DOMESTIC: Biocon number six in top 10 Global Biotech Employers ranking for 2019 RIL recast may help Jio rein in AGR-linked payments to government Wipro launches next generation engineering and innovation center in Virginia InterGlobe Aviation signs for 300 A320neo Family aircraft RIL draws government ire by monopolising sale of its own CBM Coal India Ltd plans binding bids for coking coal assets GSK's tuberculosis vaccine shows promising results HDFC acquires 9.89% stake in Bandhan Bank Adani Transmission receives LoI from REC Transmission Projects Saudi Aramco to keep 4.6mn barrels of oil in Indian storage ICICI Lombard, Karur Vysya Bank tie up for sale of insurance products Siemens to double manpower at Chennai centre YES Bank receives a binding offer of USD1.2bn Lupin in talks to sell Japan Unit Kyowa for USD600mn Ahluwalia Contracts gets new project worth of Rs521.71cr Cochin Shipyard signs the Phase-III contract worth Rs3,000cr with Indian Navy Lemon Tree entered into Udaipur, with the launch of our 139 rooms new upscale hotel - 'Aurika, Udaipur' Cadila Healthcare received an EIR from USFDA MTNL to become BSNL arm, merged entity to raise Rs15,000cr via bonds GSK Consumer Healthcare re-launches Crocin Pain Relief TCS plans to remove digital classification from its business ECONOMY: Fiscal deficit hits 93% of budget estimate at Rs6.52tn till Sept-end India’s tax collection growth in H1FY20 lowest in a decade Government fixes sugar sale quota of 20.5 lakh tonne for November SEBI asks banks to disclose bad loan divergences within a day of RBI report INDUSTRY: Prices of cancer, cardiac drugs may be slashed Advanced lithium-ion technologies on track for record annual investment Govt. likely to reject telcos' demand for 2-year spectrum fee moratorium Housing finance companies’ gross NPAs up 2.2%: As per ICRA Demand for mining equipment falls 15-17% y-o-y: As per ICRA Indian Steel makers face debt challenges after ill-timed bets India to invest USD100bn in refining, pipeline, gas terminals by 2024: PM Core sector output down by 5.2 % in the month of September The week that went by: Tracking global markets after a positive outcome on US-China trade talks, gap-up opening was witnessed in the Indian markets. Another gap up opening with the continued rally was seen despite the global market trading weaker. Backed by the Fed rate cut, the Indian markets opened on a positive note, with strength being witnessed in PSU banks. On the last day of trade, the markets opened flat and ended the first session of November series with +35 points. Price Performance Company 1M 3M 12M Supreme Petrochem Ltd 0.7% 1.9% -22.1% Shanthi Gears Ltd 7.7% 4.0% -15.5% Hind Rectifiers Ltd 18.2% 56.1% 51.1% KCP Ltd -0.9% -8.4% -31.7% Hester Biosciences Ltd -5.5% 6.6% 43.0% The Hi-Tech Gears Ltd 8.9% -5.1% -52.1% Bharat Bijlee Ltd -8.5% -2.7% -28.4% Triveni Turbines Ltd 1.8% 5.6% 2.7% Siemens Ltd 8.4% 49.3% 75.9% GMM Pfaudler Ltd -8.9% 15.2% 28.4% Alicon Castalloy Ltd 17.2% 2.8% -35.5% Gufic Biosciences Ltd 1.1% 24.2% -25.6% Excel Industries Ltd 5.8% 19.3% -39.8% Vesuvius India Ltd -2.5% -1.8% -9.2% Munjal Showa Ltd 8.6% 14.8% -24.5% Bharat Rasayan Ltd 1.5% 50.9% 5.7% Alkyl Amines Chemicals Ltd 0.3% 25.1% 39.7% Grauer and Weil (India) Ltd -5.1% -8.6% -13.7% Texmaco Rail & Engineering Ltd -3.2% -9.0% -32.2% Nagarjuna Agrichem Ltd 0.7% 4.3% 6.0% ITD Cementation India Ltd 26.8% -19.3% -47.6% Westlife Development Ltd 21.2% 24.7% 9.1% Federal Mogul Goetze (India) Ltd 5.2% 8.7% 36.4% Dynamatic Technologies Ltd -7.5% -7.2% -20.1% Hitech Corporation Ltd -46.5% 20.9% -2.3% NRB Bearings Ltd 7.8% 15.9% -34.2% Kokuyo Camlin Ltd 20.0% 21.7% -26.5% Timken India Ltd 11.1% 34.8% 68.8% Morganite Crucible (India) Ltd -1.4% 14.5% -9.8% Vardhman Special Steels Ltd 2.7% -4.5% -37.5% Zen Technologies Ltd 9.7% 29.6% -5.6% KSB Ltd 0.4% 14.2% -12.8% Thermax Ltd 1.4% 5.5% 13.5% Transpek Industry Ltd 3.3% 2.6% -13.3% BASF India Ltd 3.0% -3.4% -39.3% Artson Engineering Ltd 0.6% -9.6% -39.4% Remsons Industries Ltd 0.6% 7.2% -20.5% Snowman Logistics Ltd 2.3% 36.0% 3.9% Alembic Pharmaceuticals Ltd 10.7% 10.4% -5.09% SKF India Ltd 1.8% 19.2% 22.8% HFCL Ltd 1.1% -7.1% -14.9% Sudarshan Chemical Industries Ltd 8.1% 23.2% 6.3% Huhtamaki PPL Ltd 10.5% 13.5% 16.9% Mishra Dhatu Nigam Ltd 30.0% 40.7% 32.0% Anuh Pharma Ltd 6.9% 41.8% 2.7% Indian Hume Pipe Co. Ltd -3.0% -0.3% 91.7% Engineers India Ltd 6.4% 24.2% 106.3% Gulshan Polyols Ltd -13.0% 22.7% -23.6% Nesco Ltd -2.3% 4.0% 29.5% Castrol India Ltd 14.4% 30.9% 114.1% Hikal Ltd -18.5% -18.6% 17.7% Please Turn Over 01 Nov 2019 Page No: 1
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DOMESTIC:
Biocon number six in top 10 Global Biotech Employers ranking for 2019
RIL recast may help Jio rein in AGR-linked payments to government
Wipro launches next generation engineering and innovation center in Virginia
InterGlobe Aviation signs for 300 A320neo Family aircraft
RIL draws government ire by monopolising sale of its own CBM
Coal India Ltd plans binding bids for coking coal assets
TCS plans to remove digital classification from its business
ECONOMY:
Fiscal deficit hits 93% of budget estimate at Rs6.52tn till Sept-end
India’s tax collection growth in H1FY20 lowest in a decade
Government fixes sugar sale quota of 20.5 lakh tonne for November
SEBI asks banks to disclose bad loan divergences within a day of RBI report
INDUSTRY:
Prices of cancer, cardiac drugs may be slashed
Advanced lithium-ion technologies on track for record annual investment
Govt. likely to reject telcos' demand for 2-year spectrum fee moratorium
Housing finance companies’ gross NPAs up 2.2%: As per ICRA
Demand for mining equipment falls 15-17% y-o-y: As per ICRA
Indian Steel makers face debt challenges after ill-timed bets
India to invest USD100bn in refining, pipeline, gas terminals by 2024: PM
Core sector output down by 5.2 % in the month of September
The week that went by:
Tracking global markets after a positive outcome on US-China trade talks, gap-up opening was witnessed in the Indian markets. Another gap up opening with the continued rally was seen despite the global market trading weaker. Backed by the Fed rate cut, the Indian markets opened on a positive note, with strength being witnessed in PSU banks. On the last day of trade, the markets opened flat and ended the first session of November series with +35 points.
TERM OF THE WEEK: Equity-linked debentures (ELD): An equity-linked debenture is a hybrid structured product i.e. they combine the benefits of capital protection along with participation in returns from the equity markets. It is a zero-coupon bond and the returns are linked to an index. The coupons earned by the ELDs depend on the performance of the stock markets during its tenor.
COVERAGE NEWS: Hikal Limited: Hikal has informed the exchanges that MIDC has restored 100% water supply to the Taloja MIDC zone on 25th October, 2019 (Taloja plant was earlier receiving 50% water supply; affecting Q2FY20 operations). The plant is now fully operational. Company has also informed that its Mahad Facility, which was affected by flooding, is now fully operational as well. Our comments: This was the much needed positive for the company after the jolts the stock received post the results declared. Engineers India Limited: Numaligarh Refinery Ltd has awarded Engineering, Procurement and Construction Management Services to EIL for Cross Country Crude and Product Pipelines and Crude Oil Terminal. It is one of the largest pipeline networks to be set up in North Eastern region, about 2000kms. EIL's order value for the project is approximately ~Rs185cr. Our comments: This is an addition to the order book of the company. Excel Industries Limited: Excel Industries Ltd has informed the regulators that the acquisition of the chemical manufacturing unit of NetMatrix Crop Care Limited located at Plot no. 15 & 15A, APSEZ, Atchutapuram, Visakhapatnam, Andhra Pradesh has been successfully completed on 25th October, 2019. Result Update: SKF India Ltd: The total revenue for the quarter de-grew by 2.5% to Rs7,472mn as compared to Rs7,660mn in the same quarter last year. The EBITDA margin for the quarter under review stood at 12.72% as against 16.02% in the corresponding quarter of last year. The net profit is flat at Rs846mn as against Rs843mn in the comparative quarter, on exercise of option of lower tax rate. The EPS stands at Rs17.10. Outlook and Recommendations: Slowdown in the Auto sector has impacted the contribution of the Auto segment to the company’s overall revenues. Although the focus of the company lies towards the shift to the industrial segment, it was not that visible in the quarter of reference. Cost-control measures, increase in exports, foreign exchange benefits and lower tax rate collectively helped the company improve its NPM. This survival strategy of the management in terms of margins backed by support of the parent will help SKF face challenges in current scenario. Thus, we maintain our target price of Rs2,620 on the stock with a 12-month horizon.
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Weekly Sectoral Gainers & Losers in (%)
01 Nov 2019
Page No: 4
Corporate Announcement
Corporate Announcement
Orders For EIL
Impacts Of Auto Slowdown
Result Update: Mishra Dhatu Nigam Ltd: The management has reported about stabilisation of 1500T forge press while at the same time the recent capital investments coupled with healthy order booking (particularly from space sector) has helped company register higher turnover. The net sales for the quarter under review grew by 47.8% to Rs1,702mn as compared to Rs1,152mn in the same quarter last year. The EBITDA margins for the quarter under review stood at 31.1% as compared to 30.2% in the same quarter last year. The net profit grew by 74.5% to Rs358mn as against Rs205mn in the comparative quarter. The EPS for the quarter under review stood at Rs1.91 as compared to Rs1.23 Outlook and Recommendations: The company has registered good growth in terms of top line as well as bottom line for the quarter under review. The order book position of the company as on 1st October 2019 stood at Rs17.76bn. The company has been spreading its wings in a number of niche defence related projects wherein they intend to be a part of Advanced Multi-role Combat Aircraft project to be built jointly by the Aeronautical Development Establishment (ADE) and the Gas Turbine Research Establishment (GTRE) - both Defence Research and Development Organisation (DRDO) bodies based in Bengaluru. The company has also been spotted in number of defence expo (DefExpo) displaying joint efforts of bulletproof jacket they developed together, named Bhabha Kavach in recognition of BARC’s contribution. With a strong order book in hand which is providing a visibility of nearly 6-8 quarters, new product developments and better margins shown by the company, our conviction in the stock idea has further strengthened. The stock has already breached our initial target price of Rs160 and we take the leeway to revise the target price to Rs190 with a horizon of 12 months.
ECONOMY: Fiscal deficit hits 93% of budget estimate at Rs6.52tn till Sept-end As per the government data, the country’s fiscal deficit reached nearly 93% of the Budget Estimate (lower than 95.3% in the corresponding month a year ago) at Rs6.52tn at the end of September in the current financial year. With muted tax revenues, the government will have to undertake spending cuts to achieve FY20 fiscal target of 3.3% of GDP. Additional RBI transfer provided some cushion to the government that saw net tax revenues grow by a muted 4%, aiding overall revenue receipts that stood at Rs8.16lk-cr in H1FY20. Considering the economic slowdown, the government however, did not cut expenditure too much. The government spending has picked up significantly in the months after the release of Union Budget in July 2019, which would support the economic growth in Q2FY20. Our comments: The government will still stick to budgeted levels of market borrowing for the fiscal; indicating to be keen to be within the budgeted levels of 3.3% of the GDP. However, tax revenues may take a hit post-October due to cuts in the corporate tax rates announced recently.
INDUSTRY: Govt. likely to reject telcos' demand for 2-year spectrum fee moratorium The Finance Ministry is likely to reject a demand from the telecom industry for a two-year ban on payment for spectrum bought in previous auctions. Recently, the Supreme Court ruled in favour of the government on recovering AGR of about Rs92,000cr from telecom service providers including Bharti Airtel, Vodafone, Reliance Communications and state-owned MTNL and BSNL. The setback to the telecoms came as the apex court upheld the AGR definition formulated by the Department of Telecom (DoT) and termed as frivolous the nature of objections raised by them. Our comments: Given the challenging fiscal situation this year, the government is banking on non-tax revenue items to make up for some of the anticipated tax revenue shortfalls. So any relaxation or waiver cannot be given on spectrum fee.
On Growth Track
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01 Nov 2019
Page No: 5
Fiscal Deficit In-line
Telco’s Plea Gets Rejected
INDUSTRY: India Core Sectors contracts 5.2% in Sept, most in 14 years India’s core sectors, ranging from cement to steel and energy, contracted the most in fourteen years in September, adding to a list of indicators suggesting that economic growth remained weak in the July-September quarter. The Indian economy grew at a six-year low pace of 5% in the April-June 2019 quarter. High frequency indicators suggest that growth since then may have weakened even further due to weak demand and constrained financial conditions. Such a low growth in core sector industries has not been witnessed so far in either 2011-12 base or 2004-05 base year series. This clearly indicates the severity of the ongoing industrial slowdown. Barring fertilizers, where the output improved by 5.4% in September, the other seven infrastructure industries witnessed a contraction. Coal was the worst performer on account of an extended monsoon, a surge in renewable energy supply and labour issues at state-run Coal India Ltd. Our comments: Experts agree that this is a worrying signal, but the trend can be reversed in a few months.
Demand for mining equipment falls 15-17% y-o-y: ICRA The demand for mining and construction equipment has seen a sharp fall by 16-17% on a y-o-y basis on account of tight liquidity conditions in the market delayed payment to contractors and an overall slowdown in government spending on infrastructure activity. Further, lack of liquidity on account of delayed payment by contractors coupled with a slowdown in project execution is a cause of concern. Equipment utilisation in a few markets is down almost 50%. Consequently, delinquencies which were holding largely steady for the construction equipment asset class until Q1FY20 too are expected to have increased in the past two months. Our comments: Considering this sharp fall in demand, ICRA has scaled down its CY19 outlook sharply to a decline of 15-17% after factoring in some post-monsoon recovery during Q4CY19.
COMPANY:
Siemens to double manpower at Chennai centre Siemens' Chennai-based Graphics and Engineering Center of Competence is planning to double its manpower to 200 engineers over the next two years and develop applications for global market. As per the Executive Vice President of Siemens Pte Ltd; GECC Chennai will add talented people as business expands, growing from the current manpower of 85 people to over 100 by end of this year and 200 in the next one to two years. The Chennai facility was started as a second support to the main centre in Sofia, Bulgaria, about 10 years ago but became an independent entity within the group in 2011 catering to the Asia Pacific and Middle East. Growth has been rapid over the past three years with Siemens US centres off-loading work to Chennai. The Chennai team is now providing graphics and engineering services for building automation systems for the Middle East, Asia Pacific and the US regions. Our comments: This shows that Siemens is bullish on India and is willing to invest here. RIL recast may help Jio rein in AGR-linked payments to government Reliance Industries Ltd.’s decision to separate the digital business from the telco may help its telecom arm save on future payments to the government that are based on its Adjusted Gross Revenue (AGR) and prompt rivals to consider adopting a similar arrangement. The Supreme Court upheld the definition of AGR for telcos to include their non-core income streams. This increases the amount payable as licence fees and spectrum usage charges, which are calculated as a percentage of AGR. Some markets experts are of the view that moving Jio’s noncore digital businesses to a new unit would contain the telco’s AGR-linked licence fee/SUC payouts in future and in turn insulate the company from potential financial shocks, ahead of a potential listing in about a year. Our comments: This move will be beneficial to Jio.
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01 Nov 2019
Page No: 6
Reduction In Core Sector Output
Sharp Fall In Mining Demand
Plans To Double Workforce
Recast Of Business Division
COMPANY:
RIL draws government ire by monopolising sale of its own CBM The government is weighing options of terminating the Production-Sharing Contract (PSC) or invoking arbitration to penalise RIL for selling to itself all the Coal Bed Methane (CBM) it produces, allegedly in violation of policy. RIL conducted open and transparent bidding process through a reputed independent third party, in compliance with provisions of the CBM contract and policy. RIL emerged as the highest bidder. Supply of CBM gas to RIL, pursuant to the bidding process, maximises benefit to the government. Government official is of the view that a producer can sell CBM to an affiliate if it fails to find a buyer in an open and transparent auction. Our comments: There are two options viz; terminate the PSC or invoke arbitration. The government is yet to make up its mind on which course to take and this decision can set a precedent. Saudi Aramco to keep 4.6mn barrels of oil in Indian storage According to a government official, India will lease a quarter of its strategic petroleum reserve in Padur to Saudi Aramco to store about 4.6 million barrels of oil. Global oil producers are eager to gain a foothold in India, where fuel demand is expected to keep rising as the country's economy grows. Indian Strategic Petroleum Reserves Ltd, a government company charged with building oil storage, signed a MOU with the Saudi state firm for its participation in the 2.5-million-tonne facility in Karnataka state. Aramco has signed an MoU for only one compartment out of the four available at the Padur storage facility. India, which relies on imports for about 80% of its oil needs, has underground emergency storage in three locations to protect against any supply disruption. The reserves can hold 36.87 million barrels. Our comments: This is part of government’s strategy to seek global investment in its pursue to expand energy infrastructure. YES Bank receives a binding offer of USD1.2bn The bank has received a binding offer from a global investor for an investment of USD1.2bn in the bank through fresh issuance of equity shares; subject to regulatory approvals/conditions as well as bank's board and shareholders approvals. The bank however did not disclose the name of the investor. This offer would enable the bank to maintain the minimum capital requirement and the amount is sizeable enough which can take care of future growth as well. Our comments: Raising more capital will be crucial for Yes Bank to achieve regulatory balance between capital adequacy rules and business growth.
01 Nov 2019
Page No: 7
Govt. Mulls Action Against RIL
Strategic Oil Reserves
Binding Offer For Yes Bank
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