Wednesday, 30 December 2015

Morning view - 30 December 2015


Market View

Nifty likely to open on positive note back on global clues and recovery in crude price, The index continues to form higher tops and higher bottoms which indicate that the shortterm trend is up, key Support at 7835

Nifty Spot Levels

7900 – 7860 – 7835
7950 - 7980 - 8000

Stocks for the Day & Action

Torrent Pharma
Torrent Pharma Gets US FDA Nod For Pain Killer Celecoxib
Action to be taken
Initiation Range
Stop Loss
1465 – 1467

Standard Life gets FIPB nod to raise stake in HDFC Life to 35%, it will pay Rs 1,705 cr for the additional 9% stake, valuing the company at Rs 18,951 cr ,may list in FY17
Action to be taken
Initiation Range
Stop Loss
1234 – 1236

* Stocks mentioned above are in Sharekhan Research Coverage.

Derivatives Data Update

India  VIX:
Rs. 255502 cr and Rs. 7825 cr were Shaded in OI
Added 4.31 lakh shares
Added 29.16 lakh shares
Bharti Airtel (17%), Bosch Ltd (16%), Idea (14%), M&M Finance (13%) and L&T Finance (13%)
Ceat Liimited (-10%), Apollo Hospital (-9%), KSCL (-8%), PTC (-6%) and JSW Steel (-6%)

Stock in News

Ø  United Spirits seeks shareholders' nod to report sick to BIFR
Ø  HDFC Bank Ltd on Tuesday reduced its base rate, or minimum lending rate, by five basis points (bps) to 9.3 per cent, making it on a par with that of State Bank of India.
Ø  BNP Paribas acquires 5% in Srei Infra
Ø  Airtel adds 4G spectrum in MP; acquires 74% stake in Augere
Ø  Jet Airways has joined price war and has dropped one way fares on select routes to Rs 716.
Ø  Maruti to drive Baleno into EU to rev up exports
Ø  SpiceJet to raise funds worth up to Rs 5000 crore
Ø  Alkem Labs Gets US FDA Nod For Gabapentin. Gabapentin Is Used To Treat Postherpetic Neuralgia Or Shingles

Global Market & International Data Update
·         Wall Street rose sharply on Tuesday, elevating the S&P 500 to a modest gain for the year as Amazon and Apple led tech stocks higher. 
·         The online retailer recorded more than 3 million new Prime memberships in the third week of December, indicating strong holiday demand. 
·         Data on Tuesday indicated consumer sentiment was improving, with the Conference Board's index of consumer confidence for December up at 96.5, beating the 93.8 expected.
·         The Dow Jones industrial average ended 1.1 percent higher at 17,720.98 points.

Pending Home Sales(MoM) (Nov)
Crude Oil Inventories

Stock Update v-Investor Eye
Max India

Demerger driven value unlocking playing out; maintain Buy CMP:Rs509

Key points
Demerger proposal to result in listing of life insurance business–Only listed pure play on insurance: Max India has finally received the nod of high court to take forward the proposed restructuring of Max India into three listed entities through a three-way demerger proposal. As per the scheme, the life insurance business would be housed under Max Financial Services (MFS; where existing shareholders of Max India will get one share of MFS against one share held in Max India). The specialty films business would be hived off into Max Ventures (shareholders will get one share for every five shares held of Max India). Lastly, the healthcare business (Max Hospitals, Max Bupa Insurance) and other investments will be held under Max India. The proposal has resulted in value unlocking for Max India shareholders and the stock has appreciated by ~30% over the last 12 months (comprehensively beating the benchmark indices). That’s because the demerger would create a listed entity holding life insurance business (only pure play listed company in the life insurance space) that would command premium. More so, Max Life Insurance is among the top five private sector life insurance companies with
superior operating metrics (conservation ratio, expense ratio, return on embedded value etc).
Growth outlook remains strong for insurance, healthcare businesses: Max Life Insurance is among the leading non-bank insurance companies having balanced product portfolio and among the best operating performance. Going ahead, the macro drivers like low insurance penetration, rising savings rate, improvement in capital market will drive growth. On the other hand, the company has consolidated its presence in the healthcare space (around 2,400 operation beds) and performance may improve further as the newer hospitals mature.
Retain Buy; fair value works out to Rs648: Given the inadequate disclosures across the sector and lack of listed player in the insurance space, the valuation of the recent deals in insurance space has been a challenge. However, the reported transactions have been in the range of 2.2-2.5x its embedded value (EV; media sources). We have valued Max Life Insurance at a premium to its peers (around Rs17,500 crore or 3.3x its EV) due to sound business model and premium attached to being first listed entity in the insurance space. Therefore, we estimate the fair value for proposed Max Financial Services to be Rs474. Also, we value the healthcare businesses under restructured Max India (Max Healthcare + Max Bupa + Antara) at Rs134 per share and Max Ventures at Rs40. Thus, we have retained our Buy rating on the stock with an unchanged price target of Rs648.
Key risk: Change in IRDA regulations, especially relating to cap on expenses (as suggested in the draft) could affect embedded value in life insurance.


SJVN View: Positive

Deleveraged efficient utility available at a bargain CMP: Rs30

Key points
Most efficient hydro assets available at a bargain: SJVN is having a total operational power capacity of around 1,960MW, which is running successfully with more than 100% plant availability factor. We believe, at the current market price, the assets are available at a bargain as the current enterprise value (EV) of SJVN stands at around Rs12,000 crore (derived ~Rs6 crore/MW), which is lower than the replacement cost considering the efficient hydro assets. Moreover, the company is one of the rare utility companies with net cash positive position (cash Rs4,000 crore and debt of Rs3,400 crore) and given the lower capex requirement in near term, it has a potential to generate healthy free cash flow, especially with the new plant which got operational from FY2015. With commencement of 412-MW plant, we expect its annual cash flow from operations to improve from around Rs1,300-
1,400 crore to around Rs1,700 crore, which is 15% of the current EV of the company.
Energising through renewable growth path; 50% jump in capacity in three years: SJVN is having two operational hydro-based power plants. The first is in Nathpa Jhakri (1,500MW) and the second in Rampur (412MW). It also has one windmill of 47.6MW in Ahmednagar district of Maharashtra, taking the total generation capacity to 1,960MW. Going forward, SJVN is planning to add around 1,000MW (50% more than the existing capacity) from solar and wind-based power generation capacities in the next three years. As these capacities are solar and wind based, we believe they have substantially lower execution risk and substantially short gestation period. Given the deleveraged balance sheet and strong cash flow generation visibility, SJVN is quite comfortable to fund the incremental 1,000MW capacities, apart from funding other projects lined up. In the long run, SJVN is having ambitious plan to take its power generation capacity to 10,000MW by 2022.

View: Healthy returns generating cash-rich balance sheet at bargain: Given the utility nature of the business, the company is generating a respectable RoE of around 15% at the project level (excluding additional incentives of around 2-3%) and 12-13% RoE at the company level. The stock is currently available at 1.1x its FY2016 BV and 1x its FY2017 BV as per our rough estimates. Apart from sustainable RoE, SJVN is one of the rare utility companies with net cash positive position and healthy cash flow generation visibility. Moreover, expected 50% incremental capacity (solar and wind based with short gestation period) would start throwing cash soon and continue to bolster the balance sheet. Currently, the stock also offers a dividend yield of more than 3.5% which could potentially inch up, considering lower capex requirement in the near term and substantially higher cash in the balance sheet. On this backdrop, we expect 15-20% appreciation in SJVN’s stock price in the next six to nine months.

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