The domestic markets are expected to open in red tracking negative opening in Asian markets. Most of the Asian markets ended lower yesterday as concerns over political uncertainty in Europe partially offset the positive sentiment generated by a weekend move by China's central bank to cut banks' reserve requirement ratio. U.S markets closed at more than three-month lows yesterday as investors worried about political uncertainty in Greece, as the debt-plagued nation could be forced to hold a new round of elections due to lawmakers' inability to form a coalition government. Also, China’s move of cut in reserve ration requirements to inject more liquidity into the system added to recent concerns about the outlook for growth in China.
Meanwhile, Indian stock markets extended losses for a fifth consecutive session on Monday after government data showed that the India's headline inflation accelerated to 7.23% in April, making it difficult for the RBI to moderate monetary policy. Markets would now watch out for retail sales growth data of the U.S. for April 2012 (Bloomberg estimate – 0.1%) to be released today.
Markets Today
The trend deciding level for the day is 16,244 / 4,913 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,363 – 16,509 / 4,952 – 4,996 levels. However, if NIFTY trades below 16,244 / 4,913 levels for the first half-an-hour of trade then it may correct up to 16,097 – 15,978 / 4,869 – 4,830 levels.
Primary and fuel inflation rises as manufacturing inflation remains stable
Wholesale price-based inflation for the month of April, 2012 came in at 7.2% yoy, slightly higher than 6.9% yoy levels registered in March, 2012. The inflation levels of February, 2012 were revised upwards from 6.95% yoy to 7.39% yoy. The April, 2012 inflation levels of 7.2% yoy were above the Bloomberg estimate of 6.7%. Core (non-food manufacturing) inflation – which the RBI tracks closely – remained stable at 4.56% yoy compared to 4.53% yoy in March, 2012.
Primary articles inflation remained at elevated levels of 9.7% yoy, c.10bp higher than the 9.6% yoy witnessed in March, 2012. The food articles inflation which had risen to 9.9% yoy in March 2012, jumped c60bp to 10.5% yoy for April 2012. The mom annualized growth in food inflation index stood at 58.5% as against 27.5% registered in February 2012 on account of higher prices of few fruits and vegetables. The Non-food articles inflation, which was as high as 18.2% yoy in August, 2011, came in at 1.6% yoy (-1.6% yoy in March, 2012). However, over March, 2012, the Non-food articles index rose by 3.3% mom (annualised growth of 39.3%) on account of higher prices of raw silk, rape and mustard seed, sesamum, soyabeen, and mesta and niger seed amongst others. Inflation for minerals registered an uptick to 66.8% yoy compared to 28.6% yoy in February, 2012.
Fuel & power inflation (11.0% yoy) witnessed annualized mom growth of 21.4% over March 2012. Coal Index (13.9% yoy) witnessed annualized mom growth of 161.9% over March 2012 (0.4% yoy), mainly on account of higher prices of non coking coal. The electricity index remained unchanged mom. Mineral oil inflation too moderated further to 13.7% yoy levels (lowest in 19 months). Although, electricity tariff hikes across different states are yet to be accounted for in inflationlevels, we expect RBI to have already factored the same in its calculations and hence do not expect any possible deviation in RBI’s monetary policy decisions based on possible uptick in electricity inflation index. The fuel hikes are also on cards; however with global outlook remaining grim, any further rise in fuel inflation levels is hence, in our view, expected to be capped.
Manufactured products which have a weightage of c.65% in the overall WPI inflation inched upwards slightly to 5.1% yoy from 4.9% - the lowest levels in more than 2 years observed in March, 2012. The annualized mom growth in manufacturing index stood at 11.8% in April, 2012. The core inflation (4.56% yoy for April 2012 compared to average of 7.3% yoy in FY2012) which the RBI tracks closely for its monetary policy decisions showed stability remained stable at 4.56% yoy compared to 4.53% yoy witnessed in March 2012, thus strengthening the hopes of further monetary easing by the central bank.
Result Reviews
L&T (CMP: Rs.1,160 / TP: Rs.1,641 / Upside: 42%)
Larsen and Toubro (L&T) posted a good set of numbers for 4QFY2012, which were broadly in-line with our expectations; however, the company disappointed on the order inflow front. On the top-line front, L&T reported decent top-line growth of 20.0% yoy to Rs.18,461cr, marginally below our estimate of Rs.18,945cr. On the EBITDA front, performance was as per our expectations, with the company reporting a yoy dip of 130bp to 13.9% against our expectation of 13.7%. On the bottom-line front, L&T reported yoy growth of 13.9% to Rs.1,920cr, marginally higher than our estimate of Rs.1,862cr, owing to exceptional gain (Rs.55cr) and lower tax rate (26.9%).
As of 4QFY2012, L&T’s order backlog stands at yoy growth of 11.0% to Rs.1,45,700cr. Order inflow for the quarter was disappointing at Rs.21,159cr (yoy decline of 30.0%) against our expectation of Rs.26,000cr, taking the order inflow for FY2012 to Rs.70,574cr, implying a yoy decline of 12.0%.
For FY2013, management has given a guidance of 15-20% growth for both revenue and order inflow. We believe that although the company can achieve this guidance on the revenue front, given its robust order backlog, it would be difficult to achieve 15-20% growth on the order inflow front, considering the challenging macro environment.
We believe L&T is best placed to benefit from the gradual recovery in capex cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to peers. We maintain L&T as our top pick in the sector and maintain our Buy rating on the stock with a target price of Rs.1,641.
JSW Steel (CMP: Rs.620 / TP: - / Upside: -)
JSW Steel reported better-than-expected standalone results for 4QFY2012 on account of higher-than-expected sales volumes. The company's net sales grew by 35.3% yoy to Rs.9,511cr (above our estimate of Rs.8,406cr). Net sales growth was driven by increased steel volumes (+33.3% yoy to 2.3mn tonnes) and realization (+6.0% yoy to Rs.43,003/tonne). Although JSW Steel’s net sales grew by 35.3% yoy, its EBITDA decreased by 0.1% yoy to Rs.1,652cr and EBITDA margin slipped by 616bp yoy to 17.4% on account of higher raw-material prices. The company reported exceptional item related to forex gain of Rs.199cr during the quarter. Interest expenses grew by 140.7% yoy to Rs.368cr. Hence, adjusted net profit decreased by 33.6% yoy to Rs.553cr (higher than our estimate of Rs.432cr). Reported PAT declined by 9.7% yoy to Rs.752cr. On a consolidated basis, the company reported net sales of Rs.10,153cr (+40.8% yoy), EBITDA of Rs.1,887cr (+13.6% yoy) and adjusted PAT of Rs.480cr (-39.6% yoy). The company expects to produce 8.5mn tonnes of steel during FY2013. We keep our rating and target price under review.
Ashok Leyland (CMP: Rs.26 / TP: Under Review / Upside: -)
Ashok Leyland (AL) reported in-line results for 4QFY2012. The company’s net sales registered healthy 12% yoy growth to Rs.4,311cr, led by strong volume growth of 20% yoy. Volume performance was boosted by the newly launched LCV Dost, which accounted for ~14% of total sales during the quarter. While volumes in the MHCV goods segment declined by 3% yoy, MHCV passenger volumes jumped by 26% yoy. Net average realization, however, witnessed a decline of ~8% yoy, largely on account of higher contribution from the lower priced Dost vehicle. EBITDA margin declined by 230bp yoy to 10.9% on account of lower-margin product Dost and due to a 47% yoy increase in other expenditure, which could be due to increased advertising spends. As a result, operating profit declined by 7.5% yoy to Rs.470cr. Net profit declined by 13.2% yoy to Rs.259cr, which was in-line with our expectation. Higher interest (up 32% yoy) and depreciation expense (up 24% yoy) also impacted the company’s bottom-line performance. We maintain our Buy rating on the stock; however, our target price is under review. We shall release a detailed result note post the earnings conference call with the management.
Abbott India (CMP: Rs.1,505 / TP: Rs.1,628 / Upside: 8.1%)
For 1QCY2012, Abbott India reported a muted set of numbers. The company's top line was marginally lower by 2.7% qoq, from Rs.386cr to Rs.376cr. Numbers are not comparable to 1QCY2011, as the company’s results were merged with that of Solvay Pharma in August 2011. The company's EBITDA margin contracted by 648bp qoq in 1QCY2012, mainly due to increased employee expenses and other expenses. Depreciation for the quarter increased by 25% qoq, while tax rate stood at 41.9%, thus leading to muted PAT. The company made provisions of Rs.18.69cr for change in its accounting for sales return and change its depreciation method to straight line method from written-down methods, resulting in write back of depreciation of Rs.29.08cr. This led to net profit of Rs.27.08cr, a 26.6% decline on a qoq basis. We expect the company to post better revenue going forward on the back of improved product portfolio and synergies to reduce costs going forward. Also, change in depreciation method will add to the bottom line. We recommend Accumulate on the stock with a revised target price of Rs.1,628, based on a target PE of 18x for CY2013.
Monnet Ispat & Energy (CMP: Rs.457 / TP: - / Upside: -)
Monnet Ispat reported a robust set of numbers for 4QFY2012. The company's net sales grew by 20.7% yoy to Rs.536cr mainly due to increased realizations. However, raw-material cost as a percentage of sales increased to 59.8% in 4QFY2012 compared to 55.7% in 4QFY2011. Hence, EBITDA increased only by 10.4% yoy to Rs.138cr, while EBITDA margin contracted by 34bp yoy to 25.7%. Interest expenses increased by 28.8% yoy to Rs.24cr, while other income increased by 20.0% yoy to Rs.12cr. Consequently, net profit grew by 13.6% yoy to Rs.83cr.
The company plans a capex of Rs.1,500cr for its upcoming power plants and Rs.800cr for steel capacity expansion during FY2013. The company reported that the implementation of 1,050MW power plant at Angul is on track, and it is expected to be operational in 2HFY2014.
We maintain our Buy recommendation on the stock; our target price is under review.
IVRCL (CMP: Rs.45 / TP: - / Upside: -)
IVRCL reported a disappointing set of numbers for 4QFY2012, with lower-thanexpected performance on all fronts. The company’s revenue declined by 22.1% yoy to Rs.1,598cr, below our estimate of Rs.1,682cr. On the operating margin front, the company posted dismal margin of 6.4%, reporting a dip of 230bp yoy, below our estimate of 8.0%. Interest cost came in at Rs.66.1cr, which was flat on a yoy as well as qoq basis. On the earnings front, IVRCL reported a 92.3% decline yoy to Rs.5cr, against our estimate of a 56.6% decline. This was on account of poor performance on the revenue as well as margin front. Post the conference call, we would come out with a detailed note. Currently, the target price and rating are under review.
Orchid Chemicals (CMP: Rs.161 / TP: Under review / Upside: -)
Orchid Chemicals reported sales and the net profit came in below expectations. For the quarter, the company posted sales of Rs.485cr, a dip of 8.1% yoy. On the operating front, the operating profits also dipped by 8.0%, almost stagnant at last year levels. For the full year the company has posted Rs.1839cr, registering a growth of 7.0% yoy, while the net profit came in at Rs.17.5cr. The full year OPM’s came in at 17.5%. For FY2013, the company has guided towards a 10-15% yoy growth on the topline. Currently the stock is under review.
Madhucon Projects (CMP: Rs.46 / TP: - / Upside: -)
For 4QFY2012, Madhucon Projects (MPL) reported a mixed set of numbers with revenue coming below our expectations; however, higher EBITDAM and other income resulted in better-than-expected earnings performance. On the top-line front, MPL posted a disappointing performance, with a yoy/qoq decline of 27.1%/30.8% to Rs.432cr, way below our expectation of Rs.659cr. EBITDAM came in at 11.8%, posting a jump of 120bp/340bp on a yoy/qoq basis against our expectation of 9.2%. Interest cost stood at Rs.27cr, registering a jump of 9.5% on a yoy basis, but down by 9.8% on a sequential basis. On the earnings front, the company posted a decline of 22.5% on a yoy basis at Rs.15cr, in-line with our expectation of Rs.14cr despite a higher tax rate (38.2%) on the back of higher EBITDAM and other income (Rs.14cr). We maintain our Buy view on the stock however the target price is under review.
Result Previews
JK Lakshmi Cement
JK Lakshmi Cement (JKLC) is set to declare its 4QFY2012 results. For the quarter, we expect JKLC to post 5.9% yoy growth in its top line to Rs.439cr, driven by volume growth and higher realization. The company’s OPM is expected to increase by 87bp yoy to 19.4%. The bottom line is expected to register growth of 36% yoy to Rs.43.4cr. We maintain our Buy view on the stock with a target price of Rs.79.
Dishman
For the 4QFY2012, Dishman is expected to post top-line growth of 11.3% yoy to Rs.383cr.The company is expected to post EBITDA of 17.8%, up 170bps yoy. On the net profit front, the company is expected to post net profit of Rs.28.5cr, registering 24.0% yoy growth. We maintain our buy with a target price of Rs.92.
Economic and Political News
- Government notifies free sugar exports
- Inflation rises to 7.23% in April, vegetable prices shoot up
- Mumbai home prices fell 9.1 % between March 2011-12: Knight Frank
- No plan to revamp Food Corporation India: Government
- Oil slides on euro zone, China fears
Corporate News
- Ashok Leyland Nissan inks Rs.4,150cr MoU with Tamil Nadu government
- Bhel bags Rs.380cr order for gas-based plant in Rajasthan
- Jain Irrigation announces buyout of 100% stake in JV firm
- Moody's downgrades ICICI, HDFC, Axis banks, LIC
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