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| THEMATIC REPORT Impact analysis of sharp fall in rupee on Sharekhan universe Currency impact on Sharekhan coverage universe
We applied four conditions on our coverage universe to ascertain the impact of the rupee's depreciation on various companies. Our findings reflect that Maruti Suzuki (Maruti) and Hero MotoCorp (Hero) have been affected the most due to expensive raw material imports and royalty pay-outs. Gayetri Projects and Sintex Industries (Sintex) would be affected the most on account of their foreign currency loan exposures. The companies that will benefit the most are Infosys, Tata Consultancy Services (TCS), Provogue, Bharat Forge, Divi's Laboratories (Divi's Labs) and Cadilla Healthcare (Cadilla). We have assumed a rupee/dollar rate of 55.5 and a rupee/yen rate of 1.40.
STOCK UPDATE Tata Consultancy Services
Cluster: Evergreen
Recommendation: Buy
Price target: Rs1,364
Current market price: Rs1,231 Upbeat on demand momentum, macro deterioration major worries We recently interacted with the management of Tata Consultancy Services (TCS) to get an insight into the software giant's Q1FY2013 performance and its outlook for FY2013. The TCS management indicated status quo on the operating/business environment with no major deceleration or acceleration seen in the demand momentum in the last three months. However, decision making is still lagging behind the anticipated line, with clients concerned over the macro uncertainties relating to the euro zone crisis. Nevertheless, the management remains upbeat about the overall demand momentum and expects to grow at a rate better than the industry average growth and likely to surpass the Nasscom growth corridor of 11-14% for FY2013 on a constant-currency basis. Valuation: The TCS management remains upbeat on the demand environment, notwithstanding the worries on macro deterioration. We believe that on a constant-currency basis TCS will grow at a rate faster than the industry average, possibly surpassing the Nasscom growth corridor of 11-14% for FY2013. At the current market price of Rs1,231 the stock trades at 18x FY2013E and 16x FY2014E earnings. Our estimates are based on a rupee/dollar rate of 50 for FY2013 and 48.5 for FY2014. We have not incorporated the recent depreciation in the rupee in our estimates; though this will provide further upside to our estimates for FY2013 and FY2014. But the same is unlikely to lead to any major multiple re-rating of the stock, given the macro uncertainties. TCS remains our top pick in the information technology sector, given the strong predictability of its business and its robust execution engines. We maintain our Buy recommendation on TCS with a price target of Rs1,364.
SECTOR UPDATE Fertilisers Firm prices dent demand for non-urea fertilisers Key points -
Domestic producers suffer; imports spurt in May 2012: In May 2012, the aggregate sales of the domestically produced fertilisers (by 15 leading manufacturers) declined by 8% as compared with the sales in the same period of the previous year. In May 2012 the import of fertilisers (di-ammonium phosphate [DAP], Muriate of Potash [MOP] and complex fertilisers) increased from 3.8 lakh tonne to 4.7 lakh tonne despite a decline in the import of urea and MOP. The import of complex fertilisers along with DAP increased during the month mainly on the back of higher imports from Indian Potash, a trading arm of the Government of India. The DAP and complex fertiliser imports grew by 149% and 2303% respectively in May 2012. The import of urea and MOP decreased by 96% and 30% during the same month. -
Similar trend on YTD basis: Even on a YTD basis (April-May), the domestic fertiliser companies witnessed a decline of 10% in the sales volumes whereas the imports of DAP and the other complex fertilisers spiked up. The indigenous sales of the DAP and complex fertilisers was lower due to the lower availability of phosphoric acid and other key raw materials as the negotiations with the global supplier have not concluded yet. The sales of DAP and complex fertilisers was lower by 26% and 52% respectively whereas the sales of urea improved by 9% during May 2012. -
Outlook: The consumption of fertilisers in the coming month will improve as the kharif season starts with the arrival of the monsoon in Kerala and the other west coasts of India. But we believe that further firming up of the prices of the non-urea fertilisers particularly DAP and MOP would negatively affect the demand. The depreciating rupee against the dollar will increase the cost of import of the non-urea fertilisers in spite of a decrease in the prices of the raw materials in the international market. This has become a huge risk for the fertiliser companies in terms of margin pressure. So going ahead, the margin of the complex fertiliser manufacturers will remain under pressure and the demand for complex fertilisers will also remain sluggish due to the high prices. We prefer pure urea manufacturers like Chambal Fertilisers along with SSP manufacturers like Rama Phosphate and Liberty Phosphate.
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