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

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 05, 2012, Thursday)

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)

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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Share Market Update on Central Bank of India for 1QFY2012

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

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

NIM dips on lower yield on investments; slippages remain elevated: The bank’s business momentum slowed 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 growth moderated to 14.7% yoy, resulting in a 259bp qoq decline in CASA ratio to 32.6%. Bulk deposits and CDs constituted a relatively higher ~33% of total deposits. The reduction in CASA ratio and the higher interest rate environment resulted in a sharp 72bp qoq rise in cost of deposits to 6.8%. The yield on advances went up by 77bp qoq to 11.4%. Reported NIM declined sharply by 48bp qoq 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 on income tax refund of ~`130cr in 4QFY2011. Overall asset quality of the bank deteriorated during the quarter, with annualised slippage ratio remaining elevated at 1.8% (1.1% in 1QFY2011) and net NPAs rising by 27.7% qoq. Slippages remained elevated at 1.8% as compared to 1.1% in 1QFY2011. Provision coverage ratio 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 rural branches (37%) and a relatively large agri (16%) portfolio.

Outlook and valuation: At the CMP, the stock is trading at cheap valuations of 0.8x FY2013E ABV compared to its trading range of 0.5–1.5x with a median of 1.1x since listing in 2007. However, due to near-term asset-quality concerns because of system-based NPA recognition, we remain Neutral on the stock.

Share Market Update on Bhushan Steel for 1QFY2012

Share Market Update on Bhushan Steel for 1QFY2012 with a Neutral recommendation.

Strong top-line growth: During 1QFY2012, Bhushan Steel’s (BSL) net sales grew by 62.6% yoy to `2,232cr mainly on account of higher volumes of flat products. Flat products sales volumes grew by 80.2% yoy to 388,790 tonnes, while long product sales volumes grew by 7.6% yoy to 100,664 tonnes in 1QFY2012. Long product average realisation increased by 18.2% yoy to `42,915/tonne, while flat product average realisation decreased by 3.2% yoy to `49,294/tonne.

Depreciation and interest costs mute net profit growth: During 1QFY2012, EBITDA increased by 62.1% yoy to `661cr, representing EBITDA margin of 29.6%, compared to 29.7% in 1QFY2011. EBITDA/tonne increased to `13,505 (US$300) in 1QFY2012, compared to `13,186 (US$293) in 1QFY2011. Depreciation expense increased by 182.4% yoy to `151cr due to increased capacity, while interest expense increased by 173.8% yoy to `216cr because of higher debt. A sharp increase in depreciation and interest costs resulted in net profit growth of only 2.0% yoy (despite 62.1% growth in EBITDA) to `210cr.

Outlook and valuation: At the CMP, the stock is trading at 8.1x FY2012E and 7.1x FY2013E EV/EBITDA, a significant premium over its peers. Although we expect sales volume growth of 24.8% over FY2011–15E, we believe it is too early to play the volume growth story of BSL as strong volume growth is expected only post FY2013. Further, although BSL uses a combination of BF-EAF technology to produce steel, rising prices of iron ore and coal will affect its margins. Moreover, BSL’s debt-equity ratio remains high. Further, we believe the increase in the stock price in the past three months fairly discounts the growth prospects of BSL. Hence, we maintain our Neutral view on the stock.

Share Market Update on IDBI Bank for 1QFY2012

Share Market Update on IDBI Bank for 1QFY2012 with a Neutral recommendation. 

For 1QFY2012, IDBI Bank reported healthy 33.6% yoy growth in its net profit to `335cr, which was in-line with our estimates but lower than consensus forecasts. Sequentially stable NIM, lower fee income and higher slippages despite the already-functioning system-based NPA recognition platform were the key highlights of the result. We maintain our Neutral view on the stock.

NIM surprises positively while slippages rise: For 1QFY2012, the bank’s advances declined by 1.3% qoq (up 14.5% yoy). Deposits also declined by 2.3% qoq (up 12.1% yoy). Advances growth on a yoy basis was driven by strong 49.8% growth in retail credit, which has increased its share to 19.2% from 14.7% in 1QFY2011. CASA deposits growth continued to be healthy at 49.2% yoy, leading to a 429bp yoy improvement in CASA ratio to 17.3%. The bank was able to largely sustain (down marginally by 3bp qoq) its reported NIM at 2.1%, despite the 54bp qoq rise in cost of funds. The annualised gross slippage ratio increased to 1.6% as compared to 0.5% in 4QFY2011. Slippages were on the higher side considering the fact that the bank had already switched over to system-based NPA recognition platform. Profitability in 1QFY2012 was aided by the write-back of provisions on SRs of `92cr. However, profits were lower due to the higher effective tax rate at 44.6% (27.6% in FY2011) due to non-tax deductibility of certain provisioning expenses. Profits for the quarter included ~`18cr from the two subsidiaries, which had merged with the bank in 4QFY2011. Branch expansion was healthy with addition of 67 branches, taking the network to 883.

Outlook and valuation: We believe the bank is set to improve its credit and deposit mix going forward on the back of its strong branch expansion plans. The bank has been amongst the fastest-growing in terms of CASA deposits over the past few years even when compared to private banks and now has a market share of 2.1%. At the CMP, the stock is trading at 1.1x FY2013E P/ABV adjusting for SASF (0.8x without adjusting). However, in our view, there are near-term cyclical headwinds to margins and asset quality. Hence, we maintain our Neutral stance on the stock