The domestic markets are expected to sideways tracking mixed cues from global markets. Asian markets rose today to follow a higher finish for the Dow industrials in the US, after comments from Italy’s prime minister eased some fears of an immediate Greek exit.
US markets, Stocks showed a lack of direction over the course of the trading day on Thursday, as seemed reluctant to make any significant moves. The choppy trading came after the markets saw considerable volatility over the course of the two previous sessions. Traders also digested some uninspiring US economic data, including a report from the Commerce Department showing a drop by a keyindicator of business spending. European markets began the session in negative territory, following several weaker than expected economic reports from Europe. The market managed to turn around as the session progressed, helped in part by some positive economic results from the US.
Indian shares rebounded sharply from two days of losses on Thursday, as a steep hike in petrol prices fueled speculation that the government may hike diesel and LPG prices on Friday to cut the fuel subsidy bill and counter the perception of government inaction that has lowered the credibility of the UPA government among overseas investors.
Markets Today
The trend deciding level for the day is 16,136 / 4,894 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,338 – 16,454 / 4,959 – 4,996 levels. However, if NIFTY trades below 16,136 / 4,894 levels for the first half-an-hour of trade then it may correct up to 16,021 – 15,819 / 4,857 – 4,793 levels.
Bharti Airtel acquires a 49% stake in Qualcomm's BWA ops
Bharti Airtel (Bharti) has acquired a 49% stake in Qualcomm's broadband wireless access (BWA) business in India for US$165mn (~Rs.900cr). Under the agreement, Bharti has made an initial investment of about US$165mn to acquire 49% interest in Qualcomm Asia Pacific's India entities that hold BWA licenses in Delhi, Mumbai, Haryana and Kerala. Qualcomm had won spectrum for high-speed data services in the four circles through auction in June 2010 and paid Rs.4,912cr (~US$1bn) forthe same. Qualcomm had sold a 26% stake to Indian companies – Global Holding Corp. and Tulip Telecom – for about US$58mn to comply with the sector's foreign holding rules. The present deal has been made partly by way of acquisition of 26% equity interest held by Global Holding Corporation and Tulip Telecom and the balance by way of subscription of fresh equity in those entities. Bharti already has BWA licenses in four circles – Punjab, Maharashtra, Kolkata and Karnataka – and services have already been launched in the latter two. This deal will give Bharti access to four telecoms zones, including the lucrative Delhi and Mumbai cities, where it does not have its own 4G airwaves. We believe this is a positive development by the company and Bharti is the only telecom player in India that has launched 4G services. However, we maintain our Neutral view on the stock due to regulatory uncertainties prevailing in the sector.
Result Reviews
Madras Cements (CMP: Rs.136/ TP: - / Upside: -)
Madras Cements posted 32.9% yoy growth in its top line to Rs.912cr, in-line with our estimate. Top-line growth was aided by a 16.8% increase in volumes and 13.7% growth in realization. On a sequential basis, while volumes were higher by 23.1%, realization remained flat. OPM stood at 21.9%, down 288bp yoy, on account of a steep 28.3% and 52.9% increase in freight costs and other expenses. Freight costs were higher due to higher diesel costs and elevated railway freight rates. Net profit rose by 56% yoy to Rs.99.2cr, aided by higher other income. For the quarter, other income stood at Rs.31cr (vs. Rs.18cr in 4QFY2011). We continue to remain Neutral on the stock.
TVS Motor (CMP: Rs.33 / TP: Rs.55 / Upside: 66.7%)
TVS Motor (TVSL) reported net profit of Rs.57cr for 4QFY2012, in-line with our estimates. The company’s top line for the quarter remained flat on a yoy basis at Rs.1,627cr, as a 1.7% yoy dip in average realization completely offset the muted growth registered in total volumes. Volume performance was muted with growth of 1.7% yoy on the back of an 11.1% and 36.0% yoy decline in motorcycle and three-wheeler volumes, respectively. EBITDA margin came in at 6.1%, expanding by 49bp yoy aided by 58bp yoy savings in raw-material expenses (raw-material to sales ratio at 71.9% in 4QFY2012 vs. 72.4% in 4QFY2011 and 71.4% in 3QFY2012). Net profit during the quarter registered strong 37.3% yoy growth to Rs.57cr, largely due to lower tax expenses (Rs.5cr during the quarter as against Rs.20cr in 4QFY2011 and Rs.19cr in 3QFY2012). At the CMP, TVSL is trading at 5.9x FY2014E earnings. We maintain our Buy rating on the stock with a target price of Rs.55.
Hitachi Home (CMP – Rs.121, TP: Rs.160, Upside: 32%)
For 4QFY2012, Hitachi reported revenue of Rs.236cr, 4.3% below our estimate of Rs.246cr; while on a yoy basis, revenue grew marginally by 3.7%. The company's EBITDA margin stood at 6.6%, in-line with our estimate; however, it expanded slightly by 23bp yoy due to easing raw-material prices. Net profit declined by 13.4% yoy to Rs.7cr in 4QFY2012 from Rs.9cr in 4QFY2011. Due to attractive valuations at current levels with PE of 7.6x for FY2014E, we maintain our Buy recommendation on the stock with a target price of Rs.160, based on a target PE of 10x.
Result Previews
ITC
ITC is expected to announce its 4QFY2012 results. For the quarter, we expect ITC to report ~14.5% yoy growth in its top line to Rs.6,685cr, driven by price hikes taken by the company. The company’s net profit is expected to increase by ~20.1% yoy to Rs.1,539cr, driven by robust sales growth and margin expansion led by price hikes. At the CMP, the stock is trading at 22.2x FY2014E EPS. We maintain our Accumulate view on the stock with a target price of Rs.252.
Crompton Greaves
For 4QFY2012, we project Crompton Greaves to report modest top-line growth of 9.0% yoy to Rs.3,170cr, which can mainly be attributed to the power system segment, which has remained a drag since the past few quarters. In addition, we do not expect substantial growth from the overseas business, which is likely to keep growth under check. Weak capex cycle along with strained consumer sentiment is also likely to impact the company’s growth. On the EBITDA front, the company’s margin is expected to decline sharply by ~483bp yoy to 8.0%. However, we expect an uptick of 200bp sequentially, factoring in the cooling of commodity prices. Led by low revenue and margin contraction, the company’s PAT is expected to drop by 40.2% yoy to Rs.150.3cr. We recommend Buy on the stock with a target price of Rs.164.
MOIL
MOIL is slated to report its 4QFY2012. We expect its 4QFY2012 net sales to decrease by 4.5% yoy to Rs.251cr mainly on account a decline in manganese ore prices. EBITDA margin is expected to contract by 2,090bp yoy to 42.5% in 4QFY2012. Net profit is expected to decrease by 26.9% yoy to Rs.97cr. We maintain our Neutral view on the stock.
Economic and Political News
- Government hikes interest rate on SDS to 8.8% for 2012-13
- Government to meet on Friday to discuss raising diesel prices
- Delays in land acquisition stall road projects worth Rs.15,000cr
- RBI to take steps to arrest rupee fall: Finance Ministry
Corporate News
- Sun Pharma gets USFDA nod for nasal spray
- Mahindra & Mahindra taps Korean arm to crack China
- IOC may cut petrol prices if crude falls: chairman
- M&M eyes 100 MW from solar power projects
- Sun Pharma gets USFDA nod for nasal spray
- Mahindra & Mahindra taps Korean arm to crack China
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