The Indian markets are expected to open in the red mirroring the SGX Nifty and Asian stocks which are trading lower in the opening trade. Asian stocks fell a fifth day, with the regional benchmark headed for its longest losing streak since May, amid concern a deepening global economic slowdown will weigh on earnings.
The US markets opened strong in Tuesday’s trading session but eventually ended in the red. The early strength among stocks was partly due to a positive reaction to the latest news out of Europe, including a report showing an unexpected increase in U.K. manufacturing output in the month of May. News that Eurozone finance ministers agreed to provide the Spanish banking sector with up to £30bn by the end of the month also generated some positive sentiment, with Spain given an extra year to achieve its deficit reduction target. However, stocks moved sharply lower over the course of the trading day as disappointing guidance from some well known companies overshadowed the relatively positive news out of Europe
Meanwhile, Indian shares rallied on Tuesday, shrugging off mixed Asian cues as the rupee rebounded and euro area finance ministers agreed on the terms of a bailout for Spain’s troubled banks.
The trend deciding level for the day is 17,558 / 5,326 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,692 – 17,765 / 5,368 – 5,390 levels. However, if NIFTY trades below 17,558 / 5,326 levels for the first half-an-hour of trade then it may correct up to 17,485 – 17,351 / 5,304 – 5,262 levels.
L&T acquires Malaysia-based Henikwon Corporation
Larsen & Toubro’s (L&T) Malaysia-based subsidiary Tamco Switchgear has acquired electrical equipment maker Henikwon Corporation for an undisclosedamount. Based in Malaysia, Henikwon Corporation is a leading manufacturer of low and medium voltage busduct systems. Henikwon brand is globally well recognized and offers high-quality products under compliance to international quality standards. Henikwon’s acquisition brings a string of customer base of large corporations to Tamco. This acquisition will be complementary to the company’s electrical and automation portfolio and make comprehensive offerings for the building and infrastructure segments. It will further enhance the company’s presence in South East Asia and aid in catering to the Indian and Middle East markets.
At the CMP of Rs.1,418, the stock is trading at PE of 14.2x FY2014E earnings, after adjusting for investments, which is below the historical trading multiple for L&T. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in the different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to Rs.1,553. Owing to the recent surge in the stock price, we recommend Accumulate on the stock.
Lavasa’s request to confer infrastructure status on its loans rejected by RBI
As per media reports, RBI has rejected Lavasa’s (HCC’s subsidiary) request to confer infrastructure status on its loans. With this rejection the company’s effort to escape the stigma of bad debt has suffered a jolt. The rejection means that the firm cannot enter the special cell set up by banks to help ease the debt burden of troubled companies with high-cost borrowings. It must take the difficult road of negotiating individually with the banks and its debt will not have any chance of becoming a standard asset. The Rs.850cr loans on Lavasa’s books are now treated as bad loans by most banks. Lavasa had sought infrastructure status from RBI some months ago on the grounds that it would help the company join the corporate debt restructuring cell set up by banks. This is negative for HCC as this development is likely to cause further delay to the project. We continue to maintain Neutral view on HCC.
HDFC – 1QFY2013 Result Preview (CMP: Rs.683/ TP: – / Upside: -)
HDFC is scheduled to announce its 1QFY2013 results today. We expect the bank to report healthy operating income growth of 20.0% yoy to Rs.1,568cr. Operating expenses are expected to grow at 28.8% yoy to Rs.146cr. The pre-provision profit is expected to grow at 19.1% yoy to Rs.1,422cr. Provisioning expenses are expected to increase by 119.3% yoy to Rs.39cr, leading to a net profit growth of 19.9% yoy to Rs.1,013cr. At the CMP, HDFC’s core business (after adjusting Rs.232/share towards value of the subsidiaries) is trading at 3.6x FY2014E ABV of Rs.123.4 (including subsidiaries, the stock is trading at 3.8x FY2014E ABV of Rs.176.9). We maintain our Neutral recommendation on the stock.
Economic and Political News
- Power tariff in Delhi much less than major cities: Government
- India buys Mahatma Gandhi’s archive to prevent its auction
- Supreme court signals rethink on auction route for all natural resources
- No service tax on NRI remittances: Govt.
- SIAM lowers FY2013 car sales forecast
- SAIL, Kobe ink pact for Rs.1,500cr plant in Bengal
- Quick recovery of US$1.4bn Kingfisher debt unlikely: SBI
- Suzlon inks 300MW equipment sale deal with ReNew Power