Thursday, 30 June 2016

30 June 2016 - Today's View & News


Markets are expected to open positive in accordance with global markets. Today being NSE FNO expiry, markets may show volatility during the day. Overall, if Nifty breaks and sustains above 8260 then upside momentum can continue. On the downside 8165 – 8125 will act as major support.

Nifty Spot Levels

Support 8165 – 8125 – 8080
Resistance 8220 – 8260 - 8295

Sgx Nifty +39 pts  ‎Dow +284.96 pts ,Nsdq +87.38 pts , S&P +34.68 pts ‎,  Bovespa +995 pts , Ftse +219 pts , Dax +164 pts  , Cac +106 pts , Nikkei  +164 pts, now, Crude @ $49.49 brl (-0.39), Brent @ $50.61 brl (+2.01 ) , Gold @ $1318.40 (-8.40), Silver @ $18.34 (-0.07), Euro @ $1.1122, JPY @ $102.8400, INR @ $67.6850


• Wall Street recorded big gains for a second day on Wednesday as investors continued to scour for bargains and digest the fallout from Britain's stunning vote to leave the European Union.
• Wall Street's rebound in the past two days has coincided with a bounce in oil prices, which rose on Wednesday after a larger-than-expected drawdown in U.S. crude inventories.
• The Dow Jones industrial average rose 284.96 points, or 1.64 percent, to 17,694.68.
• Traders have largely discounted a near-term U.S. interest rate increase, betting on only a 16-percent chance of a hike at the Federal Reserve's December meeting, according to the CME Group FedWatch website.

Today's Corporate Action 30th June  Ex Date
BIRLACORPN Dividend - Rs. - 6.0000
RISHIROOP Dividend - Rs. - 0.8000
SOUTHBANK Dividend - Rs. - 0.5000


Tyres: Natural rubber climbs 12-15% in June 2016 to a 2-month high of Rs 143/kg; negative for tyre companies Apollo Tyres, Ceat, MRF and JK Tyres as entire pass thru difficult

Natural rubber prices climbed to a two-month high of Rs 143 per kg on tight supply. Prices have increased by 12 % in June alone, as monsoon rains have led to reduced tapping. Natural rubber prices are showing an uptrend in the global market as well despite prediction of an oversupply in the top producing countries. The international price of sheet rubber stood at Rs 118 per kg, an increase of 15% during the month. The surge in the rubber prices would be difficult to pass thru entirely given the subdued demand environment (due to increased imports from China) and sub optimal capacity utilization of tyre companies leading to impact on the margins.

Max Ventures (demerged entity of Max India which houses film packaging business) open offer (at Rs40/share) to start on Aug 12 (till Aug 29) – Offer price is lower than CMP of Rs60 (which is largely fairly priced; further upside would depend on corporate action, if any)

Axis Bank may tie up with Wells Fargo and/or others in Fintech to offer products on digital platform – Positive (technology to play important role in aggregation on distribution and liability side for banks/financial services companies)

Bharti Airtel’s promoter suggests high possibility of pressure on tariff (and margins of telecom companies) due to entry of Reliance Jio which would look to gain market share though aggressive strategies initially – Overhang on telecom sector (concerns highlighted by us in our updates on Bharti Airtel)


L&T is going to list its IT subsidy L&T Infotech. The Offer will be open for subscription to public from 11 July till 13 July. The price band is fixed at Rs 705 to Rs 710 per equity shares.

ICRA has downgraded rating outlook of Syndicate Bank’s bonds to negative – Negative Read through
While ICRA has reaffirmed the "AA plus" rating for the Rs 3,250.00 crore Basel III compliant tier-II bonds of Syndicate Bank, but it said the outlook on the rating has been revised to negative on account of the lender's severe weakening of asset quality and falling profitability. The bank's surge in fresh NPA generation has impacted its rating outlook.

Road Sector – The Cabinet committee on Economic affairs approved four laning of three national highways in Punjab, Odisha and Maharashtra at an investment of nearly Rs6000 crore. The development is positive read thru for road sector which comprises companies like IRB Infrastructure, L&T, IL&FS Transportation, Ashoka Buildcon, Sadbhav Engineering, KNR Constructions among others.

Logistics sector – JNPT plans Rs500 capex – positive read thru for Container Corporation of India, Gateway Distriparks
Jawaharlal Nehru Port will be spending nearly Rs500 crore in the next two-three years to beef up evacuation of cargo from the port and further increasing connectivity with the hinterland as per media reports. This investment will go towards building a coastal shipping berth and a common railway yard. At present only 18% of the cargo is moved out of JNPT through rail which it plans to increase to 30% in the next few years. The development is positive read thru for Container Corporation of India, Gateway Distriparks.

Sagar Cement: Company to acquire M/s Toshali cement with installed capacity of 1.81 lac tone at Rs60 crore (Ev/tone of $49) in Andhra Pradesh.

Bharti Group planning to sell off its Insurance business – Positive for Bharti Airtel
Bharti Group is scouting for prospective buyers to exit its insurance venture. Bharti AXA Insurance is a JV between Bharti Group (49%)  and AXA Group (49% stake increase in 2015). The deal may provide much needed cash for Bharti. AXA's life insurance valuations are pegged around Rs 3000-3500 crore. The deal if happens, will help Bharti Group to monetise its insurance business and use deal proceeds to build war chest for its telecom venture Bharti Airtel. Bharti is said to be in talks with PE firms like Blackstone, Advent, Actis, Warburg Pincus for selling stake in its insurance JV. Bharti Group, however, has denied the reports and maintained that it remains committed to its insurance business.

MCX: CME group may pick up stake (The news of CME picking stake in MCX was doing round from last one month or so)
As per media news, US based CME group is keen on picking a 15% stake in MCX. It can buy shares straight from the market if the limits, toting up to 49%, are made fungible. If not done, it will have to have an agreement with an existing shareholder wherein price, etc will have to be fixed. Kotak Mahindra Bank, with 15%, is the single-largest shareholder, while FPIs like Blackstone, Goldman Sachs and Smallcap World Fund together hold 15.29%.
Coal India’s major subsidiary MCL plans to open two Greenfield mines – positive read thru for CIL
Mahanadi Coalfields, the largest coal producing subsidiary of Coal India (CIL) is aiming to open two new Greenfield (Siarmal and Garjanbahal) coal mines by 2018 as it gears up to reach the targeted production of 250 million tonne (mt) by 2020. This would be helpful for CIL to meet target coal production of one billion tonne by 2020. Also, CIL and Solar Energy Corporation have signed two agreements for implementation of 200 MW Solar Power Project in the State of Madhya Pradesh.

Aegis Logistics purchased additional 2,04,901 equity shares of its subsidiary, Sea Lord Containers at a consideration of Rs. 3 crore, taking its holding to 91.39% in Sea Lord Containers.

Automobiles: Supreme Court may lift ban on large diesel vehicles on payment of green cess
Supreme Court said it was open to lifting the ban on registration of diesel-run SUVs and cars with engine capacity of 2000 CC and above in Delhi and NCR subject to a levy of one-time environment compensation cess. Unveiling a slew of measures to curb alarming pollution level in Delhi and NCR, the apex court had on December 16, 2015 last year banned registration of diesel-run sports utility vehicles.

Inox Leisure: Opens 2 new screens in  Visakhapatanam

Majesco: Isign announces partnership for electronic signature solutions
Majesco and iSign Solutions Inc. (“iSIGN”) a supplier of electronic signature and other software solutions enabling secure and cost-effective management of document-based digital transactions, announced that iSIGN has joined Majesco’s partner ecosystem. Through this strategic partnership, Majesco will use iSIGN’s electronic signature solution to deliver Majesco’s solutions to its insurance customers enhancing their digital footprint.

Pioneer Distilleries’ Balapur MENA (molasses based extra neutral alcohol) plant closed for overhaul of boilers & dryer (Plant to re-open from January 2017); plant constituted 35 percent (Rs 50.2 crore) of company's revenue in FY16 – negative for Pioneer distelleries


Telcos may seek withdrawal of Trai’s paper on free data
SEBI issues new norms for foreign portfolio investors
CME group may pick up stake in MCX
Minority shareholders take Ricoh India to task
One country can't stop India's NSG membership: US
India lifts ban on trade of certain items with Iran
Dubai awards Alstom-led consortium $ 2.88 bn metro
Cabinet approves new mineral exploration policy
GST passage to be key to monsoon session success
General Motors' market share goes below 1% in India
Sebi has no jurisdiction to pursue NSEL scam
New law allows shops, malls, eateries to stay open 24x7
Supereme Court declines stay on payment to Sasan UMPP
Service tax dept begins e-auction for Mallya's luxury jet
Cabinet clears pay hike for 1 cr govt employees, pensioners
No dual power tariff for coop, public sector cogeneration plants
ArcelorMittal buys back bonds worth $576.30 mn
L&T Infotech’s ₹1,233-crore IPO to open on July 11
Vedanta beats mine blues to generate ₹11,000-cr cash in FY16
Central govt staff disappointed, call for strike on July 11
Raghuram Rajan resists plan to fund banks from RBI coffers
Monsoon session of Parliament to start on 18 July
Brexit will not affect UK sale process: Tata Steel
Govt decides to extend budgetary grants to Gail, GSPC
Siemens India chasing large orders, says CEO Sunil Mathur
Govt targets $8.9 billion in energy efficiency cost savings
India has shown sustained commitment to non-proliferation: US
SBI seeks DRT certificate to recover debts from Mallya
Irdai imposes Rs 10 lakh penalty on Max Life Insurance
Crayon Software appointed Microsoft's cloud distribution partner
No expectation of major reforms from government: Ruchir Sharma
Consumer spending to rise 5% with central pay hike
Brexit to have major impact on earnings: Suzuki Motors
NMEP will permit auction of 100 mineral blocks
Toyota recalls 3.37m cars over airbag, emissions issues
Sensex rallies 216 pts on govt wage bonanza, GST hopes
Uday may not destabilise fiscal consolidation: Ind-Ra
GIC Re eyes new markets to grow foreign business

1. IKEA to hire 15,000 to set up 25 stores
2. Essar settles $500 million of Iran oil bill: Sources
3. UCO Bank expects to return to profitability by FY18
4. TVS Shriram Growth fund exits Wonderla Holidays with 70 % IRR
5. ICRA downgrades outlook on Syndicate Bank's tier II bonds
6. GAIL begins gas supplies to Chinese wheel producer
7. Suzuki Motors says Brexit to have 'major' impact on earnings
8. SBI seeks DRT certificate to recover debts from Mallya
9. BSE secures shareholders' nod to launch IPO through offer for sale
10. Maharashtra Govt cuts industrial power tariff in Marathwada, Vidarbha


Back to basics; catalysts in place for re-rating of valuation multiple
Cmp: 69
Reco: Buy
Tgt: 83

Key points

  • Back to basics, sale of non-core business to turn CFCL into pure urea company: As part of long-term strategy, Chambal Fertilisers & Chemicals (CFCL) has divested its non-core businesses [software, textiles and shipping (sold only twoships)]. These three businesses are either loss-making or have relatively lower margins, but account for close to 30% of the company’s capital employed. The business reorganisation would enable CFCL to focus on its core business of urea manufacturing and trading in complex fertilisers, where it is planning an aggressive expansion. The company is setting up a 1.3 million tonne plant in Gadepan with a total capex of around Rs6,000 crore, thereby making CFCL one of the largest players in the urea segment by 2019.
  • Direct benefit transfer (DBT) a game changer for fertiliser sector; will improve working capital cycle: The government has initiated policy steps that could structurally improve the fertiliser industry’s dynamics. After the great success of the direct benefit transfer (DBT) scheme in cooking gas (LPG), the government has started a pilot project to implement DBT in the Fertiliser sector where farmers will receive subsidy directly in their bank accounts. DBT will be a game changer for the fertiliser sector because it will drastically reduce the working capital requirement (majority of loans taken by fertiliser companies is to fund working capital needs arising from delayed subsidy payments). Lower working capital requirement will considerably reduce the interest burden (78% of total loan book in FY2016 was towards working capital loans). The outstanding fertiliser subsidy as on March 31, 2016 was Rs3,100 crore as against Rs2,700 crore in the same period last year. The company received subsidy of Rs4,200 crore in FY2016 as against Rs4,800 crore in FY2015.
  • Valuations do not fully reflect focus on core business, favorable policy framework and better demand environment: Notwithstanding the expectations of a weak performance in Q1FY2017, the valuations of CFCL are expected to see a re-rating on the back of three key triggers: strategy to focus on core business, better demand environment (expectation of good monsoon) and a favourable policy environment (DBT implementation). Moreover, the creeping acquisition by CFCL promoters adds to our confidence. We have a positive view on the stock and expect 18-20% return from the current level over the next couple of quarters.
  • Risks: 1) Execution risk on Gadepan project (Rs6,000 crore, more than double the current market cap). 2) Currency fluctuations, as part of the debt is in US Dollar.

Positives priced in; book profit (38% gains in four weeks)
Cmp: 762

Key points

  • TCPL Packaging (TCPL) stock price has run-up by 38% in the past one month on the back of strong operating performance in FY2016 and improving growth prospects for the paper packaging industry in the long run. Revenues grew by 19% YoY (largely driven by strong double-digit volume growth) and the operating profit grew by 23% YoY in FY2016. Being one of the largest packaging players, TCPL would achieve strong double-digit revenue growth (largely volume driven) in the near to medium term on the back of improvement in consumer demand, growing e-retailing business and emergence of new players in the FMCG sector.
  • In addition to operating efficiencies, improvement in working capital will remain a key focus area for TCPL in the coming years. With no major capex planned, TCPL would also see improvement in cash flows and strong return ratios in the coming years.
  • However, the recent sharp run-up in TCPL’s stock price (38% since our viewpoint on May 23, 2016) have priced in all the above positives. We believe that the current valuation of TCPL at 10x FY2018 earnings is fair, capping any significant upside from the current level. Hence, we recommend our investors to take home handsome gains within short span and wait for a better point to re-enter the stock.

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