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SEPTEMBER 14, 2017 Economy News Equity % Chg Power supply prices in the spot power market shot up to a seven-year high at 13-Sep 1 Day 1 Mth 3 Mths Rs 9.91 per unit. The average price prevailing currently is Rs 5.13 per unit, which Indian Indices is higher than the contracted price for both coal and renewable through long - SENSEX Index 32,186 0.1 2.3 3.3 term agreements across states. The spot market has been witnessing such high NIFTY Index 10,079 (0.1) 2.9 4.8 prices for a week now. (BS) BANKEX Index 27,950 0.2 2.6 5.2 BSET Index 9,949 (0.0) (2.6) (1.1) The Delhi High Court has granted interim relief to an exporter, allowing him to BSETCG INDEX 18,212 (0.4) 5.4 3.5 import goods without payment of the integrated goods and services tax (IGST) BSEOIL INDEX 15,234 (1.7) 4.6 10.2 to the extent allowed by advance authorisations received by him prior to July 1, CNXMcap Index 18,822 (0.6) 5.4 5.0 when GST was enforced. (BS) BSESMCAP INDEX 16,520 (0.6) 7.2 6.0 The solar industry is getting jittery over a move to impose anti-dumping duty on World Indices solar cells. The move comes at a time when the viability of the recently awarded Dow Jones 22,158 0.2 0.7 3.7 projects at tariffs below Rs 3.5 per unit is being questioned by analysts due to Nasdaq 6,460 0.1 1.9 4.3 rising prices of solar modules sourced from China. (BL) FTSE 7,380 (0.3) 0.4 (1.3) NIKKEI 19,866 0.5 1.7 (0.0) The government has imposed an antidumping duty of up to USD 60.35/tonne HANGSENG 27,894 (0.3) 2.0 7.5 for five years on a chemical used in fertiliser industry from four countries Russia, Indonesia, Georgia and Iran. The move would help guard domestic players from Value traded (Rs cr) below- cost imports of 'ammonium nitrate' from these countries. (ET) 13-Sep % Chg Day Cash BSE 3,310 (4.8) Corporate News Cash NSE 29,182 3.1 Derivatives 658,605 34.4 The government will not step in to limit the hike in retail price of petrol and diesel. But the oil minister remained non-committal on cutting excise duty to Net inflows (Rs cr) check price rise. Stocks of Indian Oil, HPCL and BPCL fell on price control 12-Sep % Chg MTD YTD concerns. (ET) FII (1,233) 197 (5,184) 42,104 Mutual Fund 365 (31) 2,255 71,142 Hindalco Industries is looking to save Rs. 8 bn this fiscal by pre-paying high-cost debt. The management said the company has so far pre-paid Rs. 78.15 bn and FII open interest (Rs cr) will pay another Rs. 11 bn this month to cut debt further. Further, efforts will 12-Sep % Chg be taken to bring down debt further next fiscal. (BL) FII Index Futures 18,053 7.1 Lenders of Jaiprakash Power Ventures have managed to get as many as 11 FII Index Options 78,019 1.0 suitors for the beleaguered company. Adani Power, JSW Energy and Resurgent, FII Stock Futures 57,187 0.6 a joint venture of ICICI Ventures and Tata Power, are among those who have FII Stock Options 6,381 11.3 put in expressions of interest. (BS) Advances / Declines (BSE) On the lookout for acquisition of coking coal assets abroad, Coal India is in an 13-Sep A B T Total % total advanced stage of talks with an Australian coal mining company based out of Advances 114 390 36 540 100 Queensland, where it plans to acquire substantial stake. They would take a Declines 226 744 42 1,012 187 “substantial stake", of 20-25 per cent at least. (BS) Unchanged - 20 4 24 4 NTPC said two of its units will begin commercial operations this month, Commodity % Chg enhancing the generation capacity of NTPC Group to 50,108 MW. "Unit-2 of 13-Sep 1 Day 1 Mth 3 Mths 660 MW of Mouda Super Thermal Station, will be declared on commercial Crude (US$/BBL) 49.2 (0.1) 3.4 10.1 operation form September 18, 2017. (ET) Gold (US$/OZ) 1,323 (0.6) 3.1 4.8 Silver (US$/OZ) 17.8 (0.7) 3.8 4.9 Jet Airways is likely to participate in the second round of bidding for the regional air connectivity scheme of the government, senior airline officials indicated. Debt / forex market Depending on the economics it will decide on whether to participate in the 13-Sep 1 Day 1 Mth 3 Mths second round of bidding. Meanwhile, the airline also announced its plans to 10 yr G-Sec yield % 6.6 6.6 6.5 6.5 induct eight aircraft during the fiscal. (BL) Re/US$ 64.0 64.0 64.1 64.3 Air-conditioning products manufacturer Blue Star Ltd will take a call proceeding with its proposed manufacturing plants in Jammu and Andhra Pradesh by Sensex November. The company is currently studying the benefits assured by the Centre 32,550 under the Good and Services Tax regime for the plant in Jammu. The company 30,538 had invested Rs. 200 mn for the land purchase there. (BL) 28,525 InterGlobe Aviation Ltd., which operates India's top airline by market share IndiGo, Wednesday announced its price band for its planned qualified 26,513 institutional placement of shares. The price band was approved at Rs 1,125-Rs 24,500 1,175 per share. (ET) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, IE = Indian Express, Source: Bloomberg BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. MORNING INSIGHT September 14, 2017 ANALYST MEET NOTE ADOR WELDING LTD Sanjeev Zarbade PRICE: RS.395 RECOMMENDATION: NOT RATED [email protected] +91 22 6218 6424 We attended the analyst meet of Ador Welding. Ador Welding is the largest manufacturer of welding electrodes in the country. The Indian welding electodes industry is worth close to Rs 35 bn and can be bifurcated into maintenance and fabrication segments. The company expects to clock revenue of Rs 4.7 bn in FY18 and has a target of Rs 5.0 bn and Rs 6.0 in FY19 and FY20 respectively. The company expects EBITDA margins to recover to 10-11% in FY19. Demand outlook remains moderately positive aided by capex in Railways (wagon manufacturing), road building, O&G – Refineries, BS VI and pipelines and Defence. In its vision statement, the company aims to become “best-in-class” enterprise known for continuous innovation in products & solutions with significant growth by FY 2019-20, notwithstanding the economic or market scenario. Summary table Highlights (Rs mn) FY15 FY16 FY17 Ador reported a 12% growth in the first quarter in revenues. Revenue growth Net Sales 3,866 4,068 4,406 was impacted by uncertainty among the stockists related to GST Other Income 338 56 94 implementation. Value Of Output 3,811 4,086 4,447 Cost of Production 3,351 3,471 3,922 Since bulk of the consummables are sold through distriburtors, the demand Selling Cost 238 159 148 from the stockists remains critical. However, due to fear among the stockists EBITDA 281 395 320 on availability of input credit on existing inventory, there was sharp drawdown EBITDA (%) 7.3 9.7 7.3 PBT 483 318 281 in stock levels, thus resulting in weak sales growth in first quarter. PAT 324 227 187 The management expects stock levels at the distributors levels to get EPS 22.8 15.6 13.7 Book Value (Rs) 150.0 160.7 174.4 replenished to earlier levels by the third quarter of the current fiscal. CEPS (annualised) (Rs) 31.9 24.2 22.0 Having said that, the demand for electrodes in the second quarter has been Dividend per share 5 5 5 Debt-Equity Ratio 0.0 0.0 0.1 good and expected to strengthen in the coming quarters. ROCE (%) 10.6 15.7 12.4 Realisations on electrodes have been higher in the first quarter and likely to RONW (%) 7.0 10.7 8.2 PE (x) 17 25 29 improve further in the second quarter. The company has passed off completely P/BV 2.6 2.5 2.3 the increase in metal prices in recent months. EV/EBITDA 19.0 14.0 17.0 The management noted that demand from infrastructure, Automobiles, Source: Company, Kotak Securities – Private Client pipelines and railways has been robust. Research The management expects demand from O&G to start trickling through in the first quarter of the next fiscal as several refineries are on an expansion mode. The company indicated that there are expansion plans of Panipat, Bina and Bhatinda refineries. In addition to this, there is demand for modernization of refineries related to BSVI fuel compliance, which is also expected to drive demand. The company is also expecting major orders from the wind power sector.