Market Outlook FLAT Expect market to open on a flat note on account of global cues. US market broke a six‐day losing streak, ending up by 1% as positive economic data from both China and Europe gave investors some optimism.. Asian markets are up by half to one. 10‐year G‐sec declined in the last couple of days after the RBI measures. Both ICICI and HDFC raised base rate by 0.25%. Cipla is looking at sales of INR 100b for FY14 from INR80b in FY13, a large contribution would be from the acquisition of Cipla Medpro in South Africa. Cipla expect formulations to cross INR50b of export sales by FY14 (v/s est. INR49.7b including Cipla Medpro acquisition). We have buy rating on Cipla. Research Updates: CIPLA: Highlights of AGM; Sales guidance of USD5b by 2020; Cipla Medpro acquisition will drive high growth in FY14. We attended the AGM of Cipla Ltd. and present the following takeaways. Cipla is looking at sales of INR 100b for FY14 from INR80b in FY13, a large contribution would be from the acquisition of Cipla Medpro in South Africa. Cipla expect formulations to cross INR50b of export sales by FY14 (v/s est. INR49.7b including Cipla Medpro acquisition). Over the longer term, it reiterated its sales guidance of USD5b by 2020. This would be driven largely by organic growth. It may look at acquisitions also. UTILITIES: 3D (DISCOMS, Demand & Deficit) view – Deficit at 2 decade low, Demand at a decade low; on shaky ground‐ All‐India base/peak deficit came down to 4.1%/4.5% for the month of July 2013, while it stood at 5.5%/6.3% for YTDFY14 – a 2 decade low. This is not seasonal in our view, as the deficit levels have been tapering off MoM since April, as also the deficit levels remained high YoY. All‐India demand growth has tapered off at mere 3.1% in YTDFY14 (2% in July 2013) ‐ a decade low. Most importantly, this is big decline from ~9% growth in FY12/13, believed as a recovery of demand, post FY11 (4% YoY growth, poor demand led by highest losses in FY10 followed by election year) as DISCOMs undertook tariff hike, and proposals for restructuring were ensued. TECHNOLOGY: Green shoots of growth; Even sluggish companies guide strong; TECHM our top pick‐ While 1Q revenue growth was in line (with only TECHM staging a positive surprise), outlook of even slower growing companies turned positive. Company Description Bajaj Auto Limited manufactures and distributes motorized two‐wheeled and three‐wheeled scooters, motorcycles and mopeds. Key investment arguments Operating performance above estimates on favorable Fx, which against expectation has been retained: Bajaj Auto¡¦s (BJAUT) 1QFY14 operating performance was above estimate, with adj. EBITDA margin of 20.4% (v/s est. 18.4%), driven by benefit of favorable Fx, which has been retained. Management commentary on result and outlook: 1) 70% of balance FY14 exports hedged between INR55‐66 band, 2) Fx benefit over INR54/USD to be retained, 3) current domestic demand outlook remains weak; however, with good monsoons, expects demand to improve during 2H, 4) launch of six new Discover motorcycle to help the revival in domestic motorcycle sales, 5) export market seems to be stabilizing, expects recovery on a sequential basis, 6) outlook on 3Ws positive, with issuance of permits and launch of new range of vehicles and stabilization of export markets and 7) weakness in INR to continue to drive margins.. Valuation and view Factoring near term headwinds, we cut volume estimates. However, we raise margin estimates reflecting favorable Fx hedges for FY13/FY14 and our house view on INR/USD. While valuations are reasonable, demand recovery along with stability in competitive intensity would be the key driver for the stock’s performance. Maintain Buy with a target price of INR2,229.
Posted on: Fri, 23 Aug 2013 03:39:08 +0000