Indian markets are expected to open lower tracking mixed cues from the global markets. While major European markets rose on Thursday, US markets were mixed. Most of the Asian markets are trading in the red with SGX Nifty trading marginally lower by 0.5% in the opening session.
U.S markets had choppy trade on Thursday following the downward trend seen over the past several sessions. However, reports showing a reduction in initial jobless claims for the week to 367,000 provided some relief to the markets. While Nasdaq index fell marginally, Dow index and S&P index rose by 0.2% and 0.3% respectively. The German DAX index ended up 0.7%, while the French CAC 40 index and the U.K.'s FTSE 100 index gained 0.4% and 0.3% respectively. Meanwhile, Indian markets ended modestly lower on Thursday, erasing early gains. FII outflow fears continued to haunt investors despite a series of measures announced by the RBI recently to prop up the Rs., which hit a record low of 53.85 against the dollar the previous day. Markets would track the IIP data for expected to be released today.
Markets Today
The trend deciding level for the day is 16,490 / 4,985 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,602 – 16,784 / 5,020 – 5,074 levels. However, if NIFTY trades below 16,490 / 4,985 levels for the first half-an-hour of trade then it may correct up to 16,307 – 16,195 / 4,931 – 4,896 levels.
Cabinet clears MFI bill
The cabinet has cleared the Micro finance bill which will bring the micro lenders under the purview of the Reserve Bank. The MFI bill is positive for the micro finance institutions sector as it will supersede the state government laws, which has been in turmoil ever since the Andhra Pradesh government set stringent norms on lending and interest collection within the state. It is also positive for the Banking sector as it will help to reduce the MFI delinquencies on their books.
Result Reviews
NTPC (CMP: Rs.150/ TP: Rs.201/Upside 34%)
For 4QFY2012, NTPC posted a 4.8% yoy growth in its standalone net sales to Rs.16,264cr, in-line with our estimates, aided by higher capacity and better realization. OPM stood at 25.3%, up 180bp on yoy basis, despite the increase in fuel costs, on account of higher realizations. The company’s net profit declined by 6.8% yoy to Rs.2,594cr, due to higher interest, tax and depreciation. NTPC’s tax expense for the quarter stood at Rs.1,063cr vs. Rs.475cr in 4QFY2011. We maintain a Buy on the stock with a Target Price of Rs.201.
Cipla (CMP- Rs.323/ TP- /Buy)
Cipla reported better than expected result both on the net sales and profits. For the 4QFY2012, Cipla reported sales and net profit of Rs.1814cr and Rs.292cr, registering a yoy growth of 12.3% and 25.4% respectively. On the operating front, the Gross and Operating margins came in at 57.4% and 19.1% respectively. While both GPM and OPM expanded yoy, they were below expectations of 58.2% and 21.5% respectively. However, inspite of the same, the net profit came in at higher than expectations of Rs.292cr, V/s expectations of Rs.282cr, mainly on of lower taxation and deprecation during the quarter than expected. Currently the stock is valued at 15.6xFY2014E earnings. We retain our Buy rating on the stock; however, target price is under review.
Lupin (CMP- Rs.543/ TP- Rs.656/ Buy)
Lupin reported just-in-line sales, while the net profit came in below expectations. For the quarter, the company posted sales of Rs.1932cr, a rise of 24.6% yoy. The growth on the advanced and emerging, both of which grew by 30% and 29% yoy respectively, aided the overall growth of the company. On the operating front, the Gross and Operating margins came in at 59.5% and 17.6% respectively. The OPM’s were below expectations of 19.7%. This along with the higher tax along with the deprecations during the quarter aided the net profit to come at Rs.156cr, in comparison to the Rs.258cr estimated for the quarter. Currently the stock is valued at 16.6xFY2014E earnings. We maintain a buy on the stock with a target of Rs.656.
Cadila Healthcare (CMP- Rs.734/ TP- Rs.1016/ Buy)
Cadila Healthcare reported below than expected sales and net profit numbers. For the quarter, the company posted sales of Rs.1344cr, a rise of 15.0% yoy. The growth was primarily driven by domestic markets, which registered a yoy growth of 38.2%. Exports on the other hand grew yoy by 5.3% during the period. On the operating front, the Gross and Operating margins came in at 64.7% and 17.0% respectively. The OPM’s were below expectations of 18.7%. This along with the higher interest expenses during the quarter aided the net profit to come at Rs.171cr, in comparison to the Rs.200cr estimated for the quarter. Currently the stock is valued at 14xFY2014E earnings. We maintain a buy on the stock with a target of Rs.1016.
Canara Bank (CMP: Rs.419 / TP: Rs.532 / Upside: 27.0%)
For 4QFY2012, Canara Bank posted a weak set of results with net profit declining by 7.8% yoy to Rs.829cr. Bottom-line was dented by subdued net interest income, de-growth in fee income and higher operating expenses. The bank’s overall business growth remained moderate with advances growth of 11.3% yoy, largely aided by agriculture, infrastructure, and industrials segments. Deposits grew by 9.4% yoy. On the deposits side, calculated CASA ratio declined by 383bp yoy to 24.3%, due to decrease in current deposits by 39.5% yoy and 10.5% yoy growth in saving deposits. The bank’s reported NIMs remained flattish during 4QFY2012, as rise in yield on advances by 8bps qoq to 10.93% was completely offset by a similar rise in the cost of deposits to 7.35%. Commission and brokerage income de-grew during the quarter by 13.7% yoy to Rs.215cr.
On the asset quality front, gross and net NPA ratio for the bank remained at nearly the same levels on a qoq basis. Provision coverage ratio for the quarter also remained flat sequentially at 67.6%. During 4QFY2012, the bank restructured Rs.2,572cr worth of accounts, of which Rs.1,475cr was on account of restructuring of Air India. The bank did not restructure any SEB accounts during 4QFY2012, but expects Rs.5,385cr of SEB restructuring to occur in 1QFY2013 which would include discoms from the state of Rajasthan, Haryana and UP and Gujarat. The stock is currently trading at cyclically moderate valuations of 0.7x FY2014E ABV vs. 5-year average of 1.0x and range of 0.7-1.4x, in our view largely factor in the negatives. Hence, we recommend Buy on the stock with a target price of Rs.532.
Apollo Tyres (CMP- Rs.82 / TP- /Under review)
For 4QFY2012, Apollo Tyres (APTY) registered a strong net sales growth of 18.4% yoy (flat qoq) to Rs.3,231cr driven by 8.8% yoy growth each in total volumes and net average realization. Indian operations were the prime driver of growth with total sales increasing by 28.2% yoy driven by 14% growth each in volumes and net average realization. While European operations witnessed slightly lower than expected growth of 8.7% yoy, poor performance in South Africa impacted the overall performance. South Africa operations witnessed 18% yoy decline in volumes led by poor demand and also on account of plant shutdown due to national as well as company specific issues.
On the operating front, margins expanded 110bp sequentially (flat on yoy basis) to 11.1%, mainly due to margin improvement in the domestic business (EBITDA margin improved 200bp yoy and 160bp sequentially) led by decline in rawmaterial expenses. However, weak performance in South Africa and Europe nullified the positive impact of strong domestic performance. While South Africa operations reported operating loss largely due to de-growth in volumes; Europe operations witnessed 200bp margin contraction sequentially during the quarter. Net profit declined 18.6% yoy to Rs.157cr mainly on account of higher interest (up 31.5%) and depreciation (up 22.1%) expense and lower other income (down 37%). Further higher tax rate (24.6% as against 8.4% in 4QFY2011) also impacted the bottom-line negatively.
Going ahead, we expect the domestic business to do well, led by pick-up in demand in the replacement segment, improvement in OEM demand and stable raw-material environment. However, South Africa and Europe operations are expected to remain under pressure due to demand slowdown. At Rs.82, the stock is trading at 6.5x FY2014E earnings. We retain our Buy rating on the stock; however, target price is under review.
Sintex Industries (CMP- Rs.61 / TP- / Under review)
Sintex Industries announced its 4QFY2012 results. The company’s net sales declined by 11.8% qoq and 30.1% yoy to Rs.1,024cr on the back of lower sales in the plastic segment. The plastic segment registered a 14.8% qoq and 33.2% yoy decline in revenue to Rs.892cr. The textile segment, on the other hand, witnessed 15.1% qoq and 2.2% yoy growth in revenue to Rs.132cr. The company’s EBITDA declined by 44.7% yoy to Rs.160cr (Rs.290cr) on the back of lower revenue and margin contraction. EBITDA margin contracted by 415bp yoy but expanded by 158bp qoq to 15.6% on account of lower other expenditure. Other expenditure as a percentage of sales declined to 13.0% in 4QFY2012 compared to 14.7% in 3QFY2012. PAT declined by 45.7% yoy to Rs.91cr (Rs.168cr) due to margin contraction on a yoy basis and lower revenue during the quarter. Consequently, PAT margin declined by 256bp yoy to 8.9% (11.5%). Currently, the stock is under review.
HEG (CMP – Rs.222/ TP-/ Under Review)
For 4QFY2012, HEG reported a disappointing set of numbers. The company's top line came in at Rs.407cr, 4.1% below our estimates of Rs.425cr; however, revenue increased by 44.7% on a yoy basis, mainly driven by higher prices of graphite electrodes. EBITDA margin plunged by 1470bp to 5.9% during the quarter due to increased power and fuel cost, which grew from 6% (as percentage of sales) to 8.1% and forex loss of Rs.48cr. Depreciation cost increased by 11% yoy due to commencement of the expanded capacity. Thus, the overall increase in expenses led to a fall in net profit by 85.5% yoy to Rs.5cr in the quarter as compared to Rs.34cr in 4QFY2011. The stock rating is under review.
Result Previews
Dr Reddys
For the 4QFY2012, Dr Reddys is expected to post top-line growth of 14% yoy to Rs.2,301cr, majorly driven by the U.S. market. The company is expected to see good traction in its Indian and Russian formulation businesses as well. The company is expected to post EBITDA of 32.0%, up 770bp yoy. On the net profit front, the company is expected to post net profit of Rs.526cr, registering 57.3% yoy growth. We maintain our neutral stance on the stock.
Indian Bank
Indian Bank is scheduled to announce its 4QFY2012 results. Net interest income is expected to grow by moderate 12.8% yoy (up 3.1% qoq) to Rs.1,170cr. Non-interest income is expected to increase by 13.1% yoy to Rs.281cr. Consequently, operating income is expected to increase by 12.8% yoy to Rs.1,451cr. Operating expenses are expected to increase by 13.7% yoy to Rs.540cr, leading to pre-provisioning profit growing by 12.3% yoy to Rs.912cr. Provisioning expenses are expected to increase three-fold on a yoy basis to Rs.236cr. Consequently, net profit is expected to increase only by 7.0% yoy to Rs.526cr. At the CMP, the stock is trading at valuations of 0.7x FY2014E ABV. We recommend a Buy rating on the stock with a target price of Rs.240.
Federal Bank
Federal Bank is scheduled to announce its 4QFY2012 results. We expect the bank to report healthy net interest income growth of 19.9% yoy to Rs.227cr. Non-interest income is expected to increase by 11.4% yoy to Rs.157cr. Cost-to-income ratio is expected to remain similar to 3QFY2012 levels at 38.7%. Pre-provision profit of the bank is expected to increase by 21.5% yoy to Rs.425cr. Net profit is expected to increase by healthy 32.2% to Rs.227cr. At the CMP, the stock is trading at valuations of 1.0x FY2014E P/ABV. We remain Neutral on the stock.
Economic and Political News
- India to grow at 7.5% in FY2013: UN Report
- Govt. directs coal firms to supply fuel to power plans via MoU route
- Oil companies demand subsidy for petrol losses
Corporate News
- SKS Micro Fin shuts 78 branches in Andhra Pradesh
- Allahabad Bank plans to revive US$500mn bond sale
- Unitech moves CLB against Telenor
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