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Monday, 30 November 2015

F N A November 30, 2015

Sharekhan's Fundamental News and Analysis


November 30, 2015

Cipla ready to launch low-dose Efavirenz 400 mg – Positive News
Cipla Ltd. announced its readiness to supply its combinations Tenofovir/ Emtricitabine / Efavirenz and Tenofovir/ Lamivudine /Efavirenz with a dose of 400 mg of Efavirenz as a first-line initial therapy for HIV infection. According to UNAIDS, there are approximately 37 million worldwide people living with HIV of which around 15.8 million people are reported to be receiving antiretroviral therapy (ART). WHO recently announced that it recommended to make ART available to all HIV-infected patients as soon as they are tested positive. Reducing the dose of Efavirenz in current first-line combination therapy to 400 mg will contribute to reducing costs without modifying the effectiveness of treatment. Positive development as Cipla is one of the key player in Anti-retroviral Therapy.

Bharti Airtel outlines its network expansion plans; aims to spent Rs 60,000 crore in 3 years

Ahead of Reliance Jio launch in December, Bharti Airtel has outlined a sharp and focused ten point network expansion and optimization plan- called “Project Leap” under which the company is looking to (a) aggressively expand its base stations (double the count to 1.6 lac in 3 years time frame),  (b)expand fiber rollout as well as improve experience.  It plans to spend Rs 60,000 crore in the next three years time frame. We believe Airtel’s step towards aggressive expansion is inline with the competitive intensity building up in the telecom space ahead of launch of R-jio’s services. We maintain our Hold rating on the stock with a price target of Rs 380. 

Alert: Nestle India has resumed manufacturing of MAGGI Noodles at its Tahliwal (Himachal Pradesh) Factory. With this, the Company has resumed manufacture of MAGGI Noodles at all five Noodle manufacturing facilities – positive read through for the stock

TOP NEWS

Alert: Nestle India: Nestle India got into fresh controversy with Uttar Pradesh laboratories finds Maggi Pazzta sample with excess lead – sentimentally negative for Nestle India

Government talks with IFC for a strategic sale in IDBI bank 
The government is in talks with the International Finance Corp for the disposal of a stake in state-run IDBI Bank as it looks to kick off strategic sales of public sector entities. The World Bank arm that invests in private sector may pick up a 15% holding. This could be a fresh issue that will infuse more capital into the lender, a stake sale by the government or a combination of the two. The government currently holds a 76.5% stake and it is looking to lower this to 49%. 
Cipla weighs legal options after Delhi HC's patent ruling – Neutral read thru.
Cipla is exploring all legal options in the wake of Delhi High Court's ruling that it has infringed Swiss drug major Hoffman-La Roche's patent on lung cancer drug erlotinib hydrochloride sold under Tarceva. The court will also determine the quantum of damages Cipla owes to Roche after the former furnishes accounts.
Reliance Infrastructure plans assets sale to be debt free – Positive for Reliance Infrastructure
As per media reports, reliance infrastructure is expected to turn debt free on a standalone basis by 2017 and the company’s management is actively pursuing divestment goals to achieve target. The company is undergoing a major transformation after which it hopes to be become a defence major while continuing its strong interest in power distribution and EPC business.

Gulf Airlines eyeing stake in SpiceJet – Positive for SpiceJet
As per media reports, some of the gulf airlines have expressed an interest in SpiceJet but as per the management this will not be the right time to dilute the stake as the shares remain undervalued. SpiceJet is also planning to finalise an order for 150 single aisle jets from either Boeing or Airbus Group during FY2016. The development is positive for SpiceJet.

Alert: Hotel Industry: Russia has clarified on travel advisory (that they have not declared India in unsafe destination list); it accounts for 60% of overall tourist arrival in Goa during peak season – sentimentally positive for large hoteliers such as Indian Hotels and hotel Leelaventure etc

MACRO WRAP

GDP data for Q2FY16 would be announced today (30th November 2015) and as per the consensus estimates the GDP growth is expected to be 7.3% versus 7.0% QoQ
STRONG RESULTS

Strong operating performance by Siemens in spite of flattish revenue of Rs 3299 crore in Q2FY16. The operating margin expanded by 160 bps YoY to 8.5%. The operating profit grew by 27% to Rs 282 crore. However the net profit stood at Rs 219 crore compared with that of Rs 437 crore in Q2FY15 since both the profit figures contain exceptional items.       

INVESTMENT CALLS

Goods and service tax (GST) – hopes pinned on winter session
·         GST–Simplified indirect tax regime: The Goods and Service Tax (GST) aims to simplify the current indirect tax regime by bringing all central and state levies (like excise duty, sales tax, octroi, VAT and other countervailing duties) under one single head having uniform tax rate across goods and services (with some exclusions like electricity, alcohol and petroleum products).
·         Critical reform; to boost economic revival: The benefits are immense in terms of reducing economic distortions, creating a nationwide single tax market, widening of tax base and eliminating cascading of taxes (tax on tax). For manufacturing companies, it means level playing field for organised and unorganised sectors, and cost optimisation in terms of movement and warehousing of goods due to uniform tax rate. Consequently, it would have positive fallout on inflation, curtailing tax avoidance and creating buoyancy in the economy. According to official estimates, the implementation of GST could bring in incremental positive effect of 1.0-1.5% in the GDP depending upon the GST rate (likely range of 18-20% would mean tax saving of 3-4% for many manufacturing segments; a GST rate beyond 22% could be detrimental for business confidence and growth in near term) and in ideal conditions. However, the proposed GST bill has exclusions and an additional tax of 1% for inter-state movement for the initial two years which dilutes the essence of GST (to an extent) and limits positive impact on the economy.
·         Preferred Picks: (1) Maruti Suzuki India-Potential reduction in effective tax rate for mid-sized passenger vehicles; (2) Britannia Industries-Cost optimisation at each level of product value chain and competitive advantage could improve the growth prospects in long run; (3) Gateway Distriparks-With services across the distribution value chain, it will gain from incremental demand arising from the higher inter-state transport of products; (4) Century Plyboards-Organised players to gain market share with unorganised players losing tax advantage; and (5) Pantaloons Fashion & Retail-Set-off for service tax paid on lease rentals and inventory cost optimisation

OTHER NEWS

Delhi HC turns down Bayer plea on stroke drug against Dr Reddy's – Positive read thru.
The Delhi High Court has turned down an injunction petition filed by Bayer aimed at blocking Dr. Reddy's Labs from a potential commercial launch of its patented anti-coagulant drug Xarelto, whose active chemical ingredient is rivaroxaban. Xarelto tablets are used as blood thinners and are mainly prescribed to prevent a stroke. 
IVRCL likely to consider demerger plan in next board meeting – Positive for IVRCL
IVRCL is likely to hold a board meeting next week to discuss the possible demerger of property development and EPC business into a separate entity as it seeks to restructure its business operations for improving revenue prospects. The IVRCL management has already conveyed its proposal for demerger to its lenders, who together hold 43 per cent equity in the company. They are expected to make their stand known to the company next week. A decision in this regard would largely depend on the lenders' consent as they hold the substantial stake in the company while the promoters' group has a little less than 9 per cent holding.

Colgate India declares second interim dividend at Rs.3/share for the financial; earlier this month the company declared first interim dividend of Rs4/share – sentimentally positive for the stock
Government to give all households in West Bengal 4 energy efficient LED bulbs. The consumers would be able to get these bulbs on easy installment and government will provide assistance to the poor so that they can replace incandescent bulbs and tube lights at home. Positive for LED manufacturers like Surya Roshni, Havells, Bajaj electrical
International proxy firm Glass Lewis supports Suzuki’s Gujarat plan; neutral for Maruti
International advisory firm Glass Lewis has recommended minority shareholders to vote in favour of the proposed contract manufacturing agreement between Maruti Suzuki and its parent Suzuki Motor. Under the agreement The Gujarat plant will be setup as a100% subsidiary of the Suzuki Motor Japan and will supply to Maruti with no manufacturing mark-up. Among domestic proxy firms SES has advised in favour of the agreement while firms Institutional Investor Advisory Services (IiAS) and InGovern have opposed the deal. The voting on the agreement ends on 15th December and results will be declared on the 17th of December.

Eicher Motors’ subsidiary VECV has launched two new vehicles under the Pro series targeting the mining segment. The company has launched Pro 8031XM tipper and Pro 6025T box body vehicle. Positive for the company.

Bharat Forge to set up a Rs500cr defense facility in Telangana alongwith  JV partner Israel’s Rafael Advanced Defense Systems.

The government is looking at increasing renewable purchase obligation (RPO) targets from 3 per cent to 10 per cent so as to meet the one lakh MW solar capacity by 2022. Under the RPO discoms are mandated to purchase a certain amount of their power from renewable sources. If RPO is increased more number of renewable like solar & wind are used. Positive for renewable energy sector.

Reliance Industries is facing a 40 per cent cut in the marketing margin it charges on selling its KG-D6 gas to fertilizer and LPG plants after the government notified a ceiling of Rs 200/thousand scm. However the PBIT contribution of Oil & Gas segment to RIL total PBIT is very minuscule thus the earnings will not be affected significantly.


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