Market Insight - Dow, Dow Futures, Hangseng, SGX Nifty & Nikkei 29 Jan 17

Markets always tend to be interesting with something or the other happening all the time. Our Morning Mantra is released before the opening bell and it includes the market commentary along with Corporate & Global news for the day.

U.S. stock-market indexes closed at records on Friday, up 0.9% on the back of strong corporate earnings.

Dow

26616.7

223.9

0.85%

Dow Futures

26665.0

61.0

0.23%

Hangseng

33289.4

135.2

0.41%

Nikkei

23749.3

117.5

0.50%

SGX Nifty

11069.5

-6.5

-0.06%

Asian indices advanced today morning backed by strong global economic growth.

Market is expected to open positive note and likely to witness up move during the day.  

Future supply chain solutions buys Vulcan Express from Snapdeal.

Vakrangee announces alliance with Cinestaan Digital.

Deepak Nitrite fixes issue price of QIP at Rs 264.

Kokuyu Camlin to wind up Camlin International.

Bharat Forge sets up unit in Israel.

Havells to set up a new facility to manufacture consumer durables in Rajasthan for a total investment of Rs 360 crore.

APL Apollo Tubes terminates JV with One to One Holdings PTE.

Prataap Snacks signs new pact for third party manufacturing of potato chips at 3 places.

Raymond to buy 26% in Shahane solar power.

FDC gets GMP nod from U.K. regulators for its Ophthalmic manufacturing facility at Waluj, Aurangabad.

Andhra Bank to sell SEL manufacturing loan to ARCs.

Newgen Software Technologies Ltd will be listing today. The issue price was Rs. 245 per share.

Vedanta has been awarded two bauxite mines by the state government, a top official said, confirming the move. The two mines with 15 mtpa bauxite reserves can take care of 75% of Vedanta's needs of 20 mtpa. "We have been pleading with the state for a long time. They have always been proactive. Now finally we can ramp up production and then expand the total capacity. I am very hopeful that the worst is over for us," Agarwal said, confirming the development in an exclusive interview with ETin Davos. Positive.

Nirmal Bang Retail Research - Rane Madras reported result ahead of expectation with 30% yoy sales growth and 120 bps margin expansion on QoQ basis mainly driven by expansion on gross margin. Interest cost decline on account of repayment of loan from Prefrontal allotment money. We have revised our earning expectation with consolidated Sales/ EBITDA /PAT for FY19 and FY20 at Rs.1430cr/ 141cr/Rs.35cr and Rs.1623cr/ 175cr/ 61cr respectively. We expect it's US subsidiary to turnaround in FY19. Company is likely to do consolidated EPS of Rs.30 in FY18 and Rs.51 in FY19. At 20 PE the target price works out to Rs.1025.

Galaxy Surfactants Ltd – IPO Note – Issue Price 1470-1480: Galaxy Surfactants Ltd. (GSL) is one of India’s leading manufacturers of surfactants and other specialty ingredients for the personal care and home care industries. Its products find application in a host of consumer-centric personal care and home care products, including, inter alia, skin care, oral care, hair care, cosmetics, toiletries and detergent products. The diversified customer base currently comprises multinational, regional and local FMCG companies, including, inter alia, Cavinkare Private Limited, Colgate-Palmolive (India) Limited, Dabur India Limited, Henkel, Himalaya, L’ORÉAL, Procter & Gamble Home Products Private Limited, Reckitt Benckiser and Unilever. At present, it has 7 strategically-located manufacturing facilities, out of which 5 are located in India and 2 are located overseas. The company has also have set-up 1 pilot plant at Tarapur, Maharashtra, for the scaling up of new products and processes from lab-scale to plant-scale.

The company has shown consistent growth in sales as well as profitability. Personal Care and Home Cleaning are matured markets which explain the muted sales growth of 8% CAGR between FY13-17 however due to economies of scale; EBITDA grew by 22% over the same period.  We believe the valuations are fair considering the above peer group comparison considering GSL’s strong financial strength in terms of healthy return ratios, free cash flow generation and sound asset turnover ratios. At higher band the issue is offered at 35x 1HFY18 annualised earnings. We like the company’s strong position in its niche area in addition to strong pedigree of management. We recommend investors to subscribe the issue for long term gains.

Institution Desk - Biocon- SELL- 3QFY18 Result Update- Weak Operational Performance: Biocon’s revenues stood at Rs.10,579mn in 3QFY18, up  9.2%/2.8%  QoQ/YoY,  above our/consensus estimates by 4%/1%, respectively. The QoQ growth was driven by licencing income (Rs118mn vs. Rs10mn), higher biosimilar revenues (up 15.1%) Syngene’s revenues (up15.7%) and small molecule revenues (up 5.4%). Despite a large contribution from high-margin businesses (Biologics and Syngene) in overall revenues for the quarter, gross margin was adversely impacted (70bps decline) as cost of sales rose 11% QoQ as against a 9% increase in sales. It seems the biosimilar pricing is a bit subdued in emerging markets translating into lower than average company margin. Biocon capitalised Rs400mn of research and development or R&D expenditure during the quarter.

Maruti Suzuki India- ACCUMULATE - 3QFY18 Result Update- Lower Other Income And Higher Tax Rate Lead To Subdued Earnings: Maruti Suzuki India’s (MSIL) 3QFY18 earnings were below our expectations because of reduced margins, lower other income and a higher tax rate for the quarter. EBITDA margin for the quarter at 15.8% was 100bps below our estimate because of higher vehicle discount and also higher commodity prices. Average discount stood at Rs17,900/vehicle versus Rs15,200/vehicle in 2QFY18, an increase of 18% QoQ. Net sales grew 14% YoY on the back of double-digit YoY volume growth and 2% YoY realisation growth. On QoQ basis, realisation improved 0.8%. Absolute EBITDA at Rs30.3bn grew by a strong 22% YoY, while margins at 15.8% improved 100bps YoY and fell 110bps QoQ. EBITDA margin was largely impacted by higher commodity prices, which resulted in lower gross margin.

Dishman Carbogen Amcis- ACCUMULATE- 3QFY18 Result Update- Growth fundamentals intact: Dishman Carbogen Amcis’ revenues in 3QFY18 stood at Rs4,598mn, up 3.6%/27% QoQ/YoY, respectively.  Revenues were 1.3% above our estimate. Despite revenues being largely in line, net earnings were 30.1% below our estimate primarily because of a higher tax rate (38%). During the quarter the company wrote off a deferred tax asset arising out of losses at China operations. However, for the full year on a normalised basis, the tax rate for the company should be around 30%.  Not accounting for deferred tax, the current tax rate should be in the range of 20%-22% On the business front, India CRAMS business was flat QoQ because of postponement of Eprosartan revenues to the next quarter. New molecules, including the recently approved oncology molecule, witnessed growth.

Dr. Reddy’s Laboratories- BUY- 3QFY18 Result Update- The Upturn Is Still A Few Quarters Away: Dr. Reddy's Laboratories’ or DRL’s revenues at Rs38,060mn and net earnings at Rs3,344mn in 3QFY18 were above our/consensus estimates by 5.1%/3.2% and 17%/1%, respectively. During the quarter, the company also registered one-off milestone income of Rs1,200mn relating to an outlicenced asset (DFD-06) that was  largely offset by one-time deferred tax charge of Rs930mn. Going forward, in 4QFY18, there can be some temporary pressure in the US business as Renvela and Dacogen generics are likely to witness a full-quarter impact of incremental competitive pressure. New drug launches during the quarter can potentially more than offset the competitive pressure and we are eager to see how these turn around.

Indoco Remedies- ACCUMULATE - 3QFY18 Result Update- A strong quarter despite US woes: Indoco Remedies’ or IRL’s 3QFY18 revenues at Rs2,781mn and net earnings at  Rs227mn were above our /consensus estimates by 5%/1.1% and 75%/64%, respectively.  Revenues were down 2.4% QoQ and up 7.9% YoY.  The outperformance on the top-line front was largely driven by strong growth in Europe and emerging markets which grew 41% and 43%, respectively.  Net earnings outperformance was disproportionate as COGS declined 260bps QoQ and was aided by a lower tax rate.  COGS growth was driven by improvement in the product mix and is expected to sustain.

Sagar Cements- BUY- 3QFY18 Result Update- Weak Quarter, But Geared For A Better Show: Sagar Cements (SGC) reported a weak performance for 3QFY18 on account of lower-than-expected realisation impacting EBITDA margin. Realisation declined 9.5% YoY to Rs3,667/tn, which was below our estimate. The decline was because of higher volume push leading to weak cement prices in key markets like Andhra Pradesh, Telangana and Maharashtra. SGC reported a volume of 0.68mt, up 44.1% YoY (not comparable) from 0.47mt in 3QFY17, resulting in ~30.4% YoY revenue growth to ~ Rs2.5bn. Strong cost control  measures arrested SGC’s performance from a further decline as operating costs fell 6.5% YoY to Rs3,203/tn.

Market Insight - Dow, Dow Futures, Hangseng, SGX Nifty & Nikkei 25 Jan 17

Markets always tend to be interesting with something or the other happening all the time. Our Morning Mantra is released before the opening bell and it includes the market commentary along with Corporate & Global news for the day.

US stocks were mixed after the close on Wednesday, as gains in the Telecoms, Basic Materials and Financials sectors led shares higher while losses in the Technology, Utilities and Oil & Gas sectors led shares lower.

Dow	Dow Futures	Hangseng	Nikkei	SGX Nifty
26252.1	26259.0	32746.5	23723.6	11091.5
+41.3	-11.0	-212.2	-217.2	+15.5
+0.16%	-0.04%	-0.64%	-0.91%	+0.14%

Asian indices are mostly lower on Thursday amid concerns over trade wars, while the U.S. dollar fell following Treasury Secretary Steven Mnuchin's comments that a weaker greenback would be good for U.S. trade. Meanwhile, higher commodity prices lifted resources stocks.

Market is expected to open on flattish note and likely to remain volatile ahead of the expiry.  

PTI has reported that government is likely to impose Anti-Dumping Duty on DMF, on of the key product of Balaji Amines. Positive

Bharat Electronics to consider buyback proposal on Jan. 30.

Wipro buys minority stake in Harte Hanks for $9.9 million.

IndiGo to be awarded routes on 20 proposals, highest among all carriers, under India’s regional connectivity scheme UDAN.

Phillips Carbon to consider raising funds on Jan. 31.

Majesco unit wins contract from Reliance Nippon Life Insurance.

Dr. Reddy’s says German regulator carried out re-inspection of its Bachupally plant. It can now start dispatching products to Europe.

PNB - Adj Book Value for FY 20 works out to Rs.121 and at 1.4 X P/Adj BV The target works out to Rs.170. In Govt Re cap PNB going to get  Notional Rs.5473cr where as in recent QIP PNB raised Rs.5000cr @ Rs.168. Post QIP price remain flat. So why it should move up now.

For SBI the capital additional is very small. Over all Positive impact of Rs.5. But for long term the target price for SBI based on FY20 is Rs.405.

Utkal Alumina International Ltd, a 100% subsidiary of Hindalco Industries, has sought environment clearance to double capacity of its alumina refinery in Odisha from 1.5 million tonnes per annum (mtpa) now to 3 mtpa.The expansion estimated to cost Rs 4000-5000 crore, would be effected in phases.

Bharat Financial Inclusion assigned a pool of receivables of an aggregative value of Rs 225.77 crore to a public sector bank on direct assignment basis as per the guidelines of the Reserve Bank of India

JFE Holdings, and JSW Steel, are likely to put in a joint bid for bankrupt Bhushan Steel reflecting competitive intensity for an asset that the Tatas and Arcelor Mittal may also seek to buy to benefit from an upswing in an industry overcoming four years of supply overhang. 

Bharti Airtel has received regulatory approval to acquire Millicom International Cellular's Rwanda unit, Tigo Rwanda, which will make the Indian telco a strong No. 2 carrier by revenue in the African country. 

Nirmal Bang Retail Research-United Spirits Concall Update-The company reported decline in Sales due to change in Route-to-market in Haryana and Punjab from private retail to government route. These markets are (and probably UP and West Bengal) are shifting the model hence as a precautionary measure the company focused on cash sales from credit sales to recover dues from the retail sellers who would be out of business from April 1. Apart from the states mentioned above, the company witnessed strong sales growth. However, there could be some spillover effect in Q4 as well. Nonetheless management sounded positive and reiterated its double digit sales growth with mid to high teens EBITDA margins.

Institution desk: Crompton Greaves Consumer Electricals- ACCUMULATE- 3QFY18 Result Update- Moderate Revenue Growth But Sustains Healthy Margin: Crompton Greaves Consumer Electricals (CGCEL) posted 3QFY18 revenues of Rs9.4bn, up 7% YoY, but excise adjusted growth was 12% YoY. Top-line was 9%/6% below our/consensus estimates, respectively. While premium fans grew 28% YoY, excise adjusted revenue growth of the consumer durable segment was tepid at 7.4% YoY because of headwinds faced in pump and geyser categories. The lighting segment’s sales surged 23% YoY (aided by 57% YoY growth in LED lights). Gross margin rose 250bps YoY and 280bps QoQ to 33.1% in 3QFY18 led by premiumisation of the portfolio (premium fans & LED lights) and cost reduction programme. EBITDA margin rose 130bps YoY to 12.4%, leading to 20% YoY growth in EBITDA to Rs1.2bn, partially aided by low base. EBIT margin of the lighting segment rose 290bps YoY to the highest-ever level of 13.8% while the consumer durable segment witnessed a 210bps YoY expansion to 18.2%. PAT grew 28% YoY to Rs695mn, in line with consensus but below our estimate of Rs792mn (on account of top-line miss).

IFB Industries- BUY- Initiating Coverage- Scalability Attained, Profitability To Follow: The home appliance industry in India offers highly promising growth prospects driven by its low penetration level as well as rising demand owing to improved affordability and easy availability of consumer durable finance. IFB Industries (IFB) is favourably placed to reap the benefits of this upturn owing to its marquee brand proposition, distribution network expansion, undisputed leadership in front-load washing machines, scaling up of other categories (top-load washing machines, microwave ovens, air-conditioners) as well as the impending launch of its refrigerators. While we expect IFB to post industry-leading 23.7% revenue CAGR over FY17-FY20E, the benefits of attaining scale (better absorption of fixed-cost overheads), operating leverage and achieving cost efficiency through import substitution in front-load washing machines will lead to substantial improvement in profitability. We expect IFB to post 500bps EBITDA margin expansion over FY17-FY20E, leading to 53.2% EBITDA CAGR and 65.4% earnings CAGR over FY17-FY20E. We initiate coverage on IFB with a target price of Rs1,900 and assign Buy rating to the stock.

India Macro Meter - Economy Update- Recovery Entrenched; Interest Rates Moving Up: Data for November and December 2017 indicates that the recovery is well entrenched, after a dip in activity in October. In November 2017, 33 out of 41 indicators (80.5%) were in the positive territory, up from 57% in October 2017. The recovery sustained well into December 2017, with 84% of available indicators in the positive territory. While a favourable base on account of demonetisation has a role to play in this, the sequential momentum is also encouraging. We believe that growth in 2HFY18 is likely to be above 7%, surpassing the Central Statistical Organisation’s or CSO’s estimate. Rural recovery will require the government’s push, which we expect in the forthcoming budget, with wage growth witnessing some tapering and rabi crop sowing lagging last years’ level. Manufacturing sector’s recovery appears to be on a firm footing with the PMI for December 2017 coming in at a five- year high of 54.7. Services sector activity is chugging along with services PMI recovering to 50.9 in December 2017, after slipping into the negative territory in the previous month. The pick-up in real economic activity along with an upturn in market interest rates supports the banking sector’s credit growth.

Market Insight - Dow, Dow Futures, Hangseng, SGX Nifty & Nikkei 24 Jan 17

Markets always tend to be interesting with something or the other happening all the time. Our Morning Mantra is released before the opening bell and it includes the market commentary along with Corporate & Global news for the day.

US stocks were mixed after the close on Tuesday, as gains in the Utilities, Technology and Consumer Services sectors led shares higher while losses in the Telecoms, Healthcare and Oil & Gas sectors led shares lower.

Dow  26210.8  -3.8  -0.01%

Dow Futures 26200.0  -1.0  0.00%

Hangseng  32746.1  -184.6  -0.56%

Nikkei  23989.1  -135.1  -0.56%

SGX Nifty  11080.0  -8.0  -0.07%

Asian indices are trading with a negative bias. Trade concerns simmered in the background after President Donald Trump approved tariffs on imported solar cells and washing machines earlier this week.

Market is expected to open on flattish note and likely to witness range bound session during the day.  

The calendar fourth-quarter earnings season is off to a good start. As of Tuesday, 76 percent of the S&P 500 US companies that had reported surpassed earnings expectations, while 84 percent of those companies had beaten sales estimates, according to Thomson Reuters I/B/E/S.

Wipro bags multi-year business process services contract from Nilfisk.

Novelis, subisidiary of Hindalco announced that it will invest around $300 million in an automotive aluminium sheet manufacturing facility in Guthrie, Kentucky, as part of its plans to expand manufacturing for automotive purposes to meet the rising demand. 

After the conclusion of the promoter's stake sale in its rental arm to Singapore sovereign wealth fund GIC, DLF is looking to make its development arm a zero net-debt company by March 2019, repaying the entire liability of Rs 13,000 cr. 

Manappuram Finance board authorises managing director to scout for investment opportunity.

Majesco QIP opens with a floor price of Rs 532 per share.

eClerx Services to buyback shares Worth Rs 258 cr at Rs 2000/ share.The total number of shares to be bought back in the buyback shall be 12,90,000 equity shares representing about 3.24% of the total issued and paid up equity share capital as on 31 March 2017.

Genus Paper & Boards Ltd, has taken on lease a Kraft paper manufacturing facility for 5 Years. The facility is located at Kashipur, Uttarakhand and has manufacturing capacity of 75,000 metric tonnes per annum (MTPA).

Lenders to Amtek Auto, which is facing Rs 12,722-crore claims from creditors, have decided to reject the only two offers they received — from Liberty House and Deccan Value Investors — unless the bidders raised the price. The offers are below the liquidation value of the company. 

Arcelor Mittal has withdrawn from bidding for bankrupt Bhushan Power & Steel after it conducted due diligence on the Indian company. Tata Steel, JSW, Vedanta, AION Capital and a Dubai-based billionaire remain in the fray for the bankrupt company ahead of the January 29 deadline. 

Alembic to buy back 1.02 crore shares (3.84% equity) at Rs 80 per share.

Quickheal Technologies receives order from tax authorities demanding Rs 37.7 crore. Company will appeal against the order with CESTAT.

Retail Research desk: DHFL Concall Update –AUM crossed Rs. 1 Lac cr (Rs 1,01,286 cr) increased 29% YoY (8% QoQ).AUM Mix was stable QoQ: Home Loans 63%, LAP 18%, Project 15%, SME 4%.Disbursements increased by 54% YoY to Rs. 10,846 cr, (+9% QoQ).Disbursement mix: Home Loans 55%, LAP 21%, Project 18%, SME 8%.Sanctions increased by 75% YoY to Rs. 16,552 cr.NII came at Rs. 739.8 Cr vs YoY (+31%) Rs. 566.4 Cr, QoQ (+4%) Rs. 710.8 Cr.PAT came at Rs. 306 Cr vs YoY (+25%) Rs. 244.8 Cr, QoQ (+4%) Rs. 293.3 Cr. Incremental yields for Home Loans at 9.3%, for LAP at 11.3%.Incremental Cost of Funds at 7.95%.Cost/Income of 23.04% has been consistently declining. Scope for further reduction of 100-150bp. It will always be higher than peers (~17%) as company’s distribution reach is focused on tier2/3 towns which involves a higher cost structure. Asset quality stable QoQ/YoY: GNPA at 0.96%, NNPA at 0.54%.ROE is stable at 17.8% (adjusting for stake sale of DPLI by DHFL).Affordable housing to drive growth in housing loan market. Company held 23 events in tier2/3 segments during the quarter. Company’s strength lies in its reach in tier 2/3 towns. Won’t need to raise capital for next 2 years (CAR of 16.3%). Growth Guidance for next couple of years: AUM / Disbursements / PAT is 20-24% / 27-30% / 20-24%.Share is trading at P/E of 17x FY18E EPS & 2.2x trailing P/BV

Institution desk: V-Guard Industries- ACCUMULATE- 3QFY18 Result Update- Sustains Strong Revenue Growth; Retain Accumulate: V-Guard Industries (VIL) posted strong 3QFY18 revenues of Rs5.2bn, up 19% YoY, in line with consensus estimate but marginally below our estimate of Rs5.4bn. Adjusted for GST-related price change impact, the revenue growth was even stronger at 23% YoY. The growth was broad-based across all product categories led by cables & wires, inverters and fans. Gross margin improved 160bps YoY to 32.4% while EBITDA margin rose 120bps YoY to 9.4%, leading to 37% YoY increase in EBITDA to Rs494mn. PAT jumped 41% YoY to Rs358mn, partly led by a lower tax rate of 23.4% (versus 27.2% YoY). The bottom-line was below our estimate of Rs396mn, but above consensus estimate by 4%. EBITDA margin in 9MFY18 stood at 9.1%, but the management aims to achieve EBITDA margin of 10% in FY18 driven by a seasonally strong fourth quarter. We have marginally tweaked our earnings estimates and rolled forward our valuation to FY20E financials. We have retained Accumulate rating on VIL with a revised target price of Rs240 (Rs210 earlier) based on 36x FY20E earnings.

Decent Performance On All Fronts

HDFC Standard Life Insurance  BUY  CMP: Rs480  TP: Rs510

HDFC SL showed robust performance in APE growth at 46% YoY for 9MFY18 much above our expectations (Ple: 35% YoY for FY18E) led by ULIPs. However margins remained flat at 22.2% for 9MFY18 in spite of better growth in protection business (27.3% share of total new business premium). Management spoke of increased competition in this business going ahead as more players have started tapping this segment and the company is now facing cost pressures is acquiring business. We have revised the APE growth estimates slightly. We maintain our recommendation of a BUY, and revise our TP to Rs500 (from Rs430) and value it at Rs996 bn (from Rs85 bn) translating to 4.2x FY20E EV.

n APE growth was quite robust compared to peers: HDFC SL’s individual APE growth for 9MFY18 was robust at 46% YoY growth mainly led by ULIPs (72.2% YoY growth for 9M). Participating segment slowed down for the company this quarter with growth at ~11% YoY for 9M. Thus there was change in mix skewed towards ULIP at 59% (50% in 9MFY17) and par at 28% (37% in 9MFY17). However, management is comfortable with ULIP share at 55% of overall APE mix.

n Protection business to drive profitability but faces some competition: HDFC SL has been growing its protection business with the help of 139 banca partnerships and has created niche for itself in this segment. Protection business constitutes 11.6% on APE basis (9.1% in 9M17) and 27.3% on new premium basis (24.2% in 9M17). However, lately company has been facing competition from other private players mainly on acquisition pricing front. Since there is no exclusivity with most banca partners, company may face cost pressures. 

n Operating metrics improved slightly; margins remain stable: HDFC SL’s persistency improved in all the buckets except 61st on account of some business done in FY13. However, the same will also improve as company has focused on selling products according to customer needs. Opex ratio for the company was slightly higher than peers and shall remain so as company invests in increasing profitable agency channel and also on technology front whose benefits will reflect later. Increase in credit protection business has led to increase in opex ratios which will moderate going ahead. Margins for the company remain stable at 22.2% for 9M18 (22% in FY17) and is  sustainable at these levels.

Third Consecutive quarter of strong execution

NIIT Technologies  BUY  CMP: Rs720  TP: Rs880

NIIT Tech’s Q3FY18 results beat our estimates on Revenues, EBIDTA margin and PAT. Revenues at USD115.2mn were up 2% QoQ above our estimates (USD113.2mn). EBIDTA margin at 17.1% was up 90bps QoQ was above our estimate (PLe: 16.6%). Adjusted EBIDTA Margin (excluding Forex hedge gains) stood at 16.1% for 3QFY18 up 140bps QoQ. NIIT Tech has elevated Mr Sudhir Singh as the CEO of the company with immediate effect. Mr Arvind Thakur has been elevated to the role of Vice Chairman and MD. NIIT Tech has delivered the third consecutive quarter of revenue beat which is positive. Management cited winning three large deals during the quarter competing against Tier I IT peers. NIIT tech cited that it remains positive on winning another two large deals in 4QFY18.  Management guided for strong revenue growth in 4QFY18 as well as margin expansion. Aided by strong deal momentum, NIIT Tech anticipates scope for double digit revenue growth for FY19E (Despite headwinds from ramp down in Morris). NIIT tech also cited that there have been several new additions to front end sales team and Digital practice.

 NIIT Tech’s organic USD revenue growth was tepid for the past four consecutive years (FY13-FY17). However, steady execution over past three consecutive quarters raises optimism. Post 3Q revenue beat, we upgrade NIIT Tech USD revenues to grow by 10.4/11.5% for FY18/FY19E (vs 9/8.5% modelled earlier). Organic USD revenue growth for FY18 would be at 9% and rest owing to RuleTek acquisition. Hence, FY18 marks a strong turnaround in revenue growth. Management remained confident on revenue growth momentum for FY19E as well led by new deal wins. We are optimistic on the expansion in order book executable over next twelve months which stood at USD329mn up 5.8% YoY.  Led by 3Q margin beat, we build EBIDTA margins at 16.8/16.3% for FY18/FY19E (vs 16.5/16% modelled earlier). We upgrade FY18/FY19/FY20E EPS by 5/5/7% for FY18/FY19E/FY20E. Our EPS estimates are at Rs45/52.5/62/sh for FY18/FY19E/FY20E. NIIT Tech trades at 11.8x FY20E EPS which is cheaper than midcap peers (Mindtree/Hexaware trading at 16/17x FY20E EPS respectively). Strong revenue momentum and steady margin execution coupled with reasonable valuations leads us to remain positive.  Revise TP upwards by 30% to Rs875/sh (14x FY20E EPS vs 12.5x Sep19E EPS earlier). Upgrade to BUY (vs Accumulate earlier). Our P/E upgrade is driven steady revenue beats, margin execution and strong deal signing.

Angul plant’s Turnaround, a reality now; Reiterate BUY

Jindal Steel & Power BUY CMP: Rs260, TP: Rs380

We organised investor visit of Jindal Steel and Power (JSP)’s Raigarh and Angul steel facilities and Tamnar IPP. The newly commissioned Basic Oxygen Furnace (BoF) at Angul 
reached production run-rate of 25 heats/day (equivalent to 6250tpd) and expected to stabilise at its designed capacity of 33 heats/day by mid March-18. Keeping pace with ramp-up in BoF, Blast Furnace (BF) is operating at 6ktpd. Higher production in BoF and restart of Neo Electric Oxygen Furnace (NEoF) would drive the increase in BF’s production to 10ktpd by April-18. Management guided for an output of 6mn tonnes in FY19 (equally distributed between Angul and Raigarh) and cost reduction of Rs3000/t, driven by lower variable cost and higher scale benefit. Our entire rationale of increased scale, low cost and higher PLFs in JPL remains intact and will be reflected from Q1FY19 onwards as the new capacity stabilises. We maintain our BUY rating with revised TP of Rs360 (earlier Rs315), at EV/EBITDA of 7x FY20E.

n Strong conviction in meeting the FY19 production guidance: Commissioning of BoF completes the full chain of steel making in Angul plant. Satisfactory ramp-up of BoF and successful stabilisation of BF drives management’s guidance of achieving 250kt/month (3mtpa) in April at Angul facility. Including Raigarh Plant's 3mn tonnes, company targets to produce 6mn tonnes in FY19e. Guidance do not factor contribution from Gas based DRI in Angul though the cost of production would reduce with the replacement of expensive syn gas with cheaper coke oven gas. Company sees scope for further cost reduction in DRI plant with replacement of thermal coal with pet coke in coal gasifiers.   

n Cost of production to reduce by Rs3000/t in Angul: Angul's DRI based steel plant failed to cross 40% utilisation due to poor grade of indigenous coal, technical issues and higher conversion cost. Plant Profitability is expected to see structural turnaround on the back of higher scale and lower variable costs. Management’s guidance of Rs3,000/t reduction in cost would be led by 60% reduction in power consumption, higher scale (Fixed cost/t to fall by 55% to Rs1000) and lower conversion costs.

Market Insight - Dow, Dow Futures, Hangseng, SGX Nifty & Nikkei 22 Jan 17

Markets always tend to be interesting with something or the other happening all the time. Our Morning Mantra is released before the opening bell and it includes the market commentary along with Corporate & Global news for the day.

US stocks were higher after the close on Friday, as gains in the Consumer Goods, Consumer Services and Basic Materials sectors led shares higher.

Dow	Dow Futures	Hangseng	Nikkei	SGX Nifty
26071.7	26014.0	32262.4	23772.0	10915.5
+53.9	-32.0	+7.5	-36.0	+1.5
+53.9	-0.12%	+7.5	-0.15%	+0.01%

Asian stocks traded lower on Monday as investors kept an eye on political developments in the U.S. after a government shutdown began last week.

Market is expected to open on flattish note and likely to witness range bound session during the day.  

Reliance Industries to partly start petcoke gasification unit in Q4FY18.

ONGC board has approved the purchase of 51.11% Government holding in HPCL @Rs.473.97 for total cash consideration of Rs.36915cr. there will not be any open offer.

HDFC increases size of MTN program to $1.3 billion.

Piramal Enterprises has announced rights issue of 1 shares for every 23 shares held at the rate of Rs 2380. The record date for eligibility is 1st feb 2018.

J Kumar Infra gets Rs 57 crore contract from Delhi Metro Rail Corporation.

IFCI says government considering capital infusion of Rs 100 crore in FY18.

Pioneer Distilleries says workmen have agreed to call off the strike on Jan. 20.

Welspun Enterprises completes acquisition of 49% stake in the projects from MBL Group for a total consideration of Rs 2,300 cr.

ITD cementation board meeting on 22nd January for raising Rs. 350 Cr via QIP.

Board of director of Prakash Industries decided not to proceed with allotment of 91.07 lakh warrants Future Retail will acquire Travel News Services for Rs 100 cr, which will help the company to expand its presence at airports, metro stations and universities where the majority of retail outlets of TNSI and TNSI Retail are operating.

Grasim has received green nod for expanding the production of viscose staple fibre at Bharuch, Gujarat that would entail an investment of Rs 2,560 cr.

Parag Milk Foods is expecting a dip in revenue growth to up to 15% p.a. over the next three years

NMDC aims to produce about 45 million tonnes (MT) of iron ore during FY18-19 as against the expected 35 million tonnes in FY17-18, said a top official of the PSU. 

Apollo Micro Systems Ltd (AMSL) will be listing today. The issue price was Rs. 275 per share (Rs. 263 per share to retail investor). On the valuation front, at  Rs275 AMSL is offered at P/E of 30.6x on a fully diluted basis based on FY17 earnings. We had recommended subscribing to the issue with a long term horizon.  

Company Report - Radio acquisition and tailwind in TV broadcasting business to boost profits

Zee Media Corporation          BUY           CMP: Rs44                           TP: Rs65

Company Report - Radio acquisition and tailwind in TV broadcasting business to boost profits

Entry into the radio market, demerger of the loss-making print business, and earnings expansion in the core TV broadcasting segment is likely to make Zee Media Corporation Ltd (ZMCL) a classic turnaround story. We expect radio business to be the biggest earnings contributor (35-40% EBITDA margin business). Our assessment reveals (see exhibit 7) that the radio acquisition can add Rs4,270mn to the topline and Rs293mn to the bottomline of ZMCL in FY20E. Demerger of the loss-making print business would further boost earnings and return ratios. Print business contributes ~20% to the topline but wipes out the consolidated EBITDA by 25-35%. Post demerger, balance sheet of ZMCL has become lean as print business is saddled with debt (Rs 2.9 bn; ~75% of the total debt pertains to print segment). Entire exercise of demerging print business and acquiring radio business is likely to double the topline and result in optical earnings expansion. As per our earnings estimates of both the businesses, consolidated entity will have a topline and PAT of Rs11.3bn and Rs1.1bn, respectively in FY20E.

Structural tailwind in the core TV broadcasting business will act as another earnings kicker. Backed by four new channel launches in the last 12-15 months, improvement in effective ad rates in the range of 20-25%, ironing out issues on the operational cost front and rationalization of employee cost with setting up of a common assignment desk, we expect standalone sales and profits of the TV broadcasting business to grow at a CAGR of 17.3% and 22.5% over FY17-20E. We value ZMCL on SOTP basis as there are three distinct businesses (print has already been demerged) – TV, radio and E-com with a vastly different risk return profile. Our SOTP value stands at Rs65 per share (for more details see outlook & valuation section). We initiate with a “BUY”. 

Why do we like ZMCL?

n Radio acquisition can turn out to be a golden goose: Reliance Broadcast Network’s Ltd’s (RBNL’s) radio business could be a potential money spinner as it is well poised to capitalize on the asset monetization phase witnessed by the industry, post conclusion of Phase 3 auctions. Mature stations are margin accretive, generate strong return on capital and FCFF (minimal capex needs post licence acquisition). Except for 14 new stations that were launched in 1QFY18, the entire portfolio of 45 stations is well established. We believe ZMCL is better placed to milk the existing stations by negotiating better with advertisers since now it can offer a bundled deal across all three platforms viz TV, Radio and Print (via DNA). The debt overhang concerns (Rs16-17bn of debt on books post radio acquisition) are overplayed as both the radio and TV broadcasting businesses can generate FCFF of Rs1.4bn in FY19E and Rs1.5bn in FY20E which is more than sufficient to service the debt in the interim. In fact, after a year when the new stations break even, the FCFF situation would strengthen further. We feel RBNL can turn out to be a cash generating machine for the ZMCL as a whole, once consolidation concludes by 4QFY18.

n TV broadcasting business in a sweet spot: The TV broadcasting business is on the verge of a turnaround due to engaging content and improvement in BARC ratings. ZMCL has specifically worked on the content part during 5 PM to 10.30 PM slot when viewership of the news genre is at its peak. Shows like DNA, Taal Thok Ke, Fun Ki Baat and Dr Subhash Chandra show have struck chord with the viewers which have led to improvement in channel rankings. From a distinct number 5 or 6, Zee News has consistently been a strong number 2 or 3 in the BARC ratings over the last few weeks. In addition, steps have been taken to optimize operational costs by gradually shifting focus from terrestrial entertainment network. Employee cost has also been rationalized by setting up a common assignment desk which reduces duplication of work.  Backed by these measures, we expect the EBITDA margin to expand from 20.5% in FY17 to 23.6% in FY20E.

n Demerger of the print business to boost profits: Demerger of the loss-making print business is expected to swing the profitability profile of ZMCL. Revenue of the three print subsidiaries was Rs1.4bn in FY17 with cumulative losses of Rs973mn. The print business is EBITDA negative, capital-intensive and saddled with debt. Post demerger, the interest and depreciation expenses will fall by ~Rs332mn and ~Rs141mn, respectively, resulting in an upswing in profits. We believe that the demerger which has happened will unlock value for shareholders of ZMCL as a loss making unit is hived off into a separate company.

n Valuation re-rating imminent:  ZMCL acquired the radio business of RBNL for an EV of Rs16bn (5x EV/Sales). Both ENIL and Music Broadcast, competitors of RBNL, trade at an EV to sales multiple of 6.7x and 7.1x, respectively (TTM basis). We value RBNL at EV/Sales multiple of 7x, in line with peer average (discount unwarranted as financial profile is similar), translating into an implied market cap of Rs14.2bn (per share value of Rs30.2) for the radio business. We value the standalone TV broadcasting business at a PER of 20x, in line with market leader TV Today Network Ltd (3-year average TTM PER of 21.4x), on the back of 22.5% CAGR in earnings over FY17-20E translating into per share value of Rs29.7. We value the E-com business at book value (Rs 0.8 per share) as it is likely to burn cash in the near term.  After incorporating the value of Zee Akaash News Pvt Ltd (Rs4.3 per share), a 60% subsidiary of ZMCL, we arrive at the final SOTP price of Rs 65 per share. We initiate with a “BUY”.

Will Macro And The Micro Finally Tango?

Ever since the global financial crisis of (2008-09) we have rarely seen both macro and micro (earnings) performing together to drive the Indian equity market. FY19 could be the rare year when that can potentially happen. While the macro part has looked up over the past few years, the micro (earnings) has consistently disappointed (Exhibit 11). Recent numbers, however, indicate a reversal of trend in both. Macro health, to an extent, will be dictated by the upcoming budget. With uncertainty regarding indirect taxation largely taken out (following the implementation of GST since 1 July 2017), the focus will be more on the quantum and quality of spending. While budget math of FY18 was adversely affected by both - a slower economy and inadequate GST collection (because of teething issues) - we believe that both factors could potentially act as tailwinds in FY19 because of the base effect. Acceleration in revenue growth will put more money in the hands of the government in a pre-election year. How it uses the largesse is going to dictate the macro. Earnings seem to be finally turning up, thanks to some lagging sectors (corporate banks, pharmaceutical and commodity companies) likely delivering a better performance. The macro picture threatens to worsen on the back of a global commodity upcycle and possibility of Central government frittering away its hard-won gains for a positive political outcome in 2019 (budget represents the last opportunity for populist handouts). 

A look at the mix of earnings of Nifty constituents indicates that India’s budget has only a limited direct impact, but has a larger indirect impact through cost of capital and the INR/USD rate. A large part of Nifty earnings (50%-60%) is directly driven by factors that Indian government has little control over (commodity prices, global growth, etc). The big delta in earnings in FY19 is likely to come from stocks which are globally linked (like Tata Motors, Vedanta, Coal India) and from corporate banks which are likely to provide lower for bad assets (SBI, Axis Bank). We believe the budget will have little impact on either of these buckets of earnings in a material way. Macro stress is currently visible in the form of inflation which has risen by 375bp from the bottom and the 10-year yield which has spiked from a low of 6.2% in February 2017 to the recent number of 7.45%.  We believe the sharp spike  in rates is partly because of apprehension among market participants that the government will deviate materially from the FRBM roadmap. We expect the government to stray from the FRBM path, but not much (see our economist Teresa John’s piece on the budget). Our view is that unlike in the past years of this administration, when revenue spending was kept in check, it is very likely that both capital and revenue spending will likely see equal emphasis and possibly revenue spending will have an upper hand. Considering the closer-than-expected Gujarat election results and supposed unhappiness within the farming community, there is likely to be a large focus on support to it through mechanisms to support product prices and greater subvention on farm loans (combined with a larger quantum). The higher spending in the rural/farm sector may be combined with some tax concessions in the lower income brackets (for middle class India) leading to a boost in domestic demand. We believe macro stability (keeping interest rate low) helps a large number of sectors including automobile, cement, affordable housing, infrastructure, non-banking financial services companies, etc. The focus on the rural economy and increasing farm incomes (and greater post-tax income among the middle income households) is likely to have a positive rub-off effect on farm equipment companies, automobile companies, select consumer staples and consumer discretionary companies.

Market Insight - Dow, Dow Futures, Hangseng, SGX Nifty & Nikkei 19 Jan 17

Markets always tend to be interesting with something or the other happening all the time. Our Morning Mantra is released before the opening bell and it includes the market commentary along with Corporate & Global news for the day.

US stocks fell on Thursday as investors assessed the possibility of the government shutting down at the end of the week.

Dow	Dow Futures	Hangseng	Nikkei	SGX Nifty
26017.8	25953.0	32178.2	23836.8	10827.0
-97.8	12.0	56.3	73.5	15.5
-0.37%	0.05%	0.18%	0.31%	0.14%

Asian stocks edged higher on Friday and were within reach of record highs, although losses on Wall Street slowed the advance, while worries over a possible U.S. government shutdown weighed on the dollar.

Market is expected to open on flattish note and likely to witness range bound session during the day.  

RBI hikes foreign investment limit in Healthcare Global to 100 % from 24 %earlier.

Alembic board to consider buyback of shares on Jan. 23.

Swan Energy approves raising of funds via QIP/ pvt placement to the tune of 1000cr

Tech Mahindra to acquire 17.5 %shares of Altiostar on a fully diluted basis.

Torrent Pharma acquires U.S.-based generic pharmaceuticals Bio-Pharma Inc.

Savita Oil Technologies to consider share buyback on Jan. 23.

The board of IL&FS Transportation Networks, part of the IL&FS Group, has given nod for issuance of masala bonds worth up to Rs 2,000 crore, besides USD-denominated bonds of up to $500 million.

Retail Research Desk - Biocon Concall Update has announced an exclusive agreement with Sanofi for development, manufacturing and commercialisation of biosimilar products. Under the agreement, Sanofi would market the product in US, Canada and EU regions and Biocon would market it in Rest of the World. Both the companies are would share the cost and profits equally. Other details like name and number of products are not disclosed. It’s a positive development for long term and nothing in immediate terms.

Retail Research Desk - DCB Bank Concall Update – Loan growth remains strong at 28% YoY (against 22% growth in FY17). NII grew by 20% while opex grew by 24% resulting in pre-provisioning profit growth of 12%. Provisions increased by 12% and thus profit was up by 11% at Rs. 57 Cr. NIM stood at 4.12% as against 4.04% QoQ & 3.95% YoY. Slippage ratio increased to 2.2% in a seasonally weak quarter against 1.8% QoQ. However, Q3FY17 slippage ratio was also at 2.2%. Management has guided for slippage ratio of 2-2.1%, GNPAs of less than 2.0% and NNPAs of less than 1.0% on a sustainable basis. Being predominantly into SME lending, the bank witnessed some pressure on the higher ticket SME loans (above Rs. 2 Cr) while the loans in the range of Rs. 40-50 Lacs which is the average ticket size for the bank, were stable. Cost/Income was at a four year high and is close to the peak at 62.3%. Although the bank has substantially slowed down the pace of branch addition to just 5 branches during the quarter as guided earlier, the branches added previously, being new, shall witness employee addition for around one more quarter. The bank believes it should exit Q4FY19 with cost/income of 55.0%. Over the long term, the bank has guided to increase the business per employee from ~Rs. 7 Cr to ~Rs. 13 Cr and is targeting to double its loan book within the next 3-3 ½ years. Given that operating expenses have peaked out, continued buoyancy in loan growth should result in strong operating leverage from FY19 onwards. Share is trading at 2.0x FY19 BV.

Change in rates will be applicable from January 25 GST reduced to Zero on transportation of goods from India to outside by air and sea Positive for Exported

GST on Diamonds and precious stones reduced to 0.25% from 3% positive for Jewelry Stocks

Drip, irrigation system-GST reduced to 12% from 18% positive for Jain Irrigation, EPC Ind

GST on admission to theme parks, water parks, joy rides reduced from 28% to 18% positive for Wandrela and Imagica

Institution Desk - UltraTech Cement- ACCUMULATE- 3QFY18 Result Update- Earnings Broadly In Line With Expectations: UltraTech Cement (UCL) reported a steady set of numbers for 3QFY18 and beat our revenue expectation on account of improvement in parameters like volume and price. Aggregate volume grew 35% (like-on-like ~15%) YoY contributed by acquisition of Jaypee Cement (JCL) assets and was above our expectation. Overall realisation was flat on YoY basis. Energy cost and high operating cost of JPA plants (~200 per tonne higher than that of UCL) contributed to cost inflation of 4% YoY. Effectively, EBITDA grew 14% YoY to Rs12.7bn (in line with our estimate). However, EBITDA/mt stood at ~Rs801, much lower than Rs949 in 3QFY17. However, higher interest costs and depreciation arising from the acquisition let to a decline in reported PAT to Rs 4.3bn compare to Rs5.7bn in 3QFY17, but adjusted PAT slipped to Rs3.3bn because of non-recurring income of Rs1.1bn. We believe that UCL’s focus on capacity creation through greenfield and brownfield expansions and implementation of cost-efficiency measures places the company in a better position. We have rolled forward our valuation of UCL based on FY20E earnings and valued the stock at 15.0x FY20E EV/EBITDA and FY20E EV/mt of US$180.Accordingly, we have retained our Accumulate rating on UCL with a revised target price of Rs4,203 (from Rs3,944 earlier).

Institution Desk - Yes Bank- BUY- 3QFY18 Result Update- Blips Don’t Mar Long-term Trajectory: Yes Bank (YBL) reported 3QFY18 results with the key strategic takeaways being that the bank is: (1) Witnessing strong traction in granular consumer loan book; (2) On course to deliver ~4% NIM before March 2020 (please see conference-call highlights). Per se, on the results front, YBL posted net interest income (NII) growth of 27% YoY to Rs18,888mn, PPOP growth of 38% YoY to Rs20,018 and PAT growth of 22% YoY to Rs10,769mn. We have marginally modified our legacy estimates for FY18/FY19 to reflect (compared with previous estimates) faster loan growth and lower yield on loans (among other changes). We have retained Buy rating on YBL, increasing our target price to Rs435 (from Rs429 earlier) and valuing the stock at 2.6x FY20E P/ABV.