Indian stock market and companies daily report (January 24, 2012, Tuesday)

The markets are expected to open in the green following positive opening across Asian markets, as optimism that European policy makers are making progress to tame the region’s debt crisis boosted the earnings outlook for Asian exporters.
US stocks put in a lackluster performance on Monday. The major averages finished the day near the unchanged mark, consolidating gains posted last week. European stocks finished the first day of the new trading week with a modest increase. European finance ministers balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief in order to point the way out of the two-year-old debt crisis.
Indian shares moved sideways before ending on a flat note on Monday, as investors reacted to mixed quarterly results and lackluster global cues amid apprehensions over the outcome of Greece's talks with private creditors. Investors would be closely watching the RBI’s monetary policy review due today. We expect the RBI to maintain status quo on Repo and CRR.

Markets Today
The trend deciding level for the day is 16,732 / 5,042 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,804 – 16,856 / 5,063– 5,081 levels. However, if NIFTY trades below 16,732 / 5,042 levels for the first half-an-hour of trade then it may correct up to 16,679 – 16,607 / 5,004 – 5,025 levels

RBI Monetary Policy Preview – Reversal of rate cycle soon, but not just yet
In light of the considerable economic slowdown witnessed over the past year, the RBI’s policy tone turned more dovish in the last monetary policy review. However, the RBI has continually maintained that any easing of monetary stance will only follow a noteworthy decline in inflation levels. Positively, WPI figures, led by a substantial drop in food inflation, fell to a two-year low of 7.5% for December 2011. However, manufacturing products inflation continued to be relatively high at 7.4% (average of 6.3% over the past two years), which is above the RBI’s comfort levels. Also, considering the sequentially improved IIP (5.9% for November 2011 compared to contraction of 5.5% in October 2011) and the PMI data (54.2 for December 2011 compared to 51.0 for November 2011), the RBI may choose to maintain the repo rate in the upcoming monetary policy, rather than cutting it right away.
However, having said that, the manufacturing inflation, which came in higher than the primary inflation for December, possibly indicates that a large part of pass-through is already done with. Hence, in-line with food inflation, we expect manufacturing inflation to start cooling off as well in the coming few months, eventually leading to policy rate cuts by the RBI. Further, with GDP growth widely expected to be below 7% for FY2012, growth concerns are likely to increasingly influence the RBI’s policy rate stance going forward.
Hence, while we do not expect any rate cuts just yet, we do see a meaningful case for the RBI to start with the rate cut cycle soon in order to get growth back on track, provided inflation levels (particularly the core inflation levels) further moderate on expected lines.
Specifically for the upcoming monetary policy, of the 20 economists surveyed by Bloomberg, all expect a status quo on key policy rates. However, five of them expect a CRR cut (of which two expect a 25bp cut while three expect a 50bp cut). The RBI has been resorting to open market operations (OMO) for easing liquidity in the system (~Rs.73,000cr infused into the system over the past two months), however average LAF borrowing at Rs.1,17,700cr (over the past two months) is still way above the RBI’s comfort zone of +-1% of NDTL. With liquidity crunch persisting in the system and OMO not reaping the desired benefits, chances of a CRR cut in the monetary policy on January 24, 2011 cannot be ruled out, in our view.
To summarize, for the upcoming policy, we expect the RBI to maintain status quo on repo and CRR. Although we believe the RBI will continue with OMOs for liquidity infusion, chances of a CRR cut in the monetarily policy on January 24, 2011, cannot be ruled out.

KEC International secures orders worth Rs.371cr
KEC International (KEC) has secured orders totaling Rs.371cr for the construction of 400kV transmission lines in India. The orders are received from PGCIL (Rs.258cr) and Haldia Energy Limited, a subsidiary of CESC Ltd. (Rs.113cr). The completion period of these projects ranges from 18–26 months. The order book stands healthy at ~Rs.9,700cr (2.1x FY2011 revenue).
In a short span of time, KEC has registered strong order wins (Rs.1,970cr), from across the globe as well as various businesses verticals. Amidst strong order wins, the stock has witnessed a substantial rally in the past few days, gaining ~50%. We believe the latent potential of the company (globally diversified model) coupled with optimism surrounding the macro environment has clearly factored into the stock. At the CMP of Rs.53, the stock trades at reasonable valuations of 6.0x FY2013E EPS and further upside seems limited, in our view. Hence, we recommend Neutral on the stock.

IVRCL bags orders worth Rs.700cr
IVRCL has bagged orders aggregating to Rs.700cr across the water and buildings segments. The water and irrigation division bagged orders worth Rs.595.5cr and the buildings division received orders of Rs.106.0cr. With these orders, IVRCL’s order book stands at ~Rs.26,932cr (4.8x FY2011 revenue). We have valued IVRCL on an SOTP basis. The company’s core construction business is valued at P/E of 7x FY2013E EPS of 4.6 (Rs.32.4/share), whereas its stake in subsidiaries IVR Prime (Rs.15.5/share) and Hindustan Dorr-Oliver (Rs.3.8/share) has been valued on mcap basis, post assigning a 20% holding company discount.
At the CMP of Rs.45, the stock is trading at 9.8x FY2013E EPS and 0.6x FY2013E P/BV on a standalone basis. Therefore, on the back of the company’s robust order book-to-sales ratio (4.8x FY2011 revenue) and attractive valuations, we recommend Accumulate on the stock with a target price of Rs.52.

3QFY2012 Result Reviews
L&T
Larsen and Toubro (L&T) posted good set of numbers for 3QFY2012, which were above our and street expectations mainly on account of robust top-line growth and higher other income. L&T reported decent top-line growth of 22.7% yoy to Rs.13,999cr (Rs.11,413cr), above our estimates of 6.6% growth, mainly on account of pick-up in the E&C segment. We note that this performance was in spite of  high base created in 3QFY2011 (L&T reported yoy top-line growth ~40.5%). On the EBITDA front, performance was below our expectations mainly on account of higher-than-anticipated MTM forex losses. L&T reported higher than anticipated other income, owing to higher income on its investments and dividend income from subsidiaries. Therefore, the bottom line came in at Rs.991.6cr (14.4% above our estimates).
As of 3QFY2012, L&T’s order backlog stands at Rs.1,45,768cr (Rs.1,14,882cr), 26.9% yoy growth, which is mainly on account of order inflow being higher than execution on absolute terms. Order inflow for the quarter grew by stunning 28.2% to Rs.17,129cr (Rs.13,366cr) covering some of the lost ground in 1HFY2012. For 9MFY2012, the order inflow stands at flat Rs.49,415cr (Rs.49,456). During the last quarter, management had significantly cut its order inflow guidance for FY2012, mainly to factor in the general slowdown faced by the sector, but this time they have refrained from the same and maintained their revised guidance (yoy 5% growth on order inflow and 25% on revenue front fo  FY2012), which we believe factors in aggressive run rate for 4QFY2012 (yoy growth of 13.3% on order inflow and 32.0% on revenue front for 4QFY2012). We expect management to miss the guidance and pencil in 5% yoy de-growth in order inflow and 22.5% yoy growth in revenues for FY2012.
We believe L&T is best placed to benefit from the gradual recovery in the 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 Buy on the stock with a Target Price of Rs.1,466.
GAIL
GAIL’s 3QFY2012 top line came above our estimate, while its bottom line was inline with our estimate. The company’s top line grew by robust 34.6% yoy to Rs.11,260cr, above our estimate of Rs.9,587cr, mainly due to strong growth in the natural gas trading, petrochemical and LPG segments. The company’s fuel subsidy burden increased 28.0% yoy to Rs.536cr in 3QFY2012. Gross revenue of the natural gas trading, petrochemical and LPG segments grew by 35.5%, 53.7% and 32.6% yoy to Rs.9,150cr, Rs.878cr and Rs.965cr, respectively. GAIL’s pipeline throughput stood flat yoy to 119mmscmd; gas trading volume increased 1.9% yoy to 85mmscmd from 83mmscmd and petrochemical sales volume increased 40.0% yoy to 113kt in 3QFY2012. EBIT of the natural gas trading, petrochemical and LPG segments grew by 56.9%, 98.3% and 103.6% yoy to Rs.323cr, Rs.387cr and Rs.305cr, respectively. However, EBIT of the natural gas transmission and LPG transmission segments decreased by 6.7% and 8.2% yoy to Rs.621cr and Rs.78cr, respectively. Consequently, GAIL’s EBITDA increased by 30.9% yoy to Rs.1,745cr in 3QFY2012. However, EBITDA margin contracted by 44bp yoy to 15.5%. Other income decreased 88.8% yoy to Rs.21cr on account of lower cash balance. Tax rate increased to 32.7% in 3QFY2012 compared to 28.1% in 3QFY2011. Consequently, net profit grew by 7.7% yoy to Rs.1,042cr, slightly above our  estimate of Rs.1,018cr. The company capitalized its forex loss of Rs.105cr in 3QFY2012. Consequently, there was no impact in the income statement due to foreign exchange fluctuation. We maintain our Buy recommendation on the stock, while we keep our target price under review.
Sterlite Industries
Sterlite Industries’ (Sterlite) results were above our expectations. Net sales increased by 23.5% yoy to Rs.10,246,cr above our estimate of Rs.8,798r. Net sales growth was driven by higher zinc sales volumes from the zinc segment and power segment. Revenue of the zinc and power segments grew by 36.9% and 346.7% yoy to Rs.3,755cr and Rs.591cr, respectively. Sterlite’s EBITDA grew by 17.2% yoy to Rs.2,318cr. EBIT of the copper and power segments grew by 67.8% and 178.3% yoy, respectively, to Rs.326cr and Rs.53cr, respectively. However, the aluminium segment reported an EBIT loss of Rs.23cr compared to EBIT of Rs.119cr in 3QFY2011. Aluminium cost of production at Balco increased by 22.0% yoy to Rs.98,234/tonne on account of increased prices of alumina and coal. Sterlite’s associate, Vedanta Aluminium also reported loss of Rs.893cr in 3QFY2012 (Sterlite’s share of loss - Rs.264cr) compared to loss of Rs.347cr in 3QFY2011. Other income grew by 83.6% yoy to Rs.877cr, significantly above our estimate. The company reported exceptional items related to forex loss of Rs.425cr in 3QFY2012 compared to Rs.29cr in 3QFY2011. Hence, adjusted net profit increased by 12.1% yoy to Rs.1,260cr in 3QFY2012, above our estimate of Rs.771cr. Reported net profit decreased by 16.4% yoy to Rs.920cr.
Balco is now nearing regulatory approvals for its 211mn tonne coal block. Approval of coal block by the regulatory authorities could potentially make Balco’s operations profitable.
We maintain our Buy recommendation on the stock, while we keep our target price under review.
Maruti Suzuki
Maruti Suzuki (MSIL) reported a mixed set of results for 3QFY2012, with the top line and bottom line coming in ahead of our estimates; however, the company’s operating margin continued to remain under pressure, largely on account of unfavorable currency movement. The top line registered a 17% yoy (flat qoq) decline to Rs.7,882cr, largely due to a 27.6% yoy (down 5.1%  qoq) decline in volumes. Volume performance during the quarter was impacted on account of labor strike at Manesar plant and due to sluggish demand environment in domestic markets. Average net realization, however, improved by strong 14.1% yoy (7.1% qoq), led by better product mix, lower level of blended discounts and price increases carried out during the quarter. EBITDA margin witnessed a steep 421bp yoy (102bp qoq) contraction and stood at 5.3% due to lower volumes, mark-to-market (MTM) loss on commodity hedges and other expenditure. Higher other expenditure was on account of Yen appreciation versus the INR (MTM loss on royalty payments of ~Rs.78cr). As a result, net profit fell substantially by 63.6% yoy (14.5% qoq) to Rs.206cr. However, it was ahead of our estimates, led by higher other income and lower tax rate. At Rs.1,163, the stock is trading at 14.5x FY2013E earnings. The stock rating is currently under review.
Idea
For 3QFY2012, Idea Cellular (Idea) reported a good set of results. Revenue came in at Rs.5,031cr, up 8.9% qoq, on the back of 1.4% qoq growth in ARPM to Rs.0.433/min and subscriber growth of 6.2% qoq with end-of-period (EOP) subscriber base standing at 106.4mn. MOU also grew by 1.4% qoq to 369min in 3QFY2012 from 364min in 2QFY2012. VAS share in revenue grew to 13.7% from 13.2% in 2QFY2012. All this led to a 2.6% qoq jump in ARPU to Rs.159/month. EBITDA margin increased by 104bp qoq to 26.7%. PAT came in at Rs.201cr. We maintain our Neutral view on the stock.
Colgate
Colgate reported its 3QFY2012 results yesterday. The company’s top line grew by 20% yoy to Rs.670cr, 4.2% above our estimates. Growth was driven by price hikes. Earnings for the quarter grew by robust 74% to Rs.116cr on account of low base (same quarter last year, the company reported a decline in profit). Operating margin expanded by 591bp yoy on account of a steep cut in ad spends (down by 555bp yoy) and cut in staff costs (down by 140bp yoy). The company’s operating margin came in at 19.3%, against our estimate of 13.4%. We maintain our Neutral rating on the stock.
Shree Cements
Shree Cements’ (SRCM) 3QFY2012 top line rose by 61% yoy during the quarter to Rs.1,259cr. The cement business posted 44.9% yoy growth in net sales to Rs.1,081cr on account of substantial growth in dispatches and realizations. The power division’s revenue more than quadrupled to Rs.178cr on a low base on account of higher volumes. OPM rose by 695bp to 26.5% on account of better cement realization. SRCM’s depreciation rose by 78.9% yoy to Rs.235cr on account of the commissioning of the new 150MW power plant. The company’s bottom line rose by 115% yoy to Rs.59cr. We maintain our Neutral view on the stock.
Federal Bank
For 3QFY2012, Federal Bank reported 41.1% yoy (5.6% qoq) growth in its net profit to Rs.202cr, in-line with our estimates. While the bank witnessed sequential healthy growth in its operating income (12.6% qoq), higher provisioning expenses (up by 59.6% qoq) dented profitability growth to 5.6% qoq.
The bank’s asset quality remained under pressure during 3QFY2012 as well, with absolute gross and net NPAs rising by 9.1% and 24.5% sequentially, respectively. Gross NPA ratio deteriorated by 36bp qoq to 4.0%, while net NPA ratio deteriorated by 16bp to 0.7%
At the CMP, the stock is trading at valuations of 1.0x FY2013E ABV. Considering the recent deregulation of NRE FD rates (NRE deposits comprise ~12% of its total deposits) and that mid-size PSU banks with similar earnings outlook are trading at valuations of 0.5-0.7x, we remain Neutral on the stock.
DB Corp
For 3QFY2012, DB Corp’s top line grew by 13.6% yoy and 11.8% qoq to Rs.396cr. Consolidated ad revenue for the quarter grew by 9% yoy to Rs.306cr. Circulation revenue grew by impressive 17% yoy and 5.8% qoq on account of new edition launches in Maharashtra. The company reported a weak set of numbers on the earnings front, primarily on account pre-operative expenses of Rs.2cr and operating losses on four editions in Maharashtra and two additions in Jharkhand. The company reported a 29% yoy decline and 39% qoq growth in its recurring earnings. Recurring PAT for the quarter stood at Rs.56cr. Operating margin during 3QFY2012 fell steeply by 724bp yoy, though it expanded by 394bp qoq on account of new edition losses as well as forex losses. The stock is under review.
LMW
Lakshmi Machine Works Limited (LMW) announced its 3QFY2012 numbers. Net sales increased by 9.6% yoy to Rs.538cr (Rs.491cr). The textile machinery segment registered 11% yoy growth to Rs.471cr (Rs.425cr), while the other segments managed a 3.1% yoy increase to Rs.72 (Rs.70cr). EBITDA declined by 9.1% yoy to Rs.69cr (Rs.76cr), largely due to margin compression. EBITDA margin declined by 263bp yoy to 12.8% (15.4%), mainly due to higher raw-material cost, which increased to 63% of net sales vs. 58.2% in 3QFY2012. PAT declined by 13.5% yoy to Rs.40cr (Rs.46cr), while margin declined by 197bp yoy to 7.4% (9.3%). We will be coming out with a detailed report post management interaction. We continue to maintain our Buy rating on the stock with a target price of Rs.2,780.
KPIT
KPIT Cummins Infosystems (KPIT) reported better-than-expected 3QFY2012 results. Dollar revenue came in at US$73.4mn, up 4.3% qoq. In INR terms, revenue came in at Rs.379cr, up 16.6% qoq. EBITDA and EBIT margin of the company improved by 167bp and 171bp qoq to 15.3% and 11.8%, respectively, aided by ~300bp qoq due to INR depreciation. PAT stood at Rs.41cr. The company has revised its organic growth guidance of FY2012 USD revenue to 37-38% yoy from 25-29% yoy given previously. The stock is currently under review. We will be releasing a detailed result update shortly.
Ashoka Buildcon
For 3QFY2012, Ashoka Buildcon (ABL) reported a good set of numbers, in-line with our estimates. ABL’s top line witnessed robust growth of 49.3% to Rs.352.9cr (Rs.236.4cr), marginally lower than our estimate of Rs.360.6cr. ABL’s margins came at 19.6% (22.8%), lower than our estimate of 21.5%. On the earnings front as well, ABL reported decent growth of 17.5% to Rs.19.5cr (Rs.16.6cr), in-line with our estimate of Rs.21.0cr. Order book as of 3QFY2012 stood at Rs.3,912cr. We maintain our Buy view on the stock with target price of Rs.245.
3QFY2012 Result Previews
Cairn India
Cairn India is slated to report its results. The company’s net sales are expected to decrease by 5.8% yoy to Rs.2,917cr. However, its operating margin is expected to decline by 344bp yoy to 81.0%. Bottom line is expected to increase by 0.6% yoy to Rs.2,023cr. We maintain our Neutral view on the stock.
Lupin
Lupin is expected to announce its 3QFY2012 results. For the quarter, we expect the company to post a 39.0% yoy growth in its top-line to Rs.1,755cr. The company's OPM is expected to expand by 10bp yoy during the period to 19.7%. Earnings for the quarter are expected to register 62.9% yoy growth to Rs.261cr. We maintain Buy rating on the stock with a target price of Rs.593.
Yes Bank
Yes Bank is slated to announce its 3QFY2012 results. We expect the bank to report healthy NII growth of 26.6% yoy on the back of continuance of healthy balance sheet growth coupled with sequentially stable NIM. Non-interest income is expected to rise at healthy 24.4% yoy. Cost-to-income ratio is likely to deteriorate by ~150bp qoq as well as on a yoy basis to 37.2%. Pre-provision profit is expected to register reasonable growth of 23.1% yoy, while net profit is expected to increase by nearly similar (22.2% yoy) quantum at Rs.234cr. At the CMP, the stock is trading at 1.8x FY2013E ABV. We value the stock at 2.1x FY2013 ABV. Post the recent run-up in the stock, we recommend an Accumulate rating on the stock with a target price of Rs.330.

Economic and Political News
- RBI warns of persistent inflation, weaker growth
- Row over import duty on power equipment, PM action sought
- CEC team visits mining areas in Bellary district

Corporate News
- RIL assures SC of paying VAT on UP gas sale from Feb 1
- MMTC disinvestment may not happen in immediate future
- NTPC expects JV for Bangla project by month-end

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Indian stock market and companies daily report (January 23, 2012, Monday)

The markets are expected to open sideways following flat opening across most of the Asian bourses. The muted start in Asia came amid lingering European uncertainty, after Greece failed to reach a debt-restructuring agreement over the weekend with holders of its sovereign bonds.
US stocks turned in a relatively lackluster performance during trading on Friday, as traders seemed somewhat reluctant to make any significant moves. A mixed reaction to the latest batch of earnings news contributed to the choppy trading seen throughout the session. European stocks were mixed on Friday, ending another strong week on a fairly lackluster note as markets looked for a resolution to the Greek debt debacle.
Indian shares continued to edge higher on Friday despite weak cues from European markets. The Supreme Court on Friday set aside a Bombay High Court judgment in the US$2bn tax case against British telecom giant Vodafone, boosting prospects for more FDI inflow into India. For current week, investors would be closely watching the RBI’s monetary policy review due on 24th January 2012.

Markets Today
The trend deciding level for the day is 16,713/5,039 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,814–16,890/5,074–5,099 levels. However, if NIFTY trades below 16,713/5,039 levels for the first half-an-hour of trade then it may correct up to 16,638–16,536/5,014–4,979 levels.

3QFY2012 Result Reviews
RIL
For 3QFY2012, Reliance Industries (RIL) reported higher-than-expected net sales, while its net profit was slightly below our estimates. Net sales increased by 42.4% yoy to Rs.85,135cr, above our estimate of Rs.78,364cr. Net sales growth was mainly driven by the petrochemicals segment (+23.8% yoy to Rs.19,781cr) and refining segment (+46.1% yoy to Rs.76,738cr). RIL’s EBITDA decreased by 23.7% yoy to Rs.7,285cr on account of lower profits from all the three main segments. The refining segment’s EBIT decreased by 30.8% yoy to Rs.1,685cr; the petrochemical segment’s EBIT decreased by 11.2% yoy to Rs.2,157cr; and the oil and gas segment’s EBIT decreased by 14.0% yoy to Rs.1,294cr during the quarter. Gross refining margins stood at US$6.8/bbl in 3QFY2012 compared to US$9.0 in 3QFY2011 and US$9.1/bbl in 2QFY2012. Production from KG-D6 stood at 41mmscmd in 3QFY2012 compared to 45mmscmd in 2QFY2012. Other income increased by 131.7% yoy to Rs.1,717cr, which resulted in net profit decreasing by only 13.6% yoy to Rs.4,440cr, slightly below our estimate of Rs.4,519cr.
During 3QFY2012, RIL turned into a net debt-free company, as its net debt stood at Rs.74,503cr and cash stood at Rs.74,539cr, as on December 31, 2011. RIL announced share buyback program of 12cr shares (Rs.10,440cr) through open market purchases at a buyback price not exceeding Rs.870. We maintain our Buy view on the stock, while we keep our target price under review.
ITC
For 3QFY2012, ITC declared steady growth in its top line and earnings (broadly in-line with our estimates). During the quarter, ITC declared top-line growth of 14.2% yoy to Rs.6,195cr, in-line with our estimates. The cigarette division registered 11% yoy growth in gross revenue (16.6% yoy growth in net revenue) on the back of price hikes taken in cigarettes. Amongst other segments, at net level, agri-business, paperboards and packaging and hotels posted growth of 6.8% yoy, 11% yoy and -1.1% yoy, respectively, while the non-cigarette FMCG business grew by robust ~24% yoy. Earnings for the quarter grew by robust 22.5% yoy to Rs.1,701cr, in line with our estimates. The company has been successful in reducing its losses in the non-cigarette FMCG business – loss during 3QFY2012 stood at ~Rs.47cr (Rs.74cr). We maintain Accumulate on the stock with a target price of Rs.219 based on our SOTP valuation.
Wipro
For 3QFY2012, Wipro’s IT services revenue came largely in-line with expectations at US$1,505.5mn, up 2.2% qoq, primarily led by pricing growth of 2.9% and 2.3% qoq (reported basis). In constant currency (CC) terms, pricing – onsite and offshore – grew by 4.3% and 3.6% qoq, respectively. Volume growth during the quarter was tepid at 1.8% qoq. In INR terms, revenue of the IT services segment came in at Rs.7,608cr, up 11.4% qoq, aided by INR depreciation against USD. Revenue from the consumer care and lighting segment grew strongly by 26.4% yoy, while the IT products segment reported merely 2.4% yoy revenue growth. EBIT margin of the IT services, IT products and consumer care and lighting business grew by 83bp, 77bp and 87bp qoq to 20.8%, 5.3% and 11.9%, respectively. Overall, EBITDA and EBIT margin of Wipro grew by 72bp and 88bp qoq to 19.8% and 17.2%, respectively. PAT came in at Rs.1,456cr.
For 4QFY2012, management has given a decent revenue guidance of US$1.520bn-1.550bn for the IT services segment, with qoq growth of 1-3%, which is slightly better than one of its peers, Infosys. Also, management maintained that the company will take another 1-2 quarters to grow at rates comparable to its peers. This implies poor annual growth for FY2012. Thus, we expect revenue CAGR for IT services (USD terms) to be muted at 12.8% over FY2011-13E. We value the company at 15.3x FY2013E EPS (15% discount to Infosys) of Rs.27.8, which gives us a target price of Rs.425. We maintain our Neutral rating on the stock.
Hindustan Zinc
For 3QFY2012, Hindustan Zinc’s (HZL) net revenue increased by 5.6% yoy to Rs.2,747cr (in-line with our estimate of Rs.2,574cr) on account of higher sales volumes. Zinc sales volumes grew by 6.5% yoy and 3.2% qoq to 190kt and lead sales volumes grew by 118.8% yoy and 83.9% qoq to 27kt due to ramp up in production from Dariba smelter (commissioned in June 2011). Silver sales volumes grew by 66.0% yoy and 18.2% qoq to 49kt. Zinc realization decreased by 4.9% yoy and 2.4% qoq to Rs.105,474/tonne, lead realizations decreased by 4.4% yoy and 5.0% qoq to Rs.114,074/tonne, while silver realization increased by 33.1% yoy but decreased by 9.2% qoq to Rs.52,449/kg. Hence, EBITDA margin contracted by 689bp yoy to 51.1% and EBITDA decreased by 7.0% yoy to Rs.1,402cr. Other income was higher by 84.4% yoy to Rs.382cr, which resulted in net profit growing by 0.6% yoy to Rs.1,274cr. Excluding exceptional items (Rs.6cr in 3QFY2012 and Rs.24cr in 3QFY2011), adjusted net profit declined by 0.7% yoy to Rs.1,280cr (in-line with our estimate of Rs.1,288cr). Reported net profit grew by 0.6% yoy to Rs.1,274cr.
The company’s cash and equivalents stood at Rs.16,255cr at the end of 3QFY2012 (cash per share Rs.38.4). The company is ramping up its Sindesar Khurd mine to 2mn tonnes by March 2012. We maintain our Buy rating on the stock, while we keep our target price under review.
Axis Bank
For 3QFY2012, Axis Bank reported healthy 23.7% yoy growth in its net profit to Rs.1,102cr, above our as well as street estimates. Stable NIMs, continuance of traction in other income growth and largely stable asset quality were the key highlights of the results.
Business growth momentum for the bank remained on track in 3QFY2012 as well. Advances grew by healthy 6.2% qoq; on a yoy basis, the base effect sedated the advances growth to 20.4%. Deposits accretion sustained the traction gained in 2QFY2012 into 3QFY2012 as well, with rise of 7.3% qoq and 33.9% yoy. CASA deposits on a daily average basis grew at a moderate pace of 13.2% yoy. CASA ratio remained steady around the 42% mark. The bank’s reported NIM for the quarter remained largely stable at 3.75% in spite of a 15bp qoq rise in cost of funds. However, going forward, management expects some moderation in NIMs. Asset-quality pressures were well in check, with annualized slippage ratio at 1.5%, in-line with trends witnessed in 2QFY2012 and FY2011. Restructuring for the quarter was also in-line with Rs.300cr witnessed in 2QFY2012. Gross and net NPA ratios were stable sequentially at 1.1% and 0.4%, respectively. The bank added 47 branches during the quarter. Tier-I CAR including profits stood at 9.6%.
The bank’s substantial branch expansion over the past 2-3 years (407 in FY2011 itself, a 41.4% yoy increase) is expected to yield meaningful results over FY2012-13, leading to more CASA market share gains. We are cautious on the asset-quality front and have built in higher delinquencies; however, we note that the rise in NPAs is likely to be well within manageable limits for Axis Bank. We remain positive on the bank, owing to its attractive CASA franchise, rapid branch expansion, multiple sources of sustainable fee income, strong growth outlook and A-list management. The stock is trading at 1.6x FY2013E ABV. We continue to maintain our Buy recommendation on the stock with a target price of Rs.1,299.
Ultra Tech Cement
Ultra Tech’s 3QFY2012 top line grew by 23.1% yoy to Rs.4,572cr, aided by robust 16.4% yoy growth in blended realization to Rs.4,313/tonne. The company’s domestic cement dispatches (incl. clinker and white cement) grew by 6.2% yoy to 9.97mn tonnes. However, the company faced cost pressures during the quarter on account of higher coal and freight costs. OPM for the quarter stood at 22.4%, up 283bp yoy. Net profit rose by 93.4% yoy to Rs.617cr, aided by better operating performance and lower interest costs. We continue to remain Neutral on the stock.
Asian Paints
Asian Paints (APL) posted its 3QFY2012 results, largely in line with our estimates. The company’s consolidated top line grew by 22% yoy to Rs.2,561cr (Rs.2,100cr), inline with our estimates. Earnings grew by 17% yoy to Rs.257cr (Rs.215cr), in line with our estimates. Operating profit dipped by 91bp yoy to Rs.397cr (Rs.345cr) due to high raw-material costs and other expenses (up 19bp yoy). The company’s EBITDA margins came in at 15.5% against our estimate of 15.7%. At the CMP, the stock is trading at 22x FY2013E EPS and is fairly valued. Hence, we maintain our Neutral view on the stock and wait for better entry opportunities.
JSW Steel
JSW Steel reported its standalone 3QFY2012 results. The company’s net sales grew by 35.5% yoy to Rs.7,860cr (in-line with our estimate of Rs.7,645cr). Net sales growth was driven by increased steel volumes (+20.0% yoy to 1.9mn tonnes) and realization (+18.2% yoy to Rs.43,401/tonne). Capacity utilization improved to 84% at Vijaynagar plant in 3QFY2012, compared to 30-60% during 2QFY2012. On the operating front, although JSW Steel’s EBITDA increased by 20.9% yoy to Rs.1,253cr, EBITDA margin slipped by 191bp yoy to 15.9% on account of higher raw-material prices. The company reported exceptional item related to forex loss of Rs.500cr during the quarter. The company also reported a tax reversal of Rs.141cr in 3QFY2012 compared to tax payable of Rs.147cr in 3QFY2011, which resulted in adjusted net profit growing by 74.8% yoy to Rs.668cr (higher than our estimate of Rs.482cr). Reported PAT declined by 56.0% yoy to Rs.168cr.
The company reported that its usable iron ore inventory at Vijaynagar plant (capacity – 10mn tonnes p.a.) is expected to last for the next 3-4 months. However, it opined that continuing steel production would remain a challenge until the mining ban is lifted in Karnataka. We recommend Accumulate on the stock with a target price of Rs.699.
GCPL
GCPL posted its 3QFY2012 results, above our estimates. The company’s consolidated top line grew by 36% yoy to Rs.1,344cr (Rs.989cr). Earnings grew by 40.6% yoy to Rs.167cr (Rs.119cr). Operating profit expanded by 302bp yoy to Rs.265cr (Rs.165cr) due to steep cut in ad spends. The company’s EBITDA margins came in at 19.7% against our estimate of 16.7%. The stock is under review.
Exide Industries
Exide Industries (EXID) reported better-than-expected operating performance for 3QFY2012, led by a sharp sequential improvement in operating margins. the company’s top line registered strong 19% yoy (6.3% qoq) growth to Rs.1,250cr driven by ~20% yoy volume growth in two-wheeler batteries and ~13% yoy increase in industrial battery volumes. However, demand continued to remain subdued in the four-wheeler OEM as well as the replacement segment. On the operating front, EBITDA margin improved substantially by 556bp sequentially, led by a 490bp and 130bp decline in raw-material expenses and other expenditure, respectively. On a yoy basis, raw-material expenses are still at elevated levels, as a result of which EBITDA margin contracted by 200bp. Net profit witnessed a sharp 103.9% qoq jump to Rs.104cr, aided by better-than-expected operating performance; however, it declined by 16.2% yoy. We expect the company to report improvement in its performance in 4QFY2012 as well, led by likely revival in demand in the four-wheeler OEM as well as replacement batteries segments. At Rs.126, the stock is trading at 16.5x FY2013E earnings. The stock rating is currently under review. We shall revise our estimates and release a detailed note post the earnings conference call with management.
Syndicate Bank
For 3QFY2012, Syndicate Bank reported 32% yoy growth in its net profit to Rs.338cr, ahead of our estimates, primarily on account of lower-than-estimated effective tax rate. On the PBT front, results were ~18% below our estimates due to higher-than-expected provisioning expenses. Muted business growth while maintaining NIM and stabilization of asset-quality pressures were the key highlights of the results.
During the quarter, business growth for the bank moderated a bit. The bank’s advances grew by muted 2.0% qoq and deposits increased by muted 1.4% qoq. Even on a yoy basis, business growth moderated to 14.9% yoy each as compared to 18.9% growth in advances and 21.5% rise in deposits in 2QFY2012. CASA deposits growth remained sluggish at 6.6% yoy (just 2.2% qoq), leading to a 237bp yoy dip in CASA ratio to 30.8%. However on a sequential basis CASA ratio improved albeit by a marginal 30bp to 30.8% on the back of a 5% qoq increase in current account deposits. The 22bp qoq rise in cost of deposits was largely offset by an almost similar increase in yield on advances, leading to sequentially stable NIM for the quarter at 3.45%. During 3QFY2012, asset-quality pressures for the bank subsided with slippages declining to Rs.550cr from the elevated Rs.971cr witnessed in 2QFY2012 (primarily on account of completion of switchover to system-based NPA
recognition platform). Consequently, the annualized slippage ratio declined to 1.9% from 3.6% in 2QFY2012 and 2.6% in 3QFY2011. The bank had strong upgradations (of ~Rs.350cr), which aided in registering a 1.9% qoq decline in gross NPAs on an absolute basis. Gross and net NPA ratios improved albeit marginally to 2.3% and 0.9%, respectively. Provision coverage ratio including technical write-offs remained at comfortable 78.5%
In our view, at the CMP, the stock is trading at attractive valuations of 0.6x FY2013E ABV. We recommend an Accumulate rating on the stock with a target price of Rs.99.
HT Media
For 3QFY2012, HT Media reported a weak performance on the revenue as well as the profitability front. The company’s top line grew by 13% yoy to Rs.522cr. Recurring earnings declined by 3.8% yoy on account of high raw material cost and staff cost.
Key highlights for the quarter: During the quarter, the company witnessed overall growth of ~10% yoy in ad revenue, driven by ~10.5% yoy growth in the English and ~8.7% yoy growth in the Hindi print segments; however, sequentially, ad revenue growth in English was higher at 9.9% and that in Hindi declined ~9.6% qoq. Further, the company witnessed a ~6.8% yoy increase in circulation revenue. OPM during the quarter contracted by 125bp yoy due to higher other expenditure. The stock is under review.
Bank of Maharashtra
For 3QFY2012, Bank of Maharashtra reported a strong performance with a healthy 50.2% yoy growth in its net profit to Rs.136cr, slightly lower than our estimate on account of higher tax provisioning (37% effective tax rate). On PBT basis, the reported figure of Rs.215cr was in line with our estimates (Rs.216cr).
The net interest income of the bank grew at a healthy 23.7% yoy to Rs.645cr. The non-interest income also registered a healthy growth of 21.3% yoy to Rs.150cr, leading to operating income growth of 23.2% yoy. The operating expenses (Rs.370cr) of the bank grew by a relatively lower 9.8% yoy, leading to a preprovisioning profit of 37.8% yoy. The provisioning expenses of the bank increased by 22.6% yoy (decline of 24.6% qoq) to Rs.210cr. While the PBT for the bank grew by an impressive 69.4% yoy, higher tax rate (37.1% in 3QFY2012 compared to 31.5% in 2QFY2012) led to net PAT growing by 50.2% yoy to Rs.136cr.
During 3QFY2012, advances for the bank de-grew by 0.3% qoq (up by 14.0% yoy), while deposit growth was also muted at 0.8% qoq (up by 11.4% yoy). CASA deposits growth at 1.5% qoq (13.6% yoy) was relatively higher compared to the overall deposit growth (saving account deposits rising by 2.1% qoq (12.2% yoy)), leading to CASA ratio for the bank improving sequentially by 29bp to 41.0%.
The bank shed around Rs.2,000cr of bulk deposits during 3QFY2012, taking the total bulk deposits to Rs.6000cr (8.6% of overall deposits). The cost of funds for the bank increased by a relatively lower 11bp qoq compared to 24bp qoq increase in the yield on advances. Consequently the reported NIMs witnessed a marginal improvement of 4bp to 3.3bp.
The bank’s asset quality remained healthy with both absolute Gross and Net NPAs declining by 4% sequentially. While the gross NPAs improved from 2.15% to 2.06%, the net NPA ratio improved from 0.57% to 0.54%. The bank restructured ~Rs.1,100cr of loans to the Rajasthan and Haryana SEBs during 3QFY2012, taking the outstanding restructured advances to Rs.3,100cr. The SEBs of UP and Gujarat have also approached the bank for restructuring and ~Rs.700cr of advances are expected to be restructured during 4QFY2012.
At the CMP, the stock is trading at reasonable valuations, in our view, of 0.7x FY2013E ABV vs. its five-year range of 0.6–1.2x and median of 0.9x. On the back of high NIM & CASA, moderate fee income and relatively better asset quality than peers, we expect the bank to deliver healthy 26.3% earnings CAGR over FY2011–13E. We value the stock at 0.8x and hence recommend an Accumulate rating with a target price of Rs.53.
HCC
For 3QFY2012, HCC’s reported a poor set of numbers with performance at the revenue and EBITDAM level coming in-line with our and street estimates; however, earnings plunged on account of provisions (expected future losses and cost revisions) worth Rs.166cr by the company. We believe these provisions are not exceptional in nature and pertain to the normal course of business. On the top-line front, HCC’s revenue declined by 5.6% yoy to Rs.946.0cr (Rs.1,003cr) against our estimate of Rs.982.0cr due to slowdown in order inflow and execution bottlenecks. EBITDAM came in at 11.7% (12.6%), a dip of 90bp yoy and marginally lower than our estimate of 11.9%. On the earnings front, HCC reported a loss of Rs.130.4cr vs. profit of Rs.7.9cr in 3QFY2011, against our estimate of loss of Rs.25.5cr owing to a decline in revenue, EBITDA margin and provisioning of Rs.166cr. Interest cost came at Rs.104.3cr, a decline of 39.4%/2.9% on a yoy/qoq basis. Owing to concerns such as slowdown in order inflow, high debt and stretched working capital, we remain Neutral on the stock.
Persistent
Persistent Systems (Persistent) reported weak set of 3QFY2012 results. The dollar revenues came in at US$51.7mn, up merely 0.3% qoq. The company’s onsite billing rates declined by 2.2% qoq. In rupee terms, revenues came in at Rs.268cr, up 12.4% qoq. The company’s EBITDA and EBIT margin grew by 696bp and 688bp qoq to 26.0% and 20.1%, majotly due to INR depreciation against USD. PAT stood at Rs.41cr, up 25.2% qoq. The stock is currently under review and we will be releasing a detailed result update shortly.
Patel Engineering
Patel Engineering (PEL) posted better-than-expected numbers for 3QFY2012. The company reported revenue growth of 42.5% on the consolidate top-line front to Rs.619.3cr (Rs.434.6cr), as against the dismal performance over the past few quarters and despite slowdown on the order inflow front for the past few quarters. On the operating front too, the company posted abnormally high margins at 18.0% (13.4%). This stellar performance on the top-line and operating fronts led to yoy bottom-line growth of 104.8% to Rs.20.0cr (Rs.9.8cr) in spite of a 63.4%/14.1% yoy/qoq jump in interest cost. We wait for further details from the management about the results. However, we are concerned about the growth prospects of the company in the long run and believe that it is facing structural issues (stretched balance sheet and slowing order inflows), which will take time to be sorted out. Further, there are better plays available in the infrastructure space than PEL. Hence, we maintain our Neutral view on the stock.

3QFY2012 Result Previews
L&T
For 3QFY2012, we expect Larsen and Toubro (L&T) to report revenue of Rs.12,171cr, registering 6.6% yoy growth. This subdued growth is on account of high base (3QFY2011 reported top-line growth of 40.5% yoy). We expect OPM to be flat at 11.1%. We project net profit at Rs.866.6cr, marginally up by 3.1% yoy. We believe the company would end the quarter with a total order inflow of ~Rs.10,000cr (Rs.13,366cr). An important thing to watch out for would be management's commentary on the outlook for the sector and how things pan out on the margin front going ahead. We do not expect INR depreciation to have a major impact on L&T's margins (L&T has foreign currency loans), given the company generates decent revenue from its international operations. At the CMP of Rs.1,274, the stock is trading at 17.9x FY2013E earnings and 2.7x FY2013E P/BV on a standalone basis. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in 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.1,857, which provides 15.0% upside from current levels. We recommend Buy on the stock.
GAIL
GAIL is expected to announce its 3QFY2012 results. Transmission volumes for the quarter are likely to stay flat qoq. We expect the company to report top-line growth of 14.6% yoy to Rs.9,587cr. Operating margin is expected to contract by 44bp yoy to 15.5%. On the bottom-line front, we expect GAIL to report growth of 5.2% yoy to Rs.1,018cr. We maintain our Buy recommendation on GAIL with a target price of Rs.499.
Sterlite Industries
Sterlite Industries is slated to announce its 3QFY2012 results. The company’s top line is expected to grow by 6.1% yoy to Rs.8,798cr mainly due to higher sales volumes from its zinc business. On the operating front, EBITDA margin is expected to contract by 85bp to 23.0%. The bottom line is expected to decline by 30.2% yoy to Rs.771cr. We maintain our Buy recommendation on the stock with a target price of Rs.121.
Maruti Suzuki
Maruti Suzuki is scheduled to announce its 3QFY2012 results. We expect the company to report a 21% yoy (down 3.2% qoq) decline in its top line to Rs.7,335cr, as volumes registered a decline of 28% yoy (down 5.1% qoq) during the quarter. Volume growth was impacted due to slowdown in sales in the passenger vehicle segment and further due to labor strike at Manesar plant. The company’s EBITDA margin is expected to decline by 417bp yoy (100bp qoq) to 5.3%, mainly due to a sharp appreciation in Yen vs. INR and due to the negative impact of operating leverage. As a result, the bottom line is expected to decline by 68% yoy to Rs.179cr. The stock rating is under review.
Colgate
Colgate is expected to announce its 3QFY2012 results. For the quarter, we expect the company to post modest 15% yoy growth in its top line to Rs.643cr, aided by a mix of value and volume growth. Earnings for the quarter are expected to register 23% yoy growth to Rs.81cr on account of low base in 3QFY2011. Also, we estimate the operating margin to expand marginally by 80bp yoy to 14.2%. We maintain our Neutral rating on the stock.
Shree Cements
Shree Cements is expected to announce its 3QFY2012 results. The company is expected to post top-line growth of 38.8% yoy to Rs.1,082cr. The strong performance on the top-line front is primarily because of 24.3% growth in cement realization. Riding on higher cement realization, the company’s OPM is expected to expand by 628bp yoy to 25.8%. The company’s bottom line is expected to grow by 175% yoy to Rs.76cr. We maintain our Neutral view on the stock.
Federal Bank
Federal Bank is scheduled to announce its 3QFY2012 results. We expect the bank to report moderate NII growth of 13.9% on a yoy basis to Rs.510cr. Non-interest income growth is expected to be muted at 3.5% yoy (up 7.7% qoq) to Rs.126cr. Cost-to-income ratio is expected to remain largely steady at 38.5%. However, relatively faster rise in operating expenses on a yoy basis vis-à-vis operating income is expected to sedate pre-provision profit growth by 9.6% yoy to Rs.391cr. Provisioning expenses are expected to decline by 36.6% yoy on the back of relatively better asset-quality trends, leading to a 40.3% yoy increase in PBT to Rs.301cr. Overall, net profit growth is also expected to come in at 42% yoy at Rs.203cr.
At the CMP, the stock is trading at 1.0x FY2013E P/ABV, which is at a considerable premium to mid and small PSU banks with similar or better fundamentals. Also, the recent interest rate deregulation by the RBI is likely to put pressure on NIMs going forward. Hence, we maintain our Neutral recommendation on the stock.
KPIT
KPIT Cummins Infosystems (KPIT) is scheduled to announce its 3QFY2012 results. We expect the company to post revenue of US$71.9mn, up 2.2% qoq, majorly led by volume growth. In INR terms, revenue is expected to come in at Rs.365cr, up 12.4% qoq. EBITDA margin is expected to expand by 313bp qoq to 16.8%. PAT is expected to come in at Rs.37cr, aided by share of profits from Systime. We maintain our Accumulate rating on the stock with a target price of Rs.163.
Ashoka Buildcon
Ashoka Buildcon (ABL) is expected to post robust growth of 52.5% yoy on the consolidated revenue front to Rs.360.6cr on the back of under-construction captive road BOT projects, which will drive its E&C revenue. The E&C segment will continue to dominate the company’s revenue by contributing Rs.268.4cr (74.4%), while the BOT segment's share is expected to be Rs.92.2cr. EBITDAM is expected to come in at 21.5% (23.9%), registering a dip of 239bp yoy. We are expecting 26.0% yoy growth at the earnings level to Rs.21.0cr, led by revenue growth.
At the CMP of 205, the stock is trading at a discount to our FY2013E SOTP target price of Rs.245/share. The company’s road BOT SPVs have been valued on NPV basis (Rs.104/share). The construction segment has been valued at 5.0x EV/EBITDA basis (Rs.141/share). Hence, we maintain our Buy recommendation on the stock.

Economic and Political News
- Home ministry to have limited say in investments
- 2G: Order on plea to charge Chidambaram put up for Feb 4
- Acquisitions by foreign airline need FIPB nod

Corporate News
- Supreme victory for Vodafone in US$2bn Hutchison tax case
- Coal India plans selective price cuts benefiting power, cement sectors
- NTPC to set up 5MW solar farm in Andaman

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Indian stock market and companies daily report (January 20, 2011, Friday)

The markets are expected to edge higher following positive opening across most of the Asian bourses. The markets rallied yesterday on the back strong results delivered by the blue-chip companies and positive global cues. Data showing substantial investing by FIIs over the past few days also boosted the sentiments.
Global markets too edged higher yesterday with US markets closing in green. The US markets continued its gains on the back of positive earnings season and jobs data. Also positive developments in Euro zone and the economic and earnings news from the US lifted up the European markets.
After prolonged negativity, the markets seemed to have breathed easy – FIIs have reinforced the faith in the economy and have stepped-up the purchases of domestic equities. In addition, increased efforts from the IMF to rescue the euro zone, as well as hints from China over easing of credit controls to boost slowing growth has boosted sentiments. The earnings seasons has fared well so far with frontline companies posting delivering strong results. As earnings calendar turn hectic in coming days, markets will closely watch for these numbers for cues on the performance of corporate sector.

Markets Today
The trend deciding level for the day is 16,626 / 5,011 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,680 – 16,716 / 5,031– 5,043 levels. However, if NIFTY trades below 16,626 / 5,011 levels for the first half-an-hour of trade then it may correct up to 16,590 – 16,536 / 4,998 – 4,979 levels.

Punj Lloyd Group receives Rs.1,300cr social infrastructure project
Punj Lloyd Infrastructure Limited, a wholly owned subsidiary of Punj Lloyd Limited, has received a Letter of Award (LOA) from Delhi Police for the development of Police Residential Complex at Dheerpur, Delhi, on design, build, finance, operate and transfer (DBFOT) basis. The project with an estimated cost of ~Rs.1,300cr primarily entails development, operation and maintenance of the residential zone of over 5,000 units (approx. 40 lakh sq. ft.) along with utility facilities such as sewerage and water treatment. It also includes development and commercial operations of the non-residential infrastructure such as schools, healthcare and convenience shopping, as per the norms laid down in the Delhi Master Plan 2021. The company will be signing a concession agreement with Delhi Police, which is under the aegis of Ministry of Home Affairs (MHA), for 25 years and will be entitled to semi-annual annuities of Rs.62.8cr along with construction milestone linked lump sum payments of Rs.316cr. We maintain our Neutral view on the stock on account of various overhangs – uncertainty over receivable claims, stretched working capital, auditor qualifications and increasing leverage on the balance sheet.

3QFY2012 Result Reviews
HDFC Bank
For 3QFY2012, HDFC Bank reported healthy 31.4% yoy growth in its net profit to Rs.1,430cr, in-line with our as well as street estimates. Steady NIM coupled with largely stable asset quality was the key highlight of the results. Another quarter of steady performance: The bank’s net advances growth slowed down to 3.1% qoq, after two quarters of strong growth (7.4% qoq in 2QFY2012 and 9.7% in 1QFY2012). Deposit buildup was also much lower on a sequential basis, growing marginally by 0.8% compared to 9.3% growth in 2QFY2012. Corporate loans for the bank grew at a modest pace of 15.0% yoy; however, retail loan book growth was strong at 29.5% yoy despite the rise in interest rates over the past one year. Yoy growth in retail loans was driven by CVCE, business banking, personal loans and credit card loans. The pace of CASA deposits accretion for the bank was moderate in 3QFY2012, with growth of 14.3% yoy. Other income growth for the bank was healthy at 25.9% yoy, primarily due to pick-up in forex income/derivatives income (68.6% yoy). Fee income growth was also healthy at 19.6% yoy, part of which can be accredited to the seasonality effect (higher bullion sales and credit card fees due to the festive season). The bank witnessed treasury loss of Rs.82cr during 3QFY2012 on account of MTM losses on bond investments and MF portfolios. The bank maintained its strong asset quality track record during 3QFY2012 as well. Gross and net NPA ratios remained stable at 1.0% and 0.2%, respectively. NPA provision coverage ratio remained at elevated levels at 80.3%, even without considering the floating provisions.
Outlook and valuation: Over the past five years, HDFC Bank has commanded an average premium to Sensex P/E multiple of ~31%. However, considering the recent outperformance of HDFC Bank’s stock price, the premium has expanded to ~35%. Given the current valuations (3.3x FY2013E ABV), we believe that the positives are largely factored in the price and leave a limited upside in the stock price. Hence, we maintain our Neutral recommendation on the stock.
Hero MotoCorp
Hero MotoCorp (HMCL) reported in-line net sales growth of 16.9% yoy (3.5% qoq) to Rs.6,031cr, driven by volume growth of 11.3% yoy (2.9% qoq) and a 5% yoy (flat qoq) increase in average net realization. HMCL’s volume performance was led by a 10.6% (2.6% qoq) and 20.4% yoy (6.4% qoq) increase in motorcycle and scooter sales, respectively. On the operating front, EBITDA margin (adjusted for change in accounting for royalty payments) was largely in-line at 12.3%, reporting an expansion of 115bp yoy (flat qoq), primarily due to a decline in rawmaterial expenses. Led by stable operating performance, adjusted net profit registered strong 20.5% yoy (1.5% qoq) growth to Rs.613cr. We believe at Rs.1,901, HMCL is reasonably valued at 14.2x FY2013E earnings (historical multiple - 15x). Thus, we maintain our Neutral rating on the stock. We shall come up with a detailed result update post the earnings call with management.
Bajaj Auto
Bajaj Auto (BJAUT) reported strong 21.2% yoy (down 3.9% qoq) growth in net sales to Rs.5,063cr, driven largely by strong exports performance. While export volumes witnessed robust 28.4% yoy (down 10.1% qoq) growth, export realization grew by strong 17.6% yoy (9.8% qoq), led by price increases and favorable currency movement. As a result, exports revenue jumped by 51.1% yoy (down 1.3% qoq). Domestic performance, however, was muted as volume and realization posted moderate growth of 6.8% (down 6.2% qoq) and 1.2% yoy, respectively, leading to domestic revenue growth of 8.1% yoy (down 5.5% mom). EBITDA margin surprised positively as it touched 21%, primarily on account of easing of raw-material prices and favorable currency movement on the exports front. Led by strong operating performance and lower tax rate, net profit registered strong 19.2% yoy (9.6% qoq) growth to Rs.795cr. During 3QFY2012, BJAUT reported mark-to-market (MTM) loss of Rs.59cr relating to hedging contracts, which restricted the bottom-line growth. At the CMP, the stock is trading at 12.5x FY2013 earnings. Post the recent correction in the stock price, we recommend Buy on the stock with a target price of Rs.1,755.

3QFY2012 Result Previews
Reliance Industries
Reliance Industries Ltd. (RIL) is scheduled to announce its 3QFY2012 results. We expect the company’s top line to increase by 31.0% yoy to Rs.78,364cr during the quarter, largely on account of higher refining and petrochemical product prices. However, we expect the company’s operating margin to decline by 559bp yoy to 10.3% on account of lower production from KG D6 basin. PAT is expected to decrease by 12.0% yoy to Rs.4,519cr. We maintain our Buy view on the stock with a target price of Rs.1,006.
ITC
ITC is expected to announce its 3QFY2012 results. For the quarter, we expect ITC to report a 17.8% yoy growth in its Top-line to Rs.6,427cr, impacted by a steady growth in its Hotels Segment, Paperboards & Packaging and Cigarettes. ITC’s Earnings for the quarter are expected to grow by 18.3% yoy to Rs.1,642.9cr, driven largely by Top-line. We recommend Neutral on the stock.
Wipro
Wipro is slated to announce its 3QFY2012 results. We expect the company’s IT services segment to post revenue of US$1,497mn, up merely 1.7% qoq. Volume growth is expected to be 2.7% qoq. At the consolidated level, we expect the company to record revenue of Rs.9,829cr, up 8.1% qoq. The company is expected to record a 145bp qoq expansion in its EBIT margin to 21.4% in the IT services segment; at a consolidated level, Wipro is expected to record a 155bp qoq increase in EBIT margin to 17.9%. PAT is expected to come in at Rs.1,487cr. We maintain our Neutral view on the stock.
Hindustan Zinc
Hindustan Zinc is slated to announce its 3QFY2012 results. The company’s top line is expected to decline by 1.1% yoy growth to Rs.2,574cr on account of higher realization, partially offset by sales volume growth. However, EBITDA margin is expected to contract by 583bp to 51.0% on account of rise in costs. The company’s bottom line is expected to grow by 0.1% yoy to Rs.1,288cr. We maintain our Buy view on the stock with a target price of Rs.142.
Axis Bank
Axis Bank is slated to announce its 3QFY2012 results. We expect the bank to report healthy NII growth of 22.7% yoy to Rs.2,126cr. NIM on a sequential basis is likely to remain flat with an upward bias. Non-interest income is expected to increase by a relatively moderate 13.4% yoy to Rs.1,302cr. Pre-provision profit of the bank is expected to register growth of 16.8% yoy. However, owing to higher provisioning burden (increase of 39.7% yoy), net profit is expected to go up by relatively lower 13.5% yoy to Rs.1,012cr.
The stock is currently trading at attractive valuations of 1.6x FY2013E ABV – more than 50% discount to HDFC Bank, despite similar earnings quality, profitability and growth expectations over FY2011-13. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.1,216.
JSW Steel
JSW Steel is slated to announce its 3QFY2012 results. On a consolidated basis, net revenue is expected to grow by 48.2% yoy to Rs.8,843cr mainly on account of increased volumes as well as realizations. Operating margin is expected to expand by 209bp yoy to 15.8% on account of higher revenue. However, net profit is expected to decrease by 4.4% yoy to Rs.279cr on account of higher interest expenses. Given the recent rise in the stock price, we recommend Neutral on the stock.
Exide Industries
Exide Industries (EXID) is slated to announce its 3QFY2012 results. We expect the top line to grow by healthy 15% yoy to Rs.1,211cr, largely due to a slight uptick in replacement demand. On the operating front, EBITDA margin is expected to decline by 566bp yoy to 9.6% due to raw-material cost pressures and price cuts carried out in September 2011 to counter competitive pressures. Hence, the bottom line is expected to post a 42% yoy decline to Rs.72cr. The stock rating is under review.
Syndicate Bank
Syndicate Bank is scheduled to announce its 3QFY2012 results. We expect the bank to report reasonable NII growth of 15.5% yoy. However, NIM of the bank is expected to compress albeit marginally on a sequential basis. Pre-provision profit of the bank is expected to register healthy 25.3% yoy growth, primarily on account of a muted 5.6% yoy rise in operating expenses vis-à-vis 15.9% rise in operating income. Provisioning expenses are expected to remain flat on a yoy basis at Rs.428cr, leading to a robust 62.9% yoy rise in PBT. However, net profit growth is expected to be relatively lower at 23.2% as the effective tax rate is expected to normalize from the low 10% witnessed in 2QFY2011.
At the CMP, the stock is trading at attractive valuations, in our view, of 0.6x FY2013E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.102.
Bank of Maharashtra
Bank of Maharashtra is slated to declare its 3QFY2012 results. We expect the bank to report reasonably healthy growth 24.5% yoy in its NII. NIM of the bank is expected to hold up well on a sequential basis and improve by ~30bp on a yoy basis. Other income growth is likely to remain healthy at 26.3% yoy to Rs.140cr. On account of slower rise operating expenses (6.7% yoy) as compared to operating income (22.3% yoy), pre-provision profit of the bank is expected to register healthy 39.4% yoy growth. Provisioning expenses are expected to increase by 25.3% yoy to Rs.214cr. However, net profit growth is expected to be strong at 61.4% yoy at Rs.146cr.
At the CMP, the stock is trading at attractive valuations, in our view, of 0.7x FY2013E ABV. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.52.
HCC
For Hindustan Construction Company (HCC), we project a 2.0% yoy decline in revenue for 3QFY2012 to Rs.982.4cr due to the slowdown of execution on account of drying up of orders for HCC in the last few quarters and slow-moving order book. On the EBITDA front, we expect a marginal dip of 66bp yoy to 11.9%. Hence, on the bottom-line front, we expect loss of Rs.25.5cr in 3QFY2012 vs. profit of Rs.7.9cr in 3QFY2011. Owing to the uncertainties surrounding Lavasa project and other concerns like subdued order inflow, deteriorating working capital situation and high interest cost, we continue to maintain our Neutral view on the stock.
NIIT
NIIT is expected to announce its 3QFY2012 results. We expect the company’s revenue to come in at Rs.226cr, down 24.8% yoy due to divestment of Element K business (part of and corporate learning solution (CLS) business). Revenue for the individual learning solution (ILS) and school learning solution (SLS) segments is expected to grow by 16.6% and 15.0% yoy to Rs.123cr and Rs.41cr, respectively. EBITDA margin is expected to improve by 270bp yoy 15.0%. PAT is expected to come in at Rs.18cr. We maintain our Buy recommendation on the stock with an SOTP target price of Rs.55.

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