Please refer to important disclosures at the end of this report Sebi Registration No: INB 01099653 9 1 Market Outlook India Research November 11, 2011 Dealer’s DiaryIndian markets are expected to open sideways tracking mixed cues from the markets worldwide. While the shift in epicenter of euro zone crisis from Greece to Italy have raised fresh concerns for investors and led to sharp fall in indices worldwide on Wednesday, news of a successful bond auction in Italy pulling the yield on Italy's ten-year bond back below 7% and election of former European Central Bank Vice President Lucas Papademos as Greece's new prime minister helped the markets relax and close mostly higher on Thursday. The rebound in US stocks was also aided by better than expected economic data from the US on Thursday. The jobless claims fell unexpectedly to 390,000 from the previous week's revised figure of 400,000, while a separate report showed that the U.S. trade deficit unexpectedly narrowed in September, as the value of exports increased at a much faster rate than the value of imports. Meanwhile, Indian investors will keenly watch out for the IIP and the weeklyinflation figures due today, which are expected to give more clarity to the domestic markets in the coming days. Markets TodayThe trend deciding level for the day is 17,451/5,250 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,570 – 17,778/5,288 – 5,356 levels. However, if NIFTY trades below 17,451/ 5,250 levels for the first half-an-hour of trade then it maycorrect up to 17,243– 17,123/5,183 – 5,144 levels. Indices S2 S1 R1 R2 SENSEX 17,123 17,243 17,570 17,778 NIFTY 5,144 5,183 5,288 5,356 News Analysis TCS bags US$2.2bn order 2QFY2012 Result Reviews – SBI, Tata Steel, DLF, Hindalco, Ranbaxy, Lupin, Mahindra Satyam, Bharat Forge, IRB, ITNL, CESC, Apollo Tyres, Godawari Power, Ceat 2QFY2012 Result Previews – Coal India, NALCO, MOIL, Britannia, DISH Re fer detailed news analysis on the following page Net Inflows (November 08, 2011) ` cr Purch Sales Net MTD YTD FII 2,269 2,053 216 521 1,037 MFs 589 439 151 (291) 4,844 FII Derivatives (November 09, 2011)` cr Purch Sales Net Open Interest Index Futures 2,085 1,550 535 14,497 Stock Futures 1,596 1,871 (275) 28,868 Gainers / Losers Gainers Losers Company Price ( ` ) chg (%) Company Price ( ` ) chg (%) United Spirits 914 4.9 SBI 1,863 (6.8) Ashok Leyland 28 3.5 Indiabulls Fin 143 (5.9) Hindustan Unilever 391 2.9 BPCL 570 (5.5) Manappuram Fin. 64 2.2 Voltas 102 (5.2) Wipro 377 2.1 HPCL 316 (4.9) Domestic Indices Chg (%) (Pts) (Close) BSE Sensex (1.2) (207.4) 17,362 Nifty(1.3) (68.3) 5,221 MID CAP (1.3) (78.8) 6,233 SMALL CAP (1.1) (73.5) 6,873 BSE HC (1.7) (102.9) 6,036 BSE PSU (2.1) (157.1) 7,433 BANKEX (2.6) (297.0) 11,021 AUTO (1.7) (158.9) 9,082 METAL (2.5) (295.6) 11,539 OIL & GAS (2.3) (203.1) 8,841 BSE IT 0.4 24.0 5,793 Global Indices Chg (%) (Pts) (Close) Dow Jones 1.0 112.9 11,894 NASDAQ 0.1 3.5 2,625 FTSE (0.3) (15.6) 5,445 Nikkei (2.9) (254.6) 8,501 Hang Seng (5.2) (1,051) 18,964 Straits Times (2.5) (71.8) 2,787 Shanghai Com (1.8) (45.4) 2,480 Indian ADRs Chg (%) (Pts) (Close) Infosys (0.0) (0.0) $56.0 Wipro 0.7 0.1 $9.7 ICICI Bank 0.2 0.1 $33.3 HDFC Bank (1.3) (0.4) $29.1 Advances / Declines BSE NSE Advances 991 36 Declines 1,879 1,124 Unchanged 104 48 Volumes ( ` cr) BSE 2,576 NSE 11,024
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Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539 1
Market OutlookIndia Research
November 11, 2011
Dealer’s Diary
Indian markets are expected to open sideways tracking mixed cues from the
markets worldwide. While the shift in epicenter of euro zone crisis from Greece toItaly have raised fresh concerns for investors and led to sharp fall in indices
worldwide on Wednesday, news of a successful bond auction in Italy pulling the
yield on Italy's ten-year bond back below 7% and election of former European
Central Bank Vice President Lucas Papademos as Greece's new prime minister
helped the markets relax and close mostly higher on Thursday.
The rebound in US stocks was also aided by better than expected economic data
from the US on Thursday. The jobless claims fell unexpectedly to 390,000 from
the previous week's revised figure of 400,000, while a separate report showed
that the U.S. trade deficit unexpectedly narrowed in September, as the value of
exports increased at a much faster rate than the value of imports.
Meanwhile, Indian investors will keenly watch out for the IIP and the weekly
inflation figures due today, which are expected to give more clarity to the
domestic markets in the coming days.
Markets Today The trend deciding level for the day is 17,451/5,250 levels. If NIFTY trades
above this level during the first half-an-hour of trade then we may witness a
further rally up to 17,570 – 17,778/5,288 – 5,356 levels. However, if NIFTY
trades below 17,451/ 5,250 levels for the first half-an-hour of trade then it may
correct up to 17,243– 17,123/5,183 – 5,144 levels.
Tata Steel reported disappointing profitability for 2QFY2012. Consolidated net
sales increased by 14.5% yoy to ` 32,798cr (above our estimate of ` 30,936cr)
mainly on account of increased average realizations. Tata Steel India’s net sales
increased by 15.7% yoy to ` 81,42cr. Tata Steel India operations sales volumes
decreased by 0.7% yoy to 1.65mn tonnes, while Tata Steel Europe (TSE) operations
sales volumes decreased by 1.7% yoy to 3.48mn tonnes in 2QFY2012. Tata Steel
India’s average realization/tonne increased by 18.6% yoy to ` 46,402, while TSE’s
average realization/tonne decreased by 1.0% yoy to US$1,148 on account of
subdued demand in Europe. EBITDA/tonne decreased by 19.1% and 47.0% yoy to
US$365 and US$30 in Tata Steel India and TSE operations, respectively, as
increased realization (at India operations) was more than offset by higher raw-
material costs. Consolidated EBITDA decreased by 25.1% yoy to ` 2,750cr. Other
income decreased to ` 120cr compared to ` 814cr in 2QFY2011. The company reported exceptional forex loss of ` 150cr in 2QFY2012. Adjusting for exceptional
items, adjusted net profit decreased by 81.4% yoy to ` 362cr, significantly below
our estimate of ` 1,339cr. Consolidated reported net profit stood at ` 212cr
compared to ` 1,979cr in 2QFY2011. Standalone net profit decreased by 27.6%
yoy to ` 1,495cr. Consolidated net debt stood at US$8.4bn as on September 30,
2011. We maintain our Buy rating on the stock; our target price is under review.
DLF
DLF announced its 2QFY2012 numbers. The company’s net sales increased by 6.9% yoy to ` 2,532cr ( ` 2,369cr), below our estimate of ` 2,674cr. EBITDA came in
at ` 1,173cr, up 26.3% yoy, on the back of strong margin expansion. OPM
expanded by 711bp yoy to 46.3%, which was above our estimate of 43.0%. PAT
declined by 11.0% yoy to ` 372cr, which was slightly below our estimate of ` 399cr.
The decline in PAT was largely due to higher tax rate during the quarter, which
increased to 28.6% of PBT in 2QFY2012 vs. 14.9% of PBT in 2QFY2011. We
continue to maintain our Neutral recommendation on the stock. We may revise
our estimates and target price post management’s concall.
Hindalco
Hindalco and Novelis reported their 2QFY2012 results separately. Hindalco’s
standalone net sales increased by 7.2% yoy to ` 6,220cr, driven by increased
realization. However, EBITDA decreased by 4.2% yoy to ` 669cr on account of
rising costs of power, driven by increased coal prices. Power costs grew by 31.1%
yoy to ` 753cr. Thus, EBITDA margin slipped by 128bp yoy to 10.8% in
2QFY2012. Other income grew by 114.5% yoy to ` 176cr. Tax rate stood at 16.8%
compared to 22.0% in 2QFY2011. Consequently, net profit increased by 15.8%
yoy to ` 503cr. Hindalco has delayed its completion timeline of Mahan Aluminium
industrial activity. On the operating front, the company's margin slipped by 56bp
yoy (63bp qoq) to 23.7%. While raw-material costs as a percentage of sales
remained stable, manufacturing expenses as a percentage of sales increased by
116bp yoy. Led by stable operating performance, a substantial increase in otherincome and lower tax rate, BFL's net profit jumped by 56.1% yoy (9.2% qoq)
to ` 106cr.
On a consolidated basis, BFL reported strong 25.3% yoy (flat qoq) growth in its top
line to ` 1,559cr. EBITDA margin came in slightly ahead of our estimates at 16.2%,
an increase of 50bp yoy (42bp qoq), resulting in a 55.2% yoy (1.2% qoq) increase
in PBT to ` 155cr. The stock rating is currently under review.
IRB
For 2QFY2012, IRB Infra reported a strong set of numbers, in-line with ourestimates. The company’s top line witnessed robust growth of 50.1% to ` 735.9cr
( ` 490.3cr), marginally ahead of our estimate of ` 687.0cr. On the EBITDAM front,
margin came at 43.7% (48.2%), slightly lower than our estimate of 45.2%. Interest
cost came in at ` 141.1cr ( ` 69.3cr), registering a jump of 103.7%/20.2% on a
yoy/qoq basis. At the earnings front as well, IRB Infra reported healthy growth of
22.1% to ` 147.6cr ( ` 120.9cr) and 11.1% to ` 110.1cr ( ` 99.1cr) on a yoy basis at
the PBT and PAT levels, respectively, against our estimate of ` 147.1cr and
` 107.3cr for PBT and PAT, respectively.
Our valuation of ` 193/share for the consolidated business uses NPV/EV/EBITDA-
based valuation for BOT assets and the C&EPC arm, respectively. We factor inCoE of 14% and a traffic growth rate of 5/6/7% for its BOT assets. We maintain
our view on the stock with a target price of `193.
ITNL
ITNL reported a good set of numbers for 2QFY2012. Revenue for the quarter
came in at ` 1,256cr ( ` 883cr), registering 42.1% yoy growth, primarily due to
higher revenue of the C&EPC segment. On a sequential basis as well, ITNL’s
revenue grew by 14.9%. EBITDA margin for the quarter stood at 28.4% vs. 29.6%
in 2QFY2011, down 120bp, mainly on account of increased contribution from the
relatively low-margin C&EPC segment, as expected. ITNL’s interest cost during the
quarter grew by 72.3%/18.8% yoy/qoq to ` 169.4cr ( ` 98.3cr). The bottom line
witnessed modest 8.2% yoy growth to ` 116.2cr ( ` 107.5cr), owing to lower
EBITDAM and higher interest cost during the quarter.
We have valued ITNL on an SOTP basis by assigning 6x EV/EBITDA to its
standalone business and have valued its investments on DCF/Mcap/BV basis
on FY2013E. We continue to maintain our Buy rating on the stock with a target
price of `260/share, implying an upside of 27.9% from current levels.
increased by 50.0% yoy to ` 11cr. We maintain our Buy rating on the stock; our
target price is under review.
Ceat
Ceat reported strong operating performance for 2QFY2012; however the bottom
line was severely impacted on account of high interest and depreciation expense
due to commissioning of the new facility at Halol. Ceat returned back to
profitability in 2QFY2012 after reporting losses at the operating as well as bottom-
line front in 1QFY2012.
Net sales grew strongly by 32.7% yoy (3.7% qoq) to ` 1,118cr on account of
availability of additional capacity at Halol plant and average price hike of ~10%
in 1QFY2012. Top-line growth also benefited from a 21.4% yoy increase in other
operating income. Operating margin improved by 27bp yoy to 5.5%, largely due
to ramp-up at Halol facility and price increases carried out in 1QFY2012. While
raw-material cost as a percentage of sales increased by 223bp yoy, the decline in
staff cost and other expenditure as a percentage of sales by 129bp and 132bp
yoy, respectively, helped Ceat maintain its margins. Net profit, however, fell
sharply by 63.3% yoy to ` 6cr due to a significant increase in depreciation (114%
yoy) and interest expense (170% yoy).
We expect the company to report continuous improvement in its operating
performance, led by improving utilization at Halol plant and a gradual decline in
raw-material prices. We maintain our Buy rating on the stock; however our target
price is under review.
Result Previews
Coal India
Coal India is slated to report its 2QFY2012 results tomorrow. We expect net sales
to increase by 18.2% yoy to ` 13,774cr mainly on account of increase in coal
prices. EBITDA margin is expected to expand 1,207bp yoy to 28.0% in 2QFY2012.
Net profit is expected to increase by 111.7% yoy to ` 3,164cr. We recommend
Accumulate on the stock.
Nalco
Nalco is slated to report its 2QFY2012 results. We expect net sales to decreaseby 1.0% yoy to ` 1,440cr despite higher realization on account of productioncuts during the quarter. EBITDA margin is expected to contract by 122bp yoy to 21.0% due to lower volumes and rise in prices of key inputs (primarily coal).Net profit is expected to increase by 6.2% yoy to ` 238cr. We maintain ourNeutral view on the stock.
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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