Sunday, October 25, 2009

Weekly Analysis - Sectoral Review19-23 Oct 09

The run ahead of fundamentals came to a halt with keyindices closing lower this week. Besides the expected profit taking after aseven-month rally, the RIL-RNRL court battle added to the weakness. Quarterlynumbers from India Inc. also failed to cheer sentiment on Dalal Street. Finally, the BSE benchmark Sensex closed the week down by 3% and NSENifty closed lower by 2.8%.

The BSE Sensex hit an intra-weekhigh of 17,457 and low of 16,721 while, the NSE Nifty hit an intra-week high of5,182 and low of 4,968.

The Foreign Institutional Investors (FIIs) purchased Rs51.2bnduring the week. On the other hand, the Domestic Institutions were net sellers tothe tune of Rs15.7bn during the week.

The top gainers: The topgainers in the Sensex were TCS (up 10%), Tata Power (up 6.7%), DLF (up 4.9%),Hindalco (up 4.8%) and Wipro (up 2.4%).

The Top Losers: The toplosers in the Sensex were Grasim (down 10.3%), Tata Steel (down 7.8%), TataMotors (down 7.7%), L&T (down 7.2%) and Reliance Capital (down 6.9%).

The BSE IT Index up 3.6%:
The top gainer in the IT sector was TCS. The stock shot up over 10%during the week. According to report released by IIFL during the week, “TCSbeat our expectation with ~4% QoQ US$ revenue growth in 2QFY10—a number webelieve will be the best in this quarter among the top-3 vendors. Volumes grew~5% QoQ and EBITDA margin expanded by ~150bps, despite a hike in variablesalary payout (payout of 150%). The company’s products business is recoveringstrongly after a bad year—revenues are up 60% since 4QFY09. Stronger signs ofgrowth are also evident in its key vertical, BFSI (45% of revenues), astechnology integration deals ramp up. The appreciating rupee is a risk andpressures in the telecom, manufacturing and high-tech domains make a strongerrecovery unlikely. However, given stronger volume growth and margin expansion,we upgrade our FY10 and FY11 EPS estimates by 8% and reiterate ourrecommendation to switch from Infosys to TCS and Wipro.”

HCL Tech rose over 8% duringthe week. The company tied up with Microsoft to provide retail banking solutionto help banks in the Asia-Pacific.

Wipro was up 2.4% during theweek. The company entered into a 10-year IT outsourcing agreement with DelhiInternational Airport Ltd for providing IT infrastructure and services for IGIAirport here.

Mphasis (up 6%) and PatniComputer (up 4.6%) were among the other notable gainers.

The top losers were FinancialTech (down 5.7%), Mahindra Satyam (down 5.3%), Oracle Financial (down 4.1%) andSasken Communication (down 0.7%)


The BSE ConsumerIndex:
The top losers in the consumer durables space were Blue Star (down7.2%), Titan (down 3.9%), Videocon Industries (down 3.2%) and Su-Raj Diamonds(down 3.1%).

Whirlpool surged by over 10.2%during the week.


The BSE Healthcare Index down 1.4%:
The top losers were Panacea Biotec (down 7.3%),Divis Labs (down 5.4%), Ranbaxy (down 5.2%), Zandu Pharma (down 3.4%) and SuvenLife (down 3.3%).

The top gainers in the Pharma sectorwere Astrazeneca Pharma (up 18.2%), Strides Arcolab (up 9.2%), Dishman Pharma(up 6.3%) and Glaxosmithkline (up 3.7%).


The BSE Banking Index down 3.4%:
Thetop losers in were Bank of India (down 5.7%), Bank of Baroda (down 3.8%), ICICIBank (down 3.4%), Kotak Mahindra Bank (down 3.3%) and HDFC Bank (down 1.8%).

The top gainers in the banking spacewere Karnataka Bank (up 14.6%), Yes Bank (up 8.9%), Federal Bank (up 7.4%),Andhra Bank (up 7.1%) and Allahabad Bank (up 6.2%).


The BSE Auto Index down2.3%:
The top loser in the Auto space was Tata Motors. The stock fell 7.7%during the week. According to reports, the service tax department has issued ashow-cause notice to the company relating to a potential service tax liabilityof Rs3.25bn for five years between 2004-05 and 2008-09.

Despite spectacular quarterlynumbers, Bajaj Auto and Hero Honda were at the receiving end. Bajaj Auto slipped5.4% during the week. The company’s net profit in the second quarter of thisfiscal stood at Rs4.03bn against Rs1.85bn in the July-September 2008 period.Sales revenue for the company grew 15% in the period to Rs27.93bn againstRs24.2bn in the corresponding period.

Hero Honda fell 4.4% during theweek. According to a report released by IIFL during the week, “The company reportedPAT rose 95% YoY to Rs5.97bn—7% higher than our expectation. EBITDA margin expanded130bps QoQ to 18.3% (in 1QFY10, the company had spent Rs360m on advertisingduring Indian Premier League).

• But margin has likelypeaked—going forward, margins would be affected by rising commodity prices andincreasing competitive intensity in the two-wheeler space.

• The company produced 340,000vehicles during 2QFY10 at its Uttaranchal plant (tax incentives) and istargeting a production of 1.3m vehicles for FY10. Given the increasedproduction at Uttaranchal, the company’s tax rate fell 130bps QoQ to 22.3%.

• Management has revised itsguidance on FY10 tax rate from 24% to 22%. We raise our FY10 and FY11 EPSestimates by 8% and 6% as we revise our tax rate assumptions to 22% and 21%respectively. We maintain ADD with a revised target price of Rs1,850 (16xFY11ii).”

Among the other major loserswere M&M (down 3.4%) and Hindustan Motors (down 3.3%).

The top gainers were EicherMotors (up 2.5%), Swaraj Mazda (up 1.5%) and Ashok Leyland (up 0.2%).

Rico Auto Industries, facinglabour unrest since October 18, has reported a daily production loss of about25% at its Gurgaon plant, due to the unrest caused by a group of 16 employees.

The BSE Oil & Gas Index down 6.1%:
The top loser in oil & gas space was ONGC. Thestock was down by over 6.5% during the week. The Petroleum and Natural GasMinistry has suggested that the company explore the possibility of hiving offits Assam assetinto a wholly-owned subsidiary, stated reports.

Reliance Industries fell 5.7% during the week. TheSupreme Court said on the dispute between Reliance Industries and RNRL the twocould work out a “suitable arrangement” for the supply of gas if there is noprovision for arbitration as per the scheme of demerger between the two groups.

Shiv-Vani Oil (down 5.8%), MRPL(down 5.6%) and Jindal Drilling (down 4.7%) were among the other major losers.

The top gainers were GSPL (up5.3%), IOC (up 2.3%), Cairn India (up1.7%) and Gujarat NRE Coke (up 0.4%).


The BSE Capital Goods Index down 6%:
The top gainers in the capital goods sector wereKirloskar Brother (up 15.4%), Elgi Equipments (up 10%), Esab India (up5.7%), SKF India (up 3.7%) and Alfa Laval India (up2.8%).

The top losers were AstraMicrowave (down 8.3%) and Usha Martin (down 7.1%), LMW (down 5.9%).

L&T fell 7% during theweek. The company posted 26% rise in profit at Rs5.8bn in the second quarter,aided by a one-time gain from sale of its ready mix concrete (RMC) business andstake sale in a paper manufacturing joint venture.

BHEL was down 4.3% during the week. BHEL announced its Q2 net profitat Rs8.58bn registering a growth of 39% YoY as against Rs6.16bn in the sameperiod last year. While, net sales stood at Rs66.25bn as against Rs53.4bnposting a growth of 24% YoY.

The Cement Sector:
The toplosers in the cement space were Prism Cement (down 13.3%), Grasim (down 10.3%),JK Cements (down 7.2%) and Gujarat Sidhee (down 6.7%).

Ultratech Cement fell 8.5%during the week. A reports released by IIFL during the week stated that“UltraTech Cement’s (UCL) 2QFY10 result was largely in line with ourestimates—net sales up 10% YoY at Rs15.4bn; (against our expectation ofRs15.9bn); EBIDTA up 58% YoY at Rs4.7bn; and PAT up 53% YoY at Rs2.5bn (both inline with our estimates).

• Sales volume up only 5% YoY,despite sharp increase in capacities, as demand was sluggish in UCL’s keymarkets.

Blended realisation rose 6% YoYand 1% QoQ, but dropped 3% QoQ after factoring in freight expenses. We expectimpact of falling prices in UCL’s markets to reflect from 3QFY10.

• We largely retain ourearnings estimates (pre-merger) for FY10 and FY11. We will review our estimatespost announcement of merger ratio with Samruddhi Cement (SCL). We expect UCL tobenefit from the SCL merger, as it will make UCL the largest cement company in India with abalanced exposure to all regions (it currently has very high exposure to westand south markets). We maintain ADD on the stock.”

The top gainers were KakatiyaCement (up 1%) and Birla Corp (up 0.2%).

The Telecom Sector:
The toplosers in the telecom space were Himachal Futuristic (down 7.7%), Idea Cellular(down 5.6%), WWIL (down 4.1%), Shyam Telecom (down 2.6%) and TTML (down 2.1%).

The top gainers in the Telecom spacewere Gemini Comm (up 31.1%), Bharti Airtel (up 1.8%) and RCom (up 0.3%).

The Realty Sector down3.5%:
The top losers in the real estate sector were Parsvnath (down 8%),Ansal Props (down 4.5%), Unitech (down 3.9%), Sobha Developers (down 3.2%) and Peninsula Land (down2.9%).

The top gainers in Real Estatewere Anant Raj Indus (up 6.7%), DLF (up 4.9%), Mahindra Lifespace (up 4.5%) andAkruti City (up0.5%).

The Metals sector down1.7%:
The top losers in the Metals sector were Tata Steel down 7.8%, JSW Steel down 6.6%, Lloyds Metals down 6.3%, Jindal Stainless down 1.4% and Ispat Industries down 1.3%.

The top gainers were Monnet Ispat (up 6.3%), AdhunikMetaliks (up 5.4%), Sunflag Iron (up 4.6%), Bhuwalka Steel (up 2.2%) and TataSponge (up 1.6%).

Source : Indiainfoline