1. Market Outlook
India Research
May 25, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
In a total reversal of course, the key benchmark indices turned negative in late
BSE Sensex 0.2% 23.9 16,470
trade as European stocks gave away initial gains and as US index futures fell.
Banking, metal, auto and realty stocks reversed initial gains. The market surged Nifty 0.3% 13.0 4,944
in morning trade tracking gains in Asian stocks, and it extended gains in early MID CAP 0.0% 1.4 6,690
afternoon trade as European stocks rose at the onset of the trading session. SMALL CAP 0.6% 51.6 8,467
However, in the late trade, the market lost early gains as it tracked global BSE HC -0.2% (8.1) 5,271
indices. The Sensex and Nifty closed in green with gains of 0.2% and 0.3%, BSE PSU -0.3% (28.4) 8,814
respectively. BSE small-cap index also closed up by 0.6%, while BSE mid-cap BANKEX -0.6% (56.8) 10,337
index ended the trading session flat. Among the front-liners, Reliance AUTO -0.8% (61.6) 7,337
Communications, Reliance Infrastructure, Reliance Industries, Hero Honda and METAL -0.9% (138.6) 14,722
L&T were up by 1-11%, while Hindalco, Grasim, DLF, M&M and HDFC were OIL & GAS 1.6% 155.8 9,839
down by 2-4%. In the mid-cap segment, JM Financial, Shree Renuka Sugars, Jai BSE IT 0.3% 17.4 5,064
Corp, Balrampur Chini and REI Six Ten Retail were up by 5-9%, while Bajaj
Finserv, Bayer CorpScience, Gee Kay Finance, Rajesh Exports and Tata Global Indices Chg (%) (Pts) (Close)
Chemicals were down by 4-6%.
Dow Jones -1.2% (126.8) 10,067
Markets Today NASDAQ -0.7% (15.5) 2,214
The trend deciding level for the day is 16547/ 4966 levels. If NIFTY trades FTSE 0.1% 6.7 5,070
above this level during the first half-an-hour of trade then we may witness a Nikkei -2.4% (231.7) 9,527
further rally up to 16681 – 16891/5008 – 5072 levels. However, if NIFTY
Hang Seng -2.2% (425.7) 19,242
trades below 16547/ 4966 levels for the first half-an-hour of trade then it may
Straits Times -1.4% (37.9) 2,686
correct up to 16336 – 16202/4902 – 4860 levels.
Shanghai Com -1.2% (32.1) 2,641
Indices S2 S1 R1 R2
Indian ADRs Chg (%) (Pts) (Close)
SENSEX 16,202 16,336 16,681 16,891
Infosys -1.3% (0.7) $55.7
NIFTY 4,860 4,902 5,008 5,072
Wipro -1.1% (0.2) $20.3
News Analysis Satyam 1.4% 0.1 $5.0
ICICI Bank -2.7% (1.0) $35.4
GCPL acquires Issue Group in Latin America
HDFC Bank -2.1% (2.9) $133.9
Madhucon bags an annuity project in Bihar
Results Reviews: Madras Cements, NMDC, Sun Pharma, TVTN
Advances / Declines BSE NSE
Results Previews: GIPCL, HUL, Nagarjuna Construction
Advances 1,704 815
Refer detailed news analysis on the following page.
Declines 1,142 503
Unchanged 85 30
Net Inflows (May 21, 2010)
Rs cr Purch Sales Net MTD YTD
FII 1,828 3,305 (1,477) (8,145) 21,565 Volumes (Rs cr)
MFs 1,072 784 288 (498) (7,727) BSE 4,072
FII Derivatives (May 24, 2010) NSE 12,340
Open
Rs cr Purch Sales Net
Interest
Index Futures 5,286 5,005 280 17,816
Stock Futures 6,600 5,772 828 29,314
Gainers / Losers
Gainers Losers
Price Price
Company Chg (%) Company Chg (%)
(Rs) (Rs)
RNRL 55 22.6 Bajaj Finserv 428 (6.3)
R Comm 148 10.9 Hindalco 146 (3.9)
R Power 150 7.9 Tata Chemicals 306 (3.7)
R Infra 1,050 6.2 Anant Raj Ind 109 (3.7)
Shree Renuka 56 5.4 Dena Bank 85 (3.5)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 0109965391
2. Market Outlook | India Research
Godrej Consumer acquires Issue Group in Latin America
Godrej Consumer (GCPL) has acquired 100% stake in Issue Group in Argentina, which
includes two companies – Laboratoria Cuenca (Issue Uruguary) and Consell SA (Issue
Brazil). The issue brand is present in the hair colours segment and enjoys volume
leadership in Argentina with a market share in excess of 20%. It registered revenue of US
$33mn in 2009. The hair colourants market in Argentina is estimated to be around US
$200mn, growing at a compound annual growth rate (CAGR) of over 22% over the last
two years. The Issue brand is also the market leader in hair colours in Peru, Uruguay and
Paraguay and has an emerging presence in Brazil. While the deal size has not been
disclosed, the acquisition is valued at nearly 8x EV/EBITDA and is expected to be EPS
accretive in the first year of its operations itself. We estimate the deal size at nearly 1.5-2x
sales at Rs225-300cr.
We believe the acquisition is in line with GCPL’s core strategy of 3x3 (three markets of
Asia, Africa and Latin America, present in three categories of personal wash, hair care and
home care). Similar to most of its past acquisitions, we believe this acquisition is also likely
to add substantial value to GCPL’s shareholders as – 1) it is likely to be EPS accretive from
the first year itself (as indicated by management) and 2) the Issue Group would provide
GCPL the ideal platform for entering the Latin American market. We believe, with this
acquisition GCPL has completed its recent spree of acquisitions (though one cannot rule
out further acquisitions) and war chest of Rs3,000cr utilised for 1) Tura (Rs300-400cr
funded via internal accruals), 2) Megasari (Rs1,200cr funded via low-cost offshore debt),
3) 51% in GSL (Rs1,050cr funded via a mix of equity and debt) and 4) Issue (Rs225-300cr
funded via debt). While most acquisitions are in line with its core strategy of 3x3 and are
EPS accretive from first year itself, we are slightly cautious over GCPL’s pace of acquisitions
and its ability to manage synergies from the same. Nonetheless, we believe these
acquisitions have leapfrogged GCPL into a truly global FMCG player and maintain
Accumulate on the stock with a Target Price of Rs357 (not modeled the Issue acquisition
into our numbers due to lack of details).
Madhucon Projects bags an annuity project in Bihar
Madhucon Projects has bagged an annuity project for the four-laning of Chhapra-Hajipur
section of NH-9 in Bihar under the NHDP-III stage. The scope of the project includes
design, build, finance, operate and transfer of the project. The project comes with a semi-
annual annuity of Rs65.43cr. The concession period of the project is 15 years, inclusive of
a construction period of 910 days. We maintain Buy on the stock with a Target Price of
Rs190.
4QFY2010 Result Reviews
Madras Cements
Madras Cements’ (MAC) 4QFY2010 Top-line declined by 10.0% yoy to Rs577cr (Rs642cr),
despite a 30% yoy increase in sales volume to 2.07mn tonnes. Realization during the
quarter stood at Rs2,795 per tonne, down 31.1% on a yoy basis and 17.1% on a qoq
basis. Operating margin for the quarter stood at 21.4%, down 485bp on a yoy basis. Net
profit for the quarter declined by 59.9% yoy and stood at Rs29.4cr and was in line with our
estimates. The fall in the net profit was primarily on account of poor operating
performance and increased interest (up 28.2% yoy) and depreciation (up 34.9% yoy) costs.
Management has said that it will spend Rs630cr to raise the capacity by 2mn tonnes to
12.49mn tones, and the new unit will be operational by June 2011. Further, management
is also planning to invest Rs310cr to set up an 85MW captive power capacity. We maintain
Buy on the stock with a Target Price of Rs141.
May 25, 2010 2
3. Market Outlook | India Research
NMDC
NMDC’s 4QFY2010 net revenue increased 2.4% yoy and 24.9% qoq to Rs1,983cr, below
our estimate of Rs2,276cr. The company’s volumes were impacted by Naxal activity in
some mine areas and the damaged slurry pipeline through which iron ore is transported to
Essar Steel. On the operating front, EBITDA increased by mere 1.3% yoy and 27.9% qoq to
Rs1,379cr. Other expenses, as a percentage of net revenue, stood at 12.5% compared to
7.0% in 4QFY2009 and 15.8% in 3QFY2010. Consequently, EBITDA margins contracted
by 75bp yoy but expanded by 160bp qoq to 69.5%. Other income increased by 8.8% yoy
to Rs246cr, while it was flat on a quarterly basis. Thus, Net income increased 4.3% yoy
and 23.9% qoq to Rs1,066cr, below our estimate of Rs1,395cr. At the CMP of Rs274, the
stock is trading at 9.5x FY2011E and 7.5x FY2012E EV/EBITDA and 5.4x FY2011E and
4.1x FY2012E P/BV, respectively. In our view, near-term strength in the iron ore market is
already priced in and volume growth remains at risk in light of the recent terror attacks by
the Naxals in NMDC’s mine areas. We recommend a Reduce rating on the stock with a
Target Price of Rs247, valuing the stock at 7x FY2012E EV/EBITDA.
Sun Pharma
Sun Pharma reported its 4QFY2010 results, which were marginally below our expectations.
The company reported net sales at Rs1,109cr, down 2.2%, on back of high base. Adjusting
for one-off in 4QFY2009, net sales grew by 18.7%. The domestic formulation business
declined by 21.3% to Rs513.6cr, while the export formulation business grew by 11.1% to
Rs391.1cr. On the OPM front, the company reported margins of 37.7%, higher than our
expectation, on back of lower other expenditure. The company reported net profit of
Rs394.3cr which was flat yoy. On Caraco, the company has received an approval for a
work plan submitted to the USFDA covering remedial actions that would lead to resuming
manufacturing at its Michigan facilities. For FY2010 the company recorded net sales of
Rs4,103cr down 4.0% yoy with OPM of 33.2% and Net Profit of Rs1,351cr. For FY2011
the company has guided for a strong 18-20% top-line growth and expects to file 30
ANDAs during the year. The stock is under review.
TV Today Networks
TV Today declared its 4QFY2010 results. During the quarter, TV Today completed the
transfer of its radio broadcasting business of Radio Today Broadcasting Ltd (RTBL), effective
April 1, 2009. In accordance, TV Today will issue 1.66mn equity shares to the equity
shareholders of RTBL in the ratio of 1 equity share for every 6 equity shares held in RTBL as
consideration for transfer of the radio business, leading to an equity dilution of 2.8% in TV
Today. The current quarter’s results and FY2010 financials include the full year’s results of
operations of RTBL and, hence, are not comparable on a yoy or qoq basis.
For the quarter, the company reported Top-line growth of 46.9% yoy to Rs78.9cr
(Rs53.7cr), aided by steady growth in its broadcasting business and amalgamation of the
radio business (accounted for a revenue of Rs4.4cr). In terms of earnings, the company
reported a loss of Rs10.1cr (profit of Rs8.1cr) owing to losses incurred in the radio business
(full-year losses amalgamated in the current quarter) to the tune of Rs22.1cr (at EBIT level).
At the operating front, the company’s operating margin contracted by 596bp yoy to 3.5%
(9.5%) largely due to the amalgamation of radio losses. For the full year FY2010, TV
Today reported revenue of Rs285cr (Rs250cr), including broadcasting revenue of
Rs280.5cr and radio revenue of Rs4.5cr. In terms of earnings, the company reported a dip
of 27.9% yoy to Rs30.9cr (Rs33.5cr) owing to the amalgamation of radio losses. Post the
amalgamation of the radio business and lack of detailed financials, we downgrade the
stock to Neutral.
May 25, 2010 3
4. Market Outlook | India Research
4QFY2010 Result Previews
GIPCL
GIPCL will be announcing its 4QFY2010 results today. We expect the company to register
a 9.8% yoy drop in revenue, primarily due to a substantial decline in fuel price, which is a
pass-on. We expect the company to have sold 1,170 million units of power during the
quarter, up 3.5% on a yoy basis. The company's OPMs are expected to expand by 479bp
yoy to 27.3%. We expect GIPCL to post growth of 14.6% in is Bottom-line to Rs33.6cr. We
maintain Buy on the stock with a Target Price of Rs135.
HUL
HUL is expected to announce its 4QFY2010 results today. We expect the company to
report a modest 7% yoy growth rate in its revenue (as we model in lower value growth due
to price cuts in the company’s core categories) to Rs4,280cr and a 62bp yoy decline in its
operating margins to 13% because of higher ad spends. The company is expected to
report a drop in recurring earnings by 4% yoy, owing to weak revenue traction and a drop
in margins. We maintain our Neutral view on the stock.
Nagarjuna Construction Company
Nagarjuna Construction Company (NCC) is expected to announce its 4QFY2010 results
today. We expect NCC to post Top-line growth of 23.6% to Rs1,355cr. On the operating
margin front, we expect margins to be at 10.1%, whereas the Bottom-line is expected to
post yoy growth of 50.2% to Rs 57.4cr. We maintain Buy on the stock with a Target Price of
Rs186.
Economic and Political News
With a 10% growth target, PM signals reforms
PM sees 5% inflation by December 2010
Direct Tax Code revised draft expected in June 2010
Corporate News
Tata Chemicals to raise Rs400cr through preferential allotment
Madras Cements will spend Rs600cr to raise capacity
LIC picks a 2% stake in Adani Enterprises
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
May 25, 2010 4
5. Market Outlook | India Research
Events for the day
Aban Offshore Results
BOB Results
Deepak Fertilizer Results
Hindustan Unilever Limited Results
Jai Corp Results
J K Tyre Results
Mercator Lines Results
Nagarjuna Constructions Results
NHPC Results
Power Grid Corporation Results
Tata Tea Results
May 25, 2010 5
6. Market Outlook | India Research
Research Team Tel: 022-4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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