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7/31/2019 Market Outlook 190712
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Market OutlookJuly 19, 2012
CPI inflation at 10.0% yoy
The CPI inflation (combined) came in at 10.0% yoy for June 2012 as against
10.4% in May 2012. CPI for rural segment increased from 9.6% yoy in May 2012
to 9.7% yoy for June 2012 on account of higher food inflation levels (10.4% yoy).
Urban segment which has a lower weighting of food articles (37.2% compared to59.3% for rural segment) witnessed a decline of 90bp in overall inflation level to
10.4% primarily due to decline in housing inflation levels (on a high base). On a
mom basis, the housing inflation increased by 1.1% compared to 0.8% for May
2012.
Consumer Price index (%, yoy)
4.6 7.2 8.2 9.8 10.1 10.4
13.6 13.0 11.7 10.3 9.3 9.1
- - - - - -
13.8 12.7 12.0 11.4 11.0 10.8
9.8 9.1 9.3 8.6 8.3 8.2
4.4 7.5 9.4 10.8 11.4 11.6
12.4 12.2 11.9 12.6 13.1 12.5
12.7 13.6 14.4 14.8 15.7 10.6
15.4 14.0 13.0 12.3 11.9 11.6
8.0 7.2 7.5 7.8 7.9 8.2
4.5 7.0 8.3 10.2 10.5 10.8
13.1 12.8 11.8 11.2 10.7 10.3
12.7 13.6 14.4 14.8 15.7 10.6
14.2 13.2 12.4 11.8 11.4 11.0
8.9 8.3 8.6 8.2 8.1 8.2
Source: Company, Angel Research
Banks might face some pain from the proposed SEB loan bailout
As per media reports, the power ministry is expected to make a note to the Cabinet
making proposals for bailout of the ailing state discoms, based on the
recommendation of the B.K Chaturvedi committee and meetings with state power
ministers. Proposals outlined in the media reports and reproduced below would
need the approval of cabinet and acceptance of state governments before they
become applicable.
Out of the total outstanding short term debt of the discoms (~`120,000), 50% will
be taken over by the state governments through the issue of state governmentbonds, which would be tradable and the other 50% would be restructured with an
interest moratorium/immediate NPV hit, but would remain in the books of the
banks and possibly be guaranteed by the state governments.
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Market OutlookJuly 19, 2012
In addition to the NPV hit/interest moratorium, banks would also be affected by
swapping of high yielding SEB loans with low yielding state government bonds and
MTM losses on those bonds, in case they are classified in the AFS category. In our
view, finance ministry would assure that the approved proposals will not be that
stringent on the banks. However, restructuring of discom loans would largely affect
mid and small PSU banks as they have a relatively higher exposure to these loans.
Exposure of banks to SEB loans (as per available data)
Bank of Maharashtra 56,060 5,482 9.8
Dena Bank 56,693 4,500 7.9
Syndicate Bank 123,620 6,904 5.6
UCO Bank 115,540 6,000 5.2
Canara Bank 232,490 12,000 5.2
Punjab National Bank 293,775 7,800 2.7
United Bank 63,043 800 1.3
Source: Company, Angel Research
CRH Plc in fray to buy out Jaypee Cement
As per media reports, CRH Plc, the US$13.7bn Irish building materials group, has
entered the fray to buy Jaiprakash Associates' (JAL) cement plants in Gujarat (4.8
mtpa) and Andhra Pradesh (5 mtpa), after the company's discussions with the AV
Birla Group got stuck due to differences over valuation and other issues. The deal,
if it goes through, is expected to fetch `8,000-9,000cr for JAL and will help the
company reduce its total consolidated debt of about ~`45,000cr. In 2008, CRH
had entered India by acquiring a 50% stake in Hyderabad-based cement producer
My Home Industries. The company currently has an installed capacity of 4.2mtpa.
Further, CRH is keen to expand in India.
Result Reviews
Bajaj Auto (CMP:`1,522 / TP:`1,698 / Upside: 12%)
Bajaj Auto (BJAUT) registered slightly lower-than-expected operating performance
for 1QFY2013 primarily on account of`36cr hit due to forex exposure. Top-line
grew by 3.4% yoy (4.6% qoq) to `4,866cr broadly in-line with our estimates of
4,930cr, driven by 5.3% yoy growth in net average realization. However, on a
sequential basis, net average realization declined 1.6% as the company witnessed
adverse product-mix during the quarter. Volume performance for 1QFY2013 was
sluggish as export volumes declined 2.7% yoy led by political unrest in Egypt,
import duty hike in Sri Lanka and production disruption in Nigeria. Overall, the
company lost sales of ~45,000 units during the quarter. While motorcycle sales
posted a marginal 2% yoy (up 9.5% qoq) growth due to subdued domestic
demand, three-wheeler sales declined 25.8% yoy (19.7% qoq).
On the operating front, EBITDA margin contracted 188bp sequentially to 17.9%
led by 90bp increase in raw-material expenses and 70bp increase in employee
costs (12% wage hike for employees). On a yoy basis, the margins remained flat
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Market OutlookJuly 19, 2012
as the positive impact of decline in raw-material expenses was negated by 120bp
increase in other expenditure. During the quarter, the company took a hit of`36cr
on the forex hedges (excess hedge) which was reflected in other expenditure.
Adjusted net profit posted a 1% yoy growth to`718cr for 1QFY2013. While other
income jumped 26.3% yoy (30.5% qoq) salvaging the bottom-line, tax rate
increased to 29.5% from 25.4% in 1QFY2012 due to reduction in tax benefitsfrom the Pantnagar plant. At the CMP of `1,522, the stock is trading at 12.5x
FY2014E earnings.
We shall release a detailed result update post the conference call
with the management which is scheduled today.
FY2013E 21,285 18.2 3,140 108.5 46.1 14.0 5.8 9.3 1.6
FY2014E 23,927 18.3 3,510 121.3 41.3 12.5 4.7 7.8 1.4
Honeywell Automation India (CMP `2503/ TP: - / Upside: -)
HAIL reported lower than expected numbers for 2QCY2012. Top line dip by 6.3%
sequentially to`387cr broadly in line with our estimate of`381cr. The companys
EBITDA came in at `13.6cr far lower than our estimate of `18cr and 44% lower
sequentially. Operating margin fell to 3.5% sequentially lower by 235bp mainly
due to rise in employee cost which was higher by 248bp. Net profit for the quarter
stood at `11.8cr in line with our estimate of `11.7cr vis--vis `16.6cr in
1QCY2012, owing to higher other income (by 157% sequentially) of `6.4cr.
CY2012E 1,745 5.0 62 70 13.4 35.5 3.2 23.6 1.2
CY2013E 1,993 6.3 87 99 17.1 25.2 2.9 16.4 1.0
Infotech Enterprises (CMP:`177 / TP: - / Upside: -)
For 1QFY2013, Infotech Enterprises (Infotech) reported revenue of US$84.2mn,
up 1.4% qoq, on the back of 2.0% qoq volume growth. USD revenue of the
company got impacted by 0.7% due to adverse cross currency movement. The
UT&C vertical witnessed robust volume growth of 5.8% qoq. In ENGG vertical,
Aerospace segment witnessed volume growth of 2.5% while volumes from home,
transportation, hi-tech (HTH) declined by 2.6% qoq. In INR terms, revenue came in
at`456cr, up 9.4% qoq, on account of 1) 2.0% qoq volume growth, 2) 0.1% qoq
positive impact because of increased price realization and 3) 7.3% qoq positive
impact derived from favorable exchange movement.
EBITDA and EBIT margins of Infotech declined by 115bp and 138bp qoq to 18.7%
and 15.7%, respectively, largely because of wage hikes given during the quarter
(8-10% for offshore employees and 3% for onsite employees) which impacted the
margins by ~370bp qoq. This negative effect was partially absorbed by ~290bp
qoq positive impact derived from INR depreciation against USD.
Infotech added 17 new customers during the quarter 12 in UT&C and five in
ENGG vertical. Management indicated that the company is expected to grow 14%
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Market OutlookJuly 19, 2012
plus in terms of USD revenue during FY2013 in constant currency terms. The stock
is currently under review and we will be releasing a detailed result update on it
shortly.
FY2013E 1,839 17.5 189 17.1 13.8 10.4 1.4 4.0 0.7
FY2014E 1,994 17.1 206 18.6 13.2 9.6 1.3 3.4 0.6
Result Previews
Hero MotoCorp (CMP:`2,114 / TP:`2,473 / Upside: 17%)
Hero MotoCorp (HMCL) is slated to announce its 1QFY2013 results today. We
expect the companys top-line to grow by a healthy 12% yoy to`6,323cr driven by
~7% yoy growth in volumes and ~5% increase in average net realization led by
price increases. Operating margin (adjusted for change in accounting for royalty
payments) is expected to expand 50bp yoy to 11.8% on account of stable
commodity prices and price increases. As a result, we expect the bottom line
(adjusted) to post a ~14% yoy increase to`637cr. At`2,114, the stock is trading
at 13.7x its FY2014E earnings.
FY2013E 25,970 15.0 2,790 139.7 54.7 15.1 7.1 8.6 1.2
FY2014E 29,772 15.5 3,086 154.5 44.9 13.7 5.4 6.5 0.9
DRL (CMP:`1672 / TP:`1859 - / Upside: 11%)
Dr. Reddys (DRL) is expected to post strong results during 1QFY2013, reporting
top-line growth of 26.4% yoy to`2,500cr, majorly driven by the U.S. market. The
company is expected to see strong traction in its Indian and Russian formulation
businesses as well. In the PSAI segment, lackluster performance is expected for
1QFY2013. The company is expected to post EBIT margin of 19.3%, down 80bp
yoy. On the net profit front, the company is expected to post net profit of`385cr,
registering 46.9% yoy growth.
`
FY2013E 10,696 20.7 1,420 83.7 22.4 20.0 4.1 13.4 2.8
FY2014E 11,662 21.0 1,576 92.9 21.0 18.0 3.5 11.9 2.5
DB Corp (CMP:`195 / TP:`269 / Upside: 38%)
DB Corp is slated to announce its 1QFY13 results. On the top line front, we expect
16.6% yoy growth to`412cr aided by 10.2% yoy growth in circulation revenue to`63 cr and 15.5% yoy growth in advertising revenue to `327cr. The companys
OPM is expected to contract by 206bp yoy to 26.3%. On the bottom line front, the
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Market OutlookJuly 19, 2012
company is expected to grow by 7.3% yoy to `65cr.
FY2013E 1,638 25.8 247 13.5 23.9 14.5 3.2 7.9 2.0FY2014E 1,851 26.6 295 16.1 24.2 12.1 2.7 6.5 1.7
Persistent Systems (CMP:`378 / TP: - / Upside: -)
Persistent Systems is slated to announce its 1QFY2013 results today. We expect the
company to post revenue of US$54.5mn, up 0.5% qoq. In rupee terms, the
revenue is expected to come in at `294cr, up 8.5% qoq. EBITDA margin is
expected to expand by 159bp qoq to 30.2%. PAT is expected to come in at`30cr.
FY2013E 1,187 26.7 138 34.5 14.4 11.0 1.6 3.6 1.0
FY2014E 1,274 26.0 171 42.6 15.4 8.9 1.4 3.2 0.8
Quarterly Bloomberg Brokers Consensus Estimate
Net sales 6,337 5,638 12 5,963 6
EBITDA 903 906 0 1,030 (12)
EBITDA margin (%) 14.2 16.1 17.3
Net profit 639 558 15 604 6
Net profit 412 416 (1) 529 (22)
Net sales 2,581 1,978 30 2,658 (3)
Net profit 376 263 43 343 10
Net sales 2,734 2,260 21 2,539 8
EBITDA 465 392 19 383 21
EBITDA margin (%) 17.0 17.3 15.1
Net profit312 272 15 265 18
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Market OutlookJuly 19, 2012
Net sales 2,740 2,438 12 3,077 (11)
EBITDA 205 182 13 213 (4)
EBITDA margin (%) 7.5 7.5 6.9
Net profit 98 80 23 96 2
Net sales 2,949 2,821 5 3,094 (5)
EBITDA 1,494 1,592 (6) 1,659 (10)
EBITDA margin (%) 50.7 56.4 53.6
Net profit 1,383 1,495 (7) 1,413 (2)
Net sales 87,763 81,018 8 85,182 3
EBITDA 7,072 9,926 (29) 6,563 8
EBITDA margin (%) 8.1 12.3 7.7
Net profit 4,377 5,661 (23) 4,236 3
Net sales 2,168 1,822 19 2,119 2
EBITDA 395 345 15 387 2
EBITDA margin (%) 18.2 18.9 18.2
Net profit 177 184 (4) 202 (12)
Net sales 4,995 4,365 14 5,337 (6)
EBITDA 1,248 1,227 2 1,345 (7)
EBITDA margin (%) 25.0 28.1 25.2
Net profit 743 683 9 867 (14)
Net sales 815 684 19 869 (6)
EBITDA 194 156 24 160 21
EBITDA margin (%) 23.7 22.8 18.4
Net profit 152 127 20 160 (5)
Net sales 719 611 18 686 5
EBITDA 155 136 14 170 (9)EBITDA margin (%) 21.6 22.3 24.8
Net profit 123 100 23 131 (6)
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Net sales 1,417 1,205 18 1,364 4
EBITDA 210 179 17 224 (6)
EBITDA margin (%) 14.8 14.9 16.4
Net profit 155 128 21 171 (9)
Net sales 6,279 5,504 14 5,660 11
EBITDA 869 754 15 833 4
EBITDA margin (%) 13.8 13.7 14.7
Net profit 697 627 11 687 1
Net sales 11,021 9,483 16 18,646 (41)
EBITDA 1,247 1,126 11 2,930 (57)
EBITDA margin (%) 11.3 11.9 15.7
Net profit 816 746 9 1,920 (58)
Net sales 5,589 4,516 24 5,273 6
EBITDA 1,526 1,204 27 1,155 32
EBITDA margin (%) 27.3 26.7 21.9
Net profit 301 177 70 190 58
Net sales 1,636 1,456 12 1,724 (5)
EBITDA 143 118 21 167 (14)
EBITDA margin (%) 8.7 8.1 9.7
Net profit 81 169 (52) 98 (17)
Economic and Political News
CCEA to mull 17% hike in sugarcane price for 2012-13 Government asks developers to set up SEZs in backward states Power Minister in favor of hike in power tariffs every six months
Corporate News
Violence at Maruti' Suzukis Manesar plant halts production Sesa Goa seeks lifting of ban on ore transportation Dr Reddys launches Atorvastatin calcium tablets in US Reliance MediaWorks to raise`600cr from PE fundSource: Economic Times, Business Standard, Business Line, Financial Express, Mint