The domestic markets are expected to open in the green tracking positive opening in most of the Asian markets. Indian markets extended their bull run on Monday, with shares hitting fresh 14.5 week highs in early trading as positive economic data from the US raised hopes the global economy will withstand the impact of Europe's debt crisis.
Globally, US stocks retreated from multi-year highs on Monday as Greece struggled for an agreement on spending cuts needed to ensure another round of rescue funds. Greece missed a deadline on enacting reforms necessary to receive a new bailout from the European Union and the International Monetary Fund. Selling pressure remained subdued, however, limiting the downside for the markets. Indian investors this week, meanwhile, would keenly watch out for the domestic industrial production growth for the month of December due to be released on Friday. Also, consumer comfort index of US which will be released on coming Thursday will be on radar.
Markets Today
The trend deciding level for the day is 17,711 / 5,360 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,826 – 17,945 / 5,392 – 5,422 levels. However, if NIFTY trades below 17,711 / 5,360 levels for the first half-an-hour of trade then it may correct up to 17,592 – 17,476 / 5,392 – 5,297 levels.
L&T bags order worth Rs.1,937cr
Larsen & Toubro's (L&T) construction arm has bagged a road project worth Rs.1,937cr from the GVK Group to widen a highway in Madhya Pradesh. The contract involves designing, engineering and construction for four-laning of a major portion of Shivpuri-Dewas section of NH-3 totaling 235km. The construction period is 27 months.
At the CMP of Rs.1,383, the stock is trading at PE of 19.5x FY2013E earnings, which is below the historical trading multiple for L&T. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in the different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to Rs.1,607, which provides 16.2% upside from current levels. Hence, we maintain our Buy view on the stock.
Upstream oil firms to bear higher subsidy
Media reports suggests that state-run upstream companies will share 38.0% of the revenue losses (under-recoveries) suffered by oil marketing companies (OMCs) due to selling fuels at discounted prices for the period April–December 2011. The upstream companies had shared 33.0% of under-recoveries during 1HFY2012. During April–December 2011, total under-recoveries of OMCs stood at Rs.97,300cr.
Thus, ONGC will have to bear subsidy burden of Rs.30,296cr for April–December 2011, which is expected to result in additional subsidy burden of Rs.12,536cr during 3QFY2012. We had pegged upstream companies share of under-recoveries at 38.0% for FY2012 and, thus, do not change our estimates. We maintain our Buy rating on ONGC with a target price of Rs.324.
3QFY2012 - Result Reviews
HUL
HUL posted a healthy set of numbers for the quarter, in-line with our estimates. The company’s top line grew by 16.4% yoy to Rs.5,853cr. Earnings for the quarter grew by 18% yoy, marginally above our estimate, to Rs.754cr. The company’s top line was driven by modest volume growth of 9% yoy. Overall, FMCG sales grew by 17% yoy, aided by 18% yoy growth in the home and personal care (HPC) and 13% yoy growth in foods businesses. During the quarter, the soaps and detergent (S&D) segment posted 21% yoy revenue growth, while its EBIT margin expanded by 573bp yoy to 13.5%. The packaged food business reported 13.5% yoy growth. The personal products segment grew by 14% yoy. At the operating level, OPM expanded by 271bp yoy to 15.1% for 3QFY2012. The company cut its ad spends and other expenses and negated the affect of gross margin pressure. We maintain our Neutral rating on the stock.
Nalco
Nalco reported disappointing 3QFY2012 results. The company’s net sales grew by 0.4% yoy to Rs.1,430cr (below our estimate of Rs.1,770cr). Raw-material costs as a percentage of net sales stood at 16.7% in 3QFY2012 compared to 8.4% in 3QFY2011. Further, power costs as a percentage of net sales stood at 39.7% compared to 31.1% in 3QFY2011. Hence, EBITDA decreased by massive 83.6% yoy to Rs.64cr and EBITDA margin contracted by 2,287bp yoy to 4.5%. Other income, however, grew by 46.4% yoy to Rs.131cr. Consequently, net profit decreased by 80.0% yoy to Rs.51cr (significantly below our estimate of Rs.224cr). We maintain our Neutral view on the stock.
GSK Consumer
For 4QCY2011, GSK Consumer reported a modest performance, which was below with our estimate on the revenue and earnings fronts. The company’s top line grew by 18.6% yoy to Rs.602cr (Rs.508cr). On the operating front, the company recorded a 127bp yoy decrease in its operating margin to 10.2%, primarily on account of higher ad spends and other expenditure. However, the fall in OPM was curbed by reducing the staff cost by 174bp yoy. Earnings for the quarter grew by 10.7% yoy to Rs.59cr (Rs.53cr) on account of higher other income. The stock is under review.
MOIL
MOIL’s 3QFY2012 results were slightly below our expectations. Net sales decreased 5.4% yoy to Rs.240cr (slightly below our estimate of Rs.248cr) which would be mainly on account of decrease in average realizations in our view. EBITDA decreased 11.1% yoy to Rs.109cr. EBITDA margin dipped 293bp yoy to 45.7% on account of slump in manganese ore prices. Other income stood flat yoy to Rs.50cr, while tax rate was higher at 33.2%, compared to 30.5% in 3QFY2011. Consequently, net profit decreased 11.9% yoy to Rs.102cr, slightly below our estimate of Rs.106cr. We maintain our Neutral view on the stock.
India Cements
For 3QFY2012, India Cements registered healthy 20.5% yoy growth in its top line to Rs.944cr on account of a substantial 16.2% yoy increase in cement realization to Rs.4,262/tonne and reasonable 6.9% yoy growth in dispatches to 2.18mn tones, as retail cement demand has picked up in South India, which is the company’s major market. Southern region posted demand growth of 3.3% yoy during the quarter. OPM rose by 443bp yoy to 20.9% due to better cement realization despite higher power and fuel and freight costs. Power and fuel cost per tonne increased by 7.4% yoy during the quarter on account on higher coal imports, costlier domestic coal and higher power tariffs in Andhra Pradesh. Freight costs per tonne were higher by 5.1% yoy on account of increased railway freight and higher price of petroleum products. The bottom line came at Rs.56cr, registering growth of 162.3% yoy. We maintain our Neutral view on the stock.
BGR Energy
BGR Energy (BGR) posted a mixed set of numbers for 3QFY2012. As expected, the company’s top line for the quarter stabilized on prior-year period’s high base; however, earnings exceeded estimates owing to better-than-expected show on the operating front. The company’s top line declined by 36.1% yoy to Rs.803.7cr (Rs.1,257cr), which was lower by 10.8% (below street) than our expectation of Rs.901.1cr. The downside in revenue mainly came from the construction and EPC segment, which declined by 38.8.% yoy to Rs.727.1cr (Rs.1,118cr). In contrast, the capital goods segment posted decent 19% yoy growth to Rs.75.2cr (Rs.63.2cr). On the EBITDA front, the company’s margin posted a positive surprise – EBITDAM eported a sharp expansion of 463bp yoy to 16.3%, against our estimate of 12%. Margin was mainly aided by lower raw-material costs, which contracted by 730bp yoy to 73.1% as a proportion of revenue. Segment wise, the capital goods as well and construction and EPC segment offered upside to the margin, expanding more than ~400bp. As is the case since the past few quarters, we believe the construction and EPC segment would have been positively impacted by higher execution of BoP projects.
Interest cost during the quarter rose by 175% yoy/53% qoq to Rs.46.2cr, probably due to enhanced working capital debt, in our view. Led by slumped revenue, PAT declined by 37.5% yoy to Rs.54.7cr (Rs.87.6cr), however striking EBITDAM influenced the bottom line considerably – PAT came in 16% higher than our (below street) estimate of Rs.47.2cr.
Order backlog at the end of the quarter stood at Rs.8,000cr, largely aided by the Rs.1,700cr worth of order secured during the quarter. Notably, with 9MFY202 totaling mere ~Rs.2,300cr, we believe it will be challenging for the company to exceed Rs.4,000cr plus revenue target for FY2012 (management guidance). We would like to hear management’s commentary on the company’s future outlook and get more details over the quarterly numbers post which we will revise our estimates and recommendation. Currently, we remain Neutral on the stock.
Bajaj Electricals
Bajaj Electricals (BEL) posted top-line growth of 15.1% yoy to Rs.794cr (Rs.690cr) in 3QFY2012. The lighting segment registered strong 18.8% yoy growth to Rs.200cr (Rs.168cr) and the consumer durable segment registered a 24.7% yoy increase to Rs.414cr (Rs.332cr). The E&P segment registered a 5.1% yoy decline to Rs.179cr (Rs.190cr). EBITDA declined by 8.6% yoy to Rs.65cr (Rs.71cr), largely due to margin compression. EBITDA margin declined by 212bp yoy to 8.2% (10.3%), mainly due to higher other expenditure, which increased to 12.7% of net sales vs. 10.7% in 3QFY2011. PAT declined by 19.1% yoy to Rs.33cr (Rs.41cr), while margin declined by 175bp yoy to 4.1% (5.9%). We will be coming out with a detailed report post management interaction. We continue to maintain our Buy rating on the stock with a target price of Rs.201.
NCC
Nagarjuna Construction Company (NCC) posted a poor set of numbers for 3QFY2012, below our and street expectations. The company’s top line declined by 5.4% yoy to Rs.1,264cr, which was marginally above our expectation of Rs.1,215cr (Consensus: Rs.1,271cr). On the EBITDAM front, the company’s margin stood at shocking 6.1% (10.3%), registering a dip of 350bp yoy and lower than our estimate of 9.5% due to provisions (~Rs.15cr) and time and cost overruns in few projects. Interest cost came in at Rs.69.4cr, registering a yoy jump of 58.3% but a decline of 2.2% on a sequential basis. On the bottom-line front, NCC reported loss of Rs.9.5cr in 3QFY2012 vs. profit of Rs.40.5cr in 3QFY2011, against our estimate of PAT of Rs.14.0cr (Consensus: Rs.26.4cr), owing to decline in top-line and dismal margin performance. The current outstanding order book of NCC stands at Rs.21,990cr, with order inflow of Rs.9,943cr for 9MFY2012. Owing to the abysmal performance in the quarter and recent run-up in the stock price, we recommend Neutral on the stock.
GIPCL
GIPCL posted 26.9% yoy growth in its top line to Rs.391cr, driven by higher fuel costs as generation remained flat at 1,181MU. Vadodara stations I and II had PAF of 96.1% (93.7% in 3QFY2011) and 95.1% (100% in 3QFY2011), respectively. SLPP I and II stations operated at PAFs of 83.9% (89.2% in 3QFY2011) and 61.6% (60% in 3QFY2011), respectively. OPM for the quarter stood at 24.1%, down 1,484bp on yoy basis due to higher gas prices. GIPCL’s 3QFY2012 bottom line fell by 30.6% yoy to Rs.17cr. We maintain our Buy rating on the stock, but the target price is under review.
SpiceJet
SpiceJet announced its 3QFY2012 numbers. The company’s net sales increased by 41.6% yoy to Rs.1176cr (Rs.830cr), on the back of fleet additions during the year. EBITDA declined by 117% yoy to negative Rs.19cr vs. positive Rs.114cr in 3QFY2011. EBITDA margin declined by 1,536bp yoy to negative 1.6% vs. positive 13.7% in 3QFY2011, mainly due to higher fuel costs, which increased to 50.4% of net sales vs. 37.5 in 3QFY2011. Consequently, PAT came in at negative Rs.39cr vs. profit of Rs.94cr in 3QFY2011. We will be coming out with a detailed report post management interaction. We continue to maintain our Neutral recommendation on the stock.
Siyaram Silk Mills
Siyaram Silk Mills announced its 3QFY2012 numbers. Net sales declined by 2.6% yoy to Rs.222cr (Rs.244cr). EBITDA declined by 2.0% yoy to Rs.29cr (Rs.30cr) due to lower revenue. EBITDA margin improved marginally by 9bp yoy to 13.2% (13.1%). PAT declined by 17.0% yoy to Rs.13cr (Rs.16cr), while margin declined by 103bp yoy to 5.9% (7.0%) largely due to higher depreciation and interest cost because of capacity expansion during the quarter. Depreciation increased by 18.1% yoy to Rs.6.3cr (Rs.5.4cr), while interest cost increased by 92.0% yoy to Rs.6.9cr (Rs.3.6cr). We will be coming out with a detailed report post management interaction. We continue to maintain our Buy view on the stock with a target price of Rs.426.
3QFY2012 - Result Previews
Mahindra and Mahindra
Mahindra and Mahindra (MM) is slated to announce its 3QFY2012 results. We expect the company’s top line to grow by robust 31.4% yoy to Rs.7,981cr, backed by impressive 24% yoy growth in total volumes. On the operating front, EBITDA margin is expected to witness a decline of 313bp yoy to 12% on account of increased purchases from manufacturing subsidiary MVML. As a result, the bottom line is expected to report a modest increase of 6% yoy to Rs.654cr. The stock rating is under review.
Cadila
Cadila Healthcare (Cadila) is expected to post yet another strong quarter with 12.6% yoy growth in its net sales to Rs.1,278cr on the back of robust growth on the domestic formulation and exports front. On the OPM front, we expect the company's OPM to dip by 160bp yoy to 21.3% on the back of favorable product mix. Cadila's net profit is expected to increase by 19.1% yoy to Rs.193cr, driven by top-line growth. We maintain our Buy rating on the stock with a target price of Rs.965.
ITNL
We expect IL&FS Transportation Networks (ITNL) to post a strong set of numbers for 3QFY2012 on account of higher number of projects in hand. The company’s revenue is expected to grow strongly by 78.0% yoy to Rs.1,306cr, led by underconstruction road BOT projects. We expect the company to register EBITDAM of 27.3%, down 279bp yoy, owing to higher contribution of the comparatively lowmargin E&C segment. Strong revenue growth is expected to reflect in the company’s earnings, which are expected to surge by 94.2% yoy to Rs.119.7cr. Owing to the recent sharp run-up in the stock price, we recommend an Accumulate view on the stock with a target price of Rs.227.
JK Lakshmi Cement
JK Lakshmi Cement is expected to announce its 3QFY2012 results today. We expect the company’s top-line to grow by 11.4% yoy to Rs.351cr on account of higher yoy realization. On operating front, margins are expected to improve by 550bp yoy to 13.4% aided by higher realization. The company’s net profit is expected to grow by 92% yoy to Rs.9cr (though on a lower base of last year). We recommend Neutral on the stock.
Economic and Political News
- Oil dips below US$114, Greek debt, Iran in focus
- India faces challenges on stable rating outlook, says S&P
- Upstream oil companies to bear 38% of subsidy share
- RBI marginally relaxes FX curbs for banks with big open positions
Corporate News
- LIC to pick 5% stake in Dena Bank
- Petronet in talks with Kerala government for power plant at Kochi
- PFC to raise Rs.40,000cr in FY2013
- SKS raises Rs.243cr via securitization
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