Saturday, November 7, 2009

Indian Stock Markets Weekly Review 06-Nov-09

While the Monday blues were saved due to a local holiday, the indices came crashing down on Tuesday following extremely weak global cues. Bulls, however, managed to labor enough to stage a comeback on Thursday. The Finance Minister's remarks on disinvestment of PSUs, clarity on implementation of the direct tax codes and a rebound in global markets resulted in the Nifty closing at 4,796 up 1.8% and Sensex ending the week 1.6% higher at 16,158.

The BSE Sensex hit an intra-week high of 16,283 and low of 15,330 while, NSE Nifty hit an intra-week high of 4,836 and low of 4,563.

The Foreign Institutional Investors (FIIs) sold worth Rs11.46bn during the week. On the other hand, the Domestic Institutions were net buyers to the tune of Rs9.28bn during the week.

The top gainers: The top gainers in Sensex were ICICI Bank (up 10%), Reliance Capital (up 7.8%), Tata Steel (up 6.9%), Maruti Suzuki (up 6.7%) and Ranbaxy Labs (up 5.9%).

The Top Losers: The top losers in Sensex were Tata Power (down 9.4%), Ambuja Cements (down 5%), Wipro (down 5.2%), ITC (down 4%) and Hindustan Unilever (down 3.7%).

The BSE IT Index (up 0.5%): The top gainers in the IT sector were Financial Tech (up 16%), Mphasis (up 8.3%), Oracle Financial (up 5.3%) and Mahindra Satyam (up 3.2%).

The top losers were Sasken Communication (down 5.2%), Wipro (down 4.2%), TCS (down 1.9%) and HCL Tech (down 1.7%).

Patni Computer surged over 10.8% during the week after reports stated that L&T Infotech is planning to acquire the company.

Wipro was down by 5% during the week. The company acquired the business of Yardley in Asia, West Asia, Australia and certain African markets from UK-based Lornamead Group for Rs2.1bn.

According to a report released during the week, “Robust earnings upgrades (5-13% for FY10/11 for top 4 vendors) and stronger signs of a recovery (Wipro guided for 4.5% QoQ revenue growth for 3QFY10 at top end) sum up the review for the quarter. EBITDA margins continued to improve (50-150bps QoQ) on tight hiring and volume growth. That said, we believe most players’ margins have peaked in 2QFY10. Going forward, wage hikes and rupee appreciation remain the key risks, in our view. The demand environment has not recovered fully (Lloyds and RBS are set for a further US$51bn bailout and CIT has filed for bankruptcy), but we believe business conditions are conducive to strong growth in FY11, as: 1) IT spending has been low for over a year now; 2) deal pipelines are increasing; and 3) project rampdowns from badly affected industries like technology and telecom have also largely stabilised. Wipro and TCS remain our top picks among large caps. Among mid-cap firms, we prefer Patni, Infotech and Hexaware”.

The BSE Consumer Index: The top gainers in the consumer durables space were Mirc Electronics (up 3.2%), Su-Raj Diamonds (up 2.4%) and Blue Star (up 1.4%).

The top losers were Videocon Industries (down 7.6%) and Samtel Color (down 2.6%).

The BSE Healthcare Index (up 3.3%): The top gainers in the Pharma sector were Torrent Pharma (up 21.4%), Zandu Pharma (up 10.5%), Wockhardt (up 10.2%) and Lupin (up 7.3%).

The top losers were Dishman Pharma (down 10.3%), Natco Pharma (down 6.5%), Glaxosmithkline (down 2.5%), Orchid Chem (down 1.7%) and Morepen Labs (down 0.7%).

The BSE Banking Index (up 4%): The top gainers in the banking space were Yes Bank (up 8.8%), OBC (up 7%), Allahabad Bank (up 6.7%) and Kotak Mahindra Bank (up 6.6%).

The top losers were Federal Bank (down 6.8%) and Union Bank of India (down 1.7%).

ICICI Bank was the top gainer during the week. The stock surged 10%. IIFL in a report released during the week stated, “ICICI Bank’s 2QFY10 results show some positive sequential developments as CASA improved, operating expenses fell and NPLs too declined. However, these improvements are unlikely to result in a sustained re-rating of the stock. While CASA improved sequentially, NIM expansion of 10bps QoQ was below that witnessed at other banks. With loans down 14%YoY, we expect interest income to remain weak in the 2H. Provision charges will remain high in the foreseeable future so as to raise NPL coverage to the minimum required 70%. While ICICI is on the right path by shedding unprofitable assets and refocusing on building the deposit franchise, the medium term profit outlook remains impaired. We expect ROE to remain in single digits over the next 2 years. ICICI remains expensive on PE and PEG terms, while appearing cheap on P/Bx term. We maintain REDUCE”.

SBI ended flat during the week. A report released by IIFL during the week stated, “SBI’s 2QFY10 standalone net profit growth was relatively weak at 10%YoY while consolidated profits grew by 18%YoY. Associate banks’ profits grew by 46%YoY. NII was up 12%QoQ driven largely by 25bps QoQ NIM expansion. ROE of 15.7% and ROA of 0.95% for 1HFY10 are respectable, but relatively weak compared to the peer group. Tier-I CAR remains comfortable at 9.8% and capital raising is unlikely to be required in the near future. Long standing concerns on low NPL coverage and low ROE remain. The stock has out performed both the Sensex and Bankex over the past three months and now trades at 1.5x FY11ii consolidated P/B. We expect the stock to perform in line with the market in the near-term”.

The BSE Auto Index (up 3.3%): The top gainer in the auto space was Ashok Leyland. The stock rose over 16.5% during the week after the company reported a jump of 57% in its commercial vehicle sales at 5,333 units in October as compared to the same month in 2008.

Maruti Suzuki was up over 6.7% during the week after the company reported a 32.45% jump in total sales at 85,415 units in October compared to the same period last year.

Eicher Motors advanced 6% during the week after the company’s commercial vehicles sales rose 71% in October. It sold 2,024 trucks and buses in the month, compared with 1,183 units in the year-ago period.

M&M gained 4.8% after the company’s utility vehicle sales grow 32% in October.

Bajaj Auto gained 4.1% during the week after the company's motorcycle sales rose 52% in October 2009.

The top losers were Swaraj Mazda (down 2.3%) and Hindustan Motors (down 0.5%).

Hero Honda was down 1% during the week after the company reported a marginal increase in October sales at 354,156 units as against 352,449 units in the same month last year.

The BSE Oil & Gas Index (up 2.1%): The top gainers were GSPL (up 8.3%), MRPL (up 4.9%), Shiv-Vani Oil (up 2%) and HPCL (up 1.6%).

Cairn India advanced 2.5% during the week, a report released by IIFL during the weekstated, “Cairn India’s flagship Rajasthan block is well set to reach production of 175kbpd by CY2011. Pricing for Rajasthan crude—benchmarked to Bonny Light, with appropriate discounts—would benefit from narrow light-heavy spreads on OPEC production discipline. Cairn’s balance sheet is adequately funded to execute the Rajasthan project, with operating cash flows supporting exploration activities. While uncertainties remain on Rajasthan cess and offtake of peak crude volumes from Rajasthan, Cairn’s pipeline provides access to 75% of India’s crude refining capacity.
Cairn’s strong leverage to crude, along with strong operating cash, makes it attractive, in our view. Cairn’s current stock price is 6.8x its stable cash flow per share. We initiate with ADD rating and target price of Rs278/share”.

The top losers in the oil & gas space were Hindustan Oil (down 7.6%), Chennai Petroleum (down 5.5%), Jindal Drilling (down 2.9%), Reliance Industries (down 2.1%) and Essar Oil (down 1.4%).

The BSE Capital Goods Index (up 1%): The top gainers in the capital goods space were BEL (up 15.2%), Usha Martin (up 14%), BEML (up 9.6%), Dredging Corp (up 9.2%) and Jyoti Structures (up 8%).

The top losers were Alstom Projects (down 5.6%), Aban Offshore (down 3.9%), ABB (down 2.1%), Gammon India (down 1.9%) and Siemens (down 1.6%).

The Cement Sector: The top losers in the cement space were India Cements (down 8.4%), Mangalam Cement (down 5.1%), Madras Cements (down 4.9%), Prism Cement (down 4.4%) and Dalmia Cement (down 4.1%),

The top gainers were JK Cements (up 9.9%), Binani Indus (up 5.2%), Shree Cement (up 4.6%), Grasim (up 1.8%) and Birla Corp (up 0.1%).

A report released by IIFL during the week stated, “Cement prices in south and west regions have been falling steeply over the past two weeks, as the increase in supply is outstripping that in demand. At present, cement is cheapest in Hyderabad, at Rs123–145 per 50kg bag—down 18% in the past two weeks and 45% from the peak price reached in April 2009—the sharpest price fall in the past 15 years. According to dealers, price cuts have become a daily occurrence in the southern markets. In Gujarat, price declines have accelerated as supplies originally intended for exports have been diverted to the domestic market, given dwindling demand from the Middle East. Prices in the north have dropped by 2-3% in the past two weeks as supplies to the central region have reduced”.

The Telecom Sector: The top gainers in the telecom space were Gemini Comm (up 25.3%), MTNL (up 2.7%) and Shyam Telecom (up 1.7%).

The top losers were Idea (down 9.2%), Tata Communication (down 6.9%), RCom (down 6.1%), WWIL (down 4.4%) and TTML (down 2%).

Bharti Airtel advanced 2.6% during the week. According to a reports released by IIFL during the week stated, “A revenue decline of 1% QoQ, strong cost management (30bp increase in EBITDA%), FX loss of Rs0.7bn; a reduction in tower capex guidance ($1bn to $0.7bn), Rs2.2bn tax write back and PAT drop of 7.8% QoQ to Rs23.2bn characterised 2QFY10. Management commented that they would not match prices, but Bharti has just released a 1p/s (on-net) and 1.2p/s (off net), following a recent Rs0.5/min on-net and Rs0.6/min off-net plan. These plans make no distinction between local and STD calls (per minute plan is for pre-paid with voucher of Rs77 for 1yr validity). We model Rs0.55/min RPM for FY10, 580bn mobile min in FY10 (little elasticity assumed) and trim EPS by 12%-18%. We re-iterate REDUCE rating with a TP of Rs312”.

The Realty Sector (up 4.4%): The top gainers in the real estate space were HDIL (up 9.2%), Unitech (up 7.6%), Parsvnath (up 7.4%), Mahindra Lifespace (up 6.7%) and Peninsula Land (up 4.3%).

The top losers were Sobha Developers (down 8.2%), Omaxe Ltd (down 4.2%), Anant Raj Indus (down 1.4%) and Ansal Properties (down 0.2%).

The Metals sector (up 4.1%): The top gainers in the metals were Tata Steel (up 6.9%), Bhushan Steel (up 6.8%), JSW Steel (up 6.3%), Sunflag Iron (up 4.3%) and Lloyds Metals (up 3.2%).

The top losers in Metal were Ispat Industries (down 18.9%), Adhunik Metaliks (down 15.9%), Tata Sponge Iron (down 14.5%), Bhushan Steel (down 13.8%), Sunflag Iron (down 11.9%),

SAIL fell 1% during the week. IIFL in its report released during the week stated, “SAIL’s 2QFY10 PAT at Rs16.6bn (down 17% YoY and up 25% QoQ) was ahead of our estimate (Rs15.7bn) but in line with consensus.

• The positive surprise came from write-back of employee cost provisions.

• SAIL’s employee cost is unsustainably low and we expect it to increase by ~50% from this quarter’s level.

• SAIL has the highest conversion cost among Indian companies, on account of its bloated employee base and inferior product mix.

• Support from cash balance cannot be taken for granted, as we expect SAIL to turn net-debt in FY11 once full payment of the increased wages as per Sixth Pay Commission has been made and capex has increased.

• At its current price, the stock is trading at PE of ~14x on FY11ii—at a significant premium to its historical trading band. We retain SELL”.

Source : Indiainfoline.com

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Equity Research team
Ravina Consulting
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