. The company’s EBITDA margin came in at 18.8%, lower by 167bp yoy, from 20.5% in 3QFY2011 due to increased employee expenses as a percentage of net sales from 2.9% in 3QFY2011 to 4% in 3QFY2012. Profit for the quarter stood at Rs.17cr as compared to Rs.22cr in 3QFY2011. We expect ramp up in sponge iron volume sales in FY2013E, which would lead to improvement in the top line. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.382, based on a target P/B of 0.9x for FY2013E.
Hitachi Home & Life Solutions
For 3QFY2012, Hitachi Home & Life Solutions (HHLS) reported a 13% yoy decline in its revenue to Rs.107cr from Rs.124cr in 3QFY2011. Increased expenses for the quarter led to negative operating profit of Rs.5cr. The company reported a higher forex loss of Rs.3.7cr on ECB during the quarter as compared to Rs.1.2cr during 3QFY2011. Operating loss and increased depreciation and interest cost led to loss of Rs.10cr as compared to profit of Rs.1.7cr in 3QFY2011.
We expect the company’s sales volume to register a CAGR of 14.1% over FY2011-13E, which would lead to its profit increasing to Rs.30cr in FY2013E from Rs.29cr in FY2011. At the CMP of Rs.113, the stock is trading at attractive valuations with PE of 8.3x FY2013E earnings.
We maintain our Buy rating on the stock with a target price of Rs.157, based on target PE of 12x for FY2013E.

3QFY2012 Result Previews
NMDC
NMDC is slated to announce its 3QFY2012 results. We expect the company’s top line to grow by 4.7% yoy to Rs.2,745cr on account of increased sales volumes as well as realization. On the operating front, EBITDA margin is expected to improve by 58bp yoy to 77.5%. The bottom line is expected to grow by 15.7% yoy to Rs.1,757cr. We maintain our Buy rating on the stock with a target price of Rs.231.
Oriental Bank of Commerce
Oriental Bank of Commerce is scheduled to announce its 3QFY2012 results. Net interest income is expected decline by 1.4% yoy (up 2.6% qoq). Non-interest income is expected to increase by 25.7% yoy (up 4.9% qoq) to Rs.291cr. Consequently, operating income is expected to increase by 3.6% yoy to Rs.1,307cr. Operating expenses are expected to increase by 10.6% yoy to Rs.539cr, leading to pre-provisioning profit declining by 0.8% yoy to Rs.768cr. Provisioning expenses are expected to increase substantially by 67.5% yoy to Rs.321cr. Consequently, net profit is expected to decline by 26.1% yoy (up 79.9% qoq) to Rs.302cr.
At the CMP, the stock is trading at valuations of 0.7x FY2013E ABV. We recommend Neutral on the stock.
Indian Bank
Indian Bank is scheduled to announce its 3QFY2012 results. Net interest income is expected to grow moderately by 11.5% yoy (up 1.9% qoq) to Rs.1,157cr. Non-interest income is expected to increase by 20.6% yoy (decline of 12.4% qoq) to Rs.300cr. Consequently, operating income is expected to increase by 13.3% yoy to Rs.1,457cr. Operating expenses are expected to increase by 15.4% yoy to Rs.548cr, leading to pre-provisioning profit growing by 12.0% yoy to Rs.909cr. Provisioning expenses are expected to increase three-fold on a yoy basis to Rs.231cr (up 5.0% qoq). Consequently, net profit is expected to decline by 6.8% yoy (down 2.3% qoq) to Rs.458cr.
At the CMP, the stock is trading at valuations of 0.9x FY2013E ABV. We recommend Neutral on the stock.
Allahabad Bank
Allahabad Bank is scheduled to announce its 3QFY2012 results. Net interest income is expected to grow by healthy 29.3% yoy (up 3.1% qoq) to Rs.1,360cr. Non-interest income is expected to increase by 32.2% yoy (up 10.2% qoq) to Rs.341cr. Pperating expenses are expected to increase by 28.1% yoy to Rs.667cr, leading to pre-provisioning profit growing by 31.0% yoy to Rs.1,033cr. Provisioning expenses are expected to go up substantially by 56.1% yoy (decline of 10.6% qoq) to Rs.368cr. Consequently, net profit is expected to increase by lower 8.7% yoy (decline of 7.5% qoq) to Rs.452cr.
At the CMP, the stock is trading at valuations of 0.7x FY2013E ABV. We remain Neutral on the stock.
Sadbhav Engineering
We expect Sadbhav Engineering (SEL) to post robust 50.0% growth to Rs.714.3cr on the top-line front, owing to pick-up in the execution of captive road BOT projects. EBITDA margin is expected to witness a marginal fall of 40bp yoy to 10.7% for the quarter. On the earnings front, the company is expected to post healthy growth of 47.3% yoy to Rs.38.9cr, owing to strong performance at the revenue level.
At current levels, the stock is trading at valuations of 14.4x FY2013E earnings and 2.0x FY2013E P/BV on standalone basis. Based on a target P/E multiple of 9x and valuing the company’s BOT arm on DCF basis, our SOTP based target price works out to Rs.150. Hence, we maintain our Buy view on the stock.

Economic and Political News
- Fitch assigns 'stable outlook' to fertilizer in 2012
- Oil Ministry demands extra duty of Rs.80,000 on diesel vehicles
- Credit off-take up 17.1% as of mid-January

Corporate News
- Coal India plans to revise coal pricing from February 2011
- Network 18 Media plans rights issue of up to Rs.2,700cr
- Anti-coagulant injection issue resolved with USFDA: Dr. Reddy's

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Indian stock market and companies daily report (January 30, 2012, Monday)

2012-01-29T23:21:00.000-08:00

The markets are expected to open weak following negative cues from the Asian markets. US Stocks turned in a relatively lackluster performance on Friday as GDP growth came in at 2.8%, below investor’s expectations. Also Economists were disappointed that much of the GDP growth in the fourth quarter was due to a positive contribution from private inventory investment. The U.S. consumer sentiment result which was also released on Friday was better than expected, but failed to lighten the session's negative mood.
Meanwhile Indian markets closed higher on Friday as investors pinned their hopes on the government unveiling a raft of investor-friendly policies in the upcoming budget. Also, weekly food inflation remained in the negative zone for the fourth consecutive week, reinforcing expectations of lower interest rates in the months to come.

Markets Today
The trend deciding level for the day is 17,200/5,195 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,293 – 17,352/5,227– 5,249 levels. However, if NIFTY trades below 17,200/5,195 levels for the first half-an-hour of trade then it may correct up to 17,141 – 17,047/5,172 – 5,140 levels.

ITNL emerges as the lowest bidder for road BOT project worth Rs.1,818cr
IL&FS Transportation Networks Ltd. (ITNL) has emerged as the lowest bidder for four laning of Kiratpur to Ner-Chowk project worth Rs.1,818cr. This BOT project in Himachal Pradesh would be executed on DBFOT basis under Phase III. The project is on toll basis with a concession period of 28 years and construction period of three years. Further, NHAI would provide a grant of Rs.134.6cr to ITNL. This is positive for the company, as ITNL had not won any project in FY2012 owing to the aggressive bidding witnessed in the road sector. Considering the sharp run up in the share price (~39% in one month), we recommend Accumulate on the stock with an SOTP target price of Rs.227.

3QFY2012 - Result Reviews
NTPC
NTPC’s stand-alone top-line rose by 14.2% yoy to Rs.15,332cr aided by higher operational capacity. On a stand-alone basis, the company’s capacity was higher by 2,820MW on a yoy basis during the quarter. However, the OPM’s declined by 812bp yoy to 18.6% impacted by higher fuel costs. The depreciation and interest costs too rose by 26.3% yoy and 38.5% yoy respectively during the quarter. The company’s bottom-line was down by 10.2% yoy to 2,130cr. We recommend an Accumulate on the stock with a Target Price of Rs.199.
BHEL
BHEL’s 3QFY2012 results were broadly in-line with our and street estimates. The top line grew by 19.1% yoy to Rs.10,743cr (Rs.9,023cr), lower by 1.2% than our (above street) expectation of Rs.10,873cr. Growth was largely driven by the power segment, which posted robust growth of 58.3% yoy to Rs.8,711cr (Rs.5,502cr). The strong growth was offset by the industry segment, which posted an unexpected decline of 37.3% yoy to Rs.2,367cr (Rs.3,778cr).
On the operating front, the industry segment witnessed phenomenal EBITM expansion of more than 2,000bp yoy to 31.6% mainly due to execution of high rating orders (embedded with high margins). On the other hand, the powersegment’s EBITM came off sharply by ~1200bp yoy mainly due to higher rawmaterial costs and other expenses. On an absolute basis, EBITDAM contracted by 360bp to19.4% (23.0%), in-line with our estimate of 20.0%. Depreciation cost increased by 29.1% yoy to Rs.186.8cr (Rs.144.7cr) partially offset by other income, which came in at Rs.196cr.
Led by the margin dip, PAT growth was subdued at 2.0% yoy to Rs.1,432cr (Rs.1,403cr), 2.2% lower than our (below street) estimate of Rs.1,465cr. On the order book front, orders worth Rs.5,800cr were cancelled during the quarter and order intake remained dismal (no clarity over total inflow during the quarter), thus making 9MFY2012 order inflow tally at mere Rs.15,273cr. Order backlog of the company stood at Rs.1,45,541cr, a sequential decline of 9.0%. Earnings commentary by the management appeared passive mainly due to concerns outlined in the power sector (such as deepening fuel crisis and environmental clearances). Unlike the previous quarters, management refrained to offer any guidance on revenue as well order inflows, which raises a predicament over the company’s performance estimates for the coming quarters.
The business outlook is also soured given 1) delay in order finalizations amid concerns in the power sector; 2) weak investment capex due to high interest rate regime, which could take more time to gather momentum than earlier predicted; and 3) changing dynamics in the BTG space (read sector related). Given this, the attractive valuation of 9.5x FY2012E EPS and 10.5x FY2013E EPS is largely overshadowed. Given the long-term structural concerns, we remain Neutral on the stock. We will shortly come out with a detailed result update.
Canara Bank
For 3QFY2012, Canara Bank posted a poor set of results, with net profit declining by 20.8% yoy to Rs.876cr. Net-interest income of the bank declined by 9.6% yoy to Rs.1,919cr, as high prevailing interest rates led to higher cost of funds. However, non-interest income registered robust growth of 45.2% yoy to Rs.779cr, leading to operating income growing by muted 1.6% yoy. Although operating expenses declined by 1.9% yoy to Rs.1,121cr, provisioning expenses more than doubled to Rs.501cr, leading to a decline of 20.8% yoy in net profit. The bank’s asset quality deteriorated during 3QFY2012, with both gross and net NPA levels rising by 5.4% and 4.8% sequentially, respectively. As of 3QFY2012 gross NPA ratio stands at 1.8% (1.7% in 2QFY2012), while net NPA ratio stands at 1.5% (1.4% in 2QFY2012).
At the CMP the stock is trading at 1.0x FY2013 ABV. We recommend a Neutral rating on the stock.
Bank of India
For 3QFY2012, Bank of India registered a moderate set of results, with net profit growing by 9.6% yoy to Rs.716cr. On the operating front, the bank’s performance was mostly muted (up 4.1% yoy); however, a 4.7% yoy decline in operating expenses led to pre-provisioning profit growing by 24.7% yoy to Rs.1,732cr. Higher provisioning expenses (up 39.2% yoy) negatively impacted profitability, leading to lower 9.6% yoy growth in net profit to Rs.716cr.
The bank’s asset quality improved during 3QFY2012, with gross and net NPA levels declining by 2.5% and 3.6% sequentially, respectively. As of 3QFY2012, gross NPA ratio stood at 2.7% (3.0% in 2QFY2012), while net NPA ratio stood at 1.8% (2.0% in 2QFY2012). Provisioning coverage ratio continued to remain low at 60.1% (59.1% in 2QFY2012).
At the CMP, the stock is trading at 1.1x compared to its historical range of 1.05-1.55x, with a median of 1.25x. We recommend Neutral on the stock.
Bhushan Steel
Bhushan Steel reported its 3QFY2012 results. The company's net sales grew by 23.9% yoy to Rs.2,407cr on account of increased realizations and sales volumes. EBITDA grew by 34.7% yoy to Rs.724cr on account of higher net sales. EBITDA margin expanded by 241bp yoy to 30.1%. During the quarter, interest expense grew by 124.6% yoy to Rs.229cr and depreciation expense grew by 165.8% yoy to Rs.152cr, as the company had capitalized its phase II expansion during FY2012. Hence, profit after tax decreased by 1.3% yoy to Rs.277cr. We maintain our Reduce rating on the stock; however, we keep our target price under review.
Indian Overseas Bank
For 3QFY2012, Indian Overseas Bank registered a poor set of results, with net profit declining by 53.3% yoy to Rs.108cr. On the operating front, the bank’s performance was moderate (up 8.1% yoy) as high prevailing interest rates led to higher cost of funds. Non-interest income of the bank increased by 17.0% yoy to Rs.411cr, leading to operating income growth of 10.2% yoy. High operating expenses, which rose by 19.6% yoy, and higher provisioning expenses (up 86.3% yoy) led to net profit declining by 53.3% yoy to Rs.108cr.
The bank’s asset quality remained under stress during 3QFY2012 as well. As of 3QFY2012, gross NPA ratio stood at 3.0%, while net NPA ratio stood at 1.2%. Provisioning coverage ratio continued to remain moderate at 71.7%. At the CMP, the stock is trading at 0.6x FY2013 ABV. We maintain our Neutral stance on the stock.
Blue Star
Blue Star announced its 3QFY2012 numbers. The company’s net sales declined by 3.9% yoy to Rs.590cr (Rs.613cr). The electromechanical projects and packaged air-conditioning systems (EMPPACS) segment registered a 15.3% yoy decline to Rs.368cr (Rs.434cr), while the cooling product and professional electronic and industrial systems (PEIS) segments registered strong yoy growth of 28.1% and 16.0% to Rs.164cr and Rs.52cr, respectively. EBITDA came in at negative Rs.3cr in 3QFY2012 vs. positive Rs.47cr in 3QFY2011. EBITDA margin declined by 824bp yoy to negative 0.5%, mainly due to increased raw-material cost and other expenditure. Consequently, PAT came in at negative Rs.33cr. The company witnessed Rs.14cr of forex loss during the quarter. We will be coming out with a detailed report. We continue to maintain our Neutral rating on the stock.
Union Bank of India
For 3QFY2012, Union Bank of India posted a disappointing set of numbers, which were far below our as well as streets estimates, primarily due to higherthan- expected provisioning expenses. While NIMs improved by 10bp qoq and gross and net NPAs were largely stable on a sequential basis, substantially higher provisioning expenses dented the overall bottom line. Consequently, net profit took a hit and declined by 66% yoy and 44.1% qoq to Rs.197cr.
The bank’s advances and deposits growth picked up after a sluggish movement in 1HFY2012. Advances registered healthy growth of 6.1% qoq (16.8% yoy) and deposits increased by 5% qoq (10% yoy). CASA deposits of the bank registered healthy growth of 6.5% qoq (moderate 7.6% yoy), leading to a 45bp qoq increase in CASA ratio to 32.5%. Reported NIM of the bank improved by 10bp qoq to 3.3%. Cost-to-income ratio rose further to 45.9% in 3QFY2012 from 44.3% in 2QFY2012 and 40.2% in 3QFY2011. On the asset-quality front, pressures moderated considerably, with slippages declining to Rs.566cr from the average of Rs.940cr over the past four quarters. Gross and net NPAs on an absolute basis were largely stable sequentially. Gross and net NPA ratios improved on a sequential basis, from 3.5% to 3.3% and from 2.0% to 1.9%, respectively. Provision coverage ratio including technical write-offs improved from 60.5% in 2QFY2012 to 63.1% in 3QFY2012.
At the CMP, the stock is trading at 0.9x FY2013E P/ABV. We recommend a Neutral view on the stock.
Jyoti Structures
Jyoti Structures (JSL) announced its 3QFY2012 results, which were lower than our and street estimates. The top line posted modest growth of 6.5% yoy to Rs.587.2cr (Rs.551.3cr), lower by 10.0% from our estimate of Rs.652.7cr. On the EBITDA front, margin compressed by ~130bp yoy to 10.1%, which was along expected lines (est. 10.5%). The margin dip was primarily due to higher sub-contracting expenses, which shot up by ~880bp yoy to 28.3%, as a proportion to sales. Profitability was further impacted by high interest expenses, which soared by 46.5% yoy to Rs.34.7cr. This resulted into PAT plunging by 44.1% yoy to Rs.13.8cr (Rs.24.7cr) against our (below street) estimates of Rs.20.8cr.
At CMP, the stock trades cheaply at 3.5x and 4.1x, FY2012E and FY2013E, EPS respectively. The pessimism, viz. high interest expenses, low profitability and elongated working capital cycle, has clearly factored in the stock’s performance. We would like to get more insights from the earnings conference call, post which we will revise our estimates and recommendation. Meanwhile, we maintain our Buy recommendation on the stock with a target price of Rs.61.
Tata Sponge Iron Ltd.
For 3QFY2012, TSIL’s reported a 23.3% yoy decline in its revenue to Rs.131cr, as compared to Rs.170cr in 2QFY2011. The company’s EBITDA margin came in at 18.8%, lower by 167bp yoy, from 20.5% in 3QFY2011 due to increased employee expenses as a percentage of net sales from 2.9% in 3QFY2011 to 4% in 3QFY2012. Profit for the quarter stood at Rs.17cr as compared to Rs.22cr in 3QFY2011. We expect ramp up in sponge iron volume sales in FY2013E, which would lead to improvement in the top line. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.382, based on a target P/B of 0.9x for FY2013E.
Hitachi Home & Life Solutions
For 3QFY2012, Hitachi Home & Life Solutions (HHLS) reported a 13% yoy decline in its revenue to Rs.107cr from Rs.124cr in 3QFY2011. Increased expenses for the quarter led to negative operating profit of Rs.5cr. The company reported a higher forex loss of Rs.3.7cr on ECB during the quarter as compared to Rs.1.2cr during 3QFY2011. Operating loss and increased depreciation and interest cost led to loss of Rs.10cr as compared to profit of Rs.1.7cr in 3QFY2011.
We expect the company’s sales volume to register a CAGR of 14.1% over FY2011-13E, which would lead to its profit increasing to Rs.30cr in FY2013E from Rs.29cr in FY2011. At the CMP of Rs.113, the stock is trading at attractive valuations with PE of 8.3x FY2013E earnings.
We maintain our Buy rating on the stock with a target price of Rs.157, based on target PE of 12x for FY2013E.

3QFY2012 Result Previews
NMDC
NMDC is slated to announce its 3QFY2012 results. We expect the company’s top line to grow by 4.7% yoy to Rs.2,745cr on account of increased sales volumes as well as realization. On the operating front, EBITDA margin is expected to improve by 58bp yoy to 77.5%. The bottom line is expected to grow by 15.7% yoy to Rs.1,757cr. We maintain our Buy rating on the stock with a target price of Rs.231.
Oriental Bank of Commerce
Oriental Bank of Commerce is scheduled to announce its 3QFY2012 results. Net interest income is expected decline by 1.4% yoy (up 2.6% qoq). Non-interest income is expected to increase by 25.7% yoy (up 4.9% qoq) to Rs.291cr. Consequently, operating income is expected to increase by 3.6% yoy to Rs.1,307cr. Operating expenses are expected to increase by 10.6% yoy to Rs.539cr, leading to pre-provisioning profit declining by 0.8% yoy to Rs.768cr. Provisioning expenses are expected to increase substantially by 67.5% yoy to Rs.321cr. Consequently, net profit is expected to decline by 26.1% yoy (up 79.9% qoq) to Rs.302cr. At the CMP, the stock is trading at valuations of 0.7x FY2013E ABV. We recommend Neutral on the stock.
Indian Bank
Indian Bank is scheduled to announce its 3QFY2012 results. Net interest income is expected to grow moderately by 11.5% yoy (up 1.9% qoq) to Rs.1,157cr. Non-interest income is expected to increase by 20.6% yoy (decline of 12.4% qoq) to Rs.300cr. Consequently, operating income is expected to increase by 13.3% yoy to Rs.1,457cr. Operating expenses are expected to increase by 15.4% yoy to Rs.548cr, leading to pre-provisioning profit growing by 12.0% yoy to Rs.909cr. Provisioning expenses are expected to increase three-fold on a yoy basis to Rs.231cr (up 5.0% qoq). Consequently, net profit is expected to decline by 6.8% yoy (down 2.3% qoq) to Rs.458cr.
At the CMP, the stock is trading at valuations of 0.9x FY2013E ABV. We recommend Neutral on the stock.
Allahabad Bank
Allahabad Bank is scheduled to announce its 3QFY2012 results. Net interest income is expected to grow by healthy 29.3% yoy (up 3.1% qoq) to Rs.1,360cr. Non-interest income is expected to increase by 32.2% yoy (up 10.2% qoq) to Rs.341cr. Pperating expenses are expected to increase by 28.1% yoy to Rs.667cr, leading to pre-provisioning profit growing by 31.0% yoy to Rs.1,033cr. Provisioning expenses are expected to go up substantially by 56.1% yoy (decline of 10.6% qoq) to Rs.368cr. Consequently, net profit is expected to increase by lower 8.7% yoy (decline of 7.5% qoq) to Rs.452cr.
At the CMP, the stock is trading at valuations of 0.7x FY2013E ABV. We remain Neutral on the stock.
Sadbhav Engineering
We expect Sadbhav Engineering (SEL) to post robust 50.0% growth to Rs.714.3cr on the top-line front, owing to pick-up in the execution of captive road BOT projects. EBITDA margin is expected to witness a marginal fall of 40bp yoy to 10.7% for the quarter. On the earnings front, the company is expected to post healthy growth of 47.3% yoy to Rs.38.9cr, owing to strong performance at the revenue level.
At current levels, the stock is trading at valuations of 14.4x FY2013E earnings and 2.0x FY2013E P/BV on standalone basis. Based on a target P/E multiple of 9x and valuing the company’s BOT arm on DCF basis, our SOTP based target price works out to Rs.150. Hence, we maintain our Buy view on the stock.

Economic and Political News
- Fitch assigns 'stable outlook' to fertilizer in 2012
- Oil Ministry demands extra duty of Rs.80,000 on diesel vehicles
- Credit off-take up 17.1% as of mid-January

Corporate News
- Coal India plans to revise coal pricing from February 2011
- Network 18 Media plans rights issue of up to Rs.2,700cr
- Anti-coagulant injection issue resolved with USFDA: Dr. Reddy's

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Indian stock market and companies daily report (January 27, 2012, Friday)

2012-01-26T22:42:00.000-08:00

The markets are expected to open sideways tracking mixed cues from the Asian markets and as investors would be waiting for the outcome of crucial Greek debt talks.
US shares ended on a weak note on Thursday following some mixed economic data, with new home sales notably weak. Profit taking following recent strength also contributed to the downturn by the markets. The data came one day after the US Federal Reserve indicated that it would keep rates in the US at ultra-low levels until late 2014. European market closed to the upside on Thursday. The mere hope of movement in the stalled negotiations over an average debt in Greece helped to put investors in a better mood. Greece and its private creditors made progress on Thursday in talks on restructuring its debt. They will continue negotiating on Friday with the aim of sealing an agreement within a few days.
Indian shares ended a volatility marred session on the last day of January F&O series above important resistance levels on the back of bullish sentiments following easing of policy stance by the Reserve Bank of India.

Markets Today
The trend deciding level for the day is 17,075 / 5,154 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,133 – 17,188 / 5,178– 5,198 levels. However, if NIFTY trades below 17,075 / 5,154 levels for the first half-an-hour of trade then it may correct up to 17,019 – 16,961 / 5,134 – 5,110 levels.

3QFY2012 Result Reviews
Bank of Baroda
For 3QFY2012, Bank of Baroda posted a healthy set of numbers on the operating front; however, slight deterioration in the asset quality was witnessed during the quarter. Provisioning expenses (Rs.850cr) grew substantially by 179.5% yoy, though they were mostly offset by traction in other income, which registered a robust performance, growing by 70.0% yoy to Rs.1,149cr. Consequently, net profit managed to grow by 20.7% yoy to Rs.1,290cr.
The bank’s businesses gathered pace during 3QFY2012, with advances growing by 9.1% qoq (25.8% yoy) and deposits growing by 6.1% qoq (24.0% yoy). The bank’s overseas book grew by 45.7% yoy, however removing the effect of INR depreciation over the past six months, growth was more normalized at ~25% yoy levels.
The bank witnessed slight deterioration in its asset quality, with gross and net NPA levels rising by 14.5% qoq and 18.5% qoq, respectively. Gross NPA ratio as of 3QFY2012 stood at 1.5% (1.4% in 2QFY2012), while net NPA ratio stood at 0.51% (.47% in 2QFY2012). Slippage levels, which have a quarterly run-rate of ~Rs.500cr, came in at Rs.952cr (annualized slippage ratio of 1.7%) for 3QFY2012.
The bank restructured accounts worth ~Rs.2,116cr in 3QFY2012, on which the bank made a provisioning of Rs.154cr. However, as a percentage of overall advances, restructured assets still remain at low 3.8% (much lower compared to other PSU banks). Also, the bank’s provision coverage ratio remained elevated at 80.5% for 3QFY2012. We maintain our Buy rating on the stock with a target price of Rs.906.
Sesa Goa
Sesa Goa reported is 3QFY2012 results. The company’s net sales increased by 16.3% yoy to Rs.2,617cr mainly due to increased iron ore sales volumes to 5.0mn tonnes (+5.4% yoy) as well as higher realization to US$94 (+10.0% yoy). Net sales were higher than our estimate of Rs.1,775cr due to higher-than-expected sales volumes. However, EBITDA declined by 11.8% yoy to Rs.1,085cr on account of increased export duty. Interest expense increased by 444.4% yoy to Rs.73cr. Hence, reported PAT decreased by 35.5% yoy to Rs.692cr.
The company reported exceptional item of Rs.178cr related to forex loss during the quarter. The company also reported share of profit from its associate (Cairn India) of Rs.122cr. Excluding exceptional items, adjusted PAT declined by 18.4% yoy to Rs.870cr (above our estimate of Rs.562cr). We keep our rating and target price under review.
Union Bank of India
For 3QFY2012, Union Bank of India posted a disappointing set of numbers, which were far below our as well as streets estimates, primarily due to higherthan- expected provisioning expenses. While NIMs improved by 10bp qoq and gross and net NPAs were largely stable on a sequential basis, substantially higher provisioning expenses dented the overall bottom line. Consequently, net profit took a hit and declined by 66% yoy and 44.1% qoq to Rs.197cr.
The bank’s advances and deposits growth picked up after a sluggish movement in 1HFY2012. Advances registered healthy growth of 6.1% qoq (16.8% yoy) and deposits increased by 5% qoq (10% yoy). CASA deposits of the bank registered healthy growth of 6.5% qoq (moderate 7.6% yoy), leading to a 45bp qoq increase in CASA ratio to 32.5%. Reported NIM of the bank improved by 10bp qoq to 3.3%. Cost-to-income ratio rose further to 45.9% in 3QFY2012 from 44.3% in 2QFY2012 and 40.2% in 3QFY2011. On the asset-quality front, pressures moderated considerably, with slippages declining to Rs.566cr from the average of Rs.940cr over the past four quarters. Gross and net NPAs on an absolute basis were largely stable sequentially. Gross and net NPA ratios improved on a sequential basis, from 3.5% to 3.3% and from 2.0% to 1.9%, respectively. Provision coverage ratio including technical write-offs improved from 60.5% in 2QFY2012 to 63.1% in 3QFY2012.
At the CMP, the stock is trading at 0.9x FY2013E P/ABV. We recommend a Neutral view on the stock.
TGBL
TGBL reported its 3QFY2012 results yesterday, which were in-line with our estimates. The company reported top-line growth of ~12% yoy to Rs.1,793cr, against our estimate of Rs.1,734cr. OPM came in at 9.6%, against our estimate of 9.9%. The company’s margins fell on account of higher raw-material costs and ad spends. TGBL reported an 11% yoy decline in its earnings to Rs.64.1cr, against our estimate of Rs.64.5cr. The stock is under review.
IRB Infra
For 3QFY2012, IRB reported a modest set of numbers, which were above our and street estimates. IRB’s top line witnessed growth of 11.5% yoy to Rs.745.5cr (Rs.668.8cr), ahead of our estimate of Rs.639.5cr. IRB’s operating margin stood at 45.8% (43.9%), in-line with our estimate of 45.9%. Interest cost came in at Rs.142.0cr (Rs.82.0cr), registering a jump of 73.2% yoy/0.6% qoq basis. Earnings for the quarter reported a decline of 0.7% to Rs.132.0cr (Rs.133.0cr), above our estimate of Rs.81.5cr on account of better-than-expected performance on the revenue front.
Our valuation of Rs.182/share for the consolidated business uses NPV/EV/EBITDA based valuation for BOT assets and the C&EPC arm, respectively. We factor in CoE of 14% and a traffic growth rate of 5/6/7% for its BOT assets. Owing to the recent run up in the stock, we recommend Accumulate with a target price of Rs.182.
Vijaya Bank
For 3QFY2012, Vijaya Bank registered an 18.1% yoy decline in its net profit to Rs.124cr, below our estimates, mainly due to higher provisioning expenses than built in by us. Due to higher prevailing interest rates, the bank’s NII suffered, declining by 11.5% yoy to Rs.475cr. Non-interest income of the bank registered a moderate performance, growing by 13.5% yoy to Rs.116cr. Although operating expenses of the bank declined by 7.4% yoy, provisioning expenses jumped up substantially by 45.7% yoy to Rs.167cr, leading to an 18.1% yoy decline in net profit. Bottom-line performance would have been worse without the support of a lower effective tax rate (7% in 3QFY2012 compared to 28.3% in 3QFY2011).
The bank’s asset quality remained under pressure in 3QFY2012 as well, with gross and net NPA rising by 20.7% and 31.0% qoq, respectively. Gross NPA ratio as of 3QFY2012 stood at 3.0% (2.5% in 2QFY2012), while net NPA ratio stood at 1.8% (1.4% in 2QFY2012). We continue to remain Neutral on the stock.

3QFY2012 Result Previews
NTPC
NTPC is set to announce its results. For 3QFY2012, we expect NTPC to record a 20.6% yoy increase in its top line to Rs.16,187cr, aided by commencement of new capacities and higher tariffs. However, OPM is expected to decline by 380bp yoy to 24.2%. Net profit is expected to decrease by 6.3% yoy to Rs.2,223cr due to lower other income and higher interest and depreciation costs. We recommend an Accumulate rating on the stock with a target price of Rs.199.
BHEL
BHEL is scheduled to announce its 3QFY2012 results. For the quarter, we expect the company to post top-line growth of 20.5% yoy to Rs.10,873cr. The company's operating margin is expected to compress by ~296bp yoy to 20.0%. Hence, bottom-line growth is expected to be subdued at 4.4% yoy to Rs.1,465cr. We remain Neutral on the stock.
Canara Bank
Canara Bank is scheduled to announce its 3QFY2012 results. We expect the bank to report a decline of 4.6% yoy in its net interest income to Rs.2,022cr. However, on the non-interest income front, the bank is expected to report robust growth of 48.2% yoy to Rs.795cr, leading to operating income growth of 6.1% yoy to Rs.2,817cr. Although operating expenses are expected to grow moderately by 5.5% yoy to Rs.1,206cr, provisioning expenses are expected to nearly double on a yoy basis (190.4% yoy) to Rs.457cr, leading to a decline of 17.5% yoy in net profit to Rs.912cr. We remain Neutral on the stock.
Bank of India
Bank of India is scheduled to announce its 3QFY2012 results. We expect the bank to report a decline of 1.3% yoy in net interest income to Rs.1,962cr. However, on the non-interest income front, the bank is expected to report healthy growth of 22.9% yoy to Rs.797cr, leading to operating income growth of 4.7% yoy to Rs.2,758cr. Although operating expenses are expected to decline by 2.5% yoy to Rs.1,216cr, provisioning expenses are expected to rise substantially by 42.6% yoy to Rs.710cr, leading to a decline of 4.4% yoy in net profit to Rs.624cr. We remain Neutral on the stock.
Jyoti Structures
Jyoti Structures is scheduled to announce its 3QFY2012 numbers. We expect the company to post decent top-line growth of 18.4% yoy to Rs.652.7cr. EBITDA margin is expected to contract marginally by ~91bp yoy to 10.5%. Interest cost is expected to increase due to higher working capital borrowings. Against this backdrop, the company's PAT is expected to decline by 16.0% yoy to Rs.20.8cr. We maintain our Buy rating on the stock with a target price of Rs.61.

Economic and Political News
- Government okays 10% disinvestment in Rashtriya Ispat
- Consumer Affairs Ministry opposes commodity transaction tax
- TRAI waives SMS limit for business houses

Corporate News
- RIL's gas pact with NTPC: EGoM to decide on February 14
- Ranbaxy to pay heavily for future US violations
- Dr Reddy's Labs in trouble with US health regulator again

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Indian stock market and companies daily report (January 24, 2012, Tuesday)

2012-01-23T23:12:00.000-08:00

The markets are expected to open in the green following positive opening across Asian markets, as optimism that European policy makers are making progress to tame the region’s debt crisis boosted the earnings outlook for Asian exporters.
US stocks put in a lackluster performance on Monday. The major averages finished the day near the unchanged mark, consolidating gains posted last week. European stocks finished the first day of the new trading week with a modest increase. European finance ministers balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief in order to point the way out of the two-year-old debt crisis.
Indian shares moved sideways before ending on a flat note on Monday, as investors reacted to mixed quarterly results and lackluster global cues amid apprehensions over the outcome of Greece's talks with private creditors. Investors would be closely watching the RBI’s monetary policy review due today. We expect the RBI to maintain status quo on Repo and CRR.

Markets Today
The trend deciding level for the day is 16,732 / 5,042 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,804 – 16,856 / 5,063– 5,081 levels. However, if NIFTY trades below 16,732 / 5,042 levels for the first half-an-hour of trade then it may correct up to 16,679 – 16,607 / 5,004 – 5,025 levels

RBI Monetary Policy Preview – Reversal of rate cycle soon, but not just yet
In light of the considerable economic slowdown witnessed over the past year, the RBI’s policy tone turned more dovish in the last monetary policy review. However, the RBI has continually maintained that any easing of monetary stance will only follow a noteworthy decline in inflation levels. Positively, WPI figures, led by a substantial drop in food inflation, fell to a two-year low of 7.5% for December 2011. However, manufacturing products inflation continued to be relatively high at 7.4% (average of 6.3% over the past two years), which is above the RBI’s comfort levels. Also, considering the sequentially improved IIP (5.9% for November 2011 compared to contraction of 5.5% in October 2011) and the PMI data (54.2 for December 2011 compared to 51.0 for November 2011), the RBI may choose to maintain the repo rate in the upcoming monetary policy, rather than cutting it right away.
However, having said that, the manufacturing inflation, which came in higher than the primary inflation for December, possibly indicates that a large part of pass-through is already done with. Hence, in-line with food inflation, we expect manufacturing inflation to start cooling off as well in the coming few months, eventually leading to policy rate cuts by the RBI. Further, with GDP growth widely expected to be below 7% for FY2012, growth concerns are likely to increasingly influence the RBI’s policy rate stance going forward.
Hence, while we do not expect any rate cuts just yet, we do see a meaningful case for the RBI to start with the rate cut cycle soon in order to get growth back on track, provided inflation levels (particularly the core inflation levels) further moderate on expected lines.
Specifically for the upcoming monetary policy, of the 20 economists surveyed by Bloomberg, all expect a status quo on key policy rates. However, five of them expect a CRR cut (of which two expect a 25bp cut while three expect a 50bp cut). The RBI has been resorting to open market operations (OMO) for easing liquidity in the system (~Rs.73,000cr infused into the system over the past two months), however average LAF borrowing at Rs.1,17,700cr (over the past two months) is still way above the RBI’s comfort zone of +-1% of NDTL. With liquidity crunch persisting in the system and OMO not reaping the desired benefits, chances of a CRR cut in the monetary policy on January 24, 2011 cannot be ruled out, in our view.
To summarize, for the upcoming policy, we expect the RBI to maintain status quo on repo and CRR. Although we believe the RBI will continue with OMOs for liquidity infusion, chances of a CRR cut in the monetarily policy on January 24, 2011, cannot be ruled out.

KEC International secures orders worth Rs.371cr
KEC International (KEC) has secured orders totaling Rs.371cr for the construction of 400kV transmission lines in India. The orders are received from PGCIL (Rs.258cr) and Haldia Energy Limited, a subsidiary of CESC Ltd. (Rs.113cr). The completion period of these projects ranges from 18–26 months. The order book stands healthy at ~Rs.9,700cr (2.1x FY2011 revenue).
In a short span of time, KEC has registered strong order wins (Rs.1,970cr), from across the globe as well as various businesses verticals. Amidst strong order wins, the stock has witnessed a substantial rally in the past few days, gaining ~50%. We believe the latent potential of the company (globally diversified model) coupled with optimism surrounding the macro environment has clearly factored into the stock. At the CMP of Rs.53, the stock trades at reasonable valuations of 6.0x FY2013E EPS and further upside seems limited, in our view. Hence, we recommend Neutral on the stock.

IVRCL bags orders worth Rs.700cr
IVRCL has bagged orders aggregating to Rs.700cr across the water and buildings segments. The water and irrigation division bagged orders worth Rs.595.5cr and the buildings division received orders of Rs.106.0cr. With these orders, IVRCL’s order book stands at ~Rs.26,932cr (4.8x FY2011 revenue). We have valued IVRCL on an SOTP basis. The company’s core construction business is valued at P/E of 7x FY2013E EPS of 4.6 (Rs.32.4/share), whereas its stake in subsidiaries IVR Prime (Rs.15.5/share) and Hindustan Dorr-Oliver (Rs.3.8/share) has been valued on mcap basis, post assigning a 20% holding company discount.
At the CMP of Rs.45, the stock is trading at 9.8x FY2013E EPS and 0.6x FY2013E P/BV on a standalone basis. Therefore, on the back of the company’s robust order book-to-sales ratio (4.8x FY2011 revenue) and attractive valuations, we recommend Accumulate on the stock with a target price of Rs.52.

3QFY2012 Result Reviews
L&T
Larsen and Toubro (L&T) posted good set of numbers for 3QFY2012, which were above our and street expectations mainly on account of robust top-line growth and higher other income. L&T reported decent top-line growth of 22.7% yoy to Rs.13,999cr (Rs.11,413cr), above our estimates of 6.6% growth, mainly on account of pick-up in the E&C segment. We note that this performance was in spite of high base created in 3QFY2011 (L&T reported yoy top-line growth ~40.5%). On the EBITDA front, performance was below our expectations mainly on account of higher-than-anticipated MTM forex losses. L&T reported higher than anticipated other income, owing to higher income on its investments and dividend income from subsidiaries. Therefore, the bottom line came in at Rs.991.6cr (14.4% above our estimates).
As of 3QFY2012, L&T’s order backlog stands at Rs.1,45,768cr (Rs.1,14,882cr), 26.9% yoy growth, which is mainly on account of order inflow being higher than execution on absolute terms. Order inflow for the quarter grew by stunning 28.2% to Rs.17,129cr (Rs.13,366cr) covering some of the lost ground in 1HFY2012. For 9MFY2012, the order inflow stands at flat Rs.49,415cr (Rs.49,456). During the last quarter, management had significantly cut its order inflow guidance for FY2012, mainly to factor in the general slowdown faced by the sector, but this time they have refrained from the same and maintained their revised guidance (yoy 5% growth on order inflow and 25% on revenue front fo FY2012), which we believe factors in aggressive run rate for 4QFY2012 (yoy growth of 13.3% on order inflow and 32.0% on revenue front for 4QFY2012). We expect management to miss the guidance and pencil in 5% yoy de-growth in order inflow and 22.5% yoy growth in revenues for FY2012.
We believe L&T is best placed to benefit from the gradual recovery in the capex cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to peers. We maintain L&T as our top pick in the sector and maintain Buy on the stock with a Target Price of Rs.1,466.
GAIL
GAIL’s 3QFY2012 top line came above our estimate, while its bottom line was inline with our estimate. The company’s top line grew by robust 34.6% yoy to Rs.11,260cr, above our estimate of Rs.9,587cr, mainly due to strong growth in the natural gas trading, petrochemical and LPG segments. The company’s fuel subsidy burden increased 28.0% yoy to Rs.536cr in 3QFY2012. Gross revenue of the natural gas trading, petrochemical and LPG segments grew by 35.5%, 53.7% and 32.6% yoy to Rs.9,150cr, Rs.878cr and Rs.965cr, respectively. GAIL’s pipeline throughput stood flat yoy to 119mmscmd; gas trading volume increased 1.9% yoy to 85mmscmd from 83mmscmd and petrochemical sales volume increased 40.0% yoy to 113kt in 3QFY2012. EBIT of the natural gas trading, petrochemical and LPG segments grew by 56.9%, 98.3% and 103.6% yoy to Rs.323cr, Rs.387cr and Rs.305cr, respectively. However, EBIT of the natural gas transmission and LPG transmission segments decreased by 6.7% and 8.2% yoy to Rs.621cr and Rs.78cr, respectively. Consequently, GAIL’s EBITDA increased by 30.9% yoy to Rs.1,745cr in 3QFY2012. However, EBITDA margin contracted by 44bp yoy to 15.5%. Other income decreased 88.8% yoy to Rs.21cr on account of lower cash balance. Tax rate increased to 32.7% in 3QFY2012 compared to 28.1% in 3QFY2011. Consequently, net profit grew by 7.7% yoy to Rs.1,042cr, slightly above our estimate of Rs.1,018cr. The company capitalized its forex loss of Rs.105cr in 3QFY2012. Consequently, there was no impact in the income statement due to foreign exchange fluctuation. We maintain our Buy recommendation on the stock, while we keep our target price under review.
Sterlite Industries
Sterlite Industries’ (Sterlite) results were above our expectations. Net sales increased by 23.5% yoy to Rs.10,246,cr above our estimate of Rs.8,798r. Net sales growth was driven by higher zinc sales volumes from the zinc segment and power segment. Revenue of the zinc and power segments grew by 36.9% and 346.7% yoy to Rs.3,755cr and Rs.591cr, respectively. Sterlite’s EBITDA grew by 17.2% yoy to Rs.2,318cr. EBIT of the copper and power segments grew by 67.8% and 178.3% yoy, respectively, to Rs.326cr and Rs.53cr, respectively. However, the aluminium segment reported an EBIT loss of Rs.23cr compared to EBIT of Rs.119cr in 3QFY2011. Aluminium cost of production at Balco increased by 22.0% yoy to Rs.98,234/tonne on account of increased prices of alumina and coal. Sterlite’s associate, Vedanta Aluminium also reported loss of Rs.893cr in 3QFY2012 (Sterlite’s share of loss - Rs.264cr) compared to loss of Rs.347cr in 3QFY2011. Other income grew by 83.6% yoy to Rs.877cr, significantly above our estimate. The company reported exceptional items related to forex loss of Rs.425cr in 3QFY2012 compared to Rs.29cr in 3QFY2011. Hence, adjusted net profit increased by 12.1% yoy to Rs.1,260cr in 3QFY2012, above our estimate of Rs.771cr. Reported net profit decreased by 16.4% yoy to Rs.920cr.
Balco is now nearing regulatory approvals for its 211mn tonne coal block. Approval of coal block by the regulatory authorities could potentially make Balco’s operations profitable.
We maintain our Buy recommendation on the stock, while we keep our target price under review.
Maruti Suzuki
Maruti Suzuki (MSIL) reported a mixed set of results for 3QFY2012, with the top line and bottom line coming in ahead of our estimates; however, the company’s operating margin continued to remain under pressure, largely on account of unfavorable currency movement. The top line registered a 17% yoy (flat qoq) decline to Rs.7,882cr, largely due to a 27.6% yoy (down 5.1% qoq) decline in volumes. Volume performance during the quarter was impacted on account of labor strike at Manesar plant and due to sluggish demand environment in domestic markets. Average net realization, however, improved by strong 14.1% yoy (7.1% qoq), led by better product mix, lower level of blended discounts and price increases carried out during the quarter. EBITDA margin witnessed a steep 421bp yoy (102bp qoq) contraction and stood at 5.3% due to lower volumes, mark-to-market (MTM) loss on commodity hedges and other expenditure. Higher other expenditure was on account of Yen appreciation versus the INR (MTM loss on royalty payments of ~Rs.78cr). As a result, net profit fell substantially by 63.6% yoy (14.5% qoq) to Rs.206cr. However, it was ahead of our estimates, led by higher other income and lower tax rate. At Rs.1,163, the stock is trading at 14.5x FY2013E earnings. The stock rating is currently under review.
Idea
For 3QFY2012, Idea Cellular (Idea) reported a good set of results. Revenue came in at Rs.5,031cr, up 8.9% qoq, on the back of 1.4% qoq growth in ARPM to Rs.0.433/min and subscriber growth of 6.2% qoq with end-of-period (EOP) subscriber base standing at 106.4mn. MOU also grew by 1.4% qoq to 369min in 3QFY2012 from 364min in 2QFY2012. VAS share in revenue grew to 13.7% from 13.2% in 2QFY2012. All this led to a 2.6% qoq jump in ARPU to Rs.159/month. EBITDA margin increased by 104bp qoq to 26.7%. PAT came in at Rs.201cr. We maintain our Neutral view on the stock.
Colgate
Colgate reported its 3QFY2012 results yesterday. The company’s top line grew by 20% yoy to Rs.670cr, 4.2% above our estimates. Growth was driven by price hikes. Earnings for the quarter grew by robust 74% to Rs.116cr on account of low base (same quarter last year, the company reported a decline in profit). Operating margin expanded by 591bp yoy on account of a steep cut in ad spends (down by 555bp yoy) and cut in staff costs (down by 140bp yoy). The company’s operating margin came in at 19.3%, against our estimate of 13.4%. We maintain our Neutral rating on the stock.
Shree Cements
Shree Cements’ (SRCM) 3QFY2012 top line rose by 61% yoy during the quarter to Rs.1,259cr. The cement business posted 44.9% yoy growth in net sales to Rs.1,081cr on account of substantial growth in dispatches and realizations. The power division’s revenue more than quadrupled to Rs.178cr on a low base on account of higher volumes. OPM rose by 695bp to 26.5% on account of better cement realization. SRCM’s depreciation rose by 78.9% yoy to Rs.235cr on account of the commissioning of the new 150MW power plant. The company’s bottom line rose by 115% yoy to Rs.59cr. We maintain our Neutral view on the stock.
Federal Bank
For 3QFY2012, Federal Bank reported 41.1% yoy (5.6% qoq) growth in its net profit to Rs.202cr, in-line with our estimates. While the bank witnessed sequential healthy growth in its operating income (12.6% qoq), higher provisioning expenses (up by 59.6% qoq) dented profitability growth to 5.6% qoq.
The bank’s asset quality remained under pressure during 3QFY2012 as well, with absolute gross and net NPAs rising by 9.1% and 24.5% sequentially, respectively. Gross NPA ratio deteriorated by 36bp qoq to 4.0%, while net NPA ratio deteriorated by 16bp to 0.7%
At the CMP, the stock is trading at valuations of 1.0x FY2013E ABV. Considering the recent deregulation of NRE FD rates (NRE deposits comprise ~12% of its total deposits) and that mid-size PSU banks with similar earnings outlook are trading at valuations of 0.5-0.7x, we remain Neutral on the stock.
DB Corp
For 3QFY2012, DB Corp’s top line grew by 13.6% yoy and 11.8% qoq to Rs.396cr. Consolidated ad revenue for the quarter grew by 9% yoy to Rs.306cr. Circulation revenue grew by impressive 17% yoy and 5.8% qoq on account of new edition launches in Maharashtra. The company reported a weak set of numbers on the earnings front, primarily on account pre-operative expenses of Rs.2cr and operating losses on four editions in Maharashtra and two additions in Jharkhand. The company reported a 29% yoy decline and 39% qoq growth in its recurring earnings. Recurring PAT for the quarter stood at Rs.56cr. Operating margin during 3QFY2012 fell steeply by 724bp yoy, though it expanded by 394bp qoq on account of new edition losses as well as forex losses. The stock is under review.
LMW
Lakshmi Machine Works Limited (LMW) announced its 3QFY2012 numbers. Net sales increased by 9.6% yoy to Rs.538cr (Rs.491cr). The textile machinery segment registered 11% yoy growth to Rs.471cr (Rs.425cr), while the other segments managed a 3.1% yoy increase to Rs.72 (Rs.70cr). EBITDA declined by 9.1% yoy to Rs.69cr (Rs.76cr), largely due to margin compression. EBITDA margin declined by 263bp yoy to 12.8% (15.4%), mainly due to higher raw-material cost, which increased to 63% of net sales vs. 58.2% in 3QFY2012. PAT declined by 13.5% yoy to Rs.40cr (Rs.46cr), while margin declined by 197bp yoy to 7.4% (9.3%). We will be coming out with a detailed report post management interaction. We continue to maintain our Buy rating on the stock with a target price of Rs.2,780.
KPIT
KPIT Cummins Infosystems (KPIT) reported better-than-expected 3QFY2012 results. Dollar revenue came in at US$73.4mn, up 4.3% qoq. In INR terms, revenue came in at Rs.379cr, up 16.6% qoq. EBITDA and EBIT margin of the company improved by 167bp and 171bp qoq to 15.3% and 11.8%, respectively, aided by ~300bp qoq due to INR depreciation. PAT stood at Rs.41cr. The company has revised its organic growth guidance of FY2012 USD revenue to 37-38% yoy from 25-29% yoy given previously. The stock is currently under review. We will be releasing a detailed result update shortly.
Ashoka Buildcon
For 3QFY2012, Ashoka Buildcon (ABL) reported a good set of numbers, in-line with our estimates. ABL’s top line witnessed robust growth of 49.3% to Rs.352.9cr (Rs.236.4cr), marginally lower than our estimate of Rs.360.6cr. ABL’s margins came at 19.6% (22.8%), lower than our estimate of 21.5%. On the earnings front as well, ABL reported decent growth of 17.5% to Rs.19.5cr (Rs.16.6cr), in-line with our estimate of Rs.21.0cr. Order book as of 3QFY2012 stood at Rs.3,912cr. We maintain our Buy view on the stock with target price of Rs.245.
3QFY2012 Result Previews
Cairn India
Cairn India is slated to report its results. The company’s net sales are expected to decrease by 5.8% yoy to Rs.2,917cr. However, its operating margin is expected to decline by 344bp yoy to 81.0%. Bottom line is expected to increase by 0.6% yoy to Rs.2,023cr. We maintain our Neutral view on the stock.
Lupin
Lupin is expected to announce its 3QFY2012 results. For the quarter, we expect the company to post a 39.0% yoy growth in its top-line to Rs.1,755cr. The company's OPM is expected to expand by 10bp yoy during the period to 19.7%. Earnings for the quarter are expected to register 62.9% yoy growth to Rs.261cr. We maintain Buy rating on the stock with a target price of Rs.593.
Yes Bank
Yes Bank is slated to announce its 3QFY2012 results. We expect the bank to report healthy NII growth of 26.6% yoy on the back of continuance of healthy balance sheet growth coupled with sequentially stable NIM. Non-interest income is expected to rise at healthy 24.4% yoy. Cost-to-income ratio is likely to deteriorate by ~150bp qoq as well as on a yoy basis to 37.2%. Pre-provision profit is expected to register reasonable growth of 23.1% yoy, while net profit is expected to increase by nearly similar (22.2% yoy) quantum at Rs.234cr. At the CMP, the stock is trading at 1.8x FY2013E ABV. We value the stock at 2.1x FY2013 ABV. Post the recent run-up in the stock, we recommend an Accumulate rating on the stock with a target price of Rs.330.

Economic and Political News
- RBI warns of persistent inflation, weaker growth
- Row over import duty on power equipment, PM action sought
- CEC team visits mining areas in Bellary district

Corporate News
- RIL assures SC of paying VAT on UP gas sale from Feb 1
- MMTC disinvestment may not happen in immediate future
- NTPC expects JV for Bangla project by month-end

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Indian stock market and companies daily report (January 23, 2012, Monday)

2012-01-23T01:32:00.000-08:00

The markets are expected to open sideways following flat opening across most of the Asian bourses. The muted start in Asia came amid lingering European uncertainty, after Greece failed to reach a debt-restructuring agreement over the weekend with holders of its sovereign bonds.
US stocks turned in a relatively lackluster performance during trading on Friday, as traders seemed somewhat reluctant to make any significant moves. A mixed reaction to the latest batch of earnings news contributed to the choppy trading seen throughout the session. European stocks were mixed on Friday, ending another strong week on a fairly lackluster note as markets looked for a resolution to the Greek debt debacle.
Indian shares continued to edge higher on Friday despite weak cues from European markets. The Supreme Court on Friday set aside a Bombay High Court judgment in the US$2bn tax case against British telecom giant Vodafone, boosting prospects for more FDI inflow into India. For current week, investors would be closely watching the RBI’s monetary policy review due on 24th January 2012.

Markets Today
The trend deciding level for the day is 16,713/5,039 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,814–16,890/5,074–5,099 levels. However, if NIFTY trades below 16,713/5,039 levels for the first half-an-hour of trade then it may correct up to 16,638–16,536/5,014–4,979 levels.

3QFY2012 Result Reviews
RIL
For 3QFY2012, Reliance Industries (RIL) reported higher-than-expected net sales, while its net profit was slightly below our estimates. Net sales increased by 42.4% yoy to Rs.85,135cr, above our estimate of Rs.78,364cr. Net sales growth was mainly driven by the petrochemicals segment (+23.8% yoy to Rs.19,781cr) and refining segment (+46.1% yoy to Rs.76,738cr). RIL’s EBITDA decreased by 23.7% yoy to Rs.7,285cr on account of lower profits from all the three main segments. The refining segment’s EBIT decreased by 30.8% yoy to Rs.1,685cr; the petrochemical segment’s EBIT decreased by 11.2% yoy to Rs.2,157cr; and the oil and gas segment’s EBIT decreased by 14.0% yoy to Rs.1,294cr during the quarter. Gross refining margins stood at US$6.8/bbl in 3QFY2012 compared to US$9.0 in 3QFY2011 and US$9.1/bbl in 2QFY2012. Production from KG-D6 stood at 41mmscmd in 3QFY2012 compared to 45mmscmd in 2QFY2012. Other income increased by 131.7% yoy to Rs.1,717cr, which resulted in net profit decreasing by only 13.6% yoy to Rs.4,440cr, slightly below our estimate of Rs.4,519cr.
During 3QFY2012, RIL turned into a net debt-free company, as its net debt stood at Rs.74,503cr and cash stood at Rs.74,539cr, as on December 31, 2011. RIL announced share buyback program of 12cr shares (Rs.10,440cr) through open market purchases at a buyback price not exceeding Rs.870. We maintain our Buy view on the stock, while we keep our target price under review.
ITC
For 3QFY2012, ITC declared steady growth in its top line and earnings (broadly in-line with our estimates). During the quarter, ITC declared top-line growth of 14.2% yoy to Rs.6,195cr, in-line with our estimates. The cigarette division registered 11% yoy growth in gross revenue (16.6% yoy growth in net revenue) on the back of price hikes taken in cigarettes. Amongst other segments, at net level, agri-business, paperboards and packaging and hotels posted growth of 6.8% yoy, 11% yoy and -1.1% yoy, respectively, while the non-cigarette FMCG business grew by robust ~24% yoy. Earnings for the quarter grew by robust 22.5% yoy to Rs.1,701cr, in line with our estimates. The company has been successful in reducing its losses in the non-cigarette FMCG business – loss during 3QFY2012 stood at ~Rs.47cr (Rs.74cr). We maintain Accumulate on the stock with a target price of Rs.219 based on our SOTP valuation.
Wipro
For 3QFY2012, Wipro’s IT services revenue came largely in-line with expectations at US$1,505.5mn, up 2.2% qoq, primarily led by pricing growth of 2.9% and 2.3% qoq (reported basis). In constant currency (CC) terms, pricing – onsite and offshore – grew by 4.3% and 3.6% qoq, respectively. Volume growth during the quarter was tepid at 1.8% qoq. In INR terms, revenue of the IT services segment came in at Rs.7,608cr, up 11.4% qoq, aided by INR depreciation against USD. Revenue from the consumer care and lighting segment grew strongly by 26.4% yoy, while the IT products segment reported merely 2.4% yoy revenue growth. EBIT margin of the IT services, IT products and consumer care and lighting business grew by 83bp, 77bp and 87bp qoq to 20.8%, 5.3% and 11.9%, respectively. Overall, EBITDA and EBIT margin of Wipro grew by 72bp and 88bp qoq to 19.8% and 17.2%, respectively. PAT came in at Rs.1,456cr.
For 4QFY2012, management has given a decent revenue guidance of US$1.520bn-1.550bn for the IT services segment, with qoq growth of 1-3%, which is slightly better than one of its peers, Infosys. Also, management maintained that the company will take another 1-2 quarters to grow at rates comparable to its peers. This implies poor annual growth for FY2012. Thus, we expect revenue CAGR for IT services (USD terms) to be muted at 12.8% over FY2011-13E. We value the company at 15.3x FY2013E EPS (15% discount to Infosys) of Rs.27.8, which gives us a target price of Rs.425. We maintain our Neutral rating on the stock.
Hindustan Zinc
For 3QFY2012, Hindustan Zinc’s (HZL) net revenue increased by 5.6% yoy to Rs.2,747cr (in-line with our estimate of Rs.2,574cr) on account of higher sales volumes. Zinc sales volumes grew by 6.5% yoy and 3.2% qoq to 190kt and lead sales volumes grew by 118.8% yoy and 83.9% qoq to 27kt due to ramp up in production from Dariba smelter (commissioned in June 2011). Silver sales volumes grew by 66.0% yoy and 18.2% qoq to 49kt. Zinc realization decreased by 4.9% yoy and 2.4% qoq to Rs.105,474/tonne, lead realizations decreased by 4.4% yoy and 5.0% qoq to Rs.114,074/tonne, while silver realization increased by 33.1% yoy but decreased by 9.2% qoq to Rs.52,449/kg. Hence, EBITDA margin contracted by 689bp yoy to 51.1% and EBITDA decreased by 7.0% yoy to Rs.1,402cr. Other income was higher by 84.4% yoy to Rs.382cr, which resulted in net profit growing by 0.6% yoy to Rs.1,274cr. Excluding exceptional items (Rs.6cr in 3QFY2012 and Rs.24cr in 3QFY2011), adjusted net profit declined by 0.7% yoy to Rs.1,280cr (in-line with our estimate of Rs.1,288cr). Reported net profit grew by 0.6% yoy to Rs.1,274cr.
The company’s cash and equivalents stood at Rs.16,255cr at the end of 3QFY2012 (cash per share Rs.38.4). The company is ramping up its Sindesar Khurd mine to 2mn tonnes by March 2012. We maintain our Buy rating on the stock, while we keep our target price under review.
Axis Bank
For 3QFY2012, Axis Bank reported healthy 23.7% yoy growth in its net profit to Rs.1,102cr, above our as well as street estimates. Stable NIMs, continuance of traction in other income growth and largely stable asset quality were the key highlights of the results.
Business growth momentum for the bank remained on track in 3QFY2012 as well. Advances grew by healthy 6.2% qoq; on a yoy basis, the base effect sedated the advances growth to 20.4%. Deposits accretion sustained the traction gained in 2QFY2012 into 3QFY2012 as well, with rise of 7.3% qoq and 33.9% yoy. CASA deposits on a daily average basis grew at a moderate pace of 13.2% yoy. CASA ratio remained steady around the 42% mark. The bank’s reported NIM for the quarter remained largely stable at 3.75% in spite of a 15bp qoq rise in cost of funds. However, going forward, management expects some moderation in NIMs. Asset-quality pressures were well in check, with annualized slippage ratio at 1.5%, in-line with trends witnessed in 2QFY2012 and FY2011. Restructuring for the quarter was also in-line with Rs.300cr witnessed in 2QFY2012. Gross and net NPA ratios were stable sequentially at 1.1% and 0.4%, respectively. The bank added 47 branches during the quarter. Tier-I CAR including profits stood at 9.6%.
The bank’s substantial branch expansion over the past 2-3 years (407 in FY2011 itself, a 41.4% yoy increase) is expected to yield meaningful results over FY2012-13, leading to more CASA market share gains. We are cautious on the asset-quality front and have built in higher delinquencies; however, we note that the rise in NPAs is likely to be well within manageable limits for Axis Bank. We remain positive on the bank, owing to its attractive CASA franchise, rapid branch expansion, multiple sources of sustainable fee income, strong growth outlook and A-list management. The stock is trading at 1.6x FY2013E ABV. We continue to maintain our Buy recommendation on the stock with a target price of Rs.1,299.
Ultra Tech Cement
Ultra Tech’s 3QFY2012 top line grew by 23.1% yoy to Rs.4,572cr, aided by robust 16.4% yoy growth in blended realization to Rs.4,313/tonne. The company’s domestic cement dispatches (incl. clinker and white cement) grew by 6.2% yoy to 9.97mn tonnes. However, the company faced cost pressures during the quarter on account of higher coal and freight costs. OPM for the quarter stood at 22.4%, up 283bp yoy. Net profit rose by 93.4% yoy to Rs.617cr, aided by better operating performance and lower interest costs. We continue to remain Neutral on the stock.
Asian Paints
Asian Paints (APL) posted its 3QFY2012 results, largely in line with our estimates. The company’s consolidated top line grew by 22% yoy to Rs.2,561cr (Rs.2,100cr), inline with our estimates. Earnings grew by 17% yoy to Rs.257cr (Rs.215cr), in line with our estimates. Operating profit dipped by 91bp yoy to Rs.397cr (Rs.345cr) due to high raw-material costs and other expenses (up 19bp yoy). The company’s EBITDA margins came in at 15.5% against our estimate of 15.7%. At the CMP, the stock is trading at 22x FY2013E EPS and is fairly valued. Hence, we maintain our Neutral view on the stock and wait for better entry opportunities.
JSW Steel
JSW Steel reported its standalone 3QFY2012 results. The company’s net sales grew by 35.5% yoy to Rs.7,860cr (in-line with our estimate of Rs.7,645cr). Net sales growth was driven by increased steel volumes (+20.0% yoy to 1.9mn tonnes) and realization (+18.2% yoy to Rs.43,401/tonne). Capacity utilization improved to 84% at Vijaynagar plant in 3QFY2012, compared to 30-60% during 2QFY2012. On the operating front, although JSW Steel’s EBITDA increased by 20.9% yoy to Rs.1,253cr, EBITDA margin slipped by 191bp yoy to 15.9% on account of higher raw-material prices. The company reported exceptional item related to forex loss of Rs.500cr during the quarter. The company also reported a tax reversal of Rs.141cr in 3QFY2012 compared to tax payable of Rs.147cr in 3QFY2011, which resulted in adjusted net profit growing by 74.8% yoy to Rs.668cr (higher than our estimate of Rs.482cr). Reported PAT declined by 56.0% yoy to Rs.168cr.
The company reported that its usable iron ore inventory at Vijaynagar plant (capacity – 10mn tonnes p.a.) is expected to last for the next 3-4 months. However, it opined that continuing steel production would remain a challenge until the mining ban is lifted in Karnataka. We recommend Accumulate on the stock with a target price of Rs.699.
GCPL
GCPL posted its 3QFY2012 results, above our estimates. The company’s consolidated top line grew by 36% yoy to Rs.1,344cr (Rs.989cr). Earnings grew by 40.6% yoy to Rs.167cr (Rs.119cr). Operating profit expanded by 302bp yoy to Rs.265cr (Rs.165cr) due to steep cut in ad spends. The company’s EBITDA margins came in at 19.7% against our estimate of 16.7%. The stock is under review.
Exide Industries
Exide Industries (EXID) reported better-than-expected operating performance for 3QFY2012, led by a sharp sequential improvement in operating margins. the company’s top line registered strong 19% yoy (6.3% qoq) growth to Rs.1,250cr driven by ~20% yoy volume growth in two-wheeler batteries and ~13% yoy increase in industrial battery volumes. However, demand continued to remain subdued in the four-wheeler OEM as well as the replacement segment. On the operating front, EBITDA margin improved substantially by 556bp sequentially, led by a 490bp and 130bp decline in raw-material expenses and other expenditure, respectively. On a yoy basis, raw-material expenses are still at elevated levels, as a result of which EBITDA margin contracted by 200bp. Net profit witnessed a sharp 103.9% qoq jump to Rs.104cr, aided by better-than-expected operating performance; however, it declined by 16.2% yoy. We expect the company to report improvement in its performance in 4QFY2012 as well, led by likely revival in demand in the four-wheeler OEM as well as replacement batteries segments. At Rs.126, the stock is trading at 16.5x FY2013E earnings. The stock rating is currently under review. We shall revise our estimates and release a detailed note post the earnings conference call with management.
Syndicate Bank
For 3QFY2012, Syndicate Bank reported 32% yoy growth in its net profit to Rs.338cr, ahead of our estimates, primarily on account of lower-than-estimated effective tax rate. On the PBT front, results were ~18% below our estimates due to higher-than-expected provisioning expenses. Muted business growth while maintaining NIM and stabilization of asset-quality pressures were the key highlights of the results.
During the quarter, business growth for the bank moderated a bit. The bank’s advances grew by muted 2.0% qoq and deposits increased by muted 1.4% qoq. Even on a yoy basis, business growth moderated to 14.9% yoy each as compared to 18.9% growth in advances and 21.5% rise in deposits in 2QFY2012. CASA deposits growth remained sluggish at 6.6% yoy (just 2.2% qoq), leading to a 237bp yoy dip in CASA ratio to 30.8%. However on a sequential basis CASA ratio improved albeit by a marginal 30bp to 30.8% on the back of a 5% qoq increase in current account deposits. The 22bp qoq rise in cost of deposits was largely offset by an almost similar increase in yield on advances, leading to sequentially stable NIM for the quarter at 3.45%. During 3QFY2012, asset-quality pressures for the bank subsided with slippages declining to Rs.550cr from the elevated Rs.971cr witnessed in 2QFY2012 (primarily on account of completion of switchover to system-based NPA
recognition platform). Consequently, the annualized slippage ratio declined to 1.9% from 3.6% in 2QFY2012 and 2.6% in 3QFY2011. The bank had strong upgradations (of ~Rs.350cr), which aided in registering a 1.9% qoq decline in gross NPAs on an absolute basis. Gross and net NPA ratios improved albeit marginally to 2.3% and 0.9%, respectively. Provision coverage ratio including technical write-offs remained at comfortable 78.5%
In our view, at the CMP, the stock is trading at attractive valuations of 0.6x FY2013E ABV. We recommend an Accumulate rating on the stock with a target price of Rs.99.
HT Media
For 3QFY2012, HT Media reported a weak performance on the revenue as well as the profitability front. The company’s top line grew by 13% yoy to Rs.522cr. Recurring earnings declined by 3.8% yoy on account of high raw material cost and staff cost.
Key highlights for the quarter: During the quarter, the company witnessed overall growth of ~10% yoy in ad revenue, driven by ~10.5% yoy growth in the English and ~8.7% yoy growth in the Hindi print segments; however, sequentially, ad revenue growth in English was higher at 9.9% and that in Hindi declined ~9.6% qoq. Further, the company witnessed a ~6.8% yoy increase in circulation revenue. OPM during the quarter contracted by 125bp yoy due to higher other expenditure. The stock is under review.
Bank of Maharashtra
For 3QFY2012, Bank of Maharashtra reported a strong performance with a healthy 50.2% yoy growth in its net profit to Rs.136cr, slightly lower than our estimate on account of higher tax provisioning (37% effective tax rate). On PBT basis, the reported figure of Rs.215cr was in line with our estimates (Rs.216cr).
The net interest income of the bank grew at a healthy 23.7% yoy to Rs.645cr. The non-interest income also registered a healthy growth of 21.3% yoy to Rs.150cr, leading to operating income growth of 23.2% yoy. The operating expenses (Rs.370cr) of the bank grew by a relatively lower 9.8% yoy, leading to a preprovisioning profit of 37.8% yoy. The provisioning expenses of the bank increased by 22.6% yoy (decline of 24.6% qoq) to Rs.210cr. While the PBT for the bank grew by an impressive 69.4% yoy, higher tax rate (37.1% in 3QFY2012 compared to 31.5% in 2QFY2012) led to net PAT growing by 50.2% yoy to Rs.136cr.
During 3QFY2012, advances for the bank de-grew by 0.3% qoq (up by 14.0% yoy), while deposit growth was also muted at 0.8% qoq (up by 11.4% yoy). CASA deposits growth at 1.5% qoq (13.6% yoy) was relatively higher compared to the overall deposit growth (saving account deposits rising by 2.1% qoq (12.2% yoy)), leading to CASA ratio for the bank improving sequentially by 29bp to 41.0%.
The bank shed around Rs.2,000cr of bulk deposits during 3QFY2012, taking the total bulk deposits to Rs.6000cr (8.6% of overall deposits). The cost of funds for the bank increased by a relatively lower 11bp qoq compared to 24bp qoq increase in the yield on advances. Consequently the reported NIMs witnessed a marginal improvement of 4bp to 3.3bp.
The bank’s asset quality remained healthy with both absolute Gross and Net NPAs declining by 4% sequentially. While the gross NPAs improved from 2.15% to 2.06%, the net NPA ratio improved from 0.57% to 0.54%. The bank restructured ~Rs.1,100cr of loans to the Rajasthan and Haryana SEBs during 3QFY2012, taking the outstanding restructured advances to Rs.3,100cr. The SEBs of UP and Gujarat have also approached the bank for restructuring and ~Rs.700cr of advances are expected to be restructured during 4QFY2012.
At the CMP, the stock is trading at reasonable valuations, in our view, of 0.7x FY2013E ABV vs. its five-year range of 0.6–1.2x and median of 0.9x. On the back of high NIM & CASA, moderate fee income and relatively better asset quality than peers, we expect the bank to deliver healthy 26.3% earnings CAGR over FY2011–13E. We value the stock at 0.8x and hence recommend an Accumulate rating with a target price of Rs.53.
HCC
For 3QFY2012, HCC’s reported a poor set of numbers with performance at the revenue and EBITDAM level coming in-line with our and street estimates; however, earnings plunged on account of provisions (expected future losses and cost revisions) worth Rs.166cr by the company. We believe these provisions are not exceptional in nature and pertain to the normal course of business. On the top-line front, HCC’s revenue declined by 5.6% yoy to Rs.946.0cr (Rs.1,003cr) against our estimate of Rs.982.0cr due to slowdown in order inflow and execution bottlenecks. EBITDAM came in at 11.7% (12.6%), a dip of 90bp yoy and marginally lower than our estimate of 11.9%. On the earnings front, HCC reported a loss of Rs.130.4cr vs. profit of Rs.7.9cr in 3QFY2011, against our estimate of loss of Rs.25.5cr owing to a decline in revenue, EBITDA margin and provisioning of Rs.166cr. Interest cost came at Rs.104.3cr, a decline of 39.4%/2.9% on a yoy/qoq basis. Owing to concerns such as slowdown in order inflow, high debt and stretched working capital, we remain Neutral on the stock.
Persistent
Persistent Systems (Persistent) reported weak set of 3QFY2012 results. The dollar revenues came in at US$51.7mn, up merely 0.3% qoq. The company’s onsite billing rates declined by 2.2% qoq. In rupee terms, revenues came in at Rs.268cr, up 12.4% qoq. The company’s EBITDA and EBIT margin grew by 696bp and 688bp qoq to 26.0% and 20.1%, majotly due to INR depreciation against USD. PAT stood at Rs.41cr, up 25.2% qoq. The stock is currently under review and we will be releasing a detailed result update shortly.
Patel Engineering
Patel Engineering (PEL) posted better-than-expected numbers for 3QFY2012. The company reported revenue growth of 42.5% on the consolidate top-line front to Rs.619.3cr (Rs.434.6cr), as against the dismal performance over the past few quarters and despite slowdown on the order inflow front for the past few quarters. On the operating front too, the company posted abnormally high margins at 18.0% (13.4%). This stellar performance on the top-line and operating fronts led to yoy bottom-line growth of 104.8% to Rs.20.0cr (Rs.9.8cr) in spite of a 63.4%/14.1% yoy/qoq jump in interest cost. We wait for further details from the management about the results. However, we are concerned about the growth prospects of the company in the long run and believe that it is facing structural issues (stretched balance sheet and slowing order inflows), which will take time to be sorted out. Further, there are better plays available in the infrastructure space than PEL. Hence, we maintain our Neutral view on the stock.

3QFY2012 Result Previews
L&T
For 3QFY2012, we expect Larsen and Toubro (L&T) to report revenue of Rs.12,171cr, registering 6.6% yoy growth. This subdued growth is on account of high base (3QFY2011 reported top-line growth of 40.5% yoy). We expect OPM to be flat at 11.1%. We project net profit at Rs.866.6cr, marginally up by 3.1% yoy. We believe the company would end the quarter with a total order inflow of ~Rs.10,000cr (Rs.13,366cr). An important thing to watch out for would be management's commentary on the outlook for the sector and how things pan out on the margin front going ahead. We do not expect INR depreciation to have a major impact on L&T's margins (L&T has foreign currency loans), given the company generates decent revenue from its international operations. At the CMP of Rs.1,274, the stock is trading at 17.9x FY2013E earnings and 2.7x FY2013E P/BV on a standalone basis. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to Rs.1,857, which provides 15.0% upside from current levels. We recommend Buy on the stock.
GAIL
GAIL is expected to announce its 3QFY2012 results. Transmission volumes for the quarter are likely to stay flat qoq. We expect the company to report top-line growth of 14.6% yoy to Rs.9,587cr. Operating margin is expected to contract by 44bp yoy to 15.5%. On the bottom-line front, we expect GAIL to report growth of 5.2% yoy to Rs.1,018cr. We maintain our Buy recommendation on GAIL with a target price of Rs.499.
Sterlite Industries
Sterlite Industries is slated to announce its 3QFY2012 results. The company’s top line is expected to grow by 6.1% yoy to Rs.8,798cr mainly due to higher sales volumes from its zinc business. On the operating front, EBITDA margin is expected to contract by 85bp to 23.0%. The bottom line is expected to decline by 30.2% yoy to Rs.771cr. We maintain our Buy recommendation on the stock with a target price of Rs.121.
Maruti Suzuki
Maruti Suzuki is scheduled to announce its 3QFY2012 results. We expect the company to report a 21% yoy (down 3.2% qoq) decline in its top line to Rs.7,335cr, as volumes registered a decline of 28% yoy (down 5.1% qoq) during the quarter. Volume growth was impacted due to slowdown in sales in the passenger vehicle segment and further due to labor strike at Manesar plant. The company’s EBITDA margin is expected to decline by 417bp yoy (100bp qoq) to 5.3%, mainly due to a sharp appreciation in Yen vs. INR and due to the negative impact of operating leverage. As a result, the bottom line is expected to decline by 68% yoy to Rs.179cr. The stock rating is under review.
Colgate
Colgate is expected to announce its 3QFY2012 results. For the quarter, we expect the company to post modest 15% yoy growth in its top line to Rs.643cr, aided by a mix of value and volume growth. Earnings for the quarter are expected to register 23% yoy growth to Rs.81cr on account of low base in 3QFY2011. Also, we estimate the operating margin to expand marginally by 80bp yoy to 14.2%. We maintain our Neutral rating on the stock.
Shree Cements
Shree Cements is expected to announce its 3QFY2012 results. The company is expected to post top-line growth of 38.8% yoy to Rs.1,082cr. The strong performance on the top-line front is primarily because of 24.3% growth in cement realization. Riding on higher cement realization, the company’s OPM is expected to expand by 628bp yoy to 25.8%. The company’s bottom line is expected to grow by 175% yoy to Rs.76cr. We maintain our Neutral view on the stock.
Federal Bank
Federal Bank is scheduled to announce its 3QFY2012 results. We expect the bank to report moderate NII growth of 13.9% on a yoy basis to Rs.510cr. Non-interest income growth is expected to be muted at 3.5% yoy (up 7.7% qoq) to Rs.126cr. Cost-to-income ratio is expected to remain largely steady at 38.5%. However, relatively faster rise in operating expenses on a yoy basis vis-à-vis operating income is expected to sedate pre-provision profit growth by 9.6% yoy to Rs.391cr. Provisioning expenses are expected to decline by 36.6% yoy on the back of relatively better asset-quality trends, leading to a 40.3% yoy increase in PBT to Rs.301cr. Overall, net profit growth is also expected to come in at 42% yoy at Rs.203cr.
At the CMP, the stock is trading at 1.0x FY2013E P/ABV, which is at a considerable premium to mid and small PSU banks with similar or better fundamentals. Also, the recent interest rate deregulation by the RBI is likely to put pressure on NIMs going forward. Hence, we maintain our Neutral recommendation on the stock.
KPIT
KPIT Cummins Infosystems (KPIT) is scheduled to announce its 3QFY2012 results. We expect the company to post revenue of US$71.9mn, up 2.2% qoq, majorly led by volume growth. In INR terms, revenue is expected to come in at Rs.365cr, up 12.4% qoq. EBITDA margin is expected to expand by 313bp qoq to 16.8%. PAT is expected to come in at Rs.37cr, aided by share of profits from Systime. We maintain our Accumulate rating on the stock with a target price of Rs.163.
Ashoka Buildcon
Ashoka Buildcon (ABL) is expected to post robust growth of 52.5% yoy on the consolidated revenue front to Rs.360.6cr on the back of under-construction captive road BOT projects, which will drive its E&C revenue. The E&C segment will continue to dominate the company’s revenue by contributing Rs.268.4cr (74.4%), while the BOT segment's share is expected to be Rs.92.2cr. EBITDAM is expected to come in at 21.5% (23.9%), registering a dip of 239bp yoy. We are expecting 26.0% yoy growth at the earnings level to Rs.21.0cr, led by revenue growth.
At the CMP of 205, the stock is trading at a discount to our FY2013E SOTP target price of Rs.245/share. The company’s road BOT SPVs have been valued on NPV basis (Rs.104/share). The construction segment has been valued at 5.0x EV/EBITDA basis (Rs.141/share). Hence, we maintain our Buy recommendation on the stock.

Economic and Political News
- Home ministry to have limited say in investments
- 2G: Order on plea to charge Chidambaram put up for Feb 4
- Acquisitions by foreign airline need FIPB nod

Corporate News
- Supreme victory for Vodafone in US$2bn Hutchison tax case
- Coal India plans selective price cuts benefiting power, cement sectors
- NTPC to set up 5MW solar farm in Andaman

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Indian stock market and companies daily report (January 19, 2012, Thursday)

2012-01-18T22:16:00.000-08:00

The markets are expected to edge higher following positive opening across most of the Asian bourses. The markets ended with modest losses yesterday after investors booked profits. In addition, crucial meeting in Greece between the government and private creditors cautioned the markets.
European stocks also snapped a 3-day winning streak as investors booked profits despite positive news flow from the region. Bond auctions in safe haven Germany and debt-ridden Portugal went off smoothly and IMF intended to raise its lending resources by US$500bn to avoid a contagion of eurozone’s debt crises. US bourses gained on IMF’s arrangement for the eurozone. In addition, better-than-expected quarterly results from Goldman Sachs also boosted the sentiments.
Domestically, some of the many indicators have shown improvement (satisfactory IIP numbers and easing of food inflation). However, the implementation of big ticket reforms, especially in the power sector, remains a key. In an important meeting yesterday, the prime minister has assured to chalk out a road map to resolve the issues faced by the power sector. Investors will closely watch the developments in the power sector, which weighs heavily on the economic growth.

Markets Today
The trend deciding level for the day is 16,451 / 4,956 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,518 – 16,585 / 4,981– 5,005 levels. However, if NIFTY trades below 16,451 / 4,956 levels for the first half-an-hour of trade then it may correct up to 16,385 – 16,318 / 4,931 – 4,906 levels.

RIL may announce a share-buyback program
RIL board will consider a share-buyback program on January 20, 2011, alongside its 3QFY2012 results. Given RIL’s cash pile of Rs.61,490cr (as on September 30, 2011) and the recent decline in share price, the buyback program does not surprise us. This move will address the concerns of deployment of cash (partly), thus we believe the buyback will be valueaccretive for shareholders. Moreover, RIL has ~30cr treasury shares, which ifextinguished could be potentially EPS accretive by 9.7%. We await further clarity on the buyback details and maintain our Buy rating on the stock with a target price of Rs.1,006.

KEC International secures order worth Rs.340cr
KEC International (KEC) has secured an order worth Rs.340cr for the construction of 765kV and 400kV transmission lines in Maharashtra and Gujarat. The order is secured from Bhopal Dhule Transmission company, a wholly owned subsidiary of Sterlite Technologies. The transmission lines are a part of Built-Own-Operate-Maintain (BOOM) project awarded by Power Finance Corporation to Sterlite Technologies.
In a short succession, KEC has pocketed orders worth Rs.1,650cr, which has strengthened its order book to ~Rs.9,340cr (2.0x FY2011 revenue). The latent potential of the company (globally diversified model and healthy return ratios of ~25%) coupled with optimism surrounding the macro environment has factored into the stock – the scrip has rallied ~40% so far in the calendar year. At the CMP of Rs.51, the stock trades at 5.7x FY2013E EPS. We recommend Accumulate on the stock with a target price of Rs.53.

Result Review
MindTree
For 3QFY2012, MindTree reported USD revenue growth of merely 2.3% qoq to US$103.7mn, as volumes declined by 0.8% qoq. However, the company reported a 3.4% qoq increase in price realization due to one-time transition revenue realized from a package implementation deal in Europe. In INR terms, revenue came in at Rs.520cr, up 13.8% qoq. The company’s EBITDA and EBIT margins improved by 438bp and 486bp qoq to 17.3% and 13.9%, respectively, largely on the back of gains derived from INR depreciation against USD. PAT stood at Rs.61cr, up 11.1% qoq, negatively impacted by Rs.2.5cr forex loss. We continue to be positive on the stock and will be releasing a detailed result update shortly.
Infotech
For 3QFY2012, Infotech reported revenue of US$81.7mn, up merely 0.4% qoq, on the back of 2.3% qoq volume growth. The NCE vertical witnessed volume growth of 2.0% qoq, while the ENGG vertical reported 2.3% qoq volume growth. In INR terms, revenue came in at Rs.416cr, up 11.8% qoq, aided by 1) 0.4% qoq volume growth, 2) 1.0% qoq positive impact because of increased price realization and 3) remaining gain on the back of INR depreciation against USD in 3QFY2012. The company reported 484bp and 473bp qoq expansion in its EBITDA and EBIT margins to 20.6% and 17.1%, respectively, aided by qoq INR depreciation against USD. PAT came in at Rs.34cr, impacted by forex loss. The stock is currently under review we will be releasing a detailed result update on it shortly.

Result Preview
HDFC Bank – 3QFY2012
HDFC Bank is expected to announce its 3QFY2012 results today. We expect the bank to report a rather moderate NII growth of 13.9% yoy to Rs.3,162cr. Non-interest income is expected to register growth of 15.8% yoy, leading to an operating income growth of 14.4% yoy. Due to relatively similar rise in operating expenses (14.6% yoy), pre-provision profit is expected to grow by 14.3% yoy. However, provisions are expected to decline by a substantial 42.5% yoy, leading to a healthy net profit growth of 30.5% yoy to Rs.1,419cr. At the CMP, the stock is trading at valuations of 3.2x FY2013E P/ABV, in our view. We maintain our Neutral recommendation on the stock.
Hero MotoCorp – 3QY2012
Hero MotoCorp (HMCL) is slated to announce its 3QFY2012 results. We expect the company’s top line to grow by healthy 18% yoy to Rs.6,012cr, driven by 11.3% yoy growth in volumes and a ~6% increase in average net realization, led by price increases. Operating margin (adjusted for change in accounting for royalty payments) is expected to expand by 126bp yoy to 12.4% on account of softening of commodity prices. As a result, we expect the bottom line (adjusted) to post a 24% yoy increase to Rs.629cr. The stock rating is under review.
Bajaj Auto - 3QFY2012
Bajaj Auto is scheduled to announce its 3QFY2012 results today. We expect the company’s top line to grow by a healthy 17% yoy to Rs.4,720cr led by 13.6% yoy growth in volumes and increase in average net realization. On the operating front, EBITDA margin is expected to remain largely flat at 20%. Thus, the bottom line is expected to grow by 19% yoy growth to Rs.791cr. The stock rating is under review.

Economic and Political News
- LAC seeks to double trade with India to US$50 bn in 2 yrs
- IEA cuts 2012 oil demand growth forecast
- Finance Minsiter wants US$56/bbl upstream subsidy: Govt. sources

Corporate News
- RCom plans Rs.7,500-cr IPO for Singapore unit
- I-T slaps Rs.1,067 cr tax notice on Bharti
- Sadbhav Engineering emerges lowest bidder for Rs.325cr mining order

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Indian stock market and companies daily report (January 13, 2011, Friday)

2012-01-12T22:32:00.000-08:00

Indian markets are expected to open flat taking cues from mixed opening in the Asian markets today and positive closing in the global markets yesterday. The Indian markets ended lower yesterday as IT major Infosys cut its full-year revenue guidance and HDFC reported a below estimated PAT growth of 10%. Also, decent IIP data of November, which stood at 5.9% yoy, reduced hopes of a CRR cut this month.

Globally, most of the US and European markets ended modestly higher yesterday as investors held out hopes that Europe would muddle through its debt troubles. Meanwhile, data from the US economy illustrated that the retail sales for December 2011 grew lower than expected at 0.1% yoy (Bloomberg estimate – 0.3%) and initial jobless claims rose to 399,000 in the week ended January 7 (prior – 375,000), which led to weakness in the early trade in the US. The markets now will be closely watching out from the domestic WPI number for December 2011 (Bloomberg estimate – 7.4%).

Markets Today

The trend deciding level for the day is 16,060 / 4,835 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,157 – 16,276 / 4,866– 4,900 levels. However, if NIFTY trades below 16,060 / 4,835 levels for the first half-an-hour of trade then it may correct up to 15,941 – 15,844 / 4,800 – 4,769 levels.

Industrial production (IIP) growth picks up in November 2011

Industrial production (IIP) growth rebounded in November, growing by 5.9% yoy, compared to the contraction witnessed in October (revised from -5.1% to -4.7%). Comparing on a yearly basis, IIP growth remained stable (growth of 6.4% in November 2011). Industrial production growth at 5.9% yoy was above the best forecast in Bloomberg’s survey of economists. Median expectation from the survey was of 2.1% growth in industrial production. The 12-month rolling industrial production growth, although has been on a declining trend since November 2010, remained stable mom at 5.3%.

Recovery in manufacturing leads to a bounce-back: The manufacturing sector’s production, which accounts for ~75% of the overall industrial production, grew by 6.6% yoy, after declining by 5.7% yoy in the previous month. In terms of industries, 17 of the 22 industry groups in the manufacturing sector registered positive growth during November 2011. While growth in electricity production continued to be healthy for November (14.6% yoy), the mining sector’s production contracted for the fourth straight month by 4.4% yoy. As per usebased data, recovery in IIP numbers was on account of healthy growth in basic goods (6.3% yoy) and consumer non durables (14.8% yoy). Growth in consumer goods was also healthy at 13.1% yoy during November.

IRB clarifies on aircraft purchase

As per media articles on January 12, 2012, IRB did not disclose the purchase of an aircraft for Rs.107cr in November 2010 in its main annual report (FY2010-11). In response to this, management has clarified that it had adequately disclosed the acquisition of the aircraft in accordance with the applicable regulations.

The aircraft was purchased by IRB’s E&C arm – Modern Road Makers Pvt. Ltd. (MRM) – in October 2010 and was being used by IRB’s executives for monitoring projects. In MRM’s financial statement for FY2010-11, it had presented the aircraft in its fixed asset schedule under ‘plant and machinery’ as a separate line item. Further, IRB's consolidated gross block (annual report FY2010-11) included the cost of the aircraft under the ‘plant and machinery’ head but with no separate mention, unlike MRM’s financial statement. The clarification for the same stated that acquisition of the aircraft formed <2.0% of the consolidated gross block and, hence, did not legally required specific description in consolidated accounts.

IRB’s stock witnessed a sharp fall (8.0%) in early trades following this news item, but it recovered significantly post management’s clarification during the day and closed down by 2.1%. However, in our view, considering the high corporate governance standards expected from IRB, a separate disclosure on the same was required, irrespective of the question of whether such a non-core capex was required or not in such times. However, we would take this instance as a one-off case and continue to maintain our Buy recommendation on the stock with a target price of Rs.182.

CEAT to issue convertible warrants to promoters

According to a press release with BSE, Ceat (CEAT) is considering to allot convertible warrants on a preferential basis to its promoters. We believe this development would improve investor sentiments on the back of promoters’ confidence in the prospects of the company. Earlier, in September 2010, CEAT had issued 1,712,170 convertible warrants on a preferential basis to its promoters; however, they are yet to be converted.

CEAT’s promoters have been steadily increasing their stake in the company to capitalize on the sharp fall in the company’s stock price post the substantial increase in raw-material prices, which had impacted the company’s profitability. Promoters have already hiked their stake from 48.47% in March 2010 to 50.2% as of September 2011. We estimate this stake to further increase to 52.6% upon the conversion of warrants issued in September 2010 (due for conversion in March 2012).

We expect CEAT to report continuous improvement in its operating performance, led by improving utilization at its Halol plant and a gradual decline in rawmaterial prices. Consequently, we estimate CEAT to post an EPS of Rs.20.8 in FY2013E. At Rs.83, CEAT is trading at 4x FY2013 earnings. We maintain our Buy rating on the stock with a target price of Rs.104, valuing it at 5.0x FY2013E earnings. We believe monetization of surplus land at Bhandup will further act as a positive trigger for the stock; however, we have not factored it in our target price.

Result Review

Infosys

For 3QFY2012, Infosys reported revenue of US$1,806mn, up 3.4% qoq, on the back of modest 3.1% qoq volume growth and 0.8% qoq blended pricing growth. However, cross-currency movement negatively affected the company’s revenue by 1.0% qoq. Volume growth of 3.1% qoq was driven by 1.4% and 3.8% qoq growth in onsite and offshore volumes, respectively. In INR terms, revenue came in at Rs.9,298cr, registering whopping 14.8% qoq growth; INR revenue was aided by steep INR depreciation qoq against the USD in 3QFY2012. The company’s EBITDA and EBIT margins improved by 265bp and 302bp qoq to 33.7% and 31.2%, respectively, largely gaining from INR depreciation.

Management has reduced its FY2012 USD revenue growth guidance to 16.4% yoy to US$7,029mn-7,033mn from 17.1-191% yoy, mainly on account of delays in decision making from the clients’ side. In addition, management has given tepid revenue guidance of almost flat qoq at US$1,806mn-1,1810mn for 4QFY2012. We believe this clearly indicates challenging visibility in business volumes and management’s future expectation. Hence, we have assumed moderation in demand going forward in FY2013 and have built in a revenue CQGR of 3.0% over 4QFY2012-4QFY2013 vis-à-vis 4.1% in 9MFY2012, owing to the expected deferment in IT spending. We recommend a Buy rating on the stock with target price of Rs.3,047.

HDFC

For 3QFY2012, HDFC’s standalone net profit grew by 10.1% yoy, which was below our estimates mainly because of lower gains from investments compared to 3QFY2011. Removing gains from sale of investments, HDFC’s operating income increased by healthy 18.2% yoy.

Loan growth remains healthy: For 3QFY2012, HDFC’s loan book grew by healthy 21.2% yoy and 4.1% qoq to Rs.132,208cr. Approvals in 3QFY2012 stood atRs.19,883cr (up 21.2% yoy), while disbursements stood at Rs.16,078cr (up 18.8.0% yoy). The spread on loans over the cost of borrowings stood at 2.27% for 9MFY2012 compared to 2.29% for 1HFY2011. For 3QFY2012, other income increased marginally by 1.3% yoy to Rs.304cr. While growth in dividend income (97.5% yoy) and profits from deployment in MFs (74.6%) was strong, it was negated by the dip in treasury income (decline of 47.4% yoy). HDFC’s asset quality continued to be stable during 3QFY2012, with gross NPA ratio falling by 3bp yoy to 0.82%. On a six-month overdue basis, gross NPA ratio stood at 0.53%. Gross NPAs increased by 19.6% yoy to Rs.1,109cr. HDFC continued to maintain a 100% provision-coverage ratio for 3QFY2012, similar to the last quarter.

Outlook and valuation: At the CMP, HDFC’s core business (after adjusting Rs.215/share towards value of the subsidiaries) is trading at 4.4x FY2013E ABV ofRs.106.7 (including subsidiaries, the stock is trading at 4.3x FY2013E ABV of Rs.158.9). We expect HDFC to post a healthy PAT CAGR of 15.7% over FY2011–13E.However, considering that the stock is currently trading at 4.5x one-year forward P/ABV (only slightly lower than its median of 4.6x over the last five years) and at a 56.5% premium to the Sensex in P/E terms (compared to an average of 37.5% over the last five years), we consider the stock to be fully valued and, hence, recommend Neutral on the stock.

Economic and Political News
- Government approves Rs.5,388cr road projects in three states
- Food inflation in the negative zone for the second consecutive week
- 'Proactive' steps to boost industry on cards, says Finance Minister
- U.S. urges countries to reduce Iran oil imports

Corporate News
- LIC to invest Rs.1.9 lakh cr in FY2012
- Mahindra announces rejig of top management
- NMDC floats new SPV company for Chhattisgarh plant
- Suzlon's subsidiary wins order in U.S. for wind turbines

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Indian stock market and companies daily report (January 11, 2012, Wednesday)

2012-01-11T02:18:00.000-08:00

Indian markets are expected to open in green taking cues from positive opening in most of the Asian markets today and firm closing in most of the global markets on Tuesday. The Indian markets ended higher yesterday on the back of positive global cues and renewed hopes of a CRR cut later this month. A decision by global ratings agency Moody's to upgrade India's rating to investment grade and reports showing an impressive 56% rise in FDI inflows in November helped revive appetite for riskier assets.
Globally, most of the US and European markets closed in green yesterday as a weaker US currency helped drive up the price of oil, other dollar-denominated commodities and resource stocks. Also, an announcement by the rating agency Fitch that a downgrade of the creditworthiness of France from the top credit rating of "AAA" within a year is not expected provided a boost to the market. The markets this week will be closely watching out from IIP numbers and Infosys results which will be released on January 12, 2012.

Markets Today
The trend deciding level for the day is 16,081/4,825 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,265–16,364/4,881– 4,912 levels. However, if NIFTY trades below 16,081/4,825 levels for the first half-an-hour of trade then it may correct up to 15,982–15,799/4,793–4,737 levels.

FDI equity inflows up 56% in November 2011 after two slack months
Indicating a positive investor sentiment amidst the ongoing macroeconomic concerns, FDI equity inflows into India increased by 56% to US$2.53bn in November 2011. According to officials, cumulative flows for the April-November period stood at US$22.83bn vs. US$19.43bn for FY2011.
FDI equity inflows for the past two months were sluggish, with September and October reporting a 16.5% yoy and 50% yoy decline in inflows, respectively. During FY2011, equity in India witnessed a sharp 25% dip in FDI, from US$25.6bn in FY2010 to US$19.43bn.
Telecom, IT, construction, power, housing and real estate are the major sectors attracting FDI, and Mauritius, Singapore, U.S., U.K., Netherlands, Japan, Germany and UAE are the major sources of FDI in India. We believe the pick-up in FDI inflows will have a positive impact on INR in the foreign exchange market.

KPIT’s infotainment platform achieves GENIVI compliance
KPIT Cummins (KPIT) has announced that its In-Vehicle Infotainment (IVI) platform is now compliant with GENIVI Compliance Specification Release 1.0. The GENIVI compliance program provides a set of specifications for GENIVI member companies to measure their products and services. Those that meet the specifications may be registered as GENIVI compliant and facilitate OEMs and Tier-1 suppliers to short list compliant offerings and simplify their vendor selection process. Automotive OEMs are aggressively pursuing the adoption of consumer electronics (CE) features in infotainment. KPIT's infotainment platform speeds up this process by leveraging the critical mass of open source community, which enables broader coverage and faster support of new CE technologies. This platform features automotive grade robustness, leverages scale to reduce total cost of ownership and is supported by a mature service delivery organization to speed up development of product variants across feature sets and geographies. The platform contains core services and frameworks to enable faster, contextaware human machine interface and application development. It is optimized for the latest ARM-based application processors from multiple silicon vendors as well as for the Intel Atom processor. We maintain our Accumulate recommendation on the stock with a target price of Rs.163.

Economic and Political News
- Government clears 20 FDI proposals worth Rs.1,935cr
- Indirect tax kitty up 16.1% in Apr-Dec
- Moody’s upgraded India’s short-term country ceiling on foreign currency
bank deposits, in addition to the three upgrades on December 20 last year
- Petroleum Ministry asked to follow IMO fuel emission norms

Corporate News
- MTNL to float Rs.200 cr tender for network expansion
- PSL Ltd wins Rs 280-cr order from Pratibha Ind
- TVS to introduce three products in 2012
- Wockhardt launches generic nasal spray for Rhinitis

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Indian stock market and companies daily report (January 09, 2011, Monday)

2012-01-09T01:30:00.000-08:00

Indian markets are expected to open in red taking cues from gap down opening in most of the Asian markets and negative closing in most of the global markets on Friday. The Indian markets ended flat to modestly high on Friday, reversing early declines, as European stocks rose and expectations of an interest rate cut this month heightened.
Globally, most of the US and European markets closed lower on Friday traders shrugged off another upbeat U.S. employment report amid continued concerns about the ongoing European debt crisis, stocks turned in a lackluster performance during trading. Selling pressure in global markets was also generated by news that Fitch Ratings downgraded Hungary to junk status. Adding to the concerns, ECB said overnight deposits by European commercial banks reached a new record high of EUR455.3bn. The markets this week be closely watching out from IIP numbers and Infosys results which will be released on January 12, 2012. Infosys result is expected to set tone for the upcoming result season.

Markets Today
The trend deciding level for the day is 15,861 / 4,750 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 15,888 – 15,926 / 4,757– 4,766 levels. However, if NIFTY trades below 15,861 / 4,750 levels for the first half-an-hour of trade then it may correct up to 15,823 – 15,796 / 4,740 – 4,733 levels.

NTPC gets back three de-allocated coal blocks
The Coal Ministry has given back three coal blocks to NTPC Ltd. The ministry had taken back these blocks last year as the company had failed to develop them within the stipulated period. All the blocks have been given back on the condition that they would be developed within two years, failing which they would be again taken back by the Coal Ministry. At the CMP, the stock is trading at P/BV of 1.6x its FY2013 estimates. We maintain our Buy recommendation on the stock with a target price of `200.

Idea challenges fresh liquidated damages imposed for two circles
Idea Cellular has approached telecom tribunal TDSAT against the government’s move to impose additional liquidated damages on it for not meeting roll-out obligations in two circles – Haryana and Maharashtra. The contention of the telco is that when the main penalty for these two circles has already been set aside by the tribunal, there is no point in imposing the additional penalty. The main penalty had been set aside on December 5. The counsel appearing for Idea also said that DoT has imposed penalty on it without serving a show cause notice, thereby denying it an opportunity to present its case in a proper manner. TDSAT has directed the DoT to file reply on Idea's plea by Wednesday. It has also asked DoT not to take any action against the operator. We maintain our Neutral recommendation on the stock.

Economic and Political News
- 9% growth in 12th Plan a challenge, says Montek Singh
- Proposal for Japanese FDI in DMIC project gets MEA nod
- Fiscal deficit may be more than projected, says Pranab Mukherjee

Corporate News
- Ashok Leyland Stile and Partner unveiled
- After Kingfisher, AI Express, DGCA raps other carriers
- JSPL commissions new unit, capacity rises to 917 MW
- GMR Infra issues debentures worth `250cr to GMR Airports
- Mundra UMPP's first 800MW unit starts production

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Indian stock market and companies daily report (January 06, 2012, Friday)

2012-01-06T01:28:00.000-08:00

Indian markets are expected to open range-bound following mixed cues from the global markets. Asian stocks are currently trading down on concerns of European debt crisis which has outweighed forecasted gains in US employment.
Indian shares erased early gains on Thursday, as weak Asian and European cues amid fresh concerns about the state of Europe's banks and lingering worries over potential euro-zone sovereign downgrades overshadowed rising expectations that the domestic central bank will cut interest rates at the upcoming policy review meet on January 24.
The US markets traded lower early in the day but ended in the green following release of some upbeat U.S. employment data. The early weakness on Wall Street was due in large part to a negative reaction to the results of a French bond auction, with the sale of 7.96 billion Euros worth of long-term French bonds drawing a higher yield than a month ago. Investors worldwide would keenly watch out for the US nonfarm payroll data and monthly unemployment rate data due for release today.

Markets Today
The trend deciding level for the day is 15,882/4,753 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 15,955 – 16,053/4,776 – 4,803 levels. However, if NIFTY trades below 15,882/4,753 levels for the first half-an-hour of trade then it may correct up to 15,784 – 15,711/4,727 – 4,704 levels.

Cement Dispatches – December 2011
ACC’s cement dispatches for December 2011 stood at 2.09mn tonnes, up bystrong 8.9% yoy. For CY2011, the company’s dispatches reported 11.4% growth to 23.58mn tonnes, though on a lower capacity base of the previous year. The company added ~3mtpa of capacity in CY2011, post which its overall capacity stands at ~30mtpa. Decent growth in dispatches reported by ACC and UltraTech in December 2011 hints at higher dispatches to the southern region, as both the companies have a decent exposure to the southern region. We continue to remain Neutral on ACC.

Maruti Suzuki to raise product prices next week
Maruti Suzuki (MSIL) has announced that it is planning to increase its product prices from next week to mitigate the impact of INR depreciation on input costs. While the company has not divulged any details on the quantum of the price increase, media reports indicate that the price hike will be in the range of 2-3%. The recent price hike comes on the back of price increase of Rs.10,000 carried out in November 2011 on all its diesel models.
MSIL, which has a substantial exposure to Yen (direct as well as indirect imports and royalty payment constitute ~27% of net sales), is likely to be severely impacted by the continued appreciation of Yen vs. INR (~12% qoq in 3QFY2012 and ~30% YTDFY2012). While the company has hedged its direct imports for 2HFY2012 for JPY/USD part of the leg at a rate of JPY79/USD, USD/INR part is still unhedged, which will have a negative impact on the company’s profitability in 2HFY2012. Meanwhile, MSIL has unveiled a new vehicle XA Alpha, a concept for compact SUV at the 11th Auto Expo being held at New Delhi. With the launch of the new concept vehicle and unveiling of MPV Ertiga on January 6, MSIL plans to expand its presence in the utility vehicle segment (UV), which is currently dominated by Mahindra and Mahindra.
At the current price of Rs.933, MSIL stock trading at 12.4x FY2013E earnings. We believe the recent correction in the stock price (~20% post 2QFY2012 results) factors in the impact of demand slowdown and labor problems on FY2012E volume growth and concerns regarding the adverse currency movement on margins. Thus, we continue to maintain our Accumulate rating on the stock with a target price of Rs.1,051.

Economic and Political News (edited)
- Weekly food inflation plunges to negative 3.36%
- Inflation may fall below 7% by March 2012: PM advisory panel
- Interest rates have peaked as inflation slows: RBI
- No threat to cancel license of any airline: DGCA
- Government to reach out to consumer bodies for FDI in retail

Corporate News
- RIL gas output dips below 39mmcmd in the week ended December 25, 2011
- M&M to invest Rs.800cr in Korean arm, SsangYong Motors, to develop products
- M&M to launch SUV Rexton in India in the next six months
- ONGC finds gas reserves off Daman

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Indian stock market and companies daily report (January 05, 2012, Thursday)

2012-01-05T01:37:00.000-08:00

Indian markets are expected to open lower following negative cues from the European markets and the Asian markets. Asian stocks are trading in the red after Italy’s biggest bank said it needs to raise more capital, spurring concern that the European debt crisis is worsening.

Indian shares ended a choppy session modestly lower on Wednesday, with key benchmarks indices losing less than half a percent each, as investors took some profits after a two-day rally.

European shares snapped a four-day streak of gains on Wednesday as UniCredit SpA’s plan to sell shares fueled concern that banks need to raise capital to weather the debt crisis. US market traded lower in the first half due to profit taking, with some traders cashing in on Tuesday's strong gains amid lingering concerns about the European debt crisis and the outlook for the global economy. The downward momentum was partly offset by the release of a report from the Commerce Department showing a rebound in new orders for U.S. manufactured goods, leading to US markets ending marginally in the green.

Markets Today

The trend deciding level for the day is 15,903/4,754 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 15,984 - 16,086/4,779 - 4,808 levels. However, if NIFTY trades below 15,903/4,754 levels for the first half-an-hour of trade then it may correct up to 15,802 - 15,721/4,725 - 4,700 levels.

Cement Dispatches – December 2011

UltraTech reported cement dispatches for December 2011, which were up by strong 10.6% yoy to 3.62mn tonnes. However, for 3QFY2012, growth in dispatches has been modest at 5.9%. In December 2011, the company managed to post better growth in dispatches compared to Ambuja Cements' growth, which reported modest growth of 5.7% yoy. We continue to remain Neutral on UltraTech.

KEC International secures orders worth Rs.1,253cr

KEC International (KEC) has bagged orders totaling Rs.1,253cr across various business verticals. In the transmission and distribution space (T&D), the company secured orders worth Rs.976cr. Order intake in MENA region stood at Rs.414cr (Rs.310cr and Rs.104cr worth of orders from Saudi Arabia and Afghanistan, respectively). SAE Towers secured orders worth Rs.154cr. In addition, Rs.350cr worth of orders came from the U.S., Kenya and Philippines. Notably, only one order came from the domestic T&D space (Rs.59cr), thus demonstrating the company’s globally diversified strength. The completion time of all these orders ranges from 12-27 months. In addition to the above, the company bagged orders in the business verticals of water (Rs.123cr), cables (Rs.105cr) and telecom (Rs.49cr). The current order book of the company stands at Rs.9,000cr.

KEC’s globally diversified model has enabled it to gain an edge over its domestic peers in the T&D space. While domestic players have struggled to secure orders amid the slowdown, KEC has consistently maintained its average quarterly run rate of Rs.1,200 since the past several quarters. In addition, new businesses of water, railway and telecom are faring well (pace of new orders is gradually increasing). Hence, given the latent potential of the company and healthy return ratios (25%), the valuations of 4.3x FY2013E EPS (well below its historic PE multiple average of 14.0x) are compelling. We recommend Buy with a target price of Rs.45.

Economic and Political News
- Government defers decision on PSU disinvestment via buyback-
- Finance Ministry rules out floating rates in postal savings
- Global food prices expected to remain high: FAO

Corporate News
- ONGC finds four more potential reserves
- Bosch to invest Rs.3,000cr in India on expanding capacity
- Hero MotoCorp unveils three new products at Auto Expo, New Delhi
- TCS adds 200 clients on its SME platform iON
- Dhanlaxmi Bank raises NRE term deposit rates

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Indian stock market and companies daily report (January 04, 2012, Wednesday)

2012-01-03T22:51:00.001-08:00

Indian markets are expected to open in the green following positive cues from the European markets and the Asian markets. Asian stocks trading in the green after U.S. manufacturing increased at the fastest pace in six months. Indian shares rallied on Tuesday as inflation worries seem to be abating and the Reserve Bank of India said it might ease monetary policy to address concerns about economic growth.
The US markets ended in the green as markets benefited from positive reactions to the latest batch of economic data. The early rally on Wall Street was partly due to the release of a report showing a modest rebound in Chinese manufacturing activity in the month of December. A separate report showing a notable drop in German unemployment also generated some buying interest. Stocks saw continued strength following the release of a report from the Institute for Supply Management showing that its index of activity in the U.S. manufacturing sector rose to a six-month high in December.

Markets Today
The trend deciding level for the day is 15,850/4,738 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,060 – 16,180/4,800– 4,835 levels. However, if NIFTY trades below 15,850/4,738 levels for the first half-an-hour of trade then it may correct up to 15,730 – 15,520/4,703 – 4,641 levels.

Cement Dispatches – December 2011
Ambuja Cements’ dispatches stood at 1.93mn tonnes for December 2011, up by modest 5.7% yoy on a high base of last year. For CY2011, the company’s dispatches grew marginally by 4.2% to 20.96mn tonnes. During CY2010, the company added 2mtpa of capacity, post which its overall capacity stands at 27mtpa. We continue to remain Neutral on Ambuja Cements.

Reliance Industries gets nod to develop new D6 fields
The government has approved Reliance Industries' US$1.5bn plan to develop the new D6 block, which has the potential to produce additional 10mmscmd gas. RIL and, its partner, BP have four months to start work on the project as the KG D6 block faces adverse weather during the rest of the year. Until further clarity on the anticipated production from the block, we maintain our estimates and maintain our Buy rating on the stock with a target price of Rs.1,006.

HCC bags order worth Rs.289cr
Hindustan Construction Company (HCC) has received a Letter of Acceptance (LOA) for a Rs.289cr contract to construct a bulk water transmission system for Gujarat Water Infrastructure Limited, a Government of Gujarat Undertaking. The work involves construction of a 57km-long water transmission pipeline between Dhanki and Maliya villages under the Swarnim Gujarat Saurashtra-Kutch, Water Grid Programme. The project will be completed in 12 months. With this order, HCC’s outstanding order book now stands at ~Rs.16,967cr (4.1x FY2011 revenue). We maintain our Neutral view on the stock.

Economic and Political News
- DoT to demand Rs.1,593cr from companies for under-reporting revenue
- Government may okay Rs.300cr for marketing support to MSMEs
- Union Budget to be presented on March 16, 2012
- Companies Bill may be cleared in Budget session: Law Minister

Corporate News
- RIL to fund Network 18’s Eenandu stake buy
- IDFC to raise upto Rs.4,500cr via infra bonds
- Bajaj Auto unveils its first-ever four-wheeler, RE60, in New Delhi
- Suzlon Energy bags order to supply 57 wind turbines in the U.S.

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Indian stock market and companies daily report (January 03, 2012, Tuesday)

2012-01-02T23:25:00.000-08:00

Indian markets are expected to open in the green following positive cues from the European markets and the Asian markets. Asian stocks rose as manufacturing growth from Australia, China and India added to optimism that the region’s economies will withstand Europe’s unresolved sovereign debt crisis. Indian shares ended a choppy session modestly higher on Monday after the government said it would allow qualified foreign investors direct access to Indian stock markets from January 15. While the manufacturing PMI for India jumped to a six month high of 54.2, cheering investors, slowdown in exports to 3.9% yoy for the month of November restricted major upside movement in domestic equities. European stocks though kicked off the New Year in style on Monday, as the markets open for business rallied on hopes that 2012 will bring an end to the region's sovereign debt crisis. Also, German factory sector contracted less than initially estimated in December which led to further gains for European markets on Monday.

Markets Today

The trend deciding level for the day is 15,473/4,624 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 15,588 – 15,658/4,659 – 4,681 levels. However, if NIFTY trades below 15,473/4,624 levels for the first half-an-hour of trade then it may correct up to 15,403 – 15,288/4,601 – 4,566 levels.

Auto sales update – December 2011

Maruti Suzuki (MSIL)

MSIL registered a 7.1% yoy (flat mom) decline in overall volumes to 92,161 units, led by weak performance in domestic markets. Domestic performance during the month witnessed a 13.4% yoy (6.5% mom) decline to 77,475 units, primarily due to subdued demand for passenger cars. Export volumes, however, overshadowed the weak domestic performance, as it recorded impressive 50.5% yoy (65% mom) growth to 14,686 units. The mini segment registered a decline of 15.6% yoy (flat mom), while the compact segment posted flat yoy (6.8% mom) growth. Production during the month was impacted, as the company’s plants were shut for six days in December on account of annual maintenance.

Hero MotoCorp (HMCL)

HMCL reported in-line growth of 7.8% yoy (0.7% mom) in total volumes to 540,276 units. New product launches and refreshed product ranges continued to support HMCL’s volume momentum across product segments. Management has indicated that it further intends to consolidate the company’s leadership position with new product launches and network expansion.

Bajaj Auto (BJAUT)

BJAUT posted lower-than-expected volumes for December 2011, led by moderate growth in the motorcycle segment. Total volumes recorded modest growth of 10.4% yoy (18.4% mom decline) to 305,690 units, primarily due to weak 8.2% yoy (substantial fall of 20.6% mom) growth in the motorcycle segment. Three-wheelers, on the other hand, sustained their strong momentum, reporting 26.8% yoy (down 1.2% mom) growth. Exports also maintained their growth trajectory, witnessing growth of 25.5% yoy (down 7.4% mom) in December 2011.

TVS Motor (TVSL)

TVSL reported poor numbers for December 2011, as total volumes declined by 0.8% yoy (2.9% mom) to 170,428 units. The weak performance can be attributed to slowdown in TVSL’s motorcycle segment, which declined by 7.7% yoy (9.5% mom). The scooters and mopeds segments also witnessed moderate growth of 7.2% (1.1% mom) and 2% yoy (flat mom), respectively, in December 2011. Three-wheeler volumes during the month fell steeply by 26.5% yoy (6.8% mom) to 2,523 units.

Govt. raises export duty on iron ore; Sesa Goa to be the worst hit

The government has raised export duty on iron ore to ad valorem 30% on lumps and fines, with effect from December 30, 2011, compared to 20% earlier. Iron ore exports from India have already declined by 25.2% to 35.4mn tonnes from April- October 2011 on account of export ban in Karnataka, stringent measures in issuing export permits in Odisha, a sharp decline in international iron ore price and increased export duty. Post the export duty hike, rise in rail freight and the recent iron ore price decline are expected to severely affect iron ore exports from India. Before the export duty hike (as per Federation of Indian Mineral Industries), total iron ore exports during FY2012 were estimated to be 60mn tonnes compared to its previous estimate of 75.0mn tonnes. We now expect iron ore exports to be lower than 60mn tonnes during FY2012.

We do not expect any impact on NMDC’s financials due to hike in export duty, as we do not anticipate any exports of iron ore by NMDC during FY2012 and FY2013. However, we have lowered Sesa Goa’s EBITDA estimates for FY2012 and FY2013 by 8.1% and 9.1% to Rs.3,314cr and Rs.3,712cr, respectively. Also, we believe some of the Karnataka iron ore would now be sold domestically. Nevertheless, we believe the current stock price discounts negatives such as acquisition of a minority stake in the unrelated oil business via acquisition of Cairn India’s stake, increased export duty, higher railway freight and lower volumes from Goa mines. We recommend Buy on the stock with an SOTP-based target price of Rs.195 (Rs.213 earlier).

L&T bags orders worth Rs.2,056cr

Larsen & Toubro's (L&T) construction arm has bagged new projects worth Rs.2,056cr across various categories in December 2011. Of these projects, two orders worth Rs.1,262cr in the water and effluent treatment segment was bagged by the company. In the buildings and factories category, a project worth Rs.388cr was bagged for constructing residential towers. In the rail infrastructure segment, orders aggregating to Rs.406cr have been grabbed from various clients. With these orders, the company’s outstanding order book stands at ~Rs.1,52,609cr (3.5x FY2011 revenue), providing good revenue visibility. This order booking takes the company’s total declared orders to ~Rs.10,420cr in 3QFY2012 against orders worth Rs.13,336cr received in 3QFY2011. The drying up of order inflows is one of the major concerns for the stock and has led to underperformance in the recent past.

At the CMP of Rs.1,009, the stock is trading at PE of 9.7x FY2013E earnings, after adjusting for investments, which is below the historical trading multiple for L&T and we believe factors in most of the negatives surrounding the stock. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in the different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to Rs.1,453, which provides 44.0% upside from current levels. Hence, we maintain our Buy recommendation on the stock.

IVRCL bags orders worth Rs.732cr

IVRCL has bagged orders aggregating to Rs.732cr across the buildings, transportation, mining, water and solar power divisions. The company’s buildings division has secured orders worth Rs.404.6cr, including those from the Indian Institute of Science Education and Research, Bhopal; Indian Oil Corporation Ltd.; Jindal Steel & Power Ltd.; and National Institute of Biomedical genomics, West Bengal. While the transportation division secured an order worth Rs.251.4cr from Mahanadi Coalfields Ltd., the mining division bagged an order worth Rs.45.4cr from Hindustan Copper Ltd. Further, orders worth Rs.19.4cr and Rs.11.4cr have been bagged for water and solar power projects, respectively. With these orders, IVRCL’s order book stands at ~Rs.26,232cr (4.6x FY2011 revenue).

We have valued IVRCL on an SOTP basis. The company’s core construction business is valued at P/E of 6x FY2013E EPS of 4.6 (Rs.27.8/share), whereas its stake in subsidiaries, IVR Prime (Rs.10.9/share) and Hindustan Dorr-Oliver (Rs.2.9/share), has been valued on mcap basis, post assigning a 30% holding company discount. At the CMP of Rs.29, the stock is trading at 6.3x FY2013E EPS and 0.4x FY2013E P/BV on a standalone basis. Thus, on the back of the company’s robust order book-to-sales ratio (4.6x FY2011 revenue) and attractive valuations, we maintain our Buy view on the stock with a target price of Rs.42.

Economic and Political News
- November exports rise 3.9% to US$22.3bn yoy
- November imports rise 24.5% to US$35.9bn yoy
- No outside control must be imposed on media: PM

Corporate News
- ONGC to invest Rs.15,000cr in KG gas find
- Coal India expects higher revenue to offset wage hikes
- M&M tractor sales for December 2011 rise marginally

Share Market Update on Central Bank of India for 1QFY2012

2011-10-16T22:42:00.000-07:00

Share Market Update on Central Bank of India for 1QFY2012 with a Neutral recommendation.

For 1QFY2012, Central Bank ofIndia posted a 16.6% yoy decline in its net profit primarily due to higherprovisions. However, results were above our estimates on lower-than-estimatedoperating expenses. A sharp sequential dip in NIM and high slippages despitethe pending switchover to system-based NPA platform were the key highlights ofthe results. We maintain our Neutral view on the stock.

NIMdips on lower yield on investments; slippages remain elevated: The bank’s business momentumslowed during the usually lean quarter. Advances declined by 2.8% qoq (up 17.2%yoy) and deposits increased by 3.6% qoq (up 20.3% yoy). CASA deposits growthmoderated to 14.7% yoy, resulting in a 259bp qoq decline in CASA ratio to32.6%. Bulk deposits and CDs constituted a relatively higher ~33% of totaldeposits. The reduction in CASA ratio and the higher interest rate environmentresulted in a sharp 72bp qoq rise in cost of deposits to 6.8%. The yield onadvances went up by 77bp qoq to 11.4%. Reported NIM declined sharply by 48bpqoq to 3.0% primarily due to fall in yield on investments (fall of 73bp qoq).The sequential decline in NIM was exacerbated by the benefit of interest onincome tax refund of ~`130cr in 4QFY2011. Overall asset quality of the bankdeteriorated during the quarter, with annualised slippage ratio remainingelevated at 1.8% (1.1% in 1QFY2011) and net NPAs rising by 27.7% qoq. Slippagesremained elevated at 1.8% as compared to 1.1% in 1QFY2011. Provision coverageratio including technical write-offs declined to 65.2% from 67.6% in 4QFY2011.The bank is yet to switchover to the system-based NPA recognition platform,which could result in a substantial rise in slippages given the bank’s ruralbranches (37%) and a relatively large agri (16%) portfolio.

Outlook and valuation: At the CMP, the stock is trading at cheap valuations of 0.8xFY2013E ABV compared to its trading range of 0.5–1.5x with a median of 1.1xsince listing in 2007. However, due to near-term asset-quality concerns becauseof system-based NPA recognition, we remain Neutral on the stock.