Indian markets are expected to open in the green following positive cues from the European markets and the Asian markets. Asian stocks rose as manufacturing growth from Australia, China and India added to optimism that the region’s economies will withstand Europe’s unresolved sovereign debt crisis. Indian shares ended a choppy session modestly higher on Monday after the government said it would allow qualified foreign investors direct access to Indian stock markets from January 15. While the manufacturing PMI for India jumped to a six month high of 54.2, cheering investors, slowdown in exports to 3.9% yoy for the month of November restricted major upside movement in domestic equities. European stocks though kicked off the New Year in style on Monday, as the markets open for business rallied on hopes that 2012 will bring an end to the region's sovereign debt crisis. Also, German factory sector contracted less than initially estimated in December which led to further gains for European markets on Monday.
Markets Today
The trend deciding level for the day is 15,473/4,624 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 15,588 – 15,658/4,659 – 4,681 levels. However, if NIFTY trades below 15,473/4,624 levels for the first half-an-hour of trade then it may correct up to 15,403 – 15,288/4,601 – 4,566 levels.
Auto sales update – December 2011
Maruti Suzuki (MSIL)
MSIL registered a 7.1% yoy (flat mom) decline in overall volumes to 92,161 units, led by weak performance in domestic markets. Domestic performance during the month witnessed a 13.4% yoy (6.5% mom) decline to 77,475 units, primarily due to subdued demand for passenger cars. Export volumes, however, overshadowed the weak domestic performance, as it recorded impressive 50.5% yoy (65% mom) growth to 14,686 units. The mini segment registered a decline of 15.6% yoy (flat mom), while the compact segment posted flat yoy (6.8% mom) growth. Production during the month was impacted, as the company’s plants were shut for six days in December on account of annual maintenance.
Hero MotoCorp (HMCL)
HMCL reported in-line growth of 7.8% yoy (0.7% mom) in total volumes to 540,276 units. New product launches and refreshed product ranges continued to support HMCL’s volume momentum across product segments. Management has indicated that it further intends to consolidate the company’s leadership position with new product launches and network expansion.
Bajaj Auto (BJAUT)
BJAUT posted lower-than-expected volumes for December 2011, led by moderate growth in the motorcycle segment. Total volumes recorded modest growth of 10.4% yoy (18.4% mom decline) to 305,690 units, primarily due to weak 8.2% yoy (substantial fall of 20.6% mom) growth in the motorcycle segment. Three-wheelers, on the other hand, sustained their strong momentum, reporting 26.8% yoy (down 1.2% mom) growth. Exports also maintained their growth trajectory, witnessing growth of 25.5% yoy (down 7.4% mom) in December 2011.
TVS Motor (TVSL)
TVSL reported poor numbers for December 2011, as total volumes declined by 0.8% yoy (2.9% mom) to 170,428 units. The weak performance can be attributed to slowdown in TVSL’s motorcycle segment, which declined by 7.7% yoy (9.5% mom). The scooters and mopeds segments also witnessed moderate growth of 7.2% (1.1% mom) and 2% yoy (flat mom), respectively, in December 2011. Three-wheeler volumes during the month fell steeply by 26.5% yoy (6.8% mom) to 2,523 units.
Govt. raises export duty on iron ore; Sesa Goa to be the worst hit
The government has raised export duty on iron ore to ad valorem 30% on lumps and fines, with effect from December 30, 2011, compared to 20% earlier. Iron ore exports from India have already declined by 25.2% to 35.4mn tonnes from April- October 2011 on account of export ban in Karnataka, stringent measures in issuing export permits in Odisha, a sharp decline in international iron ore price and increased export duty. Post the export duty hike, rise in rail freight and the recent iron ore price decline are expected to severely affect iron ore exports from India. Before the export duty hike (as per Federation of Indian Mineral Industries), total iron ore exports during FY2012 were estimated to be 60mn tonnes compared to its previous estimate of 75.0mn tonnes. We now expect iron ore exports to be lower than 60mn tonnes during FY2012.
We do not expect any impact on NMDC’s financials due to hike in export duty, as we do not anticipate any exports of iron ore by NMDC during FY2012 and FY2013. However, we have lowered Sesa Goa’s EBITDA estimates for FY2012 and FY2013 by 8.1% and 9.1% to Rs.3,314cr and Rs.3,712cr, respectively. Also, we believe some of the Karnataka iron ore would now be sold domestically. Nevertheless, we believe the current stock price discounts negatives such as acquisition of a minority stake in the unrelated oil business via acquisition of Cairn India’s stake, increased export duty, higher railway freight and lower volumes from Goa mines. We recommend Buy on the stock with an SOTP-based target price of Rs.195 (Rs.213 earlier).
L&T bags orders worth Rs.2,056cr
Larsen & Toubro's (L&T) construction arm has bagged new projects worth Rs.2,056cr across various categories in December 2011. Of these projects, two orders worth Rs.1,262cr in the water and effluent treatment segment was bagged by the company. In the buildings and factories category, a project worth Rs.388cr was bagged for constructing residential towers. In the rail infrastructure segment, orders aggregating to Rs.406cr have been grabbed from various clients. With these orders, the company’s outstanding order book stands at ~Rs.1,52,609cr (3.5x FY2011 revenue), providing good revenue visibility. This order booking takes the company’s total declared orders to ~Rs.10,420cr in 3QFY2012 against orders worth Rs.13,336cr received in 3QFY2011. The drying up of order inflows is one of the major concerns for the stock and has led to underperformance in the recent past.
At the CMP of Rs.1,009, the stock is trading at PE of 9.7x FY2013E earnings, after adjusting for investments, which is below the historical trading multiple for L&T and we believe factors in most of the negatives surrounding the stock. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in the different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to Rs.1,453, which provides 44.0% upside from current levels. Hence, we maintain our Buy recommendation on the stock.
IVRCL bags orders worth Rs.732cr
IVRCL has bagged orders aggregating to Rs.732cr across the buildings, transportation, mining, water and solar power divisions. The company’s buildings division has secured orders worth Rs.404.6cr, including those from the Indian Institute of Science Education and Research, Bhopal; Indian Oil Corporation Ltd.; Jindal Steel & Power Ltd.; and National Institute of Biomedical genomics, West Bengal. While the transportation division secured an order worth Rs.251.4cr from Mahanadi Coalfields Ltd., the mining division bagged an order worth Rs.45.4cr from Hindustan Copper Ltd. Further, orders worth Rs.19.4cr and Rs.11.4cr have been bagged for water and solar power projects, respectively. With these orders, IVRCL’s order book stands at ~Rs.26,232cr (4.6x FY2011 revenue).
We have valued IVRCL on an SOTP basis. The company’s core construction business is valued at P/E of 6x FY2013E EPS of 4.6 (Rs.27.8/share), whereas its stake in subsidiaries, IVR Prime (Rs.10.9/share) and Hindustan Dorr-Oliver (Rs.2.9/share), has been valued on mcap basis, post assigning a 30% holding company discount. At the CMP of Rs.29, the stock is trading at 6.3x FY2013E EPS and 0.4x FY2013E P/BV on a standalone basis. Thus, on the back of the company’s robust order book-to-sales ratio (4.6x FY2011 revenue) and attractive valuations, we maintain our Buy view on the stock with a target price of Rs.42.
Economic and Political News
- November exports rise 3.9% to US$22.3bn yoy
- November imports rise 24.5% to US$35.9bn yoy
- No outside control must be imposed on media: PM
Corporate News
- ONGC to invest Rs.15,000cr in KG gas find
- Coal India expects higher revenue to offset wage hikes
- M&M tractor sales for December 2011 rise marginally
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