Wonderla Holidays IPO
Full issue kostak Rs 800
Grey market premium: Rs 20
Full issue kostak Rs 800
Grey market premium: Rs 20
Cairn India Limited (CAIR IN) Vedanta update points to Cairn India’s operational delivery on track | Overweight Price: Rs351.00 09 Apr 2014 Price Target: Rs400.00 PT End Date: 30 Sep 2014 | |
We had expected that, after decelerating for three straight months, CPI and WPI inflation would likely re-accelerate in March on the back of firming food prices and sticky core inflation (see. “India Monthly Data Outlook: April 2014,” MorganMarkets, April 7). As it turned out, headline CPI rose to 8.3% in March from 8% in February – exactly in line with expectations (JP Morgan and Consensus: 8.3%). And, in fact, WPI reaccelerated more than markets had expected, printing at 5.7% oya (JP Morgan 5.4%, Consensus 5.2%), hurt by an unfavourable base effect and the fact that food prices increased more than high-frequency data had suggested.
The core of the problem
But even as the dynamics of headline inflation were broadly anticipated, the details were worrying. The momentum of core CPI is showing no signs of abating and rose to 0.8% m/m, sa in March on the back of off a slightly-downward-revised February core print. Therefore, even as the year-on-year core CPI printed at 7.9% -- and may gave the impression of a modest softening over the last two months – it is masking a more elevated underlying momentum, with the 3m/3m, saar rising to 8.4% in March, the highest since November 2013. Furthermore, core price pressures were not narrowly focused with the momentum of housing, education, transport and communication, and household requisites remaining elevated and/or firming up. More generally, the stubbornness of core CPI is evident from the fact that, despite a weakening of growth, it has been close to or above 8% for 27 consecutive months.
Such worries will be reinforced by the fact that core WPI prices also reaccelerated, though not to threatening levels as yet. After remaining very contained over the last two months, core prices rose 0.3% m/m, sa in March, consistent with a year-on-year March print of 3.5% oya. But markets were spooked by the fact that core WPI jumped to 3.5% in March from 3.1% in February, causing the benchmark 10Y government bond to initially sell-off before recovering and inducing equity markets – riding a wave of euphoria in recent weeks -- to correct on worries of a stickier-than-expected inflation path. Market worries were likely predicated on the fear that if core WPI inflation were to reaccelerate it does not bode well for already-elevated core CPI inflation.
We have long maintained (see, “India in 2014: five questions that keep us awake, Jan 2014,” MorganMarkets, January 28th) that the fact that core prices have not collapsed in the face of weak growth is a worrying sign. And this suggests, that if demand actually accelerates in the coming months, core inflation could see significant upward pressures as firms rush to normalize margins.
Food prices get back to their old ways
In line with expectations, food prices increased sequentially in March, as the vegetable price correction plateaued and other food prices continued to tick up. CPI food prices ticked up 0.5% in March consistent with the high-frequency data, but WPI food prices rose more sharply (1.1%) than daily price date had suggested – causing a small upward surprise to the headline rate. As it turns out, food prices seem to be firming at a faster pace in the first half of April, and therefore could pressure the headline rate even further this month.
Dynamics consistent with our baseline forecast of more tightening
To be sure, there are large favourable base effects that kick in from June to November which will temporarily pull down year-on-year CPI and WPI inflation. But we believe the RBI will look through this temporary phenomenon. Instead, if the underlying sequential momentum of inflation continues to firm at the pace seen in March (+0.7% m/m, sa for headline CPI) – with food prices mean-reverting and core inflation being pressured by the growth cycle bottoming out -- more monetary tightening is likely later in the year – consistent with our baseline call -- to ensure the RBI’s January 2015 headline CPI target of 8% is not under threat.
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Hindalco Industries (HNDL IN) Alcoa conf call highlights- Expects ally deficit in CY14; Strong demand outlook for downstream segment; +ve for Novelis | Overweight Price: Rs137.35 07 Apr 2014 Price Target: Rs145.00 PT End Date: 30 Dec 2014 | |
Multiple
|
EBITDA FY15E
|
EV FY15E
| |
Aluminum India
|
5.5
|
31,654
|
174,095
|
Copper India
|
5.5
|
13,419
|
73,802
|
Novelis
|
6.5
|
64,288
|
417,869
|
ABML
|
5.5
|
1,673
|
9,199
|
Total EV
|
674,966
| ||
Net Debt
|
511,717
| ||
Adj for CWIP
|
137,250
| ||
Mcap Implied ex CWIP
|
163,249
| ||
Mcap Implied
|
300,499
| ||
No of Shares (MM)
|
2,065
| ||
Target Price (Rs)
|
145
|
Samsung Electronics (005930 KS) Our take on GS5 strong sell-through at Day 1 | Overweight Price: W1,365,000 11 Apr 2014 Price Target: W1,600,000 PT End Date: 31 Dec 2014 | |
Galaxy S5
|
Galaxy S4
| |
ASP (KRW) - unlock price
|
W 868,000
|
W 899,000
|
ASP (USD) - unlock price
|
US$ 599.99
|
US$599.99
|
# of countries for initial launch
|
125
|
60
|
Day 1 sell-through volume
|
30% Y/Y up at US, 2x higher at few countries
|
Not Available
|
Days required to sell 10M
|
Not Available
|
27 days
|
Expectations that February IP would build on the long-awaited January gains and thereby signal some inflection of industrial activity were quashed with IP slumping badly in February (-1.9 % m/m, sa), significantly below market expectations (Actual: -1.9 % oya, JP Morgan – 0.3 %, Consensus + 1%) and thereby giving up all of the January gains. In particular, the gains accrued in consumer goods production in January were reversed in February with non-durables, in particular, having a devastating month. That said, it may be too early to completely write off industrial growth. For the second time in three months, non-oil, non-gold imports surged (+10.4 % m/m, sa) in March signaling that domestic demand may be picking up and could eventually translate into higher domestic production. For now, however, this dynamic along with the fact that gold imports rose to $2.7 bn in March – still not at threatening levels but at an 8-month high – meant that the March trade deficit widened to $10.5 bn from $8.1 bn in February. However, such levels of the monthly deficit are still not threatening and conform with our full year forecast of the CAD at 1.7% of GDP in FY14.
IP: one step forward, one step back
After months of weakness and disappointment, IP finally gained meaningfully in January on the back of increasing consumer goods production. It was thought that a second strong harvest would boost rural demand and help engineer some turnaround in the IP cycle. Unfortunately, February IP thwarted such hopes. IP slumped 1.9% m/m, sa giving up all the gains incurred in January (+2 % m/m, sa). Worryingly, the biggest payback was in the consumer non-durables sector – which should theoretically benefit the most from stronger rural demand. Instead, the sector sequentially contracted almost 7% (m/m, sa) more than offsetting the gains of the previous two months. This was compounded by the fact that consumer durables also retracted in February – albeit less acutely (-1.6% m/m, sa) – and capital good production, which has remained flat over the last three months, declined more than 4% sequentially in February, making for weakness across the board.
Given the aforementioned dynamics, manufacturing predictably had a weak month (-2.1 % m/m, sa) on the production side. But what was disappointing, if not surprising, was the weakness in mining and electricity production. The latter has grown solidly for much of the last year and partially offset the manufacturing weakness. But it has now contracted sequentially for two successive months (Feb and March), reflecting the reduction in plant load factors as power production has slowed both on account of the general economic slowing and financial constraints on the balance sheets of state electricity boards.
Trade deficit widens, but for the right reasons
On the face of it, a widening trade deficit in March should add to the IP gloom. But there are important caveats. First, the trade deficit widened from an excessively low level ($8.1 bn) in February to a still-very-contained level of $10.5 bn. To put this in perspective, such a run-rate of the monthly trade deficit is consistent with an annual CAD of just over 1% of GDP.
Second, the deficit widened for the “right reasons”. Non-oil, non-gold imports which have been very sluggish in recent months – reflecting weak demand impulses in India – surged for the second time in three months. On a 3m/3m, saar basis they are now growing at almost 20%. If this sustains, it would signal a firming up of domestic demand which would eventually be expected to translate into higher domestic production.
To be sure, it was not all hunky-dory in the trade numbers. Exports surged to $29.5 bn in March from $25.6 bn in February. But, as we had previously pointed out, this is the typical end-of-year effect wherein exports increase at the end of the financial year. In fact, on a seasonally adjusted basis, they declined sequentially (-1.7% m/m, sa) for a second successive month.
Furthermore, the anecdotal evidence that gold imports were increasing on the ground, finally showed up in the data. Gold imports in March printed at $2.7 bn – still not at alarming levels – but the highest since July 2013 when the import curbs were imposed. It suggests that latent demand for gold is not as weak as the numbers in recent months have suggested and – if and when the import curbs are eased – gold imports could tick up further. All told, however, these dynamics are consistent with the full-year CAD forecast of 1.7% of GDP – more than half its level from the previous year.
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India Financials Draft guidelines on credit pricing | ||
India Equity Strategy 4Q FY14 Earnings Preview: Global Lift Continues... | ||
YoY %
|
Change in EBIDTA Margin
| |||||
Net sales
|
PBDIT
|
PAT
|
QoQ - bps
|
OYA- bps
| ||
Auto
|
12
|
17
|
9
|
(22)
|
70
| |
Building Materials & Construction
|
5
|
(5)
|
(19)
|
325
|
(192)
| |
Consumer Staples
|
11
|
14
|
12
|
(41)
|
56
| |
Financials
|
13
|
14
|
4
| |||
Capital Goods
|
(12)
|
(31)
|
(38)
|
140
|
(433)
| |
Metals
|
20
|
18
|
247
|
(369)
|
(23)
| |
Energy
|
4
|
(16)
|
(23)
|
573
|
(293)
| |
Health Care
|
20
|
30
|
20
|
(230)
|
222
| |
Real Estate
|
(9)
|
(16)
|
(27)
|
129
|
(259)
| |
Retail
|
9
|
4
|
(3)
|
54
|
(48)
| |
Technology
|
28
|
41
|
36
|
(22)
|
256
| |
Telecom
|
12
|
23
|
52
|
(41)
|
302
| |
Gas Utilities
|
26
|
60
|
77
|
(49)
|
210
| |
Utilities
|
13
|
26
|
15
|
153
|
339
| |
Total
|
9
|
4
|
3
|
253
|
(84)
| |
Ex Energy
|
14
|
17
|
27
|
(15)
|
64
| |
Ex Energy, Financials
|
14
|
18
|
38
|
(56)
|
69
|
YoY %
| |||
Net sales
|
PBDIT
|
PAT
| |
Auto
|
12
|
18
|
9
|
Consumer Staples
|
11
|
17
|
14
|
Financials
|
15
|
18
|
10
|
Health Care
|
23
|
30
|
19
|
Capital Goods
|
(9)
|
(35)
|
(34)
|
Metals
|
20
|
2
|
119
|
Energy
|
17
|
2
|
15
|
Technology
|
27
|
40
|
35
|
Telecom
|
15
|
20
|
91
|
Utilities
|
22
|
30
|
47
|
Total
|
15
|
13
|
31
|
Ex Energy
|
14
|
16
|
39
|