Strategy: Big regulatory changes => big share price impactsA proactive Government in India is usually a harbinger of major regulatory change. Such change, more often than not, significantly impacts share prices in large and heavily regulated sectors such as Banks and Oil & Gas. Add to that the impending implementation of GST and you have a potent cocktail of regulation-driven share price impacts across most large sectors in the Indian market. Winners from the impending regulatory changes: ONGC, OIL, HPCL, BPCL, RIL, Redington, Bajaj Auto, DLF, and Sobha Developers. Losers from the impending regulatory changes: Oriental Bank of Commerce, Central Bank, Indian Overseas Bank, Axis Bank, ICICI Bank, and Gujarat Gas. (Saurabh Mukherjea, CFA, +91 99877 85848)
NTPC (NOT RATED): Subscribe to the OFS
On 7 February, the Government of India is planning to divest a 9.5% stake in NTPC through the offer for sale (OFS) route to raise ~Rs120bn. The pricing is still unknown, but it is likely to be at a discount to yesterday’s closing price of Rs155 per share. At the CMP of Rs155, the stock is trading at 1.5x FY14 P/B consensus estimates, in line with its private sector peers. We believe NTPC should be trading at a premium to its peers and hence our advice would be to subscribe to the OFS. (Bhargav Buddhadev, +91 22 3043 3252)
(click here for detailed note)
NALCO (SELL): Nailed by the triple punch
Nalco’s margins have collapsed in the past two years in the face of falling aluminium prices, rising costs & declining volumes. Whilst, in the near term, a sharp decline in aluminium prices appears unlikely, we believe valuations still remain unattractive in the face of low return ratios and an extremely volatile cost base. We reiterate SELL.
(click here for detailed note)
HDFC (SELL): HDFC finally cuts its PLR
Yesterday, HDFC decreased its prime lending rate (PLR) by 10bps to 16.4% along with a similar 10bps reduction in the rates offered to its new customers. HDFC’s floating rate loans are linked to its PLR, and hence, its entire floating rate loan portfolio (~90%) would get repriced at rates that are lower by ~10bps. Whilst HDFC had reduced its lending rates for new customers by ~50bps over the past 12 months, this is the first time since June 2009 that HDFC has reduced rates for its old customers in line with the reduction in rates for its new customers. This makes us believe that going forward it would be difficult for HDFC to cut rates for new customers without cutting rates for old customers resulting in spread contraction for HDFC. (Pankaj Agarwal, CFA, +91 22 3043 3206)
RESULTS EXPECTATION:
Apollo Tyres: (BUY, 18% upside)
Apollo Tyres will announce its 3QFY13 results today, followed by a conference call at 3:00pm IST. At the standalone level, we expect revenue growth of 8% YoY to be driven by volume growth of 5% and by the positive impact from the change in the price/product mix. We expect EBITDA margins to increase by 260bps YoY (73bps increase QoQ) to 10.6%, owing to softening rubber prices. For the international subsidiaries, we expect revenue growth of 5% YoY but EBITDA margin to decline by 155bps YoY (and down 68bps QoQ) due to lower winter tyre sales and slowdown in volumes in the South Africa business. We expect net earnings of Rs1,611mn for the quarter (up 26% YoY and 5% QoQ). (Analyst: Ashvin Shetty, +91 22 3043 3285)
Manappuram Finance: (BUY, 21% upside)
We expect net profit of Rs1.1bn in 3QFY13 (vs Rs1.1bn in 2QFY13 and Rs1.6bn in 3QFY12). Our expectation of a QoQ flat net profit in 3QFY13 is driven by our expectation of QoQ flat loan book growth and ~20bps dip in margins. Loan book growth and NIMs would be the key variables to watch for during the quarterly results, both of which have been under pressure due to various regulatory changes over the past year. (Pankaj Agarwal, CFA, +91 22 3043 3206)
ANALYST NOTES:
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NTPC (NOT RATED): Subscribe to the OFS
On 7 February, the Government of India is planning to divest a 9.5% stake in NTPC through the offer for sale (OFS) route to raise ~Rs120bn. The pricing is still unknown, but it is likely to be at a discount to yesterday’s closing price of Rs155 per share. At the CMP of Rs155, the stock is trading at 1.5x FY14 P/B consensus estimates, in line with its private sector peers. We believe NTPC should be trading at a premium to its peers and hence our advice would be to subscribe to the OFS. (Bhargav Buddhadev, +91 22 3043 3252)
(click here for detailed note)
NALCO (SELL): Nailed by the triple punch
Nalco’s margins have collapsed in the past two years in the face of falling aluminium prices, rising costs & declining volumes. Whilst, in the near term, a sharp decline in aluminium prices appears unlikely, we believe valuations still remain unattractive in the face of low return ratios and an extremely volatile cost base. We reiterate SELL.
(click here for detailed note)
HDFC (SELL): HDFC finally cuts its PLR
Yesterday, HDFC decreased its prime lending rate (PLR) by 10bps to 16.4% along with a similar 10bps reduction in the rates offered to its new customers. HDFC’s floating rate loans are linked to its PLR, and hence, its entire floating rate loan portfolio (~90%) would get repriced at rates that are lower by ~10bps. Whilst HDFC had reduced its lending rates for new customers by ~50bps over the past 12 months, this is the first time since June 2009 that HDFC has reduced rates for its old customers in line with the reduction in rates for its new customers. This makes us believe that going forward it would be difficult for HDFC to cut rates for new customers without cutting rates for old customers resulting in spread contraction for HDFC. (Pankaj Agarwal, CFA, +91 22 3043 3206)
RESULTS EXPECTATION:
Apollo Tyres: (BUY, 18% upside)
Apollo Tyres will announce its 3QFY13 results today, followed by a conference call at 3:00pm IST. At the standalone level, we expect revenue growth of 8% YoY to be driven by volume growth of 5% and by the positive impact from the change in the price/product mix. We expect EBITDA margins to increase by 260bps YoY (73bps increase QoQ) to 10.6%, owing to softening rubber prices. For the international subsidiaries, we expect revenue growth of 5% YoY but EBITDA margin to decline by 155bps YoY (and down 68bps QoQ) due to lower winter tyre sales and slowdown in volumes in the South Africa business. We expect net earnings of Rs1,611mn for the quarter (up 26% YoY and 5% QoQ). (Analyst: Ashvin Shetty, +91 22 3043 3285)
Manappuram Finance: (BUY, 21% upside)
We expect net profit of Rs1.1bn in 3QFY13 (vs Rs1.1bn in 2QFY13 and Rs1.6bn in 3QFY12). Our expectation of a QoQ flat net profit in 3QFY13 is driven by our expectation of QoQ flat loan book growth and ~20bps dip in margins. Loan book growth and NIMs would be the key variables to watch for during the quarterly results, both of which have been under pressure due to various regulatory changes over the past year. (Pankaj Agarwal, CFA, +91 22 3043 3206)
ANALYST NOTES:
Strategy: Big regulatory changes => big share price impacts A proactive Government in India is usually a harbinger of major regulatory change. Such change, more often than not, significantly impacts share prices in large and heavily regulated sectors such as Banks, Real Estate and Oil & Gas. Add to that the impending implementation of GST and you have a potent cocktail of regulation driven share price impacts across most large sectors in the Indian market. More details are provided in the inside pages of today's Insights.
Winners from impending reg changes: ONGC, OIL, HPCL, BPCL, RIL, Redington, Bajaj Auto, DLF and Sobha Developers.
Losers from impending reg changes: Oriental Bank of Commerce, Central Bank, Indian Overseas Bank, Axis Bank, ICICI Bank and Gujarat Gas. (Saurabh Mukherjea, CFA, +91 99877 85848)
Winners from impending reg changes: ONGC, OIL, HPCL, BPCL, RIL, Redington, Bajaj Auto, DLF and Sobha Developers.
Losers from impending reg changes: Oriental Bank of Commerce, Central Bank, Indian Overseas Bank, Axis Bank, ICICI Bank and Gujarat Gas. (Saurabh Mukherjea, CFA, +91 99877 85848)
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