Monday, 27 June 2016

27 June 2016 - Today's View & News


Based on global market, Indian markets are likely to open on weak note. On breach of 8000 level in Nifty we may see more selling pressure.

Nifty Spot Levels

Support 8060 – 7992 – 7940
Resistance 8125 – 8165 - 8220

Today's Corporate Action 27th June  Ex Date

FCH Final Dividend - Rs. - 2.4000
PFIZER Dividend - Rs. - 15.0000


• The S&P 500 turned negative for the year-to-date on Friday as Wall Street suffered its largest selloff in 10 months after Britain's decision to leave the European Union caught traders wrong-footed.
• Equity futures neared an 11-month high to start the overnight session as markets wrongly bet that the "Remain" camp would prevail in Britain's referendum, but sold off sharply as the results showed otherwise - even triggering a market stop put in place to curtail volatility.
• The Dow Jones industrial average fell 611.21 points, or 3.39 percent, to 17,399.86. Currency Subject Forecast Previous


Brexit Impact on Sectors:
·         Autos: Tata Motors (JLR) is likely to be impacted as it will have to renegotiate terms of trade with European Union which forms about 25% of revenues for the company. (company has indicated revised terms may lead to increased duty of 10% on exports to EU and inbound tariff of 4% on components). The impact of currency movements is not significant on Tata Motors as the benefits from GBP depreciation against the USD and Euro is likely to be offset by impact of GBP depreciation against the INR.  Also, post the Britian exit, Euro has depreciated against the INR, thus the following companies which export to the European Union are likely to have impact:  Motherson Sumi (55% of the revenues), Apollo Tyres (27% revenues), Bharat Forge (40% revenues) and Balkrishna Industries (55% revenues).
·         Pharma sector: Brexit is likely to have limited impact on the pharma space, companies which have sizeable revenues coming from the region, like Aurobindo (22% sales from EU), Dr Reddy, Natco , Torrent, IPCA which get 8-12% sales from this region, while others have lower than 5%.
·         IT sector:  We believe, there could be some impact on the earnings for FY17/18E from the event, largely owing to currency and not on account of business. We will wait for more clarity from the management to gauge the business impact of Brexit.(Details in investment calls)
·         Brexit impact on Thomas Cook: The company hedges at all times and Brexit is unlikely to have any impact on the earnings of the company. The tourism business is unlikely to be impacted as an Indian anyway requires two visas to travel to UK and Europe.

Bajaj Finserv likely to buy out Allianz’s stake in insurance joint ventures – Positive read through
Bajaj Finserv Ltd is likely to buy out its partner Allianz SE’s stakes in two insurance units, Bajaj Allianz Life Insurance (BAL) and Bajaj Allianz General Insurance (BAGIF), in a deal estimated at as much as Rs.10,000 crore, Bajaj Finserv Ltd, owns 74% and Allianz SE holds 26% in both the ventures. Earlier, Allianz had been in discussions to increase its stake in the two insurance firms to 49% after the government raised the foreign investment limit in Indian insurers to 49% from 26% in March 2015. To increase the stake by 23% in the two firms, Allianz will be required to spend a much larger amount as per the fair-valuation method as a RBI ruling has mandated that all insurance deals are to be done at fair value method, superseding earlier call-option clauses. As per the fair-valuation method, Bajaj will have to invest around Rs.10,000 crore to buy Allianz’s stakes in the two insurance companies, thereby valuing the Bajaj Allianz Life Insurance at Rs.20,000-25,000 crore and Bajaj Allianz General Insurance at about Rs.20,000 crore.

Glenmark Pharmaceuticals: Company has received tentative ANDA approval for Olmesartan Medoxomil Tablets, used to treat high blood pressure. Also it has received ANDA approval for Nystatin & Triamcinolone Acetonide Ointment, an anti-fungal ointment – Positive for Glenmark.

Alkem Labs: Clarification on European Medicines Agency’s (EMA) inspection in Taloja Facility: Issues with Ibuprofen & Sclerosis Drugs (Company considering to provide alternate studies to support authorization) Europe contributes less than 1% to total sales – Sentimentally negative for Alkem

Zuari Agro avails unsecured inter corporate deposit of Rs100 Cr from Adventz finance for 1 year
Crompton Greaves Consumer Electricals board approves raising NCDs worth Rs650 Cr
Uniparts: Uniparts a Noida based company and a major supplier to off-highway vehicles, construction and agriculture equipment manufacturers is planning to raise Rs 300 crore via IPO in a year to fund its organic and inorganic expansion.

Vijaya Bank gets shareholder nod to raise up to Rs900 Cr equity

KDDL Brexit impact: KDDL’s manufacturing arm manufactures dials and hands for European luxury brands, which constitutes around 30% of its consolidated revenue that would witness some impact

J B Chemical: As per media reports J B Chemical’s tablet manufacturing facility at Panoli completes successful USFDA audit, without any 483 observations – Positive for J B Chemical.

Aban Offshore has received a Letter of Award from ONGC for the deployment of the Drillship ‘Aban Abraham’ for a period of 2 years. The expected revenues from this deployment is estimated at around to INR 592 Crores. The deployment is expected to commence during the fourth quarter of calendar year 2016.- Positive for Aban Offshore

Parag Milk Foods strong result: Parag Milk Foods registered strong operating performance in Q4FY2016 with revenues growing by 17% and the PAT growing by 50%. The operating margins of the company improved to 10.5% in Q4FY16 from 7.7% corresponding quarters last year
Kesar Terminals board approves bonus of 1 Share for 25 Shares of Company

Automobiles: Truck and bus Tyre imports surge 57% in April-May 2016 on China-led dumping

The import of truck and bus radial tyres (TBR) during April and May 2016 grew to 2.8 lakh units, an increase of 57% over the 1.8 lakh TBR tyres imported in the corresponding months of last financial year. TBR imports have gone up by 60% in 2014-15 and 64% in 2015-16 and have continued to maintain these growth levels. China dominates as the source country for import of TBR in India having 95% share of the imported tyres. A Chinese truck or bus radial costs $140-150 (Rs 9,400-10,000) in India, around 30% lower than an Indian tyre costing Rs 15,000.

Automobiles: New bus body code to be implemented from October 1, 2016
Government has prepared a new bus body code to be implemented from October 1,2016.The new bus body code includes features like more cabin space for drivers, emergency exits, fire extinguishers, proper illumination and ventilation, more space between two rows of seats and insulation of doors and windows to avoid rain water and dust. These features will be applicable for the new private luxury buses, tourist buses, city buses and state run corporation buses, nearly two lakh of which are produced every year by automobile manufacturers or bus body builders.


SBI’s Arundhati Bhattacharya may get 1-year extension
Fairfax Financial Holdings seeks RBI approval for 10% stake in Kerala’s Catholic Syrian Bank
Unlike 2008, Indian firms well hedged now for Brexit
Banks set to lobby RBI for liberal loan recast norms
Reliance Jio’s Amitabh Jaipuria steps down ahead of companies’s big 4G launch
Discoms stuck in slow lane on revising power tariffs
Coal India asks subsidiary Central Coalfields Limited to clarify share valuation norm
Russia’s giant Vankor oilfield reaches peak production level: ONGC
Indian Motorcycle eyes volume ramp-up with 'Scout 60'
Maruti Suzuki's compact SUV Vitara Brezza, Toyota's Innova make it to top passenger vehicle list in May
It is business as usual: Jaguar Land Rover on Brexit
Two UVs in top 10 passenger vehicles list in May
Tepid response to auction for solar projects in Gujarat
Asian Paints to invest Rs 4,000 crore in new units at Karnataka, AP
Dr Lal PathLabs eyeing 18 per cent growth in FY17
We are staying true to our $5-b investment plan: Venkatesh Kini
No impact of Brexit on tourism, says Thomas Cook chief
Emerging markets like India will be at advantage after Brexit: Gopichand Hinduja
Suzlon commissions 4.2 MW wind project in Gujarat
1-MW power plant at Chennai Metro
Adani Enterprises raises Rs. 150 cr via NCDs
CII, Hind Unilever join hands for food safety
Leather exports may take a beating
Nestle does exclusive sale of Maggi Hot Heads on Snapdeal
Maruti announces week-long free service camp
New spectrum pill for data scarcity
Audit giants see dominance waning
Videocon goes for asset sale to tide over debt levels
With 31% jump, HDFC Bank's Aditya Puri top gainer in salary hike
Bank mergers likely to happen after SBI consolidation, says finance ministry official
TVS Electronics expects POS business to grow at 12-15%
 V-Guard looks at powerless homes in UP, Eastern India for its solar solution
Radial tyre imports surge
Aban's subsidiary bags order worth Rs 592 crore from ONGC
Essar Energy sells 50% stake in KPRL to Kenyan Government
Brexit impact: Indian tea export realisation from UK to fall 7-8%
Are shareholders getting raw deal in Strides UK arm sale?
BSNL to install 2,000 new mobile towers in Chhattisgarh: Prasad
UDAY bonds find flavour with life insurers
Bajaj Finserv likely to buy out Allianz’s stake in insurance joint ventures
Sebi set to allow e-commerce firms to sell mutual funds
Reliance’s game plan for Jio
Titan is slowly reinventing itself to keep up with the times
IIFL looks to raise Rs750 crore realty debt fund
Mahindra and Mahindra bounce back may be priced in
Bank of Baroda will sell non-core assets gradually: chairman Ravi Venkatesan
Rapid growth of MFIs’ gross loan portfolio sets alarm bells ringing
Bajaj Finserv likely to buy out Allianz’s stake in insurance joint ventures
The metamorphosis of ITC under Y.C. Deveshwar
Mahanagar Gas IPO does not move the needle much for GAIL


1. Imports of truck and bus radials surged 57 per cent in the first two months (April-May) of this financial year.
2. Brexit impact could push Tata Steel out of Europe
3. Coca Cola to set up plant in Uttarakhand's Sitarganj
4. Bank of Baroda has undertaken a comprehensive review of its business and has finalised a detailed set of plans to fundamentally reposition it for future
5. TVS Electronics expects POS business to grow at 12-15%
6. Reliance Power eyes Rs 714 cr from Tilaiya procurers
7. NHPC plans 600-MW solar project at Koyna dam in Maharashtra
8. Dr Lal PathLabs eyeing 18% growth in FY17
9. JSW Steel gets green nod for Rs 35k-cr Jharkhand plant
10. Nippon Paints plans to get into retail business
11. Vedanta's Sesa Iron Ore to make all mines operational in Goa
12. Wipro Ventures invests in Israel VC firm TLV Partners
13. Tata Tele subsidiary to raise Rs 3,000 crore from promoter
14. Suzlon commissions 4.2 MW wind project in Gujarat


Supreme Industries - Growth outlook intact: Price target revised to Rs 908
• Capitalising on opportunities in pipe sector - In its latest annual report (FY2016), Supreme Industries’ (Supreme) management sounded very upbeat on the emerging growth opportunities in the construction sector, particularly in housing. This would augur well for its plastics pipes business (53% of total revenue). To capitalise on these opportunities, the company has envisaged a capex plan of over Rs150 crore in FY2017 (Rs148 crore in FY2016) for the introduction of new products/product line (such as fire sprinkler system), and expansion of its geographical reach. We expect the pipe segment to grow by over 17% annually over the next few years. 
• Going aggressive on furniture business– In FY2016, the furniture business’ operating margins improved by 220BPS to 17%, mainly led by a better marketing strategy and greater focus on premium products (grew by 23% YoY in volume terms). Supreme aspires to be the largest manufacturer of plastic furniture in India by 2020 (industry size currently pegged at Rs3100 crore). In FY2017, the company is setting up a new furniture manufacturing facility at Kharagpur, where it sees a lot of scope for exports as well.
• Return ratios to further improve with low gearing levels – The company repaid ~Rs279 crore of borrowings in M9FY2016*, taking the debt-to-equity (DE) ratio to an all-time low of 0.17x. This debt reduction (in spite of Rs234 crore capex) was supported by healthy cash flow generation, decline in raw material prices and better working capital management. While Supreme is likely to incur a capex of Rs250 crore every year for the next 2-3 years, it is likely to fund it through internal accruals and suppliers’ credit. As a result, the company is likely to become debt-free in the next few years, which would further boost its return ratios.
• Robust growth trajectory, PT revised to Rs908- Supreme has emerged as one of the best proxy play on the growing plastic consumption on the back of its diversified presence, extensive distribution network, improved capital structure and government’s thrust’s on infrastructure development. The company is also expected to monetise ~Rs125-150 crore in the near future from the unsold area of its commercial complex. We have finetuned our estimates mainly to incorporate the annual report details. We expect an adjusted CAGR of 24% in revenue and 36.6% in earnings over M9FY2016-FY2018 on a low base. Supported by its robust growth trajectory, we are revising our target multiple to 22x on its FY2018E earnings (trading in range of 23-30x in last one year). Accordingly, we are revising the price target to Rs908. We have not considered the value of the company’s 29.9% stake in Supreme Petrochem, as it is a strategic investment. Valuation wise, the current valuations of 21.2x FY2018 earnings look fair and hence we maintain a hold rating.

IT Sector update: Britain says Adieu to EU, currencies headwinds to play spoil sport in near term
• ‘Brexit’, Indian IT sector to get impact from cross currencies headwinds:  UK has voted to leave the European union in a referendum held on 24th June 2016, and bitter nightmare of Brexit turned true for the currency market, which has resulted in GBP touched a low of 1.32 vis-à-vis USD and Euro at 1.09/USD after the verdict, though recovered to 1.39 and 1.11 respectively.  Overall, as compared to FY16 average, GBP was lower by 8%, while Euro remains flat. Top five Indian IT company has exposure to Europe 23-29%, on a reported basis specifically to UK, TCS has 15.8%, Infosys 6.6%, Wipro 11% and Tech Mahindra at 10.8%. Taking the current depreciation of GBP at 8% against USD will translate broadly into (1.1%) revenues impact on TCS, Infosys (0.55%), Wipro (1%), HCL Tech (1.2%) and Tech Mahindra (1%). Additionally, any further depreciation of Euro will also have impact on USD revenues. On our midcap coverage, First source solution (FSL) have 37% revenues coming from UK, which will have cross currencies impact of close to 3.5%.
• Margins also to get impact, though will negate by INR depreciation: On the back of GBP depreciation against USD, there will also have negative impact on the operating margins around 30-60bps; TCS will have highest impact of around 60bps. Although, INR depreciation at 3.8% as compared to FY16 average will offset the impact.
• Business impact seems to be minimal in the near term, but could result in decision delay: IT sector has exposure in UK in key verticals like, BFSI, Telecom, and Utilities among others. We believe, there could be some impact on decision cycle in the new deals, but the extent of overall business impact will not felt in the near term and it will take some years to gauge the impact.
• Valuation: The Brexit has resulted in stock correction across the IT counters, owing to fear of earnings downgrade and business impact. We believe, there could be some impact on the earnings for FY17/18E from the event, largely owing to currency and not on account of business. We will wait for more clarity from the management to gauge the business impact of Brexit.

Cox & Kings: Management view on Brexit
– No negative impact, management sees positives for traveler from pound depreciation 

• In our interaction with management, the company has stated that, the pound has depreciated against the rupee. This would mean that travel to the UK will be cheaper for Indian travellers. This will aid Cox & Kings outbound business in the near term. Cox & Kings operations in the UK in both Leisure – International and Education enjoy both revenues and costs in the same currency and hence there won’t be any impact from the currency movement.
• Its Meininger hostel business is based in Europe and has both its revenues and its costs based in Euros. Hence, there is no material impact from the currency movements. The euro is stronger against the rupee on a y-o-y basis anyway. Some portion of the company’s debt is denominated in GBP; the amount of debt will naturally reduce in rupee terms as a translational effect of the depreciation of the GBP against the rupee. So the leverage on the balance sheet will reduce.

• View:  Cox & Kings management is seeing no impact of Brexit on its business performance in the coming years. However more clarities would emerge in the coming days as Britain will negotiate with EU for better travel and tourism policy.

KDDL Brexit impact: KDDL’s manufacturing arm manufactures dials and hands for European luxury brands, which constitutes around 30% of its consolidated revenue that would witness some impact J B Chemical: As per media reports J B Chemical’s tablet manufacturing facility at Panoli completes successful USFDA audit, without any 483 observations – Positive for J B Chemical.

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