Indian stock market and companies daily report (February 28, 2012, Tuesday)

Analysis on markets today

Indian markets are expected to open in the red following the negative cues from the markets worldwide. The Asian markets which saw heavy selling in yesterday’s session have opened in red this morning.
The US markets staged a significant recovery after moving notably lower in early trading on Monday, eventually ending the session flat. Renewed concerns about the financial situation in Europe contributed to the initial weakness on Wall Street, with traders reacting negatively to a statement from the G20 finance ministers and central bank governors. Economic risks of European markets were in focus again during Monday's trading session. The continued rise in oil prices, due to the increasing tensions in the nuclear dispute with Iran, has investors concerned.
Meanwhile Indian shares hit a three-and-a-half week low on Monday as concerns that rising oil prices prompted investors to unwind long positions built up over the past few weeks. Further, the concerns over the political outcome post UP Assembly election results, to be declared next week too weighed down the markets.

Markets Today
The trend deciding level for the day is 17,601 / 5,333 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,820 – 18,194 / 5,398 – 5,515 levels. However, if NIFTY trades below 17,601 / 5,333 levels for the first half-an-hour of trade then it may correct up to 17,227 – 17,007 / 5,216 – 5,151 levels.

Bharti selects Infosys as technology partner for airtel money
Bharti Airtel (Bharti) has picked up Infosys as its partner for ‘airtel money’ – a mobile wallet service by a mobile operator. Under this partnership, Infosys WallEdgeTM – the mobile commerce platform of Infosys will enable the mobile wallet service to support cashless payment and settlement needs of diverse customer segments. FinacleTM Digital Commerce is at the core of this platform. It facilitates the creation of a unique ecosystem of card issuers, merchants, and financial and retail institutions to offer customers a wide spectrum of payment options for their transactions. This platform will enable ‘airtel money’ customers to pay bills, recharge accounts, shop at over 7,000+ merchant outlets and transact online through multiple channels, including mobile phones, IVR and ATMs.
Infosys WallEdgeTM platform is delivered through private cloud; it creates a comprehensive shared services framework that allows members of the ecosystem to process payment instructions seamlessly and cost efficiently. We continue to maintain our Neutral view on Bharti and Accumulate rating on Infosys with a target price of Rs.3,047.

BHEL bags order worth Rs.774cr
BHEL has bagged order worth Rs.774cr from ONGC. The company will supply six onshore drilling rigs to ONGC. Various problems on the business front, envisaged in many of our earlier notes, are coming to the fore for BHEL – including dismal order intake, no signs of let up in competition (domestic and international) and order book growth under threat (9MFY2012 revenue exceeds 9MFY2012 order inflow) – all of which put serious concerns over the company’s long-term growth. Although we believe that on the valuation front the stock is undemanding at PE multiple of <11x its FY2013E earnings, we believe earnings would face severe strain going ahead, given the structural issues. Hence, we continue to maintain our negative stance on BHEL.

Result Review
Goodyear India Ltd- 4QCY2011 and CY2011
Goodyear India Ltd. (Goodyear) reported revenue growth of 16% yoy to Rs.395cr in 4QCY2011 against our expectation of 30% growth to Rs.441cr. The company's annual sales stood at Rs.1,516cr, 3% lower than our estimate of Rs.1,562cr for CY2011. Higher raw-material costs were offset by the decline in other expenses, resulting in EBITDA margin increasing marginally by 7bp to 8.7% in 4QCY2011 from 8.6% in 4QCY2010. For CY2011, EBITDA margin declined by 130bp yoy to 7.4% from 8.7% in CY2010 on account of higher raw-material costs and employee expenses. Net profit for 4QCY2011 stood at Rs.20cr, 10% lower yoy and 9% lower than our estimate of Rs.22cr.
As we roll over to CY2013E, we have revised our target price upwards to Rs.484, based on a target PE of 8x its CY2013E earnings with a Buy rating on the stock.

Result Preview
Bosch – 4QCY2011
Bosch is slated to announce its 4QCY2011 results. We expect the company’s revenue to post 10% yoy growth to Rs.1,930cr. On the operating front, the company is expected to post a 140bp yoy expansion in its operating margin to 17.8%. Hence, net profit is expected to register a 9% yoy increase to Rs.230cr. The stock rating is under review.

Economic and Political News
- Power Ministry moves cabinet note for duty on equipment imports
- Pvt. Firms may be allowed to bid for intra-state power transmission projects
- Govt. wont auction all 2G Band at one go

Corporate News
- Infosys not to get SEZ status: Mamata
- Investors of Sterlite, Sesa resist merger
- GVK in talks with UK’s BG to sell deep-water block stake

Online share trading in India, open demat account in leading stock market company in India: Angel Broking Ltd.

Stock Market Update on Maruti Suzuki for 1QFY2012

Stock Market Update on Maruti Suzuki for 1QFY2012 with an Accumulate recommendation and a Target Price of `1322 (12 months)

Maruti Suzuki (Maruti) reported an in-line operating performance for 1QFY2012; however, net profit came in significantly higher than our estimates, driven by a sharp jump in other income on account of long-term capital gains (~`40cr) and high treasury yields on investments. We broadly maintain our volume and earnings estimates and continue to maintain our Accumulate rating on the stock.

Muted top-line performance on flat volumes, other income boosts bottom line: For 1QFY2012, Maruti reported 3.6% yoy (down 15.5% qoq) growth in net sales to `8,529cr, in-line with our estimates, aided by a 4% yoy increase in average net realisation, led by better product mix (higher contribution of diesel vehicles) and price increases. Volume growth remained sluggish and posted a 0.6% yoy decline (18% qoq), impacted largely by the demand slowdown in the small car segment and production loss due to a 13-day strike at Manesar plant. EBITDA margin was in-line with our estimates at 9.5% (almost flat yoy), but it was down by 46bp qoq. Raw-material costs rose by 81bp yoy (70bp qoq) to 80.4% of sales, while royalty and selling and distribution expenses declined by 50bp yoy each, thus benefitting the margin. Net profit increased by 18% yoy (down 16.8% qoq) to `549cr, 22.6% ahead of our estimates, led by higher-than-expected other income.

Outlook and valuation: We continue to remain positive on the long-term volume growth in the passenger car industry, led by sustainable economic growth and low penetration levels in the country. However, considering the near-term macro headwinds, we remain cautious on short-term volume growth in the passenger car industry. We expect Maruti to post a ~9% volume CAGR over FY2011–13E, leading to a ~13% revenue CAGR. At `1,178, Maruti is trading at 13.1x and 11.6x its FY2012E and FY2013E earnings, respectively. We continue to maintain our Accumulate recommendation on the stock with a target price of `1,322, valuing it at 13x FY2013E earnings.

Stock Market Flash on Bajaj Auto for 1QFY2012.

Y/E March (` cr)	1QFY12	1QFY11	% chg (yoy)	Angel Est	% diff
Net Sales (incl. oth. opr. inc.)	4,777	3,890	22.8	4,913	(2.8)
EBITDA	911	777	17.2	972	(6.3)
EBITDA margin (%)	19.1	20.0	(91)bps	19.8	(71)bps
Reported PAT	711	590	20.5	734	(3.1)

Source: Company, Angel Research

Review

·         Lower than expected top-line performance – Bajaj Auto (BAL) reported slightly lower than expected top-line growth of 22.8% yoy (13.7% qoq)  to  `4,777cr driven by 17.7% yoy (15.3% qoq) jump in volumes. The variance in the top-line growth from our expectation was due to lower average net realizations which declined by 1.8% qoq despite price hikes of ~2% taken during the quarter. On a yoy basis however, average net realizations grew by 4.3% to `41,973. Among the product-mix, Pulsar and Discover contributed ~65% of motor-cycle sales during 1QFY2012. BAL’s export revenue recorded a strong ~40% yoy growth during the quarter to `1,688cr owing to 31.9% yoy increase in exports volumes. Other operating income too posted a robust 24.6% yoy growth to `190cr aiding the top-line performance.

·         Operating performance hit by raw-material cost pressures – BAL’s EBITDA margins for 1QFY2012 came in 71bp below our estimate at 19.1% registering a fall of 91bp yoy (145bp qoq). This was as a result of increase in raw material costs which increased by 150bp yoy (210bp qoq). However, decline in staff cost and other expenditure restricted further contraction in EBITDA margins to a certain extent. Overall, operating profit during the quarter witnessed a 17.2% yoy (5.7% qoq) growth to `911cr.

·         Net Profit up 20.5% yoy and 5.2% qoq – The company reported marginally lower than expected net profit growth of 20.5% yoy (5.2% qoq) to `711cr against our estimate of `734cr, largely because of lower than expected operating performance. Further, the bottom-line performance was also aided by lower than expected tax outgo.  

Outlook

At current levels, the stock is trading at 12.9x FY2013E earnings of `110. We shall update our estimates and release a detailed result update post the earnings conference call with management.

Volume Performance: 1QFY2012

Y/E March (unit)	1QFY12	1QFY11	% chg	FY2011	FY2010	% chg
Total Volume	1,092,815	928,336	17.7	3,823,954	2,851,518	34.1
Motorcycles	963,051	828,418	16.3	3,387,043	2,506,845	35.1
Scooters	-	-	-	27	3,737	-
Total 2 Wheelers	963,051	828,418	16.3	3,387,070	2,510,582	34.9
Three Wheelers	129,764	99,918	29.9	436,884	340,936	28.1
Exports (Inc Above )	427,364	323,899	31.9	1,203,718	890,006	35.2

Source: Company, Angel Research

Standalone Performance: 1QFY2012

Y/E March (` cr)	1QFY12	1QFY11	% chg	FY2011	FY2010	% chg
Net Sales (include Other Op. Inc.)	4,777	3,890	22.8	16,609	11,921	39.3
Consumption of RM	3,290	2,643	24.5	11,230	7,651	46.8
(% of Sales)	68.9	67.9		67.6	64.2
Staff Costs	139	126	9.9	477	399	19.4
(% of Sales)	2.9	3.2		2.9	3.4
Purchases of TG	176	125	40.9	568	420	35.4
(% of Sales)	3.7	3.2		3.4	3.5
Other Expenses	261	219	19.5	948	859	10.5
(% of Sales)	5.5	5.6		5.7	7.2
Total Expenditure	3,866	3,113	24.2	13,224	9,328	41.8
Operating Profit	911	777	17.2	3,385	2,593	30.6
OPM	19.1	20.0		20.4	21.7
Interest	0	1	-	2	6	(71.7)
Depreciation	31	32	(3.7)	123	136	(10.0)
Other Income	73	82	(10.5)	366	123	198.6
PBT (excl. Extr. Items)	953	826	15.4	3,626	2,573	41.0
Extr. Income/(Expense)	-	-	-	(725)	162	-
PBT (incl. Extr. Items)	953	826	15.4	4,351	2,411	80.4
(% of Sales)	19.9	21.2		26.2	20.2
Provision for Taxation	242	236	2.5	1,011	708	42.9
(% of PBT)	25.4	28.6		23.2	29.3
PAT	711	590	20.5	3,340	1,704	96.0
PATM	14.9	15.2		20.1	14.3
Equity capital (cr)	289.4	289.4		289.4	144.7
EPS (`)	24.6	20.4	20.5	115.4	58.9	96.0

Source: Company, Angel Research

Key Financials

Y/E March (`Cr)	FY2010	FY2011	FY2012E	FY2013E
Net sales	11,921	16,609	19,743	22,737
% chg	35.3	39.3	18.9	15.2
Adj. net profit	1,784	2,750	2,871	3,183
% chg	132.0	54.1	4.4	10.9
OPM (%)	20.2	19.7	19.2	19.3
Adj. EPS (`)	61.7	95.0	99.2	110.0
P/E (x)	24.0	14.9	14.3	12.9
P/BV (x)	14.0	8.3	6.7	5.3
RoE (%)	74.4	70.2	52.2	46.0
RoCE (%)	58.8	66.2	63.2	59.3
EV/Sales (x)	3.1	2.1	1.7	1.4
EV/EBITDA (x)	15.9	10.9	9.1	7.5

  

 

Source: Company, Angel Research