Indian stock market and companies daily report (February 21, 2012, Tuesday)

The domestic markets are expected to open flat or marginally in green following higher closing across most of the western markets. Asian stock markets are trading flat as investors remain cautions and wait for European finance ministers in Brussels to approve a crucial second bailout for Greece.

The US markets traded choppily on Friday (closed on Monday) as the economic data releases painted a mixed picture with a report from the Conference Board showing that its index of leading economic indicators increased for the fourth consecutive month in January, while another report from the Labor Department showing only a modest increase in consumer prices in the month of January. Although investors seemed reluctant to make any significant moves going into the long weekend, optimism that European finance ministers will approve a new bailout package for Greece helped to keep traders from doing much profit taking. Meanwhile Indian shares rebounded on Friday after some consolidation the day before, with firm global cues supporting the liquidity-driven rally.

Markets Today

The trend deciding level for the day is 18,315/5,572 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,397 – 18,504/5,599 – 5,634 levels. However, if NIFTY trades below 18,315/5,572 levels for the first half-an-hour of trade then it may correct up to 18,208 – 18,126/5,537 – 5,511 levels.

Cement companies raise prices

Cement companies have raised prices in the northern and western regions in the range of Rs.7 to Rs.10 per bag with effect from February 17, 2011. The price hike follows the correction in the region during January due to the severe winter season, which affected construction activities. We believe the recent price hike is an effort by cement manufacturers to pass on the hike in operating costs. We are currently Neutral on the cement sector, as we believe valuations are significantly ahead of the cycle, but we maintain our Buy recommendation on JK Lakshmi Cement due to its attractive valuations, with a target price of Rs.79.

NMDC cuts ore prices; lowers volume guidance

NMDC has cut prices of iron ore fines and lumps by 20% and 3%, respectively, for 4QFY2012 on the back of the decline in global iron prices, the recent rupee appreciation and increased export duty on iron ore. The price cut by NMDC is higher than our expectations given the shortage of iron ore in the domestic markets.

NMDC has also lowered its sales volume guidance for FY2012 and FY2013. The company now expects sales volumes of 27mn tonnes and 30mn tonnes (earlier 30 mn tonnes and 33mn tonnes) for FY2012 and FY2013, respectively. Although the company has ~5mn tonnes of iron ore inventory at its mine pit-heads, however it faces logistical constraints to increase off take due to breakdown in slurry pipeline, lower availability of railway rakes and stricter regulations in transportation of iron ore in Karnataka. Considering the company’s revised sales volumes guidance, we lower our 4QFY2012 and FY2013 realization and sales volume estimates.

Although NMDC has a strong balance sheet, presence in sellers market (iron ore), low cost of production, high-grade mines and long mine life, we now expect sales volumes to witness a CAGR of only 5.2% over FY2011-2013. On account of lower volume growth and lower realization, NMDC’s bottom line is expected to grow by only 4.0% yoy during FY2013. Further, given the 23% rise in the stock price since January 1, 2012, we recommend Neutral on the stock.

Result Review – 4QCY2011

CRISIL announced its 4QCY2011 numbers. Net sales increased by 26.6% yoy to Rs.225cr (Rs.177cr) led by strong growth in the research segment. Research segments revenue increased by 34.0% yoy while the rating segment and advisory segments revenue increased by 14.1% and 7.0% respectively. EBITDA increased by 15.2% yoy to Rs.80cr (Rs.69cr) due to higher revenue. EBITDA margin declined by 352bps yoy to 35.6% (39.1%). PAT increased by 10.4% yoy to Rs.56cr (Rs.51cr) while margin declined by 366bps yoy to 24.8% (28.5%) almost in line with EBITDA margin contraction. We will be coming out with a detailed report post management interaction. We continue to maintain an Neutral rating on the stock.

Economic and Political News
- Government may let foreign individuals directly buy corporate debt
- Railways stares at a Rs.2lakh cr crunch
- Bankers agree to subscribe to Air India’s Rs.7,400cr bond issue

Corporate News
- Ashok Leyland's Optare eyes small bus market
- Frozen bank accounts led to disruptions: Kingfisher
- Essar Oil plans to raise Rs.3,000cr in next 15 months

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Indian stock market and companies daily report (February 17, 2012, Friday)

The domestic markets are expected to open in green following positive opening across most of the Asian markets. The domestic bourses snapped three day rally yesterday and ended with modest losses as delays over Greece bailout added mild concerns for investors. Selling pressure remained subdued, however capped the downside for the markets.

Globally, European markets remained jittery in absence of resolution to the Greek sovereign debt crisis. Traders also digested the news of possible downgrade of 17 global financial institutions by Moody’s. US bourses ended on a positive note, thanks to upbeat U.S. job data which offset the negative sentiment generated over Greece’s bailout delay and Moody’s possible downgrade. The U.S labor department reported fall in initial jobless claims to 348,000 for week ended February 11th from the previous week's revised figure of 361,000.

On the domestic front, soothing of inflationary pressures and hopefulness of monetary easing has helped the markets to hold strong breadth. On the global front, positive economic data in US and China’s pledge to support the eurozone is expected to renew the sentiments in the markets. Markets will closely track the developments in the domestic as well as global markets.

Markets Today

The trend deciding level for the day is 18,127 / 5,512 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,210 – 18,266 / 5,541 – 5,560 levels. However, if NIFTY trades below 18,127 / 5,512 levels for the first half-an-hour of trade then it may correct up to 18,071 – 17,987 / 5,493 – 5,465 levels.

Spain’s borrowing costs climb, while yields drop for France

Spain sold EUR4.07bn (US$5.29bn) of debt maturing in 2015 and 2019. Average yield on the bills maturing October 2019 increased to 4.83%, compared to 4.54% when securities were last offered on January 19, 2012. Further, the average yield of notes maturing in July 2015 increased to 3.33%, from 2.86% at the previous auction on February 2, 2012. While a bond maturing in January 2015 was sold to yield 2.96%. After the sale, even the yield on Spain’s 10-year benchmark bond climbed 9 basis points to 5.53%, increasing the spread over German bunds by 13 basis points to 371 basis points. Spain’s rising borrowing costs indicate that investors’ concern towards solvency of the country’s US$807bn public debt has increased. Spain’s debt to GDP ratio at 74% is better than that of Greece (198%) and Portugal (111%), but the problem with the country’s economy is that unemployment (as a percentage of working population) at 21% is alarmingly the highest among eurozone countries. Further, the country’s economy has contracted by 0.3% qoq in the last three months of 2011, as per Madridbased National Statistics Institute. Government of Spain has a very tough task in hand, to strike a proper balance between austerity and growth measures so as to bring back the country’s economy out of this debt crisis.

France also sold a total of EUR8.45bn of notes maturing in 2014, 2015 and 2019. Average yields on two-year notes maturing in 2014 fell to 0.89% from 1.05% at a previous auction on January 19, 2012.

Both the sales came three days after Moody’s cut the ratings of six European nations, including Spain, and revised its credit outlook on France to ‘negative’.

RCom gets RBI nod for FCCBs redemption

RCom has received approval from the RBI to refinance redemption of its outstanding FCCBs worth US$1.2bn (~`5,825cr), the due date of which is March 1, 2012. The company said that RCom will benefit from extended loan maturity of seven years and attractive interest cost of ~5%. The refinancing is being funded by the Industrial and Commercial Bank of China (ICBC), China Development Bank (CDB) and Export Import Bank of China (EXIM). We maintain our Neutral view on the stock.

Economic and Political News
- Government hopes to achieve road project target for FY12
- Par panel to discuss report on DTC, may suggest hiking IT exemption limit
- EGoM okays 5% stake sale in ONGC

Corporate News
- Panel to take up Sasan coal diversion issue next week
- ONGC to expedite work on major oil, gas project in KG Basin
- ITC buys 4.62% in Hotel Leela from Russell Credit
- Magma Fincorp plans to start gold finance biz in H1 of FY13
- Supreme Court quashes Ansaldo venture bid For NTPC contract
- Promoters stake up to 48.53% in Reliance Infra after buyback

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Indian stock market and companies daily report (February 16, 2012, Thursday)

The domestic markets are expected to open sideways following flat opening across most of the Asian markets. The domestic bourses surpassed the psychological 18,000 mark yesterday, reaching the highest level in more than six months. The surge followed the strong rally across Asian markets driven by China’s pledge to invest in the euro zone bailout. Data showing sustained buying of Indian stocks by FIIs also boosted sentiments.

Global cues remained mixed. European markets edged up slightly as China signaled help amidst data that showed contraction of the Germany economy in the fourth quarter. Along with the positive remarks from Chinese officials, US traders also digested the news that the second bailout to Greece could be delayed and the US bourses displayed volatility ending slightly negative.

On the domestic front, optimism has gradually crept in. Soothing of inflationary pressures and hopefulness of monetary easing has led to broad based FII inflows. On the global front, China’s support to the eurozone is likely to renew the optimism of fixing the eurozone debt crises. Currently holding strong breadth, the markets will trace new catalysts for the rally to sustain.

Markets Today

The trend deciding level for the day is 18,145 / 5,512 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,289 – 18,376 / 5,563 – 5,593 levels. However, if NIFTY trades below 18,145 / 5,512 levels for the first half-an-hour of trade then it may correct up to 18,058 – 17,914 / 5,481 – 5,430 levels.

PM initiates action to address issues of coal supply for power projects

The Prime Minister has approved suggestions made by the Secretary level Committee for solving the issue of coal deficit faced by Power sector. As per the approved suggestions, Coal India Limited (CIL) will sign FSAs with power plants that have entered into long-term PPAs with power distribution companies and have been commissioned/would get commissioned on or before 31st March 2015. For power plants that have been commissioned up to 31st December 2011, FSAs will be signed before 31st March 2012. The FSAs will be signed for full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years with trigger level of 80% for levy of disincentive and 90% for levy of incentive. In case of any shortfall in fulfilling its commitment under the FSAs from its own production, Coal India Limited will arrange for supply of coal through imports or through arrangement with State/Central PSUs who have been allotted coal blocks.

In our view this news is positive for the power sector considering that the fuel shortage is the key issue currently faced by the sector. CIL had not signed any FSA’s with private power generators after March 2009. The main contention between CIL and Power companies was with regard to formers’ stance of having a trigger level of 50% beyond which it would not get penalized. However, we have concerns with regard to ability of Coal India to ramp up production. The company’s ability to ramp up production depends on quicker and easier approvals from environment ministry with regard to forest and environment clearance. We await more clarity on this development.

Result Review

INEOS ABS Ltd. - 4QCY2011

INEOS reported its 4QCY11 numbers. Top line for the quarter was flat at Rs.211cr yoy. Annual sales stood at Rs.826cr, 7.7% lower than our estimates of Rs.896cr. Operating margin for the quarter fell by 980 bps yoy from 16.4% to 6.4% mainly due to substantial increase in the raw material cost as percent of sales. Net profit stood at Rs.9.5cr, 56% lower yoy. Annual net profit came in at Rs.54cr, 22% lower than our estimates of Rs.69cr. As we roll over to CY2013E, we continue to maintain our Buy recommendation on the stock with the revised target price of Rs.733, based on PE of 15x for CY2013E.

Result Preview

GSK Pharma - 4QCY2011

Glaxo Pharma is slated to announce its 4QCY2011 numbers. For the quarter, we expect the company to post healthy top-line growth of 17.5% yoy to Rs.577cr. The company’s bottom line is expected to register a decline of 20.5% yoy to Rs.116cr, aided by margin contraction of 350bp yoy to 30.6%. We maintain our Neutral view on the stock.

Economic and Political News
- India set to harvest record 250mn tonnes of Food grains
- Finance Minister asks states to promote investment in farm supply chain
- CII asks for continuation of 10% standard rate of excise duty in its pre-budget memo

Corporate News
- Future licences won't be linked to spectrum allocation: Sibal
- Government mulls options to allocate NTPC’s stake in ICVL
- Volvo rolls out three new variants at lower price points
- Akzo Nobel India board agrees to partial rollback of royalty rate to parent
- Sterlite Industries to pay US-based Asarco US $82.8mn in damages

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Indian stock market and companies daily report (February 15, 2012, Wednesday)

The domestic markets are expected to edge higher following positive opening across most of the Asian markets. Domestic equities ended with modest gains after WPI inflation dipped to 6.6% in January, its lowest level in more than two years. Global cues turned weak. European markets marginally declined following Moody's continual pessimism over the euro zone. Continuing its negative stance, Moody’s downgraded six eurozone nations. In addition, traders became increasingly cautious about the hurdles to a resolution to the Greek debt crisis. Amid concerns in Europe, US bourses displayed similar weakness and ended on a flat note.

On the domestic front, investor sentiment has firmed up considerably. Core inflation (non-food manufacturing) has declined for the second consecutive month, suggesting a strong case for monetary easing. Amid positive developments, the markets may hold strong breadth for some more time. Nonetheless, it will be watchful from here in that markets wait for the economy to indicate recovery that equities have partly factored in. The markets will closely track the pace of policy reforms. In addition, developments across the Eurozone will also offer directions to the markets.

Markets Today

The trend deciding level for the day is 17,827 / 5,407 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,912 – 17,975 / 5,437 – 5,457 levels. However, if NIFTY trades below 17,827 / 5,407 levels for the first half-an-hour of trade then it may correct up to 17,764 – 17,679 / 5,387 – 5,357 levels.

WPI inflation eases to 26 month low of 6.6%; manufacturing inflation also comes down on expected lines

Wholesale price-based inflation for January 2012 eased to 6.6% yoy, falling from 7.5% yoy levels registered in December, 2011. Inflation levels of November 2011 were revised upwards from 9.1% to 9.5%. January2012 inflation levels of 6.6% yoy were slightly above Bloomberg estimate of 6.7%. Core (non-food manufacturing) inflation – which the RBI tracks closely – came in at 6.5% yoy as against 7.5% in December 2011.

Primary articles inflation came in at a low 2.3% yoy, ~82bp lower than the 3.1% yoy witnessed in December 2011 (a significant decline of 665bp over 8.2% yoy registered in November 2011). Food articles inflation fell into the negative territory (negative 0.5% yoy compared to 0.7% yoy in December, 2011 and 8.3% yoy in November, 2011) for the first time since the inception of the new base year (2004-05). Non-food articles inflation, which was as high as 18.2% yoy in August 2011, declined to 0.6% yoy (1.5% yoy in December 2011). However, over December 2011, non-food articles index rose by 2.4% mom (annualized growth of 28.2%) on account of higher prices of gaur seed, flowers, logs and timber, soyabean and groundnut seed and linseed amongst others. Inflation for minerals rose at a faster pace of 24.8% yoy compared to 21.9% yoy in December 2011.

Fuel and power inflation continued to be high at 14.2% yoy (average of 14% over the past six months), though which can be partly attributed to the sharp rupee depreciation. Within fuel and power, while both coal and mineral oil registered growth of 0.1% and 0.2%, respectively, electricity index remained unchanged.

Manufactured products, which have a weightage of ~65% in the overall WPI inflation, eased to 6.5% yoy from 7.4% yoy levels in December 2011 (average of 6.4% over the past two years). The mom growth in manufacturing index was reasonably high at 0.4%, leading to annualized growth of 5.1%. Manufacturing articles inflation was driven by higher prices of groundnut oil, gur, and mustard and rape seed oils. On the other hand, inflation in processed prawn, sugar and tea dust (blended) moderated vis-à-vis December 2011.

The spread between primary articles and manufactured products inflation, which was as high as 13.1% at the start of CY2011, remained in the negative territory (negative 4.2%) for the second consecutive month.

Consequent to the monetary tightening over the past one year, WPI figures, led by a substantial drop in food inflation, are at a 26-month low of 6.6% yoy (as of January 2012). Manufacturing products inflation, which had remained stiff at 7.4% yoy in December 2011, eased along expected lines to 6.5% yoy for January 2012. With manufacturing inflation coming in higher than the primary inflation for the second consecutive month, after a long spell of lagging it, in our view likely indicates that a large part of pass-through of primary inflation is already done with. Hence, in-line with food inflation, we expect manufacturing inflation to cool off further in the coming few months. If there is a consistent decline in overall WPI, including manufacturing inflation on these lines, in our view the RBI would then consider more decisive signaling through repo rate cuts as well (unlike just the CRR cut in the last monetary policy), possibly from April 2012.

3QFY2012 - Result Reviews

Tata Motors

On a consolidated basis, Tata Motors (TTMT) reported and impressive 44% yoy (25% qoq) growth in top-line to Rs.45,260cr aided by 42% yoy (29% qoq) growth in JLR revenues. JLR performance was driven by 36.7% yoy (26.9% qoq) increase in volumes and 4% yoy increase in net average realization. Volume performance at JLR continues to be driven by significant growth in China and Russia, where volumes grew by 81% and 34% yoy, respectively. Operating margins surprised positively as it expanded by 81bp yoy (264bp qoq) to 15.1%. Margin expansion was led by JLR, while India business continued to be under pressure. JLR EBITDA was up 38% yoy (50% qoq) to GBP682mn, with EBITDA margin at 18.2% (up 260bp), led by strong volume performance (Evoque, Jaguar XF 2.2), favourable forex and richer geography mix. Standalone EBITDA margin remained weak at 6.4%, down 380bp yoy (40bp qoq) on commodity inflation, higher discounting and marketing spends in PV business. Consolidated net profit surged 40.5% yoy (81.4% qoq) to Rs.3,406cr. The stock rating is currently under review. We shall revise our estimates and release a detailed result note soon.

Jaiprakash Associates

For 3QFY2012, Jaiprakash Associates (JAL) reported in-line performance on the revenue front but better-than-expected numbers on the EBITDAM and PAT level. On the top-line front, the company’s revenue increased by 12.1% on a yoy basis to Rs.3,305cr, which was exactly as per our estimate. The cement segment reported growth of 37.2% yoy; however, construction and real estate revenue declined by 1.7% and 27.6%, respectively, on a yoy basis. Blended EBITDA margin came in at 24.7%, down 400bp yoy and ahead of our expectation of 21.2%. The construction and real estate segments, with margins of 29.8% and 47.9%, respectively, led to good show on the margin front. Interest cost stood at Rs.448.5cr, up 32.6% yoy 10.8% qoq and marginally higher than our estimate of Rs.425.1cr. Depreciation cost came in at Rs.202.2cr, up 31.1% yoy and 14.8% qoq and higher than our estimate of Rs.184.9cr. The bottom line came in at Rs.205.0cr, a decline of 11.9% yoy and higher than our estimate of Rs.69.5cr due to high other income. Other income during the quarter jumped from Rs.3.0cr in 3QFY2011 to Rs.120.1cr in 3QFY2012, resulting in better-than-expected earnings performance. We maintain our Accumulate rating on the stock with an SOTP target price of Rs.88.

HDIL

HDIL announced its 3QFY2012 numbers. The company’s net sales declined by 8.8% yoy to Rs.423cr (Rs.463cr). EBITDA declined by 43.4% yoy to Rs.157cr (Rs.278cr), largely due to a decline in revenue and margin compression. EBITDA margin declined by 1,998bp yoy to 37.2% (59.9%), mainly due to increased cost of construction, up 24.2% of net sales in 3QFY2012 vs. 18.3% of net sales in 3QFY2011 and project interest, which increased to 33.4% of net sales in 3QFY2012 vs. 25.0% of net sales in 3QFY2011. Adjusted PAT declined by 31.7% yoy to Rs.156cr (Rs.228cr), while margin declined by 1,238bp yoy to 36.9% (49.2%). We will be coming out with a detailed report post management interaction. We currently have a Buy rating on the stock with a target price of Rs.115.

IVRCL

IVRCL reported a disappointing set of numbers for 3QFY2012, with lower-thanexpected performance on all fronts. The company’s revenue declined by 15.1% yoy to Rs.1,203cr and was below our estimate of Rs.1,374cr. On the EBITDA margin front, the company posted dismal margin of 7.9%, a dip of 200bp yoy against and below our estimate of 9.2%. Interest cost came in at Rs.66.1cr, an increase of 11.6% yoy/1.3% qoq. On the earnings front, IVRCL reported an 84.0% yoy decline to Rs.6.8cr, against our estimate of a 46.5% decline. This was on account of poor performance on the revenue and margin front and interest cost burden. We would come out with a detailed note post the conference call. Currently, the target price and rating are under review.

Simplex Infra

For 3QFY2012, Simplex Infra’s (Simplex) numbers came above our and street expectations on revenue and earnings front and marginally lower at EBITDAM level. On the top-line front, Simplex reported robust growth of 36.7% yoy to Rs.1,594cr, higher than our estimate of Rs.1,348cr (consensus Rs.1,145cr). EBITDAM dipped by 120bp yoy to 8.0% for the quarter, marginally lower than our estimate of 8.6%. Interest cost came at Rs.55.0cr a yoy/qoq jump of 52.0%/7.6% and in line with our estimate of Rs.54.3cr. PAT declined by 22.3% yoy to Rs.18.0cr, above our estimate of Rs.13.6cr (consensus Rs.14.9cr). Better-than-expected bottom-line performance was due to robust revenue growth. At the end of the quarter, the company’s order book stood at Rs.14,442cr (2.9x FY2011 revenue). Simplex had order inflow of Rs.1,018cr for the quarter. We maintain a Buy on the stock, with a Target Price of Rs.233.

Graphite India

Graphite India Limited (GIL) announced its 3QFY2012 numbers. The company’s net sales increased by 29.2% yoy to Rs.436cr (Rs.337cr). The graphite segment, which contributed around 85.6% to the total revenue, registered strong growth of 27.1% yoy to Rs.373cr (Rs.294cr), while the steel segment managed a 15.8% yoy increase to Rs.30cr (Rs.26cr). EBITDA increased by 21.1% yoy to Rs.89cr (Rs.73cr), largely due to higher revenue. EBITDA margin declined by 137bp yoy to 20.3% (21.7%), mainly due to higher raw-material cost, which increased to 42.6% of net sales in 3QFY2012 vs. 40.2% of net sales in 3QFY2011. PAT increased by 27.1% yoy to Rs.56cr (Rs.44cr). Despite a 137bp OPM contraction, PAT margin only declined by 21bp yoy to 12.9% (9.1%) due to lower tax provision and higher other income. Tax rate declined to 32.1% of PBT in 3QFY2012 vs. 33.2% of PBT in 3QFY2011, while other income increased by 96.8% to Rs.7cr in 3QFY2012 vs. Rs.4cr in 3QFY2011.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.102.

Economic and Political News
- Oil Minister rules out deregulation of diesel prices
- GoM to decide today on stake sale of ONGC, BHEL
- TRAI for 74% cap on foreign holding in telecom towers
- Government set to slash further subsidy on non urea fertilizers like DAP and
MOP for FY13

Corporate News
- Nasscom pegs 11-14% growth in Infotech, ITeS exports in FY13
- RIL's KG-D6 output may fall to 27 mmscmd next fiscal
- Bihar government approves Ultratech's proposal for grinding unit
- BSES gets Rs.5,000cr IDBI Bank loan to pay dues
- Orissa halts operations at SAIL iron ore mine
- Tata Power to invest US $125mn in Indonesian project
- Lanco to raise US $750mn for power biz

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Indian stock market and companies daily report (February 10, 2012, Friday)

The domestic markets are expected to open flat to negative tracking negative opening in most of the Asian markets. Indian markets rose on Thursday, with the Nifty index hitting a 27-week high, as optimism that Greek leaders are nearing an agreement on austerity measures, that could secure them a new €130bn bailout from the EU and the IMF, easing some of the concerns about the nation's ongoing going debt crisis.

Globally, U.S. stocks closed in green yesterday mainly on the back of positive news about Greece as well as some upbeat U.S. jobs data. The U.S. Labor Department reported that the initial jobless claims for U.S. fell to 358,000 in the week ended February 4th from the previous week's revised figure of 373,000. Indian investors, meanwhile, would keenly watch out for the domestic industrial production growth (Bloomberg estimate – 2.6%) for the month of December due to be released today. Also, consumer sentiment and trade balance data of the U.S. will be on radar.

Markets Today

The trend deciding level for the day is 17,773 / 5,392 levels. If Nifty trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,937 – 18,043 / 5,444 – 5,476 levels. However, if Nifty trades below 17,773 / 5,392 levels for the first half-an-hour of trade then it may correct up to 17,667 – 17,503 / 5,360 – 5,307 levels.

3QFY2012 - Result Reviews

Tata Steel

For 3QFY2012, Tata Steel reported net loss on a consolidated basis due to weak performance from its European and Southeast Asian operations. Consolidated net sales increased by 13.8% yoy to Rs.33,103cr, above our estimate of Rs.30,992cr, mainly on account of increased average realizations in rupee terms. Standalone net sales increased by 12.3% yoy to Rs.8,305cr. Consolidated sales volumes stood at 5.8mn tonnes in 3QFY2012 compared to 5.9mn tonnes in 3QFY2011. Average realization/tonne decreased by 3.4% and 0.6% to US$975 and US$1,149 in Tata Steel India and Tata Steel Europe operations, respectively. However, EBITDA/tonne decreased by 7.1% and US$303 in Tata Steel India. EBITDA/tonne of Tata Steel Europe operations stood at US$(1) compared to US$25 in 3QFY2011 on account of higher raw-material costs. India operations EBITDA decreased by 9.5% yoy to Rs.2,553cr. European operations reported EBITDA of US$(147)mn and Southeast Asian operations reported EBITDA of US$(2)mn during the quarter. Consequently, consolidated EBITDA decreased by 49.9% yoy to Rs.1,717cr. Hence, Tata Steel reported net loss of Rs.603cr in 3QFY2012 compared to adjusted PAT of Rs.1,125cr in 3QFY2011. The company’s net debt has increased to US$9.5bn as on December 31, 2011, compared to US$8.5bn as on September 30, 2011. Tata Steel’s Jamshedpur 2.9mn tonnes brownfield expansion project remains on track to be completed during 4QFY2012. We maintain our Buy recommendation on the stock, while we keep our target price under review.

Hindalco

Hindalco’s standalone 3QFY2012 top line was above our estimate, while its bottom line was slightly below our expectation. The company’s net sales increased by 11.4% yoy to Rs.6,590cr (above our estimate of Rs.5,909cr) mainly on account of higher volumes in the aluminium and copper segments. In the aluminium segment, alumina, aluminium, wire rods and flat products production increased by 7.1%, 7.8%, 6.7% and 20.4% yoy to 343k, 146k, 25k and 56k, respectively. In the copper segment, copper cathode and CC rods production grew by 9.4% and 42.3% yoy to 88k and 38k, respectively. However, the aluminium segment’s EBIT decreased by 33.4% yoy to Rs.310cr due to increased input costs (mainly coal and crude derivatives). Nevertheless, the copper segment’s EBIT rose by 51.1% yoy to Rs.216cr due to higher treatment and refining charges and by-product credits. Overall, Hindalco’s EBITDA decreased by 3.3% yoy to Rs.716cr and EBITDA margin slipped by 165bp yoy to 10.9% during 3QFY2012. Interest expenses grew by 53.8% yoy to Rs.79cr and other income grew by 48.6% yoy to Rs.90cr. Consequently, net profit decreased by only 1.9% yoy to Rs.452cr (below our estimate of Rs.480cr). The company reported that all its expansion plans are on track. The stock is under review currently.

Ambuja Cements

During 4QCY2011, Ambuja Cements’ standalone top line increased strongly by 30.2% yoy to Rs.2,329cr on account of 17.5% yoy improvement in realization to Rs.4,197/tonne and a 10.8% yoy increase in volumes to 5.55mn tonnes. OPM declined by 60bp yoy to 19.1% on account of higher raw-material costs, power and fuel costs and freight costs. On the bottom-line front, net profit for the quarter rose by 17% yoy to Rs.302cr, aided by better operating performance, 72.2% yoy growth in other income to Rs.65cr and 53% saving in interest expense to Rs.10cr. Reported net profit was lower by Rs.33cr on account of an exceptional item relating to change in accounting method for stock options, adjusting for which net profit would have grown by 30% yoy. We continue to remain Neutral on the stock.

ACC

ACC posted 27.8% yoy growth in its standalone net sales to Rs.2,503cr on account of 17.8% growth in sales volumes and 20.3% higher realization. The company’s sales volumes for the quarter stood at 5.95mn tonnes, up 6.3% yoy, on account of higher capacity (on a yoy basis) operational at Wadi and Chanda during the quarter. Further, realization stood higher by 20.3% yoy to Rs.4,206/tonne. Despite the substantial yoy improvement in realization, OPM rose only marginally by 100bp due to the surge in operating costs. The company’s net profit rose by 83.8% yoy to Rs.470cr. The company’s profit was boosted by tax credit of Rs.228cr during the quarter (vs. 82cr in 4QCY2010), adjusted for which profit would have been at Rs.242cr higher by 39.3% yoy. We remain Neutral on the stock.

Apollo Tyres

Apollo Tyres (APTY) registered robust results for 3QFY2012 with consolidated top line posting better-than-expected 36.3% yoy (12.4% qoq) growth to Rs.3,228cr, aided by an 18.2% yoy (8.3% qoq) jump in volumes and 15.3% yoy (3.8% qoq) increase in net average realization. Domestic, Europe and South Africa revenue grew strongly by 46.2%, 26.3% and 27.9% yoy, respectively. Operating margin expanded by 202bp qoq to 10%, mainly due to 100bp savings on the raw-material front. As a result, adjusted net profit grew by 63.8% qoq to Rs.127cr. However, on a yoy basis, adjusted net profit reported modest 5.8% yoy growth, largely due to contraction in operating margin and higher interest expense (up 38.2% to Rs.73cr). During the quarter, APTY made a provision of Rs.29cr in relation to a penalty following settlement agreement with South Africa Competition Commission for the company’s operations in South Africa. At Rs.76, the stock is trading at 6.8x its FY2013E earnings. We retain our Buy recommendation on the stock; however, the target price is under review. We shall release a detailed result note soon.

MRF – 1QSY2012

MRF reported top-line growth of 32.7% yoy to Rs.3,138cr in 1QSY2012 from Rs.2,367cr in 1QSY2011. The company’s EBITDA margin came in at 9.0%, 174bp higher on a qoq basis, on account of a decrease in overall expenses as a percentage of sales. On the profitability front, MRF reported an increase of 9.7% yoy, from Rs.103cr to Rs.113cr. We maintain our Buy recommendation on the stock with a target price at Rs.9,647, based on a target PE of 8x its SY2013E earnings.

Page Industries

Page Industries announced its 3QFY2012 numbers. The company’s net sales increased by 28.4% yoy to Rs.172cr (Rs.134cr). EBITDA improved only by 6.3% yoy to Rs.30cr (Rs.28cr), despite higher revenue growth due to margin compression. EBITDA margin declined by 356bp yoy to 17.2% (20.7%), mainly due to higher raw-material cost, which increased to 51.2% of net sales in 3QFY2012 vs. 48.3% of net sales in 3QFY2011. Despite lower growth in EBITDA, PAT increased by 27.6% yoy to Rs.20cr (Rs.16cr), in-line with top-line growth on the back of higher other income, which increased by 78.2% to Rs.4cr and lower tax rate, which came in at 31.5% in 3QFY2012 vs. 41.6% in 3QFY2011. PAT margin declined marginally by 7bp yoy to 11.6%. We will be coming out with a detailed report post management interaction. We continue to maintain our Neutral recommendation on the stock.

FAG Bearings - 4QCY2011

FAG Bearings (FAG) registered a strong performance in 4QCY2011, with betterthan- expected net sales growth of 31.4% yoy (4.8% qoq) to Rs.350cr against our expectation of Rs.310cr. EBITDA margin contracted by 150bp yoy (170bp qoq) to 18.1% mainly due to higher raw-material expenses. Raw-material cost increased primarily on the trading part of the business, which we believe could be due to the depreciation of INR against the Euro. Purchase of traded goods as a percentage of sales jumped substantially by 480bp yoy during the quarter. However, 380bp yoy savings in other expenditure arrested further fall in margins. Led by strong top-line performance net profit posted better-than-expected 27.3% yoy growth to Rs.43cr. We expect the company to sustain its strong performance going ahead, led by likely easing of interest rates from 1QFY2013, which is expected to revive demand in the automotive and industrial segment. We maintain our Buy view on the stock; however, our target price is under review.

Anant Raj

Anant Raj Industries announced its 3QFY2012 numbers. Net sales declined by 25.9% yoy to Rs.92cr (Rs.124cr), well below our estimate. EBITDA declined by 36.5% yoy to Rs.49cr (Rs.77cr) due to lower revenue and margin compression. EBITDA margin declined by 888bp yoy to 53.2% (62.1%). Adjusted PAT declined by 37.3% yoy to Rs.31cr (Rs.50cr) and PAT margin declined by 622bp yoy to 31.5% (50.3%), almost in-line with EBITDA margin contraction. We will be coming out with a detailed report post management interaction. We have an Accumulate rating on the stock with a target price of Rs.78.

HAIL – 4QCY2011

Honeywell announced its 4QCY2011 numbers. The top line grew by 21% qoq to Rs.503cr in 4QCY2011 from Rs.412cr in 4QCY2010. Annual sales for CY2011 stood at Rs.1619, 19% higher from CY2010. The company's margin came in at 9.1%, 259bp higher on a qoq basis, on account of a decrease in raw-material and employee cost as percentage of sales. Net profit for the quarter rose by 31.5% yoy, from Rs.25.7cr to Rs.33.9cr. Annual net profit stood at Rs.107cr, 6.7% higher yoy. We maintain our Buy recommendation on the stock; our target price is under review.

Dishman Pharmaceutical

For 3QFY2012, Dishman Pharmaceutical posted net sales of Rs.265.5cr, registering 14.5% yoy growth. The company’s growth was driven by the MM segment, which reported 30.9% yoy growth. The CRAMS segment reported 6.9% yoy growth. The company’s OPM came in at 15.9%; however, adjusted for forex losses, it stood at 20.1%. The company reported higher tax expenses during the quarter. Consequently, net profit came in at Rs.16.7cr, lower than our expectation of Rs.19.8cr. However, given the traction in growth and improving profitability, we maintain our Buy rating on the stock; the target price is under review.

JK Tyre

JK Tyre (JKI) reported dismal set of results for 3QFY2012, posting net loss on the bottom-line front, led by higher interest expense and forex loss of Rs.38cr. For 3QFY2012, net sales grew strongly by 20.7% yoy (10.4% qoq) to Rs.1,423cr. Operating performance bounced back sequentially with EBITDA margin expanding by 297bp to 5.1%, driven by raw-material cost savings (100bp qoq) and decline in other expenditure (200bp qoq). JKI, however, posted net loss of Rs.21cr on account of an 87.8% yoy increase in interest expense to Rs.45cr and forex loss of Rs.38cr. The stock rating is currently under review.

3QFY2012 - Result Previews

DLF

DLF is expected to announce its 3QFY2012 results. We expect the company’s net sales to increase by 9.6% yoy to Rs.2,719cr. EBITDA margin is expected to contract by 377bp yoy to 43.7% on account of higher input costs. Net profit is expected to decline by 11.1% yoy to Rs.414cr. We maintain our Neutral rating on the stock.

RCom

Reliance Communication (RCom) is slated to announce its 3QFY2012 results. We expect the company to record revenue of Rs.4,968cr, up 3.7% qoq. Growth is expected primarily on the back of qoq flat ARPM at Rs.0.45/min and 1.0% qoq growth in MOU to 229min. EBITDA margin is expected to increase by 83bp qoq to 29.1%. PAT for the quarter is expected to come in at Rs.144cr. We maintain our Neutral view on the stock.

Britannia

Britannia is expected to announce its 3QFY2012 results. For the quarter, we expect Britannia to report healthy 18% yoy growth in revenue to Rs.1,271 due to improvement in sales mix. For the quarter, we expect the company to report an 11bp yoy margin improvement. Earnings for the quarter is expected to grow by 20% yoy to Rs.45cr on the back of healthy top-line growth. At the CMP, the stock is trading at 21.7 x F2013E EPS of Rs.22.5. We recommend Neutral on the stock.

Aurobindo Pharma

For 3QFY2012, Aurobindo Pharma is expected to post net sales of Rs.1,295cr, registering 20.8% yoy growth. The company is expected to post OPM of 12.1%, reporting a dip of 652bp yoy. Net profit is expected to come in at Rs.98.5cr, down 49% yoy. At the CMP, the stock is trading at 8.4x FY2013. We continue to maintain our Buy recommendation on the stock with a target price of Rs.166.

CCCL

Consolidated Construction Consortium (CCCL) is expected to post modest 8.0% yoy growth in its top line to Rs.535.9cr, given the slow-moving infra orders forming ~40% of its total order book. On the EBITDA front, we expect the company to continue to report a dismal performance and register a dip of 654bp yoy to 3.2%, in-line with management's guidance. Against this backdrop, the bottom line is expected to post loss of Rs.5.2cr in 3QFY2012 vs. profit of Rs.16.7cr in 3QFY2011. We continue to maintain our Neutral view on the stock.

Economic and Political News
- Current account deficit seen widening as exports struggle
- Government nods for JVs by defense PSUs
- Exports up 10.1%; Imports jump by 20.3% in January 2012

Corporate News
- Additional tax on diesel cars will further impede industry growth: M&M
- CEAT to set up Rs.250cr plant in Bangladesh
- Tata Global, PepsiCo JV eyes Rs.700cr turnover in the next five years
- Tulip Telecom CEO Sanjay Jain quits
- Unity Infraprojects bags orders worth Rs.485cr

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