BSE / NSE Weekly Review Feb 11, 2012

Key benchmark indices rose in the week ended 11th February 2012, as inflows from foreign
institutional investors (FIIs) remained robust. This was the 6th consecutive weekly gain. Trading
remained upbeat throughout the week. However, some profit booking emerged on Friday (10
February 2012) after disappointing industrial production data for the month of December 2011
dampened investor sentiment.

Industrial production rose a slower-than-expected 1.8% in December 2011, government data
showed on Friday, 10 February 2011. The growth in December 2011 was sharply lower than
5.9% growth in November 2011. Manufacturing output, which constitutes about 76% of industrial
production, rose 1.8% from a year earlier, the federal statistics office said.

India's January exports rose 10.1% to $25.4 billion while imports rose 20.3% to $40.1 billion,
leaving a trade deficit of $14.7 billion, Trade Secretary Rahul Khullar said on Thursday. India's
exports reached $242.8 billion between April and January, Khullar said, citing provisional data.
The BSE Sensex rose 0.8% to 17,749 in the week ended Friday, 10th February 2012 while the
S&P CNX Nifty rose 1.1% to 5,382. The rise in the broader indices was amplified. The BSE MidCap index rose 3.3% to 6,247 while the BSE Small-Cap index rose 3.1% to 6,891. The sectoral
indices sentiments were extremely positive with the Healthcare index being the only loser. BSE
Realty, BSE CD and BSE Metal were the largest gainers.

Realty: 
The BSE Realty index rose 5.8% to close at 1,887 levels. Among the heavyweights, DLF rose
marginally (0.2%) while Unitech and HDIL jumped significantly (12.9% and 18.0% respectively)
in the week. Shares in real estate companies were up on expectations of a pick-up in deal flows
and a fall in interest rates, which would benefit both builders and real estate buyers. Unitech
rose on account of pressure from the Norwegian government to survive Uninor, a venture by
Telenor and Unitech Ltd. Telenor, in which the Norwegian government has a ~54% stake, owns
nearly two-thirds of Uninor with infrastructure provider Unitech holding  the rest. Norway’s IT
minister, Rigmor Aasrud, met her Indian counterpart, Kapil Sibal, to discuss the Supreme Court’s
cancellation of licenses of telecom operator Uninor.


Consumer Durables (CD): 
The BSE CD index rose 5.8% to close at 6,169 levels. Among the heavyweights, Titan, Rajesh Exports and Gitanjali rose 5.3%, 2.4% and 5.5% respectively while Videocon fell 1.1%. TTK Prestige rose a whamming 38.9% in the week, establishing its spot among the large companies by market cap within the CD space. The company  clarified that it did not intend to exit the modular kitchen business but plans to expand it slowly after gaining experience. The company also has a plant coming up in Gujarat, which will add to the topline significantly.



Metals:  
The BSE Metals index rose 4.1% to close at 12,364 levels. All the industry majors were gainers. Tata Steel and Coal India rose 1.7% each while Jindal Steel, Hindalco and Sterlite rose 8.5%, 0.2% and 5.1% respectively. Tata Steel issued an encouraging future outlook after reporting 3rd quarter consolidated net loss of Rs 603 cr as  against net profit of Rs 1003 cr in Q3FY11. Turnover rose 13.79% to Rs 33103 cr in Q3FY12 over Q3FY11. With regard to future outlook, Tata Steel said softening raw material prices is expected to ease product-costing pressures from Q4FY12 onwards. Tata Steel expects steel demand in India to improve with RBI indicating progrowth monetary policy. Steel prices remain firm and with traditionally strong volumes in the fourth quarter and the company's profitability is  expected to improve.

The outlook for steel demand in Europe remains stable. Strengthening  steel prices in Europe and restocking will result in better margins of Tata Steel’s European operations in the coming quarters. Tata Steel’s South East Asian operations are expected to perform better with activities in Thailand coming back to normal. Reconstruction activities  will boost long products demand. Jindal Steel and Power plans to spend $300 million in developing new and existing mines in Africa. The move is part of the company's strategy to source coal assets abroad to meet raw material demand of its steel and power plants at home.

Bankex: 
The BSE Bankex index rose 3.0% in the week to close at 11,987 levels. All the large players, namely ICICI Bank, HDFC Bank, SBI and Axis Bank, were gainers, rising 1.5%, 1.9%, 3.3% and 1.6% respectively. SBI recently said that the Government of India has agreed to inject approximately Rs 7900 crore into bank by way of preferential allotment of equity shares to help SBI achieve minimum 8% Tier I CAR by 31  March 2012. The government currently owns 59.40% of SBI. HDFC Bank hit a record high on Friday. A unit of Singapore state investment company Temasek Holdings Pte sold 1.59 crore shares of ICICI Bank through bulk deals on NSE for Rs 1472 crore during the week. Allamanda Investments Pte sold the shares in India's
largest private-sector lender by assets at an average Rs 924.05 per share in the week. Goldman Sachs Investments Mauritius mopped up 64.65 lakh shares in the bulk deal at a price of Rs 924 per share.

PSU: 
The BSE PSU index rose 2.5% in the week to 7,673 levels. ONGC, Coal India, NTPC and SBI rose 0.3%, 1.7%, 2.0% and 3.3%. As mentioned previously, the Government of India has agreed to inject money into SBI. NTPC paid an interim dividend of Rs 2,885.92 cr for the current fiscal. Net profit of the company rose 10% to Rs 2,130.39 crore for the quarter ended December 31,
2011 due to increase in coal prices.

Healthcare (HC): 
The BSE Healthcare (HC) index was the only loser in the week, falling 1.0% to close at 6,347. Among the giants, Sun Pharma, Dr. Reddy’s and Lupin were losers, falling 2.7%, 3.0% and 4.1% respectively while Cipla rose 1.2%. Lupin Limited is planning to invest $20 million in setting up a new manufacturing facility in Pune. Lupin will also launch a cancer drug, which is yet to go through the third clinical trial. It is expected to hit the market during the next financial year.






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Maruti - Avoid

Shares of Maruti Suzuki Ltd slipped to their 52-week low of Rs 1022.10 on Friday as investors are concerned of ongoing strikes at various plants which may weigh on production targets and profitability.

Maruti Suzuki has suspended production at its factory in Gurgoan for two days from Friday in view of the strike at its component supplying plant in Manesar.

Workers at Maruti Suzuki's Manesar plant went on strike demanding reinstatement of 44 suspended co-workers who were not taken back after an earlier 33-day impasse with the management ended Oct 1.

Goldman Sachs in a recent report has cut production estimates for Maruti Suzuki Ltd and maintained a 'Neutral' rating with a 12-month price target of Rs 1071, a cut from Rs 1173 target earlier.   The brokerage report says, "Owing to persistent labour strikes at Maruti Suzuki's Manesar plant and supplier Suzuki Power Train, we cut our volume estimates for Maruti Suzuki to 1.2mn units for FY12E (from 1.35mn) with further potential downside should the current impasse continues."

Also, the company might not be in a position to take advantage of new capacity at the Manesar plant in the face of demand uptick driven by seasonally strong festive demand, launch of new Swift model in Aug'11.

According to a report, continued labour unrest at Maruti Suzuki Ltd has alarmed auto companies, as both the carmaker giant and vendors have reported a combined loss of around Rs 3,000 crore since the start of the standoff earlier in June this year.   The government has suffered an excise revenue loss to the tune of Rs 350 cr, while the company has already taken a hit of over Rs 1500 crores.

According to estimates, since the first round of strike in June this year to over 30 days-long standoff from August 29-October 1, and the fresh strike at the Manesar plant from October 7, Maruti Suzuki has suffered a total production loss of over 51,000 units.

Any worsening in labour disputes could potentially drive structural downside risk to Maruti Suzuki's margins from higher staff costs in the long run.  Maruti Suzuki's current staff cost as a percentage of revenue is one of the lowest among peers in India and Asia.

The strike could not come at a more crucial time for the car manufacturer as it is the festive season, which typically generates huge demand -- something the automobile giant is in need of given the sluggish sales witnessed in recent months.

According to recent data, domestic passenger car sales declined for the third consecutive month in September with a fall of 1.8%, mainly due to the severe impact of labour issues on Maruti Suzuki India's production.

According to figures released by the Society of Indian Automobile Manufacturers (SIAM) today, domestic passenger car sales stood 1,65,925 units in September against 1,68,959 units in the same month last year.

Maruti Suzuki Ltd might not be able to take advantage of the festive season, which typically generates huge demand for automakers, on the back of ongoing strike at Maruti's plant which has halted production.

In September, the company's sales declined by 17.76% to 66,667 units from 81,060 units in the same month last year, while rival Tata Motors reported a 2.19% jump in sales to 21,011 units in September this year from 20,560 units in the same period last year.

Car sales in India are expected to rise just 2 to 4 percent this fiscal year to next March, down from an earlier forecast of 10 to 12 percent, industry body Society of Indian Automobile Manufacturers (SIAM) said earlier in the week.

Analyst Call:

Shares of Maruti Suzuki closed 2.65% lower at Rs 1028.45. The stock has touched its 52-week low of Rs 1022.10 earlier in trade today.

"Today the stock has made a new 52 week low, and is inching towards breaking the 1,000 mark on the downside," said Kunal Bothra, Senior Technical Analyst, Manager Advisory, LKP Securities.

The stock has plunged over 15% since June 2011 and over 27% so far this year.

"Technically, the stock has broken down out of a one month consolidation, and if it sustains below Rs 1050 on closing basis today, we should see more selling pressure in this stock," added Kunal.

"If we look at the weekly chart of Maruti Suzuki Ltd, it is clear that the stock is in a consolidation mode since Sep 2009 peak. However if it manages to hold its key retracement levels (61.8%) of Rs 896, on a longer term (2 or more years) basis, the uptrend would still remain intact," said Kunal.

CLSA also maintains "underperform' rating on Maruti Suzuki Ltd with a target price of Rs 1075, a cut from Rs 1210.

Our Recommendation

We expect the share to slide further 25% in the upcoming months due toe the following

- loss of market share
- sedate car market Oct-Dec will be worst
- Continuing labour unrest
- launch of new models by rivals

Below 1000 mark the stock could sink to 800 levels by end december.  Long term investors can enter the stock post Jan 2012 and hold for a period 2-3 years for a 100% gain by way of capital appreciation.


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Indian IT Sector to post muted growth

Nomura Financial Advisory and Securities has assigned `Buy` and `Neutral` rating on the following 5 IT stocks. The rationale for the rating is as follows:

HCL Technologies - Buy
CMP: Rs 409
Target Price: Rs 530
Upside 29.5%

Revenue growth of 5.4%, margin decline of 140 bps in 1QFY12 expected:

We expect HCL Tech to deliver US dollar revenue growth of 5.4% q-q in 1Q FY12F along with a 140bp decline in EBITDA margin from wage hikes and fresher recruitment, cushioned by rupee depreciation. Management commentary on the deal pipeline and win-rates will be keenly watched.

Top pick in IT for highest absolute return potential:

HCL Tech`s market share gain focus and lower margin expectations should aid in competing better in a growth slowdown scenario, in our view. We derive comfort from revenue surety on strong deal wins/pipeline exhibited by: 1) USD 2.7 billion worth of TCV signed in BFSI/manufacturing in FY11; 2) about USD 2 billion worth of deals in BFSI in the pipeline; and 3) anticipated strong deal decision making in the December 2011 quarter with a record-high pipeline. Valuations seem to be building in a worst-case scenario of severe pricing cuts, which we believe is unlikely. In our view, its valuations and best-in-class earnings growth provide comfort for implied upside of 30% from current levels. HCL Tech remains our top pick in IT.

Catalyst: Decision making on deals in line with expectations in the December 2011 quarter and an absence of pricing cuts.

Reiterate `Buy` and target price of Rs 530 based on 15x FY13F:

We expect a USD revenue CAGR of 19% and EPS CAGR of 24% over FY11-13F. Our estimates are marginally revised upwards for rupee depreciation. We retain our target price of Rs 530, based on 15x FY13F earnings.

Infosys - Buy
CMP: Rs 2,533
Target Price: Rs 2,900
Upside 15%

Possible negative reaction to guidance cut; accumulate on declines:

We expect 2QFY12 results to be in line with guidance on USD revenues (4.9% q-q), to surprise positively on EBITDA margins (est +110 bps q-q) and come in ahead of guidance on EPS (est Rs 35.7 vs guidance of INR 30.2) driven by rupee depreciation. We see disappointments on a cut in FY12F revenue guidance, which we think is highly probable given: 1) project delays/deferrals and discretionary spending curtailments; and 2) adverse cross-currency movements. Infosys has significant operational scope to tide over demand moderation and we find comfort in valuations which are already factoring in a possibility of guidance downgrade and growth moderation to the low-teen levels in FY13F. Reiterate `Buy`.

Expect FY12F revenue guidance cut and EPS guidance raise:

We expect a cut in USD revenue growth guidance from 18-20% to 16-18% on: 1) growth moderation; and 2) cross-currency impacts. We think EPS guidance is likely to be raised to around Rs 135 from Rs 128-130 earlier on: 1) rupee depreciation; and 2) cost curtailments in a growth moderation environment. Expect 3QFY12F revenue growth to be guided at 3-4% q-q.

Catalyst: Keeping revenue growth guidance unchanged would be a positive trigger.

Raise target price to Rs 2,900, reiterate `Buy`:

We raise our target price to Rs 2,900 (vs Rs 2,800 earlier) based on 18x FY13F earnings on a marginal improvement in earnings on rupee depreciation. Maintain `Buy` on better operational scope and comfort on valuations.

Patni Computer Systems - Neutral
CMP: Rs 289
Target Price: Rs 300
Upside 3.8%

 Weak revenue outlook in the price; upgrade to `Neutral`:

Patni has corrected by 39% (vs 19% correction for the Nifty) YTD and is now trading at 10x FY12F EPS. Post this correction, we see limited downside given: 1) likely sequential margin and EPS improvement for the next few quarters primarily on the back of G&A savings; 2) a cash balance of Rs 130 a share (45% of market cap); and 3) Igate`s expressed preference for a delisting, which could result in shares being acquired at a premium to current prices. Upgrade Patni to Neutral.

Not a `Buy` yet, as revenue and governance concerns remain:

Patni`s revenue growth will be sluggish, in our view, (we model 6.6% CAGR over FY10-12F) as margin improvement seems to be the primary focus of management. Also, we still have concerns on allocation of costs and revenues to Patni under a common Igate-Patni front-end.

Catalyst: Change in delisting plans, improvement in revenue growth

An Igate decision to cut its stake instead of delisting could lead to valuation multiple de-rating. Any sign of Patni breaking out from the sub-4% sequential revenue growth pattern could lead to a re-rating in the stock.

Raise target price to Rs 300 based on 10x 1-yr forward earnings:

Our diluted EPS estimates are higher by 6%/3% to Rs 25.4/28.3 in FY11/12F on 1) rupee depreciation; and 2) higher G&A savings, despite cut in FY13F revenue estimates.

Tata Consultancy Services - Neutral
CMP: Rs 1,037
Target Price: Rs 1,070
Upside 3.18%

2QFY12F - 5%+ revenue growth; forex losses to weigh on earnings:

We expect TCS to report USD revenue growth of 5.4% q-q in 2Q FY12F. EBTIDA margins are likely to improve by 80bps q-q on better rupee realisation and SG&A leverage. Forex losses could depress the positive impact of rupee depreciation on earnings. Management commentary on demand and pipeline will be key things to watch for, as we sense some moderation in management optimism over the past few quarters.

High BFSI/Europe exposure a risk; remain `Neutral`:

We see the key risk at TCS being its high banking, financial services and insurance (BFSI) and Europe exposure. These were the first segments to be hit in the previous downturn, and we expect a repeat of the same scenario. Valuations still appear to build in higher-than-peer-group optimism on future growth given strong management commentary and superior results of late, which could be at risk in a growth moderation scenario. We maintain our Neutral rating, despite continuation of growth momentum in the near term. Amongst Tier-1 stocks, we prefer Infosys and HCL Tech.

Catalysts: Economic uncertainty shifting to individual clients and management commentary turning less upbeat on demand.

Raising target price to Rs 1,070; remain `Neutral`:

We have raised our EPS estimates marginally on rupee depreciation. This leads to our TP being raised to Rs 1,070 (from Rs 1,050), based on 18x FY13F earnings. We remain cautious on TCS on its high BFSI/Europe and client concentration, coupled with lesser comfort on valuations.

Wipro - Neutral
CMP: Rs 341
Target Price: Rs 340
Downside 0.3%

2QFY12 - 3% revenue growth, 200 bp margin decline expected:

We expect Wipro`s IT Services business to post USD revenue growth of 3.4% q-q (1.3% organic growth), which would be near the higher end of its guidance (2-4%). EBIT margins in IT services are likely to dip by 200 bps q-q on the partial impact of wage hikes and the SAIC acquisition. We think there could be disappointment if Wipro guides for less than 3% q-q growth in 3Q.

Downturn a setback to revival efforts; maintain `Neutral`:

We believe the economic uncertainty and impending growth moderation have come at the wrong time for Wipro, which is trying to restructure and close the growth gap with its peers. We see economic uncertainty setting back Wipro`s revival efforts, adding to the high risks to growth in FY13F on account of: 1) weak near-term deal flow; and 2) slow decision-making reducing the possibility of a near-term revival. Wipro remains our least preferred tier-1 Indian IT stock, as we believe it has the slowest earnings and revenue growth outlook among peers and lacks immediate triggers.

Catalysts: Continued underperformance on growth and pricing cuts.

Raise TP to Rs 340 based on 14x FY13F EPS:

We expect Wipro to deliver a CAGR of 11% in revenue growth and 6% in EPS over FY11-13F. The 14x multiple is a 20% discount to our target multiple for Infosys and TCS, justified given the lag in revenue revival and below par earnings growth.
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