The domestic markets are expected to open in green tracking positive development on domestic front. The government has raised petrol price by massive (~10%) Rs.7.54/litre in order to recover losses to oil marketing companies (OMCs), which were selling petrol at lower prices. With this petrol price hike, the under-recovery (loss) due to selling petrol price at subsidized rates is expected to be lower by ~Rs.7,000cr for FY2013, positive for OMCs and ONGC. This unprecedented steep increase in petrol prices by the government signals its intention to lower fiscal burden through bold policy measures.
US markets, after showing a notable move to the downside in morning trading on Wednesday due to continued worries about the financial situation in Europe, which came as European leaders held a closely watched summit in Brussels. However, stocks staged a significant recovery over the latter part of the trading day which was attributed to reports out of the European summit regarding the steps that the leaders are willing to take to boost economic growth. European markets finished solidly to the downside on Wednesday reversing the gains from the previous two trading days on the back of concerns over the situation in Greece.
Indian shares fell on Wednesday, extending the previous session's sharp sell-off, as the rupee continued its downward spiral, breaching the 56 mark against the dollar amid a weaker euro and persisting domestic concerns over slowing economic growth and a widening fiscal deficit.
Markets Today
The trend deciding level for the day is 15,932 / 4,831 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,018 – 16,087 / 4,858 – 4,881 levels. However, if NIFTY trades below 15,932 / 4,831 levels for the first half-an-hour of trade then it may correct up to 15,863 – 15,777 / 4,808 – 4,781 levels.
Government raises petrol price by Rs.7.54/litre
The government has raised petrol price by massive (~10%) Rs.7.54/litre in order to recover losses to oil marketing companies (OMCs), which were selling petrol at lower prices. Without this hike, OMCs would stand to lose Rs.8,000cr in FY2013 (compared to Rs.4,870cr in FY2012) considering the 10% depreciation in INR against USD during the past three months. With this petrol price hike, the underrecovery (loss) due to selling petrol price at subsidized rates is expected to be lower by ~Rs.7,000cr for FY2013, which in turn would lower subsidy burden on upstream oil companies such as ONGC and GAIL. Hence it would be positive for OMCs and ONGC. However, at current crude prices, OMCs continue to lose Rs.512cr per day mainly due to selling diesel, kerosene and domestic LPG at lower prices. Nevertheless, the unprecedented steep increase in petrol prices by the government signals its intention to lower fiscal burden through bold policy measures. Any further steps by the government such as hike in prices of diesel, kerosene and LPG could be positive for OMCs and upstream companies.
Result Reviews
BHEL (CMP: Rs.208 / TP: - / Upside -)
BHEL announced a mixed set of 4QFY2012 results. The company reported a 6.6% increase in its top line to Rs.19,589cr, lower than our expectation of Rs.20,954cr. The quarter saw strong EBITDA margin expansion by 184bp yoy to 25.2%, which led to a 15% yoy increase in EBITDA, higher than our expectation. PAT for the quarter grew by 20.8% yoy to Rs.3,380cr (Rs.2,798cr), which was also higher than our expectation. At the CMP of Rs.208, the stock is trading at 8.8x and 8.6x on our FY2013E and FY2014E earnings estimates, respectively. Currently, we remain our Neutral view on the stock. We will revise our estimates and release a detailed results review shortly.
Tech Mahindra (CMP: Rs.612/ TP: Under review/ Upside: -)
Tech Mahindra reported a muted set of 4QFY2012 results. Dollar revenue came in at US$281.6mn, down 2.5% qoq, due to a decline in revenue from two clients in India because of cancellation of 2G license. Dollar revenue from BT grew by 3.1% qoq because BT did some one-time discretionary spend during the quarter. Revenue from non-BT accounts declined by 5.5% qoq. In rupee terms, revenue came in at Rs.1,419cr, down 1.8% qoq. EBITDA margin grew by 63bp qoq to 16.8%, aided by increased utilization level to 74% in 4QFY2012 from 73% in 3QFY2012. The company booked exceptional loss of Rs.68cr in the quarter as provisions made for uncovered dues from the above mentioned two parties which are winding their operations in India. Adjusted PAT, including share from Satyam, came in at Rs.302cr. Overall results were weak. The only growth driver for the company is non-BT business as BT is retendering its contracts. The stock is currently under review.
Tata Global (CMP: Rs.108/ TP: Rs.136/ Upside: 26%)
During 4QFY2012, Tata Global posted 10.7% yoy growth in consolidated net sales to Rs.1,724cr, aided by improved performance in most of its major markets coupled with foreign exchange translation impact. OPM stood at 8%, down 30bp yoy. On the bottom-line front, the company’s net profit fell by 36.4% yoy to Rs.54.2cr due to exceptional expense of Rs.40cr in 4QFY2012 as against exceptional gain of Rs.56cr in 4QFY2011. Exceptional expenses for the quarter related to cost incurred for long-term initiatives and new projects and loss on assets related to discontinued business initiatives, among others. We maintain our Buy recommendation on the stock with a target price of Rs.136.
Lakshmi Machine Works (CMP: Rs.1,521 / TP: Rs.2,609 / Upside: 72%)
Lakshmi Machine Works (LMW) announced below par numbers for 4QFY2012. The company’s net sales declined by 5.4% qoq and 6.1% yoy to Rs.502cr on the back of lower sales in the textile machinery division. The textile machinery division registered a 12.3% qoq and 8.9% yoy decline in revenue to Rs.413cr. The company’s others segment, however, witnessed 30.4% qoq and 7.4% yoy growth in revenue to Rs.93cr. The company’s EBITDA declined by 25.1% yoy to Rs.49cr on the back of lower revenue and margin contraction. EBITDA margin contracted by 246bp yoy to 9.7% on account of higher other expenditure. Other expenditure as a percentage of sales increased to 19.4% in 4QFY2012 compared to 14.5% in 4QFY2011. PAT declined by 84.2% yoy to Rs.7cr on the back of margin contraction, prior-period finance cost of Rs.5cr and higher tax provision due to prior-period tax adjustments of Rs.16cr, resulting in tax rate of 78.1% of PBT in 4QFY2012 vs. 25.6% of PBT in 4QFY2011. Consequently, PAT margin also declined by 687bp yoy to 1.4% (8.3%). Adjusted for prior-period adjustments, PAT came in at Rs.28cr, down 36.4% yoy. We currently have a Buy recommendation on the stock. We may revise our estimates and target price post an interaction with the management.
Jyothy Laboratories (CMP – Rs.192, TP – Rs.248, Upside: 29%)
For 4QFY2012, JLL reported a healthy set of numbers, ahead of our estimates. The company's top line (standalone) grew by 37.5% yoy to Rs.219cr, higher than our estimate of Rs.192cr for the quarter. This was mainly driven by volume growth coupled with improved realization. The company’s EBITDA margin improved by 614bp yoy to 16.6% for the quarter; however, it remained flat on a qoq basis. Though raw-material cost witnessed a sharp jump, the decrease in employee cost, which was mainly because of the reversal of incentives provided to the sales staff, helped the operating margin to maintain the previous level. Interest cost for the quarter increased to Rs.13.4cr. The company reported growth of 25.7% yoy in its profit, which came in at Rs.28cr. We maintain our Buy recommendation on the stock with target price of Rs.248 based on SOTP valuation.
Result Previews
Madras Cements
Madras Cements is set to declare its 4QFY2012 results. We expect the company to post top-line growth of 31.4% yoy to Rs.902cr on account of higher volumes and better realizations. OPM is expected to grow by 438bp yoy to 29.1%. We expect the company to post 65.8% yoy growth in its bottom line to Rs.106cr. We continue to remain Neutral on the stock.
TVS Motor
TVS Motor is scheduled to announce its 4QFY2012 results. We expect the company’s top line to report modest ~8% yoy growth to Rs.1,733cr, driven primarily by ~6% yoy growth in net average realization. Volumes during the quarter remained subdued (up ~2% yoy) as motorcycle volumes declined by ~11% yoy amidst rising competition and moderating demand environment. EBITDA margin is expected to expand by ~80bp yoy to 6.4%. However, the bottom line is expected to jump by 31% yoy to Rs.55cr mainly due to lower tax rate and improvement in operating margin. We maintain our Buy recommendation on the stock with a target price of Rs.55.
Economic and Political News
- Rupee breaches 56/dollar, despite RBI action
- 25% of loans to SEBs restructured
- June FTP set to bring stability to farm export
Corporate News
- RIL-led group gives up D4 gas block
- Aurobindo Pharma gets US nod for generic anti-HIV drug
- Suzlon to commission 138-MW project for South Africa
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