The markets are expected to edge higher following positive opening across most of the Asian bourses. The markets rallied yesterday on the back strong results delivered by the blue-chip companies and positive global cues. Data showing substantial investing by FIIs over the past few days also boosted the sentiments.
Global markets too edged higher yesterday with US markets closing in green. The US markets continued its gains on the back of positive earnings season and jobs data. Also positive developments in Euro zone and the economic and earnings news from the US lifted up the European markets.
After prolonged negativity, the markets seemed to have breathed easy – FIIs have reinforced the faith in the economy and have stepped-up the purchases of domestic equities. In addition, increased efforts from the IMF to rescue the euro zone, as well as hints from China over easing of credit controls to boost slowing growth has boosted sentiments. The earnings seasons has fared well so far with frontline companies posting delivering strong results. As earnings calendar turn hectic in coming days, markets will closely watch for these numbers for cues on the performance of corporate sector.
Markets Today
The trend deciding level for the day is 16,626 / 5,011 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,680 – 16,716 / 5,031– 5,043 levels. However, if NIFTY trades below 16,626 / 5,011 levels for the first half-an-hour of trade then it may correct up to 16,590 – 16,536 / 4,998 – 4,979 levels.
Punj Lloyd Group receives Rs.1,300cr social infrastructure project
Punj Lloyd Infrastructure Limited, a wholly owned subsidiary of Punj Lloyd Limited, has received a Letter of Award (LOA) from Delhi Police for the development of Police Residential Complex at Dheerpur, Delhi, on design, build, finance, operate and transfer (DBFOT) basis. The project with an estimated cost of ~Rs.1,300cr primarily entails development, operation and maintenance of the residential zone of over 5,000 units (approx. 40 lakh sq. ft.) along with utility facilities such as sewerage and water treatment. It also includes development and commercial operations of the non-residential infrastructure such as schools, healthcare and convenience shopping, as per the norms laid down in the Delhi Master Plan 2021. The company will be signing a concession agreement with Delhi Police, which is under the aegis of Ministry of Home Affairs (MHA), for 25 years and will be entitled to semi-annual annuities of Rs.62.8cr along with construction milestone linked lump sum payments of Rs.316cr. We maintain our Neutral view on the stock on account of various overhangs – uncertainty over receivable claims, stretched working capital, auditor qualifications and increasing leverage on the balance sheet.
3QFY2012 Result Reviews
HDFC Bank
For 3QFY2012, HDFC Bank reported healthy 31.4% yoy growth in its net profit to Rs.1,430cr, in-line with our as well as street estimates. Steady NIM coupled with largely stable asset quality was the key highlight of the results. Another quarter of steady performance: The bank’s net advances growth slowed down to 3.1% qoq, after two quarters of strong growth (7.4% qoq in 2QFY2012 and 9.7% in 1QFY2012). Deposit buildup was also much lower on a sequential basis, growing marginally by 0.8% compared to 9.3% growth in 2QFY2012. Corporate loans for the bank grew at a modest pace of 15.0% yoy; however, retail loan book growth was strong at 29.5% yoy despite the rise in interest rates over the past one year. Yoy growth in retail loans was driven by CVCE, business banking, personal loans and credit card loans. The pace of CASA deposits accretion for the bank was moderate in 3QFY2012, with growth of 14.3% yoy. Other income growth for the bank was healthy at 25.9% yoy, primarily due to pick-up in forex income/derivatives income (68.6% yoy). Fee income growth was also healthy at 19.6% yoy, part of which can be accredited to the seasonality effect (higher bullion sales and credit card fees due to the festive season). The bank witnessed treasury loss of Rs.82cr during 3QFY2012 on account of MTM losses on bond investments and MF portfolios. The bank maintained its strong asset quality track record during 3QFY2012 as well. Gross and net NPA ratios remained stable at 1.0% and 0.2%, respectively. NPA provision coverage ratio remained at elevated levels at 80.3%, even without considering the floating provisions.
Outlook and valuation: Over the past five years, HDFC Bank has commanded an average premium to Sensex P/E multiple of ~31%. However, considering the recent outperformance of HDFC Bank’s stock price, the premium has expanded to ~35%. Given the current valuations (3.3x FY2013E ABV), we believe that the positives are largely factored in the price and leave a limited upside in the stock price. Hence, we maintain our Neutral recommendation on the stock.
Hero MotoCorp
Hero MotoCorp (HMCL) reported in-line net sales growth of 16.9% yoy (3.5% qoq) to Rs.6,031cr, driven by volume growth of 11.3% yoy (2.9% qoq) and a 5% yoy (flat qoq) increase in average net realization. HMCL’s volume performance was led by a 10.6% (2.6% qoq) and 20.4% yoy (6.4% qoq) increase in motorcycle and scooter sales, respectively. On the operating front, EBITDA margin (adjusted for change in accounting for royalty payments) was largely in-line at 12.3%, reporting an expansion of 115bp yoy (flat qoq), primarily due to a decline in rawmaterial expenses. Led by stable operating performance, adjusted net profit registered strong 20.5% yoy (1.5% qoq) growth to Rs.613cr. We believe at Rs.1,901, HMCL is reasonably valued at 14.2x FY2013E earnings (historical multiple - 15x). Thus, we maintain our Neutral rating on the stock. We shall come up with a detailed result update post the earnings call with management.
Bajaj Auto
Bajaj Auto (BJAUT) reported strong 21.2% yoy (down 3.9% qoq) growth in net sales to Rs.5,063cr, driven largely by strong exports performance. While export volumes witnessed robust 28.4% yoy (down 10.1% qoq) growth, export realization grew by strong 17.6% yoy (9.8% qoq), led by price increases and favorable currency movement. As a result, exports revenue jumped by 51.1% yoy (down 1.3% qoq). Domestic performance, however, was muted as volume and realization posted moderate growth of 6.8% (down 6.2% qoq) and 1.2% yoy, respectively, leading to domestic revenue growth of 8.1% yoy (down 5.5% mom). EBITDA margin surprised positively as it touched 21%, primarily on account of easing of raw-material prices and favorable currency movement on the exports front. Led by strong operating performance and lower tax rate, net profit registered strong 19.2% yoy (9.6% qoq) growth to Rs.795cr. During 3QFY2012, BJAUT reported mark-to-market (MTM) loss of Rs.59cr relating to hedging contracts, which restricted the bottom-line growth. At the CMP, the stock is trading at 12.5x FY2013 earnings. Post the recent correction in the stock price, we recommend Buy on the stock with a target price of Rs.1,755.
3QFY2012 Result Previews
Reliance Industries
Reliance Industries Ltd. (RIL) is scheduled to announce its 3QFY2012 results. We expect the company’s top line to increase by 31.0% yoy to Rs.78,364cr during the quarter, largely on account of higher refining and petrochemical product prices. However, we expect the company’s operating margin to decline by 559bp yoy to 10.3% on account of lower production from KG D6 basin. PAT is expected to decrease by 12.0% yoy to Rs.4,519cr. We maintain our Buy view on the stock with a target price of Rs.1,006.
ITC
ITC is expected to announce its 3QFY2012 results. For the quarter, we expect ITC to report a 17.8% yoy growth in its Top-line to Rs.6,427cr, impacted by a steady growth in its Hotels Segment, Paperboards & Packaging and Cigarettes. ITC’s Earnings for the quarter are expected to grow by 18.3% yoy to Rs.1,642.9cr, driven largely by Top-line. We recommend Neutral on the stock.
Wipro
Wipro is slated to announce its 3QFY2012 results. We expect the company’s IT services segment to post revenue of US$1,497mn, up merely 1.7% qoq. Volume growth is expected to be 2.7% qoq. At the consolidated level, we expect the company to record revenue of Rs.9,829cr, up 8.1% qoq. The company is expected to record a 145bp qoq expansion in its EBIT margin to 21.4% in the IT services segment; at a consolidated level, Wipro is expected to record a 155bp qoq increase in EBIT margin to 17.9%. PAT is expected to come in at Rs.1,487cr. We maintain our Neutral view on the stock.
Hindustan Zinc
Hindustan Zinc is slated to announce its 3QFY2012 results. The company’s top line is expected to decline by 1.1% yoy growth to Rs.2,574cr on account of higher realization, partially offset by sales volume growth. However, EBITDA margin is expected to contract by 583bp to 51.0% on account of rise in costs. The company’s bottom line is expected to grow by 0.1% yoy to Rs.1,288cr. We maintain our Buy view on the stock with a target price of Rs.142.
Axis Bank
Axis Bank is slated to announce its 3QFY2012 results. We expect the bank to report healthy NII growth of 22.7% yoy to Rs.2,126cr. NIM on a sequential basis is likely to remain flat with an upward bias. Non-interest income is expected to increase by a relatively moderate 13.4% yoy to Rs.1,302cr. Pre-provision profit of the bank is expected to register growth of 16.8% yoy. However, owing to higher provisioning burden (increase of 39.7% yoy), net profit is expected to go up by relatively lower 13.5% yoy to Rs.1,012cr.
The stock is currently trading at attractive valuations of 1.6x FY2013E ABV – more than 50% discount to HDFC Bank, despite similar earnings quality, profitability and growth expectations over FY2011-13. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.1,216.
JSW Steel
JSW Steel is slated to announce its 3QFY2012 results. On a consolidated basis, net revenue is expected to grow by 48.2% yoy to Rs.8,843cr mainly on account of increased volumes as well as realizations. Operating margin is expected to expand by 209bp yoy to 15.8% on account of higher revenue. However, net profit is expected to decrease by 4.4% yoy to Rs.279cr on account of higher interest expenses. Given the recent rise in the stock price, we recommend Neutral on the stock.
Exide Industries
Exide Industries (EXID) is slated to announce its 3QFY2012 results. We expect the top line to grow by healthy 15% yoy to Rs.1,211cr, largely due to a slight uptick in replacement demand. On the operating front, EBITDA margin is expected to decline by 566bp yoy to 9.6% due to raw-material cost pressures and price cuts carried out in September 2011 to counter competitive pressures. Hence, the bottom line is expected to post a 42% yoy decline to Rs.72cr. The stock rating is under review.
Syndicate Bank
Syndicate Bank is scheduled to announce its 3QFY2012 results. We expect the bank to report reasonable NII growth of 15.5% yoy. However, NIM of the bank is expected to compress albeit marginally on a sequential basis. Pre-provision profit of the bank is expected to register healthy 25.3% yoy growth, primarily on account of a muted 5.6% yoy rise in operating expenses vis-à-vis 15.9% rise in operating income. Provisioning expenses are expected to remain flat on a yoy basis at Rs.428cr, leading to a robust 62.9% yoy rise in PBT. However, net profit growth is expected to be relatively lower at 23.2% as the effective tax rate is expected to normalize from the low 10% witnessed in 2QFY2011.
At the CMP, the stock is trading at attractive valuations, in our view, of 0.6x FY2013E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.102.
Bank of Maharashtra
Bank of Maharashtra is slated to declare its 3QFY2012 results. We expect the bank to report reasonably healthy growth 24.5% yoy in its NII. NIM of the bank is expected to hold up well on a sequential basis and improve by ~30bp on a yoy basis. Other income growth is likely to remain healthy at 26.3% yoy to Rs.140cr. On account of slower rise operating expenses (6.7% yoy) as compared to operating income (22.3% yoy), pre-provision profit of the bank is expected to register healthy 39.4% yoy growth. Provisioning expenses are expected to increase by 25.3% yoy to Rs.214cr. However, net profit growth is expected to be strong at 61.4% yoy at Rs.146cr.
At the CMP, the stock is trading at attractive valuations, in our view, of 0.7x FY2013E ABV. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.52.
HCC
For Hindustan Construction Company (HCC), we project a 2.0% yoy decline in revenue for 3QFY2012 to Rs.982.4cr due to the slowdown of execution on account of drying up of orders for HCC in the last few quarters and slow-moving order book. On the EBITDA front, we expect a marginal dip of 66bp yoy to 11.9%. Hence, on the bottom-line front, we expect loss of Rs.25.5cr in 3QFY2012 vs. profit of Rs.7.9cr in 3QFY2011. Owing to the uncertainties surrounding Lavasa project and other concerns like subdued order inflow, deteriorating working capital situation and high interest cost, we continue to maintain our Neutral view on the stock.
NIIT
NIIT is expected to announce its 3QFY2012 results. We expect the company’s revenue to come in at Rs.226cr, down 24.8% yoy due to divestment of Element K business (part of and corporate learning solution (CLS) business). Revenue for the individual learning solution (ILS) and school learning solution (SLS) segments is expected to grow by 16.6% and 15.0% yoy to Rs.123cr and Rs.41cr, respectively. EBITDA margin is expected to improve by 270bp yoy 15.0%. PAT is expected to come in at Rs.18cr. We maintain our Buy recommendation on the stock with an SOTP target price of Rs.55.
Economic and Political News
- MoEF denies forest nod to RPower's Sasan coal bloc
- Telecom Min mulls auction of spectrum beyond 4.4 MHz
- Food inflation dips to -0.42% for week ended Jan 7
Corporate News
- Cairn commences crude production from Bhagyam oilfield
- MP government to allot 130 acres of land for Infosys SEZ
- Starbucks-Tata Coffee shops expected by month-end
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