Indian Markets May Open Sideways

Morning Update 03rdFeb 2012

Opening Bias

The Indian markets may open sideways. The SGX Nifty is trading up by 9 points at 5,283, indicating a flattish gap up opening to the markets today.

Overnight, the global stocks have also painted a mixed picture. The US stocks tallied limited gains with Dow in the reds and S&P along with NASDAQ edging higher as Wall Street looked to the coming day’s employment report as the next indicator of economic recovery. The European stocks climbed as reports showed that the US jobless claims dropped more than economists had estimated and Glencore International Plc held talks to buy Xstrata Plc, boosting the mining companies. The Asia markets have treaded lower in early trades, though the Japanese stocks moved off the initial lows as investors digested the earnings reports.

Back on the domestic turf, among the major developments is the recent cancellation of 122 telecom licenses by the Supreme Court in relation to the infamous 2G scam. Though many experts find the SC’s decision a bit too harsh and reckon that this will prove to be a setback to India’s image as an investment destination for foreign investors, we believe that such decisions exemplify the fact that the law of the land would always be upheld in every instance.

The cancellation of 122 licenses which were obtained under an arbitrary and unconstitutional manner will help clean up the telecom space and ensure that only the very serious and mature players stay in the race. Foreign investors should also look at this development in a positive stride.

In conclusion, for today we expect the markets to remain volatile with a positive bias. However, the chances of some profit taking by investors towards the fag end of the trading session cannot be ruled out. We advise our readers to continue to book profits on counters that have yielded significant returns.

Stocks In Action

According to press release on the BSE, Marico's third quarter consolidated net profit rose 21% year-on-year to Rs 84.12 crore, helped by good growth in volumes and price hikes taken during the quarter to offset high input costs. The fast moving consumer goods company's net sales during the quarter were up 29% at Rs 1,058 crore. Street estimates were expecting Marico to report a net profit of Rs 85 crore on revenue of Rs 994 crore. Marico's gross margin in the third quarter was at 25.2%, compared with 24.4% in the year ago quarter. PBDIT (profit before depreciation, interest, taxes) margin declined to 12.7% from 13.4%. The company said margins were likely to remain under pressure as it may not see any easing of raw material costs in the short term. It has chosen to prioritize expansion of consumer franchise over expansion of margins to ensure long term growth and success.

According to press release on the BSE, Piramal Healthcare's quarterly net profit plunged 86% as research and development (R&D) expenses zoomed, while income from investments declined. Piramal Healthcare, which makes OTC drugs and manufactures pharmaceutical products on contractual basis, saw its profit fall to Rs 8.52 crore in October-December compared to Rs 60.33 crore a year earlier. The company's sales rose 38.7% to Rs 560 crore. The acquired business has about 15 molecules in the clinical trials phase and need extensive financial support. Post the acquisition of the drug discovery business of Group Company Piramal Life Sciences in August last year Piramal Healthcare's R&D spend rose over 8 times to Rs 121 crore in December quarter.

According to The Hindu Business Line, Binani Industries has acquired the Europe-based “3B - The Fiberglass Company” from the private equity firm Platinum Equity for euro 275 million (about Rs 1,785 crore). Headquartered in Battice, Belgium, 3B makes fiberglass for reinforcement of thermoplastics and thermoset polymer applications, and is a preferred supplier to global leaders in industries including automotive and wind energy. With 650 employees, the company has 42 licensed patents and six new ones filed since 2008. The current deal gives Binani Industries access to 3B's global operating capacity of 150,000 tonnes per annum. Goa Glass Fibre, a subsidiary of Binani Industries, has a manufacturing capacity of 20,000 TPA and exports to over 15 countries across five continents. 3B plans to set up a Greenfield expansion facility in Tunisia by 2013 that will raise its capacity to over 200,000 TPA.

According to press release on the BSE, EIH has posted a 61 per cent rise in net profit to Rs 45 crore for the quarter ended December 31, compared to Rs 28.39 crore in the same period last year. On a sequential basis, profits rose by about 171 per cent. During the quarter under review, revenues from the hotel business witnessed a growth of about 5 per cent to Rs 299 crore. Net sales also increased by about 5 per cent to Rs 295 crore (Rs 282 crore). Operational profits, however, dropped by 5 per cent to Rs 78 crore.

According to press release on the BSE, Zylog Systems reported a consolidated net profit Rs 54.5 crore for the third quarter ended December 31, 2011, an increase of 42 per cent on yoy basis and 11.2 per cent on qoq basis. Consolidated revenue increased to Rs 583 crore, registering a yoy growth of 22.3 per cent and 16.5 per cent on qoq basis. During the December quarter, the company entered new geographies such as South Africa, Australia and Caribbean Islands and consolidated its position in Asia Pacific. The traction witnessed in these geographies will be a key driver of growth and would help Zylog in sustaining the momentum.

According to press release on the BSE, Escorts Ltd has posted a 57 per cent drop in net profit to Rs 10.86 crore for the first quarter of 2011-12. The tractor and farm equipment maker, which follows an October-November financial year, attributed the lower profits to increased input costs, expensive loans and higher interest rates impacting demand for tractors. Net sales in the period saw a modest 0.6 per cent rise to Rs 823.07 crore, with tractor sales rising marginally to 16,606 units from 16,333 units a year earlier. Raw material costs, like of steel and aluminum were up 11 per cent at Rs 582 crore. To improve margins, it has raised prices by Rs 7,000 per tractor in January.

According to The Economic Times, Fortis Healthcare Ltd, the country's largest hospital company, plans to hive off its non-core business and related assets into a separate company that is likely to be listed on the Singapore Stock Exchange as a business trust to raise about $300 million, or Rs 1,500 crore. The proposed restructuring exercise is aimed at unlocking the value from non-core businesses. The transaction would release significant amount of cash for Fortis Healthcare, which in turn will be used for de-leveraging the balance sheet and also to fuel its growth in the future. The move is also a part of strategic shift of the company to focus on high margin business in the future.

Corporate Action