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Wednesday, 29 June 2016

29 June 2016 - Today's View & News

MARKET VIEW
Nifty likely to open on positive note back on Strong global clues, Since the Nifty has closed above 8120, a move towards 8165 is very much likely. The current upmove is possibly a technical bounce, and the Nifty should resume its downtrend once the pullback is done.

Nifty Spot Levels

Support 8080 – 8040 -7992
Resistance 8165 – 8220 - 8260
MARKET UPDATE

Sgx Nifty +9 pts ‎Dow +269.48 pts ,Nsdq +97.42 pts , S&P +35.55 pts ‎,  Bovespa +761 pts , Ftse +158 pts , Dax +178 pts  , Cac +104 pts , Nikkei  +129 pts, now, Crude @ $48.21 brl (+0.36), Brent @ $48.58 brl (+1.36 ) , Gold @ $1317.40 (-0.40), Silver @ $17.86 (-0.02), Euro @ $1.1074, JPY @ $102.6500, INR @ $67.9525


GLOBAL MARKET UPDATE


• Wall Street bounced back on Tuesday, recouping some recent losses, as investors sought cheap assets after a two-day equities rout sparked by Britain's decision to leave the European Union.
• Investors pointed to solid US economic data as helping to stabilize stocks.

• The Dow Jones industrial average .DJI rose 269.48 points, or 1.57 percent, to 17,409.72.

Today's Corporate Action 29th June  Ex Date

DABUR Final Dividend - Rs. - 1.0000
HAVELLS Final Dividend - Rs. - 3.0000
HDFCBANK Dividend - Rs. - 9.5000
OBIL Final Dividend - Rs. - 0.6000

TOP NEWS

ICICI Bank: ICICI Prudential Life Insurance to launch IPO by September – Positive for ICICI Bank
ICICI Prudential Life Insurance Co. Ltd is likely to launch its Rs.6,000 crore initial public offering (IPO) by September. ICICI Prudential Life Insurance is a joint venture of ICICI Bank Ltd (67.6% stake) and Prudential Corporation Holdings Ltd (25.9% stake). While ICICI Bank will dilute its shareholding in the IPO, it plans to continue to hold a controlling stake in the company. The firm is seeking a valuation of over Rs.40,000 crore for the business. In December 2016, ICICI Bank had sold 6% stake in the life insurance company in a transaction that valued the insurer at Rs.32,500 crore. This is positive for ICICI Bank as it would lead to value unlocking.

Indian Oil & Gas exploration companies set to invest $27  billion in exploration/production as per Bloomberg  -- Positive sentimentally for upstream exploration companies like ONGC, OIL; more positive for oil anci companies like Mercator, Aban, Seamec, Alphageo among others

Consumer Goods & Discretionary sector- 7th pay commission likely to come up before the cabinet on Wednesday – The Pay panel has recommended 23.55% overall hike for the government employees , thus the same if passed would have positive impact on consumer discretionary demand for companies like TTK prestige, Whirlpool, Arvind , Relaxo, Havells, V-Guard, Maruti Suzuki, Hero Motocorp.  

Bosch Ltd will hold a board meeting on July 1,2016 to consider share buyback proposal. Currently, the promoters holding is 71.18%, while the rest is with the public. Positive for the company

MACRO WRAP

RBI’s Financial Stability Report gives cautious outlook on banks and economy – Neutral read through

Financial Stability Report (FSR) of RBI indicates that de-leveraging of highly leveraged companies has started with the number improving from 19% (Sep-2015) to 14% (Mar-2016) which is a positive. However, the RBI doesn’t expect an improvement in asset quality in near term, and has indicated GNPAs to go to 8.6% (Sep-2016E) from 7.6% (Mar-2016). Overall the FSR seems cautiously optimistic.
OTHER NEWS

ITC to invest Rs 4,000 crore to set up to 9 plants to expand its foods business; new product launches in fast growing categories to sustain – positive read through for the stock
ITC will invest Rs 4,000 crore over the next 2-3 years to set up 8-9 factories across the country for manufacturing of food products. Its branded packaged foods division grew by around 11 y-o-y to clock a turnover of Rs 7,097.49 crore in 2015-16 and is second largest business for the company after the core cigarette business. The company is focusing on fastest growing categories in the foods space (especially in the health and wellness and dairy segments). We can expect more new launches in the coming months as consumer demand environment is expected to improve on back of expected better monsoon and improvement in the urban demand.

SBI to divest stake in non-core assets to raise Rs3000 cr: Positive read thru
M&M aims to turnaround two wheeler business with focus on employee reduction and introducing premium products
In a bid to turnaround the two wheeler business, M&M is controlling costs by reducing the workforce from current 1,100 workers to 400. It is also focusing on introducing high margin premium products (premium scooters from Peugeot stable and premium motorcycles). The two wheeler business has been a drag on the company reporting a loss of Rs 529 cr in FY2015.  

Ashok Leyland impaired Rs 558 crore in 2015-16; completes most of the balance sheet cleaning
Ashok Leyland has seen an impairment of Rs 558 crore in 2015-16, which is essentially provisions towards its investment. The company also disposed off the shares in Ashok Leyland John Deere at a loss of Rs 233 crore. The impaired Rs 558 crore in 2015-16, made after studying joint ventures, associates and subsidiaries, include writing off value of the investment in the Nissan JV aggregating Rs 296 crore, a provision of Rs 107 crore towards Albonair Germany, Rs 150 crore towards Optare Plc, UK and Rs 5 crores towards Albonair India. With the huge impairment it has mostly cleaned its balance sheet and will now focus on the core business of commercial vehicles.

OCL India to merge Dalmia Cement East to consolidate its position in eastern markets: Positive for the company
OCL India, a subsidiary of Dalmia Cement Bharat, has approached authorities to merge Dalmia Cement East with itself for consolidating operations in the eastern part of the country. OCL's market share in West Bengal is 15-16 %, making it the second-biggest player in the state. Demand for cement in West Bengal is expected to grow 10-11% during the current fiscal. Average capacity utilisation at the plants, which are located in West Bengal, Odisha and Jharkhand, is above 70%. 

Surya Roshni: Media reports suggests that company has plans to sell the lightening product business. However, the management has denied the same.

ITNL acquires 1.02% stake in Noida Toll Bridge at Rs23.5per share total investment is Rs4.46cr
ARCIL (Asset Reconstruction Co) Acquires 19.05% Stake in Sakthi Sugar by way of pref allotment

Eicher Motors: Royal Enfield banks on R&D edge to take on global competition

Royal Enfield Motors, the manufacturer of 350-500 cc motorcycles including the cult brand Bullet, which has global aspirations is strengthening its research and development (R&D) focus to take on international competition. The company has announced plans to expand its product range to cover the entire mid-size segment from 250-750 cc motorcycles. Over the last couple of years the Eicher Motors group company has enhanced its engineering and product design capabilities. Eicher Motor’s R&D investment has tripled to about Rs 90 crore (which accounted for about 1.5% of the revenues) in 2015-16. A significant portion of this R&D is devoted to acquire a design edge for Royal Enfield. For 2016-17, Royal Enfield has announced an investment of Rs 600 crore in building strong foundations across all areas of its business. A part of this will be for setting up two technical centres in Leicestershire (UK) and Chennai. The UK technology centre will be operational by the latter half of this fiscal, while the Chennai centre will be ready by the next fiscal.

Strides Shasun gets shareholders nod for UK unit Shasun Pharma Solutions Ltd (SPSL - CRAMS business) divestment- Positive for Strides shasun

NHPC to invest Rs3000 cr on solar, wind projects

 STOCK IN NEWS

Tata Communications has sold its majority stake in South African internet service provider Neotel to Econet Wireless Global for $295 million (about Rs 1,992 crore).
SBI to sell non-core assets to raise Rs 3k cr
United Bank gets shareholders' nod to raise Rs 1,000 crore
Nestle's new chief expected to drive health expansion
Punjab National Bank cuts fixed deposit rates by up to 0.25%
30 of 50 banks may not meet capital adequacy norms: RBI
Chinese building material firms to set up base in AP, sign MoU
Dr Reddy's completes Rs 1,569.41 crore share buyback
RCom to provide 10 GB for Rs 93 in a 28-day promotional offer
ITC to invest Rs 4,000 crore to set up 9 plants

STOCK UPDATE

Jamna Auto Industries 
View: Positive
Riding the MHCV upsurge CMP: Rs169
Key points

MHCV to be fastest growing automotive segment; JMNA to be key beneficiary: The Medium & Heavy Commercial Vehicle (MHCV) segment has been on an upswing in the last two years, clocking a healthy 23% CAGR over FY2014-2016 due to firm freight rates, reduction in diesel prices and huge pent-up demand. Despite the strong growth, the MHCV industry volume today is still 11% below the peak levels witnessed in FY2012. We believe that the MHCV segment would maintain its uptrend and would be the fastest growing automotive segment (we expect 15% CAGR volume growth in FY2016-2018). 

New product launches to aid topline: JMNA has been a pioneer in the introduction of parabolic springs (more load bearing capacity compared to conventional leaf springs) in the domestic market and is virtually the only supplier, commanding a market share of about 90%. 

Cash flow generation strong; aims to be debt free by FY2018: The company’s cash flow from operations is likely to remain strong on the back of robust topline growth, margin improvement and efficient working capital management. JMNA enjoys a negative working capital cycle given the prudent inventory management policies and better debtor management. With no major capex lined up, the free cash flow from operations is expected to grow at a robust CAGR of 50% over the next two years. JMNA is aiming to become a net debt-free company by FY2018 which would further strengthen its balance sheet. The return ratios are also likely to be strong, with ROE of 29% and ROCE of 42% estimated in FY2018.

Outlook and valuation: JMNA’s topline is likely to grow by a healthy 13% CAGR over FY2016-2018, driven by an uptrend in the MHCV industry and new product launches, viz parabolic springs and lift axles. Also, the company’s operating margins are expected to improve owing to operating leverage advantage, a better product mix and operating efficiencies. Further, the healthy cash flow generation and minimal capex requirement would enable JMNA to become a debt-free company at the net level, adding further strength to the balance sheet. The company’s earnings are expected to register a strong 24% CAGR over FY2016-2018. JMNA is a quality company in the auto ancillary space with healthy financials and strong balance sheet. It is well poised to reap the benefits of the ongoing MHCV upcycle. At the CMP of Rs169, the stock is trading at an attractive valuation of 15.0x and 12.3x its FY2017 and FY2018 estimated earnings, respectively. We have a positive view on the stock and believe it can generate 15-20% returns from the current levels

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