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Fundamentals - December 21, 2012


The Indian market was expected to open in red, mirroring negative opening trades in most of the Asian markets, after optimism  for a resolution to the U.S. fiscal cliff received a dent from Republicans canceling a vote on a back-up tax-cut plan. The U.S. markets ended modestly higher yesterday as Republican House Speaker John Boehner expressed optimism about reaching a budget deal with President Barack Obama along with upbeat economic data. The National Association of Realtors in the U.S. indicated that existing home sales rose 5.9% to an annual rate of 5.04mn in November from a downwardly revised 4.76mn in October. Also, for its final estimate for the third quarter, GDP got a notable upgrade. Real GDP growth for the third quarter was revised up to 3.1% annualized, compared to the second estimate of 2.7% annualized. Indian markets fell modestly yesterday, mirroring lackluster global cues on growing worries that U.S. budget talks were dragging on with little progress. The results of Himachal Pradesh and Gujarat assembly polls came along expected lines, with Chief Minister Narendra Modi securing a third consecutive win in Gujarat, while the Congress returned to power in Himachal Pradesh after five years.

Fire at RIL Jamnagar refinery’s crude distillation unit Media reports suggest that a minor fire broke out at the crude distillation unit of Reliance Industries Ltd’s Jamnagar refinery on early Thursday morning. The unit was under maintenance shutdown and therefore there would not be any meaningful impact on the production.  The company officials however confirmed that the fire was immediately controlled and the unit would be operational in two days. We do not expect any meaningful impact of this incident on RIL’s performance and therefore maintain our Neutral view on the stock

MM hopes to turnaround the JV operations in three years The board of Mahindra and Mahindra (MM) has given its loss making truck subsidiary, Mahindra Navistar Automotive Ltd (MNAL) three years to turn around the business operations. MM recently acquired Navistar’s 49% stake in MNAL and Mahindra Navistar Engines Pvt Ltd (MNEPL) for  `175cr (US$33mn). As per the agreement, Navistar will get `175cr in two parts - two-third when the separation actually happens on receipt of regulatory approvals and one-third five years from the separation date. Further, post the stake buyout, Navistar can continue sourcing components from India while MM would continue to provide engineering services to Navistar. The Navistar group would also continue to support MM through a license agreement and extend necessary support to MNAL and MNEPL for the purposes of business continuity. MM would continue investing in the business and plans to invest  `200-`300cr over the next couple of years to develop new products. MM has so far invested `520cr in the JV. While both the entities are loss making, MM expects to turnaround the operations and turn positive over the next three years. MNAL and MNEPL reported a combined loss of `375cr in FY2012. At `952, MM is trading at 15.2x FY2014E earnings.  Post the sharp run-up  (~20% over last three months) in the stock price, we recommend a Neutral rating on the stock.


Sesa Goa acquires 49% stake in Western Cluster Sesa Goa (Sesa) announced that it has acquired the remaining 49% of the outstanding common shares of Western Cluster from Elenilto Minerals & Mining, Delaware for a cash consideration of US$33.5mn. Post this transaction, Sesa’s shareholding in WCL increased to 100%. The first shipment from Western Cluster is expected to commence from FY2014. We do not expect any meaningful impact of this on Sesa’s FY2014 financials. Moreover, the stock price performance of Sesa will be determined by the combined performance of Sesa and Sterlite Industries. Hence, we maintain our estimates and maintain our Neutral view on the stock.


Economic and Political News 
„ BJP wins 121 seats in Gujarat assembly polls, Congress ousts BJP in HP
„ Goa to invest `100cr for mining belt development
„ Government loses `26,000cr in taxes to smuggling, counterfeiting
„ Restricting fiscal deficit to 5.3% 'doable': Chidambaram

Corporate News  
„ Kingfisher applies for licence renewal: source
„ L&T finance buys 11.4% stake in PVR
„ NMDC suffered `746cr revenue loss during 2007-10: CAG
„ Opto Circuits board approves issue of convertible warrants to its CMD
„ TCS to invest `1,350cr in new campus at Rajarhat

Source: Economic Times, Business Standard, Business Line, Financial Express, Mint



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