The domestic markets are expected to open in the green tracking positive opening in most of the Asian markets. Indian markets snapped a five-day winning streak on Tuesday after the government revised down its economic growth forecast for the current fiscal year to 6.9% its slowest pace in three years.
Globally, US stocks recovered day’s lows and closed in green yesterday as Greek officials’ reportedly on reaching an agreement to enact the reforms needed to receive a new bailout. Buying interest remained relatively subdued, however, limiting the upside for the markets. Also, a US Labor Department report showed job openings rising to 3.38mn in December from 3.12mn in November showing continues progress in the job market. Indian investors, meanwhile, would keenly watch out for the domestic industrial production growth for the month of December due to be released on Friday.
Markets Today
The trend deciding level for the day is 17,679 / 5,357 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,775 – 17,929 / 5,391 – 5,448 levels. However, if NIFTY trades below 17,679 / 5,357 levels for the first half-an-hour of trade then it may correct up to 17,526 – 17,429 / 5,301 – 5,267 levels.
L&T bags order worth Rs.1,880cr
Larsen & Toubro's (L&T) construction arm has bagged new orders worth over Rs.1,880cr under various business segments in 4QFY2012. A major chunk of the orders (Rs.1,048cr) has been bagged by the Infrastructure IC that includes an order from West Bengal Government’s state highway circle for building a four-lane elevated corridor under JNNURM. The division has also bagged two others from DMRC for construction of tunnels for the underground works between Mandi house and Jama Masjid, including three stations under Delhi MRTS-phase III. While in the water and effluent treatment business, L&T Construction has secured orders worth Rs.348cr from Gujarat Water Infrastructure Ltd. In the power transmission and distribution segment, new orders worth Rs.263cr have come and additional orders from various ongoing projects worth Rs.221cr have been bagged by L&T Construction.
At the CMP of Rs.1,354, the stock is trading at PE of 19.1x FY2013E earnings, which is below the historical trading multiple for L&T. We have used 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 18.7% upside from current levels. Hence, we maintain our Buy rating on the stock.
Direct import of ATF approved
Empowered Group of Ministers (EGoM) has approved the import of aviation turbine fuel (ATF) directly by airline companies, which we believe is a positive move for the aviation industry. If airline companies start to import ATF directly, we believe they can reduce the fuel cost on an average by 10-15%, which could help them improve their margins and profitability, as currently nearly 50% of the total operating cost is accounted by fuel cost. However, we believe direct import of fuel in the short to medium term will be very difficult, as airline companies do not have the required infrastructure to do so and, given the state of the industry, are not in any condition to invest capital to build the required infrastructure. The only other possibility for airline companies is to reach an agreement with oil marketing companies to use their infrastructure, which we believe will come at a cost, since oil marketing companies are at the losing end and will charge a premium to make up for the loss of profit from this policy.
Overall, we believe this move is aimed to make the industry more attractive for FDI in future and will create transparency on the pricing of ATF in India. Since, we do not expect any short to medium term monetary gain from this policy, we continue to maintain our Neutral stance on the sector. However, if FDI is approved for international airline companies in future, which we believe has a high possibility, we may change out rating.
3QFY2012 - Result Reviews
Mahindra and Mahindra
Mahindra and Mahindra (MM) reported robust top-line growth of 37% yoy (13.9% qoq) to Rs.8,387cr, driven by impressive volume growth of 24% yoy (6.7% qoq) and strong net average realization growth of 10.6% yoy (6.9% qoq). Volume performance was aided by sustained momentum in the automotive segment, which registered growth of 31.3% yoy (2.9% qoq). In the passenger UV segment, MM posted strong 22.9% yoy growth, retaining its dominant position with a market share of 57.8% (54% in 2QFY2012). The farm equipment segment, on the other hand, witnessed moderate growth of 12.2% yoy with domestic tractor volumes registering growth of 11.8% yoy. However, MM managed to improve upon its domestic market share, which increased to 42.9% (41.2% in 2QFY2012) at the end of 3QFY2012.
The company’s EBITDA margin contracted by 292bp yoy (14bp qoq) to 12.2%, largely driven by increased purchase of finished products (up 265% yoy and 75% qoq) from the manufacturing subsidiary, Mahindra Vehicle Manufacturers Limited (MVML). As a result, total raw-material cost as a percentage of sales increased by 515bp yoy (178bp qoq) to 74.3%. EBIT margin of the automotive and farm equipment segments declined by 412bp yoy (175bp qoq) and 283bp yoy (up 33bp qoq) to 8.2% and 15.6%, respectively. Thus, adjusted net profit posted modest 7.3% yoy (down substantially by 13.9% qoq) growth to Rs.662cr. Additionally, a 37.8% yoy (12% qoq) increase in depreciation expense impacted the bottom line during the quarter. AtRs.689, the stock is trading at 13x FY2013E earnings. We maintain Buy rating on the stock while the target price is under review.
Cadila
Cadila Healthcare (Cadila) reported lower-than-expected numbers for 3QFY2012, except on the sales front, where sales were mostly in-line at ~Rs.1,350cr. However, higher R&D expense during the quarter resulted in depression in operating margin, which came in at 17.1%. This coupled with forex losses during the quarter resulted in higher dip in net profit. The stock is trading at 17.5x FY2012E and 13.6x FY2013E earnings. We recommend Buy on the stock with a target price of Rs.965.
ITNL
For 3QFY2012, on a consolidated basis, IL&FS Transportation Networks (ITNL) posted a mixed set of numbers with strong growth on the top-line front, however the fall in EBITDAM and high interest cost led to lower-than-expected bottom-line growth. The company’s revenue for the quarter came in at Rs.1,268cr (Rs.734cr), registering 72.9% yoy/1.0% qoq growth, marginally lower than our estimate of Rs.1,306cr. EBITDA margin for the quarter stood at 25.3% vs. 30.6% in 3QFY2011, down 480bp and 310bp on a yoy and qoq basis, respectively, against our estimate of fall of 280bp on a yoy basis. This was mainly on account of increased contribution from the relatively low-margin C&EPC segment. ITNL’s interest cost during the quarter grew by 60.9% yoy/9.5% qoq to Rs.185cr, ahead of our expectation of Rs.178cr. On the earnings front, ITNL reported growth of 42.5% on a yoy basis to Rs.87.8cr, lower than our estimate of Rs.119.7cr on the back of lower EBITDAM and higher interest cost. Owing to the recent run-up in the stock price, we recommend Accumulate on the stock with a target price of Rs.227.
JK Lakshmi Cement
JK Lakshmi Cement reported 39.6% yoy top-line growth to Rs.440cr, aided by robust 23.7% yoy growth in realizations coupled with 12.8% growth in dispatches to 1.22mn tonnes. The company’s OPM rose by 1,352bp yoy to 21.4% due to strong improvement in realization even as freight costs, personnel expenses and other expenses increased by 8% yoy, 23% yoy and 9% yoy, respectively, on per tonne basis. The bottom line surged to Rs.49.2cr in 3QFY2012 from Rs.4.6cr in 3FY2011 due to strong operating performance and 59% yoy growth in other income to Rs.14.8cr. The Board of Directors have approved the buyback of equity shares up to an amount of Rs.97.50cr at a maximum price of Rs.70 per equity share (i.e. 1.39cr equity shares of Rs.5 each from the open market through Stock Exchanges). The stock is currently under review.
3QFY2012 - Result Previews
ONGC
ONGC is slated to announce its 3QFY2012 results. We expect the company’s top line to decrease by 17.3% yoy to Rs.17,200cr on account of higher subsidy. EBITDA margin is expected to decline by 1,354bp yoy to 51.5%. The bottom line is expected to decrease by 37.1% yoy to Rs.4,454cr. We maintain our Buy view on the stock with a target price of Rs.324.
Bharti Airtel
Bharti Airtel is slated to announce its 3QFY2012 results. We expect the company to record revenue of Rs.18,312cr, up 5.0% qoq on the back of 2.3% and 2.0% qoq growth in ARPM and MOU to Rs.0.44min and 432min, respectively. VAS as a share in mobility revenue is expected to move to 15.0% in 3QFY2012 from 14.5% in 2QFY2012. Consolidated EBITDA margin of the company is expected to increase by 40bp qoq to 34.1%. PAT is expected to be at Rs.1,445cr. We maintain our Neutral view on the stock.
Tech Mahindra
Tech Mahindra is slated to report its 3QFY2012 results. We expect the company to record 0.5% qoq growth in dollar revenue to US$296.2mn, majorly led by volume growth. Revenue from the BT account is expected to decline by 2.3% qoq while the non-BT business is expected to post 2.1% qoq growth. EBITDA margin is expected to enhance by 209bp qoq to 17.4% due to INR depreciation. PAT, excluding earnings from Mahindra Satyam, is expected to settle at Rs.184cr. We maintain our Accumulate rating on the stock with a target price of Rs.666.
Bharat Forge
Bharat Forge is slated to announce its 3QFY2012 results. On a standalone basis, we expect the company to deliver 22% yoy growth in revenue to Rs.917cr. EBITDA margin is expected to witness a contraction of 79bp yoy to 23.5%. As a result, net profit is expected to grow by 17% yoy to Rs.97cr, slightly slower than the top-line growth. The stock rating is under review.
Orchid
For 3QFY2012, Orchid Chemicals is expected to post net sales of Rs.555cr, growth of 20% yoy. The company’s margin is expected to come in at ~24%, in-line with 3QFY2011 operating margin. Overall, net profit is expected to grow by 16.8% to Rs.57cr. We maintain our Buy recommendation on the stock with a target price of Rs.270.
Alembic
For 3QFY2012, Alembic Pharmaceuticals is expected to post net sales of Rs.389cr and net profit of Rs.31.9cr. Growth would mainly be driven by exports sales. The company’s OPM is expected to come in at ~14.0% during the period. We maintain our Buy recommendation on the stock with a target price of Rs.77.
Economic and Political News
- Airlines get GoM nod to import fuel directly
- Annual budget for FY2012-13 will be presented on March 16, 2012
- Government pegs FY2012 economic growth at 6.9%
- GoM approves Air India debt recast
- Per capita income expected to cross Rs.60,000 in FY2012
Corporate News
- Government rejects RIL demand for gas price revision
- Infosys to strengthen presence in Oman
- Legal tangle delays NTPC's order placement of Rs.34,000cr
- UTV denies purchasing Dabangg 2 rights
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