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Fundamentals January 10, 2013


Nik's Diary
The Indian market opened flat to negative mirroring the flat opening trades on the SGX Nifty. All the major Asian indices except Nikkei are trading in the red.  The U.S market stocks fluctuated over the course of the trading day on Thursday but largely maintained a positive bias before ending the day notably higher. The markets benefited from a positive reaction to some upbeat news from overseas. The major averages ended the day firmly in positive territory, adding to the gains posted in the previous session. Meanwhile, the majority of the European markets ended Thursday's session in negative territory. The strong Chinese export data had  provided a boost in early trade, but the markets struggled to find direction following the decisions of both the ECB and the BoE to maintain their respective interest rates. The domestic markets surrendered initial gains to end on a flat note on Thursday, as gains in bank, oil/gas and auto stocks offset losses in power, healthcare and metal stocks. Traders were reluctant to extend positions at higher levels as caution prevailed ahead of IIP as well as inflation data due today. Investors also awaited Infosys' earnings results for directional cues. 

CCEA approves disinvestment in Engineers India Ltd, fuel price hike not discussed 
The Cabinet Committee on Economic Affairs (CCEA) approved divestment of 10.0% stake in Engineers India Ltd (EIL). The divestment will bring down government’s equity capital in the company down from its present holding of 80.4% to 70.4%. It is expected to fetch approximately Rs. 800 crores to the exchequer. EIL is a listed mini-ratna public sector company under the administrative control of Ministry of Petroleum and Natural Gas. It is primarily engaged in the business of providing engineering and related technical services for petroleum refineries and other industrial projects and is also involved in design, engineering and turnkey contracting business. In the current fiscal year the government kick-started its divestment program by offloading 5.58% and 10.0% of its stake in Hindustan Copper and NMDC respectively. The CCEA has also approved disinvestment of equity capital in 8 other companies since 2012 such as NALCO, SAIL, NTPC, RINL, Oil India, MMTC, Hindustan Aeronautics Limited and RCF. As against the budgeted divestment target of Rs. 30,000 crores the government has garnered proceeds amounting to about Rs. 6,900 crores i.e. around 23% of its target for the fiscal year.   Reportedly the much-debated proposal of hike in diesel prices was not discussed in the CCEA meeting held yesterday. As per media reports the government is contemplating a phased hike in diesel prices by Rs. 1 per litre over the next 10 months to cover mounting under-recoveries by oil-marketing companies. At present the under-recovery of diesel stands at Rs. 9.03 per litre. Other reports suggest that the government is considering options such as a hike in diesel prices by Rs. 4.50 per litre in the next week or so or market-determined diesel prices for bulk consumers. I expect such a move to be beneficial in order to narrow the fiscal deficit and ease demand-side inflationary pressures in the medium term. In the  near  term  however,  in  case  the  hike  comes  into  effect  we  expect  it  to  be inflationary since it would release suppressed inflation in the economy.   cabinet approves `12,517cr capital infusion in PSU banks The Union Cabinet has yesterday approved a proposal to inject  `12,517cr in around 9-10 PSU banks to support their capital adequacy requirements considering their growth aspirations. Though, the amount of capital infusion is still undecided and can be expected to be finalized in the next few months, as the funds are to be disbursed before March. The government had budgetary earmarked sum of around  `15,888cr for capital requirements of SCBs, RRBs, NABARD and other financial institutions in the current fiscal. Capital infusion is likely to be based on an assessment made by the finance ministry about the capital needs of PSU banks for meeting Basel III norms. Amongst our coverage, banks with low tier-I CAR are Bank of Maharashtra, Central Bank and Indian overseas bank with tier-I CAR at 7.1%, 7.5% and 7.6%, respectively (as of 1HFY2013 excluding profits). Capital infusion in most of the PSU banks excluding SBI and BOB) is expected to be book-dilutive, as they trade below their book. 


Tata Steel reported production and sales numbers for 3QFY2013 
Tata Steel reported 8.3% yoy growth in crude steel production for 3QFY2013 to 2.1mn tonnes. The saleable steel production grew by 10.7% yoy to 2.1mn tonnes. The company’s sales in this quarter grew by 9.2% yoy to 1.9mn tonnes

Diageo-USL deal structure irks regulators 
As per media reports it is likely that SEBI’s permission for Diageo’s open offer to United Spirits (USL) shareholders will  be granted only after a few clauses are dropped from the agreement. SEBI is not in favour of the put option in agreement clause which gives UB group the right to sell all or a part of its stake in USL at 
`1,440/share, within a period of seven years from the time Diageo’s stake in USL crosses 50.1%. Diageo’s open offer was earlier proposed to be carried out between January 7 and 18, 2013. However, the offer got delayed as SEBI, Reserve Bank of India and Competition Commission are yet to approve it. 

3QFY2013 Result Review Cera Sanitaryware Ltd
Cera Sanitaryware Ltd (CSL) reported strong set of numbers for 3QFY2013. Top line soared by 55.2% yoy to `128cr and was 14.3% higher than our expectations of  `112cr. The company’s EBITDA came in at  `20.5cr 50.1% higher yoy attributable mainly to higher top-line vis-a-vis our estimate of  `18.4cr. EBITDA margin came in at 16.0%, marginally lower by 54bp yoy and 40bp against our estimate of 16.4%. Though net raw material cost rose by 297bp yoy but was offset by total reduction of 243bp in employee cost and other expenses. Net profit rose by 50.5% yoy to `12cr from `7.9cr in prior period and our estimate of `10.5cr. 


Date                    Company
January 11, 2013 Infosys
January 12, 2013
January 13, 2013 Petronet LNG
January 14, 2013 TCS, Electrosteel Castings
January 15, 2013 Axis Bank, Essar Oil, South Ind.Bank
January 16, 2013 Bajaj Auto, Yes Bank
January 17, 2013 Hero Motocorp, HCL Tech, Exide Industries, Federal Bank, Infotech Enterprises
January 18, 2013 Reliance Industries, ITC, HDFC Bank, Wipro, Hind. Zinc, Reliance Infra., IDBI Bank,                         -                          Mindtree, NIIT
January 19, 2013 UltraTech Cement, Bhushan Steel, Force Motors
January 20, 2013
January 21, 2013 HDFC, Asian Paints, Alembic Pharma
January 22, 2013 Kotak Mah. Bank
January 23, 2013 Zee Entertainment, Sun TV Network



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