}

Monday, 30 May 2016

30 May 2016 - Today's View & News

MARKET VIEW

Indian markets are likely to open on positive note based on global market. The support is now at 7995. Bias for the market is positive.

Nifty Spot Levels

Support 8080 – 8040 – 7992
Resistance 8180 – 8245 - 8295
MARKET UPDATE

Sgx Nifty +35 pts  ‎Dow +44.93 pts ,Nsdq +31.74 pts , S&P +8.96 pts ‎, Bovespa -431 pts , Ftse +5 pts , Dax +13 pts  , Cac +2 pts  , Nikkei  + 96 pts, now, Crude @ $49.69 brl (+0.36 ), Brent @ $49.32 brl (-0.00) , Gold @ $1210.20 (-6.53), Silver @ $16.17 (-0.09), Euro @ $1.1109, JPY @ $110.8400, INR @ $67.0350

GLOBAL MARKET UPDATE

 • Wall Street rose on Friday and capped off its strongest week since March after US Federal Reserve Chair Janet Yellen said an interest-rate hike would likely be appropriate "in the coming months."
• While higher interest rates choke liquidity in stock markets, many investors see a potential rate hike as a vote of confidence that the struggling US economy is finding its legs.
• The Dow Jones industrial average climbed 0.25 percent to end at 17,873.22 points.

Today's Corporate Action  30th May Ex Date

GMBREW  Bonus issue 1:4
ITC  Dividend - Rs. - 8.5000
YESBANK  Final Dividend - Rs. - 10.0000

Today's Key Results  30th May

Auro Pharma( Cog Cons Est Net 564 Cr +40 % Yoy)   M&M ( Cog Est Net 682 Cr + 24 % Yoy)  Ntpc ( Cog Est Net 2284 Cr - 22 % Yoy)  Sun Pharma ( Cog Cons Est Net 1923 Cr + 117% Yoy)  Tata Mot( Cog Cons Est Net 3389 Cr + 97 % Yoy)  Ntpc ( Cog Est Net 2284 Cr - 22 % Yoy)  Bata ( Cog Est Net 33cr - 43% yoy) Berger Paint( Cog Est Net 85 Cr + 21% Yoy)  Ipca lab ( Cog Est Net 55 cr + 609% Yoy)  Gmr Infra ( Cog Est Net -485cr) 
Prestige Est ( Cog Est Net 88cr - 22% Yoy) Rcom ( Cog Est Net 178 Cr - 22 % Yoy)  Sail ( Cog Est Net -996 Cr)
Results Today

Tata Motors, M&M, NTPC, Sun Pharmaceutical, Aurobindo, Bata India, GMR Infrastructure, Suzlon Energy, Reliance Communications, Sintex Industries, Godfrey Phillips, Dhanlaxmi Bank, Hitachi Home, Jain Irrigation, GSFC, ITDC, Berger Paints, IPCA Laboratories, Prestige Estates, Insecticides (India), MTNL, Transport Corporation of India, Andhra Bank, Infibeam Incorporation, IVRCL, Fiem Industries, Bajaj Hindusthan Sugar, BGR Energy, Den Networks, Dredging Corporation of India, Kohinoor Foods, KSK Energy Ventures, Liberty Shoes, Lovable Lingerie,  Emco, Financial Tech, Jagran Prakashan, Marksans Pharma, OM Metals Infraprojects, Monsanto India, PC Jeweller, Prime Focus, Rolta India, Sakthi Sugars, Shakti Pumps (India), Sunteck Realty, Amtek Auto, Atul Auto, Gokaldas Exports, Bajaj Electricals, Blue Star, JBM Auto, Jindal Photo, D-Link (India), Donear Industries, Gokaldas Exports, ABG Shipyard, Hindustan Copper, Jindal Poly Films, Kopran, Lloyd Electric & Engineering, Nitco, OM Metals Infraprojects, KNR Constructions, Oriental Carbon & Chemicals, Power Mech Projects, Rajesh Exports, Sathavahana Ispat, Shilpi Cable, Suprajit Engineering, Andhra Sugars, TTK Healthcare, Vivimed Labs, Aegis Logistics, Bhushan Steel, Butterfly Gandhimathi Appliances, Cigniti Technologies, Harrisons  Malayala, IL&FS Engineering and Construction , OnMobile Global, Opto Circuits

   DERIVATIVE MARKET UPDATE

NIFTY PCR:
0.96
NIFTY IMPLIED VOLATILITY:
15.33
MARKET WIDE OPEN INTEREST:
Rs. 1,86,969 Cr. and Rs. 18,484  Cr. added in OI
Nifty Call :
Added 40.93 lakh shares
Nifty Put :
 Added 58.25 lakh shares
MAJOR OI GAINERS
BPCL (29%), Cummins (28%), IOC (24%), Biocon (23%) and Canara Bank (20%)
MAJOR OI LOSERS
Sun TV (-7%), Sail (-6%), Motherson Sumi (-5%), Reliance Industries (-5%) and Reliance Power (-4%)

TOP NEWS

Sun Pharma gets US subpoena over generic drugs pricing – Sentimental Negative for Sun; the inquiry is unlikely to have any adverse impact on the consolidated operations or consolidated financial results of the company.
The US Department of Justice (DoJ) has subpoenaed Sun Pharmaceutical Industries seeking information about the pricing and marketing of the generic drugs it sells in the United States.  The DoJ's antitrust division has also asked Sun Pharma's US unit for documents related to employee and corporate records and communications with competitors. The subpoena comes amid a wider probe by US regulators into steep increases in the prices of generic medicines in recent years. They specifically cited doxycycline, an antibiotic for which the price doubled in the year through June 2014. 

Tech Mahindra to buy out UK's Target TOPCO Ltd (BFSI space) for GBP 112mn – Positive read thru for the company

Network 18 Media and Investments: RIL introduces 4G smartphone brand LYF  ahead of Reliance Jio launch around December 2016, though  online portal Homeshop 18 (Network 18 media and investments has 51% stake in Homeshop 18), we have a positive view on Network 18 Media and investment

Auto Industry Exports - Sri Lanka import duty changes: Sri Lanka reduced import duty on small cars with engine capacity between 800-1,000 cc by 15-20%. Positive for Maruti as Sri Lanka contributes 2-3% of overall volumes. Sri Lanka increased import duty on three wheelers which is negative for Bajaj Auto (2-3% of overall volumes come from Sri lanka) and also negative for TVS Motors (1-2% of volumes are derived from Sri Lanka).

Phoenix Lamps: Company reported strong set of numbers which is ahead of street expectations. Topline grew 3% yoy to Rs 92.7 cr (topline grew after a gap of three quarters). Operating margins improved sharply 830 bps yoy to 17.2% led by lower staff and other expenses. Reduction in interest and depreciation expenses further boosted profitability. Net Profit came in at Rs 10.5 cr which is a steep improvement as compared to Rs 2.1 cr in Q4FY2015  -- Positive for Suprajit Industries (which has recently acquired 63% stake in Phoenix Lamps that will be merged into it)

Infra weak results: JP Associates Q4FY2016 Results Review – Loss widens in cement, construction and real estate: Negative for the company; similarly & Punj Llyod also reported increase in net loss in Q4.

STRONG RESULT

Astral Poly Technik reports strong numbers aided by pick up in volume and lower tax rate
·  The company has reported a strong volume yearly growth of 26% in Q4FY2016 volume sales for the standalone business which resulted in 14% yoy growth in revenue at Rs 429 crore.
·    Margins were stable on yearly basis at 12.4% as the rise in RM cost was offset by fall in other expenses. Aided by lower tax rate, the standalone net profit has increased by 45% to Rs 24 crore for the quarter.
·   On consolidated basis, the company has report 13% revenue growth for the quarter at Rs 532 crore. Margins improved by 60 basis points led by better performance by adhesives business. Aided by merger of its subsidiaries which resulted in lower tax rate, the conso net profit has increased by 82% to Rs 40 crore for the quarter.
·   We maintain our positive stance on the stock and would come with an update after the interaction with the management. 

TCPL Packaging posted strong operating performance with revenues growing by 22%yoy to Rs158crore (grow improved from 18% growth in 9MFY16), the OPM stood almost 16.3% and the operating profit growing by 22%. The PAT grew by 10% to Rs9.4crore due to higher incidence of tax (tax rate stood at 33% in Q4FY16 as against 24% in Q4FY15).

WEAK RESULT

JP Associates Q4FY2016 Results Review – Loss widens in cement, construction and real estate
·   JP Associates registered net sales de-growth of 25.1% YoY to Rs1,894 crore. The revenues were primarily affected due to lower sales from construction division (-27.4%YoY, Rs548 crore), cement (-21.1%YoY, Rs1,198 crore) and real estate (-87.4%YoY, Rs17 crore).
·   Operating profit declined by 96.8%YoY to Rs5.2 crore. The company reports loss before interest and tax for all the three divisions i.e. Cement (Rs132 crore as against Rs41 crore in Q4FY2015), Construction (Rs44 crore as against profit of Rs19 crore last year same period) and real estate (Rs34 crore as against profit of Rs7 crore in Q4FY2015).
·    The company reported net loss of Rs1,387 crore (Rs182 crore written off in Oil & Gas exploration, Rs91 crore for diminution in value of investments) as against net loss of Rs831 crore in Q4FY2015.

OTHER NEWS

Tech Mahindra to buy out UK's Target TOPCO Ltd (BFSI space) for GBP 112mn – Positive read thru for the company
Tech Mahindra has entered into an agreement to acquire Target Group, a processing platform company in the UK. Tech Mahindra will pay up to GBP 64 million upfront and a 2017 deferred consideration of up to GBP 16.28 million. The transaction is expected to close in Q2FY17. The acquisition strengthens Tech Mahindra's BFSI segment (10.6% of total revenue in Q4FY16) by giving it access to intellectual property and a platform, which helps automate end-to-end processes in the lending, investments and insurance market. Its fintech platform manages assets in excess of £24 billion. The Target Group has 740 employees and a client franchise including Goldman Sachs, Morgan Stanley, Credit Suisse, specialist lender Shawbrook, and Yorkshire Building Society.

Bajaj Auto eyes 25% market share in domestic motorcycle industry and plans to invest Rs 575 Cr for FY17. 
Eyeing a 25% share in the Indian motorcycle market, Bajaj Auto has planned to invest Rs 575 crore in FY17, a major chunk of which will be used for launch of new products. The company, which is currently strong in the entry level and top-end performance segment of the bike market, is looking to strengthen presence in the mid-executive segment dominated by market leader Hero MotoCorp. Bajaj has planned two new launches in FY17 - an upgrade for the Platina (entry-level model) and a totally new Pulsar at the top-end in the Q2Fy17. Bajaj auto’s market share in FY2016 improved to 18% from the 15% levels in FY2015 helped by new launches. Bajaj has targeted a market share of 24-25% for the fiscal Year 2017.While we believe Bajaj would gain about 200-300 bps market share in FY2017 and reach 20-21% market share in FY2017; the target market share of 25% looks ambitious

Auto Industry: The National Green Tribunal (NGT) is shall be considering, whether to impose a ban on the sale of large diesel-powered vehicles in 11 more cities including metros such as Mumbai, Kolkata, Bengaluru, Chennai and Hyderabad. The auto say such a move will be unscientific and uncalled for. If implemented, the ban is not likely to have any impact on the listed players viz Maruti (no product in large diesel segment) and M&M (alread has tweaked the large diesel vehicle portfolio to avoid the ban).  

Coal India has announced 6.3% per cent increase in coal prices. This will lead to an additional revenue of Rs 3200 crore in the financial year 2016-2017. – Positive for Coal India

Reliance Infrastructure – Net profit rises 44% YoY; to sell road assets and focus on EPC business – positive read thru for the stock
Reliance Infrastructure has decided to focus on the EPC business once again and has set an ambitious revenue target of Rs 10,000 crore by next fiscal. The company, which is in the process of selling all its 11 road projects that became operational in 2015-16, is planning to bid for EPC (engineering, procurement and construction) projects in sectors like power, railways and transport now. The company has reported a 43.72 per cent increase in consolidated net profit for the March quarter at Rs 659.85 crore on the back of improvement in operations.
MORE NEWS

 Govt may merge loss-making PSEs with profitable peers
 Rel Jio to lease more base stations from tower cos
 China's bad loans rise: Banking regulator
 India's infra growth story a hit in Japan, Softbank may invest big in solar power: FM
 'Normal monsoons can boost farm income by 20%'
 Govt to cancel tenders bagged by Finmeccanica
 Tata Steel may hold on to its UK steelworks: Report
 Govt eyes Rs 8,000 cr from stake sale in 4 PSUs
 Govt sanguine about GST passage minus Cong leg-up
 Investment in farm infrastructure must for 100% FDI in food processing
 Government plans to unveil solar zones policy in June
 Sun Pharma gets US subpoena over pricing of generic drugs
 PM to visit 5 nations; to discuss black money issue with Swiss
 UP sugar mills face heat over Rs 2,500 crore arrears
 Indo-American Chamber bid to boost bilateral trade, KPMG to come out with report
 Dumping duty imposed on coumarin imports from China
 Auction of coal linkages for sponge iron sector on Tuesday
 India among top 10 steel importers in 2015: WSA
 United Spirits plans to reduce debt by Rs. 2,000 cr in 2 years
Jet Airways to take back six Boeing planes from Etihad 
 Coal India Q4 profit up marginally at Rs4,248 crore
 Reliance Infra Q4 profit rises 43.7% to Rs659.85 crore
 Bayer CEO invites environmental groups to discuss Monsanto bid
 Govt seeks CSR spending information under companies law
 ONGC plans buying majority stake in GSPC’s KG gas block
 Sebi launches auction process for PACL assets
 CBDT begins consultation process with stakeholders on GAAR
India targetting steel output of 300 mn tonnes: Vishnu Deo Sai
 Global economic crisis linked to 260,000 more cancer deaths: Study
 Beyond IT/BPO, new jobs not being created: 2/3 of record FDI only in services
 Twitter has paid $322,420 to bug hunters so far
Foreign investors welcome, but no place for tainted money: Sebi
 Govt to cancel defence tenders bagged by Finmeccanica
 'RBI to lower rates by another 50 bps in FY17'
 Cotton to stay lower on rise in output at home, abroad
 Govt to sell off 14 perennially loss making ITDC hotels

 STOCK IN NEWS

1. Nalco pulls out of JV with NPCIL for nuclear power plant in Gujarat
2. USL to cut debt by up to Rs 2 ,000 cr in 2 yrs
3. Sugarcane arrears at over Rs 2,500 cr in UP
4. Coal India Ltd (CIL) revised the price of non-coking coal to keep the domestic coal prices at globally competitive level. CIL revised the prices across all grades for use in power sector.
5. Network18 to launch 3 regional channels in June
6. Tata Steel might hold on to UK steelworks
7. ONGC plans to buy majority stake in GSPC's KG gas block
8. R-Infra eyes EPC revival,sets Rs 10,000-cr revenue target for FY18
9. Bajaj to invest Rs 575 cr this fiscal, readies new launches
10. Sun Pharma gets US subpoena over pricing of generic drugs

STOCK UPDATE 
SBI
Reco – Buy
Cmp Rs 196
Price Target Rs 251 
Better than expected operating performance; improving outlook
Key points

  • Relatively better operating performance: Amidst weak performances of PSU banks, the operating metrics of State Bank of India (SBI) stood relatively better. Net interest income (NII) growth stood at 3.9% YoY (higher than expected) owing to slower growth in interest income due to interest reversals of Rs871 crore on account of higher slippages. The non-interest income increased by 25.6% YoY owing to a healthy 18.2% YoY increase in fee income and 44.5% growth in recovery from written-off accounts. This resulted in an operating profit growth of 14.4% (above expectation). However, the net profit declined by 66.2% YoY due to 99.8% rise in provisions. Net interest margin during the quarter improved by 3BPS QoQ while CASA ratio increased by 114BPS QoQ to 43.84%. 
  • Asset quality declines but outlook less worrisome: SBI’s asset quality deteriorated with Q4FY2016 GNPA at 6.5%, up 140bps from Q3FY16 and 225bps from Q4FY2015. The Q4 fresh slippages were Rs30,313 crore which included Rs9000 crore due to the Asset Quality Review (AQR). There was only Rs226 crore of sales to ARC during FY2016. Total SDR is Rs16,000 crore with slippages from restructured book to be Rs7,700 crore, and no pipeline guidance from SDR and 5/25 accounts. Total provisions during Q4 increased to Rs13,174 crore (NPL provisions Rs12,139 crore, up 143% YoY) up 99.8% YoY and 65.7% on QoQ basis. SBI utilised Rs1,149 crore of CCB to provide for NPAs. However, going forward, the SBI management gave a stressed assets watch list of Rs31,332 crore for FY2017 based on a comprehensive case-by-case assessment by the bank, which was lesser than feared by the markets and is a positive. It expects credit cost of 1.7-1.8% for FY2017E with large part of asset stress to come from the watch list which, we believe, given the circumstances, to be a positive. 
  • Valuation and outlook: Though we remain cautious on PSBs but SBI has shown a relatively better performance in spite of its larger size. Its guidance on margins, encouraging performance on recoveries and relatively calibrated asset quality guidance are key positives. For FY2017, SBI has guided 13-14% advances growth (achievable in our view) without requiring additional capital raising (Tier-1 @ 9.9%). It has not done any notable revaluation of assets (allowed by RBI) which builds in a capital cushion. We have rolled over our estimate to FY2018E leading a revised price target of Rs251. We opine SBI to be the pick of the PSU banks and upgrade the rating to Buy. 
Bajaj Holdings & Investment
Reco – Buy
Cmp Rs 1527
Price Target Rs 2100 
Buy maintained with a revised PT of Rs2,100 
Key points

  • Bajaj Holdings and Investment Ltd (BHIL) holds Bajaj Group’s investments in two flagship companies, ie Bajaj Auto Ltd (BAL; a 31.49% stake) and Bajaj Finserv Ltd (BFL; a 39.29% stake). BHIL also has an investment portfolio with a market value of close to Rs6,149 crore in other equity and fixed income securities. 
  • BAL’s revenues grew by 14% YoY to Rs5,411 crore primarily led by a 12% volume growth. A robust 24% volume growth in the domestic motorcycle segment led by new launches more than offset the weakness in motorcycle exports which declined by 3%. Further, realisation per vehicle grew by 2% led by favourable currency realisation and richer product mix. Going ahead due to a favourable monsoon forecast, the rural sentiments are expected to improve resulting in a 6-7% growth for the domestic motorcycle industry. BAL is expected to outgrow the industry given the new product launches and the full year impact of the recent launches. However, BAL’s exports continue to remain weak due to weak oil prices and currency depreciation in some of its key exports markets. The profitability in the current quarter (OPM of 21.3%) continues to improve due to weak commodity prices and a richer product mix. 
  • BFL reported a 26.8% Y-o-Y decline in its net profit owing to change in its accounting practices. Bajaj Allianz General Insurance Company has shown good performance after a downfall in Q3FY2016 owing to Chennai floods and remains one of the top companies in the general insurance space owing to its strong distribution network, while Bajaj Allianz Life Insurance Company could see improvement as the company is looking out for tie-ups with various banks for bancassurance and revival in life insurance industry could augment its growth. The lending business, ie BFL, continues to remain robust and we expect it to be the key driver for overall earnings growth. 
  • Given the strategic nature of BHIL’s investments (namely BAL and BFL), we have given a holding company discount of 50% to BHIL’s equity investments. The liquid investments and investments in other group companies have been valued at cost. We have reiterated our Buy recommendation on the stock with a revised price target of Rs2,100. 
Va Tech Wabag
Reco – Buy
Cmp Rs 555
Price Target Rs 650 
Weak result impacted by revenue slippage 
Key points

  • Soft quarter affected by lower revenue but managed well on margin front: The consolidated earnings of Va Tech Wabag (VTW) declined by 11% YoY to Rs66 crore in Q4FY2016 on account of slippage in revenue. However, on the positive side, the company has managed well to improve margin with cost rationalisation especially on the overheads side. Consequently, the consolidated OPM expanded by 114 bps YoY to 13.9% in Q4FY2016 and operating profit grew by 3% YoY to Rs119 crore. However, with resilient interest cost and higher tax outgo, the earnings declined in Q4FY2016. On the annual basis also, VTW missed its revenue guidance due to depreciation in Euro and earnings were impacted negatively. 
  • Strong order book but working capital concern persists: The total order inflow for the year jumped by 70% YoY to Rs5,401 crore, which pushed the total order backlog to Rs8,315 crore, 21% higher YoY. This translates into book-to-bill ratio of 3.2x and gives a high-revenue visibility. Further, the management expects inflow of around Rs4,000 crore in FY2017, given the prospective order pipeline. While the order backlog is much stronger over the last year, the working capital got stressed substantially in this year due to higher share of domestic business. The new working capital days jumped to 30 days in FY2016 and squeezed the cash flow generation in FY2016. We believe the management needs to put in efforts to manage working capital. 
  • Retained earnings estimate and price target of Rs650: We have largely retained our FY2017 and FY2018 earnings estimates where we built in healthy revenue growth backed by strong order in hand and a stable margin. Hence, we retained our target price at Rs650 and Buy recommendation. We expect initiatives to re-align its structures both, geographically and functionally, with focused cluster will improve overall efficiency. 
Shree Cement
Reco – Hold
Cmp Rs 13224
Price Target Rs 13900 
Power boosts overall performance, expensive valuation; retain Hold with revised PT of Rs13,900

Key points

  • Strong volume in cement and power drives earnings growth: For Q3FY2016, Shree Cement reported a revenue growth of 28.0% YoY to Rs2,017.4 crore driven by a volume growth (up 29.8% YoY) in cement (capacity addition) and increase in volumes of power segment (up by 97.8%). Realisation in cement declined by 5.2% YoY while realisation in the power segment declined by 3.8% YoY. The company reported a net profit improvement of 86.5% to Rs223.3 crore (which includes an extraordinary cost of Rs3.95 crore for Q3FY2015) on account of 9x increase in power segment’s operating profit (overall operating profit rose by 48% YoY to Rs505 crore). 
  • Superior operating performance in power aids drop in cement realisations: The performance of the power division for the quarter improved substantially on account of a sharp decline in cost (decline in price of pet coke), hence the company reported almost four-fold increase in EBIDTA per unit. The EBIDTA per unit for the quarter stood at Rs1.41 as against Rs0.36 the corresponding period last year. However, the performance of the cement division was supported by lower power and fuel cost (down 22.1% YoY on per-tonne basis) and freight cost (down 6.2% YoY) but lower realisation led to a 3.6% Y-o-Y decline in EBIDTA per tonne, which stood at Rs768 per tonne. 
  • Capacity expansion of 2.8MT clinker unit at a cost of Rs700 crore: Shree Cement will be setting up 2.8MT new clinker unit at Raipur, Chattisgarh (integrated cement plant of 2.6MT). The proposed unit is expected to be commissioned by Q4FY2018 at a cost of Rs700 crore (excluding the land and other infrastructure cost) which will be financed through internal accruals. 
  • Retain Hold with revised price target of Rs13,900: Shree Cement is one of the most efficient cement players in India but it continues to trade at a premium valuation as compared with the other pan-India cement players. Further, we have marginally tweaked our earnings estimates to factor in marginally lower volumes in FY2017 and FY2018. However, we have rolled forward our valuation on FY2018 estimate and arrived at a price target of Rs13,900. We have continuedto maintain our Hold rating on the stock (high valuation and unfavourable risk-return ratio). At the current market price, the stock is trading at 15.5x its EV/EBIDTA and PE of 32.2x its FY2018E. 
BHEL
Reco Reduce
Cmp 128
Price Target 115 
Set for a long haul of underperformance, downgrades to Reduce 
Key points

  • Poor performance continues: For Q4FY2016, earnings of Bharat Heavy Electricals Ltd (BHEL) dropped sharply by 60% YoY to Rs365 crore, though it improved sequentially. The net earnings was mainly contributed by higher other income (a bulk of the same contributed from forex gain). Revenue continued to decline (down by 21% YoY in Q4) with poor order inflow. To add to its woes, with higher employee cost, the negative operating leverage played out and dragged the operating profit substantially lower to Rs151 crore. However, higher other income turned out to be a saving grace to remain net-level positive. On an annual basis, BHEL reported loss of Rs913 crore and the balance sheet deteriorated substantially with net working capital days ballooning to above 300 days. 
  • Order book stagnating and large part of it is stressed: The order book of the company stands at Rs1,10,000 crore, which is almost stagnating for some time, and alarmingly almost 50% of the order book are stressed orders. During a conference call, the management shared that it is having L1 position in orders of 12000 MW, out of which 7000 MW could convert into firm order in FY2017. BHEL aims to achieve an order inflow of around Rs40,000 crore in FY2017, similar to FY2016. We believe the order inflow scenario is likely to be stagnant for a long time now. 
  • Challenging time to remain with structural headwinds: Given the slower recovery in capex cycle and visible underutilised power capacities, fresh investments in power plants are unlikely to come back soon. However, steady capacity addition by some public sector power entities will continue as base demand but that is substantially lower than the existing capacity in the system now. Consequently, pricing pressure will continue and, with resilient fixed cost base, BHEL will continue to have a tough time. Though the company is putting efforts to add other product lines, contribution from those lines of business will take substantial time to make it reflect meaningfully on the bottomline. 
  • Downgraded to Reduce: Amidst a flattish revenue outlook, BHEL is going to a face major challenge to handle 7th Pay Commission wage hike ahead. As per the management, the gradual retirement of workforce would not let the employee cost to go up, despite implementation of 7th Pay Commission hike. This could be a saving grace for the company but the overall bottomline performance is likely to suffer for some time. Meanwhile, with an extended stressed period, we apprehend further deterioration of the balance sheet too. Therefore, we recommend Reduce on the stock with a target price of Rs115.





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