The Indian markets are expected to open flat with a negative bias as major Asian indices are trading in the red amid concerns that Europe’s debt crisis is dragging down the global growth and as China pledged to keep curbs on its property market.
US markets ended the day in positive territory led by technology stocks which posted substantial gains. However, disappointing economic data limited the upside for the markets. Buying interest remained somewhat subdued following the release of report from the Labor Department which showed a bigger than expected increase in weekly jobless claims. Jobless claims jumped to 386,000 in the week ended July 14th from the previous week’s revised figure of 352,000. A separate report from the National Association of Realtors showed an unexpected drop in existing home sales (fell 5.4% to an annual rate of 4.37mn) in the month of June.
Looking ahead, due to lack of any major US economic reports, US corporate earnings news is likely to remain in focus during trading on Friday.
Markets Today
The trend deciding level for the day is 17,281/5,245 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,317 – 17,355/5,256 – 5,269 levels. However, if NIFTY trades below 17,281/5,245 levels for the first half-an-hour of trade then it may correct up to 17,243 – 17,207/5,231 – 5,220 levels.
21% duty imposed on import of power gear
The government has imposed a duty of 21% on imported power equipment, helping domestic manufacturers to withstand competition from Chinese rivals. The union cabinet has approved imposing 5% basic, 12% countervailing and 4% Special additional duty on imported power equipment. The duty is not supposed to impact existing import contracts. The move should benefit domestic power equipment manufacturers (like BHEL, L&T BGR Energy and Thermax) given the strong competition from imports of Chinese and Korean equipments.
Hitachi Home and Life Solutions (HHLS) shuts unit at Kadi plant after major fire
A major fire broke out at Unit No. 2 at Kadi plant, Gujarat on Thursday (19th July 2012) morning, due to which the plant has become non-operational. As per media reports, 60-70% of the plant was destroyed and the losses are estimated to be ~Rs.100cr; however the management revealed that the estimation of losses are still under assessment. Meanwhile, the unit no.1 at Kadi plant is operational and the production of unit no.2 can be shifted to Jammu plant. We do not expect a major impact on the financials, as the company has adequate insurance of the plant. Moreover, the unit no. 2 of Kadi plant which was responsible for production of air conditioners is currently off seasonal, thus evading revenue losses. We maintain our Buy recommendation on the stock with a target price of Rs.160.
Result Reviews
HMCL (CMP: Rs.2,088 / TP: Rs.2,428 / Upside: 16%)
Hero MotoCorp (HMCL) reported marginally lower-than-expected net sales growth of 10% yoy (3.5% qoq) to Rs.6,247cr driven by volume growth of 7.2% yoy (4.3% qoq) and 2.7% yoy growth in net average realization. Net average realization however, remained flat sequentially primarily on account of higher share of less than 125cc (89% as against 86% in 4QFY2012) motorcycles in the overall product-mix. Volume performance was led by 7% and 12.8% yoy increase in motorcycle and scooter sales, respectively. On the operating front, EBITDA margins (adjusted for change in accounting for royalty payments) declined 40bp sequentially to 11.5% largely due to higher royalty payments led by unfavorable currency movement and 50bp increase in raw-material expenses. As a result, net profit grew by 10.3% yoy (2% qoq) to Rs.615cr, marginally lower-than our estimates of Rs.637cr. At the CMP of Rs.2,088, HMCL is trading at 13.8x FY2014E earnings. We maintain Buy rating on the stock with a target price of Rs.2,428.
DRL (CMP: Rs.1656 / TP: Rs.1859 / Upside: 12.3%)
DRL posted a higher than expected top line growth in 1QFY2013, while reporting net profit came in well below expectations. The top-line came in at Rs.2541cr, V/s expectations of Rs.2500cr. The top-line growth came on back of 32% yoy growth in the generic segment, while the PSAI grew by 14% yoy. The generic segment grew on back of 38%yoy in the US markets and 65%yoy in the ROW markets. The key market Russia grew by 38%yoy, while India grew by 19%yoy. The EBIT margins came in lower than expected (16.3%) than 19.3%. This along, with higher interest expenses resulted in lower than expected net profit (Rs.385cr), at Rs.340cr (Adj. net profit). We recommend accumulate with a target price of Rs.1,859.
DB Corp (CMP: Rs.201 / TP: Under review / Upside: – %)
DB Corp reported weak performance in 1QFY2013. Top-line grew by 7.0% yoy to Rs.378cr. Circulation revenue grew by 15.5% yoy to Rs.66cr while advertising revenue remained flat at Rs.270cr. Radio business contributed Rs.14cr to the topline. On the operating front, EBITDA margin contracted 590bp yoy to 22.5% led by 12.5% increase in raw-material expenses and 18.6% increase in employee costs. The company reported 28.5% decline in net profit to 44cr primarily on account of margin pressure and Rs.7cr hit due to forex exposure. We currently have a BUY rating with target price of Rs.269 which will be reviewed after conference call.
FAG Bearings (CMP: Rs.1,498 / TP: – / Upside: -)
FAG Bearings (FAG) posted a mixed 2QCY2012 performance as net sales registered a strong 19.5% yoy (4.6% qoq) growth to Rs.380cr; however bottom-line grew by 3.4% yoy (flat qoq) to Rs.46cr aided by higher other income (up 44.1% yoy). EBITDA margins declined sharply by 320bp yoy (72bp qoq) to 16.8% largely on account of increase in raw-material expenses. However, 90bp and 280bp yoy saving in staff cost and other expenditure arrested further fall in margins. Led by margin contraction, operating profit remained flat on a yoy and qoq basis.
While the company defied the slowdown in the industrial and automotive OEM segment and posted a strong top-line growth during the quarter, we expect the growth outlook for the company to remain challenging in 2HCY2012. Further, margin pressures due to higher raw-material expenses and negative impact of INR depreciation is likely to restrict bottom-line growth. At the CMP of Rs.1,498 the stock is trading at 11.5x its CY2013E earnings. We maintain our Neutral rating on the stock.
Persistent (CMP: Rs.394 / TP: – / Upside: -)
Persistent Systems (Persistent) reported its 1QFY2013 results which were in line on the revenue front but disappointed on the operating front. The dollar revenues came in at US$54.9mn, up merely 1.3% qoq. The company’s IP led revenue grew considerably by 16% qoq to US$7.6mn. The company’s offshore billing rates remained stable while onsite billing rates grew marginally by 1.5 qoq. The company’s EBITDA margin declined by 175bp qoq to 26.8%, due to ~420bp qoq wage hike impact (partially got absorbed by benefits from INR depreciation). PAT stood at Rs.42cr, up 1% qoq. Management indicated that the company is expected to grow higher than Nasscom’s estimates of 11-14% in FY2013. The stock is currently under review and we will be releasing a detailed result update shortly.
Result Previews
Reliance Industries (CMP: Rs.728/ TP: -/ Upside:- %)
Reliance Industries Ltd. (RIL) is scheduled to announce its 1QFY2013 results today. We expect the company’s top line to remain flat yoy to Rs.80,884cr during the quarter. However, we expect the company’s operating margin to decline 450bp yoy to 7.8% on account of decrease in production from KG D6 basin. The company’s bottom-line is expected to decrease by 28.0% yoy to Rs.4,077cr. We maintain Neutral on the stock.
Hindustan Zinc (CMP: Rs.119/ TP: Rs.141 / Upside: – 9%)
Hindustan Zinc is slated to announce its 1QFY2013 results. The company’s topline is expected to increase by 4.2% yoy growth to Rs.2,939cr mainly on account of higher volumes partially offset by lower realizations of zinc and lead. EBITDA margin is expected to contract by 450bp to 51.0% on account of decrease in realizations. Its bottom-line is expected to decrease by 7.9% yoy to Rs.1,377cr. We maintain Buy on the stock with a target price of Rs.141.
UltraTech Cement (CMP: Rs.1,574/ TP: – / Upside: – %)
Ultra Tech cement is expected to announce its 1QFY2013 results today. We expect the top-line to grow by 14.3% yoy to Rs.4,988cr on account of both higher dispatches and better realizations. We expect the OPM to increase by 532bp yoy to 27.4% as the improvement in realization is higher than the increase in operating costs. Bottom-line is expected to increase by 17.1% yoy to Rs.800cr. We continue to remain neutral on the stock.
Asian Paints (CMP: Rs.3,624 / TP: – / Upside: – %)
Asian Paints is slated to announce its 1QFY2013 results. We expect the company to post a 16.2% yoy growth in top-line to Rs.2,627cr aided by price hikes taken by it over the past one year. OPM is expected to expand marginally by 65bp yoy to 18.0% aided by price hikes. The company’s net profit is expected to grow by 19.7% yoy to Rs.316cr. We maintain a neutral view on the stock.
Crompton Greaves (CMP: Rs.127 / TP: Rs.142 / Upside: 12%)
For 1QFY2013, we project Crompton Greaves to report modest top-line growth of 7.0% yoy to Rs.2,608cr. Weak capex cycle along with strained consumer sentiment is also likely to impact the company’s growth. On the EBITDA front, the company’s margin is expected to increase 44bp yoy to 7.9%. Led by moderate revenue growth and slight margin expansion for the quarter, the company’s PAT is expected to grow by 19.9% yoy to Rs.95.3cr. We recommend Accumulate on the stock with a target price of Rs.142.
Bank of Maharashtra- (CMP: Rs.48 / TP: Rs.52 / Upside: 10%)
Bank of Maharashtra is scheduled to announce its 1QFY2013 results tomorrow. We expect the bank to report a 12.2% yoy growth in Net Interest Income to Rs.663cr. Non-interest income is expected to decline by 10.3% yoy to Rs.156cr. Operating expenses are expected to increase at a higher pace of 22.8% yoy to Rs.430cr. Provisioning expenses are expected to decline by 18.4% yoy to Rs.183cr, and would aid 14.3% yoy growth in net profit to Rs.140cr. At the CMP, the stock is trading at 0.6x FY2014E ABV. We maintain our Accumulate recommendation on the stock with a target price of Rs.52.
HT Media (CMP: Rs.93 / TP: Under review / Upside: – %)
HT Media is slated to announce its 1QFY13 results. We expect 11.9% yoy growth in topline to Rs.553cr aided by 5.0% yoy growth in circulation revenue to Rs.51 cr and 15.0% yoy growth in advertising revenue to Rs.442cr. The company’s OPM is expected to contract by 195bp yoy to 15.8% due to increase in newsprint prices in INR terms. The company’s net profit is expected to increase by 3.1% yoy to Rs.53cr. We maintain our BUY view on the stock with the target price under review.
Economic and Political News
- Finance Ministry asks PSBs to restrict bulk deposits to 15%
- Monsoon rains in India below average in past week
- Cabinet defers approval to FCRA Amendment Bill
Corporate News
- Tata Power completes second 800MW unit of Mundra UMPP
- OVL looks at Russia again, revives Yamal LNG plans
- Violence erupts at Maruti unit, one dead, 90 injured