Tuesday, 29 September 2015

F N A September 29, 2015

Sharekhan's Fundamental News and Analysis

>>02: 05 PM

Hero MotoCorp launches the Hero Maestro Edge while unveiling the new metal body scooter Duet
Hero MotoCorp launched its new scooter Maestro Edge priced at Rs50,700 (ex-showroom Delhi). The scooter is powered by an all new 110cc engine and develops 8.3bhp power. The scooter also gets telescopic front shock absorbers, external fuel refilling, digital console, combined braking system and alloy wheels. The deliveries for the vehicle will start in October with the festive season. The company also unveiled its first metal body scooter i.e Hero Duet which is also powered by the same 110cc engine. The Duet will compete with Honda Activa and TVS Jupiter. The Duet is expected to be launched in the next couple of weeks. The launch is positive Hero as it improves its offerings in the fast growing scooter segment.

>>01: 48 PM

TCS: To Provide Neural Automation System To UK-based Nationwide Building, partnership in Digital space - positive read-thru
Tata Consultancy services had new partnership with nationwide building society (exiting client) in the UK for the provision of the ignio neural automation system which will be use for batch performance and capacity management. Nationwide delivers a wide range of products to its customers and recognizes the importance of deployed new services rapidly and increasing the resilience of its digital solutions.

>>11: 09 AM

RBI reduces repo rate by 50 bps – positive for Banks ( mainly PSBs, NBFC like LIC housing, HDFC)
-           RBI reduces repo rate by 50 bps to 6.75%, the extent reduction was positive surprise as it was higher than market expectations of 25 bps cut
-          Inflation forecast trimmed to 5.8% for Jan 2016, 4.8% for  Jan 2017, the RBI statement is quite dovish compared to past monetary policy releases
-          GDP forecast reduced to 7.4% (for FY16) from 7.8% earlier.
-          Lowered the risk weightage for affordable housing segment ( positive for Canfin homes, Dewan housing)

>>09: 02 AM

Media flash: Sun Pharma  gets US FDA nod for Dexmethylphenidate hydrochloride (is used to treat hyperactivity disorder)
Wagon makers reject Railways dual pricing formula-continued logjam sentimentally negative for wagon makers like Texamaco and Titagarh

>>08: 47 AM


RBI will release its bimonthly monetary review today (29 Sept) and  market participants (as per Bloomberg survey) expects 25 bps cut in the repo rate.

Alert: Indian Sugar output is likely to fall by 5% to 27 million tons in the upcoming sugar season due to lower monsoon (especially in Maharashtra); the sugar prices are likely to surge up due to lower production in India and Brazil  - positive for sugar companies (especially UP based sugar companies Balrampur Chini and Dhampur Sugar)

Alert: Shree Cement is also named by real estate lobby as part of cartel along with Ultratech and Lafarge – Negative for Shree Cement

ITC: Bigger pictorial warnings (85% of the package area) on tobacco products will be implemented from April 2016; the implementation of law was delayed by almost 8-10 months waiting for the decision of parliamentary committee – sentimentally negative for ITC as delay has provided enough time for companies to gear up for implementation of law

Larsen & Toubro Infotech, a subsidiary of L&T has filed draft red herring prospectus with the SEBI for IPO yesterday. The issue comprises of an offer for sale of up to 1.75 crore equity shares of the face value Re 1 each by Larsen & Toubro. – Positive for L&T due to potential value unlocking

Aurobindo Pharma receives approval for Caffeine citrate – Media Flash
According to media report, Aurobindo has received approval from the US Food and Drug Administration (USFDA) for Caffeine citrate. Caffeine citrate is used in treatment of apnea of prematurity (lack of breathing in premature infants). If confirmed by the company, it can be positive for the company.

Hero MotoCorp to launch two new scooter on September 29; positive for the company
India’s largest two wheeler manufacturer ie Hero MotoCorp will be launching two new scooters on September 29. The new scooters are likely to be the Maestro Edge and the Hero Dash. The new scooters will help the company gain marketshare in the fast growing scooter segment and is positive for it.

Corporation Bank to issue shares to government on preferential basis at Rs 54.72 per share ( 24% premium to CMP) – positive
As a part of capital infusion in PSU Banks, the Corporation Bank will issue 2.81 crore share to government at Rs 54.72 per share. Since the issue prices is ~24% premium to CMP, it is sentimentally positive for the stock.


Strides Arcolab to raise Rs 1,500 crore
The board of directors of Strides Arcolab has approved the proposal to raise long-term funds by way of issue of GDRs/ADRs /FCCBs/QIP or such other equity linked instruments for an amount up to Rs 1,500 crore including a green shoe option


Relaxo Footwear stock update- – Strong execution; maintain Buy with a revised price target of Rs 635
We attended the annual investor meet of Relaxo Footwear (Relaxo) , presided by the promoter and managing director, Ramesh Dua, along with the entire key management team of Relaxo. The meeting re-instated our confidence in the management and business model of the company, which is poised for a strong earnings growth ahead despite short term growth challenges led by soft environment. We continue with our Buy rating on the stock with a  revised price target of Rs 635, and also introduce our FY18 estimates in this note. The following are the highlights of the meeting.
·         Consumer centric premiumization to drive performance - The company would continue to remain focused on the consumer with the introduction of value-added and premium products under each of its brands. Thus, product premiumisation and steady volume growth would drive the revenues and margins ahead. We expect Relaxo to post a 21.3% revenue growth over FY2015-18.
·         Proactive approach makes it future ready for growth- Relaxo has a proactive approach towards both brand building as well as creating capacities. To built its brand and create pull, like the FMCG player it continues to rope bollywood celebrity that creates an aspirational quotient  for the brands. On one hand, the company is creating strong consumer centric aspiration for the consumers, on the other hand it is keeping its eye on the quality and thus does not believes in outsourcing and is in the process of building capacity for future.  Despite the current capacity (180 million pieces per annuam),that would take care of next three years growth, the company has bought a 15 acres land at Bhiwadi to built additional capacity to serve the future requirements.
·         Marketing focus on newly introduced “Bahamas” to get sharper- As a part of its premiumization drive, the company has introduced a new brand- Bahamas which is a flip flop colourful slipper targeted towards young generation, with higher price point (ranges at Rs 200-300). The company is in negotiation with few bollywood stars including Salman khan for endorsement. We believe that company’s effort towards branding would yield results in the form of enhanced revenue and increased brand visibility ahead.  
·         Strong brands, focused management – maintain Buy : Relaxo’s strong presence in the lucrative mid priced footwear segment (through its top-of-the-mind recall brands like Hawaii, Flite and Sparx) along with its integrated manufacturing set-up, lean working capital requirement and vigilant management puts it in a sweet spot to cash in on the strong growth opportunity unfolding in the footwear category due to a shift from unbranded to branded products. Thus, we remain positive on the business. We introduce our FY2018 estimates in this note, expecting the revenues and earnings to grow at a CAGR of 21.3% and 30.9% respectively over FY2015-18. We also roll over our multiple from FY2017 estimate to FY2018 (valuing the stock at 33x FY2018E), at a price target of Rs 635. We thus maintain our Buy rating on the stock.


Wockhardt clarification news – Could be dampener.
As per the media reports, Wockhardt’s Waluz manufacturing plant has received USFDA clearance. However the company has clarified that it has not received any such communication from the FDA.

IL&FS transportation has fixed rights entitlement ratio of 1:3 (announced during market hours) with an issue price of Rs90 per equity share, the record date for the proposed rights issue is 8 October, 2015 – Equity raising should ease stress on balance sheet which is key drag on valuations

Govt may consider cutting stake in PSU Banks to 52%
Finance minister has said that, government may consider reducing its stake in state-run lenders to 52% and also consider other issues including problems tied to distressed state power providers. FM also suggested that government was getting ready to unveil a draft for a bankruptcy code at the end of this month or in early October. Any step towards the resolution of SEBs or announcement of bankruptcy code will be positive for banking sector though reduction in government stake is immaterial unless its holding goes below 49%.
Crompton Greaves wins Euro 17 million (Rs125crore) order to supply ZIV single and three phase smart meters to Spanish firm Gas Natural Fenosa

Larsen & Toubro has bagged orders worth Rs 1,509 crore for the project which includes construction of water treatment plant, 2,835 km of pipeline network, 25 major water storage reservoirs and other associated works at Adilabad district in Telangana. - Positive for L&T

Neyveli Lignite Corporaration (NLC) is planning to establish 4000MW of solar power projects in southern states, in line with the National Solar Mission announced by the Centre. Currently, NLC is operating with 4240MW of thermal capacity – positive read thru

Bajaj Auto starts Pulsar exports to Russia; positive for the company
Bajaj Auto has entered the Russian market and started export of its Pulsar range in the country. The company has tied up with a local partner and is in the process of establishing a countrywide distribution network. Bajaj Auto is the largest exporter of two wheelers in India.

Maruti Suzuki to hike wages for temporary workers too; should end agitation of temporary workers
Maruti Suzuki is expected to offer a wage hike to its temporary workers also. The company recently hiked wages for permanent workers and the temporary workers have been demanding a similar increase.  

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