Indian stock market and companies daily report (June 08, 2012, Friday)

The Indian markets are expected to open in the red tracing negative opening in most of the Asian bourses and the SGX Nifty. Asian stocks were trading lower after comments by Federal Reserve Chairman Ben S. Bernanke overshadowed China’s first interest-rate cut since 2008.
The People’s Bank of China has lowered its benchmark lending and deposit rates by 25 basis points. The announcement, two days before China is due to report inflation, investment and output figures, may signal that the economy is weaker than the government expected. Bernanke said the central bank will need to assess conditions before deciding if more measures are needed to stoke an economy threatened by Europe’s debt crisis and U.S. budget cuts.
Meanwhile Indian shares extended recent gains on Thursday after the rupee breached the 55 mark to hit a two-week high against the dollar reflecting a return of appetite for risk. Talks of the government giving a big push to infrastructure development bolstered sentiments. Although there were reports of the Union Cabinet deferring a decision on the Pension Bill due to lack of consensus, the benchmark indices ended the trading day with significant gains.

Markets Today
The trend deciding level for the day is 16,617/5,039 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,713 – 16,777/5,070 – 5,091 levels. However, if NIFTY trades below 16,617/5,039 levels for the first half-an-hour of trade then it may correct up to 16,552 – 16,456/5,018 – 4,987 levels.

China cut borrowing costs
China reduced interest rates for the first time since 2008 and loosened controls on banks’ lending and deposit rates, in its bid to combat a deepening slowdown as Europe’s ongoing debt crisis threatens global growth. The one-year lending rate and one-year deposit rate were reduced by 25bps to 6.31%, and 3.25%, respectively. Banks are now given more leeway to offer upto 10% higher than benchmark deposit rate to depositors and to charge upto 20% lower than the key benchmark lending rate (previously 10%).

RIL plans a capex of Rs.100,000cr over next 4 years
Reliance Industries (RIL) conducted its Annual General Meeting (AGM) for FY2012. With cash and equivalents of ~Rs.80,000cr as of March 31, 2012 on RIL’s balance sheet, Chairman Mr. Mukesh Ambani announced that the company plans to invest Rs.100,000cr across business segments over the coming four years. It targets to invest ~US$3.5bn on shale gas. On its core petrochemical business, RIL aims to increase its capacity to 25mn tonnes from the current 15mn tonnes and also invest in operational efficiency projects. RIL aims to become a market leader in retail business and targets to achieve top-line of Rs.40,000-50,000cr over the next threefour years (current top-line Rs.7,600cr). Further RIL informed that although KG D6 production has declined over the past one year to 34mmscmd, it aims to raise total gas production to 60mmscmd by 2015. On profitability front, Mr. Ambani said that RIL aimed to double its operating profits in the coming five years. RIL has bought back 2.79cr shares at a cost of Rs.1,929cr under its share-buyback program. Alongside decline in KG D6 gas output, deployment of huge cash pile was amongst the key concerns on the stock. Clarity over deployment of cash is positive in our view. We maintain our Buy rating on the stock with a target price of Rs.879.

L&T bags orders worth Rs.2,410cr
L&T’s construction arm has won Rs.2,410cr new orders across various businesses during April-June 2012. The Buildings and Factories IC has secured new orders worth Rs.1,921cr. The orders are from leading developers for the construction of major residential towers across various cities in the northern part of the country. L&T Infrastructure IC has won orders to the tune of Rs.345cr for the design and construction of viaducts and three elevated stations from Delhi Metro Rail Corporation which also includes additional orders from various ongoing projects. Water effluent and treatment business has bagged new orders worth Rs.244cr from Bangalore Water Supply and Sewerage Board for upgrading the existing water distribution systems including additional orders from various ongoing projects.
At the CMP of Rs.1,277, the stock is trading at 16.7x FY2014E earnings and 2.4x FY2014E P/BV on a standalone basis. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to Rs.1,553, which provides 21.6% upside from current levels. We recommend Buy on the stock.

Economic and Political News
- People’s Bank of China cuts interest rates as economy continues to slide
- Monsoon 36% below average in first week: IMD
- PM's push for infra sector to boost investor confidence: CII
- Cabinet defers decision on pension reforms bill

Corporate News
- Tata Steel to set up Rs.30,000cr plant in Karnataka
- Suzlon to invest Rs.15,000cr to set up a 2,500 MW wind farm in Karnataka
- Dr Reddy's launches generic Parkinson's disease tablets in US
- BHEL commissions 250MW unit at UP thermal power project
- Jubiliant Life Sciences to invest ~Rs.1,000cr across businesses in Karnataka

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Life Insurance Industry in India

Life insurance is a contract bound between an insurance policy holder and an insurer, where the insurer pledges to pay a designated and fixed sum of money upon the demise of the insured individual. Depending on the contract, various other events like terminal illness or critical illness may also prompt for payment. The policy holder has to pay a premium, either in installments or as a lump sum.

Some times other expenses such as the funeral expenses are also included in the premium.

The main advantage for the policy owner is a “peace of mind” in understanding that the death of the insured individual will not result in any financial difficulties for the loved ones.

Life policies are legal contracts and the terms and conditions of the contract describe the limitations of the insured events. However, specific exclusions are more often not described due to the limit of the liability of the insurer. Some common examples regarding claims such as suicide, fraud, war, riot and civil commotion, etc are not included in cover for claim of life insurance.

Life insurance is the fastest growing sector in India since 2000. The Indian government has given the private players and FDI’s upto 26% stake in the insurance sector. Life insurance in India was nationalized by incorporating LIC in 1956. All private life insurance companies during that time were taken over and governed by LIC.

The government of Republic of India set up the RN Malhotra committee in 1993 to lay down a road map which would lead to privatization of the life insurance sector in India.

Though the committee submitted its report in 1994, it took another 6 years before the legislation was passed in the year 2000, legislation amendment of the insurance act of 1938 took place and legislating the insurance regulatory and development authority act was passed in 2000. In the same year, the newly appointed insurance regulator – insurance regulatory and development authority IRDA began issuing licenses to private life insurance.

Some of the Life insurers in private sector are mentioned below:

•             SBI Life Insurance

•             Metlife India Life Insurance

•             ICICI Prudential Life Insurance

•             Bajaj Allianz Life

•             Max New York Life Insurance

•             Sahara Life Insurance

•             Tata AIG Life

•             HDFC Standard Life

•             Birla Sunlife

•             Kotak Life Insurance

•             Aviva Life Insurance

•             Reliance Life Insurance Company Limited - Formerly known as AMP Sanmar LIC

•             ING Vysya Life Insurance

•             Shriram Life Insurance

•             Bharti AXA Life Insurance Co Ltd

•             Future Generali Life Insurance Co Ltd

•             IDBI Fedaral Life Insurance

•             AEGON Religare Life Insurance

•             DLF Pramerica Life Insurance

•             CANARA HSBC Oriental Bank of Commerce LIFE INSURANCE

•             IndiaFirst_Life_Insurance_Company

•             Star Union Dia-ichi Life Insurance Co. Ltd

•             Edelweiss Tokio Life Insurance Company Ltd

According to the current FDI norms, foreign participation in an insurance company has been restricted to 26% of its equity. The insurance regulators have stipulated that foreign investment in Indian Insurance companies to be limited to 26% of total equity issued by investment includes foreign insurance companies for a change in regulations to increase the FDI limit by 49%.

The Indian government has agreed to an increase in the FDI limit, which requires a change in the Insurance Act. The union budget for the fiscal year 2005 had suggested that the ceiling on foreign holdings can be increased upto 49%.

A change in the insurance act will require the passing of the bill in both the houses of the parliament.  The Indian government has tabled the bill in the upper house of parliament in August 2010.

At Angel Broking, the financial advisors not only explain all the nuances on Life Insurance but also help the investor in choosing the right Insurance Policy for self. For more details, please contact: Tel: (022) 3935 7600 or SMS EBRO to 5757587.

What are Derivatives and their need in the Indian Share Market

Derivative instrument is a contract between two parties that emphasizes conditions ( including dates that result in values of the underlying variables and notional amounts) under which payments can be made between both the parties.

Derivatives are used by investors for the following reasons:

1)            It provides leverage with a small movement in the underlying value that causes a large difference in the value of the derivative.

2)            One can often speculate and make a profit, if the value of the underlying asset goes in the way they expect.

3)            It mitigates the risk in the underlying, by making an entry in the derivative contract whose value moves in the opposite direction, stays in or out of a specific range and may reach a certain level.

4)            It can obtain exposure to the underlying where it may not be possible to trade in the underlying derivatives.

5)            It has the ability to create options, where the value of the derivative is linked to a specific condition or event.

When Derivatives allow risk related to the prices of the underlying asset to be transferred from one party to another, it is known as Hedging. Both the parties have a reduction in a future risk, however there is still a risk of the non-availability of the resource that may back-track because of the events unspecified by the contract such as natural damage, may cause problems on the contract.

Although a third party, which is also known as a clearing house, it insures a futures contract, not all derivatives can or will be insured against a counter-party risk.

Derivatives are also used to acquire risk, rather than hedging the risk. Thus, some investors or institutions can enter in a derivative contract to speculate on the value of the underlying asset.

These speculations look to purchase an asset in the future at a really low price which according to the derivative contract maybe a high price to sell the asset in the future when the market price is low.

An OTC or over-the-counter derivative is a contract that is privately traded and negotiated between two parties without going through an exchange.

Exchange-traded derivative contracts are those derivatives that can be traded via specialized derivative exchange or other exchanges. There is a market where derivatives exchange acts as an intermediary to all transactions and takes an initial margin from both the sides of the trade to act as a guarantee.

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Indian stock market and companies daily report (May 30, 2012, Wednesday)

The domestic markets are expected to open in red tracing negative opening in most of the Asian bourses and the SGX Nifty, as reports say that China has ruled out any broader stimulus to boost its economy and Spain rating has been downgraded.
Globally, US markets closed notably higher on Tuesday after witnessing volatility in the morning trade, which was on account of some mixed news out of Europe. Most of the European markets also largely finished in positive territory on Tuesday. Spanish markets, however remained under pressure due to concerns over the country's banks. Expectations for further stimulus from China provided investors with optimism, globally.
Meanwhile, Indian benchmark indices gave up most of their early gains on Tuesday to close flattish, as a little bit of volatility in European markets on concerns over the outlook for Spanish banks and the slide in rupee following three days of gains prompted investors to pare their long positions.

Markets Today
The trend deciding level for the day is 16,464 / 4,997 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,519 – 16,599 / 5,013 – 5,035 levels. However, if NIFTY trades below 16,464 / 4,997 levels for the first half-an-hour of trade then it may correct up to 16,384 – 16,330 / 4,975 – 4,959 levels.

IRB emerges L1 for road projects worth Rs.2,400cr
IRB has emerged as the lowest bidder for the four-laning project of Goa/Karnataka Border to Kundapur section of NH-17 in Karnataka under NHDP phase IV on design, build, finance, operate and transfer (Toll) basis. The estimated cost of the project is Rs.2,400cr. The concession period is 28 years and construction period is 910 days. Further, IRB had sought Rs.536cr as viability gap funding (VGF) from NHAI. This project win would be after a year as IRB had won the Ahmedabad-Vadodara project in April 2011. Further, this is in-line with the company’s guidance of Rs.4,000cr-5,000cr of order inflow each year. We continue to maintain our Buy recommendation on the stock with a target price of Rs.166.

Result Reviews
ONGC (CMP: Rs.256, TP: Under Review)
ONGC’s 4QFY2012 results were above our expectations. The company’s top line increased 22.2% yoy at Rs.18,819cr. EBITDA margin expanded 932bp yoy to 42.6% and EBITDA increased by 56.4% yoy to Rs.8,019cr. The company’s depreciation and amortization expenses decreased 41.5% yoy to Rs.1,349cr. Net profit increased substantially by 102.2% yoy to Rs.5,644cr much ahead of our estimate of Rs.2,652cr. We recommend a Buy on the Stock with our target price under review.
Tata Motors (CMP: Rs.276 / TP: Rs.312 / Upside: 13%)
Consolidated performance a mixed bag: For 4QFY2012, Tata Motors (TTMT) reported impressive 44.3% yoy (12.5% qoq) growth in its top line to Rs.50,908cr, led by 51.5% yoy (10.6% qoq) growth in JLR sales, which were driven by a 48.2% yoy (13.6% qoq) jump in volumes and 4.4% yoy (flat qoq) improvement in net average realization. While Land Rover volumes jumped by 51% yoy, driven mainly by incremental volumes from Evoque (29,171 units during the quarter), Jaguar volumes jumped by 30% yoy due to the strong performance of the recently launched XF. The company’s operating margin, however, declined by 184bp qoq and stood at 13.2% primarily on account of increased other expenditure, which increased substantially by 36.3% qoq. Raw-material expenses, on the other hand, were stable during the quarter, which supported the margins. Led by tax credits of Rs.1,793.7cr related to carry forward income tax losses at JLR, reported net profit jumped sharply to Rs.6,234cr. Adjusted for tax credits, net profit came in better than expectations, registering 80.5% yoy growth to Rs.4,440cr.
Strong standalone performance: TTMT posted better-than-expected 14.4% yoy (22.9% qoq) growth during the quarter on account of 18.5% yoy (23.3% qoq) growth in volumes. Net average realization, however, declined by 3.6% yoy due to higher contribution of light commercial vehicles during the quarter. Operating margin improved substantially by 268bp qoq to 9.1%, mainly led by operating leverage benefits and a decline in raw-material expenses. Hence, net profit increased substantially by 225.5% sequentially to Rs.565cr.
At Rs.276, the stock is trading at 6.3x FY2014E earnings. We maintain our Accumulate rating on the stock with an SOTP target price of Rs.312.
Sun Pharmaceuticals (CMP - Rs.566, TP - Rs.634, Upside: 12%)
Sun Pharmaceuticals reported sales and the net profit came in much ahead of expectations. For the quarter, the company posted sales of Rs.2330cr, a growth of 59.4% yoy. The growth in the domestic and exports, both of grew robustly. The domestic formulations reported growth of 49%, while the US and ROW formulation sales during the quarter came in at 66% and 31% respectively. On the operating front, the Gross and Operating margins came in at 78.4% and 41.1% respectively. The OPM’s were were just in line with expectations. Thus, while the OPM’s were in line , higher sales growth and higher other income and lower interest expenses during the quarter aided the net profit growth of 85.3% yoy to end the period at Rs.820cr, in comparison to the Rs.775cr estimated for the quarter. We maintain our Accumulate with a target of Rs.634.
SAIL (CMP: Rs.93, TP: Under Review)
SAIL’s 4QFY2012 net sales were above our estimates; however, adjusted PAT came in below our estimates. SAIL’s 4QFY2012 net sales increased by 12.2% yoy to Rs.13,397cr (above our estimates of Rs.12,183cr) mainly due to increase in sales volumes in our view. Raw material costs and other expenditure increased 27.1% and 38.6% yoy to Rs.6,866 and Rs.1979cr, respectively, while power and fuel costs increased 26.2% yoy to Rs.1,156cr. EBITDA dipped 20.5 % yoy to Rs.1871cr and EBITDA margin contracted by 574bp yoy to 14.0% (in line with our estimate of 14.0%). The company reported an exceptional item related to forex gain of Rs.725cr in 4QFY2012, compared to exceptional gain of Rs.34cr in 4QFY2011. Hence, reported net profit increased by 3.0% yoy to Rs.1577cr. However, excluding exceptional items, adjusted net profit declined substantially by 43.1% yoy to Rs.852cr (below our estimate of Rs.1,263cr) in 4QFY2012. We maintain an accumulate rating on the stock keeping our target price under review
IPCA Labs (CMP - Rs.323, TP - Rs.443, Upside: 37%)
IPCA Labs reported sales and the net profit came in below expectations. For the quarter, the company posted sales of Rs.553cr, a growth of 16.7% yoy. On the operating front, the Gross and Operating margins came in at 60.4% and 18.7% respectively. The OPM’s were below expectations of 20.7%. This aided the net profit to come at Rs.76.6cr, in comparison to the Rs.64.9cr estimated for the quarter. We maintain our buy with a target of Rs.443.
Aurobindo Pharma (CMP - Rs.111, TP - Rs.175, Upside: 58%)
Aurobindo Pharmaceuticals reported sales and the net profit came in above expectations. For the quarter, the company posted sales of Rs.1170cr, a growth of 2.5% yoy. On the operating front, the Gross and Operating margins came in at 45.2% and 10.3% respectively. The OPM’s were below expectations of 13.9%. This aided the net profit to come at Rs.38.1cr, in comparison to the Rs.47cr estimated for the quarter. We maintain our buy with a target of Rs.175.
NCC (CMP: Rs.32, TP: Under review)
For 4QFY2012, NCC posted better-than expected numbers on the revenue and earnings front however the company disappointed on EBITDAM level. On the top line front, NCC reported jump of 21.4% yoy to Rs.1,755cr, which was higher than our expectation of Rs.1,429cr. On the EBITDAM front, the company’s margin were disappointing at 5.8%, a dip of 320bp on yoy basis and lower than our estimate of 7.4%. Interest cost came in at Rs.98cr a yoy jump of 19.9% but a decline of 8.1% on sequential basis. On the bottom line level, NCC reported a yoy decline of 69.7% to Rs.11cr, almost in line with our estimate of Rs.10cr despite posting higher revenue owing to lower EBITDAM and higher interest cost. The current outstanding order book of NCC stands at Rs.20,196cr, with order inflow of Rs.10,116cr for FY2012. We maintain Buy view on the stock however the target price is under review.

Result Previews
GAIL(CMP: Rs.330 / TP: Rs.392 / Upside: 19%)
GAIL is expected to announce its 4QFY2012 results. We expect the company’s top line to grow by 20.3% yoy to Rs.10,697cr. However, the company’s operating margin is expected to contract by 260bp yoy to 11.7%. On the bottom-line front, we expect GAIL to report growth of 1.9% yoy to Rs.798cr. We continue to maintain our Buy rating on GAIL with a target price of Rs.392.
Mahindra and Mahindra (CMP: Rs.656 / TP: Rs.793 / Upside: 21%)
Mahindra and Mahindra is slated to announce its 4QFY2012 results. We expect the company’s top line to grow by strong ~20% yoy to Rs.8,046cr, backed by ~12% yoy growth in total volumes and ~7% yoy growth in net average realization. The company’s EBITDA margin is expected to witness a decline of 132bp yoy to 11.4% on account of increased purchases from its manufacturing subsidiary, MVML, and lower share of tractors in the total volume mix. As a result, the bottom line is expected to remain flat on a yoy basis to Rs.610cr. We continue to maintain our Buy recommendation on the stock with a target price of Rs.793.
DLF (CMP: Rs.188, TP: -, Upside: -)
DLF is expected to announce its 4QFY2012 results. We expect the company’s top line to decline by 11.2% yoy to Rs.2,382cr. However, the company’s operating margin is expected to expand by 1,441bp yoy to 39.2%. On the bottom-line front, we expect DLF to report growth of 29.4% yoy to Rs.446cr. We continue to maintain our Neutral recommendation on DLF.
Colgate (CMP: Rs.1,216, TP: -, Upside: -)
Colgate is expected to announce its 4QFY2012results. For the quarter, we expect the company to post 16.4% yoy growth in its top line to Rs.677cr, aided by volume and realization growth. Net profit for the quarter is expected to grow by 15.0% yoy to Rs.131cr, aided by margin expansion of 348bp yoy to 25.0%. We maintain our Neutral view on the stock.
JP Associates (CMP: Rs.62, TP: Rs.98, Upside: 58%)
We expect Jaiprakash Associates (JAL) to post marginal top-line growth of 2.0% yoy to Rs.4,063cr for the quarter on the back of higher revenue contribution from the cement segment due to capacity addition. We expect the company to post blended EBITDA margin of 22.9%, an improvement of 150bp yoy for the quarter. The bottom line is expected to be at Rs.230.6cr, registering a yoy decline of 23.6% for the quarter. This is mainly on account of a 16.3% yoy expected jump in interest cost to Rs.470.9cr. We recommend Buy on the stock with an SOTP target price of Rs.98.
HDIL (CMP: Rs.67, TP: Rs.115, Upside: 72%)
HDIL is expected to announce its 4QFY2012 results. We expect the company’s top line to increase by 14.8% yoy to Rs.601cr. Operating margin is expected to expand by 1,105bp yoy to 59.9%. On the bottom-line front, we expect HDIL to report flat growth on a yoy basis to Rs.197cr. We continue to maintain our Buy recommendation on HDIL with a target price of Rs.115.
Anant Raj (CMP: Rs.47, TP: Rs.78, Upside: 66%)
Anant Raj is expected to announce its 4QFY2012 results. We expect the company’s top line to come in at Rs.177cr. However, operating margin is expected to contract by 2,704bp yoy to 44.7%. The company’s bottom line is expected to come in at Rs.55cr. We continue to maintain our Buy recommendation on Anant Raj with a target price of Rs.78.
Simplex Infra (CMP: Rs.212, TP: Rs.316, Upside: 49%)
Simplex Infra is expected to continue its healthy performance on a sequential basis, as we project 27.1% yoy top-line growth to Rs.1,738cr for 4QFY2012. We expect the company’s EBITDA margin to fall by 100bp to 9.0%. The bottom line is expected to be under pressure due to increased interest cost (expected jump of 62.2% yoy), resulting in a yoy decline of 15.1% to Rs.31.4cr for the quarter. We continue to maintain our Buy view on the stock with a target price of Rs.316.
GIPCL (CMP: Rs.62, TP: Rs.98, Upside: 58%)
GIPCL is expected to announce its 4QFY2012 results. We expect GIPCL to register flat top-line performance during the quarter. The company’s OPM is expected to decline by 1,201bp yoy to 27.4% on a high base on account of lower plant availability and lesser generation-linked incentives. The first unit of SLPPI plant (125MW) was not operational during 4QFY2012 due to damaged rotor. The bottom line is expected to decline by 71.9% yoy to Rs.23cr due to poor operational performance and higher base due to the tax write-back in 4QFY2011. We maintain our Buy view on the stock with a target price of Rs.98.

Economic and Political News
- Foreign retail investors can buy US$1bn Indian corporate debt: Govt.
- High Govt. borrowing may crowd out private sector: RBI
- Air India board refers Boeing compensation issue to Govt.

Corporate News
- Jindal Steel's US$2.1bn project gets Bolivian boot
- JSPL buys 10% in Gujarat NREs Oz unit
- Bharat Forge to sell loss-making US unit

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