}

Friday, 30 October 2015

F N A October 30, 2015 & Morning view

Sharekhan's Fundamental News and Analysis

October 30, 2015

TOP NEWS

Cipla strengthens its focus on biotech - long term positive.
Cipla announces that it has entered into a definitive agreement to sell its entire 25% stake in Biomab Holding Limited, Hong Kong (“BHL”) to Biomab Brilliant Limited, British Virgin Islands which holds the remaining 75% stake in BHL, for a total consideration of ~ Rs 165-167 crores. Biomab Holding Limited is focused on developing Biosimilars for the Chinese market. Going forward, the Company’s biological business will be consolidated under Cipla BioTec. It is a long term positive news for the stock.

Family feud in the Kalyani family (promoters of Bharat Forge)
As per media reports, a niece of Bharat Forge chairman and promoter i.e Baba Kalyani has filed a case in the court demanding her share (one-ninth of the family estate) of ancestral wealth including shares of listed companies like Bharat Forge. We do not expect the court proceedings to impact operations at Bharat Forge; however any court ruling against the current promoters would be negative for the stock.

RESULT PREVIEW

Company
Revenues (Rs cr.)
OPM(%)
Adjusted PAT (Rs.cr)
Q2FY16E
Q2FY15
YoY%
QoQ%
Q2FY16E
Q2FY15
YoY bps
QoQ bps
Q2FY16E
Q2FY15
YoY%
QoQ%
L&T
14,187
12,717
11.6
32.5
10.7
10.5
10.3
155.0
1,102.7
1,042.2
5.8
57.3
Apollo Tyres
2,986
3,315
-9.9
4.9
17.6
14.9
271
-6
316
258
22.5
8.8
ITC
9292.9
9023.7
3.0
8.2
40.6
38.7
189
113
2593.6
2425.2
6.9
14.5
IPCA Lab
796.6
774.9
2.8
6.1
11.8
16.7
-481.8
23.3
44.2
70.7
-37.5
3.7
Titan Ltd
2,817
3,593
(21.6)
4.0
8.7
9.3
(55.6)
49.1
173
240
(27.8)
14.7

Company
Net Interest Income (Rs cr.)
Pre-Provisioning profit (Rs.Cr)
Adjusted PAT (Rs. Cr)
Q2FY16E
Q2FY15
YoY%
QoQ%
Q2FY16E
Q2FY15
YoY%
QoQ%
Q2FY16E
Q2FY15
YoY%
QoQ%
ICICI Bank
5098
4657
9.5
-0.3
5231
4698
11.4
3.8
2931
2709
8.2
-1.5

INVESTMENT CALLS

Bharat Electronic Ltd Q2FY2016: Continues to improve operating performance, earnings grew by 41% 
·         BEL reported revenue of Rs1467.7 crore growths of 13% YoY. During the quarter company was able to improve its margins by 276 basis point on account of better cost management, hence Company reported operating margins of 12.0%.
·         Other income for the quarter stood at Rs137.5 crore grew by 24% YoY. Strong margins and higher other income supported earnings growth for the quarter which grew by 41% YoY to Rs206.8 crore. EPS is calculated on post bonus equity
·         Currently, we have Buy rating on the stock and we will come out with detailed note post management interaction.

Result table
Particulars
Q2FY16
Q2FY15
YoY %
Q1FY16
QoQ%
Net Sales
1467.7
1294.0
13%
1095.3
34%
EBITDA
175.4
118.9
48%
-5.4
-3354%
PAT
206.8
147.0
41%
60.7
2.4
EPS
25.8
18.4
41%
7.6
241%






EBITDA (%)
12.0%
9.2%
276
-0.5%
1244

Actual vs Estimate



Particulars
Q2FY16
Q2FY16E
Variance %
Net Sales
1467.7
1422.3
3%
EBITDA
175.4
120.9
45%
PAT
206.8
155.6
33%
EPS
25.8
19.5
33%



Bps
EBITDA %
12.0%
8.5%
345

Torrent Pharma reports another strong quarter.
·         Sales grew by 37.6% to Rs 1655 crores; Operating profit grew by 162% to Rs 714 crores; operating profit margin improved by 2047bps to 43.1% and profit(without exceptional items) for the quarter grew by 161% to Rs 515 crores. (consolidated results include financials of ZYG Pharma acquired on 17 July 2015).
·         Exceptional items during the quarter represents write back of provision for diminution in value of investments of Rs 37 crores and profit on sale of investments of Rs 16 crores (total 53 crores).
·         Domestic business recorded flat sales of Rs 442 crores due to discontinuation of certain promotional schemes and hygiene initiatives which has impacted the business in short term, however it will be positive impact for long term.
·         Brazil reported sales of Rs 131 crore, 18% de-growth (adjusted for currency movements growth was 19%).
·         US reported growth of 326% mainly on account of launch of new products in US market which has limited competition currently. The continuation of this dependent on market conditions in future, including additional competition.
·         Currently, we have a HOLD rating on the stock. We will come out with detailed note post the conference call.   

Result table:

Particulars
Q2FY16A
Q2FY15
YoY %
Q1FY16
QoQ %
Revenues
1655.0
1202.6
37.6%
1886.0
-12.2%
Operating Profit
714.0
272.6
161.9%
909.0
-21.5%
Adjusted PAT
515.0
197.6
160.6%
449.0
14.7%
GPM(%)
31.1
16.4
1469
23.8
731
OPM(%)
43.1
22.7
2047
48.2
-506

Actual vs. Expectation
Particulars
Q2FY16A
Q2FY16E
% Variance
Revenues
1655.0
1805.9
-8.4%
Operating Profit
714.0
493.5
44.7%
Adjusted PAT
515.0
337.2
52.7%
GPM(%)
31.1
18.7
66.7%
OPM(%)
43.1
27.3
1581

Glenmark Q2FY16 result: Profit miss estimates on account of currency fluctuation impact and higher tax outflow.
·         Sales reported growth of 13.6% to Rs 1909.4 crores; operating profit grew by 19.9% to Rs 401.8 crores; operating margins improved by 110 bps to 21% and profit grew by 19.8% to 197.8 crores (lower on account of high tax rate  - 32% paid against 28% of normal rate).
·         Sales growth was mainly driven by India, US and Europe businesses. However devaluation of currencies across emerging markets had an adverse impact on operations.
·         On NCE front, Sanofi has decided not to pursue further Vatelizumab as results of pre-planned interim analysis revealed primary efficacy endpoint was not met.
·         We will come out with detailed note post the conference call.   

Result Table
Particulars
Q2FY16A
Q2FY15
YoY %
Q1FY16
QoQ %
Revenues
1909.4
1680.7
13.6%
1655.2
15.4%
Operating Profit
401.8
335.2
19.9%
359.6
11.7%
Adjusted PAT
197.8
165.1
19.8%
191.0
3.6%
GPM(%)
10.4
9.8
54
11.5
-118
OPM(%)
21.0
19.9
110
21.7
-68

Actual vs. Estimates
Particulars
Q2FY16A
Q2FY16E
% Variance
Revenues
1909.4
1903.7
0.3%
Operating Profit
401.8
407.8
-1.5%
Adjusted PAT
197.8
216.6
-8.7%
GPM(%)
10.4
11.4
-9.0%
OPM(%)
21.0
21.4
0.0

Thomas Cook India Q2FY2016 (consolidated) results – Strong revenue growth; lower margins, higher interest cost and depreciation led to decline in profits
Thomas Cook India’s (TCIL) Q2FY2016 consolidated are strictly not comparable on y-o-y basis due to consolidation of 100% sterling acquisition and some of the acquisitions made by Quess Corp (subsidiary) in last twelve months
Result Highlights
·         TCIL consolidated revenues grew by 58.3%yoy to Rs964.3crore driven by strong performance of core travel business (grew 15%), 100% consolidation of Sterling Holiday Resorts (grew by 20% on like to like basis) and 69% growth in Quess Corp’s revenues.
·         The operating margins of the company declined by 339BPS due to higher marketing and other expenses made by Sterling Resorts (resulting in EBIDTA loss of ~Rs8crore), the decline in profits of financial service business and increase in contribution of Quess Corp, which has mid single digit margin.
·         On positive note, TCIL travel business performed extremely well with 15% growth in revenues and the PBIT margins improving by 800BPS to 30%. This was on back of 54% increase in the EBIDTA of outbound leisure travel and 79% increase in EBIDTA of MICE business.
·         Though operating profit marginally declined by 4%, the higher interest expense and depreciation resulted in 40% decline in the adjusted PAT.
·         TCIL travel and Sterling Holiday Resort business shown strong revenue performance on the like to like basis. The financial service business was drag on the profitability. We shall review our earnings estimate post the conference call tomorrow and will come out with the detailed note. Currently we have a Buy rating on the stock.

Result snapshot (consolidated)                                                Rs crore
Particular
Q2FY16
Q2FY15
YoY %
Q1FY16
QoQ %
Revenue
964.8
609.5
58.3
929.2
3.8
Total operating cost
914.8
557.4
64.1
845.8
8.2
Operating profit
49.9
52.2
-4.3
83.3
-40.1
Reported PAT
17.2
28.7
-40.0
42.0
-59.1
EPS
0.6
1.1

1.5







OPM
5.2%
8.6%
-339BPS
9.0%
-379BPS

Actual vs expectation
Particular
Q2FY16
Q2FY16E
YoY %
Revenue
964.8
830.5
16.2
Operating profit
49.9
73.3
-31.9
Reported PAT
17.2
34.7
-50.5
EPS
0.6
1.3





OPM
5.2%
8.8%
-366BPS

Emami Q2FY2016 – mix bagged performance; early monsoon affected cooling oil sales while strong improvement in gross margins aided 20%+ growth in PAT
·         Emami’s Q2FY2016 consolidated revenues grew by 17.4%yoy to Rs574.6crore driven double digit volume growth. The domestic business grew by ~17% (volume growth of 13%) and international business grew by 12% during the quarter.
·         Excluding Kesh King (acquired in Q1FY2016), the revenue growth stood at 7% with volume growth standing at just 1%. The management has indicated that the early monsoon affected the sales of cooling oil (stood flat) and cooling talc (down by 20%) during the quarter. Boro plus and Zandu Health care products registered strong growth of 16% and 45% during the quarter.
·         Kesh Kind brand sales stood at Rs52crore and the brand registered gross margins of 76% and the operating margins of 45%.
·         The consolidated gross margins of Emami improved by 439BPS yoy to70.6% on back of benign input prices and improved revenue mix (due to addition of Kesh King brand in the portfolio). The operating profit grew by 34.5%yoy and Rs152.3crore and the adjusted PAT grew by 22.8yoy to Rs110.6crore (marginally ahead of our expectation of Rs105.5crore for the quarter.
·         View: Emami posted mix bagged performance in Q2. Going ahead the management expects to achieve 12-14% revenue growth (excluding Kesh King sales) in backdrop of better winter season in H2FY2016. The gross margins are expected to remain in the H2FY2016 as raw material prices have remained benign (over all gross margin expansion is expected in the range of 250-300BPS in FY2016). Emami has strong portfolio of brands, which will help to achieve good revenue and PAT growth in long run. Hence we maintain our Positive on the stock.
Result Snapshot (Consolidated)                                                 Rs crore
Particulars
Q2FY16
Q2FY15
yoy%
Q1FY16
qoq%
Net Sales
574.6
489.6
17.4
589.9
-2.6
Operating profit
152.3
113.2
34.5
99.7
52.8
Other income
12.9
12.2
5.6
18.5
-30.1
interest expenses
19.1
1.3
1346.2
4.3
339.9
Adjusted PAT
110.6
90.1
22.8
98.3
12.5
extra-ordinary gain / loss
-49.6
0.0
-
-10.9

Reported PAT
61.1
90.1
-32.2
87.4
-30.2

Dr Reddy's Q2FY16 result : Better than expectations; however FDA clarity on Srikakulam continues to be overhang.
·          Revenues for the quarter grew by 11.2% to Rs 3989 crores; operating profit grew by 44.1% to Rs 894 crore; Operating profit margins improved b 512 bps to 22.4%  and profit grew by 26% to Rs 722 crores. Gross profit margin improved by 285 bps to 61.3%  YoY. Gross profit margin for global generics (GG) and Pharmaceutical Services and Active Ingredients (PSAI) segments are at 67.3% and 25.8% respectively.
·         Sales from global generics segment grew by 15% to Rs 3280 crores primarily driven by US, India and Europe.
·         US grew by 32% on account of :1) sustained performance of injectable franchise and market share gains in key products; 2) Contribution from products launched  in previous quarter majorly being valganciclovir, sirolimus, Memantine and Habitrol. During the quarter company has filed 2 new products. Cumulatively 76 ANDA’s are pending approval with the USFDA of which 50 are Para IV’s (of which 18 are FTF’s).
·         Emerging market sales declined by 22% to Rs 660 crores. In constant currency terms too revenue was flat where in the growth in Russia and CISR markets was offset by decline in Venezuela.
·         Domestic sales reported growth of 14% to Rs 550 crores (could have been 20% adjusted for some of dispatches which got spilled to October). Europe revenue at 210 crores showed a growth of 65% primarily on account of new products (aripiprazole & pregablin) launched in H2FY15.
·         Biosimilars will continue to be key opportunity in medium term as currently the assets are under development stages.
·         Only negative for upside to stock is any adverse outcome on Srikakulam API facility. Management indicated that they have sought for site transfers for key products; but outcome/clarity from FDA is awaited.

Result Table
Particulars
Q2FY16A
Q2FY15
YoY %
Q1FY16
QoQ %
Revenues
3989.0
3587.9
11.2%
3757.8
6.2%
Operating Profit
893.8
620.1
44.1%
758.7
17.8%
Adjusted PAT
721.9
574.2
25.7%
625.7
15.4%
GPM(%)
18.1
16.0
209
16.7
145
OPM(%)
22.4
17.3
512
20.2
222

Actual vs. Estimates
Particulars
Q2FY16A
Q2FY16E
% Variance
Revenues
3989.0
3936.4
1.3%
Operating Profit
893.8
787.3
13.5%
Adjusted PAT
721.9
612.8
17.8%
GPM(%)
18.1
15.6
16.3%
OPM(%)
22.4
20.0
0.1

Grasim Industries Q2FY2016 Results Review: Strong operational performance across divisions; retain Buy

·         Strong operating performance across all divisions: For Q2FY2016, Grasim Industries (Grasim)’s revenue for the quarter improved by 5.5% YoY to Rs8,297.5 crore led by volume growth across all its divisions. The OPM rose by 119BPS led by higher realisation in cement (up 1% YoY) and chemical (up 5% YoY) divisions. The pulp & fibre JVs performance was aided by higher pulp realisation in its Canadian JV along with depreciation of Canadian dollar. Further, the company reported earnings growth of 17.3% YoY on account of a decline in interest costs (down 2.2% YoY).
·         VSF prices on uptrend sequentially, cement to pick up in H2FY2016: VSF prices has witness uptrend in H1FY2016 with increase in raw material prices and stoppage of few plants in China for environmental issues and maintenance. Further 100% capacity utilisation of Vilayat facility and revenue mix in favour of speciality products is expected to maintain better operational performance. On the cement front, the company expects demand to pick up in H2 and the government’s push on infrastructure projects should boost utilisation level in 2HFY2016.
·         Maintain Buy with price target of Rs4,475: With the improving outlook for VSF and expectations on the hope of a pick-up in the demand outlook for cement going ahead. We have revised our earnings estimates upwards for FY2016 and FY2017 factoring improvement in margins in all three divisions. Hence,we maintain our Buy rating on the stock with a price target of Rs4,475. Currently, the stock is trading at 14.9x its PE and 5.2x its EV/EBIDTA its FY2017E earnings.

Yes Bank – Q2FY16 Result Update:  Earnings growth remains strong, marginal deterioration in asset quality
·         NII up 29.4% YoY, Margins stable : Yes Bank reported strong set of numbers for Q2FY16 as net profits clocked a growth of 26.5% YoY supported by a 29.4% YoY growth in net interest income. The growth in NII is largely attributed to strong growth in advances (up 29.0% YoY) and 10 bps YoY expansion in net interest margins to 3.3% (NIM stable on QoQ as dip in yield on loans was offset by a similar dip in cost of funds). The CASA deposits showed a strong growth (particularly savings deposits) leading to rise in CASA ratio to 25.5% Vs 22.5% YoY.
·         Marginal blip in asset quality: The asset quality showed marginal deterioration in Q2FY16 as gross NPAs increased to 0.61% vs 0.46% in Q1FY16, though it remains amongst the best in sector. The fresh NPA additions were Rs 146 crore  in Q2FY16 and bank has not sold any loans to ARC or refinanced loans under 5/25 scheme. Given the bank’s disclosures on stressed sector exposures, credit rating profile (75% of the corporate exposure is rated ‘A’ and above and is spread across the sector) and healthy provision coverage (67.7 %) we expect asset quality situation to remain under control.
·         Valuations and outlook: Yes Bank continues to deliver strong set of numbers amid challenging environment. We expect upward trend in margins over next 12-18 months due to partial reduction in savings deposit rates, rising CASA balances and shift in portfolio mix. On asset quality front we derive comfort from management guidance of credit cost (50-70 bps). We expect earnings to grow at a CAGR of 21.8% over FY15-17 resulting in ROAs of 1.7%.  We maintain Buy rating with price target of Rs 930 ( 2.4x P/BV)

Firstsource Solutions Ltd (FSL) result Update Q2FY2016: Strong quarter, optimistic commentary
·         Strong quarter: After several quarters of lackluster performance owing to  multiple headwinds, FSL has smartly bounce back with strong set of numbers for Q2FY16 (though on a low base) with 3% growth in topline on a constant currency basis and total revenues including hedging income up by 6.1% qoq to Rs792.5 crore. Operating margins improved by 40bps qoq to 12.4%, attributed to rupee tailwinds and strong topline growth. Net income for the quarter was up by 9.6% qoq to Rs61.8 crore. On operating metric front, top client delivered a 12.5% qoq growth after a 7.5% negative CQGR over Q2FY15-Q1FY16, during the quarter there was a net deduction of 281 headcounts taking total headcounts to 23658 and with total seats of 23159, seating filling factors stood at 67% vs.68% in Q1FY16. 
·         Management expect H2FY16 to be much stronger with of 6-7% qoq growth: 1) Backed by lift out deal win from UK commercial bank for over 10 years with deal value of $110 mn, further with continuing momentum in existing business, management expect 6-7% qoq growth in Q3/Q4FY16. 2) Seeing revenues growth of atleast 4-4.5% in FY16, management have not changed revenues guidance of 7% for FY16 3) Operating margins expect to improve by 70bps over FY16 and maintained 100bps improvement in net margins 4) Two big deals is under consideration, one of which is a big lift out deal expect to close by early January 2016 5)Seats fill factors expect to improves gradually over next few quarters 6) Total wins of $27 mn deals during the quarter, around $500 mn of deals pipeline (muted qoq) 7) Expect to be comfortably net cash positive by end of FY17, expect cash generation to improves in Q3/Q4FY16.
·         Maintain buy with a price target of Rs38: In our last update in September 2015, we have highlighted that the worst is over for the company and expect gradual recovery in earnings performance and that has reflected in strong Q2FY16 performance, we expect further momentum in earnings in H2FY16. We have kept our earnings estimates for FY16/17E broadly unchanged (though we expect some upgrade in FY17E estimates if management delivered in its commitment in H2FY16). At the CMP of Rs31, stock trades at 7.6x/6.6x FY16/17E earnings estimates. We maintain our Buy rating with a price target of Rs38.

Raymonds: Price target revised to Rs 450; maintain hold
·         Weak Q2FY16- Raymond’s consolidated topline grew at mere 2.6% due to weak performance in the textile (-0.2%) and the engineering business (-17.7% yoy). Weak revenue profile, with increasing expenses (primarily ad & promotion cost increased by 26% yoy)resulted in 22% decline in operating profit, which translated into sharper 50.3% decline at the net level on an adjusted basis. The quarter also included provision on account of diminution of forging assets of Rs 32 crore.  
·         Apparel business posted strong show; brand investment to continue- For the quarter, the apparel business posted a strong 16% yoy growth in the revenues, aided by strong investment in the branding and promotion, along with increasing store rollouts & renovation. The management has stated that it would continue to invest in brands & retail setup, thus margins would continue to be impacted in the short to medium term and the benefits would be visible after 6 quarters.
·         Revised estimates & target price downwards; retain hold – Incorporating weak 1HFY16, along with guidance of continuing weak margin ahead for apparel business on account of continuing investment on brand building along with store renovation & expansion, we revise our consolidated EBITDA and earnings estimates downwards for FY16 and FY17. Our revised EPS for FY16 and FY17 is Rs  14.4 and Rs 20.2 respectively. We continue to like the medium- to long-term brand franchisee of Raymond which coupled with the brand play and the embedded real estate value in the stock makes us maintain our Hold rating on the stock, with a price target to Rs450 (based on an SOTP-based valuation, the core business is valued at 18x its FY2017E + 50% value of the land parcel). Any development on the value unlocking front through divestment of the non-core assets (monetization of the land parcel, stake sale in engineering and automotive subsidiaries) would be positive.

Crompton Greaves: Low margin in consumer products dent bottom line; retain Hold with PT 185
·         Dip in consumer margin affected bottom line: During Q2FY2016, though the company delivered a decent top-line performance, the low margin in the most profitable consumer durable business adversely affected the bottom line of Crompton Greaves Ltd (CGL). The PBIT margin of consumer durable business contracted by 250BPS YoY to 9.7% as some of the expenses earlier classified under unallocated expenses are now being directly charged to the consumer segment, due to demerger. On the other hand, the domestic power system business which was affected by workers' strike at the Nashik plant in Q1FY2016 has largely recovered in this quarter to a normal level and performance of industrial system was fairly stable. However, performance of the stressed overseas power system business remains weak.
·         Sale of non-core assets and restructuring continues: During the quarter, we witnessed that the company continues to focus on sale of its non-core assets and restructuring of its businesses including sale of the most stressed overseas power system business. The management expects a definitive offer from a potential buyer of the overseas power system by end of the year. During this quarter, CGL managed to sell the idle land in Kanjurmarg facility, divest CG Lucy switchgear and the board has approved to sell the power system business of Canada. Further, due to unresolved disputes the company terminated the distribution franchisee agreement with Maharashtra State Electricity Distribution for Jalgaon circle, which was incurring losses (a loss of Rs27 crore in H1FY2016 and Rs25 crore in FY2015). On the negative side, the termination could attract some liability in future and the pledged shares have gone up sequentially and stand at 28.5% of the total outstanding shares.     
·         Fine-tuned estimates and retain Hold: The overall order inflow improved by 15% YoY but order book declined by 7% YoY during this period. We have fine-tuned our margin estimates for consumer business given the change in additional expenses on its accounts, post-demerger; consequently, we have fine-tuned our earnings estimates for FY2016 and FY2017. However, we believe the Street is expecting a potential value unlocking from the ongoing restructuring exercise, hence development in that regard is more crucial than earnings performance at this juncture for CGL. We have retained our Hold rating on the stock with an unchanged price target of Rs185.   
Q1FY2016 result update Supreme industries: Strong operating performance, PT revised to Rs700
·         Muted top line; PAT boosted on margin expansion: For Q1FY2016, Supreme Industries Ltd (SIL)’s plastic volume reported a 17% volume growth, but a decline in the realisation and lower trading revenue led to a muted growth of 1.7% in terms of consolidated revenue. However, its OPM expanded by 103BPS to 11.7% due to higher revenue contribution of value-added products. Further, aided by the fall in interest cost, adjusted PAT grew by strong 46% YoY to Rs32 crore (excluding the loss of Rs7.4 crore from associates). The share of value-added products increased to 32.3% from 29.2% in the corresponding quarter of the previous year.
·         Seeing a strong demand in plastic piping division: The company saw a strong 26% Y-o-Y growth in plastic piping volume in Q1, mainly led by an uptick in housing sector demand. On the basis of this segment’s performance, it has guided for a 15-18% plastic volume growth for nine-month period of FY2016; OPM of 13.5-14.5% and a capex of Rs200 crore. The company is introducing 70 value-added products across categories to improve the margin profile (expecting the share of value-added products to go beyond 35%). The company is changing its accounting year from June to March from the current fiscal.
·         Earnings marginally upgraded; PT revised to Rs700: We are marginally upgrading our earnings estimates for FY2016 and FY2017 mainly to accommodate the strong volume growth expectation in plastic piping segment and increasing revenue contribution from value-added products. We now expect revenue and earnings to grow at a CAGR of 16.4% and 19.4% respectively in FY2015-17. We are positive on its long-term structural story and ability to retain leadership position in the plastic industry in spite of facing multiple headwinds like raw material price fluctuation, demand slowdown and increasing competition. At the current market price, the stock is trading at a P/E of 18.2x its FY2017E earnings. We retain our Hold rating on the stock with price target revised upwards to Rs700 (20x its FY2017E earnings).

OTHER NEWS

IOC-Delonex win 9,988 square kilometer onshore oil block in Mozambique. IOC will hold 20% stake. – Positive for IOC

India to introduce Euro-VI fuel by 2020 to reduce pollution. As a result Oil refineries will need to invest Rs 80,000 crore in upgrading petrol and diesel quality to meet cleaner fuel specifications by 2020. 

HCL Technologies: Acquires CRM Services Provider PowerObjects, positive read-thru
HCL Technologies announced today that it has acquired Minneapolis-based PowerObjects - a leading North American provider of Microsoft Dynamics CRM. This will bolster HCL’s global  applications business, which offers transformational programs and complex application  management for a myriad of clients’ technology landscapes. PowerObjects is a professional services firm completely focused on providing service, support,  education and add-ons for Microsoft Dynamics CRM. This acquisition enables HCL to take advantage of the rapidly-growing global CRM industry, as Microsoft Dynamics is one of the fastest growing CRM products in the market. At a growth rate of 13.3% in 2014, Gartner Inc. has projected that CRM will be a $36 billion worldwide market by  2017, and will grow faster than any other enterprise software category, as businesses look to build  upon long-term customer relationships. Within the CRM market, Microsoft Dynamics CRM  outpaced market growth at 21.7% growth in 2014.

The oil ministry has agreed to the demand of oil producers to switch from a fixed cess on oil production to ad-valorem. It is yet to be approved by the finance ministry. If approved it will help lower the duty oil producers. – Positive for ONGC & Cairn India.

Power Mech Projects bags Rs 60-crore order from Lanco Infratech – Positive for Power Mech Projects


MORNING VIEW
Market View 
Nifty is likely to open on a flat to positive note based on the global cues. Bias remains range bound for the day and imp support is placed at 8080 levels.

Nifty Spot Levels

Support
8088 – 8059
Resistance
8132 - 8157

Stocks for the day and Action 
Cipla
Cipla said it would sell its 25 % stake in Biomab Holding, a Hong Kong company that makes biosimilar drugs for the Chinese market, for nearly $26 million.
Action to be taken
Initiation Range
Stop Loss
Target
Long
691-692
684
705

Ashok Leyland
Stock in uptrend and strong positive closing creates positive bias on the counter for the day
Action to be taken
Initiation Range
Stop Loss
Target
Long
93-94
91
99


* Stock mentioned above is in Sharekhan research coverage.

Derivative Data Update 


NIFTY PCR:
0.86
NIFTY IMPLIED VOLATILITY:
17.58
MARKET WIDE OPEN INTEREST:
Rs159,548 crore and Rs28,159 crore were added
MKT WIDE ROLLOVER
83.92% vs 81.69%
NIFTY FUT ROLLOVER:
73.62% vs 61.22%
GOOD ROLLOVERS
Rural Electrifi cation Corporation (93%), Colgate Palmolive (92%), Reliance Power (92%) Britannia Industries (92%)
LOW ROLLOVERS
UCO Bank (38%), Bharti Infratel (55%), Mindtree (58%) and Godrej Industries (69%)

 Stock in News
  1. Airtel sweetens deal for prepaid data subscribers
  2. HCL buys PowerObjects for Rs 300 crore
  3. Marks & Spencer goes online but via e-tailers Myntra, Flipkart
  4. Glenmark net profit up 19.8% on revenue growth
  5. Colgate Palmolive India Q2 net up 21% at Rs 157 crore
  6. IDFC Bank's networth pegged at Rs 13,322 crore
  7. Indian Oil will increase fuel supplies to Nepal
  8. Pfizer, Allergan to forge $330-bn drugs giant, say reports
  9. BPCL plans IPO of Bina refinery next year
  10. Cipla sells stake in Chinese biotech firm
  11. Polaris plans to sell its BPO business
  12. ReGen Powertech bags two wind power projects worth Rs 1,600 cr
  13. Airtel to return 50% mobile data used at night, makes Wynk free
 Global Market and International Data update

Global Market:

US stocks ended slightly lower on Thursday as the market digested disappointing tech earnings reports and the potential for an interest rate hike in December.

The Federal Reserve, which kept rates unchanged at its policy meeting that ended Wednesday, downplayed concerns about global growth and indicated confidence in the US job market's recovery.
Currency
Particulars
Forecast
Previous
CAD
GDP m/m
0.3%
0.1%
USD
Employment Cost Index q/q
0.2%
0.6%




  
 Investor Eye
Yes Bank 
Reco : Buy
TGT : 930

Key points
  • NII up 29.4% YoY, margins stable: For Q2FY2016, Yes Bank reported a strong set of numbers as net profit clocked a growth of 26.5% YoY supported by a 29.4% Y-o-Y growth in net interest income (NII). The growth in NII is largely attributed to a strong growth in advances (up 29.0% YoY) and 10BPS Y-o-Y expansion in net interest margin (NIM) to 3.3% (stable on QoQ as dip in yield on loans was offset by a similar dip in cost of funds). The CASA deposits showed a strong growth (particularly savings deposits) leading to a rise in CASA ratio to 25.5% vs 22.5% in Q2FY2015.

  • Marginal blip in asset quality: The asset quality showed marginal deterioration in Q2FY2016 as gross NPAs increased to 0.61% vs 0.46% in Q1FY2016, though it remained amongst the best in the sector. The fresh addition to NPAs were Rs146 crore in Q2FY2016 and the bank has not sold any loans to asset reconstruction company (ARC) or refinanced loans under 5/25 scheme. Given the bank’s disclosures on stressed sectors exposures, credit rating profile (75% of the corporate exposure is rated ‘A’ and above and is spread across the sector) and healthy provision coverage (67.7 %), we expect asset quality situation to remain under control.

  • Valuations and outlook: Yes Bank continues to deliver a strong set of numbers amid challenging environment. We expect an upward trend in margins over the next 12- 18 months due to partial reduction in savings deposit rates, rising CASA balances and shift in portfolio mix. On the asset quality front, we derive comfort from management guidance of credit cost (50-70BPS). We expect earnings to grow at a CAGR of 21.8% over FY2015-17 resulting in an RoA of 1.7%. We maintain our Buy rating on the stock with an unchanged price target of Rs930 (2.4x FY2017 P/BV).
Grasim Industries
Reco : Buy
TGT : 4475

Key points

  • Strong operating performance across all divisions: For Q2FY2016, Grasim Industries (Grasim)’s revenue improved by 5.5% YoY to Rs8,297.5 crore led by volume growth across all its divisions. Its OPM rose by 119BPS led by higher realisation in cement (up 1% YoY) and improvement in profitability of VSF division. The pulp and fibre JV’s performance was aided by higher pulp realisation in its Canadian JV along with depreciation of Canadian Dollar. Further, the company reported an earnings growth of 17.3% YoY on account of a decline in interest cost (down 2.2% YoY). 
  • VSF prices on uptrend sequentially, cement to pick up in H2FY2016: The viscose staple fibre (VSF) prices have witnessed an uptrend in H1FY2016 with increase in raw material prices and stoppage of a few plants in China for environmental issues and maintenance. Further, 100% capacity utilisation of Vilayat facility and revenue mix in favour of speciality products is expected to maintain better operational performance. On the cement front, the company expects demand to pick up in H2 and the government’s push on infrastructure projects should boost utilisation level in H2FY2016. 
  • Maintain Buy with price target of Rs4,475: With the improving outlook for VSF and expectations on the hope of a pick-up in the demand outlook for cement going ahead, we have revised our earnings estimates upwards for FY2016 and FY2017 factoring improvement in margins in all three divisions. Hence, we have maintained our Buy rating on the stock with an unchanged price target of Rs4,475. Currently, the stock is trading at 14.9x its PE and 5.2x its FY2017E EV/ EBIDTA earnings.  
Raymond
Reco : Hold
TGT : 450

Key points

  • Weak Q2FY2016: Raymond’s consolidated top line grew at a mere 2.6% due to weak performance in the textile (-0.2% YoY) and engineering businesses (-17.7% YoY). Weak revenue profile, with increasing expenses (primarily advertising and promotion cost increased by 26% YoY), resulting in a 22% decline in operating profit, which translated into sharper 50.3% decline at the net level on an adjusted basis. The quarter also included provision on account of diminution of forging assets of Rs32 crore. 
  • Apparel business posted a strong show; brand investment to continue: For the quarter, the apparel business posted a strong 16% Y-o-Y growth in the revenue, aided by strong investment in branding and promotion, along with increasing store rollouts and renovation. The management has stated that it would continue to invest in brands and retail set-up, thus margins would continue to be affected in the short to medium term and the benefits would be visible after six quarters. 
  • Revised estimates and price target downwards; retain Hold: Incorporating weak H1FY2016, along with guidance of continuing weak margin ahead for apparel business on account of continuing investment on brand building along with store renovation and expansion, we have revised our consolidated EBITDA and earnings estimates downward for FY2016 and FY2017. Our revised EPS for FY2016 and FY2017 is Rs14.4 and Rs20.2 respectively. We continue to like the medium-to-long term brand franchisee of Raymond which coupled with the brand play and the embedded real estate value in the stock makes us maintain our Hold rating on the stock, with a revised price target of Rs450 (based on an SOTP-based valuation, the core business is valued at 18x its FY2017E + 50% value of the land parcel). Any development on the value unlocking front through divestment of the non-core assets (monetisation of the land parcel, stake sale in engineering and automotive subsidiaries) would be positive. 
Supreme Industries
Reco : Hold
TGT : 700

Key points

  • Muted top line; PAT boosted on margin expansion: For Q1FY2016, Supreme Industries Ltd (SIL)’s plastic volume reported a 17% growth, but a decline in realisation and lower trading revenue led to a muted growth of 1.7% in terms of consolidated revenue. However, its OPM expanded by 103BPS to 11.7% due to higher revenue contribution of value-added products. Further, aided by the fall in interest cost, adjusted PAT grew by strong 46% YoY to Rs32 crore (excluding the loss of Rs7.4 crore from associates). The share of value-added products increased to 32.3% from 29.2% in the corresponding quarter of the previous year. 
  • Seeing a strong demand in plastic piping division: The company saw a strong 26% Y-o-Y growth in plastic piping volume in Q1, mainly led by an uptick in housing sector demand. On the basis of this segment’s performance, it has guided for a 15-18% plastic volume growth for nine-month period of FY2016; OPM of 13.5-14.5% and a capex of Rs200 crore. The company is introducing 70 value-added products across categories to improve the margin profile (expecting the share of value-added products to go beyond 35%). The company is changing its accounting year from June to March from the current fiscal. 
  • Earnings marginally upgraded; PT revised to Rs700: We are marginally upgrading our earnings estimates for FY2016 and FY2017 mainly to accommodate the strong volume growth expectation in plastic piping segment and increasing revenue contribution from value-added products. We now expect revenue and earnings to grow at a CAGR of 16.4% and 19.4% respectively in FY2015-17. We are positive on its long-term structural story and ability to retain leadership position in the plastic industry in spite of facing multiple headwinds like fluctuation in the prices of raw material, demand slowdown and increasing competition. At the current market price, the stock is trading at a P/E of 18.2x its FY2017E earnings. We retain our Hold rating on the stock with price target revised upwards to Rs700 (20x its FY2017E earnings). 
Crompton Greaves
Reco : Hold
TGT : 185

Key points

  • Lower margin in consumer business affected bottom line: During Q2FY2016, though Crompton Greaves Ltd (CGL) delivered a decent top-line performance, the low margin in the most profitable consumer durable business adversely affected the bottom line. The PBIT margin of consumer durable business contracted by 250BPS YoY to 9.7% as some of the expenses earlier classified under unallocated expenses are now being directly charged to the consumer segment, due to demerger. On the other hand, the domestic power system business which was affected by workers' strike at the Nashik plant in Q1FY2016 has been largely recovered in this quarter to a normal level and performance of industrial system was fairly stable. However, performance of the stressed overseas power system business remained weak. 
  • Sale of non-core assets and restructuring continues: During the quarter, we witnessed that the company continued to focus on sale of its non-core assets and restructuring of its businesses including sale of the stressed overseas power system business. The management expects a definitive offer from a potential buyer of the overseas power system by end of the year. During this quarter, CGL managed to sell the idle land in Kanjurmarg facility, divest CG Lucy switchgear and the board has approved to sell the power system business of Canada. Further, due to unresolved disputes the company terminated the distribution franchisee agreement with Maharashtra State Electricity Distribution for Jalgaon circle, which was incurring losses (a loss of Rs27 crore in H1FY2016 and Rs25 crore in FY2015). On the negative side, the termination could attract some liability in future and the pledged shares have gone up sequentially and stand at 28.5% of the total outstanding shares. 
  • Fine-tuned estimates and retain Hold: The overall order inflow improved by 15% YoY but order book declined by 7% YoY during this period. We have tweaked our margin estimates for consumer business given the change in additional expenses on its accounts, post-demerger; consequently, we have fine-tuned our earnings estimates for FY2016 and FY2017. However, we believe the Street is expecting a potential value unlocking from the ongoing restructuring exercise, hence development in that regard is more crucial than earnings performance at this juncture for CGL. We have retained our Hold rating on the stock with an unchanged price target of Rs185. 
Firstsource Solutions
Reco : Buy
TGT : 38

Key points

  • Strong quarter: After several quarters of lacklustre performance owing to multiple headwinds, Firstsource Solutions Ltd (FSL) has smartly bounced back with a strong set of numbers for Q2FY2016 (though on a low base) with 3% growth in top line on a constantcurrency basis and total revenue, including hedging income, was up by 6.1% QoQ to Rs792.5 crore. Its OPM improved by 40BPS QoQ to 12.4%, attributed to rupee tailwinds and strong top-line growth. The net income for the quarter was up by 9.6% QoQ to Rs61.8 crore. On the operating metric front, top client delivered a 12.5% Q-o-Q growth after a 7.5% negative CQGR over Q2FY2015-Q1FY2016. During the quarter, there was a net deduction of 281 headcounts taking the total headcount to 23,658 with total seats of 23,159. Seat filling factor stood at 67% vs 68% in Q1FY2016. 
  • Management expects H2FY2016 to be much stronger with 6-7% Q-o-Q growth: (1) Backed by lift out deal win from UK commercial bank for over ten years with the deal value of $110 million and continuing momentum in existing business, the management expects 6-7% Q-o-Q growth in H2FY2016; (2) Seeing revenue growth of at least 4.0-4.5% in FY2016, the management has not changed the revenue guidance of 7% for FY2016; (3) OPM is expected to improve by 70BPS over FY2016 and expect 100-BPS improvement in net margin; (4) Two big deals are under consideration, one of which is a big lift out deal, which is expected to close by early January 2016; (5) Seats fill factors are expected to improve gradually over the next few quarters; (6) Total wins of $27-million deals during the quarter, around $500 million of deal pipeline (muted QoQ); (7) Expect to be comfortably net cash positive by the end of FY2017, expect cash generation to improve in H2FY2016. 
  • Maintain Buy with a price target of Rs38: In our last update in September 2015, we had highlighted that the worst is over for the company and expect gradual recovery in earnings performance and that has reflected in a strong Q2FY2016 performance. We expect further momentum in earnings in H2FY2016. We have kept our earnings estimates for FY2016 and FY2017 broadly unchanged (though we expect some upgrade in FY2017E if the management delivered on its commitment in H2FY2016). At the current market price of Rs31, the stock trades at 7.6x and 6.6x its FY2016 and FY2017 earnings estimates respectively. We maintain our Buy rating on the stock with an unchanged price target of Rs38.





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