Markets: Asian and global markets continue to be led by the developed economies which continue to show improvement with US manufacturing accelerating fastest since 2004 and German unemployment falling to a 18yr low. This is also supporting commodity prices which are already rulling at all time high's.
In India too the exports continue to surge forward leading to one of the lowest trade deficits of about $2bn in recent times. This was also helped by a contraction in non-oil and oil imports which could be an another indicator of a slowing Indian economy though oil imports could have been lower due to higher contribution from oil from Cairn as reported in one of the dailies.
The Indian markets too look ripe for a bounce back but for the FII flows which continue to be negative in fairly large size.
Key Results Today: Bharti, Hero Honda, Glaxo Consumer
Governments action on 2G to be driven by Court judgement
The Supreme Court of India while responding to the petition filed by NGO, centre for PIL and Janata Party leader Subramanian Swamy, said that the CAG report cannot be the sole basis for cancellation of licences. The SC indicated that it will examine the legality of grant of 2G licences and the Governments decision on the regularisation of such licences who have failed to meet rollout obligations. The SC adjourned the next hearing to March 1, as the 60 days notice period given to ineligible licencees is not yet over. The SC also made it clear that whatever action the Government take on the 2G will be subjected to the outcome of the petitions before the court.
It is to be noted that the Government has already issued a show cause notice to 85 licences asking why their licences should not be cancelled. Operators have been given 60 days to respond i.e. they have to respond by February 14, 2011. The action has been taken on the basis of CAG report, which stated that 85 out of 122 new licencees did not meet the eligibility criteria prescribed by the DoT. Moreover, 45 out of these 85 licences failed to satisfy conditions of the main object clause in their Memorandum of Association.
We believe that, given how high profile the 2G licence issue has become, it would be difficult for the government to do anything other than cancel the licences if the operators who have been given show cause notices are proven to have given incorrect information or have altered documents at a later date after getting the licence.
PMI for Jan 2011 recorded marginally higher, exports up 36% in Dec but imports contract
The HSBC Markit Purchasing Managers' Index was recorded at 56.8 in January 2011 up from 56.7 in December 2010. Output has increased in every month since April 2009 but the January 2011 numbers are yet to breach the November 2010 high. The numbers clearly suggest that whilst factory output continues to expand in India (reading ahead of 50 implies expansion) the pace of expansion has moderated since November 2010. Cost pressures remain as the input price index rose for the seventh consecutive month, and the output price index rose for the fourth month in a row. Exports in Dec 2010 expanded at 36% yoy – the highest in 6 months whilst imports contracted after recording expansion for 14 consecutive months mainly on account of the moderation in domestic industrial activity. For the period Apr-Dec 2010 exports recorded expansion of 28% yoy whilst imports were up 18% yoy.
News: Gamesa appoints Morgan Stanley to scout for wind assets in India - Positive read across for Suzlon
Spanish company Gamesa has appointed Morgan Stanley to to scout for wind power assets in India to increase its India's share to 6% of its incremental power generation capacity by 2013. Currently it has sold 19,000 MW equivalent of equipments globally and in addition to this has wind farm portfolio of 22,000 MW under various stages of development. In India its is setting up a manufacturing capacity of 800 MW which is likely to be operational by 2013.
Ambit view:
There are three takeaways that come out of this news:
Independent Power Plants (IPP) are coming to India: The fact that even Gamesa (globally it has an installed wind farm portfolio of 22,000 MW at varied stage of development) is looking to enter the Indian market reiterates our thesis that finally India has made enough structural changes to motivate IPPs to enter the Indian market. It is to be noted that last week even Uk based Caparo announced plans to enter into the Indian wind market by giving a 1,000 MW order to Indian wind equipment manufacturer Suzlon. Other IPPs which have announced plans to set up/increase its manufacturing capacity in India include NTPC (500 MW), Tata Power (242 MW), Reliance Power (500 MW), China Light & Power (58 MW), Indo Wind Energy (100 MW), Indian Energy (294 MW) and Green Infra (65 MW).
Our estimate of 2,000 MW of per annum installations for India in FY12 now looks conservative:
Currently retail and corporates have 90% market share in India's per annum wind power run rate of 1,500 MW. Given that FY12 is a sun set clause for accelerated depreciation we expect the contribution from retail and corporates to increase in FY12. Assuming that we see a 20% growth in installations from retail and corporates (i.e 1,620 MW in FY12) and further assume that 25% of the 3,000 MW capacity addition plans announced by IPPs materialize in FY12 will see India adding more than 2,000 MW in FY12.
India is structurally well placed to attract IPPs:
Given the response from IPPs it seems that the new regulatory changes made (Generation Based Incentive and trading of renewable energy certificate) are good enough to attract IPPs to enter the Indian market. On top of this Jairam Ramesh has commented to expect green element in the coming union budget. He plans to deploy penalties on companies that do not cater to comply with environmental norms and use those proceeds to incentivize renewable projects.
NMDC (NMDC IN, market cap US$22,789mn, SELL, TP: Rs250, 5% downside) 3QFY11 results: Performance driven by innocuous sales mix
Our View on the results
NMDC posted a mixed set of results, with topline below our estimates but scoring high on profitability. Topline and total costs were both lower than expectations on account of lower proportion of export sales, which have higher realizations as well as associated costs compared to domestic sales. Simultaneously, there was a drop in employee costs and other operating costs, which led to EBITDA being higher than our forecasts. Blended iron ore realisation per tonne declined 13% QoQ to Rs4,141/t while Cost per tonne sold fell 20% QoQ from Rs 1,205/t to Rs 959/t.
Where do we go from here:
Going forward, we expect the sales product mix to shift towards Fines, which will have a downward pressure on blended realizations. However, cost structure should also improve, helped by economies of scale as annualized volumes should increase to 30mtpa capacity. We will revise our numbers post discussion with the management. However, given the rich valuations, our SELL recommendation is likely to remain same. On our current estimates, the stock trades at 6.1x FY12 EV/ EBITDA compared to global iron ore sector average of 5.4x.
Key takeaways:
· Iron ore production volumes came at 6.19mt up 9% YoY and 35% QoQ.
· Iron ore sales volumes were 6.31mt for the quarter up 23% OoQ and marginally 2% YoY.
· Net sales per tonne for the quarter was Rs4,154/t and EBITDA per tonne was Rs3,195/t.
· Company announced an interim dividend of Rs 1.15/share.
· NMDC has put up the assets of Silica Sand Projects up for disposal.
Actual versus Estimates:
· Net sales came in at Rs26,212mn, 6% lower than our estimates and 7% lower than street estimates
· EBITDA for the quarter was Rs20,159mn, higher than our forecast of Rs18,978mn but lower than consensus estimate of Rs21,425mn. This was a 10% QoQ and 87% YoY growth.
· Net profit was Rs15,180mn for the quarter, a 10% QoQ and 77% YoY growth.
Shree Cement (SRCM.IN, mcap US$1.3bn, CMP Rs1,685, BUY, TP: Rs2,643, 57% upside)3QFY11 results - Much below our and consensus estimates
Our view on the results:
Operating results were significantly lower than our and consensus estimates led by lower revenues. While cement and clinker sales volume grew by 20% QoQ and 5% YoY to 2.67mn mt, (2% lower than our est of 2.72mn mt) the share of clinker expanded from 7% in 2QFY11 to 12% in 3QFY11. Increased share of lower value clinker and weak cement realisation in the northern and central regions in India led to net realisation decline by 9% QoQ and 13% YoY to Rs2,799/mt (our est - Rs3,150/mt). Additionally, segmental data suggest captive power sales of ~70-80mn units, much lower than our estimates of 130mn units for the quarter. Subsequently, net sales grew by 9% QoQ and declined by 10% YoY to Rs7.8bn.
Operating costs grew by 8.2% QoQ (lower than sales growth of 9%) led by moderation in raw material, employee and power & fuel costs and other expenses. Hence, operating profits increased by 12% QoQ and declined by 53% YoY to Rs1.6bn. Higher interest and depreciation costs impacted PBT downwards 70% QoQ and 97% YoY to Rs77mn. However, adjusted PAT increased by 88% QoQ to Rs334mn aided by a tax credit of Rs215mn.
Where do we go from here?
We expect to revise our estimates downwards by 15-25% in light of disappointing 3QFY11 results, lower sales offtake (in both cement and power businesses) and higher cost pressure as imported coal cost has risen by ~33% over the last two months. This would lower our DCF-based fair value of the stock. However, as the stock itself has corrected by 19% since we initiated on the stock on December 01, 2010, we need to get the management's view on the ramp up in the power business and on cost inflation across both cement and power businesses before we revise our earnings estimates and review our stance on the stock.
India Automobiles - Jan'11 numbers are mixed bag
Unlike Dec 2010, automobile nos for Jan 2011 have seen a bit of moderation. In four Wheelers Maruti reported in line with expectations but Tata Motors CVs growth saw a decline and was below expectations. In case of Two Wheelers both Hero Honda and TVS Motors reported in line with expectations .
Four Wheelers
Tata Motors reported sales of 75,423 units (ex-fiat) a growth of 15% y/y , CV sales were up 12% y/y, Passenger Car Sales were up 14% y/y and Exports were up 51% y/y. Maruti reported sales of 109,743 units a growth of 15% y/y .
Two Wheelers
Hero Honda reported sales of 466,524 units a growth of 20% y/y and TVS Motors reported sales of 165,152 units a growth of 30% y/y.
We feel at current valuations, demand and margin contraction to a large extent are factored into stock prices. Our preferred pick in the automobile space is Tata Motors, currently trading at forward p/e multiple of 8x and EV/EBIDTA multiple of 5x.
Derivatives Analyst : We continue to think Nifty should find good support at the 5400 mark as is being suggested by the current options build-up; the positive global cues to start the day with suggest a higher opening for the indices; overall, in the short to medium term, Nifty can make a dash towards 5700 on the way up.
Based on provisional figures, FIIs were sellers of Rs.10.37bn in the cash market while DIIs bought worth Rs.6.30bn. On the futures side, FIIs were net buyers of Rs.7.33bn (buyers of Rs.7.3bn in index futures and buyers of Rs.31mn in stock futures).
Nifty futures' OI increased by 9.52% to stand at 23.75 mn shares; Feb ATM IVs traded at 21%; Feb futures closed at a premium of 11.95 points to the index. Options activity comprised of significant addition in 5500 calls; overall, 5400 remains a key support for the Nifty while on the way up strong resistance lies at 5700. Nifty current series PCR stands at 0.97 while the combined PCR for the first three series stands at 1.15.
Sectoral activity primarily comprised of shorts in Auto Components and Cement stocks. Stockwise longs were seen in Polaris and BalramChin. Short covering was witnessed in Fortis and OrientBank. Fresh shorts were seen in JainIrrig, AsianPaint, Voltas, Cummins and BharatForg. Long unwinding was seen in LITL, BankIndia, IOB and SyndiBank.
Post a Comment