Dear All,
Winning week! No disruption in stock market
I am a big believer that technology shapes mankind – Mukesh Ambani
The much awaited Jio tariffs have taken the industry by storm. It could well disrupt the industry as cheaper data and 'free' calls have sent other telecom firms and their stocks in a tizzy. The outlook is a flat start. The last two sessions have seen the indices pare their gains towards close. Today could well be different after a cautious start. Positive developments are taking place on the GST front after constitutional amendment got approval from half of the state legislatures. The amendment will now go for presidential assent.
Some positive data on the macro front came in from PMI numbers as the Nikkei/market Manufacturing Purchasing Managers Index rose to 52.6 in August from July's 51.8. Globally, worries remain as IMF's Christine Lagarde said the institution could downgrade its 2016 global growth forecast again following weak demand, falling trade and investment and growing inequality.
Management Meet
Nila Infrastructures Ltd.: Betting on investments in affordable housing – Not Rated
CMP Rs15
We recently met the management of Nila Infrastructures Limited (NIL), a Sambhaav Group Company to understand the company's prospects. NIL is engaged in execution of projects across affordable housing, slum rehabilitation and development and civic urban infra. The Company also has presence in development of real estate projects. NIL is currently executing projects in Gujarat and Rajasthan region. Within Civic infra, it has undertaken diverse projects like construction of BRTS (Bus Rapid Transit System) Stations and Multilevel Parking. The Company has been a prime contractor for BRTS project of Ahmedabad Municipal Corporation (AMC) under Jawaharlal Nehru National Urban Renewal Mission (JNNURM). In recent years, it has transformed its business model from being a real estate developer to an EPC-focused contractor. NIL which executes majority of projects for Government agencies and has a strong clientele which includes AMC and Rajasthan Avas Vikas and Infrastructure Limited (RAVIL). The order book of NIL is currently at Rs.3,100 mn (~1.7x to FY16 revenues) excluding L1. We believe opportunities evolving in the affordable housing and civic infra segment would benefit NIL going forward.
NIL registered consolidated revenue CAGR of 21% during FY12-FY16. Operating profit clocked a CAGR of 8% primarily owing to decline in contribution from the real estate segment. Shift towards asset light EPC focused business model, evolving opportunities in urban infra space and comfortable balance sheet position (net D/E of 0.8x in FY16) are key positives for the stock. Also, the Company has relatively lower payment risk as most of the projects executed are for Government authorities. The stock is currently trading at a valuation of ~32x FY16 earnings and ~3x P/BV.
BPCL (Q1 FY17): Yet another strong quarter – BUY
CMP Rs587, 12-mts Target Rs680, Upside 15.8%
BPCL's Q1 FY17 performance was better than our and street estimates on the back of higher than expected inventory gains. GRMs were at US$6.1/bbl which was in line with our estimates. Going ahead, marketing margins are expected to be robust while GRMs are likely to recover from the recent lows as supply reduces with routine refinery shutdowns in September and October. We maintain our BUY rating on BPCL with a 1-year price target of Rs680.
Sector Update
Auto volume update: August 2016
² Maruti: Slight disappointment from older models
² Eicher Motors: Continues to outperform the CV industry
² Mahindra & Mahindra: A robust show
² Ashok Leyland: Weakness persists
² Tata Motors: Passenger cars continue to be the saviour
² Two wheelers: Festive season inventory built up drives growth
Technical Track
Snapping three day gains, Nifty ended marginally lower with an appearance of an inside bar chart formation. Market breadth turned flat as mixed activity was seen among sectoral indices. As long it sustains above 8730 along with all its short-medium term moving averages, market trend continues to remain positive. On levels front, immediate support is seen at 8730, followed by 8620; while on the higher side it may test 8884 levels. Index failed to break past Wednesday's peak of 8819 as cluster of gann hurdles i.e. midpoint of current gann channel and 270 degree on the upside from recent low of 8544 acted as strong supply point.
Derivatives Diary
² Volatility started to inch up on nifty with markets reacting to global cues and domestic news flow after the big recent run-up towards 8850 levels.
² On options front, maximum build-up continues at 8500 puts and 9000 calls. VIX index bottoming near 13 zone likely to inch up towards 15 levels.
² FII's futures long/short ratio stood at 9.83x (previous 11.06x) strong inflows continues with long futures contracts now at peak of ~4lac contracts.
² Telecom and realty stocks took hammering and outperform from HDFC twins lead the market higher.
Fixed Income Synopsis
The 10Y benchmark yield ended ~1 bps higher at 7.12% vs previous close of 7.11%. Gsecs recorded total trading volume of ~Rs. 539 bn. 10Y benchmark bond traded range bound over the upcoming auction. Newly announced 10Y benchmark bond whose coupon will be set in auction is seen trading sub 7% in when issued window.
The demand at the fixed Repo window was Rs. 37.53 bn, while the supply at the fixed Reverse Repo window was registered at Rs. 63.28 bn. The Call WAR closed lower at 6.38% vs. previous close of 6.39%.
The benchmark five-year OIS and one-year OIS closed higher, with the 5-Y OIS closing at 6.50% vs. previous day's close of 6.49%, while the 1-Y OIS closed at 6.57% vs. previous day's close of 6.56%.
The Reserve Bank of India's Reference Rate for the US Dollar is Rs. 66.95 on September 1, 2016, while the corresponding rate for the previous day (August 31, 2016) was Rs. 66.98.
Commodity & Currency Cues
Gold witnessed a strong reversal, with prices dipping to US$1,305/oz (at one point of time) and then rebounding to close higher. The ricochet can be attributed to the fact US dollar index retreated from the peak (96) in the wake of dismal US manufacturing numbers and in the process leading to scepticism regarding the expectations of a rate hike in September. In this respect, US ISM manufacturing index for August fell below 50, the first contraction in six months. Looking ahead, the month of September is inundated with series of events, beginning with G-20 summit on September 4-5th. Market focus will shift towards ECB monetary policy meeting on September 8th, then BOE meeting on September 15th, BOJ monetary policy review on September 21st and finally US FOMC meeting on the same day. Markets will also be interested in the informal OPEC meeting in Algeria on September 26-28th. A jam-packed calendar entails immense volatility, which also implies risk aversion and inclination towards safe haven asset classes like gold. On price perspective, we reiterate that gold prices will hold ground around US$1,280-1,300/oz, regardless of evolving perception regarding Fed rate hike. We also infer that a contrasting monetary policy by Fed is not plausible given the rising anticipation of another monetary bazooka by various other central banks.
In the non-ferrous pack, Zinc and Lead prices capitalised from strength in Chinese PMI readings, however, copper traded in a restrained manner on account persistent rise in LME warehouse stocks, up by 50% in last three weeks.
Sterling has garnered sizable gains, with values now approaching 1.33 level against the greenback. The currency has derived cues from the surprise strength in manufacturing PMI for August, up from 41 month low of 48.3 in July and now at 10 month high of 53.3.
Corporate Snippets
² Bharti Airtel has deployed advanced technology for carrier aggregation across 2300MHz spectrum band (TD LTE) and 1800MHz spectrum ban (FD LTE) in Mumbai. (BS)
² The Supreme Court refused permission to Vedanta Group to export iron ore mined from Karnataka while allowing National Mineral Development Corporation (NMDC) to continue with the dual pricing of the minerals. (BS)
² ABB India inaugurated a new solar inverter manufacturing facility in the city (Bengaluru) to double its output capacity. (BS)
² HCL Technologies announced a partnership with data centre infrastructure company Mesosphere to deliver a unified operational experience and achieve efficient resource utilisation for its customers. (BS)
² India Cement said that it would file an appeal before the Competition Appellate Tribunal (COMPAT) against the Competition Commission of India's (CCI's) order. (BS)
² Ramco Cements has said that the company is planning to go on appeal to Competition Appellate Tribunal (COMPAT), against the order of Competition Commission of India (CCI), which imposed penality of Rs2.59bn for alleged cartelisation. (BS)
² Aravali Power Company Pvt Ltd (APCPL) located in the Jhajjar district of Haryana, owned and operated by NTPC, has issued a notice to Reliance Infrastructure's distribution companies (discoms) in New Delhi for non-payment of dues. It has threatened to cut off 445Mw of power supply if the payment is not made before the coming Monday. (BS)
² A meeting with Tata Steel officials in Britian was adjourned after company officials failed to provide the reasoning for it considering a merger with Thyssenkrupp AG. (BS)
² Lupin US-based subsidiary Gavis Pharmaceuticals has received tentative approval from the USFDA for Azithromycin for oral suspension, an anti-bacterial drug, in the American market. (BL)
² Uniply Industries has acquired Vector Projects, an architecture, design and interior fit out company to provide end-to-end building solutions. (BL)
Economy Updates
² The Nikkei India Manufacturing PMI jumped to 52.6 in August from 51.8 in July as "Indian manufacturers enjoyed a solid improvement in operating conditions" last month. (BL)
Results Table
| Rs m | Revenue | YoY % | PAT | YoY % |
| Apollo Hospitals | 14,654 | 15.8 | 722 | (20.6) |
Happy Investing!
Amar Ambani
Head of Research
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