The markets are expected to edge higher following positive opening across most of the Asian bourses. The markets ended with modest losses yesterday after investors booked profits. In addition, crucial meeting in Greece between the government and private creditors cautioned the markets.
European stocks also snapped a 3-day winning streak as investors booked profits despite positive news flow from the region. Bond auctions in safe haven Germany and debt-ridden Portugal went off smoothly and IMF intended to raise its lending resources by US$500bn to avoid a contagion of eurozone’s debt crises. US bourses gained on IMF’s arrangement for the eurozone. In addition, better-than-expected quarterly results from Goldman Sachs also boosted the sentiments.
Domestically, some of the many indicators have shown improvement (satisfactory IIP numbers and easing of food inflation). However, the implementation of big ticket reforms, especially in the power sector, remains a key. In an important meeting yesterday, the prime minister has assured to chalk out a road map to resolve the issues faced by the power sector. Investors will closely watch the developments in the power sector, which weighs heavily on the economic growth.
Markets Today
The trend deciding level for the day is 16,451 / 4,956 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,518 – 16,585 / 4,981– 5,005 levels. However, if NIFTY trades below 16,451 / 4,956 levels for the first half-an-hour of trade then it may correct up to 16,385 – 16,318 / 4,931 – 4,906 levels.
RIL may announce a share-buyback program
RIL board will consider a share-buyback program on January 20, 2011, alongside its 3QFY2012 results. Given RIL’s cash pile of Rs.61,490cr (as on September 30, 2011) and the recent decline in share price, the buyback program does not surprise us. This move will address the concerns of deployment of cash (partly), thus we believe the buyback will be valueaccretive for shareholders. Moreover, RIL has ~30cr treasury shares, which ifextinguished could be potentially EPS accretive by 9.7%. We await further clarity on the buyback details and maintain our Buy rating on the stock with a target price of Rs.1,006.
KEC International secures order worth Rs.340cr
KEC International (KEC) has secured an order worth Rs.340cr for the construction of 765kV and 400kV transmission lines in Maharashtra and Gujarat. The order is secured from Bhopal Dhule Transmission company, a wholly owned subsidiary of Sterlite Technologies. The transmission lines are a part of Built-Own-Operate-Maintain (BOOM) project awarded by Power Finance Corporation to Sterlite Technologies.
In a short succession, KEC has pocketed orders worth Rs.1,650cr, which has strengthened its order book to ~Rs.9,340cr (2.0x FY2011 revenue). The latent potential of the company (globally diversified model and healthy return ratios of ~25%) coupled with optimism surrounding the macro environment has factored into the stock – the scrip has rallied ~40% so far in the calendar year. At the CMP of Rs.51, the stock trades at 5.7x FY2013E EPS. We recommend Accumulate on the stock with a target price of Rs.53.
Result Review
MindTree
For 3QFY2012, MindTree reported USD revenue growth of merely 2.3% qoq to US$103.7mn, as volumes declined by 0.8% qoq. However, the company reported a 3.4% qoq increase in price realization due to one-time transition revenue realized from a package implementation deal in Europe. In INR terms, revenue came in at Rs.520cr, up 13.8% qoq. The company’s EBITDA and EBIT margins improved by 438bp and 486bp qoq to 17.3% and 13.9%, respectively, largely on the back of gains derived from INR depreciation against USD. PAT stood at Rs.61cr, up 11.1% qoq, negatively impacted by Rs.2.5cr forex loss. We continue to be positive on the stock and will be releasing a detailed result update shortly.
Infotech
For 3QFY2012, Infotech reported revenue of US$81.7mn, up merely 0.4% qoq, on the back of 2.3% qoq volume growth. The NCE vertical witnessed volume growth of 2.0% qoq, while the ENGG vertical reported 2.3% qoq volume growth. In INR terms, revenue came in at Rs.416cr, up 11.8% qoq, aided by 1) 0.4% qoq volume growth, 2) 1.0% qoq positive impact because of increased price realization and 3) remaining gain on the back of INR depreciation against USD in 3QFY2012. The company reported 484bp and 473bp qoq expansion in its EBITDA and EBIT margins to 20.6% and 17.1%, respectively, aided by qoq INR depreciation against USD. PAT came in at Rs.34cr, impacted by forex loss. The stock is currently under review we will be releasing a detailed result update on it shortly.
Result Preview
HDFC Bank – 3QFY2012
HDFC Bank is expected to announce its 3QFY2012 results today. We expect the bank to report a rather moderate NII growth of 13.9% yoy to Rs.3,162cr. Non-interest income is expected to register growth of 15.8% yoy, leading to an operating income growth of 14.4% yoy. Due to relatively similar rise in operating expenses (14.6% yoy), pre-provision profit is expected to grow by 14.3% yoy. However, provisions are expected to decline by a substantial 42.5% yoy, leading to a healthy net profit growth of 30.5% yoy to Rs.1,419cr. At the CMP, the stock is trading at valuations of 3.2x FY2013E P/ABV, in our view. We maintain our Neutral recommendation on the stock.
Hero MotoCorp – 3QY2012
Hero MotoCorp (HMCL) is slated to announce its 3QFY2012 results. We expect the company’s top line to grow by healthy 18% yoy to Rs.6,012cr, driven by 11.3% yoy growth in volumes and a ~6% increase in average net realization, led by price increases. Operating margin (adjusted for change in accounting for royalty payments) is expected to expand by 126bp yoy to 12.4% on account of softening of commodity prices. As a result, we expect the bottom line (adjusted) to post a 24% yoy increase to Rs.629cr. The stock rating is under review.
Bajaj Auto - 3QFY2012
Bajaj Auto is scheduled to announce its 3QFY2012 results today. We expect the company’s top line to grow by a healthy 17% yoy to Rs.4,720cr led by 13.6% yoy growth in volumes and increase in average net realization. On the operating front, EBITDA margin is expected to remain largely flat at 20%. Thus, the bottom line is expected to grow by 19% yoy growth to Rs.791cr. The stock rating is under review.
Economic and Political News
- LAC seeks to double trade with India to US$50 bn in 2 yrs
- IEA cuts 2012 oil demand growth forecast
- Finance Minsiter wants US$56/bbl upstream subsidy: Govt. sources
Corporate News
- RCom plans Rs.7,500-cr IPO for Singapore unit
- I-T slaps Rs.1,067 cr tax notice on Bharti
- Sadbhav Engineering emerges lowest bidder for Rs.325cr mining order
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