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Fundamentals - January 04, 2013



NIK's Diary
The Indian market is expected to open flat, tracking SGX Nifty, which is trading marginally in the negative in opening trade. Most of the Asian markets, barring Nikkei and Shanghai are trading in the red.  The US markets ended the day lower, reacting negatively to the minutes of the latest Fed meeting, which suggested that the central bank could end its quantitative easing program earlier than anticipated. The minutes showed that several members said it would probably be appropriate to slow or stop the central bank's asset purchases well before the end of 2013 as they cited concerns about financial stability or the size of the balance sheet. The European markets ended Thursday's trading session with mixed results. Indian shares rose modestly on Thursday, extending gains for a third consecutive session, as encouraging economic data from the US and China provided optimism that the global economic recovery is gaining traction. 

Govt. appoints nodal banks for SEB restructuring in 10 states
Power Secretary had at the end of November 2012, guided that the implementation of CCEA approved discom restructuring package can be expected to kick start in a month with nearly seven  states  coming  forward  to  take  up  the scheme. The government has now appointed nodal banks for preparing financial restructuring plans pertaining to the restructuring of SEBs of nearly 10 states. I feel that the implementation of the proposal is positive for the banking sector, as discom debt restructuring had been an overhang on the banking stocks off late. Almost all public sector banks have meaningful exposures to these discoms, leading to warranted investor concerns on the quality of the loans given out to them. I always had a view that it would be incorrect to classify SEB loans (quasi government in nature) as impaired assets and, had always factored/assumed that the government would step in and take  control of the situation eventually and hence were not accounting for these in calculation of our adjusted book values. Post the efforts taken by the government, we feel the discom loan restructuring would not be seen in the same vein as standard NPAs by the market, leading to a positive change in the outlook of the quality of books of the banks. Though in near to medium term it might impact the profitability of banks as yields on half of the book would get reduced, however over  medium to long term the outlook on quality of asset given to discoms might  improve, as they adhere to approved turnaround plan.


Maruti Suzuki reports an in-line volume growth in December 2012 
Maruti Suzuki (MSIL) reported an in-line volume growth of 3.2% yoy (down 7.8% mom) to 95,145 units in December 2012 driven by a healthy growth of 5.9% yoy in the domestic market. However, export volumes posted a decline of 11% yoy (up 6.1% mom) during the month. The domestic performance was driven by strong growth in the compact (8.9% yoy), super compact (42.3% yoy) and utility vehicle segments led by the new launches - Swift, Dzire and Ertiga. Nonetheless, the Mini segment registered a decline of 15% yoy (10.6% mom) despite the launch of Alto 800, due to weakness in demand for petrol cars. Going ahead, we expect the company to report a modest volume growth of 6% yoy in FY2013. However, due to expected easing of interest rates in 4QFY2013, one can expect the demand to revive in FY2014 leading to a 12-13% volume growth in FY2014. Nonetheless, at the CMP of `1,543, the stock is trading at 16.3x FY2014E earnings, which may be on the higher side.


Punj Lloyd arm Sembawang Engineering bids for construction biz of Australia's Macmohan Holdings 
Punj Lloyd’s subsidiary Sembawang Engineering and Constructors Pte Ltd has made an offer to acquire the construction business of Australia's Macmohan Holdings Ltd. The offer would be in two parts -1) In the first part, Sembawang is willing to offer AUD$25mn (approx. US$26.25mn) to Macmohan for the construction business and it intends to purchase Macmohan's construction businesses as "going concerns or as a separate standalone offer". 2) For the second part, it would make a counter proposal to the asset purchase agreement
made by Leighton Holdings Ltd, on identical terms, for an additional consideration of AUD5mn. The offer is subject to satisfactory due diligence and Sembawang’s board approval by January 31, 2013

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



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