The domestic markets are expected to open in the red tracking flat to negative opening in most of the Asian markets. Indian markets posted a volatile trading session and closed in green on Wednesday amidst optimism towards the developments in Greece’s debt restructuring deal.
Globally, however U.S. and European stocks remained choppy and ended flat, as the markets waited for additional news from Greece. The Greek government, which is close to announce another round of spending cuts in order to secure bailout funds is also in negotiations with private creditors on a voluntary debt reduction.
Indian investors, meanwhile, would keenly watch out for the domestic industrial production growth (Bloomberg estimate-3%) for the month of December, due to be released on Friday. Also initial jobless claims data of the U.S. for the previous week due to be released today will be on radar.
Markets Today
The trend deciding level for the day is 17,699 / 5,363 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,818 – 17,928 / 5,402 – 5,435 levels. However, if NIFTY trades below 17,699 / 5,363 levels for the first half-an-hour of trade then it may correct up to 17,588 – 17,469 / 5,330 – 5,292 levels.
TCS establishes JV with Mitsubishi for Japanese market
TCS has announced a 60:40 JV with Japan’s Mitsubishi Corp. to serve clients in the East Asian region. The companies will invest US$5mn to set up a delivery center in Japan. The JV company will offer a full service suite of IT, BPO and infrastructure services to Japanese corporations. TCS said that this JV comes against the backdrop of a strong yen, the globalization of supply chains and a growing trend toward overseas mergers and acquisitions, all of which act as catalysts for the increasing globalization of Japanese companies. This has brought heightened interest in the role of global IT services to link domestic and overseas operations.
The JV is important for TCS as the company derives only ~1% of its revenue from Japanese markets and 7% from the Asia Pacific region. This is a good opportunity for TCS in which it can leverage a partner like Mitsubishi and get an entry into the world's third largest economy and provide software services there. This will be positive in the sense that the market share of TCS in Japan will rise as a result of the partnership with Mitsubishi and the company will also have a presence across all geographies. We maintain our Accumulate rating on the stock with a target price of Rs.1,262.
3QFY2012 - Result Reviews
ONGC
ONGC’s 3QFY2012 profitability declined on account of increased subsidy burden. The company’s top line decreased by 2.5% yoy at Rs.18,124cr. ONGC’s crude oil net realization declined by 30.9% yoy to US$44.8/bbl on account of higher subsidy burden. The company shared a subsidy burden of Rs.12,536cr in 3QFY2012 vs. Rs.4,222cr of subsidy shared in 3QFY2011and Rs.5,713cr in 2QFY2012. Oil sales volumes decreased by 4.0% yoy to 5.6mn tonnes, while gas sales volumes decreased by 1.4% yoy to 5.0bcm during 3QFY2012. EBITDA margin slipped by 1,183bp yoy to 61.0% and EBITDA decreased by 23.6% yoy to Rs.11,051cr. The company’s depreciation and amortization expenses increased by 24.5% yoy to Rs.4,532cr due to higher dry well write-offs. The company reported one-time gain of Rs.3,142cr related to royalty reimbursed by Cairn India (initially paid by ONGC for August 2009-September 2011). Excluding this one-time gain, adjusted net profit decreased by 49.2% yoy to Rs.3,599cr. Reported net profit decreased by 4.8% yoy to Rs.6,741cr. For FY2013, ONGC has given oil and gas production guidance of 28.8mn tonnes (+4.0% yoy) and 27bcm (+7.0% yoy). The stock is under review currently.
Bharti Airtel
Bharti Airtel (Bharti) reported a mixed performance for 3QFY2012, with revenue coming in-line with our as well as street expectations, while it disappointed on the operating and profitability fronts due to higher depreciation and amortization expenses. Bharti’s consolidated revenue stood at Rs.18,477cr, up 6.9% qoq. Revenue from mobile services for India came in at Rs.10,176cr, up 4.0% qoq on the back of a 3.2% qoq increase in average revenue per minute (ARPM) to Rs.0.45/min. However, MOU declined by 1.0% qoq due to slow traffic growth. Revenue of mobile India business was also impacted because of the slight decline in VAS share (even when 3G services are launched in all the circles and this was seasonally a strong quarter for telecom companies), which decreased to 14.3% in 3QFY2012 from 14.5% in 2QFY2012. All this led to 2.2% qoq growth in ARPU to Rs.187/month. Zain Africa’s revenue stood at Rs.5,358cr, up 16.7% qoq, aided by addition of 2.5mn subscribers, taking its total subscriber base to 50.9mn and a 0.1% qoq increase in ARPM to US¢5.7/min. However, MOU declined by 2.5% qoq to 125min, which led to a 2.3% qoq fall in ARPU to US$7.1/month.
EBITDA margin of mobile India as well as Africa business increased by 0.18bp and 0.47bp qoq to 33.8% and 26.7%, respectively. However, EBITDA margin of all the other business segments declined sharply, which led to a 141bp qoq decline in Bharti’s consolidated EBITDA margin to 32.2%. PAT came in at Rs.1,011cr, down 1.5% qoq, negatively impacted by higher depreciation cost of Rs.3,585cr in 3QFY2012 vs. Rs.3,184cr in 2QFY2012 and higher tax rates. Net profit stood at Rs.1,011cr, down 1.5% qoq, negatively impacted by higher depreciation cost of Rs.3,585cr in 3QFY2012 vs. Rs.3,184cr in 2QFY2012 and higher tax rate of 35.2% vs. 32.4% in 2QFY2012. We maintain our Neutral rating on the stock.
Tech Mahindra
Tech Mahindra reported muted set of 3QFY2012 results. Dollar revenue came in at US$288.7mn, down 2.5% qoq due to a 0.5% qoq decline in volume and ~2.0% qoq negative cross-currency impact. Dollar revenue from BT declined by 7.8% qoq and revenue from non-BT grew by just 0.6% qoq. In rupee terms, revenue came in at Rs.1,445cr, up 8.4% qoq, largely aided by qoq rupee depreciation. EBITDA margin grew by 90bp qoq (lower than margin expansion reported by peers) to 16.2% because of depreciating rupee, which absorbed the negative impact of onsite wage hike given. PAT, including share from Satyam, came in at Rs.276cr. Overall results were weak. The only growth driver for the company is the non-BT business, as BT is retendering its contracts. The stock is currently under review.
Bharat Forge
For 3QFY2012, Bharat Forge (BHFC) reported an in-line 21.1% yoy (3.4% qoq) jump in its standalone revenue to Rs.941cr, driven by a 15.3% yoy (1.3% qoq) jump in domestic revenue and 29.2% yoy (7.6% qoq) jump in exports revenue. While volume in tonnage terms increased by 15.2% yoy (3.1% qoq) to 55,412MT on strong export demand, average net realization grew by 6% yoy (1.45% qoq), led by higher contribution from the non-auto segment. Strong growth in the CV segment and non-auto segment in the Europe and U.S. benefitted the company’s exports performance. On the operating front, margin improved by 38bp yoy (99bp qoq) to 24.7%, owing to better product-mix and decline in raw-material expenses. Net profit grew by 24.9% yoy (down 3% qoq) to Rs.103cr, led by strong operating performance. However, growth was restricted on account of forex loss of Rs.16.1cr. The stock rating is currently under review.
Orchid Chemicals
For 3QFY2012, Orchid Chemicals’ net sales came in at Rs.482.1cr, growth of 4.2% yoy. During 3QFY2012, API sales rose to Rs.353.3cr as compared to Rs.329.7cr in 3QFY2011. While sales were lower than expected, OPM came in at 23.7%, just in-line with our expectation of 24%. However, higher interest expense during the period led to lower-than-expected net profit. Net profit before exceptional items declined by almost 22.1% during the period. We maintain our Buy recommendation; however, the target price is under review.
Alembic Pharmaceuticals
For 3QFY2012, Alembic Pharmaceuticals’ net sales came in at Rs.383cr, up 15.0% yoy. During the quarter, exports rose by 45.4% yoy to Rs.165.6cr. While sales were just in-line with our estimate, OPMs came in at 18%, higher than our expectation of 14%. Net profit for the quarter came in at Rs.442.3cr. We maintain our Buy recommendation on the stock with a target price of Rs.77.
3QFY2012 - Result Previews
Tata Steel
Tata Steel is slated to report its consolidated 3QFY2012 results. We expect the company’s net sales to increase by 6.5% yoy to Rs.30,992cr, mainly on account of higher steel prices. However, EBITDA margin is expected to contract by 276bp yoy to 9.0% on account of higher raw-material costs (mainly in its European operations). Net profit is expected to decrease by 35.1% yoy to Rs.729cr. We maintain our Buy rating on the stock with a target price of Rs.510.
Hindalco
Hindalco's fully owned subsidiary, Novelis reported loss at the net level for the seasonally weak 3QFY2012. The company’s net sales decreased by 4.0% yoy to US$2.5bn due to lower volumes as well as aluminium price. Shipments of aluminum rolled products decreased by 9.4% yoy to 648kt, primarily due to destocking in Europe on the back of economic uncertainty and weakness in the electronics business in Asia. Adjusted EBITDA decreased by 10.5% yoy to US$213mn on account of higher costs and lower volumes. Also, EBITDA/tonne declined by 1.0% yoy to US$312 during the quarter. Novelis reported net loss of US$12mn compared to a loss of US$46mn in 3QFY2011. The company is witnessing recovery in demand during 4QFY2012; it remains on track to achieve EBITDA of ~US$1bn during FY2012.
Hindalco is slated to report its 3QFY2012 results. We expect the company’s standalone net sales to decrease by 0.1% yoy to Rs.5,909cr. EBITDA margin is expected to contract by 155bp yoy to 10.0% on account of rise in costs of key inputs (primarily coal). Net profit is expected to increase by 4.3% yoy to Rs.480cr. We keep our rating and target price under review.
Ambuja Cements
Ambuja Cements is expected to announce its 4QCY2011 results. On the top-line front, the company is expected to post strong growth of 23.2% yoy to Rs.2,204cr. Strong performance on the top-line front is expected to be driven by higher yoy realization growth (13.7%) and 8.4% yoy growth in dispatches. OPM is expected to increase by 104bp yoy to 21.2%. The company’s bottom line is expected to grow by 10.9% yoy to Rs.286cr. We maintain our Neutral view on the stock.
ACC
ACC is slated to announce its 4QCY2011 results. The company is expected to post top-line growth of 18.7% yoy to Rs.2,325cr, primarily on account of improvement in realization by 14.3%yoy. However, cost pressures are expected to outweigh realization growth and OPM is expected to contract marginally by 6bp yoy to 17.3%. The company’s bottom line is expected to decline by 14.5% yoy to Rs.219cr. We maintain our Neutral view on the stock.
Apollo Tyres
Apollo Tyres is slated to announce its 3QFY2012 results. On a consolidated basis, we expect the company to report a strong 22% yoy increase in revenue to Rs.2,900cr. Sequentially, EBITDA margin is expected to improve by 50bp to 8.5%, led by a sequential decline in raw-material prices. However, net profit is estimated to remain flat on a qoq basis to Rs.79cr. The stock rating is under review.
Anant Raj Industries
Anant Raj Industries is expected to announce its 3QFY2012 results. We expect the company’s net sales to increase by 3.1% yoy to Rs.128cr. EBITDA margin is expected to contract by 316bp yoy to 58.9% on account of higher input costs. Net profit is expected to decline marginally by 0.5% yoy to Rs.50cr. We maintain our Accumulate rating on the stock with a target price of Rs.78.
FAG Bearings – 4QCY2011
FAG Bearings is set to announce its 4QCY2011 results. We expect the company to deliver healthy 17% yoy growth in revenue to Rs.307cr. On the operating front, we expect FAG to post a 100bp yoy contraction in operating profit margin to 18.8%. However, net profit is expected to increase by healthy 14% yoy to Rs.39cr. The stock rating is under review.
Dishman Pharmaceuticals
For 3QFY2012, we expect, Dishman Pharmaceuticals to post net sales of Rs.305cr, up 5% yoy. OPM is expected to come in at in 17.9% vis-à-vis 23.1% in 3QFY2011. Consequently, net profit is expected to come in at Rs.19.8cr, down 30.5% yoy. We maintain our Buy recommendation on the stock with a target price of Rs.77.
Economic and Political News
- Direct tax mop up to miss Rs.5.3 lakh cr budget target
- Exports from SEZs grow 17% in April-December 2011
- IT, ITeS revenue crosses US$100bn milestone: Nasscom
- Indian IT export revenue expected to grow by 11-14% and domestic revenue
by 13-16% for FY2013: Nasscom
- January 2012 car sales rise by 7.2%
Corporate News
- Bharti seeing benefits from India call price hike
- Ceat to set up a 65 MT/day manufacturing facility in Bangladesh
- RIL in talks with airlines for fuel supply
- Tata Power explores prospects overseas
- Thomas Cook starts stake sale in Indian arm
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