Market Outlook Report, 21st January

7/29/2019 Market Outlook Report, 21st January

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Market Outlook January 21, 2013

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Dealer’s Diary

The Indian market is expected to open in the green mirroring positive start to the

SGX Nifty.

The US markets ended Friday's trading mostly higher after showing a lack of

direction for much of the session. The markets benefited from the late-day buying

partly due to a positive reaction to the latest news about the impending showdown

over the U.S. debt limit. The House Republican leaders indicated they will hold a

vote to authorize a three month temporary debt limit increase to give lawmakers

time to pass a budget that reduces spending. The choppy trading seen earlier in

the day reflected a mixed reaction to the latest earnings news, with upbeat results

from Morgan Stanley and General Electric offset by disappointing results from Intel.

Indian markets fell sharply on Friday, with a correction in rate-sensitives including

auto, banking and realty. Going ahead investors would be watchful of the earnings

data coupled with economic reports on weekly jobless claims, leading economicindicators, and new and existing home sales.

Markets Today

The trend deciding level for the day is 20,052 / 6,065 levels. If NIFTY trades above

this level during the first half-an-hour of trade then we may witness a further rally

up to 20,114 – 20,188 / 6,082 – 6,100 levels. However, if NIFTY trades below

20,052 / 6,065 levels for the first half-an-hour of trade then it may correct up to

19,978 – 19,916 / 6,047 – 6,030 levels.

SENSEX 19,916 19,978 20,052 20,114 20,188

NIFTY 6,030 6,047 6,065 6,082 6,100

News Analysis

Excise duty on diesel SUV’s likely to increase

3QFY2013 Result Review: Reliance Industries, ITC, HDFC Bank, Hindustan

Zinc, Ultratech Cement, Bhushan Steel, Blue Star, Force Motors

3QFY2013 Result Preview: HDFC, NTPC, Cairn India, Asian Paints,

Shree Cements, DB Corp, Alembic Pharmaceuticals

Refer detailed news analysis on the following page

Net Inflows (January 17, 2013)

FII 3,601 2,980 621 12,529 12,529

MFs 688 703 (16) (1,949) (1,949)

FII Derivatives (January 18, 2013)

Index Futures 996 780 216 7,515

Stock Futures 2,111 2,098 13 33,751

Gainers / Losers

Indian Oil Corp 349 10.5 Exide Industries 126 (9.4)

BPCL 434 9.6 Wipro 397 (7.9)

Oil India 561 9.0 United Breweries 684 (6.5)

ONGC 338 7.3 Cummins India 492 (2.9)

Indraprastha Gas 275 5.6 Crompton Greaves 114 (2.9)

BSE Sensex 0.4 75.0 20,039

Nifty 0.4 25.2 6,064

MID CAP (0.2) (16.8) 7,165

SMALL CAP (0.5) (38.8) 7,370

BSE HC (0.5) (41.9) 8,067

BSE PSU 2.8 211.6 7,862

BANKEX 0.1 20.0 14,551

AUTO (0.7) (83.3) 11,298

METAL (0.6) (65.7) 10,780

OIL & GAS 3.1 287.2 9,571

BSE IT (1.1) (73.4) 6,406

Dow Jones 0.4 53.7 13,650NASDAQ (0.0) (1.3) 3,135

FTSE 0.4 22.1 6,154

Nikkei 2.9 303.7 10,913

Hang Seng 1.1 262.0 23,602

Straits Times 0.5 16.1 3,211

Shanghai Com 1.4 32.2 2,317

INFY 0.2 0.1 $52.2

WIT (7.2) (0.7) $9.2

IBN 0.5 0.2 $44.2

HDB 0.2 0.1 $39.6

Advances 971 592

Declines 1,331 922

Unchanged 769 78

BSE 2,591

NSE 14,759





Excise duty on diesel SUV’s likely to increase

According to media reports, the government might impose a higher excise duty or

a surcharge on diesel sports utility vehicles (SUV’s) during the Budget 2013-14.

This move by the government according to the reports is mainly aimed at reducing

subsidies on the fuel bill. The report further states that the finance ministry hasbeen exploring the idea of a higher excise duty on diesel cars; however, it could

not be implemented earlier due to opposition from automobile companies. The

clamor for imposing higher taxes on diesel vehicles have been doing the rounds

since 2010, after the Kirit Parikh committee on pricing of petroleum products had

proposed an additional duty of ` 80,000 on diesel SUVs and an annual road tax of

up to ` 50,000 a year on diesel cars. While, until now the government has resisted

from adopting such a move, we cannot rule out the imposition of higher taxes on

diesel vehicles completely. The utility vehicle segment which is mainly dominated

by diesel models continues to defy the current slowdown in the automotive industry

and has grown at a rate of 59.1% YTD in FY2013. We believe that increase in

excise duty on diesel SUV’s will have a negative impact on the utility vehicle

segment and would hamper the growth of the overall passenger vehicle industry.

We feel that Mahindra and Mahindra would be the major loser of such a move by

the government as utility vehicles account for ~30% of company’s total volumes.

3QFY2013 Result Review

Reliance Industries (CMP: ` 899/ TP: -/ Upside: -)

Reliance Industries’ (RIL) 3QFY2013 profitability was above our estimates onaccount of higher than expected profitability from the refining segment. Gross

refining margins (GRMs) surprised us positively and came in at US$9.6/barrel

(US6.5/barrel in 3QFY2012 and US$9.5/barrel in 2QFY2013) vs our expectations

of US$8.5/barrel. During 3QFY2013, RIL’s net sales increased by 10.3% yoy to

` 93,886cr, above our estimate of ` 89,981cr. Net sales growth was mainly driven

by the petrochemicals segment (+11.5% yoy to ` 22,053cr) and the refining

segment (+12.9% yoy to ` 86,641cr). RIL’s EBITDA increased by 14.9% yoy to

` 8,373cr on account of higher profits from refining and marketing segments. The

refining segment’s EBIT grew by 114.5% yoy to ` 3,615cr due to higher GRMs.

However, the petrochemical segment’s EBIT decreased 10.2% yoy to ` 1,937cr,

while the oil and gas segment’s EBIT decreased by 54.4% yoy to ` 590cr due to

decline in KG D6 production (-41.4% yoy to 78bcf). Other income increased 1.3%

yoy to ` 1,740cr. The company had a lower tax rate in this quarter of 17.9%

(22.6% in 3QFY2012) and hence, the net profit grew by 23.9% yoy to ` 5,502cr

(above our estimate of ` 5,108cr).

FY2013E 362,700 8.1 20,045 61.3 11.3 14.7 1.4 9.3 0.7

FY2014E 380,031 8.0 20,715 63.3 10.6 14.2 1.3 8.6 0.7





ITC (CMP: ` 287/ TP: -/ Upside: -)

For 3QFY2013 ITC has delivered a stellar set of numbers. Net sales rose by 23.1%

on a yoy basis to ` 7,627cr. Cigarettes business posted a 13.1% yoy growth in net

sales to ` 3,657cr aided largely by price hikes. Other FMCG business posted a

healthy 30.1% yoy growth in net sales to `

1,783cr. Agri business surprised againwith a remarkably good 43.1% yoy growth in net sales to ` 1,631cr. Hotels and

Papers & Packaging businesses posted a top-line growth of 11% and 8.5%

respectively. OPM came in at 36.4% down 75bp on yoy basis. While the cigarette

business posted margin expansion, losses of other FMCG business halved to

` 24cr. However, other divisions posted margin contraction on a yoy basis. The

company’s bottom-line rose by a healthy 20.6% yoy to ` 2,052cr.

FY2013E 28,787 35.7 7,138 20.7 35.1 31.4 10.3 20.7 7.4FY2014E 33,554 36.1 8,419 17.5 35.1 26.7 8.6 17.5 6.3

HDFC Bank (CMP: ` 663/ TP: -/ Upside: -)

HDFC Bank delivered another quarter of consistent performance on the

bottom-line front, with a growth of 30% yoy, in-line with our as well as the street’s

estimates. In spite of an operating income growth of 23% yoy, the bank’s other

income growth, boosted by treasury gains and overall steady provisioning, aided it

to clock 30% yoy growth at the bottom-line level.

The bank

registered a robust growth in its balance sheet, with net advances and deposits

growing at 24.3% and 22.2% yoy, thereby outpacing industry average growth. On

the CASA front, the current account (adjusted for one-offs) and saving account

accretion was healthy, growing at 15.9% and 16.5% yoy, respectively. CASA ratio

dipped by 50bp qoq to 45.4%. The share of retail advances to overall loan book,

increased from 53.2% in 2QFY2013 to 53.8%, on back of lower wholesale

lending (2.8% qoq compared to 5.5% qoq in retail loans). In spite of higher retail

lending, the bank’s margins declined by10bp qoq to 4.1%, primarily due to

absence of dividend income during the quarter, which had aided the margins in

2QFY2013 and also due to increased delinquencies and 50bp sequential fall inCASA ratio. Overall, the non-interest income grew by 26.7% yoy, aided by treasury

gains and robust growth on the fee income front. Excluding treasury gains, the non-

interest income grew at a moderate pace of 10.7% yoy. The bank faced modest

pressures on the asset quality front this time around, as its Gross and Net NPA

levels increased sequentially by 14% and 28%, on an absolute basis. As we

understand from the management, around 40% of the total increase in Gross NPA

levels during the quarter came in from CVCE loan book, within the retail portfolio.

Overall, Gross and net NPA ratios for the bank remain amongst the best in the

industry at 1.0% and 0.2%, respectively. Restructured loan book as a proportion of

overall advances, remained stable at 0.3%. The bank made floating provision of

` 30cr during the quarter, which took its outstanding floating provisions to around

` 1,700cr. NPA provision coverage ratio (without considering the floating

provisions) came off sequentially by 235bp to 79.6%.





HDFC Bank is currently trading at one-year forward

3.9x P/ABV (3.7x FY2014 ABV), higher than its median of 3.5x (over FY2005-12).

We believe the current valuations largely factor in the positives, leaving limited

upside in the stock.

FY2013E 21,724 4.3 6,727 28.7 149.7 1.8 20.7 23.1 4.4

FY2014E 26,578 4.3 8,477 36.1 177.5 1.8 22.1 18.3 3.7

Hindustan Zinc (CMP: ` 130/ TP: ` 144/ Upside: 11%)

Hindustan Zinc’s (HZL) 3QFY2013 top-line was in line with our estimate, while

bottom-line was slightly below our expectation. HZL’s net revenue increased by

14.3% yoy to ` 3,140cr (in line with our estimate of ` 3,044cr) mainly due to higher

rupee realizations and increased sales volumes of Lead and Silver. However, Zinc

production volumes declined 10.0% yoy to 171kt due to lower production from

Rampura Agucha mines (in line with company’s guidance). Nevertheless, Lead

production volumes grew by 11.0% yoy to 32kt and silver production volumes

grew 103.0% yoy to 117kt due to higher production from Sindesur Khurd mine

and new Dariba Lead and Silver capacities. However, EBITDA margin contracted

by 348bp yoy to 47.6% mainly on account of 11.0% yoy increase in cost of

production to ` 44,900/tonne. Cost of production increased due to increase in

commodity prices, higher excavation and lower by-product credits. Hence, the

EBITDA increased by only 6.5% yoy to ` 1,494cr. Nevertheless, other income rose

by 32.6% yoy to ` 506cr while tax rate was lower at 11.2% in 3QFY2013 (20.9% in

3QFY2012). Consequently, net profit grew by 26.0% yoy to ` 1,613cr (slightly below our estimate of ` 1,685cr).

HZL has announced to increase its mined metal capacity to 1.2mtpa. The

development of mines will be progressively completed over a period of next 6

years and ~US$250mn capex will be incurred every year.

FY2013E 12,446 52.3 6,027 14.3 20.5 9.5 1.8 5.2 2.7

FY2014E 13,538 52.9 6,568 15.5 18.9 8.7 1.5 4.0 2.1

Ultratech Cement (CMP: ` 1,910/ TP: /Upside:-)

For 3QFY2013 Ultratech Cement (Ultratech) posted a 6.4% yoy growth in topline

to ` 4,857cr. Domestic grey cement sales volumes remained flat at 9.62mn tonnes,

while the sales volume of white cement and wall care putty rose by 6.5% yoy. OPM

fell by 20bp yoy to 21.1%. Realization increased by ~6% on a yoy basis, however,

fell on a sequential basis. On the cost front raw material and freight costs rose on

account of increase in railway freight and diesel costs. Net profit fell by 2.6% yoy

to ` 601cr.





FY2013E 21,106 22.3 2,780 101.5 19.8 18.8 3.5 10.9 191

FY2014E 23,747 23.2 3,262 119.0 19.8 16.0 2.9 9.7

Note: Computed on TTM basis

Bhushan Steel (CMP: ` 433/TP: - /Upside: -)

Bhushan Steel reported its 3QFY2013 results. Net sales grew by 3.8% yoy to

` 2,405cr as a 9.0% yoy volume growth (to 0.56mn tonnes) would have been offset

by lower realizations in our view. However, EBITDA increased by 7.0% yoy to

` 785cr due to 38.2% yoy growth in other operating income to ` 124cr.

Depreciation expense increased 36.8% yoy to ` 207cr on account of increased

capacity, while interest expense increased 27.9% yoy to ` 293cr. Consequently, net

profit decreased by 20.0% yoy to ` 221cr.

The company’s Board has approved to set up a 0.35mtpa capacity Cold Rolling

cum Electrical Steel complex at estimated project cost of ` 1,560cr and re-affirmed

the proposal to set up a 1.8mtpa capacity Pickling Line coupled with Tandem Cold

Rolling Mill at an estimated capex of ` 6,000cr, at Meramandali plant in Orissa.

FY2013E 11,307 29.5 958 45.1 11.8 9.6 1.0 9.6 2.8

FY2014E 14,287 29.1 1,083 51.0 11.6 8.5 0.9 7.7 2.2

Blue Star (CMP: 179 / TP: ` 234/ Upside: 30.9 )

Blue Star announced a mixed set of numbers for 2QFY2013. Topline came in at

` 599cr, 6% higher than our expectation of ` 565cr and 2.5% higher on a yoy basis

from ` 584cr in 3QFY2012. Better performance of the EMPPACS division was offset

by 5% yoy decline in revenue of the cooling products division owing to its seasonal

nature of the and decline in PEIS division owing to the unfavourable business

climate and declining demand capital goods sector. However, EBITDA margin was

at 4.2%, 65bp below our expectation of 4.9% primarily due to lower than expected

margin in EMPPACS division and cooling products division. Margin erosion in

cooling products division resulted from sourcing and selling of installation

accessories such as copper pipes and insulation material. This coupled with higher

than expected interest expenses and lower other income led to net profit of ` 5cr,

61% below our expectation ` 14cr. We expect the company’s revenue growth to

recover in FY2014E after a decline in FY2013E along with an expansion in EBITDA

margin due to better quality order intake in EMPPACS division and softening raw

material prices in the cooling products division. Margin expansion coupled with

expected decline in the interest cost in FY2014E is expected to result in a 57.4%

yoy growth in net profit in FY2014E to `

92cr.





FY2013E 2,698 4.4 58 6.5 13.9 27.6 3.6 16.0 0.7

FY2014E 2,844 5.6 92 10.2 19.2 17.5 3.1 11.2 0.6

Force Motors Ltd (CMP: ` 471/ TP: ` 523/ Upside: 11%)

Force Motors Ltd. (FML) reported disappointing set of numbers for 3QFY2013.

Top-line slumped by 16.5% yoy and stood at ` 436cr, 26% lower than our

estimate. EBITDA fell by 31% yoy to ` 19cr vis-à-vis our estimate of ` 31cr.

Subsequently EBITDA margin came in at 4.4% as compared to 5.3% in same

period previous year. The sharp decline in margin is attributable to 421bp yoy

increment in the other expenses. Despite weak operating performance, net profit

revived to ` 8cr which was 248% higher yoy; on the back of other income of ` 9.3cr

and lower tax expenses (5.4% of PBT). We recommend accumulate on the stock

with the revised target price of ` 523 based on target PE of 11x for FY2014Eearnings.

FY2013E 2,058 4.9 48 36.5 4.1 12.9 0.5 3.7 0.2

FY2014E 2,328 5.0 63 47.6 5.1 9.9 0.5 4.1 0.2

3QFY2013 Result Preview

HDFC (CMP: ` 822 / TP: - / Upside: -)

HDFC is expected to announce healthy set of results for 3QFY2013. The NII is

expected to increase by 15.7% yoy to ` 1,337cr, while non-interest income is

expected to come in at ` 442cr, a growth of 45.4% yoy. Operating Income and

Operating profit are expected to grow by nearly 22%. Provisioning is expected to

be ` 42cr compared to ` 20cr in 3QFY2012. Consequently the PAT is expected to

increase by 18.4% yoy to ` 1,162cr.

FY2013E 7,446 3.5 4,928 32.2 158.0 1.1 35.4 24.7 5.0

FY2014E 8,923 3.5 5,902 38.5 177.6 1.0 32.6 20.6 4.5

NTPC (CMP: ` 164/TP: -/Upside: -)

NTPC is slated to announce its 3QFY2013 results today. The company is expected

to post a 9.0% yoy growth in its top-line to ` 16,712cr aided by higher realization.

On the EBITDA front, OPM is likely to expand by 398bp yoy to 22.6%.

Consequently, net profit is expected to grow by 21.7% yoy to ` 2,592cr.

FY2013E 72,809 23.0 9,898 12.0 12.5 13.8 1.7 10.9 2.5

FY2014E 81,951 23.7 11,033 13.4 12.9 12.3 1.5 10.0 2.4





Cairn India (CMP: ` 337/ TP: ` 382/ Upside: 13%)

Cairn India is slated to report its 3QFY2013 results today. Cairn India's net sales

are expected to increase by 47.8% yoy to ` 4,576cr mainly due to increase in

volumes. Its operating margin is expected to decline by 419bps yoy to 78.0%

whereas its bottom-line is expected to increase by 52.3% yoy to ` 2,986cr due to

increase in operating income.

.

FY2013E 17,567 76.2 11,652 61.09 22.0 5.5 1.1 3.7 2.8

FY2014E 17,643 72.3 10,837 56.82 17.5 5.9 1.0 3.3 2.4

Asian Paints (CMP: ` 4,310/ TP: -/ Upside: -)

Asian Paints is expected to announce its 3QFY2013 results today. We expect the

top-line to grow by 20.3% yoy to ` 3,079cr. OPM is expected to decline by 64bp

yoy to 14.9%. Bottom-line is expected to grow by 15.8% yoy to ` 298cr.

FY2013E 11,198 15.4 1,123 117.1 36.4 36.8 12.1 23.4 3.6

FY2014E 13,184 15.7 1,358 141.5 35.0 30.5 9.5 19.3 3.0

Shree Cement (CMP: ` 4,525/ TP: -/ Upside: -)

Shree Cement is expected to announce its 2QFY2013 results today. We expect the

top-line to grow by 11.2% yoy to ` 1,400cr. OPM is expected to expand by 128bp

yoy to 27.7%. Bottom-line is expected to grow by 207.7% yoy to ` 182cr.

FY2013E 5,701 29.7 839 241 27.1 18.8 4.6 7.4 154

FY2014E 6,210 28.1 908 261 23.6 17.4 3.7 6.4

Note: * Computed on TTM basis

DB Corp (CMP: ` 232/ TP: ` 264/ Upside: 13.6%)

DB Corp is slated to announce its 3QFY2013 results. The company is expected to

post 10.6% yoy growth in its top-line to ` 438cr on the back of uptick in advertising

revenue aided by the festive season. However, on the EBITDA front, the company’s

margins are expected to contract by 193bp yoy to 23.8%. In spite of margin

pressure, net profit is expected to grow by 7.5% to ` 60cr. At the current market

price, DB Corp is trading at 16x FY2014E consolidated EPS of ` 14.4.





FY2013E 1,581 23.3 212 11.6 21.0 20.1 3.9 11.0 2.6

FY2014E 1,784 25.0 265 14.4 22.3 16.1 3.4 8.9 2.2

Alembic Pharmaceuticals (CMP: ` 71/ TP: ` 91/ Upside: 28%)

For 3QFY2013, the company is expected to post a 11.7% yoy sales growth to end

the period at ` 426cr, mainly driven by the domestic markets. On the operating

front, the margin came in at 13.6%, a reduction of 420bps. This will lead to a dip

of 34.8% yoy in net profit, which is expected to come in at ` 28.9cr.

FY2013E 1,624 14.2 124 6.6 27.8 10.7 2.6 6.4 0.9FY2014E 1,855 15.6 171 9.1 30.0 7.8 2.0 4.9 0.8

Quarterly Bloomberg Brokers Consensus Estimate

Net sales 2,993 2,561 17 2,616 14

EBITDA 487 397 23 382 27

EBITDA margin (%) 16.3 15.5 14.6

Net profit 314 266 18 251 25

Net profit 1,164 981 19 1,151 1

Net sales 16,727 15,332 9 16,196 3

EBITDA 3,787 2,906 30 4,456 (15)

EBITDA margin (%) 22.6 19.0 27.5

Net profit 2,442 2,130 15 3,142 (22)

Net sales 6,623 5,770 15 6,155 8

EBITDA 1,072 970 11 977 10

EBITDA margin (%) 16.2 16.8 15.9

Net profit 884 753 17 807 10

Net profit 314 276 14 280 12




Net sales 5,254 4,737 11 4,634 13

EBITDA 1,683 1,383 22 1,467 15

EBITDA margin (%) 32.0 29.2 31.7

Net profit 162 242 (33) 132 23

Net sales 910 755 21 923 (1)

EBITDA 226 216 5 218 4

EBITDA margin (%) 24.8 28.6 23.6

Net profit 173 138 26 187 (8)

Economic and Political News

Diesel price hike to have benign impact on inflation: Montek Singh Ahluwalia

FMC to hold stakeholders meet on Jan 21, 2012

State government buses to see hike in passenger fares

I&B Ministry looks at regulating local cable TV channels

Diesel price hike will push telecom tower cost by ` 2,100cr: TAIPA

Corporate News

Aurobindo Pharma gets USFDA approval for hypertension drug

IDBI to raise

` 3,000cr via QIBs, preference shares to government

Dalmia Cement set to invest ` 1,800cr by FY2014

Hindalco to acquire alumina refinery from Novelis

Colgate Palmolive in talks with protesting workers of Goa unit

J K Cement plans to raise up to ` 200cr via QIP

Reliance Industries terminates US lobbying

L&T Finance in talks to buy Morgan Stanley's wealth business Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

Market Outlook Report, 21st January

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Transcript of Market Outlook Report, 21st January