Tuesday, 28 June 2016

28 June 2016 - Today's View & News


Markets are likely to open weak behind global markets. Nifty has broken short-term and medium-term trendline support levels, indicating reversal of the near term uptrend.

Nifty Spot Levels

Support 8060 – 7992 – 7930
Resistance 8120 – 8165 - 8220


Sgx Nifty -56 pts ‎Dow -210.51 pts ,Nsdq -113.53 pts , S&P -36.87 pts ‎,  Bovespa -859 pts , Ftse -156 pts , Dax -288 pts  , Cac -122 pts , Nikkei  -245 pts, now, Crude @ $46.65 brl (+0.32 ), Brent @ $47.16 brl (-1.25 ) , Gold @ $1328.40 (+3.70), Silver @ $17.79 (+0.04), Euro @ $1.1015, JPY @ $101.9100, INR @ $67.9450


• Wall Street tumbled again on Monday after Britain's shock vote to leave the European Union, sending major U.S. stock indexes to their worst two-day swoon in about 10 months.
• The Nasdaq dropped more than 2 percent, underperforming the other major indexes, amid fears that fallout from Britain's decision could hit business investment spending in the technology sector.
• The Dow Jones industrial average fell 260.51 points, or 1.5 percent, to 17,140.24.


Sun : Sun Pharma’s subsidiary Taro receives USFDA approval for Adapalene gel, used as topical cream to treat mild-moderate acne – Positive for Sun Pharma.

Bajaj Finserv likely to buy out Allianz’s stake in insurance JVs for Rs10,000 crore as per media reports -- Positive
As per media reports, Bajaj Finserv could buy 26% stake held by its joint venture partner Allianz [in both Life and General Insurance ventures;  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. 
Implications: If the deal goes through Bajaj Finserv will pay around Rs.10,000 crore to buy Allianz’s 26% stakes in the two insurance companies, thereby valuing the BAL and BAGIF combined at around Rs.39,000 crore at a multiple of 1.7x FY17E EV (higher than our estimated combined value of around Rs23,500 crore  on FY2017 forecast). Thus, the deal is favourable for Bajaj Finserv for two reasons: 1) Bajaj Finserv gets 26% stake in two entities at decent valuation of 1.7x EV (which is higher than around 2.8x EV of Max India merger with HDFC Standard Life); 2) It highlights value of insurance businesses in Bajaj Finserv (higher than as estimated by the street) and roughly could add to Rs324/- (taking value of Rs39,000 crore instead of Rs23500 crore and adding for outflow of Rs10,000 crore) to our target price of Rs2290 (if the deal goes thru at valuations as speculated in the media report)

Pharma Sector: Bombay HC imposes stay order on government’s move to cap drug prices  - Positive.
The High Court has said that the companies are unlikely to take any further price cuts over the WPI which would be under the revision of the national list of essential medicines. The drug price control order would have impacted sales of Indian pharma companies to the tune of 2% of sales. Pharma companies have already undertaken price cuts on the account of wholesale price index, which was -2.7 percent in 2015, as prescribed by norms of drug price regulator National Pharma Pricing Authority (NPPA).

Automobiles: Auto component sector to grow 19% CAGR upto 2020; positive read thru
The auto component market in India is expected to grow at a CAGR of more than 19% by 2020, according to latest study released by Technavio, a leading global technology research and advisory company. Technavio expects India to become an attractive destination for complex manufacturing as it holds distinct advantages compared to its peers such as South Korea, Taiwan, and China. The evolution of automotive clusters should help invite investments and the establishment of research centers (by both domestic and international players). Further, OEMs are expected to increase locally sourced components in their vehicles, driven by cost savings and protection from currency fluctuations. The high taxation on imports levied by the Government of India is also a driving factor behind increased localization.

Siemens has won an order worth Rs. 570 crore to supply Static Synchronous Compensator (STATCOM) solutions to PGCIL. The scope of the order includes design, engineering, supply, civil, installation, testing and commissioning of STATCOMs at four substation locations of PGCIL: Ranchi, Rourkela, Kishenganj and Jeypore across the states of Bihar, Jharkhand and Odisha.- Positive for Siemens (News came during market hours)

IDBI Bank and IFCI: NSE plans to file IPO document by Jan 2017 – Positive for IDBI Bank and IFCI they hold 3.0% and 3.5% stake in NSE

Government proposes 15 logistics parks at Rs 33,000 cr
To reduce transportation cost and minimise pollution, the government plans to set up 15 logistics park (covering more than 40% of the total road freight movement in India) in cities with high freight movement at an investment of about Rs 33,000 crore. A total of 4,800 acres is needed for the development of the proposed 15 multimodal logistics parks, including land for storage space, allied infrastructure, trunk infrastructure and land for future expansion. A total cost of Rs 10,700 crores will be needed for land acquisition.

MEP Infrastructure bags Rs 605 cr project from NHAI (during market hours)
MEP Infrastructure bags Rs 605 cr project from NHAI. This is the second project on hybrid annuity mode in Gujarat in less than a month. The project scope involves four-laning 40 km section of Mahuva to Kagavadar section of NH-8E under National Highways Development Project (NHDP) Phase IV. The construction period is of two years and six months from the appointed date and the concession period is 15 years excluding the construction period. The company now has a basket of six HAM projects in the states of Maharashtra and Gujarat totaling to Rs 3,837 crore.
V-Guard Industries has launched a smart water brand Verano, which is app enables and smart one- positive read thru
V-Guard Industries has launched a new water heater under the brand name of Verano. This water heater can be controlled by a smartphone (by an App) from anywhere in the world and also controlled with an infrared (IR) remote. Verano is priced at Rs 17,500 for the 25-litre variant and Rs 16,000 for the 15-litre variant and will be available now in South India only. Features include automatic failure notification sending mechanism in case of any failure of water heater components to the customer through the app.

NDTV: In Clarification to Exchanges, company acknowledged that it  has received show cause notice for 525.38 Cr on June 17 for AY10.  Company is sure of legal remediation. 

Ashok Leyland’s 57.4% subsidiary Hinduja Leyland Finance gets Sebi approval for Initial Public Offer; plans to raise Rs 700cr

Markets regulator Sebi has given IPO approval to Hinduja Leyland Finance, a 57.43% subsidiary of Ashok Leyland. The regulator cleared the proposed initial share sales and gave final observations on the initial public offers (IPOs) on June 24, as per the latest information. Hinduja Leyland Finance’s IPO comprises fresh issue of equity shares worth Rs 500 crore and an offer for sale up to 26,608,810 scrips by existing shareholders. The company is considering a pre-offer placement of up to 2.6 crore equity shares for an amount not exceeding Rs 200 crore.IPO by the subsidiary would enable Ashok Leyland to monetize investments and the proceeds are likely to be utilized to reduce debt.

Exide Industries plans Rs. 1400 cr capex for technology upgradation and capcity expansion 
Exide Industries is planning to spend over Rs.1,400 crore for the next one year on capital expenditure for technology up-gradation and capacity expansion. A significant amount of this capex will be incurred at its Haldia facility in West Bengal. Exide is investing heavily for implementing the punch grid technology at Haldia facility in East Midnapore district by building an entirely new unit there. For the technology up-gradation, the company has tied up with leading US-based lead-acid batteries manufacturer East Penn Manufacturing Company (EPM), which is providing the knowhow, technical assistance and support for the punch grid technology. Punched battery grids is a superior technology as the punching system produces consistent grids, in turn providing better life and reducing warranty cost of the battery in both automotive and industrial segments.

Maruti Suzuki: Utility vehicle Vitara Brezza capacity increased to 10,000 units a month on back of strong demand.
Maruti Suzuki has increased the capacity of its Compact SUV “Vitara Brezza” to 120,000 units per annum from a level of 100,000 units per annum. The strong response for the vehicle since it's launch has resulted in the company increasing its production capacity. Currently the company has 52,000 pending orders for the vehicle.

NHPC & PTC India - Environment Ministry has given green nod to the Rs 4,640.88 crore Kiru hydroelectric power project to be developed on Chenab river in Kishtwar district of Jammu and Kashmir. This projects is a joint venture amongst NHPC, JKSPDC and PTC India Ltd established in 2011 to harness the vast hydro power potential of J&K State. Positive read thru for NHPC and PTC India.

Hotel Leela to sell 3.85 acre land in Hyderabad in the current fiscal for ~Rs150crore; funds wil be utilized to reduce debt on books – positive read through for the stock

Ashok Leyland to continue exiting noncore areas to keep growth momentum intact in FY2017
Ashok Leyland will look at exiting non-core areas to keep its growth momentum in FY17. As per the company, portfolio rationalisation was already in process and that would see progressive exit from non-core and non-performing businesses. As per the company, The capacity of the Ras-Al-Khaimah plant will be almost doubled this year. To cope up with increasing demand, a new assembly unit in Bangladesh is in the offing and further units in Africa are under active consideration. Further, Defence-related business is also being reappraised with a two-pronged strategy of growing the traditional tactical vehicles as well as broadening the offerings to address the government’s ‘Make in India’ requirements. With the strong revival in the M&HCV segment, coupled with replacement demand and gradual implementation of BS-IV norms by April 2017, the expected pick up in infra and mining sectors are expected to give a strong push for higher sales in FY17.

Gujarat Gas - PNGRB grants authorisation to lay, operate, build & expand Gas Distribution in Ahmedabad – positive


Net neutrality: US follows Indian counterpart Trai’s steps
EU leaders reject informal talks with UK on EU exit
Goldman Asset Management sees UK downgrade
Rules for creating RBI monetary policy committee notified
World Bank President Jim Yong Kim to visit India
NSE to file draft papers for domestic listing by Jan 2017
Govt bonds oversubscribed; FPIs bid worth Rs 9,348 crore
Brexit only a near-term worry: Poll
Govt requires Rs 1.4 lakh cr to meet road targets for FY17
RBI sets rupee reference rate at Rs 68 against US dollar
Bank debt bears brunt of Brexit turmoil
Online system to check delay in pension soon: Govt
FDI relaxation credit positive for India: Moody's
Mukesh Ambani's pvt firms hit slow lane
Britain can cope with EU exit turmoil: Osborne 
Sterling hits 31-year low; gilt yield below 1% for first time ever
India officially joins Missile Technology Control Regime
FM to meet industry chambers, CAs on black money window 
Reliance ADAG looks to sale of tower, road assets to ease debt
MNRE asks states to set up 1 lakh family size bio-gas plants
India among Asia’s least exposed to Brexit: Morgan Stanley
Sebi set to allow e-commerce firms to sell mutual funds
Titan is slowly reinventing itself to keep up with the times
Sistema to buy back 17% of Indian unit Sistema Shyam TeleServices from Russia govt
Starbucks, Tata extend partnership beyond India           
S&P cuts UK sovereign rating from AAA to AA
Goldman Sachs sees post-Brexit UK recession; cuts EU, US growth 
'US-India investment treaty 'a bit more difficult' now'
ECB, BoE and Fed heads cancel panel chat after Brexit vote
David Cameron hails 'partner' India in post-Brexit statement
China eyes steel merger to create rival to ArcelorMittal
Science & tech key to 4% agri growth: official
Siemens wins Rs 570 cr order from Power Grid Corp
Due diligence must when taking personal loan
L&T faces challenges in getting large deals
Nissan ties up with MyTVS to expand service outlets


1. Volkswagen's US diesel emissions settlement to cost $15 billion: Source
2. Tata Group and US-based Starbucks Coffee Company signed multiple agreements on Monday to strengthen their four-year partnership,
3. Hotel Leela to sell Hyderabad land this year
4. Oriental Bank of Commerce to raise Rs 1,000 cr via tier-II bonds
5. Reliance May oil imports down 13.2%
6. AirAsia unveils promo fares starting Rs 786 for one-way domestic trip
7. BHEL commissions two hydel units in Afghanistan
8. L&T's construction arm bags orders worth Rs 2,416 cr in June
9. Catholic Syrian Bank plans to raise Rs 500 crore, investors shown interest include Fairfax

Sun Pharmaceutical Industries
Reco: Buy
Buyback a non-event; Halol inspection and its outcome will be near term trigger CMP: Rs774

Key points

Buyback Update: Sun Pharmaceutical Industries (Sun Pharma) has announced buyback of 75 lakh shares at a price of Rs900 each through the tender route, with the promoters intending to participate in it. The buyback is valued at Rs675 crore ($100 million) and accounts for the company’s 0.3% of outstanding equity capital. We feel that the company is utilising its surplus cash efficiently by rewarding the shareholders by way of a share buyback and a dividend.

Improvement in operating performance of base business will act as key trigger: We feel that stability and improvement in the company’s base business, along with margin expansion, will be crucial from the valuation viewpoint. However, Sun Pharma is likely to face some pressure in the near term (H1FY2017) on the base business due to pricing pressure in the US, Halol plant issues and the ongoing Ranbaxy integration. We expect the Q1FY2017 numbers to be better due to continuing exclusivity sales from Gleevec for full three months.

Stable long-term outlook: Remedial efforts at Halol are on track and the management expects the USFDA to re-inspect the plant in the current week. If the USFDA inspection happens this week and if the outcome of the audit is satisfactory, it will be significant positive for Sun Pharma’s stock. We also believe that Sun Pharma will take one or two quarters more to complete its Ranbaxy integration. Therefore, we could see some improvement in its operations and profitability from H2FY2017 onwards.

Maintain Buy rating with PT of Rs945: Positive outcome of the Halol plant inspection by the USFDA, along with improvement in the base business and in-line Ranbaxy integration will lift the overall performance of the stock. We maintain our Buy rating with an unchanged price target of Rs945. Key downside risk to our call is delay in outcome of the USFDA’s Halol plant inspection /escalation of warning letter to import alert.

 Cox & Kings
Reco: Buy
Brexit: impact on earnings would be limited to translation effect due to currency volatility CMP: Rs162

 Key points

Brexit – Weaker GBP to result in translation loss; business fundamentals intact: Our interaction with the management of Cox and Kings (CKL) suggests that Brexit will not have any major impact on the company’s business fundamentals in the UK and Europe. However, a sharp fall in the pound (GBP) against INR would lead to negative translation effect, as 42% of CKL’s EBIDTA is in GBP. According to CKL’s management, a 2% drop in GBP against INR leads to a 1% negative impact on its EBIDTA. Going ahead, if GBP depreciation sustains, it would continue to have a negative translation effect on the company’s earnings. However, it is too early to gauge the impact of a weaker GBP and we will keenly monitor the same in the coming months.

Depreciating GBP unlikely to affect Meininger business; but could hit Education business in FY2018: CKL’s Meininger business is unlikely to get affected by Brexit and volatile currency, as its cost and revenues are both denominated in Euro (only ~3% of Meininger’s bed bank is in the UK). On the other hand, the education business might see some negative impact, as 7 of its 25 PGL campuses are located in France. Thus, a depreciating GBP against the Euro might lead to tours turning costlier in FY2018. But, the FY2017 booking season for the education business is almost over. Therefore, there would be very little negative impact from currency fluctuations on UK’s education business in FY2017.

Marginal debt reduction in INR terms due to fall in GBP: CKL has about Rs1,600 crore worth of consolidated gross debt denominated in GBP. Thus, depreciation in GBP has led to a reduction of Rs32 crore in consolidated debt owing to currency translation. If GBP continues to weaken against INR in the coming quarters, we might see further reduction in gross debt. On the other hand, USD has remained almost stable against INR, and hence dollar-denominated debt has remained almost stable on a year-on-year (YoY) basis. Going ahead, a key trigger for CKL would be reduction in consolidated debt through improvement in cash flows.

Cheaper GBP could be positive for Indian leisure travel business: CKL’s Indian outbound tourism business is unlikely to get impacted by Brexit, as Indian travelers require two visas to travel to the UK and Europe. On the positive front, GBP getting cheaper against INR might result in more leisure travelers opting for the UK (which was earlier considered as an expensive international holiday destination). Weaker GBP may also augur well for MICE tours, which happen throughout the year. The Indian leisure travel business accounts for about 23% of CKL’s overall revenues and a major chunk of its revenue is coming from outbound tourism. We have already factored in double-digit (about mid-teens) revenue growth in our earnings estimates.

Maintain earnings estimates; will await more clarity; retain Buy: We believe that more clarity would emerge on issues related to Brexit in the coming months. Also, it is too early to gauge the currency translation impact on CKL’s earnings. We would keenly monitor currency movement in the coming quarters. The key trigger for CKL in the future would be reduction in its consolidated debt through international cash
flows and improvement in the international leisure travel business. We maintain our Buy recommendation with a price target of Rs250.

Key risk: Any significant slowdown in bookings for education and Meininger businesses in the UK and Europe, and lack of reduction in debt as per plans would act as key risks to our earnings estimates

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