Indian stock market and companies daily report (February 08, 2012, Wednesday)

The domestic markets are expected to open in the green tracking positive opening in most of the Asian markets. Indian markets snapped a five-day winning streak on Tuesday after the government revised down its economic growth forecast for the current fiscal year to 6.9% its slowest pace in three years.
Globally, US stocks recovered day’s lows and closed in green yesterday as Greek officials’ reportedly on reaching an agreement to enact the reforms needed to receive a new bailout. Buying interest remained relatively subdued, however, limiting the upside for the markets. Also, a US Labor Department report showed job openings rising to 3.38mn in December from 3.12mn in November showing continues progress in the job market. Indian investors, meanwhile, would keenly watch out for the domestic industrial production growth for the month of December due to be released on Friday.

Markets Today
The trend deciding level for the day is 17,679 / 5,357 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,775 – 17,929 / 5,391 – 5,448 levels. However, if NIFTY trades below 17,679 / 5,357 levels for the first half-an-hour of trade then it may correct up to 17,526 – 17,429 / 5,301 – 5,267 levels.

L&T bags order worth Rs.1,880cr
Larsen & Toubro's (L&T) construction arm has bagged new orders worth over Rs.1,880cr under various business segments in 4QFY2012. A major chunk of the orders (Rs.1,048cr) has been bagged by the Infrastructure IC that includes an order from West Bengal Government’s state highway circle for building a four-lane elevated corridor under JNNURM. The division has also bagged two others from DMRC for construction of tunnels for the underground works between Mandi house and Jama Masjid, including three stations under Delhi MRTS-phase III. While in the water and effluent treatment business, L&T Construction has secured orders worth Rs.348cr from Gujarat Water Infrastructure Ltd. In the power transmission and distribution segment, new orders worth Rs.263cr have come and additional orders from various ongoing projects worth Rs.221cr have been bagged by L&T Construction.
At the CMP of Rs.1,354, the stock is trading at PE of 19.1x FY2013E earnings, which is below the historical trading multiple for L&T. We have used 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.1,607, which provides 18.7% upside from current levels. Hence, we maintain our Buy rating on the stock.

Direct import of ATF approved
Empowered Group of Ministers (EGoM) has approved the import of aviation turbine fuel (ATF) directly by airline companies, which we believe is a positive move for the aviation industry. If airline companies start to import ATF directly, we believe they can reduce the fuel cost on an average by 10-15%, which could help them improve their margins and profitability, as currently nearly 50% of the total operating cost is accounted by fuel cost. However, we believe direct import of fuel in the short to medium term will be very difficult, as airline companies do not have the required infrastructure to do so and, given the state of the industry, are not in any condition to invest capital to build the required infrastructure. The only other possibility for airline companies is to reach an agreement with oil marketing companies to use their infrastructure, which we believe will come at a cost, since oil marketing companies are at the losing end and will charge a premium to make up for the loss of profit from this policy.
Overall, we believe this move is aimed to make the industry more attractive for FDI in future and will create transparency on the pricing of ATF in India. Since, we do not expect any short to medium term monetary gain from this policy, we continue to maintain our Neutral stance on the sector. However, if FDI is approved for international airline companies in future, which we believe has a high possibility, we may change out rating.

3QFY2012 - Result Reviews
Mahindra and Mahindra
Mahindra and Mahindra (MM) reported robust top-line growth of 37% yoy (13.9% qoq) to Rs.8,387cr, driven by impressive volume growth of 24% yoy (6.7% qoq) and strong net average realization growth of 10.6% yoy (6.9% qoq). Volume performance was aided by sustained momentum in the automotive segment, which registered growth of 31.3% yoy (2.9% qoq). In the passenger UV segment, MM posted strong 22.9% yoy growth, retaining its dominant position with a market share of 57.8% (54% in 2QFY2012). The farm equipment segment, on the other hand, witnessed moderate growth of 12.2% yoy with domestic tractor volumes registering growth of 11.8% yoy. However, MM managed to improve upon its domestic market share, which increased to 42.9% (41.2% in 2QFY2012) at the end of 3QFY2012.
The company’s EBITDA margin contracted by 292bp yoy (14bp qoq) to 12.2%, largely driven by increased purchase of finished products (up 265% yoy and 75% qoq) from the manufacturing subsidiary, Mahindra Vehicle Manufacturers Limited (MVML). As a result, total raw-material cost as a percentage of sales increased by 515bp yoy (178bp qoq) to 74.3%. EBIT margin of the automotive and farm equipment segments declined by 412bp yoy (175bp qoq) and 283bp yoy (up 33bp qoq) to 8.2% and 15.6%, respectively. Thus, adjusted net profit posted modest 7.3% yoy (down substantially by 13.9% qoq) growth to Rs.662cr. Additionally, a 37.8% yoy (12% qoq) increase in depreciation expense impacted the bottom line during the quarter. AtRs.689, the stock is trading at 13x FY2013E earnings. We maintain Buy rating on the stock while the target price is under review.
Cadila
Cadila Healthcare (Cadila) reported lower-than-expected numbers for 3QFY2012, except on the sales front, where sales were mostly in-line at ~Rs.1,350cr. However, higher R&D expense during the quarter resulted in depression in operating margin, which came in at 17.1%. This coupled with forex losses during the quarter resulted in higher dip in net profit. The stock is trading at 17.5x FY2012E and 13.6x FY2013E earnings. We recommend Buy on the stock with a target price of Rs.965.
ITNL
For 3QFY2012, on a consolidated basis, IL&FS Transportation Networks (ITNL) posted a mixed set of numbers with strong growth on the top-line front, however the fall in EBITDAM and high interest cost led to lower-than-expected bottom-line growth. The company’s revenue for the quarter came in at Rs.1,268cr (Rs.734cr), registering 72.9% yoy/1.0% qoq growth, marginally lower than our estimate of Rs.1,306cr. EBITDA margin for the quarter stood at 25.3% vs. 30.6% in 3QFY2011, down 480bp and 310bp on a yoy and qoq basis, respectively, against our estimate of fall of 280bp on a yoy basis. This was mainly on account of increased contribution from the relatively low-margin C&EPC segment. ITNL’s interest cost during the quarter grew by 60.9% yoy/9.5% qoq to Rs.185cr, ahead of our expectation of Rs.178cr. On the earnings front, ITNL reported growth of 42.5% on a yoy basis to Rs.87.8cr, lower than our estimate of Rs.119.7cr on the back of lower EBITDAM and higher interest cost. Owing to the recent run-up in the stock price, we recommend Accumulate on the stock with a target price of Rs.227.
JK Lakshmi Cement
JK Lakshmi Cement reported 39.6% yoy top-line growth to Rs.440cr, aided by robust 23.7% yoy growth in realizations coupled with 12.8% growth in dispatches to 1.22mn tonnes. The company’s OPM rose by 1,352bp yoy to 21.4% due to strong improvement in realization even as freight costs, personnel expenses and other expenses increased by 8% yoy, 23% yoy and 9% yoy, respectively, on per tonne basis. The bottom line surged to Rs.49.2cr in 3QFY2012 from Rs.4.6cr in 3FY2011 due to strong operating performance and 59% yoy growth in other income to Rs.14.8cr. The Board of Directors have approved the buyback of equity shares up to an amount of Rs.97.50cr at a maximum price of Rs.70 per equity share (i.e. 1.39cr equity shares of Rs.5 each from the open market through Stock Exchanges). The stock is currently under review.

3QFY2012 - Result Previews
ONGC
ONGC is slated to announce its 3QFY2012 results. We expect the company’s top line to decrease by 17.3% yoy to Rs.17,200cr on account of higher subsidy. EBITDA margin is expected to decline by 1,354bp yoy to 51.5%. The bottom line is expected to decrease by 37.1% yoy to Rs.4,454cr. We maintain our Buy view on the stock with a target price of Rs.324.
Bharti Airtel
Bharti Airtel is slated to announce its 3QFY2012 results. We expect the company to record revenue of Rs.18,312cr, up 5.0% qoq on the back of 2.3% and 2.0% qoq growth in ARPM and MOU to Rs.0.44min and 432min, respectively. VAS as a share in mobility revenue is expected to move to 15.0% in 3QFY2012 from 14.5% in 2QFY2012. Consolidated EBITDA margin of the company is expected to increase by 40bp qoq to 34.1%. PAT is expected to be at Rs.1,445cr. We maintain our Neutral view on the stock.
Tech Mahindra
Tech Mahindra is slated to report its 3QFY2012 results. We expect the company to record 0.5% qoq growth in dollar revenue to US$296.2mn, majorly led by volume growth. Revenue from the BT account is expected to decline by 2.3% qoq while the non-BT business is expected to post 2.1% qoq growth. EBITDA margin is expected to enhance by 209bp qoq to 17.4% due to INR depreciation. PAT, excluding earnings from Mahindra Satyam, is expected to settle at Rs.184cr. We maintain our Accumulate rating on the stock with a target price of Rs.666.
Bharat Forge
Bharat Forge is slated to announce its 3QFY2012 results. On a standalone basis, we expect the company to deliver 22% yoy growth in revenue to Rs.917cr. EBITDA margin is expected to witness a contraction of 79bp yoy to 23.5%. As a result, net profit is expected to grow by 17% yoy to Rs.97cr, slightly slower than the top-line growth. The stock rating is under review.
Orchid
For 3QFY2012, Orchid Chemicals is expected to post net sales of Rs.555cr, growth of 20% yoy. The company’s margin is expected to come in at ~24%, in-line with 3QFY2011 operating margin. Overall, net profit is expected to grow by 16.8% to Rs.57cr. We maintain our Buy recommendation on the stock with a target price of Rs.270.
Alembic
For 3QFY2012, Alembic Pharmaceuticals is expected to post net sales of Rs.389cr and net profit of Rs.31.9cr. Growth would mainly be driven by exports sales. The company’s OPM is expected to come in at ~14.0% during the period. We maintain our Buy recommendation on the stock with a target price of Rs.77.

Economic and Political News
- Airlines get GoM nod to import fuel directly
- Annual budget for FY2012-13 will be presented on March 16, 2012
- Government pegs FY2012 economic growth at 6.9%
- GoM approves Air India debt recast
- Per capita income expected to cross Rs.60,000 in FY2012

Corporate News
- Government rejects RIL demand for gas price revision
- Infosys to strengthen presence in Oman
- Legal tangle delays NTPC's order placement of Rs.34,000cr
- UTV denies purchasing Dabangg 2 rights

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Indian stock market and companies daily report (February 07, 2012, Tuesday)

The domestic markets are expected to open in the green tracking positive opening in most of the Asian markets. Indian markets extended their bull run on Monday, with shares hitting fresh 14.5 week highs in early trading as positive economic data from the US raised hopes the global economy will withstand the impact of Europe's debt crisis.
Globally, US stocks retreated from multi-year highs on Monday as Greece struggled for an agreement on spending cuts needed to ensure another round of rescue funds. Greece missed a deadline on enacting reforms necessary to receive a new bailout from the European Union and the International Monetary Fund. Selling pressure remained subdued, however, limiting the downside for the markets. Indian investors this week, meanwhile, would keenly watch out for the domestic industrial production growth for the month of December due to be released on Friday. Also, consumer comfort index of US which will be released on coming Thursday will be on radar.

Markets Today
The trend deciding level for the day is 17,711 / 5,360 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,826 – 17,945 / 5,392 – 5,422 levels. However, if NIFTY trades below 17,711 / 5,360 levels for the first half-an-hour of trade then it may correct up to  17,592 – 17,476 / 5,392 – 5,297 levels.

L&T bags order worth Rs.1,937cr
Larsen & Toubro's (L&T) construction arm has bagged a road project worth Rs.1,937cr from the GVK Group to widen a highway in Madhya Pradesh. The contract involves designing, engineering and construction for four-laning of a major portion of Shivpuri-Dewas section of NH-3 totaling 235km. The construction period is 27 months.
At the CMP of Rs.1,383, the stock is trading at PE of 19.5x FY2013E earnings, which is below the historical trading multiple for L&T. 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.1,607, which provides 16.2% upside from current levels. Hence, we maintain our Buy view on the stock.

Upstream oil firms to bear higher subsidy
Media reports suggests that state-run upstream companies will share 38.0% of the revenue losses (under-recoveries) suffered by oil marketing companies (OMCs) due to selling fuels at discounted prices for the period April–December 2011. The upstream companies had shared 33.0% of under-recoveries during 1HFY2012. During April–December 2011, total under-recoveries of OMCs stood at Rs.97,300cr.
Thus, ONGC will have to bear subsidy burden of Rs.30,296cr for April–December 2011, which is expected to result in additional subsidy burden of Rs.12,536cr during 3QFY2012. We had pegged upstream companies share of under-recoveries at 38.0% for FY2012 and, thus, do not change our estimates. We maintain our Buy rating on ONGC with a target price of Rs.324.

3QFY2012 - Result Reviews
HUL
HUL posted a healthy set of numbers for the quarter, in-line with our estimates. The company’s top line grew by 16.4% yoy to Rs.5,853cr. Earnings for the quarter grew by 18% yoy, marginally above our estimate, to Rs.754cr. The company’s top line was driven by modest volume growth of 9% yoy. Overall, FMCG sales grew by 17% yoy, aided by 18% yoy growth in the home and personal care (HPC) and 13% yoy growth in foods businesses. During the quarter, the soaps and detergent (S&D) segment posted 21% yoy revenue growth, while its EBIT margin expanded by 573bp yoy to 13.5%. The packaged food business reported 13.5% yoy growth. The personal products segment grew by 14% yoy. At the operating level, OPM expanded by 271bp yoy to 15.1% for 3QFY2012. The company cut its ad spends and other expenses and negated the affect of gross margin pressure. We maintain our Neutral rating on the stock.
Nalco
Nalco reported disappointing 3QFY2012 results. The company’s net sales grew by 0.4% yoy to Rs.1,430cr (below our estimate of Rs.1,770cr). Raw-material costs as a percentage of net sales stood at 16.7% in 3QFY2012 compared to 8.4% in 3QFY2011. Further, power costs as a percentage of net sales stood at 39.7% compared to 31.1% in 3QFY2011. Hence, EBITDA decreased by massive 83.6% yoy to Rs.64cr and EBITDA margin contracted by 2,287bp yoy to 4.5%. Other income, however, grew by 46.4% yoy to Rs.131cr. Consequently, net profit decreased by 80.0% yoy to Rs.51cr (significantly below our estimate of Rs.224cr). We maintain our Neutral view on the stock.
GSK Consumer
For 4QCY2011, GSK Consumer reported a modest performance, which was below with our estimate on the revenue and earnings fronts. The company’s top line grew by 18.6% yoy to Rs.602cr (Rs.508cr). On the operating front, the company recorded a 127bp yoy decrease in its operating margin to 10.2%, primarily on account of higher ad spends and other expenditure. However, the fall in OPM was curbed by reducing the staff cost by 174bp yoy. Earnings for the quarter grew by 10.7% yoy to Rs.59cr (Rs.53cr) on account of higher other income. The stock is under review.
MOIL
MOIL’s 3QFY2012 results were slightly below our expectations. Net sales decreased 5.4% yoy to Rs.240cr (slightly below our estimate of Rs.248cr) which would be mainly on account of decrease in average realizations in our view. EBITDA decreased 11.1% yoy to Rs.109cr. EBITDA margin dipped 293bp yoy to 45.7% on account of slump in manganese ore prices. Other income stood flat yoy to Rs.50cr, while tax rate was higher at 33.2%, compared to 30.5% in 3QFY2011. Consequently, net profit decreased 11.9% yoy to Rs.102cr, slightly below our estimate of Rs.106cr. We maintain our Neutral view on the stock.
India Cements
For 3QFY2012, India Cements registered healthy 20.5% yoy growth in its top line to Rs.944cr on account of a substantial 16.2% yoy increase in cement realization to Rs.4,262/tonne and reasonable 6.9% yoy growth in dispatches to 2.18mn tones, as retail cement demand has picked up in South India, which is the company’s major market. Southern region posted demand growth of 3.3% yoy during the quarter. OPM rose by 443bp yoy to 20.9% due to better cement realization despite higher power and fuel and freight costs. Power and fuel cost per tonne increased by 7.4% yoy during the quarter on account on higher coal imports, costlier domestic coal and higher power tariffs in Andhra Pradesh. Freight costs per tonne were higher by 5.1% yoy on account of increased railway freight and higher price of petroleum products. The bottom line came at Rs.56cr, registering growth of 162.3% yoy. We maintain our Neutral view on the stock.
BGR Energy
BGR Energy (BGR) posted a mixed set of numbers for 3QFY2012. As expected, the company’s top line for the quarter stabilized on prior-year period’s high base; however, earnings exceeded estimates owing to better-than-expected show on the operating front. The company’s top line declined by 36.1% yoy to Rs.803.7cr (Rs.1,257cr), which was lower by 10.8% (below street) than our expectation of Rs.901.1cr. The downside in revenue mainly came from the construction and EPC segment, which declined by 38.8.% yoy to Rs.727.1cr (Rs.1,118cr). In contrast, the capital goods segment posted decent 19% yoy growth to Rs.75.2cr (Rs.63.2cr). On the EBITDA front, the company’s margin posted a positive surprise – EBITDAM  eported a sharp expansion of 463bp yoy to 16.3%, against our estimate of 12%. Margin was mainly aided by lower raw-material costs, which contracted by 730bp yoy to 73.1% as a proportion of revenue. Segment wise, the capital goods as well and construction and EPC segment offered upside to the margin, expanding more than ~400bp. As is the case since the past few quarters, we believe the construction and EPC segment would have been positively impacted by higher execution of BoP projects.
Interest cost during the quarter rose by 175% yoy/53% qoq to Rs.46.2cr, probably due to enhanced working capital debt, in our view. Led by slumped revenue, PAT declined by 37.5% yoy to Rs.54.7cr (Rs.87.6cr), however striking EBITDAM influenced the bottom line considerably – PAT came in 16% higher than our (below street) estimate of Rs.47.2cr.
Order backlog at the end of the quarter stood at Rs.8,000cr, largely aided by the Rs.1,700cr worth of order secured during the quarter. Notably, with 9MFY202 totaling mere ~Rs.2,300cr, we believe it will be challenging for the company to exceed Rs.4,000cr plus revenue target for FY2012 (management guidance). 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. Currently, we remain Neutral on the stock.
Bajaj Electricals
Bajaj Electricals (BEL) posted top-line growth of 15.1% yoy to Rs.794cr (Rs.690cr) in 3QFY2012. The lighting segment registered strong 18.8% yoy growth to Rs.200cr (Rs.168cr) and the consumer durable segment registered a 24.7% yoy increase to Rs.414cr (Rs.332cr). The E&P segment registered a 5.1% yoy decline to Rs.179cr (Rs.190cr). EBITDA declined by 8.6% yoy to Rs.65cr (Rs.71cr), largely due to margin compression. EBITDA margin declined by 212bp yoy to 8.2% (10.3%), mainly due to higher other expenditure, which increased to 12.7% of net sales vs. 10.7% in 3QFY2011. PAT declined by 19.1% yoy to Rs.33cr (Rs.41cr), while margin declined by 175bp yoy to 4.1% (5.9%). 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.201.
NCC
Nagarjuna Construction Company (NCC) posted a poor set of numbers for 3QFY2012, below our and street expectations. The company’s top line declined by 5.4% yoy to Rs.1,264cr, which was marginally above our expectation of Rs.1,215cr (Consensus: Rs.1,271cr). On the EBITDAM front, the company’s margin stood at shocking 6.1% (10.3%), registering a dip of 350bp yoy and lower than our estimate of 9.5% due to provisions (~Rs.15cr) and time and cost overruns in few projects. Interest cost came in at Rs.69.4cr, registering a yoy jump of 58.3% but a decline of 2.2% on a sequential basis. On the bottom-line front, NCC reported loss of Rs.9.5cr in 3QFY2012 vs. profit of Rs.40.5cr in 3QFY2011, against our estimate of PAT of Rs.14.0cr (Consensus: Rs.26.4cr), owing to decline in top-line and dismal margin performance. The current outstanding order book of NCC stands at Rs.21,990cr, with order inflow of Rs.9,943cr for 9MFY2012. Owing to the abysmal performance in the quarter and recent run-up in the stock price, we recommend Neutral on the stock.
GIPCL
GIPCL posted 26.9% yoy growth in its top line to Rs.391cr, driven by higher fuel costs as generation remained flat at 1,181MU. Vadodara stations I and II had PAF of 96.1% (93.7% in 3QFY2011) and 95.1% (100% in 3QFY2011), respectively. SLPP I and II stations operated at PAFs of 83.9% (89.2% in 3QFY2011) and 61.6% (60% in 3QFY2011), respectively. OPM for the quarter  stood at 24.1%, down 1,484bp on yoy basis due to higher gas prices. GIPCL’s 3QFY2012 bottom line fell by 30.6% yoy to Rs.17cr. We maintain our Buy rating on the stock, but the target price is under review.
SpiceJet
SpiceJet announced its 3QFY2012 numbers. The company’s net sales increased by 41.6% yoy to Rs.1176cr (Rs.830cr), on the back of fleet additions during the year. EBITDA declined by 117% yoy to negative Rs.19cr vs. positive Rs.114cr in 3QFY2011. EBITDA margin declined by 1,536bp yoy to negative 1.6% vs. positive 13.7% in 3QFY2011, mainly due to higher fuel costs, which increased to 50.4% of net sales vs. 37.5 in 3QFY2011. Consequently, PAT came in at negative Rs.39cr vs. profit of Rs.94cr in 3QFY2011. We will be coming out with a detailed report post management interaction. We continue to maintain our Neutral recommendation on the stock.
Siyaram Silk Mills
Siyaram Silk Mills announced its 3QFY2012 numbers. Net sales declined by 2.6% yoy to Rs.222cr (Rs.244cr). EBITDA declined by 2.0% yoy to Rs.29cr (Rs.30cr) due to lower revenue. EBITDA margin improved marginally by 9bp yoy to 13.2% (13.1%). PAT declined by 17.0% yoy to Rs.13cr (Rs.16cr), while margin declined by 103bp yoy to 5.9% (7.0%) largely due to higher depreciation and interest cost because of capacity expansion during the quarter. Depreciation increased by 18.1% yoy to Rs.6.3cr (Rs.5.4cr), while interest cost increased by 92.0% yoy to Rs.6.9cr (Rs.3.6cr). 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.426.

3QFY2012 - Result Previews
Mahindra and Mahindra
Mahindra and Mahindra (MM) is slated to announce its 3QFY2012 results. We expect the company’s top line to grow by robust 31.4% yoy to Rs.7,981cr, backed by impressive 24% yoy growth in total volumes. On the operating front, EBITDA margin is expected to witness a decline of 313bp yoy to 12% on account of increased purchases from manufacturing subsidiary MVML. As a result, the bottom line is expected to report a modest increase of 6% yoy to Rs.654cr. The stock rating is under review.
Cadila
Cadila Healthcare (Cadila) is expected to post yet another strong quarter with 12.6% yoy growth in its net sales to Rs.1,278cr on the back of robust growth on the domestic formulation and exports front. On the OPM front, we expect the company's OPM to dip by 160bp yoy to 21.3% on the back of favorable product mix. Cadila's net profit is expected to increase by 19.1% yoy to Rs.193cr, driven by top-line growth. We maintain our Buy rating on the stock with a target price of Rs.965.
ITNL
We expect IL&FS Transportation Networks (ITNL) to post a strong set of numbers for 3QFY2012 on account of higher number of projects in hand. The company’s revenue is expected to grow strongly by 78.0% yoy to Rs.1,306cr, led by underconstruction road BOT projects. We expect the company to register EBITDAM of 27.3%, down 279bp yoy, owing to higher contribution of the comparatively lowmargin E&C segment. Strong revenue growth is expected to reflect in the company’s earnings, which are expected to surge by 94.2% yoy to Rs.119.7cr. Owing to the recent sharp run-up in the stock price, we recommend an Accumulate view on the stock with a target price of Rs.227.
JK Lakshmi Cement
JK Lakshmi Cement is expected to announce its 3QFY2012 results today. We expect the company’s top-line to grow by 11.4% yoy to Rs.351cr on account of higher yoy realization. On operating front, margins are expected to improve by 550bp yoy to 13.4% aided by higher realization. The company’s net profit is expected to grow by 92% yoy to Rs.9cr (though on a lower base of last year). We recommend Neutral on the stock.

Economic and Political News
- Oil dips below US$114, Greek debt, Iran in focus
- India faces challenges on stable rating outlook, says S&P
- Upstream oil companies to bear 38% of subsidy share
- RBI marginally relaxes FX curbs for banks with big open positions

Corporate News
- LIC to pick 5% stake in Dena Bank
- Petronet in talks with Kerala government for power plant at Kochi
- PFC to raise Rs.40,000cr in FY2013
- SKS raises Rs.243cr via securitization

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Indian stock market and companies daily report (February 06, 2012, Monday)

The domestic markets are expected to open in the green tracking gap up opening in most of the Asian markets. Indian markets ended higher on Friday for a fourth day in a row on the back of heavy buying by FIIs.

Globally, most of the US and European markets closed higher as traders reacted positively to a much better than expected report on the employment situation in the US in the month of January. With the stronger than expected job growth, the unemployment rate unexpectedly fell to 8.3% (lowest since February 2009) from 8.5% in the previous month. Also, a separate report from the Institute for Supply Management showed that non-manufacturing index rose to 56.8 in January from a revised 53.0 in December, with a reading above 50 indicating growth in the service sector.

Indian investors this week, meanwhile, would keenly watch out for the domestic industrial production growth for the month of December due to be released on Friday. Also, consumer comfort index of US which will be released on coming Thursday will be on radar.

Markets Today

The trend deciding level for the day is 17539 / 5,305 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,696 – 17,787 / 5,355 – 5,385 levels. However, if NIFTY trades below 17,539 / 5,305 levels for the first half-an-hour of trade then it may correct up to 17,448 – 17,292 / 5,276 – 5,226 levels.

3QFY2012 - Result Reviews

DRL

For 3QFY2012, DRL posted a good set of numbers, much ahead of our expectations. The company’s net sales came in at Rs.2,769.2, growth of 46% yoy. Growth was driven by U.S. sales, which grew by 120% yoy. Other key geographies apart from Europe grew in double digits. Growth in the U.S. was led by the high value launch of Olanzapine 20 mg, new products launched in the past 12 months and strong volume growth across key products. This also aided significant improvement in the company’s gross margin and subsequently in OPM. The company’s OPM expanded by 12% yoy to 27%. Consequently, net profit grew by 88% yoy during the period. We maintain our Buy rating on the stock. The target price is under review.

Madras Cements

During 3QFY2012, Madras Cements’ top line rose by 27.9% yoy to Rs.741cr. The cement business posted 29.4% yoy growth in net sales to Rs.733cr on account of 19.1% yoy growth in dispatches (on a low base) and 8.6% yoy growth in realizations. The wind division’s revenue decreased by 38.8% yoy to Rs.7.7cr. Improved cement realization aided OPM to grow by 243bp to 28.0%, amidst cost pressures felt in freight expenses and other costs. The company’s bottom line increased by 76.7% yoy to Rs.77cr. We maintain our Neutral view on the stock.

HEG

HEG Ltd. reported revenue growth of 35% yoy to Rs.418cr for 3QFY2012 from Rs.310cr in 3QFY2011 due to increased prices of graphite electrodes and over 100% capacity utilization for the quarter. OPM for the quarter contracted by 1,059bp to 11.9% in 3QFY2012 from 22.4% in 3QFY2011 on account of higher other expenses and forex loss of Rs.35.5cr. PAT dipped by 37% yoy to Rs.24cr as compared to Rs.38cr in 3QFY2011. Tax rate was lower at 12% for the quarter compared to 21% in 3QFY2011. We maintain our Buy rating on the stock with a revised target price of Rs.236, based on a target P/B of 1.0x for FY2013E.

TVS Srichakra

For 3QFY2012, TVS Srichakra reported a mixed set of numbers. The company reported 21.1% yoy growth in its net sales, from Rs.287cr in 3QFY2011 to Rs.348cr in 3QFY2012. Net raw-material cost for the company increased by 23.7% yoy. Increased net raw-material cost along with higher other expenditure by 22.3% yoy led to a substantial decline in the operating profit of the company. Operating profit margin stood at 7.1%, a decline of 95bp yoy and 220bp qoq. The company’s profit declined by 33.1% yoy to Rs.7cr, which was Rs.10cr in the same quarter last year. We maintain our Buy recommendation on the stock. The stock price is under review.

Subros

Subros reported poor results for 3QFY2012, led by a yoy decline in volumes and increased interest expense. However, on a sequential basis, higher interest cost  and depreciation expense impacted the company’s performance. Subros reported a 7.1% yoy decline in its net sales to Rs.254cr due to a 13% yoy drop in volumes. Net average realization improved by 6.7% yoy, thereby preventing further decline in the top line. On a sequential basis, net sales increased by 5.5% on account of a 9.1% increase in volumes. Operating margin improved by 107bp yoy (62bp qoq) to 8.5%, driven by raw-material cost savings (raw-material to sales ratio declined by 381bp yoy) due to commencement of local production of certain components (mainly evaporators). On the other hand, a 266bp yoy increase in staff cost restricted margin expansion to a certain extent. Net profit nosedived by steep 62.5% yoy (33.7% qoq) to Rs.2.1cr on account of an 88.1% yoy (21.3% qoq) increase in interest cost. The stock rating is currently under review. 3QFY2012 - Result Previews

HUL

HUL is expected to announce its 4QFY2011 results. We expect the company to report a healthy 15.7% yoy growth rate in its revenue to Rs.5,815cr and a 107bp yoy expansion in its operating margin to 13.1%. The company is expected to report 15.7% yoy growth in recurring earnings, owing to healthy revenue traction and an expansion in margins. We maintain our Neutral view on the stock.

Nalco

Nalco is slated to report its 3QFY2012 results. We expect net sales to increase by 24.2% yoy to Rs.1,770cr. However, EBITDA margin is expected to contract by 1,034bp yoy to 17.0% due to rise in prices of key inputs (primarily coal). Net profit is expected to decrease by 12.4% yoy to Rs.224cr. We maintain our Neutral view on the stock.

GSKCH – 4QCY2011

GSK Consumer (GSKCH) is slated to announce its 4QCY2011 numbers. For the quarter, we expect GSKCH to post healthy growth of 20% yoy in its top line to Rs.610cr, driven by growth in its core brands and new product launches. The bottom line is expected to register growth of 17.9% yoy to Rs.63cr, aided by top-line growth and margin expansion of 24bp yoy to 11.8%. We maintain our Neutral view on the stock.

MOIL

MOIL is slated to report its 3QFY2012 results. We expect net sales to decline by 2.1% yoy to Rs.248cr, mainly on account a decline in manganese ore prices. Nevertheless, EBITDA margin is expected to improve by 120bp yoy to 47.0% in 3QFY2012. Net profit is expected to increase by 0.4% yoy to Rs.106cr. We maintain our Neutral view on the stock.

India Cements

India Cements is expected to announce its 3QFY2012 results. We expect the company’s top line to grow by 18% yoy to Rs.922cr, primarily on account of 15.4% yoy growth in realization (though on a lower base of last year). The company’s margin is expected to improve by 220bp yoy to 14.3%, aided by higher realization. The company’s net profit is expected to grow by 19.2% yoy to Rs.26cr. We maintain our Neutral rating on the stock.

BGR Energy

For 3QFY2012, we expect BGR Energy's (BGR) top line to be under pressure due to high base created in 3QFY2011 and partly due to execution delays. The top line is expected to decline by 28.3% yoy to Rs.901.1cr. EBITDA margin is expected to come in at 12.0%. Interest cost is expected to stretch further (owing to hike in interest rates and enhanced working capital debt levels); which, along with slumped revenue, is likely to drag the bottom line down by 46.1% yoy to Rs.47.2cr. At the CMP, the stock is trading at 6.7x and 7.2x FY2012E and Fy2013E EPS, respectively. Currently, we remain Neutral on the stock.

Nagarjuna Construction Company

We expect subdued performance from Nagarjuna Construction (NCC) for this quarter. On the top-line front, NCC is expected to post a yoy decline of 9.0% to Rs.1,215cr. EBITDA margin is expected to be flat at 9.5%. On the earnings front, we expect NCC to post a decline of 65.4% yoy to Rs.14.0cr for the quarter. This would be primarily due to burgeoning interest cost (yoy jump of ~73.2%) and a decline in the company’s top line. Owing to the sharp run up in the stock price,  we recommend Neutral on the stock.

GIPCL

GIPCL is expected to announce its 3QFY2012 results. The company is expected to register 15.5% yoy growth in its revenue to Rs.353cr, primarily on the back of higher volumes from 250MW SLPP station II. OPM is set to expand by 633bp to 33.1% due to higher availability of Surat II station. The company’s bottom line is expected to improve by 52.6% yoy to Rs.37cr in 3QFY2012. We maintain our Buy rating on the stock with a target price of Rs.95.

Economic and Political News
- Court quashes Swamy's petition, relief for Chidambaram
- Global food prices to ease in 2012: World Bank
- Government may lower STT in Budget to boost markets
- GoM meeting on ATF import, FDI, AI on Thursday

Corporate News
- Central Bank of India may recast loans to power utilities
- Fortis invests Rs.274cr in two Singapore healthcare ventures
- Mundra project may become an NPA: Tata Power
- Reliance Industries to charge US$0.15 marketing margin on CBM gas

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

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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