Market Mantra: Technicals – Biocon (Buy), ICICI Bank (Buy); F&O –Syndicate Bank (Long), Tata Power (Long); Reports – Nifty Technical View; Quarterly Results: Ashok Leyland, Ultratech Cement, CESC, KEC International, Dabur India

Market Mantra

 

Market outlook

Back to square one

To profit from good advice requires more wisdom than to give it. Wilson Mizner.

 

Yes, there is some profit to be made from the global rebound this morning, but one should not get carried away as the advance may run out of steam after a while. We expect a positive start following further improvement in risk tolerance worldwide. Early gains may not hold though and the market may once again turn choppy and rangebound. Near-term sentiment may remain at the mercy of global events even as earnings continue to trickle in, both here and overseas. Monsoon will be the next big event on the domestic calendar.

April was a dull month for Indian equities, as the main indices were stuck in a range. A breakout from the current range may continue to elude us unless we have a major global rally. So, it would be wise to stay cautious though there is no need to panic. Be selective and careful in picking stocks, especially the small- and mid-cap ones.

 

In the near term, 50-day DMA at 5,161 is likely to provide strong support. On the way up, a bounce would run into resistance at 20-day DMA (5,294).

 

Trading ideas (Time period: 1-3 days)

Biocon (BUY, CMP Rs303, Target Rs320): The stock has seen impressive volume in yesterday's trading session and appears to have taken support between Rs290-294 range. It could bounce till somewhere between Rs318-320 levels in the near term. The bullish formation is confirmed after the stock gave a close above its short-term moving averages with positive divergences in momentum oscillators. Any move above Rs305 could take the stock towards Rs320 and higher in the short-term. Traders are advised to maintain a stop loss of Rs296 and go long. Book partial profit around Rs317 and exit around the levels of Rs320.

ICICI Bank (BUY, CMP Rs947, Target Rs997): After moving in a downward sloping channel, ICICI Bank has broken out above the upper trendline of this channel. On Thursday, we saw, the stock arresting its downward slide which began from first week of April 2010 and giving a close above crucial moving averages.  From the high of Rs1,010, the stock saw a low of Rs903 last week. The decline in the above pattern was accompanied with lower volumes. However, we saw some stability returning back in the stock. A move above Rs953 with expansion of volumes could see the stock touching the levels of Rs990 and above in the medium term. The short term oscillators are showing upward movement. Keeping in mind, the above mentioned technical evidences, we recommend traders to buy the stock between the levels of Rs943-950 with a stop loss of Rs925 for a target of Rs997.

 

Derivative strategies (Time period: Till expiry)

±  Long Syndicate Bank May Future @ Rs93.6 for the target price of Rs96 and stop loss placed at Rs92

     Lot size: 4,000

Remarks: Net maximum profit of Rs9,600 and net maximum loss Rs6,400.

 

±  Long Tata Power May Future @ Rs1,353 for the target price of Rs1,382 and stop loss placed at Rs1,337

     Lot size: 250.

Remarks: Net maximum profit of Rs7,250 and net maximum loss Rs4,000.

 

Mutual funds

New Fund Offer
DSP BlackRock Focus 25 Fund				Subscribe
Fund manager	Apoorva Shah		Min investment - Retail		Rs5,000
NFO dates	April 23 – May 21, 2010		Entry load		Nil
NAV	Rs10		Exit load		1% <1yr<Rs5cr
Type	Equity – diversified		Registrar		CAMS
Class	Open – ended		Asset allocation:
Options	Growth & dividend		Equity & Equity related securities		65-100%
Benchmark	BSE Sensex		Debt and money securities		0- 35%

 

 

Technical View: All eyes on 50-day DMA

The Nifty's 50-day DMA is placed at 5,161, which coincides with the low of April 19 (low made post SEC ruling on Goldman Sachs). The past few weeks have seen global events taking centerstage. With quite a bit of earnings out of the way, India will continue to look to global markets for directional cues. In such a scenario, 5,161 will act as a crucial support.

 

Result Update: Ashok Leyland (Q4 FY10) – BUY

CMP Rs55, Target Rs61, Upside 10.6%

 

±  Net sales jump 141.3% yoy to Rs29.4bn on back of 138.9% yoy volume growth.

±  Operating profit surged 229.5% yoy and OPM expanded by 345bps yoy to 12.9%

±  Employee cost as a percentage of sales decline by 403bps yoy on back of benefits of operating leverage

±  Upgrade the stock to BUY from Market Performer

 

Result Update: Ultratech Cement (Q4 FY10) – SELL

CMP Rs1,019, Target Rs909, Downside 10.8%

 

±  Revenue rise of 9.9% above our estimates on higher volume growth

±  Surge in raw material costs, freight and other overheads pulls down OPM by 750bps yoy    

±  PAT declined by 26.2% yoy to Rs2.3bn; falls short of our estimates

±  Current valuation remains expensive; Maintain Sell.

 

Result Update: CESC (Q4 FY10) – BUY

CMP Rs393, Target Rs475, Upside 20.8%

 

±  Commissioning of Budge Budge III during the quarter resulted into 3.5% increase in generation

±  This coupled with marginally higher realizations translated into 2.1% increase in revenues

±  Higher interest, depreciation and tax resulted into flat PAT growth

±  Dhariwal project has achieve financial closure, placed orders for BoP and BTG, improved visibility on timely commissioning

±  Spencer's witnessed improvement in sales to Rs811/sq ft in March '10 against Rs660/sq ft in March '09

±  Achieved savings of Rs1bn in the last 12 months

±  Re-iterate BUY with an upgraded target price of Rs475/share

 

Result Update: KEC International (Q4 FY10) – BUY

CMP Rs571, Target Rs681, Upside 10.0%

 

±  Revenues grow by a healthy 19.5% yoy to Rs13.6bn against 11.3bn last year. Full year revenues are higher by 14% yoy to Rs39bn

±  Higher material and erection cost lower gross margin to 21%

±  Higher deferred tax, on account of merger, offset higher growth in PBT

±  Robust order book of Rs55bn covers it well for the next 18 months

±  Re-iterate BUY for a target price of Rs628/share

 

Result Update: Dabur India (Q4 FY10) – BUY

CMP Rs181, Target Rs200, Upside 10.3%

 

±  Records ~16% yoy growth in revenues at Rs8.5bn, primarily driven by volume growth across segments

±  Retail venture records strong 37.1% yoy growth at Rs24mn during the quarter.

±  Operating margins witnessed 137bps expansion to 19.1% aided by lower raw material costs and overheads

±  Strong revenue growth coupled with improved operating efficiency drives net profit by 27.6% yoy to ~Rs1.3bn

±  Maintain BUY with a revised target price of Rs200

 

Corporate Snippets

±  RIL plans to sell gas to retail consumers in the US, using Atlas Energy's infrastructure

±  UltraTech Cement has acquired Dubai-based ETA Star Cement for an enterprise value of Rs17bn. (ET)

±  Jindal Steel and Power is close to acquiring Oman based Shabed Iron and Steel for US$500mn. (ET)

±  Supreme Court verdict on RIL-RNRL gas issue is likely next week. (ET)

±  Air India has opposed the marketing alliance between Kingfisher Airlines and British Airways on domestic network. (ET)

±  NTPC-BHEL Power Projects, 50:50 JV between the two PSU's, is expecting orders worth Rs70bn by the end of current fiscal (ET)

±  Infinite Computer Solutions has bagged an order worth Rs1.25bn. (BL)

±  Madhucon Projects has secured an EPC contract worth Rs12bn for setting up thermal power plant in Nellore district of Andhra Pradesh. (BL)

±  CESC has decided to revive West Bengal's Balagarh thermal power project abandoned several years ago. (BL)

±  Pantaloon Retail and Future Value Retail plan to issue Rs7.5bn worth of NCD's. (BS)

±  Mindtree has bagged the application development services segment of the UID Project. (BS)

±  Tata Power has been asked not to apply differential pricing for Reliance Infrastructure. (BS)

±  Nuclear Power Corporation of India is likely to sign JV Agreements with IOC and NALCO. (FE)

 

Economic snippets

±  Finance Bill proposes to prohibit token concessions to housing, air travel, planters and healthcare. (ET)

±  Food inflation eases to 16.6% during the weekend April 17. (BL)

±  Government has directed mobile operators to stick to June 30 dead line for launch of mobile number portability. (ET)

±  According to the Telecom minister, 3G auction to end in a day or two. (BL)

±  The Government has hiked export duty on iron ore lumps to 15%. (BS)

 

Results table

Company	Revenues	% yoy	PAT	% yoy
Andhra Bank	6,562	66.0	2,403	19.4
Shoppers Stop	3,812	22.5	126	-
Patni Computer System	7,745	(2.8)	1,497	96.8
Shriram Transport Finance	12,034	23.1	2,644	71.9
Ashok Leyland	29,390	141.3	2,227	317.8
CESC	7,700	2.1	1,000	6.4
KEC International	13,571	19.5	628	30.0
Biocon	6,582	37.6	806	224.0
MRF	17,737	26.2	958	39.5
Subex Ltd	1,147	(14.0)	265	-
Indian Overseas Bank	8,204	16.5	1,274	(60.5)
Ultratech Cement	19,225	2.5	2,285	(26.2)

 

 

 

Confidentiality & Disclaimer: This message contains confidential information and is intended only for the individual named. If you are not the named addressee you should not disseminate, distribute or copy this e-mail. Please notify the sender immediately by e-mail if you have received this e-mail by mistake and delete this e-mail from your system. E-mails are notencrypted and cannot be guaranteed to be secured or error-free as information could be intercepted, corrupted, lost, destroyed arrive late or incomplete, or contain viruses. The sender, which includes India Infoline Limited and its group companies, will not be liable for any errors or ommissions in the contents of this message which arise as a result of e-mail transmission. If verification is required please request a hard-copy version. This message is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any securities or related financial instruments.

Market Mantra: Technicals – Cummins India (Sell), ABB (Sell); F&O – Piramal Healthcare (Long), ICSA (India) (Short); Reports – SJVN (IPO Note); Quarterly Results: Bharti, BOB, Canara Bank, Balrampur Chini, Marico, Exide Industries; DSP BlackRock Foc

Market Mantra

 

Market outlook

Relief rally likely

 

"Stability itself is nothing else than a more sluggish motion." - Michel de Montaigne.

 

Some semblance of stability has returned to the global markets though Europe continues to be rattled by debt problems. Meanwhile, ratings agency S&P downgraded Spain's credit rating and said the outlook is negative. Incidentally, the Greek market was one of the few indices to rise in Europe after its regulator banned short selling for two months.

 

In the US, the Fed left key rates steady and didn't make any change in its language. The Fed said that the US economy continues to strengthen and the labor market is beginning to improve. The Fed's rate action and commentary helped Wall Street post a modest advance. Asian markets are mixed but relatively stable. Japanese market is shut today.

 

We expect a steady start on Indian bourses. After a sharp fall there is always a chance of a rebound. But the F&O expiry and uncertainty over the emerging financial situation in Europe may continue to haunt the bulls. Aggressive buying should be avoided till the near-term turbulence is over. The market will be volatile though select stock centric action may persist.

 

Trading ideas (Time period: 1-3 days)

Cummins India (BUY, CMP Rs536, Target Rs560): On Wednesday, the stock surged sharply on impressive volumes above its 20-day DMA. It now faces a resistance at Rs560 levels and should have a minimum upside till that level. Our argument is further validated after the stock gave an upside breakout in yesterday's session as the price broke through the top of a trading range. The stock has rallied smartly from a low of Rs437 in February 2010 to the present levels. Despite the ongoing volatility in the market, the stock has managed to hold on to the support of its 50-day DMA. The daily RSI is already in strong buy mode, indicating that the prices are set to rally from the current levels. We recommend traders with high risk appetite to buy the stock in the range of Rs533-539 with a strict stop loss of Rs523 for an initial target of Rs560.

 

ABB (BUY, CMP Rs815, Target Rs855): Since last few months, ABB has made 100-day DMA to be its most important support level. In March 2009 it made a base around this moving average and then staged an impressive rally of 12% in two weeks (from a base of Rs775 to a high of Rs875). In yesterday's session, the stock stabilized again around its 100-day DMA against the weaker trend in the broader indices, emphasizing our belief that it remains a critical support level. Keeping in mind, the above mentioned evidences, we recommend high risk traders to buy the stock with a stop loss of Rs800 for a target of Rs855 and Rs860.

 

Derivative strategies (Time period: Till expiry)

±  Long Piramal Healthcare May Future @ Rs526 for the target price of Rs540 and stop loss placed at Rs517

Lot size: 1,500

Remarks: Net maximum profit of Rs21,000 and net maximum loss Rs.13,500.

 

±  Short ICSA (India) May Future @ Rs119 for the target price of Rs110 and stop loss placed at Rs123

Lot size: 1,200.

Remarks: Net maximum profit of Rs10,800 and net maximum loss Rs4,800.

 

Mutual funds

New Fund Offer
DSP BlackRock Focus 25 Fund				Subscribe
Fund manager	Apoorva Shah		Min investment - Retail		Rs5,000
NFO dates	April 23 – May 21, 2010		Entry load		Nil
NAV	Rs10		Exit load		1% <1yr<Rs5cr
Type	Equity – diversified		Registrar		CAMS
Class	Open – ended		Asset allocation:
Options	Growth & dividend		Equity & Equity related securities		65-100%
Benchmark	BSE Sensex		Debt and money securities		0- 35%

 

 

IPO Note: Satluj Jal Vidyut Nigam – Subscribe

Price band Rs23-26

 

The IPO of Satluj Jal Vidyut Nigam Ltd., a Schedule-A Mini Ratna Category-I PSU, opens today. Through the issue, priced at Rs23-26/share, the government will divest 10% stake in the company. SJVN currently has 1,500MW of operational capacity. It plans to expand its installed capacity by 3.7x to 5,500MW over the next decade. However there is clarity on only one project, 412MW Rampur project, which is scheduled to commission by 2013. Steady cash flow generation should allow the company to fund its equity contribution towards the capex. Although no capacity is being added over the next two years (hence muted earnings growth) key triggers for FY11 earnings are 1) migration to the new CERC norms, 2) incentive income and 3) higher interest income – on account of high cash generation. Also, the company has superior RoE as compared to its listed peer, NHPC and offers 3% dividend yield. This coupled with the offer being priced at 1.2x (at the lower band) FY11E book, makes the issue attractive. Recommend Subscribe.

 

Result Update: Bharti Airtel (Q4 FY10) – BUY

CMP Rs295, Target Rs338, Upside 31.7%

 

±  A better than estimated +3% qoq wireless growth leads to 4.2% revenue rise; ARPUs/net RPM in line with expectations

±  Wireless MOU surge 4.9% after six quarters of decline; total MOU up 12.8%, highest since Q1 FY09

±  Rise in network opex and SG&A dampens OPM; pre-exceptional PAT ahead of estimate on higher net interest income

±  Company remains the best bet to ride the post 3G scenario amidst a commoditized voice market; retain BUY 

 

Result Update: Bank of Baroda (Q4 FY10) – BUY

CMP Rs687, Target Rs761, Upside 11.0%

 

±  NII was up 19%yoy, net profit excluding exceptional gains, was up 9.6%yoy, albeit declined 1% sequentially.

±  Non-interest income declined 10%yoy, Cost-to-income ratio lowest in past several quarters.

±  Loan book grew 22%yoy; international book reported a sturdy 25%yoy growth. Deposits growth, however, outpaced loan growth. LDR remains comfortable at 72.6%.

±  Asset quality deteriorates sequentially; coverage ratio remains adequate

±  Comfortable capital, best in class returns ratio, Maintain BUY.

 

Result Update: Canara Bank (Q4 FY10) – BUY

CMP Rs409, Target Rs462, Upside 12.9%

 

±  Strong business growth of 13% qoq after two quarters of modest growth

±  Material improvement in NIM aided by significant decline in the cost of deposits 

±  Other income decline on lower trading profits; this coupled with higher opex drive a substantial increase in C/I ratio  

±  Asset quality improves commendably but bank makes higher loan-loss provisions; capital adequacy fell on robust loan growth 

±  Retain BUY on Canara Bank due to attractive valuation and upgrade target price to Rs462

 

Result Update: Balrampur Chini Mills (Q2 F9/10) – Market Performer

CMP Rs82, Target Rs78, Downside 4.9%

 

±  Sugar revenues up 43% yoy driven by ~59% surge in realizations to Rs32/kg

±  Sugar EBIT collapses on a ~60% jump in landed cane cost, higher (20%) levy obligation ; co-gen cushions EBIDTA with an 18% increase in realization to Rs3.9/unit

±  PAT drops 58% due to ~50% yoy contraction in OPM, higher tax burden and despite savings in interest cost

±  Weakness in sugar prices prompts a downgrade to MP with a reduced TP of Rs78

 

Result Update: Marico Ltd (Q4 FY10) – BUY

CMP Rs112, Target Rs124, Upside 10.7%

 

±  Marico registers muted ~ 6.4% yoy growth in revenues at Rs6bn;  ~14% volume growth was marred by reduction in prices

±  International FMCG business revenues grew ~16% yoy, in spite of rupee appreciation; Kaya recorded a volume growth of 15% yoy

±  OPM expands by 80bps to 14.1% aided by decline in raw material cost; sharp rise in adspend restricts further expansion

±  PBT records 16.8% yoy growth driven by improved operating efficiency and lower interest burden

±  We expect the company to witness 9.5% CAGR in revenues and 12.3% CAGR in net profit over FY10-12E. Maintain BUY

 

Result Update: Exide Industries (Q4 FY10) – BUY

CMP Rs124, Target Rs137, Upside 10.8%

 

±  Revenues increase by 28.9% yoy on back of strong volume growth in the automobile and industrial segments 

±  OPM jumps 434bps yoy and NPM nearly doubles on yoy basis owing to sharp fall in raw material cost which was on back of higher consumption of recycled lead

±  However, on sequential basis company registered a fall of 280bps and 147bps in NPM and OPM respectively

±  We maintain BUY with a revised target price of Rs137

 

NFO Note: DSP BlackRock Focus 25 Fund – Subscribe

From the March '09 low, S&P Nifty index has rallied ~92% till date and is currently trading at 16x FY11 P/E post factoring the recent earnings upgrade. Despite the phenomenal run-up, there are multiple stocks of various capitalizations that represent attractive long-term investment opportunity. Continuation of fund flow momentum and strengthening of India's structural growth is expected to push equity markets further up in the years ahead.

 

Under the said scenario, we believe that non-index stocks/midcaps would continue to outperform the broader market alike last year where the CNX Nifty Junior and CNX Midcap delivered an alpha of 83.7% and 59.8% respectively over the Nifty index. The New Fund Offering (NFO) by DSP BlackRock aims to identify and invest in 20-25 companies from the Top 200 by market capitalization. Being a multi-cap fund with heavy concentration in midcaps, the fund is a good investment for investors with low-to-medium risk appetite.

 

 

Corporate Snippets

±  RIL has made a fourth oil discovery in the Cambay basin in Gujarat. (BS)

±  AT&T has sold 7% stake in Tech Mahindra for Rs6.6bn; LIC buys 6%. (BS)

±  Tata Group and Actis to form US$2bn JV for building roads over 5 years. (ET)

±  NTPC to invest Rs400bn in three coal base power project in Madhya Pradesh. (ET)

±  NTPC and Coal India enters into a JV for coal block acquisitions. (BL)

±  Royal Dutch Shell is no longer in exclusive talks with Essar Oil for sale of its refineries in UK and Germany. (ET)

±  Suzlon's European division forms JV with Volkswind to accelerate growth in Bulgaria. (ET)

±  Punj Lloyd bags an order for the Cuddalore refinery of Nagarjuna Oil. (ET)

±  US investment fund Bravia Capital Partners has proposed to invest US$40mn into SpiceJet. (ET)

±  Suven Lifescience granted patents in India and New Zealand. (BL)

±  Tata Africa will soon start vehicle assembly plant in Nigeria in the next 2-3 years. (ET)

 

Economic snippets

±  Sebi has decided against filing a joint application before a court to resolve its dispute with Irda over Ulips. (BS)

±  Infrastructure companies may soon be able to re-finance part of domestic debt through borrowing overseas. (ET)

±  Government mulls 100% FDI in defence. (BS)

±  All India 3G bid has reached Rs89.14bn at the end of 16^th day of auction. (ET)

±  Mines Ministry seeks windfall tax to curb illegal iron-ore mining. (BS)

±  India's sugar production is likely to rise by 28% to 22.7mn tons in 2010-11 according to US Department of Agriculture. (BS)

±  Tobacco exports grew 29% yoy to Rs43.7bn in FY10. (BS)

±  IT spending in India is likely to grow by 14% to Rs67bn in 2010 says Gartner. (ET) Food inflation to decline in coming months says FM. (ET)

±  CERC raise overdrawal charges to 12.25/unit. (ET)

 

Results table

Company	Revenues	% YoY	PAT	% YoY
LIC Housing	9,629	21.8	2,135	35.5
Canara Bank	15,976	22.4	5,031	(30.0)
Bank of Baroda	17,450	18.6	9,063	20.4
Ballrampur Chini	4,705	31.8	276	(58.3)
Exide Industries	10,303	28.9	1,345	97.2
Bharti Airtel	107,394	4.7	20,241	(1.2)
Marico	6,023	(10.1)	511	(17.8)

 

 

 

Confidentiality & Disclaimer: This message contains confidential information and is intended only for the individual named. If you are not the named addressee you should not disseminate, distribute or copy this e-mail. Please notify the sender immediately by e-mail if you have received this e-mail by mistake and delete this e-mail from your system. E-mails are notencrypted and cannot be guaranteed to be secured or error-free as information could be intercepted, corrupted, lost, destroyed arrive late or incomplete, or contain viruses. The sender, which includes India Infoline Limited and its group companies, will not be liable for any errors or ommissions in the contents of this message which arise as a result of e-mail transmission. If verification is required please request a hard-copy version. This message is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any securities or related financial instruments.