Indian stock market and companies daily report (February 13, 2012, Monday)

The domestic markets are expected to edge higher following positive opening across most of the Asian markets. Domestic indices fell modestly on Friday, as data showing a slowdown in December IIP numbers prompted investors to book some profits after recent sharp gains.

Globally, cues remained mixed. European markets slid moderately on Friday as apprehensions remained over the second bailout package for Greece. Eurozone finance ministers had deferred the approval of a second bailout package for Greece (€130bn), demanding Greece’s acceptance over a new set of austerity measures. U.S. bourses also ended on a negative note, tracing concerns stemming from the Eurozone.

On the domestic front, consistent shrinkage in manufacturing output emphasizes the need to trim rates by RBI. However, domestic bourses seemed to have marked down macroeconomic concerns and have firmed up considerably. Nonetheless, one cannot rule out the pessimism surrounding the Eurozone, which can reverse market directions. Markets will closely trace the developments in the domestic as well global markets.

Markets Today

The trend deciding level for the day is 17,755 / 5,383 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,883 – 18,018 / 5,426 – 5,470 levels. However, if NIFTY trades below 17,755 / 5,383 levels for the first half-an-hour of trade then it may correct up to 17,621 – 17,492 / 5,339 – 5,297 levels.

Industrial production for December dips to 1.8%

Industrial production (IIP) growth slipped again, growing by weak 1.8% for December, after the strong rebound witnessed in November (growth of 5.9% compared to negative 4.7% growth for October). IIP index growth of 1.8% was the second slowest, after the contraction witnessed in October 2011, in more than two years. IIP growth was also below the median expectation of Bloomberg’s survey of economists (2.9%). The 12-month rolling industrial production growth, which has been on a declining trend since November 2010 (9.9%), slipped further to 4.7%.

The dip in IIP can mostly be attributed to slow growth in the manufacturing sector (growth of 1.8% compared to 6.6% in November 2011 and 8.7% in December 2010), which accounts for ~75% of the overall industrial production. In terms of industries, 15 of the 22 industry groups in the manufacturing sector registered positive growth during December. The slowdown in mining persisted with a contraction of 3.7% for December (5th consecutive month of contraction). Growth in electricity production continued to be healthy, growing by 9.1% in December.

As per use-based data, capital goods production data continued to be volatile, declining by steep 16.5%. Production of intermediate goods contracted by 2.8% in December, however growth in consumer goods and consumer durables remained strong, growing by 10.0% and 13.4%, respectively.

3QFY2012 - Result Reviews

DLF

DLF announced its 3QFY2012 numbers. The company’s net sales declined by 18.0% yoy and 19.7% qoq to Rs.2,034cr, coming in well below our estimate of Rs.2,719cr. EBITDA came in at Rs.823cr, down 30.2% yoy, on the back of lower revenue and OPM margin compression. OPM contracted by 706bp yoy to 40.4%, above our estimate of 43.7%. PAT declined by 44.6% yoy to Rs.258cr, which was well below our estimate of Rs.414cr, despite a sharp increase in other income, which increased by 217% yoy to Rs.362cr (Rs.114cr). The decline in PAT was largely due lower revenue, OPM contraction and higher interest cost during the quarter, which increased by 44.8% yoy to Rs.620cr in 3QFY2012. We continue to maintain our Neutral recommendation on the stock. We may revise our estimates and target price post management’s concall.

JSW Steel

JSW Steel reported higher-than-expected consolidated adjusted PAT during 3QFY2012. However, the company reported net loss of Rs.48cr in 3QFY2012 on account of exceptional losses. The company had reported better-than-expected standalone numbers for 3QFY2012 on January 20, 2012. Consolidated net sales grew by 40.9% yoy to Rs.8,405cr (slightly below our estimate of Rs.8,843cr). Net sales growth was driven by increases in steel volumes (+20.0% yoy to 1.9mn tonnes) and realization (+18.2% yoy to Rs.43,401/tonne). Consolidated EBITDA increased by 29.6% yoy to Rs.1,317cr. The company reported exceptional items related to forex loss of Rs.504cr and loss of Rs.55cr from JSW Ispat (associate company) during the quarter. Consequently, the company reported net loss of Rs.48cr in 3QFY2012, compared to net profit of Rs.292cr in 3QFY2011. However, adjusted net profit, excluding exceptional items, increased by 75.1% yoy to Rs.511cr (higher than our estimate of Rs.279cr). We remain Neutral on the stock.

CCCL

Consolidated Construction Consortium (CCCL) posted disappointing set of numbers for 3QFY2012, as expected. On the top line front the company posted 10.0% yoy decline to Rs.446.5cr, lower than our estimate of Rs.535.9cr. On the EBITDAM front, CCCL continued its dismal performance and registered a dip of 510bp yoy to 4.6%, which was higher than our estimate of 3.2%. Interest cost came in at Rs.18.3cr a yoy/qoq jump of 45.1%/6.4% respectively, and in line with our estimate of Rs.18.6cr. Owing to poor show at revenue and margin level, along with interest burden, the bottom line posted a loss of Rs.3.2cr in 3QFY2012 vs. profit of Rs.16.7cr in 3QFY2011 and against our estimate of loss of Rs.5.2cr. We maintain neutral view on the stock.

3QFY2012 - Result Previews

Coal India

Coal India is slated to report its 3QFY2012 results. We expect net sales to increase by 39.2% yoy to Rs.17,664cr, mainly on account of coal price increase taken during February 2011. However, EBITDA margin is expected to contract by 264bp yoy to 24.5% in 3QFY2012 on account of higher employee cost provision. Net profit is expected to increase by 39.0% yoy to Rs.3,650cr. We have a Neutral view on the stock.

State Bank of India

State Bank of India is scheduled to announce its 3QFY2012 results. We expect the bank to report healthy NII growth of 19.3% on a yoy basis (up 3.6% on a qoq basis). Non-interest income growth is expected to be moderate at 14.4% yoy. Operating income of the bank is expected to grow by healthy 18.0% yoy to Rs.14,584cr. Provisioning expenses are expected to increase substantially by 63.4% yoy, considering the cyclical headwinds to asset quality. Hence, net profit growth is expected to be moderate at 10.1% yoy to Rs.3,113cr. We currently have an Accumulate rating on the stock with a target price of Rs.2,364

Sun Pharmaceuticals

For 3QFY2012, Sun Pharma is likely to report 18.7% yoy growth on the sales front, mainly on the back of integration of Taro, which is expected to be the growth driver of export formulation sales. On the domestic front, Indian formulation sales are expected to report a muted performance. Despite strong top-line growth on account of the integration, operating profit margin is expected to expand by 690bp yoy, with margin likely to be around 34.4%. Net profit is expected to register growth of 21.4% yoy during the quarter. We recommend Neutral on the stock.

SAIL

SAIL is expected to announce its 3QFY2012 results. We expect the company’s top line to grow by 9.8% yoy to Rs.12,239cr, mainly on account of higher realization. However, EBITDA margin is expected to decline by 211bp yoy to 14.0% on account of higher input costs. The bottom line is expected to decline by 2.2% yoy to Rs.1,083cr. We maintain our Neutral rating on the stock.

Cipla

For 3QFY2012, Cipla is expected to post net sales growth of 10.7% yoy to Rs.1,662cr, driven by the domestic and exports performance. On the operating front, OPM (excluding technical know-how fees) is expected to come in at 21.8%, registering an expansion of 410bp yoy. Further, net profit is expected to increase by 26.8% yoy to Rs.295cr. We recommend Neutral on the stock.

Motherson Sumi Systems

Motherson Sumi Systems is scheduled to announce its 3QFY2012 results today. On a consolidated basis, we expect the company to report a healthy 13% yoy growth in revenues to Rs.2,343cr for the quarter. On the operating front, the company is expected to report a 282bp yoy contraction in margins to 8.6%. As a result, the net profit is expected to decline by 26% yoy to Rs.79cr. The stock rating is under review.

Areva T&D – 4QCY2011

For 4QCY2011, Areva T&D is expected to post subdued top-line growth of 4.2% yoy to Rs.1,383cr, mainly on account of lower volumes, pricing pressures and execution slowdown. Consequently, EBITDA margin is expected to compress by ~443bp yoy to 9.0%, although we expect a sequential improvement of ~100bp due to slight easing of pricing pressures. Led by muted growth and dip in margin, the company’s PAT is expected to decline by 35.5% yoy to Rs.56.8cr. At the CMP, the stock is trading at 25.9x and 21.9x CY2011E and CY2012E EPS, respectively. We remain Neutral on the stock.

CESC

CESC is expected to announce its 3QFY2012 results. The company is expected to register 25.6% yoy growth in its standalone top line to Rs.1,157cr, aided by higher sales volume and better realization. OPM is expected to be flat at 27.6%, while net profit is expected to increase by 33.9% yoy to Rs.147cr during 3QFY2012. We maintain our Buy rating on the stock with a target price of Rs.304.

Economic and Political News
- Exports up 10%, imports by 20% in January 2012: Commerce secretary
- Direct tax collection to miss Budget estimate
- Government may enhance tax deduction for housing loan in Budget

Corporate News
- Govt. notifies rules for competitive bidding for coal blocks
- Punjab’s industry strongly objects to 55% hike in power tariff
- Reliance Industries shuts distillation unit at Jamnagar facility for 3 weeks
- Tata Motors hikes prices by up to Rs 12,000; leaves Nano, Aria

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Indian stock market and companies daily report (February 10, 2012, Friday)

The domestic markets are expected to open flat to negative tracking negative opening in most of the Asian markets. Indian markets rose on Thursday, with the Nifty index hitting a 27-week high, as optimism that Greek leaders are nearing an agreement on austerity measures, that could secure them a new €130bn bailout from the EU and the IMF, easing some of the concerns about the nation's ongoing going debt crisis.

Globally, U.S. stocks closed in green yesterday mainly on the back of positive news about Greece as well as some upbeat U.S. jobs data. The U.S. Labor Department reported that the initial jobless claims for U.S. fell to 358,000 in the week ended February 4th from the previous week's revised figure of 373,000. Indian investors, meanwhile, would keenly watch out for the domestic industrial production growth (Bloomberg estimate – 2.6%) for the month of December due to be released today. Also, consumer sentiment and trade balance data of the U.S. will be on radar.

Markets Today

The trend deciding level for the day is 17,773 / 5,392 levels. If Nifty trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,937 – 18,043 / 5,444 – 5,476 levels. However, if Nifty trades below 17,773 / 5,392 levels for the first half-an-hour of trade then it may correct up to 17,667 – 17,503 / 5,360 – 5,307 levels.

3QFY2012 - Result Reviews

Tata Steel

For 3QFY2012, Tata Steel reported net loss on a consolidated basis due to weak performance from its European and Southeast Asian operations. Consolidated net sales increased by 13.8% yoy to Rs.33,103cr, above our estimate of Rs.30,992cr, mainly on account of increased average realizations in rupee terms. Standalone net sales increased by 12.3% yoy to Rs.8,305cr. Consolidated sales volumes stood at 5.8mn tonnes in 3QFY2012 compared to 5.9mn tonnes in 3QFY2011. Average realization/tonne decreased by 3.4% and 0.6% to US$975 and US$1,149 in Tata Steel India and Tata Steel Europe operations, respectively. However, EBITDA/tonne decreased by 7.1% and US$303 in Tata Steel India. EBITDA/tonne of Tata Steel Europe operations stood at US$(1) compared to US$25 in 3QFY2011 on account of higher raw-material costs. India operations EBITDA decreased by 9.5% yoy to Rs.2,553cr. European operations reported EBITDA of US$(147)mn and Southeast Asian operations reported EBITDA of US$(2)mn during the quarter. Consequently, consolidated EBITDA decreased by 49.9% yoy to Rs.1,717cr. Hence, Tata Steel reported net loss of Rs.603cr in 3QFY2012 compared to adjusted PAT of Rs.1,125cr in 3QFY2011. The company’s net debt has increased to US$9.5bn as on December 31, 2011, compared to US$8.5bn as on September 30, 2011. Tata Steel’s Jamshedpur 2.9mn tonnes brownfield expansion project remains on track to be completed during 4QFY2012. We maintain our Buy recommendation on the stock, while we keep our target price under review.

Hindalco

Hindalco’s standalone 3QFY2012 top line was above our estimate, while its bottom line was slightly below our expectation. The company’s net sales increased by 11.4% yoy to Rs.6,590cr (above our estimate of Rs.5,909cr) mainly on account of higher volumes in the aluminium and copper segments. In the aluminium segment, alumina, aluminium, wire rods and flat products production increased by 7.1%, 7.8%, 6.7% and 20.4% yoy to 343k, 146k, 25k and 56k, respectively. In the copper segment, copper cathode and CC rods production grew by 9.4% and 42.3% yoy to 88k and 38k, respectively. However, the aluminium segment’s EBIT decreased by 33.4% yoy to Rs.310cr due to increased input costs (mainly coal and crude derivatives). Nevertheless, the copper segment’s EBIT rose by 51.1% yoy to Rs.216cr due to higher treatment and refining charges and by-product credits. Overall, Hindalco’s EBITDA decreased by 3.3% yoy to Rs.716cr and EBITDA margin slipped by 165bp yoy to 10.9% during 3QFY2012. Interest expenses grew by 53.8% yoy to Rs.79cr and other income grew by 48.6% yoy to Rs.90cr. Consequently, net profit decreased by only 1.9% yoy to Rs.452cr (below our estimate of Rs.480cr). The company reported that all its expansion plans are on track. The stock is under review currently.

Ambuja Cements

During 4QCY2011, Ambuja Cements’ standalone top line increased strongly by 30.2% yoy to Rs.2,329cr on account of 17.5% yoy improvement in realization to Rs.4,197/tonne and a 10.8% yoy increase in volumes to 5.55mn tonnes. OPM declined by 60bp yoy to 19.1% on account of higher raw-material costs, power and fuel costs and freight costs. On the bottom-line front, net profit for the quarter rose by 17% yoy to Rs.302cr, aided by better operating performance, 72.2% yoy growth in other income to Rs.65cr and 53% saving in interest expense to Rs.10cr. Reported net profit was lower by Rs.33cr on account of an exceptional item relating to change in accounting method for stock options, adjusting for which net profit would have grown by 30% yoy. We continue to remain Neutral on the stock.

ACC

ACC posted 27.8% yoy growth in its standalone net sales to Rs.2,503cr on account of 17.8% growth in sales volumes and 20.3% higher realization. The company’s sales volumes for the quarter stood at 5.95mn tonnes, up 6.3% yoy, on account of higher capacity (on a yoy basis) operational at Wadi and Chanda during the quarter. Further, realization stood higher by 20.3% yoy to Rs.4,206/tonne. Despite the substantial yoy improvement in realization, OPM rose only marginally by 100bp due to the surge in operating costs. The company’s net profit rose by 83.8% yoy to Rs.470cr. The company’s profit was boosted by tax credit of Rs.228cr during the quarter (vs. 82cr in 4QCY2010), adjusted for which profit would have been at Rs.242cr higher by 39.3% yoy. We remain Neutral on the stock.

Apollo Tyres

Apollo Tyres (APTY) registered robust results for 3QFY2012 with consolidated top line posting better-than-expected 36.3% yoy (12.4% qoq) growth to Rs.3,228cr, aided by an 18.2% yoy (8.3% qoq) jump in volumes and 15.3% yoy (3.8% qoq) increase in net average realization. Domestic, Europe and South Africa revenue grew strongly by 46.2%, 26.3% and 27.9% yoy, respectively. Operating margin expanded by 202bp qoq to 10%, mainly due to 100bp savings on the raw-material front. As a result, adjusted net profit grew by 63.8% qoq to Rs.127cr. However, on a yoy basis, adjusted net profit reported modest 5.8% yoy growth, largely due to contraction in operating margin and higher interest expense (up 38.2% to Rs.73cr). During the quarter, APTY made a provision of Rs.29cr in relation to a penalty following settlement agreement with South Africa Competition Commission for the company’s operations in South Africa. At Rs.76, the stock is trading at 6.8x its FY2013E earnings. We retain our Buy recommendation on the stock; however, the target price is under review. We shall release a detailed result note soon.

MRF – 1QSY2012

MRF reported top-line growth of 32.7% yoy to Rs.3,138cr in 1QSY2012 from Rs.2,367cr in 1QSY2011. The company’s EBITDA margin came in at 9.0%, 174bp higher on a qoq basis, on account of a decrease in overall expenses as a percentage of sales. On the profitability front, MRF reported an increase of 9.7% yoy, from Rs.103cr to Rs.113cr. We maintain our Buy recommendation on the stock with a target price at Rs.9,647, based on a target PE of 8x its SY2013E earnings.

Page Industries

Page Industries announced its 3QFY2012 numbers. The company’s net sales increased by 28.4% yoy to Rs.172cr (Rs.134cr). EBITDA improved only by 6.3% yoy to Rs.30cr (Rs.28cr), despite higher revenue growth due to margin compression. EBITDA margin declined by 356bp yoy to 17.2% (20.7%), mainly due to higher raw-material cost, which increased to 51.2% of net sales in 3QFY2012 vs. 48.3% of net sales in 3QFY2011. Despite lower growth in EBITDA, PAT increased by 27.6% yoy to Rs.20cr (Rs.16cr), in-line with top-line growth on the back of higher other income, which increased by 78.2% to Rs.4cr and lower tax rate, which came in at 31.5% in 3QFY2012 vs. 41.6% in 3QFY2011. PAT margin declined marginally by 7bp yoy to 11.6%. We will be coming out with a detailed report post management interaction. We continue to maintain our Neutral recommendation on the stock.

FAG Bearings - 4QCY2011

FAG Bearings (FAG) registered a strong performance in 4QCY2011, with betterthan- expected net sales growth of 31.4% yoy (4.8% qoq) to Rs.350cr against our expectation of Rs.310cr. EBITDA margin contracted by 150bp yoy (170bp qoq) to 18.1% mainly due to higher raw-material expenses. Raw-material cost increased primarily on the trading part of the business, which we believe could be due to the depreciation of INR against the Euro. Purchase of traded goods as a percentage of sales jumped substantially by 480bp yoy during the quarter. However, 380bp yoy savings in other expenditure arrested further fall in margins. Led by strong top-line performance net profit posted better-than-expected 27.3% yoy growth to Rs.43cr. We expect the company to sustain its strong performance going ahead, led by likely easing of interest rates from 1QFY2013, which is expected to revive demand in the automotive and industrial segment. We maintain our Buy view on the stock; however, our target price is under review.

Anant Raj

Anant Raj Industries announced its 3QFY2012 numbers. Net sales declined by 25.9% yoy to Rs.92cr (Rs.124cr), well below our estimate. EBITDA declined by 36.5% yoy to Rs.49cr (Rs.77cr) due to lower revenue and margin compression. EBITDA margin declined by 888bp yoy to 53.2% (62.1%). Adjusted PAT declined by 37.3% yoy to Rs.31cr (Rs.50cr) and PAT margin declined by 622bp yoy to 31.5% (50.3%), almost in-line with EBITDA margin contraction. We will be coming out with a detailed report post management interaction. We have an Accumulate rating on the stock with a target price of Rs.78.

HAIL – 4QCY2011

Honeywell announced its 4QCY2011 numbers. The top line grew by 21% qoq to Rs.503cr in 4QCY2011 from Rs.412cr in 4QCY2010. Annual sales for CY2011 stood at Rs.1619, 19% higher from CY2010. The company's margin came in at 9.1%, 259bp higher on a qoq basis, on account of a decrease in raw-material and employee cost as percentage of sales. Net profit for the quarter rose by 31.5% yoy, from Rs.25.7cr to Rs.33.9cr. Annual net profit stood at Rs.107cr, 6.7% higher yoy. We maintain our Buy recommendation on the stock; our target price is under review.

Dishman Pharmaceutical

For 3QFY2012, Dishman Pharmaceutical posted net sales of Rs.265.5cr, registering 14.5% yoy growth. The company’s growth was driven by the MM segment, which reported 30.9% yoy growth. The CRAMS segment reported 6.9% yoy growth. The company’s OPM came in at 15.9%; however, adjusted for forex losses, it stood at 20.1%. The company reported higher tax expenses during the quarter. Consequently, net profit came in at Rs.16.7cr, lower than our expectation of Rs.19.8cr. However, given the traction in growth and improving profitability, we maintain our Buy rating on the stock; the target price is under review.

JK Tyre

JK Tyre (JKI) reported dismal set of results for 3QFY2012, posting net loss on the bottom-line front, led by higher interest expense and forex loss of Rs.38cr. For 3QFY2012, net sales grew strongly by 20.7% yoy (10.4% qoq) to Rs.1,423cr. Operating performance bounced back sequentially with EBITDA margin expanding by 297bp to 5.1%, driven by raw-material cost savings (100bp qoq) and decline in other expenditure (200bp qoq). JKI, however, posted net loss of Rs.21cr on account of an 87.8% yoy increase in interest expense to Rs.45cr and forex loss of Rs.38cr. The stock rating is currently under review.

3QFY2012 - Result Previews

DLF

DLF is expected to announce its 3QFY2012 results. We expect the company’s net sales to increase by 9.6% yoy to Rs.2,719cr. EBITDA margin is expected to contract by 377bp yoy to 43.7% on account of higher input costs. Net profit is expected to decline by 11.1% yoy to Rs.414cr. We maintain our Neutral rating on the stock.

RCom

Reliance Communication (RCom) is slated to announce its 3QFY2012 results. We expect the company to record revenue of Rs.4,968cr, up 3.7% qoq. Growth is expected primarily on the back of qoq flat ARPM at Rs.0.45/min and 1.0% qoq growth in MOU to 229min. EBITDA margin is expected to increase by 83bp qoq to 29.1%. PAT for the quarter is expected to come in at Rs.144cr. We maintain our Neutral view on the stock.

Britannia

Britannia is expected to announce its 3QFY2012 results. For the quarter, we expect Britannia to report healthy 18% yoy growth in revenue to Rs.1,271 due to improvement in sales mix. For the quarter, we expect the company to report an 11bp yoy margin improvement. Earnings for the quarter is expected to grow by 20% yoy to Rs.45cr on the back of healthy top-line growth. At the CMP, the stock is trading at 21.7 x F2013E EPS of Rs.22.5. We recommend Neutral on the stock.

Aurobindo Pharma

For 3QFY2012, Aurobindo Pharma is expected to post net sales of Rs.1,295cr, registering 20.8% yoy growth. The company is expected to post OPM of 12.1%, reporting a dip of 652bp yoy. Net profit is expected to come in at Rs.98.5cr, down 49% yoy. At the CMP, the stock is trading at 8.4x FY2013. We continue to maintain our Buy recommendation on the stock with a target price of Rs.166.

CCCL

Consolidated Construction Consortium (CCCL) is expected to post modest 8.0% yoy growth in its top line to Rs.535.9cr, given the slow-moving infra orders forming ~40% of its total order book. On the EBITDA front, we expect the company to continue to report a dismal performance and register a dip of 654bp yoy to 3.2%, in-line with management's guidance. Against this backdrop, the bottom line is expected to post loss of Rs.5.2cr in 3QFY2012 vs. profit of Rs.16.7cr in 3QFY2011. We continue to maintain our Neutral view on the stock.

Economic and Political News
- Current account deficit seen widening as exports struggle
- Government nods for JVs by defense PSUs
- Exports up 10.1%; Imports jump by 20.3% in January 2012

Corporate News
- Additional tax on diesel cars will further impede industry growth: M&M
- CEAT to set up Rs.250cr plant in Bangladesh
- Tata Global, PepsiCo JV eyes Rs.700cr turnover in the next five years
- Tulip Telecom CEO Sanjay Jain quits
- Unity Infraprojects bags orders worth Rs.485cr

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Indian stock market and companies daily report (February 09, 2012, Thursday)

The domestic markets are expected to open in the red tracking flat to negative opening in most of the Asian markets. Indian markets posted a volatile trading session and closed in green on Wednesday amidst optimism towards the developments in Greece’s debt restructuring deal.

Globally, however U.S. and European stocks remained choppy and ended flat, as the markets waited for additional news from Greece. The Greek government, which is close to announce another round of spending cuts in order to secure bailout funds is also in negotiations with private creditors on a voluntary debt reduction.

Indian investors, meanwhile, would keenly watch out for the domestic industrial production growth (Bloomberg estimate-3%) for the month of December, due to be released on Friday. Also initial jobless claims data of the U.S. for the previous week due to be released today will be on radar.

Markets Today

The trend deciding level for the day is 17,699 / 5,363 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,818 – 17,928 / 5,402 – 5,435 levels. However, if NIFTY trades below 17,699 / 5,363 levels for the first half-an-hour of trade then it may correct up to 17,588 – 17,469 / 5,330 – 5,292 levels.

TCS establishes JV with Mitsubishi for Japanese market

TCS has announced a 60:40 JV with Japan’s Mitsubishi Corp. to serve clients in the East Asian region. The companies will invest US$5mn to set up a delivery center in Japan. The JV company will offer a full service suite of IT, BPO and infrastructure services to Japanese corporations. TCS said that this JV comes against the backdrop of a strong yen, the globalization of supply chains and a growing trend toward overseas mergers and acquisitions, all of which act as catalysts for the increasing globalization of Japanese companies. This has brought heightened interest in the role of global IT services to link domestic and overseas operations.

The JV is important for TCS as the company derives only ~1% of its revenue from Japanese markets and 7% from the Asia Pacific region. This is a good opportunity for TCS in which it can leverage a partner like Mitsubishi and get an entry into the world's third largest economy and provide software services there. This will be positive in the sense that the market share of TCS in Japan will rise as a result of the partnership with Mitsubishi and the company will also have a presence across all geographies. We maintain our Accumulate rating on the stock with a target price of Rs.1,262.

3QFY2012 - Result Reviews

ONGC

ONGC’s 3QFY2012 profitability declined on account of increased subsidy burden. The company’s top line decreased by 2.5% yoy at Rs.18,124cr. ONGC’s crude oil net realization declined by 30.9% yoy to US$44.8/bbl on account of higher subsidy burden. The company shared a subsidy burden of Rs.12,536cr in 3QFY2012 vs. Rs.4,222cr of subsidy shared in 3QFY2011and Rs.5,713cr in 2QFY2012. Oil sales volumes decreased by 4.0% yoy to 5.6mn tonnes, while gas sales volumes decreased by 1.4% yoy to 5.0bcm during 3QFY2012. EBITDA margin slipped by 1,183bp yoy to 61.0% and EBITDA decreased by 23.6% yoy to Rs.11,051cr. The company’s depreciation and amortization expenses increased by 24.5% yoy to Rs.4,532cr due to higher dry well write-offs. The company reported one-time gain of Rs.3,142cr related to royalty reimbursed by Cairn India (initially paid by ONGC for August 2009-September 2011). Excluding this one-time gain, adjusted net profit decreased by 49.2% yoy to Rs.3,599cr. Reported net profit decreased by 4.8% yoy to Rs.6,741cr. For FY2013, ONGC has given oil and gas production guidance of 28.8mn tonnes (+4.0% yoy) and 27bcm (+7.0% yoy). The stock is under review currently.

Bharti Airtel

Bharti Airtel (Bharti) reported a mixed performance for 3QFY2012, with revenue coming in-line with our as well as street expectations, while it disappointed on the operating and profitability fronts due to higher depreciation and amortization expenses. Bharti’s consolidated revenue stood at Rs.18,477cr, up 6.9% qoq. Revenue from mobile services for India came in at Rs.10,176cr, up 4.0% qoq on the back of a 3.2% qoq increase in average revenue per minute (ARPM) to Rs.0.45/min. However, MOU declined by 1.0% qoq due to slow traffic growth. Revenue of mobile India business was also impacted because of the slight decline in VAS share (even when 3G services are launched in all the circles and this was seasonally a strong quarter for telecom companies), which decreased to 14.3% in 3QFY2012 from 14.5% in 2QFY2012. All this led to 2.2% qoq growth in ARPU to Rs.187/month. Zain Africa’s revenue stood at Rs.5,358cr, up 16.7% qoq, aided by addition of 2.5mn subscribers, taking its total subscriber base to 50.9mn and a 0.1% qoq increase in ARPM to US¢5.7/min. However, MOU declined by 2.5% qoq to 125min, which led to a 2.3% qoq fall in ARPU to US$7.1/month.

EBITDA margin of mobile India as well as Africa business increased by 0.18bp and 0.47bp qoq to 33.8% and 26.7%, respectively. However, EBITDA margin of all the other business segments declined sharply, which led to a 141bp qoq decline in Bharti’s consolidated EBITDA margin to 32.2%. PAT came in at Rs.1,011cr, down 1.5% qoq, negatively impacted by higher depreciation cost of Rs.3,585cr in 3QFY2012 vs. Rs.3,184cr in 2QFY2012 and higher tax rates. Net profit stood at Rs.1,011cr, down 1.5% qoq, negatively impacted by higher depreciation cost of Rs.3,585cr in 3QFY2012 vs. Rs.3,184cr in 2QFY2012 and higher tax rate of 35.2% vs. 32.4% in 2QFY2012. We maintain our Neutral rating on the stock.

Tech Mahindra

Tech Mahindra reported muted set of 3QFY2012 results. Dollar revenue came in at US$288.7mn, down 2.5% qoq due to a 0.5% qoq decline in volume and ~2.0% qoq negative cross-currency impact. Dollar revenue from BT declined by 7.8% qoq and revenue from non-BT grew by just 0.6% qoq. In rupee terms, revenue came in at Rs.1,445cr, up 8.4% qoq, largely aided by qoq rupee depreciation. EBITDA margin grew by 90bp qoq (lower than margin expansion reported by peers) to 16.2% because of depreciating rupee, which absorbed the negative impact of onsite wage hike given. PAT, including share from Satyam, came in at Rs.276cr. Overall results were weak. The only growth driver for the company is the non-BT business, as BT is retendering its contracts. The stock is currently under review.

Bharat Forge

For 3QFY2012, Bharat Forge (BHFC) reported an in-line 21.1% yoy (3.4% qoq) jump in its standalone revenue to Rs.941cr, driven by a 15.3% yoy (1.3% qoq) jump in domestic revenue and 29.2% yoy (7.6% qoq) jump in exports revenue. While volume in tonnage terms increased by 15.2% yoy (3.1% qoq) to 55,412MT on strong export demand, average net realization grew by 6% yoy (1.45% qoq), led by higher contribution from the non-auto segment. Strong growth in the CV segment and non-auto segment in the Europe and U.S. benefitted the company’s exports performance. On the operating front, margin improved by 38bp yoy (99bp qoq) to 24.7%, owing to better product-mix and decline in raw-material expenses. Net profit grew by 24.9% yoy (down 3% qoq) to Rs.103cr, led by strong operating performance. However, growth was restricted on account of forex loss of Rs.16.1cr. The stock rating is currently under review.

Orchid Chemicals

For 3QFY2012, Orchid Chemicals’ net sales came in at Rs.482.1cr, growth of 4.2% yoy. During 3QFY2012, API sales rose to Rs.353.3cr as compared to Rs.329.7cr in 3QFY2011. While sales were lower than expected, OPM came in at 23.7%, just in-line with our expectation of 24%. However, higher interest expense during the period led to lower-than-expected net profit. Net profit before exceptional items declined by almost 22.1% during the period. We maintain our Buy recommendation; however, the target price is under review.

Alembic Pharmaceuticals

For 3QFY2012, Alembic Pharmaceuticals’ net sales came in at Rs.383cr, up 15.0% yoy. During the quarter, exports rose by 45.4% yoy to Rs.165.6cr. While sales were just in-line with our estimate, OPMs came in at 18%, higher than our expectation of 14%. Net profit for the quarter came in at Rs.442.3cr. We maintain our Buy recommendation on the stock with a target price of Rs.77.

3QFY2012 - Result Previews

Tata Steel

Tata Steel is slated to report its consolidated 3QFY2012 results. We expect the company’s net sales to increase by 6.5% yoy to Rs.30,992cr, mainly on account of higher steel prices. However, EBITDA margin is expected to contract by 276bp yoy to 9.0% on account of higher raw-material costs (mainly in its European operations). Net profit is expected to decrease by 35.1% yoy to Rs.729cr. We maintain our Buy rating on the stock with a target price of Rs.510.

Hindalco

Hindalco's fully owned subsidiary, Novelis reported loss at the net level for the seasonally weak 3QFY2012. The company’s net sales decreased by 4.0% yoy to US$2.5bn due to lower volumes as well as aluminium price. Shipments of aluminum rolled products decreased by 9.4% yoy to 648kt, primarily due to destocking in Europe on the back of economic uncertainty and weakness in the electronics business in Asia. Adjusted EBITDA decreased by 10.5% yoy to US$213mn on account of higher costs and lower volumes. Also, EBITDA/tonne declined by 1.0% yoy to US$312 during the quarter. Novelis reported net loss of US$12mn compared to a loss of US$46mn in 3QFY2011. The company is witnessing recovery in demand during 4QFY2012; it remains on track to achieve EBITDA of ~US$1bn during FY2012.

Hindalco is slated to report its 3QFY2012 results. We expect the company’s standalone net sales to decrease by 0.1% yoy to Rs.5,909cr. EBITDA margin is expected to contract by 155bp yoy to 10.0% on account of rise in costs of key inputs (primarily coal). Net profit is expected to increase by 4.3% yoy to Rs.480cr. We keep our rating and target price under review.

Ambuja Cements

Ambuja Cements is expected to announce its 4QCY2011 results. On the top-line front, the company is expected to post strong growth of 23.2% yoy to Rs.2,204cr. Strong performance on the top-line front is expected to be driven by higher yoy realization growth (13.7%) and 8.4% yoy growth in dispatches. OPM is expected to increase by 104bp yoy to 21.2%. The company’s bottom line is expected to grow by 10.9% yoy to Rs.286cr. We maintain our Neutral view on the stock.

ACC

ACC is slated to announce its 4QCY2011 results. The company is expected to post top-line growth of 18.7% yoy to Rs.2,325cr, primarily on account of improvement in realization by 14.3%yoy. However, cost pressures are expected to outweigh realization growth and OPM is expected to contract marginally by 6bp yoy to 17.3%. The company’s bottom line is expected to decline by 14.5% yoy to Rs.219cr. We maintain our Neutral view on the stock.

Apollo Tyres

Apollo Tyres is slated to announce its 3QFY2012 results. On a consolidated basis, we expect the company to report a strong 22% yoy increase in revenue to Rs.2,900cr. Sequentially, EBITDA margin is expected to improve by 50bp to 8.5%, led by a sequential decline in raw-material prices. However, net profit is estimated to remain flat on a qoq basis to Rs.79cr. The stock rating is under review.

Anant Raj Industries

Anant Raj Industries is expected to announce its 3QFY2012 results. We expect the company’s net sales to increase by 3.1% yoy to Rs.128cr. EBITDA margin is expected to contract by 316bp yoy to 58.9% on account of higher input costs. Net profit is expected to decline marginally by 0.5% yoy to Rs.50cr. We maintain our Accumulate rating on the stock with a target price of Rs.78.

FAG Bearings – 4QCY2011

FAG Bearings is set to announce its 4QCY2011 results. We expect the company to deliver healthy 17% yoy growth in revenue to Rs.307cr. On the operating front, we expect FAG to post a 100bp yoy contraction in operating profit margin to 18.8%. However, net profit is expected to increase by healthy 14% yoy to Rs.39cr. The stock rating is under review.

Dishman Pharmaceuticals

For 3QFY2012, we expect, Dishman Pharmaceuticals to post net sales of Rs.305cr, up 5% yoy. OPM is expected to come in at in 17.9% vis-à-vis 23.1% in 3QFY2011. Consequently, net profit is expected to come in at Rs.19.8cr, down 30.5% yoy. We maintain our Buy recommendation on the stock with a target price of Rs.77.

Economic and Political News
- Direct tax mop up to miss Rs.5.3 lakh cr budget target
- Exports from SEZs grow 17% in April-December 2011
- IT, ITeS revenue crosses US$100bn milestone: Nasscom
- Indian IT export revenue expected to grow by 11-14% and domestic revenue
by 13-16% for FY2013: Nasscom
- January 2012 car sales rise by 7.2%

Corporate News
- Bharti seeing benefits from India call price hike
- Ceat to set up a 65 MT/day manufacturing facility in Bangladesh
- RIL in talks with airlines for fuel supply
- Tata Power explores prospects overseas
- Thomas Cook starts stake sale in Indian arm

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Indian stock market and companies daily report (February 08, 2012, Wednesday)

The domestic markets are expected to open in the green tracking positive opening in most of the Asian markets. Indian markets snapped a five-day winning streak on Tuesday after the government revised down its economic growth forecast for the current fiscal year to 6.9% its slowest pace in three years.
Globally, US stocks recovered day’s lows and closed in green yesterday as Greek officials’ reportedly on reaching an agreement to enact the reforms needed to receive a new bailout. Buying interest remained relatively subdued, however, limiting the upside for the markets. Also, a US Labor Department report showed job openings rising to 3.38mn in December from 3.12mn in November showing continues progress in the job market. Indian investors, meanwhile, would keenly watch out for the domestic industrial production growth for the month of December due to be released on Friday.

Markets Today
The trend deciding level for the day is 17,679 / 5,357 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,775 – 17,929 / 5,391 – 5,448 levels. However, if NIFTY trades below 17,679 / 5,357 levels for the first half-an-hour of trade then it may correct up to 17,526 – 17,429 / 5,301 – 5,267 levels.

L&T bags order worth Rs.1,880cr
Larsen & Toubro's (L&T) construction arm has bagged new orders worth over Rs.1,880cr under various business segments in 4QFY2012. A major chunk of the orders (Rs.1,048cr) has been bagged by the Infrastructure IC that includes an order from West Bengal Government’s state highway circle for building a four-lane elevated corridor under JNNURM. The division has also bagged two others from DMRC for construction of tunnels for the underground works between Mandi house and Jama Masjid, including three stations under Delhi MRTS-phase III. While in the water and effluent treatment business, L&T Construction has secured orders worth Rs.348cr from Gujarat Water Infrastructure Ltd. In the power transmission and distribution segment, new orders worth Rs.263cr have come and additional orders from various ongoing projects worth Rs.221cr have been bagged by L&T Construction.
At the CMP of Rs.1,354, the stock is trading at PE of 19.1x FY2013E earnings, which is below the historical trading multiple for L&T. We have used SOTP methodology to value the company to capture all its business initiatives and investments/stakes in the 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.1,607, which provides 18.7% upside from current levels. Hence, we maintain our Buy rating on the stock.

Direct import of ATF approved
Empowered Group of Ministers (EGoM) has approved the import of aviation turbine fuel (ATF) directly by airline companies, which we believe is a positive move for the aviation industry. If airline companies start to import ATF directly, we believe they can reduce the fuel cost on an average by 10-15%, which could help them improve their margins and profitability, as currently nearly 50% of the total operating cost is accounted by fuel cost. However, we believe direct import of fuel in the short to medium term will be very difficult, as airline companies do not have the required infrastructure to do so and, given the state of the industry, are not in any condition to invest capital to build the required infrastructure. The only other possibility for airline companies is to reach an agreement with oil marketing companies to use their infrastructure, which we believe will come at a cost, since oil marketing companies are at the losing end and will charge a premium to make up for the loss of profit from this policy.
Overall, we believe this move is aimed to make the industry more attractive for FDI in future and will create transparency on the pricing of ATF in India. Since, we do not expect any short to medium term monetary gain from this policy, we continue to maintain our Neutral stance on the sector. However, if FDI is approved for international airline companies in future, which we believe has a high possibility, we may change out rating.

3QFY2012 - Result Reviews
Mahindra and Mahindra
Mahindra and Mahindra (MM) reported robust top-line growth of 37% yoy (13.9% qoq) to Rs.8,387cr, driven by impressive volume growth of 24% yoy (6.7% qoq) and strong net average realization growth of 10.6% yoy (6.9% qoq). Volume performance was aided by sustained momentum in the automotive segment, which registered growth of 31.3% yoy (2.9% qoq). In the passenger UV segment, MM posted strong 22.9% yoy growth, retaining its dominant position with a market share of 57.8% (54% in 2QFY2012). The farm equipment segment, on the other hand, witnessed moderate growth of 12.2% yoy with domestic tractor volumes registering growth of 11.8% yoy. However, MM managed to improve upon its domestic market share, which increased to 42.9% (41.2% in 2QFY2012) at the end of 3QFY2012.
The company’s EBITDA margin contracted by 292bp yoy (14bp qoq) to 12.2%, largely driven by increased purchase of finished products (up 265% yoy and 75% qoq) from the manufacturing subsidiary, Mahindra Vehicle Manufacturers Limited (MVML). As a result, total raw-material cost as a percentage of sales increased by 515bp yoy (178bp qoq) to 74.3%. EBIT margin of the automotive and farm equipment segments declined by 412bp yoy (175bp qoq) and 283bp yoy (up 33bp qoq) to 8.2% and 15.6%, respectively. Thus, adjusted net profit posted modest 7.3% yoy (down substantially by 13.9% qoq) growth to Rs.662cr. Additionally, a 37.8% yoy (12% qoq) increase in depreciation expense impacted the bottom line during the quarter. AtRs.689, the stock is trading at 13x FY2013E earnings. We maintain Buy rating on the stock while the target price is under review.
Cadila
Cadila Healthcare (Cadila) reported lower-than-expected numbers for 3QFY2012, except on the sales front, where sales were mostly in-line at ~Rs.1,350cr. However, higher R&D expense during the quarter resulted in depression in operating margin, which came in at 17.1%. This coupled with forex losses during the quarter resulted in higher dip in net profit. The stock is trading at 17.5x FY2012E and 13.6x FY2013E earnings. We recommend Buy on the stock with a target price of Rs.965.
ITNL
For 3QFY2012, on a consolidated basis, IL&FS Transportation Networks (ITNL) posted a mixed set of numbers with strong growth on the top-line front, however the fall in EBITDAM and high interest cost led to lower-than-expected bottom-line growth. The company’s revenue for the quarter came in at Rs.1,268cr (Rs.734cr), registering 72.9% yoy/1.0% qoq growth, marginally lower than our estimate of Rs.1,306cr. EBITDA margin for the quarter stood at 25.3% vs. 30.6% in 3QFY2011, down 480bp and 310bp on a yoy and qoq basis, respectively, against our estimate of fall of 280bp on a yoy basis. This was mainly on account of increased contribution from the relatively low-margin C&EPC segment. ITNL’s interest cost during the quarter grew by 60.9% yoy/9.5% qoq to Rs.185cr, ahead of our expectation of Rs.178cr. On the earnings front, ITNL reported growth of 42.5% on a yoy basis to Rs.87.8cr, lower than our estimate of Rs.119.7cr on the back of lower EBITDAM and higher interest cost. Owing to the recent run-up in the stock price, we recommend Accumulate on the stock with a target price of Rs.227.
JK Lakshmi Cement
JK Lakshmi Cement reported 39.6% yoy top-line growth to Rs.440cr, aided by robust 23.7% yoy growth in realizations coupled with 12.8% growth in dispatches to 1.22mn tonnes. The company’s OPM rose by 1,352bp yoy to 21.4% due to strong improvement in realization even as freight costs, personnel expenses and other expenses increased by 8% yoy, 23% yoy and 9% yoy, respectively, on per tonne basis. The bottom line surged to Rs.49.2cr in 3QFY2012 from Rs.4.6cr in 3FY2011 due to strong operating performance and 59% yoy growth in other income to Rs.14.8cr. The Board of Directors have approved the buyback of equity shares up to an amount of Rs.97.50cr at a maximum price of Rs.70 per equity share (i.e. 1.39cr equity shares of Rs.5 each from the open market through Stock Exchanges). The stock is currently under review.

3QFY2012 - Result Previews
ONGC
ONGC is slated to announce its 3QFY2012 results. We expect the company’s top line to decrease by 17.3% yoy to Rs.17,200cr on account of higher subsidy. EBITDA margin is expected to decline by 1,354bp yoy to 51.5%. The bottom line is expected to decrease by 37.1% yoy to Rs.4,454cr. We maintain our Buy view on the stock with a target price of Rs.324.
Bharti Airtel
Bharti Airtel is slated to announce its 3QFY2012 results. We expect the company to record revenue of Rs.18,312cr, up 5.0% qoq on the back of 2.3% and 2.0% qoq growth in ARPM and MOU to Rs.0.44min and 432min, respectively. VAS as a share in mobility revenue is expected to move to 15.0% in 3QFY2012 from 14.5% in 2QFY2012. Consolidated EBITDA margin of the company is expected to increase by 40bp qoq to 34.1%. PAT is expected to be at Rs.1,445cr. We maintain our Neutral view on the stock.
Tech Mahindra
Tech Mahindra is slated to report its 3QFY2012 results. We expect the company to record 0.5% qoq growth in dollar revenue to US$296.2mn, majorly led by volume growth. Revenue from the BT account is expected to decline by 2.3% qoq while the non-BT business is expected to post 2.1% qoq growth. EBITDA margin is expected to enhance by 209bp qoq to 17.4% due to INR depreciation. PAT, excluding earnings from Mahindra Satyam, is expected to settle at Rs.184cr. We maintain our Accumulate rating on the stock with a target price of Rs.666.
Bharat Forge
Bharat Forge is slated to announce its 3QFY2012 results. On a standalone basis, we expect the company to deliver 22% yoy growth in revenue to Rs.917cr. EBITDA margin is expected to witness a contraction of 79bp yoy to 23.5%. As a result, net profit is expected to grow by 17% yoy to Rs.97cr, slightly slower than the top-line growth. The stock rating is under review.
Orchid
For 3QFY2012, Orchid Chemicals is expected to post net sales of Rs.555cr, growth of 20% yoy. The company’s margin is expected to come in at ~24%, in-line with 3QFY2011 operating margin. Overall, net profit is expected to grow by 16.8% to Rs.57cr. We maintain our Buy recommendation on the stock with a target price of Rs.270.
Alembic
For 3QFY2012, Alembic Pharmaceuticals is expected to post net sales of Rs.389cr and net profit of Rs.31.9cr. Growth would mainly be driven by exports sales. The company’s OPM is expected to come in at ~14.0% during the period. We maintain our Buy recommendation on the stock with a target price of Rs.77.

Economic and Political News
- Airlines get GoM nod to import fuel directly
- Annual budget for FY2012-13 will be presented on March 16, 2012
- Government pegs FY2012 economic growth at 6.9%
- GoM approves Air India debt recast
- Per capita income expected to cross Rs.60,000 in FY2012

Corporate News
- Government rejects RIL demand for gas price revision
- Infosys to strengthen presence in Oman
- Legal tangle delays NTPC's order placement of Rs.34,000cr
- UTV denies purchasing Dabangg 2 rights

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