Friday, 29 April 2016

29 April 2016 - Today's View & News

Market View

[09:10, 29/04/2016] cspaul2009: Nifty is likely to open on a negative note based on the global cues. Support for the day is placed at 7770 levels for the day and any breach of the level, one can see more downside

Nifty Spot Levels

Support 7772 – 7717
Resistance 7880 - 7923
Market Update

SGX Nifty -13 pts (7883) from last trade 7896 , Nikkei clsd , Hangseng -173 pts , NOW @6.53am , ‎Dow -210.79 pts ,Nsdq -57.85 pts , S&P -19.34 pts ‎, Bovespa -165 pts , Ftse +2 pts , Dax +21 pts  , Cac -2 pts  , Crude @ $45.90 brl (-0.13), Brent @ $48.04 brl (+0.86) , Gold @ $1268.40 (+2.00), Silver @ $17.60 (+0.04), Euro @ $1.1355, JPY @ $108.0800, INR @ $66.5213

Today's Key Results  29th Apr

Icici Bank (Cog Est Net 3131cr +7 % Yoy Time-After Mkt) Atul ltd, Digjam Ltd, Force Motor, Gic Housing,Inter Globe,IDFC,Kirloskar Ferro,Marico,Oberoi Realty,Rpg Life,Sanofi Ind,Shriram Trans,Tinplate, UPL Ltd

Global Market Update

US stocks closed down on Thursday as the Bank of Japan's shocking call to cap monetary stimulus continued to rattle investors while a late day decline in Apple shares on remarks by billionaire investor Carl Icahn added to selling pressure.
Stocks fell early in the day on the BOJ's decision to hold steady in the face of soft global demand and a rise in the yen, jarring markets particularly after media reports that the central bank would likely go deeper into negative interest rates.

Derivative Update

 Rs161,376 crore and Rs30,181 crore were added
 84.65% vs 80.92%
 73.92% vs 62.85%
Glenmark Pharmaceuticals (96%), UPL (95%), Divis Laboratories (95%), NHPC (94%) and Bosch (93%)
UCO Bank (56%), Indian Overseas Bank (57%), Hindustan Zinc (62%) Cummins India (66%) and Havells India (67%)


Glenmark pharma receives tentative approval from USFDA for Adapalene and Benzoyl Peroxide Gel, gEpiduo, used in treating acne and skin disease – Positive for Glenmark.

Idea Cellular Q4FY16–  Earnings beats estimates, though volume growth remain soft-  Idea cellular posted strong operational performance, its operating profit grew by 15.6% on a sequential basis, backed by pricing growth in voice (+4.7% qoq) as well as data(+2.7% qoq) segment, but the growth volume growth tapered for both the segments at 1.2% and 1.5% qoq). Higher depreciation & interest cost resulted in 24.7% qoq decline in net earnings. (detailed in the investment call)

Lupin bolsters US brands portfolio with Methergine oral tablets, used to address rising incidence of postpartum hemorrhage – Positive for lupin (during market hours)
Lupin announces the re-introduction of Methergine (methylergonovine maleate) Oral Tablets  for the prevention and management of postpartum hemorrhage (PPH). Methergine is the only FDA-approved oral uterotonic and is a preferred oral agent in the management of PPH. More than half of all maternal deaths occur within 24 hours of birth, most commonly from excessive bleeding, and rates of maternal mortality continue to rise in the US  where PPH is a leading cause of pregnancy complications .

RBI proposes to regulate peer-to-peer lending sector – negative read thru for NBFCs and Microfinance companies
The Reserve Bank of India (RBI)  has initiated steps to regulate the nascent and unregulated peer-to-peer (P2P) lending business. RBI has proposed registering P2P lending platforms as non-banking financial companies (NBFCs). P2P lending is a form of crowd-funding that can be defined as the use of an online platform, which matches lenders with borrowers in order to provide unsecured loans. Crowd funding generally refers to a method of funding a project or venture through small amounts of money raised from a large number of people. According to RBI, P2P lending as a business model has gathered momentum globally and is taking roots in India. Peer to peer lending could extend services where formal finance is unable to reach and also could lead to an increased competition and lower costs.

Reliance Industries -- Parliament's Public Accounts Committee said the company is entitled to recover all cost incurred on unviable gas discoveries – Sentimentally positvie

IL&FS Transportation in advanced talks with US-based infra co for sale of minority stake in 2 annuity based projects – Positive read thru; funds raised will ease some stress on balance sheet

Sugar – Government has asked states to curb hoarding, put check sugar price rise –sentimentally negative for Sugar companies (including Balrampur Chini and Dhampur Sugar)
In the backdrop of rising sugar prices state governments have powers to impose stock holding limits on sugar and other commodities under the Essential Commodities Act. Despite the power, states wait for central orders. This will largely put control on the sugar prices at the retail level. 

Ambuja Cement Q1CY2016: Volume up by 9.5% YoY, lower realization impacted earnings
During the quarter company reported revenue of Rs2418.3 crore largely driven by volume, however decline in realization ( down 8.9% YoY) and additional provision under mineral act impacted the operating margins, decline by 193 basis point. Hence reported PAT for the quarter stood at Rs303.7 which include extraordinary income of Rs21 crore excluding that earnings stood at Rs282.7 crore decline of 11% YoY. EBIDTA per tonne decline by 18% YoY to Rs723

Dr Reddy’s plans are to first launch biosimilar products in India & then in the Emerging markets & later in the developed markets. DRL will have to look for tie –ups to launch its biosimilars in the Developed Markets. Biosimilar products are not interchangeable unless regulations change.

Reliance Industries: Public Accounts Committee (PAC), citing loopholes in production sharing contract has said RIL is entitled to recover all cost incurred (USD 2.3 billion) on unviable gas discoveries as government's technical arm DGH had in the first place allowed it to retain the entire KG-D6 block area. PAC has taken contrary view to CAG which had stated that the ministry should accept sharing of exploration cost of only those wells which resulted in discovery and disallow the cost for others. – Sentimentally positive for RIL

JSW Energy's proposed acquisition of 1,000 MW power plant in Raigarh, Chhattisgarh from JSPL has hit a major road block as the conditions of the deal were not agreed upon by both the parties – Negative for JSPL. JSW in memorandum of understanding with JSPL has agreed to pay Rs 6000 crore. However during the final negotiations demanded that JSPL should facilitate signing of power purchase agreement for 90% of the output of 1000 MW power plant with various SEB’s. Otherwise the valuation of should be adjusted to about Rs 4,500 crore. – Negative for JSPL 

Government has invited bids from merchant bankers to assist in its stake sale in OIL, NFL and RCF. Government holds 67.64 per cent stake in OIL, 89.71 per cent in NFL and 80 per cent in RCF and it plans to sell 10% stake in OIL(approx 1900 crore), 15% in NFL and 5% in RCF.
ICRA expects Passenger Vehicle segment to grow at a better rate of 9.5%, M&HCV segment to grow 15% in 2017; impact factored in stock prices  
ICRA expects passenger vehicle (PV) industry’s domestic volumes to grow at a better rate of 9.5% in 2017, while that of medium & heavy commercial vehicles (M&HCV) is expected to grow by 15%. Passenger vehicle volumes are estimated to pick up supported by the return of the first-time buyers, As per ICRA, while there are some concerns related to 2-4% additional infrastructure cess, however, the expected pick-up in the economy, favourable monsoon as well as benefits of the 7th Pay Commission, will support overall growth in the domestic PV sector. The street is already factoring pick up in the passenger vehicle demand and the news is unlikely to have any impact.

Nissan targets mini segment with Redi Go; unlikely to have material impact on Maruti Suzuki India

Nissan is targeting the min car segment with the launch of Datsun Redi Go. The company will launch the car on June 1 and has priced the car at Rs 2.5 lakh, which is at a slight premium to the Maruti Suzuki Alto. While this will increase the competition in the mini segment, we believe Maruti is unlikely to be materially impacted as Nissan is restricted by its distribution reach. (Maruti’s dealer network at 1,800 nos is almost nine times that of Renault-Nissan).Further, Maruti has been able to defend its market share in the mini segment, despite initial strong demand for the Reanult Kwid.      

Stock In News

1. ICRA optimistic on passenger vehicle sales this year
2. Tata Steel UK not willing to split assets: CEO
3. Hotels see room for growth as occupancy, rates move up
4. Power plants with long-term PPA are of interest, says JSW Energy
5. Dabur to invest Rs 250 crore to set up plant in Assam
6. Govt may have to do more to help Tata find buyer for UK assets: CEO
7. Lupin strengthens branded drug business in US
8. Air Canada to start the first Delhi-Vancouver flight
9. As kitchen appliance business slows, TTK Prestige ventures into home cleaning
10. Cognizant acquires 49% ownership in ReD Associates
11. Capacity utilisation falls for RINL, JSW Steel and JSPL
[09:10, 29/04/2016] cspaul2009: Global Market:

More News

Lupin launches Methergine brand in US; drugmaker markets five brands in this market
Vijay Mallya effect: CVC tightens screws on loan verification
JSW Energy's power plant deals with JSPL hits a roadblock
IOC investing Rs 45K crore to expand refining capacity to meet demand
India Inc's external commercial borrowings drop 43% in March
Volkswagen not in talks with Apple, Google to start digital mobility business: Matthias Mueller
Mahindra Intertrade signs MoU with MSTC to set up India’s first auto shredding facility
Scooters to drive two-wheeler sales till FY20: Report
Online ICRA expects 8.5-9.5% growth in PVs and 13-15% growth in MHCV sales in FY17
Honda Cars expects sales to grow in double digits in 2016-17
Want capital? Step up recovery of your NPAs first, government tells state-run banks
Parag Milk Foods, Schreiber Dynamix get approval to export cheese to Russia
RIL entitled to recover cost on unviable gas discovery: Parliament's Public Accounts Committee
Godrej Consumer Products completes acquisition of Strength of Nature
Patanjali will shut the gate in Colgate, make Nestle's bird disappear: Baba Ramdev
Hotstar, Sony Liv gear up to take on Netflix in India
Walmart wants to sell food products in India via both brick-and-mortar and online stores
Airtel faces data penetration challenge amid competition
Air India losses to come down to Rs 2,636 cr: Government
Kansai Nerolac sees shades of grey on rising input prices, import duties
Adani Power Mundra plant accident death toll mounts to 7
TTK Prestige forays into home cleaning market
HCC net falls 5% on flat income from operations
Biomax told to stop production
ADB funding to help Mytrah Energy to take up wind, solar projects
Akzo Nobel NV proposes JV with Atul Lt
Berger Paints, Nippon sign biz transfer pacts with BNB Coating
TVS Motor tops two-wheeler customer satisfaction study
Global exchanges eye rejig via BSE IPO
India asks UK to deport Vijay Mallya
ITNL in advanced talks to sell two road assets
I want to rewrite the 30-year-old history: Kenichi Ayukawa
Govt proposes to ban household paint with high lead content
Govt looks to divest stakes in two state-owned fertilizer companies
Infosys buys minority stake in US-based start-up Trifacta
Canara Bank raises Rs3,000 crore via Basel-III bonds
Mahindra Intertrade, MSTC to build auto shredding facility
Reliance Jio to raise up to Rs2,250 crore via debentures
LNG shipbuilding plans cross a milestone
Markets dive after Japan holds interest rates
Panel gives bankruptcy law overseas ambit
Tata Steel UK not willing to split assets: CEO
Renault & Datsun enter the Alto territory
India Inc's ECBs drop 43% in March
Essar Oil to double CBM production this year
We chose to focus on improving the operating income: Himanshu Kapania
NHPC OFS: Retail portion undersubscribed
Will Thyrocare IPO perform as smartly as Dr Lal Pathlabs?
Global exchanges eye rejig via BSE IPO

Sharekhan Stock Update

HCL Tech
Reco : Buy
TGT : 950

Key Points

  • Revenues slower than expected: For Q3FY2016, HCL Technologies (HCL Tech) has reported a weaker-than-expected revenue growth of 1.3% QoQ at $1,587.2 million on a reported basis and 1.7% Q-o-Q growth on a constant-currency (CC) basis (weaker growth rate on lower base as compared with Infosys [1.9%] and TCS [2.1%]). The lower-thanexpected revenue growth was attributed to some project closures in the BFSI space and some slow ramp-ups. The IMS services grew by 3.9% QoQ (in line with our expectation), IT services grew by 0.7% QoQ, while BPO declined by 4.1% QoQ on a CC basis. 
  • Margins fall short of estimates: Despite the absence of Chennai flood cost and rupee tailwinds, the EBIT margins for Q3FY2016 fell short of expectations. Importantly, the management has stopped providing margins guidance for FY2017, owing to integration margins headwinds from Volvo (Q1FY2017) and Geometric Ltd (end of FY2017). The net income for the quarter remained flat at Rs1,926 crore as compared with Rs1,920 crore (includes property sale of $21 million) in Q2FY2016. 
  • Deal wins remain strong, but conversion remains weak: Deals won for the quarter remained strong with seven transformational deals worth in excess of $2 billion in total contract value (TCV), twice as compared with the usual $1 billon TCV. Effectively, the total number of transformational  ngagements during the nine month of FY2016 stood at 25, with a TCV of more than $4 billion. Looking at the revenue CQGR of 0.9% in the last six preceding quarters, deal conversions look weak, as some of the deals have a longer execution cycle time, which is affecting the deals conversion. The management has indicated at strong deals pipeline, though seeing short of big ticket deals in the engineering and R&D services verticals, while the financial service space remains soft due to vendor consolidation, digitisation, automation and shift in the outsourcing model. 
  • Maintain Buy with a revised price target of Rs950: The increasing complexity deals engagement (slower deal conversion) and integration of headwinds will result in volatile earnings performance in FY2017. Further, lack of conviction in management commentary on the organic growth front, ex Volvo in Q1FY2017 and absence of margins guidance, will affect the near-term stock’s performance. We have revised our estimates down for FY2017 and FY2018 by 7% and 2% respectively. We expect, after near-term hiccups and volatility, margins performance will start showing improvement with deals reaching steady state (also reflects in revenue growth), which will be the most important rerating trigger for HCL Tech. The stock is trading at inexpensive valuation of 14x and 12x its FY2017E and FY2018E earnings. We have maintained our Buy rating on the stock with a revised price target of Rs950.
Bharti Airtel
Reco : Hold
TGT : 425

Key Points

  • Q4FY2016 result snapshot; strong performance, operating profit jumps 8.1% QoQ: Bharti Airtel (Bharti) posted a strong show, with consolidated operating profit growth of 8.1% QoQ, led by a strong 3.6% Q-o-Q growth in the revenue. The solid voice volume (+6% QoQ) and data volume (+9.6% QoQ) aided the top-line growth, while margins across the segments were on the expansionary mode, with Indian mobile margins at 39.9% ). Low tax for the quarter negated the effect of higher interest and depreciation cost, resulting in a 15.5% Q-o-Q growth in earnings. Adjusting for exceptionals, the net earnings grew by 4% QoQ. 
  • Management comments: The management in the conference call mentioned that a strong voice volume growth in the quarter is the result of sharper and aggressive portfolio segregation and go-to market initiative drive, coupled with its greater emphasis on the network quality. It continued to maintain that the current level of voice prices (at 33.25 paise per minute) is not sustainable and is likely to increase in the medium to long run, but the competitive intensity continues to drive it low. On the upcoming spectrum, it continued its stance of higher base price of 700-Mhz band, but mentioned that it would be interested in the 2,100-Mhz band. On Africa, its strategy of concentrating on data growth and making itself sustainable has started yielding some results. For FY2017 it guided for a capex of overall $3.1 billion.Further the company has also announced its buyback plan for Rs1,434 crore at a price of Rs400, that it would receive from its subsidiary Bharti Infratel (Bharti Infratel has announced buyback of Rs2,000 crore at the price of Rs400). 
  • Outlook & view: Bharti’s robust performance (industry-leading volume growth and margins), along with improving Africa trajectory validate our thesis of improving execution from Bharti. Further, after the recent spectrum deals with Videocon and Aircel, Bharti has enhanced its pool of both 3G and 4G spectrums, making it less vulnerable to the competitive intensity in the upcoming auction. Thus, Bharti continues to be our preferred pick in the sector, but the impending risk in the form of the launch of Reliance Jio and uncertainty over its pricing and market strategy makes us retain our Hold rating on the stock. In this note, we have introduced our FY2018 estimates, while maintaining our FY2017 EBITDA estimates. We expect Bharti to post 9.9% and 10.6% revenue and EBITDA CAGR, respectively, over FY2016-18E. With the forward rolling of the multiple to FY2018, our price target stands revised at Rs425 (valued at 6.2x its FY2018E EV/EBITDA).
Gateway Distriparks
Reco : Hold
TGT : 315

Key Points

  • Weak macro environment and margin pressure continue to affect earnings: For Q4FY2016, Gateway Distriparks Ltd (GDL)’s consolidated adjusted earnings after minority interest and associate income declined by 45.7% YoY to Rs26.5 crore. The consolidated revenues were affected by lower volumes in container freight station (CFS; down 6.6% YoY) and rail (down 14.6% YoY) divisions. The volume off-take was primarily affected by lower and imbalanced export-import trade, loss in volumes at Punjab conware and Chandra facilities, rise in competitive intensity at Vizag and no major benefit from double stack cost savings. Subsequently, the company witnessed over 700-BPS erosion in operating profit margin (OPM) for both CFS and rail divisions. Consequently, the operating profit for the quarter declined by 37.0% YoY to Rs49.0 crore. 
  • Near-term uncertainty to remain: In the near term, the outlook for a revival in the CFS and rail divisions seems difficult which is likely to affect the financials of the company for H1FY2017. The management has lowered growth guidance for rail volume for FY2017 to single digit (albeit on a low base). However, the Krishnapatnam CFS facility is expected to start operations during the current year while Viramgam inland container depot (ICD) is expected to start to contribute meaningfully from Q3FY2017 onwards. These measures to revive CFS volume and to save 2-4% of rail haulage charges are yet a year away to materially affect the earnings positively. 
  • Downgrade to Hold with revised price target of Rs315: We believe, the headwinds in the company’s CFS and rail divisions are expected to continue in the near term, affecting its financials. The improvement in trade environment and revival in operating profit margin (OPM) in its businesses will be the key monitorable going ahead. Although the structural growth story over the long term remains intact for GDL (owing to a range of services, leadership position in the CFS and rail businesses, and a healthy balance sheet), the near-term uncertainties is likely to weigh heavy on valuation. Consequently, we have downgraded the stock to Hold with a revised price target of Rs315. 
  • Risk: The risk to our call is earlier-than-expected revival in demand environment coupled with improvement in OPM.

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