Indian markets are expected to open flat with positive bias. While the performance of Asian markets is mixed, SGX Nifty is trading higher by 0.4%.
The US markets continues to be weighed down by uncertain political situation in Europe. During the day there were reports that Eurozone nations were debating about delaying the euro bailout payment to Greece due to the ongoing political uncertainty, resulting in strong selling pressure. However, this was later on denied by European Financial Stability Facility’s Board of Directors, aiding the markets to stage a partial recovery on Wednesday. The European markets were mixed on Wednesday, with DAX index gaining by 0.5% and CAC 40 index and FTSE 100 index down by 0.2% and 0.4% respectively.
Meanwhile, the Indian Markets hit their 16 week low weighed down by uncertainty in Europe and receding hopes of further rate cut, which could delay the economic recovery. FII selling pressure was high during the day. Further Rs. fell by 1.3% against the USD and closed at 53.85 vs. USD.
Markets Today
The trend deciding level for the day is 16,506 / 4,983 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,589 – 16,699 / 5,009 – 5,042 levels. However, if NIFTY trades below 16,506 / 4,983 levels for the first half-an-hour of trade then it may correct up to 16,396 – 16,313 / 4,949 – 4,923 levels.
Result Reviews
Punjab National Bank (CMP: Rs.768 / TP: Under review)
For 4QFY2012, Punjab National Bank (PNB) registered a weak set of results. The bank’s net profit grew by 18.6% yoy to Rs.1,424cr, which was above our estimates on account of lower effective tax rate than estimated by us. Net interest income of the bank grew by 9.3% yoy to Rs.3,310cr. Non-interest income growth was also moderate at 11.4% yoy to Rs.1,276cr. Provisioning expenses increased by 41.1% yoy to Rs.1,027cr, however a lower effective tax rate (25.4% in 4QFY2012) led to higher PAT growth of Rs.1,424cr.
The bank’s asset quality deteriorated significantly during 4QFY2012, with gross and net NPA levels increasing by 35.4% and 53.5% sequentially, respectively. As of 4QFY2012, gross NPA ratio stands at 2.9% (2.4% in 3QFY2012), while net NPA ratio stands at 1.5% (1.1% in 3QFY2012). The bank’s restructured book jumped up by 48.1% qoq, primarily on the back of restructuring of SEBs and Air India during 4QFY2012. Provisioning coverage ratio deteriorated by over 700bp during 4QFY2012 to 62.7%. We recommend Buy on the stock with a target price of Rs.1,102.
Ranbaxy Labs (CMP Rs.512, TP- : Neutral)
Ranbaxy labs reported below than expected results. For the quarter, the company reported Net sales and adj. net profits of Rs.3694.5cr and Rs.1246.4cr, a yoy growth of 72.4% and 209.1% respectively. Emerging markets contributed US $232mn, accounting for ~32% of total sales. Developed markets recorded US $470mn of sales and contributed 64% to total sales for the Company. API and others accounted for the remaining revenue of US $34mn for the quarter. The growth was mainly driven by Lipitor in US, resulting in US registering a growth of 145% to end the period at US $416mn., accounting for almost 57% of the overall sales. This also aided an improvement in the GPM’s and OPM’s. The GPM’s came in at 75.9% an expansion of 11.0% yoy. However the OPM’s came in at 25.0% (17.0%) an expansion of 8.0%. The other expenses, rose mainly on back of accured expenses and cliams recorded by the company towards a protion of profits payable by the company in realtion with sales of the product( which is estimated to be more than 10% of the total expenses for the 1QCY2012 and 4QCY2011. However, currently we maintain our Neutral stance on the stock.
ABB (CMP: Rs.747 / TP: - Under review)
ABB India (ABB) announced its 1QCY2012 results, which were disappointing on the top-line front, but the company’s bottom line exceeded expectations (when adjusted for notional MTM forex loss). The company’s top line for the quarter was flat at Rs.1,790cr (Rs.1,793cr previous year) and 12.8% lower than our estimate of Rs.2,053cr. Power products and low-voltage products were the only two segments that reported growth during the quarter at 4.1% and 11.5% yoy, respectively. ABB’s reported EBITDA margin declined by 22bp yoy, however when we adjust for the MTM exchange rate variation loss of Rs.32.7cr, adjusted EBITDA margin came in much higher at 7.3% against our estimate of 5.9%. Reported PAT came in at Rs.49.6cr, down 20% yoy. Order flow for the quarter was flat at Rs.1,632 (Rs.1,695), with order backlog standing at Rs.9,028cr. At current valuations of 35.2x CY2013E EPS, the stock is richly valued. We maintain our Sell recommendation on the stock; however, the target price is under review.
Union Bank (CMP: Rs.203 / TP: Rs.266 / Upside: 31.2%)
Union Bank reported its results for 4QFY2012. The bank reported 9.3% yoy growth in its NII to Rs.1,877cr, aided by higher credit growth. Non-interest income for the bank also increased by healthy 25.8% yoy to Rs.755cr, aided by sharp 65.3% yoy growth in recoveries. Operating expenses for the bank decreased by 28.6% yoy (5.1% qoq), which coupled with 13.6% yoy growth in operating income, aided the pre-provisioning profits to improve by 83.9% yoy. Net profit for the bank grew at much lower pace of 29.4% yoy to Rs.773cr on account of sharp increase in provisioning expenses incl. tax. The bank’s asset quality improved slightly on sequential basis, with both gross and net NPA ratio declining by 32bps and 18bps qoq, respectively. PCR though remained below comfortable levels and has declined sequentially by 92bps to 62.2%. We maintain our Buy recommendation on the stock with a target price of Rs.266.
IRB Infra (CMP: Rs.122 / TP: Rs.228 / Upside: 87%)
For 4QFY2012, IRB reported modest set of numbers with revenue coming in line with expectations but owing to better-than-expected EBITDAM, earnings were higher than estimates. IRB’s top line witnessed growth of 10.6% to Rs.848cr marginally ahead of our estimate of Rs.829cr. On the EBITDAM front, IRB’s margins came at 44.9% higher than our estimate of 42.2%. Depreciation came at Rs.102cr in line with our estimate. Interest cost came in at Rs.150cr a jump of 7.3%/5.6% on yoy/qoq basis. At the earnings front, IRB reported growth of 17.1% to Rs.120cr above our estimate of Rs.104cr on account of better than expected performance on the EBITDAM front.
Fundamentally, we have a target price of Rs.228 for IRB. However, we believe that the stock could remain volatile until clarity emerges on the issue of IRB’s Chairman Mr. V D Mahiskar being potentially involved in the killing of Satish Shetty (RTI activist) in 2010. Thus, this event could remain an overhang on the stock in the near term.
Result Previews
NTPC
For 4QFY2012, we expect NTPC to record a 6.1% yoy increase in its top line to Rs.16,468cr, driven largely by improved realization. The company’s operating margin is expected to increase by 289bp yoy to 27.5% due to better plant availability and expected grossing up of RoE under corporate tax rate for FY2012. Net profit is expected to decline marginally by 2.5% yoy to Rs.2,711cr. At the CMP, the stock is trading at 1.4x FY2014E P/BV. We maintain a Buy on the stock with a Target Price of Rs.201.
Canara Bank
Canara Bank is scheduled to announce its 4QFY2012 results today. We expect the bank to report a subdued 2.4% yoy growth in Net Interest Income to Rs.2,019cr. Non-interest income is expected to decline by 7.7% yoy to Rs.861cr. Operating expenses are expected to decline marginally by 1.3% yoy to Rs.1,196cr. Provisioning expenses are also expected to decline by 28.4% yoy to Rs.391cr, and would lead to 9.1% yoy growth in net profit to Rs.981cr. At the CMP, the stock is trading at 0.7x FY2014E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.532.
Cipla
For the 4QFY2012, Cipla is expected to post muted net sales growth of 4.6% to Rs.1,690cr, mainly driven by the domestic formulation business, while export performance is expected to remain muted. On the operating front, OPM (excluding technical know-how fees) is expected to come in at 21.5%, registering an expansion of 610bp yoy. This would aid the company's net profit to increase by 31.8% yoy to Rs.282cr. We maintain our buy on the stock with a target price of Rs.380.
Lupin
For the 4QFY2012, Lupin, on the other hand, is expected to register top-line growth of 22.6%. The company's OPM is expected to expand by 190bp yoy during the period. However, net profit growth is expected to be lower at around 13.7% yoy on account of higher tax outgo. We maintain our buy on the stock with a target price of Rs.656.
Cadila Healthcare
For the 4QFY2012, Cadila is expected to post a good set of numbers, with 20.7% yoy growth in net sales to Rs.1,411cr on the back of robust growth on the domestic formulation and exports front. On the OPM front, we expect the company's OPM to expand by 270bp yoy to 18.4% on the back of favorable product mix. However, net profit is expected to increase by 7.8% yoy to Rs.193cr, mainly on the back of increased tax outgo. .We maintain our buy on the stock with a target price of Rs.1016.
Apollo Tyres
Apollo Tyres is slated to announce its 4QFY2012 results today. On a consolidated basis, we expect the company to report a strong 19% yoy growth in revenues to Rs.3,241cr. Sequentially, EBITDA margin is expected to improve 50bp to ~10.5% led by sequential decline in raw-material prices. We expect net profit to decline ~27% yoy to Rs.141cr. The stock rating is under review.
Economic and Political News
- Cabinet may mull Coal Regulatory Bill tomorrow
- India's urban consumer confidence edges up: survey
- Government to auction 54 coal blocks with 18 bn tonne reserves
- March factory output seen slowing further: Poll
Corporate News
- Fire at M&M Nasik plant, operations suspended
- ICICI Bank raises foreign currency deposit rates
- ONGC to foray into city gas, plans to set up ONGC Gas
- Lanco Infra gets Supreme Court nod for township project
