Religare maintains 'buy' on Tata Motors, target Rs 350

Brokerage house Religare has retained its "buy" rating on Tata Motors  citing steady growth in monthly retail sales of its Jaguar and Land Rover luxury brands. The firm has a price target of Rs 350 per share.

Jaguar Land Rover's retail sales last month increased 12 percent YoY, best ever for May. However, parent Tata Motors' global wholesales in May were disappointing (down 18 percent). There was only a marginal rise in JLR wholesales.

"JLR's wholesale and retail volumes have increased by 9 percent and 12 percent respectively. Sustained momentum in the Chinese market and new product launches suggest a healthy volume run-rate in the months to come," says the Religare note to clients Monday.

"We forecast 422,500 units for FY14 (a growth of 14 percent year-on-year). Further the improving product and market mix should aid margins in FY14. We recommend buying the stock on any declines owing to lower-than-expected May wholesale volumes," says the Religare note to clients.

Shares of Tata Motors were trading at Rs 293.20, down Rs 3.90 or 1.31 percent.

Government's divestment program: A feast party for bears

The government’s stake sale in MMTC, first in fiscal year 2013-14 proved to be a feast party for bears yet again. The offer price for 9.33 percent divestment was fixed at Rs 60 apiece, a 72 percent discount to its previous day closing price of Rs 211. This led the shares of MMTC to be locked at 10 percent lower circuit on Thursday at Rs 191.

As seen from the table, the government had raised Rs 23,857 crore in the previous financial year via divestment in seven PSU companies. Analysts say, all the issues were heavily under-priced by the government barring NMDC. And that’s not all, even after the offer for sale was done, shares of Hindustan Copper, NMDC, Nalco and SAIL are currently trading at 52-week lows, making money for bears.

Company	Date	Offer price	Prev day price	Discount to previous day closing	CMP	% Chg since OFS	% Stake divested	Amount raised	Post stake sale
Hindustan Copper	23-Nov-12	155	266	-42%	84	-85%	5.58	807.91	94.01
NMDC	12-Dec-12	147	159	-8%	112	-31%	10	5979.79	80
Oil India	1-Feb-13	510	539	-5%	540	6%	10	3144.97	68.43
NTPC	7-Feb-13	145	152	-5%	150	3%	9.5	11469.39	75
RCF	8-Mar-13	45	44	2%	38.6	-17%	12.5	310.49	80
NALCO	15-Mar-13	40	44	-9%	29.5	-36%	6.09	628.53	81.06
SAIL	22-Mar-13	63	64	-2%	55	-15%	5.82	1516.17	80

India VIX hits one-year high as Nifty, rupee tumble

Riken Mehta

Foreign and domestic investors have pressed a panic button in the wake of rupee touching an all-time low of 58.95 on Tuesday. The weakness in rupee has led to a sharp fall in equities with key benchmark indices losing over 6 percent in the last eleven sessions.

Volatility Index or the fear gauge indicator is a measure of the amount by which an underlying Index is expected to fluctuate in the near-term. India VIX, a volatility index based on the Nifty index Option prices has been making higher lows and higher highs in last one month. The India VIX has touched a high of 19.85 today, a level last seen in June, 2012. As seen from the chart, India VIX is inversely proportional correlated to the Nifty.

Sanju Verma of Violet Arch Cap told CNBC-TV18, "The lower end of the India VIX has been trading in the region of 13-14, and the higher end has been trading in a band of 18-20. That is a cause of concern. If the India VIX were to breach 20 on the upside, in the intermediate to short-term there could be more trouble."

What led to massive fall in Indian rupee? Find out here

Riken Mehta 

The Indian rupee plunged to record lows on Monday, touching a level of 58.15 per dollar as the unwinding in currency carry trade is leading to the massive fall in the domestic currency.

Simply put, FIIs invested in Indian equities and debts earlier which were offering better returns compared to US 10 year bonds. However, the trade-off is becoming unviable for FIIs as the yield on these bonds have shot up significantly in the past one month on fears of Quantitative Easing (QE) or massive bond buying program coming to an end.

Back home, the Reserve Bank of India (RBI) is asking banks to cut interest rates that would lead to lower yields on deposits, reducing the arbitrage opportunities for foreign funds. If this situation continues for some more time, then one can expect massive unwinding in currency carry trades.

Last week, RBI has also pointed out that it will intervene in the forex market only to curb the volatility. Reading between the lines, the analysts believe that RBI will not try to suppress the rupee depreciation. In such a case, one cannot rule out the levels of 60/USD in the near future.

Will rupee slide speed up FII selling of Indian shares?

Santosh Nair, Riken Mehta
Moneycontrol.com

Finance minister P Chidambaram Thursday tried to pacify jittery markets, saying foreign capital flows were strong enough to bridge the current account deficit. But will the flows sustain going forward?

Theoretically, a weak rupee provokes foreign funds into selling Indian equities, as it would lower their portfolio value, if the stocks have not been performing.

Assume a foreign fund buys one share of a company for Rs 52 when the rupee was 52 to the dollar. If the stock price remains constant, and the rupee depreciates to 57 to the dollar, the value of the portfolio is now less than 1 dollar. But if the stock had risen to Rs 62, the foreign fund would not be worried, since the appreciation could more than cover up for the weakness in the rupee.

India is among the emerging market countries which have gained from the low interest rate policies of the US Federal Reserve and the European Central Bank. Generous dollops of liquidity resulting from those policies found their way into Indian shares, keeping share prices higher even during periods of weakness in the rupee.

But now market is not so sure if the liquidity flows will sustain, as there are doubts that the Fed may now start cutting back on its monetary stimulus.

Since the big sell off in global markets a couple of weeks back on these concerns, foreign fund flows into India have slowed.

And there is bad news on the debt front as well. FIIs have net sold close to Rs 4000 crore of Indian debt as bond yields are softening in anticipation of a decline in interest rates.

If capital flows slow down at this stage, this could trigger a vicious cycle of weakening rupee and foreign fund outflows. 

How Reliance Industries moves before, on and one-week after AGM

 
Sagar Salvi, Riken Mehta
moneycontrol.com

The Reliance Industries ' Annual General Meeting (AGM) has always been a big event for the company's shareholders, prospective investors and traders.

However, chairman Mukesh Ambani's plans to invest Rs 150,000 crore over the next 3 years failed to cheer the Reliance Industries stock as it ended the session on Thursday a percent down.

Reliance, India's fourth biggest company by market value, has been under pressure from investors over its slowing gas business and its drive into consumer-focused sectors such as telecoms and retail.

Remaining tightlipped, Ambani gave away few details of his plans for the long-anticipated launch of 4G telecommunications services, which was a big disappointment for the street.

Below is a historical chart of how RIL stock has moved before, on and one-week after AGM in the last five years.

Chart: India Cements lag rivals by a wide margin

Riken Mehta
Moneycontrol.com

The sordid deeds of his son-in-law may have aggravated the underperformance of N Srinivasan-controlled India Cements  shares over the last month. But even adjusting for that, India Cements shares have had a disappointing run over the last year. And the growing feeling in the market is that Srinivasan has taken his eye off the ball, at least where his primary responsibility is concerned. In contrast, shareholders in rival cement companies have made decent gains over the last one year, despite the sluggish trend so far this calendar.

Sentiment for the sector in general has soured of late, as demand is not showing signs of a sustained pick up. “We retain our ‘sell’ stance on large-cap cement players, given the rich valuations at a time when weak demand risks loom large on pricing,” brokerage house Ambit said in its note to clients earlier this week.

The outlook is even bleaker for India Cements as shareholders are worried about what the probe into the IPL spot fixing case holds for India Cements, since N Srinivasan’s son-in-law Gurunath Meiyappan is among the key accused.

Just Dial & Amitabh Bachchan: Superstar's super gains

Riken Mehta
moneycontrol.com

Amitabh Bachchan just got richer by Rs 3.77 crore today. The Bollywood superstar, who happens to be the brand ambassador of Just Dial  , a local search firm, had 0.1 percent stake in the company as per disclosure.

The red herring prospectus say that Bachchan was allotted 62794 shares at a price of Rs 10 in January 2011. His investment cost was Rs 6.27 lakhs.

Just Dial listed today in the bourses at Rs 590 apiece against an issue price of Rs 530 per share. At the current price of Rs 600, his holding is valued at Rs 3.76 crore, a whopping 5900 percent return over its investment. Retail investors were allotted shares at a discount price of Rs 483 per share.

Amitabh Bachchan was signed by the company as brand ambassador in December 2010 for a period of three years.

This is not the first time Amitabh Bachchan has bought or allotted shares of a listed company. As per March 2013 shareholding data, he also holds 1,675,000 shares or 1.4 percent in Birla Pacific Medspa. He has 4.95 percent stake or 555,452 shares of Fineotex Chemical  as well.

June seasonality: How BSE Sensex has moved in past 20 years

Riken Mehta
Moneycontrol.com

Traditionally, May has not been the best of month for equity investors, with the market declining more often than it has risen. But June seems to be the exact opposite. In last 20 years, the BSE Sensex has risen 14 times in June. This could partly be due to the pessimism in May, and the subsequent covering of short positions. But things don't look too bright for Indian equities this June.

The HSBC Manufacturing Purchasing Managers' Index (PMI) for May declined for the third successive month to hit a 50-month low of 50.1, and the widely held view is that economic recovery could be slower than what was expected.

The rupee is under pressure, political uncertainty looks likely to persist, and there are questions about the continuation of US Federal Reserve’s loose monetary policy, which has been driving the rally in emerging market equities.

Don't fool yourself! Diesel cars aren't price-efficient anymore...

Riken Mehta
Moneycontrol.com

Although the monthly 50 paise increment in diesel prices has managed to bring down under-recovery of oil marketing companies to some extent, it has impacted the auto industry negatively as far as sales of diesel vehicles are concerned.

In May last year, the difference between petrol and diesel rates was as high as Rs 33 with the latter commodity available at Rs 46 a litre. This led to boost in sales of diesel vehicles. But with continuous hike in diesel prices, the difference between the two has come down to Rs 14 which has effectively chased away buyers of diesel cars.

Mahindra and Mahindra (M&M) is one such industry player struggling to sell diesel vehicles. Speaking to CNBC-TV18, Pravin Shah of M&M admitted the industry was seeing de-growth in SUV sales on higher diesel prices. The excise duty of 3 percent levied on the SUVs by Finance Minister also impacted sales to certain extent. With the difference in petrol and diesel prices getting narrowed, sales of diesel vehicles will take a beating in the coming future.

Chart: BSE Sensex versus India GDP since FY07

Riken Mehta

Report card: How broking firms grade Coal India Q4 results

Riken Mehta
Moneycontrol.com

Shares in Coal India  jumped to three-month high on Tuesday after its consolidated fourth quarter earnings beat estimates coupled with news of price hike.

Coal India 's fourth quarter (January-March) consolidated net profit rose 34.9 percent year-on-year to Rs 5,414 crore. Its sales grew by 2.5 percent to Rs 19,904.5 crore from Rs 19,419 crore Y-o-Y, which too came in marginally above forecast.

Coal India said it would raise prices as of Tuesday, adding the hikes would increase revenue by about Rs 2119 crore for the rest of the fiscal year 2013-14.

Broking firms remain upbeat on Coal India after company's fourth quarter earnings and price hike. The offer for sale by the Government still remains major overhang for the stock.

Morgan Stanley: OVERWEIGHT

Morgan Stanley has retained its ‘overweight’ rating on the stock citing the company on its way to deliver healthy production growth in FY2014.

“We expect CIL to raise FSA prices in the near term. With a cash balance of USD 11.5 billion at end-FY2013, we expect CIL to increase its dividend payout in the next two years, translating into yield of 8.2 percent in FY2014 and 9.4 percent in FY2015,” said the Morgan Stanley report.

Elara Capital: ACCUMULATE, TP: Rs 364

Brokerage house Elara Capital has maintained its 'accumulate' rating on Coal India as the firm believes the stock looks attractive from the point of dividend yield and cheap valuation. Elara Capital has a price target of Rs 364 per share.

JM Financial : BUY, TP Rs 370 

Domestic broking firm JM Financial has maintained its 'buy' rating on Coal India with a price target of Rs 370.

“Offer for sale by GoI is the key overhang on stock going forward with limited visibility on timing of the offer. We believe the stock has limited downside at current valuations and with triggers like higher dividends, price hike and production are expected to pan out in short to medium term, we maintain 'buy' with target price at Rs 370,” said the JM Financial note to clients.

Kotak: BUY, TP Rs 410

Kotak Institutional Equities has marginally revised its earning estimates of Coal India and also raised its target price to Rs 410 from Rs 404 earlier.

"Financial performance and reasonable valuations notwithstanding, unresolved business issues around incremental coal supplies and an impending stake sale have so far kept stock performance under check that may be catalyzed by the revision in coal prices. Maintain buy with a price target of Rs 410 per share," said the Kotak note.

How broking firms rate Crompton Greaves Q4 results

Engineering major Crompton Greaves  fourth quarter consolidated net profit plunged 75 percent to Rs 25.3 crore from Rs 100 crore, a year ago on account of higher expenses. The company posted 10 percent growth in its net sales at Rs 3387 crore compared to Rs 3087 crore in the same quarter last fiscal.

The earnings before interest, tax, depreciation and amortization (EBIDTA) also more than halved to Rs 77.9 crore from Rs 213 crore in the previous fiscal. EBITDA margins were also down by 460 basis points to 2.3 percent from 6.9 percent earlier.

Brokerage house Bank of America Merrill Lynch has maintained its 'underperform' rating on the stock with a price target of Rs 104 citing weak fourth quarter has left a lot unanswered for FY14. The firm sees no visibility on sustainable turnaround in international operations with the current product mix. BoAML has also cut its FY14 and FY15 earnings estimates by 11 percent.

Meanwhile, brokerage house Macquarie has maintained its 'underperform' rating on the stock with a price target of Rs 83 on concerns of continuous decline in its standalone margins. It has cut its FY14E EPS by 14 percent based on a lower margin assumption for the domestic business. The turnaround in subsidiaries also remains uncertain and this will continue to be a serious overhang on the stock.

UBS too has 'sell' rating on Crompton Greaves with a price target of Rs 90 as the broking firm believes the business environment for the company continues to remain very challenging. UBS feels in absence of near-term triggers, the stock may continue to underperform.

However, Morgan Stanley remains bullish on the stock and has maintained its 'overweight' rating citing strong order book position. Morgan Stanley expects revenue growth to remain comfortable and margins in the international power segment to recover.

How brokerages view Reliance Industries-BP oil find

Riken Mehta
Moneycontrol Bureau

Reliance Industries  (RIL) on Friday announced a huge natural gas discovery, possibly the biggest find ever, in the flagging eastern offshore KG-D6 block that will be crucial in arresting its falling gas output. The company has not disclosed estimates but media reports have suggested that reserves may be more than pre-drill best estimate of 1.2 trillion cubic feet equivalent.

Brokerage house Goldman Sachs has reiterated its 'Buy' rating on Reliance Industries with 12-month sum of the parts based target price of Rs 1,070 citing RIL’s capex in core segments that will lift its cash returns over the medium term.

"The announced discovery looks significant given that the largest D6 discovery had a gross hydrocarbon column of 194 mts (MA-2 well). Moreover, if this discovery leads to a new commercial reservoir, it could meaningfully add to D6 reserves, in our view. Overall, we believe, this discovery further strengthens our view that RIL’s E&P business is turning around," said the Goldman Sachs note to clients.

Brokerage house Barclays has retained its 'equalweight'rating on Reliance Industries with a target price of Rs 870 pending more clarity on MJ-1’s key parameters.

"We hypothesize that MJ-1 could be worth USD 2.5 billion (USD 8.1/boe) based on 1.5tcf and 60million barrels, USD 1.9 billion capex (USD 6/boe), a FY17 start-up and assuming that it is not ring-fenced. This translates to Rs 28 per share for Reliance’s 60% share. Niko (10% share) was up 23% on Friday adding USD 100m in market-cap or Rs 11 per share for Reliance’s 60 percent share," said the Barclays note to clients.

CLSA too has retained its 'outperform' rating on the stock citing final decision on doubling of gas price as the next key trigger in FY14.

"Reliance’s first exploration well after a near two year exploration hiatus has been announced as a “significant” gas and condensate discovery. Based on our estimated value of USD 4/boe for development upside from a gas and liquid discovery, this could a value of USD 650 million for ever 1TCF i.e. Rs 8 per share for Reliance’s 60 percent stake. We note that Niko added USD 92mn to its market cap on the back of this discovery given its 10 percent stake. Pertinently, sharp movement in Niko’s stock implies a possible addition of Rs 12 per share for Reliance," said the CLSA note.

Crompton Greaves Q4 net plunges 75% to Rs 25 cr

Riken Mehta
Moneycontrol Bureau

Engineering major Crompton Greaves fourth quarter consolidated net profit plunged 75 percent to Rs 25.3 crore from Rs 100 crore, a year ago on account of higher expenses. The company posted 10 percent growth in its net sales at Rs 3387 crore compared to Rs 3087 crore in the same quarter last fiscal.

Total expenses of the company also shot up by more than 13 percent from Rs 2928.07 crore to Rs 3354.69 crore, mainly on higher inventories which accounted for Rs 176.92 crore.

The bottomline figure would have been much less if not aided by higher other income of Rs 5.14 crore (previous year Rs 31 lakh) and tax reversal of Rs 7.77 crore (previous year tax expense of Rs 39.63 crore). The interest cost also shot up from Rs 13.94 crore to Rs 20.82 crore.

The earnings before interest, tax, depreciation and amortization (EBIDTA) also more than halved to Rs 77.9 crore from Rs 213 crore in the previous fiscal. EBITDA margins were also down by 460 basis points to 2.3 percent from 6.9 percent earlier.

Shares of Crompton Greaves closed at Rs 96.85, down 1 percent on Friday.

Are SBI, HDFC Bank, ICICI Bank really passing on rate cuts benefit to borrowers?

Riken Mehta
moneycontrol.com

Since April last year, the Reserve Bank of India has cut the benchmark repo rate by 125 basis points (1.25 percent), the cash reserve ratio by 75 basis points and the statutory liquidity ratio by 100 basis points.

Repo is the rate at which banks borrow overnight money from the RBI, cash reserve ratio is the percentage of deposits that banks have to mandatory park with RBI, and SLR is the portion of deposits that banks have to mandatory invest in government bonds.

Despite the easing of interest rates by RBI, the weighted average lending rates of banks have declined by less than 0.5 percent, according to RBI data.

Banks have said they are not in a position to reduce lending rates because of tight liquidity in the system.

Also, to reduce lending rates, they should be in a position to cut deposit rates as well, which they may not be able to do at a time when the growth in deposits has been slow. 

The chart shows the trend in base rates of SBI, ICICI Bank and HDFC Bank over the last one year, compared to that in the repo rate and cash reserve ratio. Click here for chart

Indian, Chinese services sector growth at multi-month low

 

Riken Mehta
Moneycontrol Bureau

Growth in Chinese and Indian services sector, two of the world's fastest growing economies eased sharply in April, a survey by HSBC showed on Monday. The HSBC services Purchasing Managers' Index (PMI) of China fell to 51.1 in April from 54.3 in March while that of India fell to 50.7 in April from 51.4 a month earlier.

A reading above 50 suggests activity in the sector is growing, while the same below 50 indicates it is contracting.

"The rate of expansion of new orders in China was the weakest since August 2011. In April, staffing levels in the Chinese service sector also decreased for the first time since January 2009." said the HSBC China note.

China's annual economic growth slipped to 7.4 percent in the third quarter, slowing for seven consecutive quarters and leaving the economy on course for its weakest showing since 1999, said Reuters.

The HSBC India note says, "The pace of growth was the slowest in the current one-and-a-half year period of expansion. Total new business also rose at a weaker rate, although job creation was maintained."

Service sector accounts for almost 60 percent of India's GDP, so a slowdown in this sector is a bad sign for India. Last week data showed India's manufacturing activity growth also came to halt. RBI has also ruled out further easing of monetary policy and thrust now remains on the government to announce more measures to revive growth in the manufacturing and services sector.

Chart: How Bank Nifty has reacted to RBI policy

Riken Mehta
Moneycontrol.com

The RBI today cut the benchmark repo rate by 25 basis points, as widely expected by the market. However, banking shares are under pressure as the central bank has made it clear that it has little room for further reducing interest rates, because of issues like high inflation, high current account deficit and supply constraints.

Bank stocks are under pressure as the RBI has projected a dour outlook on economic activity and business confidence. A slow paced recovery could further compound the problem of bad loans for the banking sector.

A quick look at how the Bank Nifty has reacted to the previous monetary policies.

5 reasons why Unilever is so keen to invest in HUL

Moneycontrol Bureau

Unilever Plc's offer on Tuesday for an additional 22.5 percent stake in its Indian arm Hindustan Unilever   (HUL) at a 20 percent premium took most by surprise. This is Unilever's biggest deal in as many as 13 years since it acquired Best Foods for USD 23 billion. So why is Unilever betting so heavily on HUL at a time when the Indian economy is growing at its slowest pace in a decade?

Here are some reasons:

1. India is tied with Brazil as the second biggest market for Unilever in terms of turnover after United States where growth has slowed down, particularly in North America, as per Reuters report. Hindustan Unilever has the largest market share of Indian consumer market.

2. Unilever reported sales growth of 4.9 percent in its latest filing, its slowest quarterly growth in two years. Its earnings were boosted by 10.4 percent growth in emerging markets, which now account for 57 percent of its total revenue, according to Bloomberg.

Also Read - Offer of Rs 600/shr for HUL fair; won't raise it: Unilever

3. HUL, on the other hand, reported best ever annual operating profit margins of 20.22 percent. The last time it clocked 20 percent plus margins in 2003. The return on equity (RoE) which measures the ability of the company to generate profits with the money shareholder has invested was as high as 76 percent. Unilever’s RoE is much lower at 30.42 percent as per data compiled by Reuters. HUL is a debt free company.

4. Unilever targets to generate revenues of 80 billion euros by 2020 and three-quarters of it will come from the emerging markets like India and China.

5. Apart from raising stake in HUL, Unilever delisted its subsidiary in Pakistan last November and in 2009 it acquired controlling stake of its subsidiary in Vietnam. Unilever is clearly focusing on the emerging markets for future growth by either hiking stake or delisting subsidiaries.

Riken Mehta
riken.mehta@network18online.com

Infosys margins at all-time low, HCL Technologies' at all-time high

 

 Riken Mehtamoneycontrol.com

The opinion on the street is unanimous for IT sector Infosys  is an underperformer, HCL Technologies  a dark horse and TCS  a consistent outperformer. This has been the view for several quarters now. Infosys’s problems are company specific and clearly the strategy of preserving margins at the cost of revenue growth has backfired.

The EBIDTA margins of Infosys in Q4 slumped to an all-time low of 23.6 percent from 31.07 percent in September 2009, best in the industry at that time. In the same period (Sept 2009 Mar 2013), HCL Tech’s margins improved by 570 basis points to 21.33 percent, close to its all-time high margins of 22.19 percent in the previous quarter.

Infosys has also lost its market share to rivals like HCLTech, TCS and Cognizant. It has been criticized for not utilizing its huge pile of cash reserves for acquisitions compared to HCL Tech and TCS who have acquired several companies in last few years. The margins of Infosys will further contract as the company is now focusing on stepping up revenues but analysts feel it’s a little too late.