Indian stock market and companies daily report (May 11, 2012, Friday)

Indian markets are expected to open lower tracking mixed cues from the global markets. While major European markets rose on Thursday, US markets were mixed. Most of the Asian markets are trading in the red with SGX Nifty trading marginally lower by 0.5% in the opening session.
U.S markets had choppy trade on Thursday following the downward trend seen over the past several sessions. However, reports showing a reduction in initial jobless claims for the week to 367,000 provided some relief to the markets. While Nasdaq index fell marginally, Dow index and S&P index rose by 0.2% and 0.3% respectively. The German DAX index ended up 0.7%, while the French CAC 40 index and the U.K.'s FTSE 100 index gained 0.4% and 0.3% respectively. Meanwhile, Indian markets ended modestly lower on Thursday, erasing early gains. FII outflow fears continued to haunt investors despite a series of measures announced by the RBI recently to prop up the Rs., which hit a record low of 53.85 against the dollar the previous day. Markets would track the IIP data for expected to be released today.

Markets Today
The trend deciding level for the day is 16,490 / 4,985 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,602 – 16,784 / 5,020 – 5,074 levels. However, if NIFTY trades below 16,490 / 4,985 levels for the first half-an-hour of trade then it may correct up to 16,307 – 16,195 / 4,931 – 4,896 levels.

Cabinet clears MFI bill
The cabinet has cleared the Micro finance bill which will bring the micro lenders under the purview of the Reserve Bank. The MFI bill is positive for the micro finance institutions sector as it will supersede the state government laws, which has been in turmoil ever since the Andhra Pradesh government set stringent norms on lending and interest collection within the state. It is also positive for the Banking sector as it will help to reduce the MFI delinquencies on their books.

Result Reviews
NTPC (CMP: Rs.150/ TP: Rs.201/Upside 34%)
For 4QFY2012, NTPC posted a 4.8% yoy growth in its standalone net sales to Rs.16,264cr, in-line with our estimates, aided by higher capacity and better realization. OPM stood at 25.3%, up 180bp on yoy basis, despite the increase in fuel costs, on account of higher realizations. The company’s net profit declined by 6.8% yoy to Rs.2,594cr, due to higher interest, tax and depreciation. NTPC’s tax expense for the quarter stood at Rs.1,063cr vs. Rs.475cr in 4QFY2011. We maintain a Buy on the stock with a Target Price of Rs.201.
Cipla (CMP- Rs.323/ TP- /Buy)
Cipla reported better than expected result both on the net sales and profits. For the 4QFY2012, Cipla reported sales and net profit of Rs.1814cr and Rs.292cr, registering a yoy growth of 12.3% and 25.4% respectively. On the operating front, the Gross and Operating margins came in at 57.4% and 19.1% respectively. While both GPM and OPM expanded yoy, they were below expectations of 58.2% and 21.5%  respectively. However, inspite of the same, the net profit came in at higher than expectations of Rs.292cr, V/s expectations of Rs.282cr, mainly on of lower taxation and deprecation during the quarter than expected. Currently the stock is valued at 15.6xFY2014E earnings. We retain our Buy rating on the stock; however, target price is under review.
Lupin (CMP- Rs.543/ TP- Rs.656/ Buy)
Lupin reported just-in-line sales, while the net profit came in below expectations. For the quarter, the company posted sales of Rs.1932cr, a rise of 24.6% yoy. The growth on the advanced and emerging, both of which grew by 30% and 29% yoy respectively, aided the overall growth of the company. On the operating front, the Gross and Operating margins came in at 59.5% and 17.6% respectively. The  OPM’s were below expectations of 19.7%. This along with the higher tax along with the deprecations during the quarter aided the net profit to come at Rs.156cr, in comparison to the Rs.258cr estimated for the quarter. Currently the stock is valued at 16.6xFY2014E earnings. We maintain a buy on the stock with a target of Rs.656.
Cadila Healthcare (CMP- Rs.734/ TP- Rs.1016/ Buy)
Cadila Healthcare reported below than expected sales and net profit numbers. For the quarter, the company posted sales of Rs.1344cr, a rise of 15.0% yoy. The growth was primarily driven by domestic markets, which registered a yoy growth of 38.2%. Exports on the other hand grew yoy by 5.3% during the period. On the operating front, the Gross and Operating margins came in at 64.7% and 17.0% respectively. The OPM’s were below expectations of 18.7%. This along with the higher interest expenses during the quarter aided the net profit to come at Rs.171cr, in comparison to the Rs.200cr estimated for the quarter. Currently the stock is valued at 14xFY2014E earnings. We maintain a buy on the stock with a target of Rs.1016.
Canara Bank (CMP: Rs.419 / TP: Rs.532 / Upside: 27.0%)
For 4QFY2012, Canara Bank posted a weak set of results with net profit declining by 7.8% yoy to Rs.829cr. Bottom-line was dented by subdued net interest income, de-growth in fee income and higher operating expenses. The bank’s overall business growth remained moderate with advances growth of 11.3% yoy, largely aided by agriculture, infrastructure, and industrials segments. Deposits grew by 9.4% yoy. On the deposits side, calculated CASA ratio declined by 383bp yoy to  24.3%, due to decrease in current deposits by 39.5% yoy and 10.5% yoy growth in saving deposits. The bank’s reported NIMs remained flattish during 4QFY2012, as rise in yield on advances by 8bps qoq to 10.93% was completely offset by a similar rise in the cost of deposits to 7.35%. Commission and brokerage income de-grew during the quarter by 13.7% yoy to Rs.215cr.
On the asset quality front, gross and net NPA ratio for the bank remained at nearly the same levels on a qoq basis. Provision coverage ratio for the quarter also remained flat sequentially at 67.6%. During 4QFY2012, the bank restructured Rs.2,572cr worth of accounts, of which Rs.1,475cr was on account of restructuring of Air India. The bank did not restructure any SEB accounts during 4QFY2012, but expects Rs.5,385cr of SEB restructuring to occur in 1QFY2013 which would include discoms from the state of Rajasthan, Haryana and UP and Gujarat. The stock is  currently trading at cyclically moderate valuations of 0.7x FY2014E ABV vs. 5-year average of 1.0x and range of 0.7-1.4x, in our view largely factor in the negatives. Hence, we recommend Buy on the stock with a target price of Rs.532.
Apollo Tyres (CMP- Rs.82 / TP- /Under review)
For 4QFY2012, Apollo Tyres (APTY) registered a strong net sales growth of 18.4% yoy (flat qoq) to Rs.3,231cr driven by 8.8% yoy growth each in total volumes and net average realization. Indian operations were the prime driver of growth with total sales increasing by 28.2% yoy driven by 14% growth each in volumes and net average realization. While European operations witnessed slightly lower than expected growth of 8.7% yoy, poor performance in South Africa impacted the overall performance. South Africa operations witnessed 18% yoy decline in volumes led by poor demand and also on account of plant shutdown due to national as well as company specific issues.
On the operating front, margins expanded 110bp sequentially (flat on yoy basis) to 11.1%, mainly due to margin improvement in the domestic business (EBITDA margin improved 200bp yoy and 160bp sequentially) led by decline in rawmaterial expenses. However, weak performance in South Africa and Europe nullified the positive impact of strong domestic performance. While South Africa operations reported operating loss largely due to de-growth in volumes; Europe operations witnessed 200bp margin contraction sequentially during the quarter. Net profit declined 18.6% yoy to Rs.157cr mainly on account of higher interest (up 31.5%) and depreciation (up 22.1%) expense and lower other income (down 37%). Further higher tax rate (24.6% as against 8.4% in 4QFY2011) also impacted the bottom-line negatively.
Going ahead, we expect the domestic business to do well, led by pick-up in demand in the replacement segment, improvement in OEM demand and stable raw-material environment. However, South Africa and Europe operations are expected to remain under pressure due to demand slowdown. At Rs.82, the stock is trading at 6.5x FY2014E earnings. We retain our Buy rating on the stock; however, target price is under review.
Sintex Industries (CMP- Rs.61 / TP- / Under review)
Sintex Industries announced its 4QFY2012 results. The company’s net sales declined by 11.8% qoq and 30.1% yoy to Rs.1,024cr on the back of lower sales in the plastic segment. The plastic segment registered a 14.8% qoq and 33.2% yoy decline in revenue to Rs.892cr. The textile segment, on the other hand, witnessed 15.1% qoq and 2.2% yoy growth in revenue to Rs.132cr. The company’s EBITDA declined by 44.7% yoy to Rs.160cr (Rs.290cr) on the back of lower revenue and margin contraction. EBITDA margin contracted by 415bp yoy but expanded by 158bp qoq to 15.6% on account of lower other expenditure. Other expenditure as a percentage of sales declined to 13.0% in 4QFY2012 compared to 14.7% in 3QFY2012. PAT declined by 45.7% yoy to Rs.91cr (Rs.168cr) due to margin contraction on a yoy basis and lower revenue during the quarter. Consequently, PAT margin declined by 256bp yoy to 8.9% (11.5%). Currently, the stock is under review.
HEG (CMP – Rs.222/ TP-/ Under Review)
For 4QFY2012, HEG reported a disappointing set of numbers. The company's top line came in at Rs.407cr, 4.1% below our estimates of Rs.425cr; however, revenue increased by 44.7% on a yoy basis, mainly driven by higher prices of graphite electrodes. EBITDA margin plunged by 1470bp to 5.9% during the quarter due to increased power and fuel cost, which grew from 6% (as percentage of sales) to 8.1% and forex loss of Rs.48cr. Depreciation cost increased by 11% yoy due to commencement of the expanded capacity. Thus, the overall increase in expenses led to a fall in net profit by 85.5% yoy to Rs.5cr in the quarter as compared to Rs.34cr in 4QFY2011. The stock rating is under review.

Result Previews
Dr Reddys
For the 4QFY2012, Dr Reddys is expected to post top-line growth of 14% yoy to Rs.2,301cr, majorly driven by the U.S. market. The company is expected to see good traction in its Indian and Russian formulation businesses as well. The company is expected to post EBITDA of 32.0%, up 770bp yoy. On the net profit front, the company is expected to post net profit of Rs.526cr, registering 57.3% yoy growth. We maintain our neutral stance on the stock.
Indian Bank
Indian Bank is scheduled to announce its 4QFY2012 results. Net interest income is expected to grow by moderate 12.8% yoy (up 3.1% qoq) to Rs.1,170cr. Non-interest income is expected to increase by 13.1% yoy to Rs.281cr. Consequently, operating income is expected to increase by 12.8% yoy to Rs.1,451cr. Operating expenses are expected to increase by 13.7% yoy to Rs.540cr, leading to pre-provisioning profit growing by 12.3% yoy to Rs.912cr. Provisioning expenses are expected to increase three-fold on a yoy basis to Rs.236cr. Consequently, net profit is expected to increase only by 7.0% yoy to Rs.526cr. At the CMP, the stock is trading at valuations of 0.7x FY2014E ABV. We recommend a Buy rating on the stock with a target price of Rs.240.
Federal Bank
Federal Bank is scheduled to announce its 4QFY2012 results. We expect the bank to report healthy net interest income growth of 19.9% yoy to Rs.227cr. Non-interest income is expected to increase by 11.4% yoy to Rs.157cr. Cost-to-income ratio is expected to remain similar to 3QFY2012 levels at 38.7%. Pre-provision profit of the bank is expected to increase by 21.5% yoy to Rs.425cr. Net profit is expected to increase by healthy 32.2% to Rs.227cr. At the CMP, the stock is trading at valuations of 1.0x FY2014E P/ABV. We remain Neutral on the stock.

Economic and Political News
- India to grow at 7.5% in FY2013: UN Report
- Govt. directs coal firms to supply fuel to power plans via MoU route
- Oil companies demand subsidy for petrol losses

Corporate News
- SKS Micro Fin shuts 78 branches in Andhra Pradesh
- Allahabad Bank plans to revive US$500mn bond sale
- Unitech moves CLB against Telenor

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Indian stock market and companies daily report (May 10, 2012, Thursday)

Indian markets are expected to open flat with positive bias. While the performance of Asian markets is mixed, SGX Nifty is trading higher by 0.4%.
The US markets continues to be weighed down by uncertain political situation in Europe. During the day there were reports that Eurozone nations were debating about delaying the euro bailout payment to Greece due to the ongoing political uncertainty, resulting in strong selling pressure. However, this was later on denied by European Financial Stability Facility’s Board of Directors, aiding the markets to stage a partial recovery on Wednesday. The European markets were mixed on Wednesday, with DAX index gaining by 0.5% and CAC 40 index and FTSE 100 index down by 0.2% and 0.4% respectively.
Meanwhile, the Indian Markets hit their 16 week low weighed down by uncertainty in Europe and receding hopes of further rate cut, which could delay the economic recovery. FII selling pressure was high during the day. Further Rs. fell by 1.3% against the USD and closed at 53.85 vs. USD.

Markets Today
The trend deciding level for the day is 16,506 / 4,983 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,589 – 16,699 / 5,009 – 5,042 levels. However, if NIFTY trades below 16,506 / 4,983 levels for the first half-an-hour of trade then it may correct up to 16,396 – 16,313 / 4,949 – 4,923 levels.

Result Reviews
Punjab National Bank (CMP: Rs.768 / TP: Under review)
For 4QFY2012, Punjab National Bank (PNB) registered a weak set of results. The bank’s net profit grew by 18.6% yoy to Rs.1,424cr, which was above our estimates on account of lower effective tax rate than estimated by us. Net interest income of the bank grew by 9.3% yoy to Rs.3,310cr. Non-interest income growth was also moderate at 11.4% yoy to Rs.1,276cr. Provisioning expenses increased by 41.1% yoy to Rs.1,027cr, however a lower effective tax rate (25.4% in 4QFY2012) led to higher PAT growth of Rs.1,424cr.
The bank’s asset quality deteriorated significantly during 4QFY2012, with gross and net NPA levels increasing by 35.4% and 53.5% sequentially, respectively. As of 4QFY2012, gross NPA ratio stands at 2.9% (2.4% in 3QFY2012), while net NPA ratio stands at 1.5% (1.1% in 3QFY2012). The bank’s restructured book jumped up by 48.1% qoq, primarily on the back of restructuring of SEBs and Air India during 4QFY2012. Provisioning coverage ratio deteriorated by over 700bp during 4QFY2012 to 62.7%. We recommend Buy on the stock with a target price of Rs.1,102.
Ranbaxy Labs (CMP Rs.512, TP- : Neutral)
Ranbaxy labs reported below than expected results. For the quarter, the company reported Net sales and adj. net profits of Rs.3694.5cr and Rs.1246.4cr, a yoy growth of 72.4% and 209.1% respectively. Emerging markets contributed US $232mn, accounting for ~32% of total sales. Developed markets recorded US $470mn of sales and contributed 64% to total sales for the Company. API and others accounted for the remaining revenue of US $34mn for the quarter. The growth was mainly driven by Lipitor in US, resulting in US registering a growth of 145% to end the period at US $416mn., accounting for almost 57% of the overall sales. This also aided an improvement in the GPM’s and OPM’s. The GPM’s came in at 75.9% an expansion of 11.0% yoy. However the OPM’s came in at 25.0% (17.0%) an expansion of 8.0%. The other expenses, rose mainly on back of accured expenses and cliams recorded by the company towards a protion of profits payable by the company in realtion with sales of the product( which is estimated to be more than 10% of the total expenses for the 1QCY2012 and 4QCY2011. However, currently we maintain our Neutral stance on the stock.
ABB (CMP: Rs.747 / TP: - Under review)
ABB India (ABB) announced its 1QCY2012 results, which were disappointing on the top-line front, but the company’s bottom line exceeded expectations (when adjusted for notional MTM forex loss). The company’s top line for the quarter was flat at Rs.1,790cr (Rs.1,793cr previous year) and 12.8% lower than our estimate of Rs.2,053cr. Power products and low-voltage products were the only two segments that reported growth during the quarter at 4.1% and 11.5% yoy, respectively. ABB’s reported EBITDA margin declined by 22bp yoy, however when we adjust for the MTM exchange rate variation loss of Rs.32.7cr, adjusted EBITDA margin came in much higher at 7.3% against our estimate of 5.9%. Reported PAT came in at Rs.49.6cr, down 20% yoy. Order flow for the quarter was flat at Rs.1,632 (Rs.1,695), with order backlog standing at Rs.9,028cr. At current valuations of 35.2x CY2013E EPS, the stock is richly valued. We maintain our Sell recommendation on the stock; however, the target price is under review.
Union Bank (CMP: Rs.203 / TP: Rs.266 / Upside: 31.2%)
Union Bank reported its results for 4QFY2012. The bank reported 9.3% yoy growth in its NII to Rs.1,877cr, aided by higher credit growth. Non-interest income for the bank also increased by healthy 25.8% yoy to Rs.755cr, aided by sharp 65.3% yoy growth in recoveries. Operating expenses for the bank decreased by 28.6% yoy (5.1% qoq), which coupled with 13.6% yoy growth in operating income, aided the pre-provisioning profits to improve by 83.9% yoy. Net profit for the bank grew at much lower pace of 29.4% yoy to Rs.773cr on account of sharp increase in provisioning expenses incl. tax. The bank’s asset quality improved slightly on sequential basis, with both gross and net NPA ratio declining by 32bps and 18bps qoq, respectively. PCR though remained below comfortable levels and has declined sequentially by 92bps to 62.2%. We maintain our Buy recommendation on the stock with a target price of Rs.266.
IRB Infra (CMP: Rs.122 / TP: Rs.228 / Upside: 87%)
For 4QFY2012, IRB reported modest set of numbers with revenue coming in line with expectations but owing to better-than-expected EBITDAM, earnings were higher than estimates. IRB’s top line witnessed growth of 10.6% to Rs.848cr marginally ahead of our estimate of Rs.829cr. On the EBITDAM front, IRB’s margins came at 44.9% higher than our estimate of 42.2%. Depreciation came at Rs.102cr in line with our estimate. Interest cost came in at Rs.150cr a jump of 7.3%/5.6% on yoy/qoq basis. At the earnings front, IRB reported growth of 17.1% to Rs.120cr above our estimate of Rs.104cr on account of better than expected performance on the EBITDAM front.
Fundamentally, we have a target price of Rs.228 for IRB. However, we believe that the stock could remain volatile until clarity emerges on the issue of IRB’s Chairman Mr. V D Mahiskar being potentially involved in the killing of Satish Shetty (RTI activist) in 2010. Thus, this event could remain an overhang on the stock in the near term.

Result Previews
NTPC
For 4QFY2012, we expect NTPC to record a 6.1% yoy increase in its top line to Rs.16,468cr, driven largely by improved realization. The company’s operating margin is expected to increase by 289bp yoy to 27.5% due to better plant availability and expected grossing up of RoE under corporate tax rate for FY2012. Net profit is expected to decline marginally by 2.5% yoy to Rs.2,711cr. At the CMP, the stock is trading at 1.4x FY2014E P/BV. We maintain a Buy on the stock with a Target Price of Rs.201.
Canara Bank
Canara Bank is scheduled to announce its 4QFY2012 results today. We expect the bank to report a subdued 2.4% yoy growth in Net Interest Income to Rs.2,019cr. Non-interest income is expected to decline by 7.7% yoy to Rs.861cr. Operating expenses are expected to decline marginally by 1.3% yoy to Rs.1,196cr. Provisioning expenses are also expected to decline by 28.4% yoy to Rs.391cr, and would lead to 9.1% yoy growth in net profit to Rs.981cr. At the CMP, the stock is trading at 0.7x FY2014E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.532.
Cipla
For the 4QFY2012, Cipla is expected to post muted net sales growth of 4.6% to Rs.1,690cr, mainly driven by the domestic formulation business, while export performance is expected to remain muted. On the operating front, OPM (excluding technical know-how fees) is expected to come in at 21.5%, registering an expansion of 610bp yoy. This would aid the company's net profit to increase by 31.8% yoy to Rs.282cr. We maintain our buy on the stock with a target price of Rs.380.
Lupin
For the 4QFY2012, Lupin, on the other hand, is expected to register top-line growth of 22.6%. The company's OPM is expected to expand by 190bp yoy during the period. However, net profit growth is expected to be lower at around 13.7% yoy on account of higher tax outgo. We maintain our buy on the stock with a target price of Rs.656.
Cadila Healthcare
For the 4QFY2012, Cadila is expected to post a good set of numbers, with 20.7% yoy growth in net sales to Rs.1,411cr on the back of robust growth on the domestic formulation and exports front. On the OPM front, we expect the company's OPM to expand by 270bp yoy to 18.4% on the back of favorable product mix. However, net profit is expected to increase by 7.8% yoy to Rs.193cr, mainly on the back of increased tax outgo. .We maintain our buy on the stock with a target price of Rs.1016.
Apollo Tyres
Apollo Tyres is slated to announce its 4QFY2012 results today. On a consolidated basis, we expect the company to report a strong 19% yoy growth in revenues to Rs.3,241cr. Sequentially, EBITDA margin is expected to improve 50bp to ~10.5% led by sequential decline in raw-material prices. We expect net profit to decline ~27% yoy to Rs.141cr. The stock rating is under review.

Economic and Political News
- Cabinet may mull Coal Regulatory Bill tomorrow
- India's urban consumer confidence edges up: survey
- Government to auction 54 coal blocks with 18 bn tonne reserves
- March factory output seen slowing further: Poll

Corporate News
- Fire at M&M Nasik plant, operations suspended
- ICICI Bank raises foreign currency deposit rates
- ONGC to foray into city gas, plans to set up ONGC Gas
- Lanco Infra gets Supreme Court nod for township project

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Indian stock market and companies daily report (May 08, 2012, Tuesday)

Indian markets are expected to open flat with a slightly negative bias. Most of the Asian markets are trading in the positive zone. However, SGX Nifty is trading marginally lower, down 0.1%.
U.S. markets showed a lack of direction during trading on Monday as traders expressed uncertainty about the situation in Europe following recent French presidential election results. The markets recovered from weakness seen in early trade but ended the day nearly flat. European markets remained cautious due to the uncertainty about the European debt crisis after the elections. The situation in Greece is currently seen as a greater risk than the outcome of French presidential election.
Meanwhile, Indian shares staged partial recovery from sharp previous-session losses, amid weak global trend in global markets, after Finance Minister Pranab Mukherjee postponed the enforcement of General Anti-Avoidance Rules (GAAR) by one year until fiscal 2013/14.

Markets Today
The trend deciding level for the day is 16,790 / 5,076 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,067 – 17,221 / 5,163 – 5,212 levels. However, if NIFTY trades below 16,790 / 5,076 levels for the first half-an-hour of trade then it may correct up to 16,636 – 16,360 / 5,027 – 4,939 levels.

Result Reviews
HDFC (CMP: Rs.664 / TP: - / Upside: -)
HDFC reported a healthy set of numbers with net profit growing by 16.1% yoy to Rs.1,326cr, which were above our estimates due to higher net interest income than expected by us. The loan growth was also strong at 20% yoy. The NIMs for the company rose on account of higher yield on advances and lower borrowing costs (most of the borrowings done at the fag end of quarter). The cost pressures of these borrowings however could be visible form 1QFY2012 onwards. The asset quality also remained stable with gross and net NPA levels remaining at similar levels on a yoy basis. We currently have a Neutral rating on the stock.
Bosch (CMP: Rs.8,873 / TP: Rs.9,317 / Upside: 5%)
Bosch (BOS) registered a healthy top-line growth of 10% yoy (12.5% qoq) to Rs.2,295cr, in-line with our expectation of Rs.2,086cr. Top-line growth was driven by 8.1% yoy growth in the auto segment and a strong 21.4% yoy growth in the nonauto segment. The auto segment performance was driven primarily by ~15% growth in the after-market segment. While diesel systems segment reported a ~8% yoy growth; gasoline systems segment registered a flat growth on account of slowdown in the passenger car industry (petrol variants). Exports too grew at a sluggish pace of ~3% and stood at Rs.250cr mainly on account of slowdown in Europe.
BOS recorded better-than-expected margins of 20.8%; an increase of 192bp yoy and 331bp qoq primarily due to decline in raw-material expenses. Raw-material expenses declined during the quarter led by cost savings due to localization benefits and strategic buying decisions carried out by the company. Thus, operating profit grew by 21.2% yoy (33.8% qoq) to Rs.478cr. As a result, net profit registered a strong 22.4% yoy (19.5% qoq) growth to Rs.336cr.
At Rs.8,873, the stock is trading at 19.5x and 19.1x CY2013E earnings, respectively. We recommend Accumulate rating on the stock with a target price of Rs.9,317 valuing it at 20x CY2013E earnings.
Glaxo Pharmaceuticals (CMP 2,126, TP- : Neutral)
Glaxo Pharmaceuticals reported lower-than-expected sales growth. The company’s net profit also came in below expectations. For the quarter, the company posted sales of Rs.622.8cr, registering 3.3% yoy growth. On the operating front, gross and operating margin came in at 57.9% and 31.4%, respectively, below our expectation of 61.1% and 34.3%, respectively. Consequently, net profit came in at Rs.122.9cr vs. our expectation of Rs.200.1cr. Currently, the stock is valued at 22.1x CY2013E earnings. We maintain our Neutral stance on the stock.
GSK Consumer (CMP: Rs.2,701/ TP: -/ Upside :-)
For 1QCY2012, GSK Consumer (GSKCHL) posted 14.5% yoy growth in its net sales to Rs.813cr, aided by 7% volume growth and an 8% price increase. The company’s flagship brands Horlicks and Boost posted volume growth of 9.4% and 2.1%, respectively. During the quarter, sales were, to an extent, affected by low orders from CSD (contributes around 8% to overall sales) during February and March, adjusting for which volume growth would be 9.5%. OPM fell by 57bp yoy to 19.9% due to higher costs of inputs such as barley and skimmed milk powder. The company’s bottom line rose by 19.3% yoy to Rs.132cr. We recommend a neutral on the stock.
South Indian Bank (CMP: Rs.23 / TP: - / Upside: - )
South Indian Bank reported its results for 4QFY2012. The bank reported 28.4% yoy growth in its NII to Rs.285cr, which was in line with our estimates. Non-interest income for the bank also increased by 37.8% on a yoy basis to Rs.83cr. However, operating expenses for the bank increased at much higher pace of 58.3% yoy (32.2% qoq), which capped the growth in pre-provisioning profits to 6.4% yoy. Net profit for the bank grew by 49.1% yoy to Rs.122cr, on back of decrease in provisioning expenses by 53.3% yoy. On the asset quality front, both gross and net NPA ratio increased marginally on a sequential basis by 3bp and 4bp, respectively and PCR declined by 382bp qoq to 71.4%. We maintain our Neutral recommendation on the stock.

Result Previews
Asian Paints
Asian Paints is set to declare its 4QFY2012 results. For the quarter, we expect Asian Paints to post 22.4% yoy growth in its consolidated top line to Rs.2,405cr, driven by volume growth and price hikes. The company’s OPM is expected to decline by 101bp yoy to 13.7%. The company’s bottom line is expected to register growth of 17.4% yoy to Rs.219cr. We maintain our Neutral view on the stock.
Hindalco
Hindalco is slated to report its 4QFY2012 results. We expect the company’s standalone net sales to decrease by 1.2% yoy to Rs.6,680cr. However, EBITDA margin is expected to contract by 165bp yoy to 11.9% on account of a decline in aluminium prices and rise in costs of key inputs (primarily coal). Net profit is expected to decrease by 27.1% yoy to Rs.516cr. We recommend a Buy rating on the stock with a target price of Rs.136.
Central Bank
Central Bank is scheduled to announce its 4QFY2012 results today. We expect the bank to report a Net Interest Income (NII) de-growth of 13.9% yoy to Rs.1,230cr. Non-interest income is also expected to decline by 24.9% yoy to Rs.393cr. However, operating expenses are expected to decline at much higher 38.9% yoy to Rs.990cr  (due to one-off staff related provisioning in 4QFY2011). Provisioning expenses are expected to increase by 55.7% yoy to Rs.477cr, and would lead to 4.0% yoy degrowth in net profit to Rs.127cr. At the CMP, the stock is trading at 0.8x FY2014E ABV. We maintain our Neutral recommendation on the stock.
CESC
CESC is expected to register 28.1% yoy growth in its standalone top line to Rs.1,081cr, aided by improved realization. During the quarter, CESC got the approval from WBERC for increasing the tariff for Kolkata region on an average by 13%. Post this order, the company would charge its customers at a higher rate with retrospective effect. The company’s OPM for the quarter is expected to expand by 385bp yoy to 33.0%. Net profit is expected to increase by 62.9% yoy to Rs.182cr. We maintain our Buy view on the stock with a target price of Rs.342.
Dena Bank
Dena Bank is scheduled to announce its 4QFY2012 results. We expect the bank to report reasonable growth of 4.4% qoq (21.0% yoy) in its net interest income to Rs.565cr. Non-interest income is also expected to show healthy traction by growing at 36.2% yoy (29.1% qoq) to Rs.173cr. Consequently, overall operating income is expected to grow at a healthy pace of 9.3% qoq. Operating expenses for the bank are expected to increase sequentially by 8.5% to Rs.306cr. While provisioning expenses are expected to decline by 24.9% qoq, a sharp increase of 58.4% qoq is expected in tax expenses, which would limit net profit growth for the bank at moderate levels of 11.7% to Rs.209cr. At the CMP, the stock is trading at 0.5x FY2014E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.118.

Economic and Political News
- Government slashes capital gains tax for PE investors
- CEA requests Power Ministry to seek PMO help on fuel pact
- Government eases 30% sourcing condition for single brand retail

Corporate News
- Maruti operations unaffected by Suzuki’s recall of swifts
- Kingfisher to start paying January salaries: Mallya
- Ramky infra bags Rs.1,249cr orders

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Indian stock market and companies daily report (May 04, 2012, Friday)

The Indian markets are expected to open flat to negative tracking negative cues from global markets. Asian stocks fell for a second day as U.S. service industries expanded less than forecast.
The US markets closed lower yesterday amongst a mixed set of data releases. The stocks came under pressure following the release of a report from the Institute for Supply Management showing an unexpected slowdown in the pace of growth in the service sector in the month of April. The ISM said its non-manufacturing index dropped to 53.5 in April from 56.0 in March. The markets largely shrugged off the release of a Labor Department report showing a bigger than expected drop in initial jobless claims in the week ended April 28th, with traders looking ahead to the release of the monthly jobs report on Friday.
Indian shares fell for a second consecutive session on Thursday, with heavyweight auto, metal and banking shares pacing the declines. The rupee hit a fresh fourmonth low of 53.45 against the dollar, as overseas investors awaited more clarity on how the government will resolve tax policy issues like GAAR.

Markets Today
The trend deciding level for the day is 17,181 / 5,195 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,242 – 17,332 / 5,210 – 5,232 levels. However, if NIFTY trades below 17,181 / 5,195 levels for the first half-an-hour of trade then it may correct up to 17,091 – 17,030 / 5,174 – 5,159 levels.

RBI releases Basel–3 Guidelines
What the guidelines entail: Reserve Bank of India (RBI) released the final guidelines regarding the Basel-3 norms yesterday. Amongst other details, the key point is that the banks will have to achieve a minimum Core Equity Tier-I capital adequacy (CET1) of 5% by FY2014, which in a staggered manner will then have to be increased to 8% by FY2018.
Immediate impact: For 27 banks under our coverage (comprising 85% of the sector), as on FY2012 none of them are estimated to be below the immediate threshold of 5% of CET1 to be achieved by FY2014. However, in our view by FY2014, almost all banks will look to maintain a minimum CET1 of at least 8% to be comfortably above the minimum requirements.
Based on this, a handful of banks including primarily a few small PSU banks like Central Bank, Vijaya Bank and UCO Bank would be the only ones that would be below the 8% threshold. This is because, for most other banks post the government infusion already announced, they are likely to be above 8% CET1 from FY2013 itself. Few others such as Corporation Bank, IOB, IDBI and United Bank would also be marginally below 8%. SBI is likely to be the only large-cap that may end up below 8% (unless their risk-weighted asset growth lags total asset growth). In case of the smaller banks, since they are trading well below 1x P/ABV, capital raising would result in dilution in EPS of 4% to 18% and in book value to the extent of 2% to 5% of our current estimates. In case of SBI, dilution would be book-accretive but EPS-dilutive.
Medium-term impact: The immediate impact is restricted to few smaller banks (of which, in case of the three most exposed banks vis. Central Bank, Vijaya Bank and UCO bank we have a Neutral / Reduce rating). However, in the medium-term in our view the Basel 3 guidelines imply significant capital shortage for the Indian Banking system. By the end of FY2018, as the minimum CET1 requirement itself moves to 8%, we believe most of the banks would look to maintain closer to 9- 10% CET1 capital adequacy.
At the same time, if we factor in 17% asset growth for the sector between FY2014- 18E and assume that average ROEs for the sector improve by 100-200bps, then based on retained earnings alone, CET1 is estimated to decline to 7.9% from the current 9.1% estimated for FY2012. Even if on average, the sector is to maintain 9% CET1 this implies a capital shortage of about Rs.1.4lakh cr and at 10% CET1, a shortage of Rs2.6lakh cr. This amounts to 14% and 27% of the sector’s networth, respectively, or an additional equity requirement of 2.5%-4.5% every year for the next 6 years.
New Bank licenses: In our view, the issue of more new bank licenses than the earlier anticipated 3-4, including to some large corporates, with each of them looking to invest about Rs.5,000-10,000cr of equity capital, was one of the key risks on the horizon for the banking sector. However, in light of Basel 3 requirements, even if the RBI does give more new bank licenses, in our view in light of the capital shortage in the banking sector post Basel 3 requirements, over a 6 year period, this would still not amount to a supply glut. On the contrary, even after the Rs.30,000cr-40,000cr of fresh capital, there would still be significant capital shortage which would have to be met by the incumbents.
Positive implications of capital shortage: For the sector as a whole, in our view, even after factoring in new bank licenses, we expect intensity of balance sheet competition to be low especially from the PSU banks. As a result, we continue to have a positive outlook on overall margins and ROEs from a one-year + perspective (notwithstanding any short-term re-pricing and asset quality related volatility in margins).
The benefit of this will be especially enjoyed by those banks which already have high capital adequacy (main beneficiaries include ICICI Bank and HDFC Bank) or which can raise equity at high book-accretive premiums (such as Axis Bank and Yes Bank). In our view, these banks will stand to benefit from high margins/ROAs/ROEs as well as market share gains from a medium-term perspective. Of these, taking into account valuations as well, we reiterate Axis Bank, ICICI Bank and Yes Bank as our top picks.

Reliance Industries fined Rs.6,600cr for lower KG-D6 output
The Oil Ministry has imposed a penalty of ~ Rs.6,600cr (US$1.2bn) on Reliance Industries (RIL) for the steep fall in gas output from the KG-D6 block. Production from KG-D6 had gradually declined to 35mmscmd in 4QFY2012 from 51mmscmd in 4QFY2011. The penalty for lower production stood at US$457mn and US$778mn for FY2011 and FY2012, respectively. The Oil Ministry stated that RIL had violated the production sharing contract (PSC) and wilfully drilled fewer wells than what it had committed in its approved plan, Amended Initial Development Plan (AIDP). However, RIL had stated earlier that unexpected geology had resulted in decline in gas production. We await further clarity on this issue from RIL. Until then, we maintain our Buy rating on the stock with a target price of Rs.872.

IRB’s stock plunges 11% as Chairman is being investigated in murder case
As per media reports, IRB’s Chairman, Virendra Mhaiskar, is one of the 10 people identified by the Central Bureau of Investigation (CBI) of being potentially involved in the killing of Satish Shetty (RTI activist) in 2010. The outbreak of this news led to a decline in IRB’s stock by as much as 18%; however, the stock recovered and closed down by 11%.
As per the clarification given by the company to stock exchanges, the deceased RTI activist's brother had named various people, including Mr. Mhaiskar, as suspects. The Police Department had conducted an inquiry in the matter and given a clean chit to Mr. Mhaiskar. However, the deceased's brother was not happy with the investigation conducted by the department; and upon his petition, the state government had handed over the investigation to CBI. During the course of the investigation, CBI has, along with several other suspects, asked Mr. Mhaiskar and other two company officials to undergo a polygraph test.
Mr. Mhaiskar and the company’s officials have readily agreed to undergo the polygraph test since they are confident of their non-involvement in the matter. Fundamentally, we have a target price of Rs.228 for IRB. However, we believe that the stock could remain volatile until clarity emerges on this case. Thus, this event could remain an overhang on the stock in the near term.

Result Reviews
Marico
For 4QFY2012, Marico posted 22.9% yoy growth in its consolidated net sales to Rs.917cr, which was in-line with our estimates. Top-line growth was driven by volume growth across categories in the domestic business as well improvement in realizations. Marico’s international business also posted strong organic growth of 24% yoy. The company’s OPM stood at 12.3%, up 134bp on a yoy basis, aided by a decline in input costs. Net profit fell by 4% yoy to Rs.69.4cr as the company had exceptional gain of Rs.76cr in 4QFY11. We maintain our Neutral recommendation on the stock.
Aventis - (CMP Rs.2,138/TP: - /Upside: -)
Aventis reported a higher than expected sales growth, while the net profit came in below expectations. For the quarter, the company posted sales of Rs.323cr, a rise of 16.7% yoy. On the operating front, the Gross and Operating margins came in at 50.6% and 15.3% respectively. While the Gross margins were in line with expectations, the OPM’s came in higher than the expectations of 14.6%. However, in spite of the higher than expected improvement in the sales and OPM front, the net profit came in at Rs.40.1cr, V/s expectations of Rs.51.5cr, on account of higher than expected deprecations expenses during the quarter. Currently the stock is valued at 20.5xCY2013E earnings. We maintain a Neutral stance on the stock.
KEC International – (CMP: Rs.56/TP: Rs.73 /Upside: 31%)
KEC International (KEC) posted a strong set of numbers for 4QFY2012, exceeding our expectations. The company’s consolidated revenue grew strongly by 32.7% yoy to Rs.2,069cr (Rs.1,559cr), which was 8.8% higher than our estimate of Rs.1,902cr. Stellar growth was mainly due to strong execution in the international transmission business, delivering robust 68.7% yoy growth.
On the operating front, EBITDA margin saw a ~230bp yoy contraction to 8.2%, slightly better than our estimate of 8.0%. The company’s margin was primarily impacted by higher raw-material cost. Interest expense grew by 28.2% yoy to Rs.41cr on the back of higher interest rates. PAT declined by 5.3% yoy to Rs.74cr, 9.1% higher than our estimate of Rs.68.2cr and consensus estimate of Rs.62.9cr.
Order book at the end of the quarter stood at Rs.8,572cr, majorly aided by robust order inflows totaling Rs.1,800cr during the quarter. Strong order accretion since the past few quarters is mainly attributable to the company’s diversified business operations, with equal exposure to domestic and international markets.
At the CMP, the stock trades at cheap valuation of 4.6x FY2014E PE. Thus, we recommend Buy on the stock with a target price of Rs.73.
Automotive Axles (CMP: Rs.525/TP: - /Upside: -)
Automotive Axles (ATXL) reported modest 6.3% yoy (1% qoq) growth in net sales to Rs.296cr in 2QSY2012, which was in-line with growth in the medium and heavy commercial vehicle segment (up 5.5% yoy). EBITDA margin remained stable at 12.5% on stable commodity prices. As a result, EBITDA grew by 5.8% yoy to Rs.37cr. Led by higher other income (Rs.2cr as against Rs.0.1cr in 2QSY2011), net profit reported 4.6% yoy (down 2.5% qoq) growth to Rs.19cr. At Rs.525, we believe the stock is fairly valued at 9.3x its SY2013E earnings. We, therefore, maintain our Neutral rating on the stock.
Finolex Cables (CMP: Rs.34 / TP: Rs.60 / Upside: 78%)
Finolex Cables announced a strong set of numbers for 4QFY2012. The company’s net sales grew by 21.1% qoq and 12.1% yoy to Rs.605cr on the back of strong sales in the electrical segment. The electrical cables segment registered 39.5% qoq and 21.3% yoy growth in revenue to Rs.506cr. While the company’s other two segments – communication cables and copper rods division continued their poor run, witnessing a decline of 27.4% and 36.7% yoy in revenue, respectively. The company’s EBITDA increased by 45.9% yoy to Rs.58cr (Rs.40cr) on the back of higher revenue and margin expansion. EBITDA margin expanded by 223bp yoy and 136bp qoq to 9.6% on account of lower raw-material costs. Raw-material cost as a percentage of sales declined to 74.9% in 4QFY2012 compared to 80.2% in 4QFY2011. PAT increased by 139% yoy to Rs.45cr (Rs.19cr) on the back of margin expansion, lower forex loss, higher other income and tax adjustments. Other income increased by 130% yoy to Rs.9cr, while forex loss declined by 15.6% to Rs.10cr. Consequently, PAT margin increased by 391bp yoy to 7.4% (3.5%). We currently have a Buy recommendation on the stock. We may revise our estimates and target price post an interaction with management.

Result Previews
Bank of Baroda
Bank of Baroda is scheduled to announce its 4QFY2012 results. We expect the bank to report healthy net interest income growth of 7.3% yoy to Rs.2,804cr. Noninterest income is expected to grow higher by 14.7% yoy to Rs.957cr. While overall operating income growth is expected to come in at 9.1% yoy, a 12.1% yoy decline in operating expenses is expected to lead to an improvement in cost-to-income ratio to 35.1% from 43.6% in 4QFY2011. Provisioning expenses are expected to grow by 5.4% yoy, which coupled with expected tax expenses of Rs.521cr compared to Rs.61cr in 4QFY2011 would result in nearly flat yoy growth in net profit to Rs.1,297cr. At the CMP, the stock is trading at 1.1x FY2014E ABV. We maintain our Buy recommendation on the stock with a target price of Rs.943.
Corporation Bank
Corporation Bank is slated to announce its 4QFY2012 results. We expect net interest income of the bank to grow by healthy 17.8% yoy to Rs.897cr. Non-interest income is expected to decline by 3.3% yoy to Rs.474cr. While operating income is expected to grow by 9.6% yoy, operating expenses are expected to decline by 5.0% yoy to Rs.480cr, leading to healthy 19.4% growth in pre-provisioning profits to Rs.892cr. Provisioning expenses are expected to increase by 9.0% yoy. Net profit is expected to increase by 20.4% yoy to Rs.416cr. Currently, we have a Buy rating on the stock with a target price of Rs.508.
ITNL
We expect IL&FS Transportation Networks (ITNL) to post a weak set of numbers for the quarter on account of high base in 4QFY2011. The company’s revenue is expected to decline by 9.0% yoy to Rs.1,507cr. We expect the company to register  flat EBITDAM of 24.8%. Further, on the back of high interest cost, which is expected to come in at Rs.200cr, we expect ITNL’s earnings to decline by 30.1% yoy to Rs.111.3cr. We recommend Buy on the stock with a target price of Rs.265.

Economic and Political News
- Oil Ministry disallows US$1.4bn cost recovery by RIL from KG-D6
- Government to infuse Rs.30,000cr in Air India over nine years
- Mobile operators add 8mn users in March 2012
- Orissa government mulls cap on iron ore output

Corporate News
- Dr. Reddy's gets U.S. FDA nod for osteoporosis drug
- Cipla slashes cancer drug prices by up to 76%
- Bosch to invest Rs.300cr on capacity expansion
- Pantaloon raises Rs.200cr from Bennett Coleman

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