Contents
n Research Update included
Trade deficit widens to US$10.4bn
The trade deficit for the month of January 2010 widened further to US$10.4bn as compared to US$5.4bn in the corresponding month last year, as the imports rose faster than exports. While the imports grew by 35.5%yoy to US$24.7bn, exports grew by only 11.5%yoy to US$14.3bn. The increase in the import bill was primarily driven 56%yoy increase in oil imports, which was led by more than 90% rise in oil prices during the period.
Auto – February 2010 volume update
Bajaj Auto Limited
n Total sales increased by 74.7 % YoY to 268,678 units,
n Total two wheeler sales increased by 77.3% YoY to 234,710 units.
n Three wheeler increased by 58.8 YoY to 33,968 units.
n Exports increased by 53.0% YoY to 77,642 units.
Maruti Suzuki India Ltd (MSIL)
n Total sales for February 2010 increased by 22.0% YoY to 96,650 units.
n Domestic sales grew by only 20.0% YoY to 84,765 units.
n Export volumes increased by 38.8% YoY to 11,885 units.
Mahindra & Mahindra Ltd ( M&M)
n Total UV sales increased by 28.1% YoY to 18,280 units
n Three wheeler sales increased by 102.3% YoY to 6,907 units
n Total tractor sales increased by 52.6 % YoY to 13,920 units
TVS Motor Company Ltd ( TVSM)
n Total sales increased by 32.3% YoY to 142,676 units
n Domestic sales increased by 35.4% YoY to 123,535 units
n Export sales increased by 15.4% YoY to 19,141 units.
Hero Honda (HH)
n Total sales increased by 16.1% YoY to 382,096 units.
n Research Update included
Pfizer Q4CY09 Result Update ; Raising target price ; BUY; Target: Rs 1040
Pfizer Q4CY09 results were disappointing with net profit down by 6% to Rs288mn (est. of Rs366mn). This was significantly below our expectations of Rs366mn owing to lower than estimated operating margins (15% vs. est. of 21.3%). Though revenue was in-line (up by 10%) driven by 22% growth in the Animal Healthcare segment & 9% increase in Pharma business, operating margins was mainly impacted (up 50bps yoy; down 930bps qoq) because of higher raw material costs and price reduction of Becosules. Poor operating performance and lower other income (declined by 27% to Rs146mn) resulted in 6% decline to APAT. For CY09, company reported a) revenue of Rs7.7bn (up by 13%), EBIDTA margins of 19.9% (contraction of 175bps) and c) EPS of Rs48.5 vs. est. of Rs51. Going forward, we expect company to grow in-line with the industry growth on the back of a) new launches both from parent's pipeline as well as branded generic portfolio, b) focus on key brands and c) market expansion in the rural areas. Tweaking earning estimates marginally by 2% and 1% to Rs56.7 and Rs65.6 owing to lower interest income. We are of the view that Pfizer-Wyeth merger in India will lead to the re-rating of the stock. Roll over price target to Mar'11 (Rs1040; 17x Mar'11E; 20% discount to Glaxo India) and upgrade our rating from Hold to Buy.
Emkaynomics ; February 12, 2010 ; Fortnightly round up of key banking and economic indicators
q The growth in non food credit picked up marginally to 15.7% during the fortnight ended February 12, 2010. The growth in deposit mobilization also remained lower at 16.7%.
q The CD ratio also inched up to 71.0% during the week ending February 12, 2010. The incremental CD ratio also increased to 66.0% during the week ending February 12, 2010.
q The call rates continue to hover around the lower end of the LAF corridor. The spread between call money and reverse repo rates was 2bps as on February 25, 2010.
q Short end of the yield curve move up by 25-28ps over last month in line with of tightening of monetary policy. The 10 year bond yields stood at a 7.8% as on February 23, 2010 while 1 year bond yield stood at 5.30%
q The government announced net government borrowing of Rs3.5tn and estimated the fiscal deficit at 5.5% for FY11, in the Budget.
q Events to watch – India foreign trade data & industrial production, Japan GDP and industrial production
Tata Motors 3QFY10 Consolidated Result Update ; JLR surprises positively, Maintain SELL ; Target: Rs 606
Tata Motors' (TML) 3QFY10 consolidated results were ahead of expectation due to strong performance by JLR (net profit of GBP 55mn against expectation GBP 30mn). This was due to (1) favorable volume/region mix (higher sales of LR) (2) lower raw material cost pressure and (3) better pricing power. We had factored in a strong recovery in net residual value for JLR products in FY11 and hence not changing our assumptions for FY11. TML has provided Rs 10.9 (up 47% QoQ) in reserves as actuarial loss on pension revaluations at JLR Similarly, TML has classified financing cost of Rs 1.1bn as extraordinary expense.
We have upgraded our FY10 JLR estimates from net loss of GBP 138mn to GBP 50mn. We maintain our FY11 estimates. We expect strong show to continue for two quarters due to base effect (YoY) for volumes, pricing and lower RM cost (as contracts are due for renewal in June 2010).
We continue to have concerns with respect to the balance sheet of the company (net automotive D/E of 4.3x, ROCE of 14%, P/BV of 3.6x - before adjusting for goodwill). Hence we are not comfortable giving a higher valuation multiple to stock. We continue to value the stock at discount to other automobile stocks.
We have valued TML standalone at target EV/EBIDTA multiple of the standalone business to 7x (20% discount to M&M). We have valued JLR at 5x EV/EBIDTA and other subsidiaries (ex TMFSL) at 10% discount to TML. We maintain our SELL rating on the stock with a target price of Rs 606 (upgraded by 4%).
n Technical Comments
Close above 5000 mark:
After the retest of the neckline, from which the inverse H & S pattern saw a breakout, Nifty never looked back during the course of the day, flourishing northward till the final minute. The hourly and daily momentum cycles indicates that Nifty has a very high probability to heighten upto 5100, which is the conservative target of inverse H & S pattern.
BSE Auto:
BSE Auto index outperformed the broader markets and finally closed at 7478 with a gain of 4.29%. On the daily chart this index had already retraced 61.80% of the recent fall from 7607 to 6721, as well as making Higher Top and Higher Bottom on the daily chart. After seeing these signatures we believe that in the coming days we will witness further upside in this index and it will test 7607 levels. However downside level of 6795 will play as a support.
BSE Metal:
BSE Metal index broke the resistance of 16636 and further made a high of 17101 and finally closed above at 17044 with a gain of 3.92%. On the daily chart this index had broke the neckline of Inverse Head & Shoulder pattern, as well as already retraced 61.80% of the recent fall from 18210 to 15138.Going forward this index is looking strong and now in the coming days this index will test 18210 levels. Downside level of 15670 will play as a support.
Regards,
Emkay Research
Emkay Global Financial Services Ltd.
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