Market Updates 22 June11

 

Market Outlook

 

The indices have closed in the lower end of the intraday range as the bulls were unable to offer support at all levels throughout the session. The intraday range specified for the Nifty between the 5410 / 5300 was violated as the Nifty took support at the 5195 levels, thereby exceeding our intraday levels on the downside. The coming session is likely to witness resistance at the 5330 levels on advances. Support is likely at the 5185 levels below which the 5150 level maybe tested. The wide range is due to the high base effect of Wednesday's range. The bullish pivot for the session is likely at the 5300 levels above which the Nifty must stay throughout the session. The bearish pivot is at the 5270 levels below which declines may occur. Traders must watch these levels for signs of trend determination in the coming session. These are signs of weakness. The downward sloping trendline remains the nemesis of the bulls and as long as rallies occur below this trendline, they are corrective pullbacks alone. The Nifty (spot) must stay above the 5300 levels sustainably with volumes and open interest expansion to rally intraday on Tuesday. On the flip side, sustaining below the 5270 levels may trigger a fresh bout of declines.

 

Technical Calls

 

Buy EIH 83.00 target 90

Buy Autoline Industries 128.00 target 135

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Momentum Calls

 

Buy Glenmark Pharma 296.00 target 305

Buy Cadila HC 900.00 target 910

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Investment

 

Bajaj Capital has recommended `Buy` on Bharti Airtel with a price target of Rs 450 as against the current market price(CMP) of Rs 380.35 in its report dated June 18, 2011. The broking house gave the following rationale:

India is the world`s fastest growing mobile telecom services market
India is the fastest growing wireless market in the world and has the second largest mobile services connections after China.  In India, the customer base of the mobile telecom service providers increased by 20.2 million in March 2011, taking the total number of mobile subscriptions to more than 811.6 million. This includes 66.3% urban and 33.7% rural subscribers. The total telecom customer base has increased to 846.3 million and the overall tele-density in the country has reached 70.9. The industry is expected to reach a size of Rs 3,449.21 billion by 2012 at a growth rate of over 26%. India is expected to have 1.16 billion mobile subscribers by 2013 and it is expected to overtake China.

3G services to be a growth driver
Bharti Airtel had bagged 3G spectrums in 13 out of the 22 telecom circles through an auction held last year, for Rs 122.95 billion. These 13 circles have 65-70% of the company`s 2G subscriber base. The company has already launched 3G services in many cities. The initial response has been overwhelming and Airtel is the market leader with 3 million 3G customers out of the total 9 million users of this service. The company plans to offer services like video call, live streamingof video, high speed internet, mobile TV etc. in the beginning. This service, a premium offering is expected to stabilize the company`s ARPU (Average Revenue Per User) though the voice telephony and SMS are being provided by the company at prices that are at par with 2G.  The nonvoice revenue contributes 12% to the total revenues in India, compared to 25-30% in developed markets and it is expected to grow in the years going forward. For Bharti Airtel, the share of value addedrevenues in the total revenues increased to 15.0% in Q4FY11 compared to 13.8% in Q3FY11. 3G services would further increase the Value Added Services (VAS) share in mobilityrevenue. The company plans to generate one fourth of its sales from non voice revenues over the next two or three years. This shift to non-voice and also non-SMS revenues is already visible as SMS services that used to contribute ¾th to the non voice revenue a year back, just contributes 1/4th now.

Conclusion
India is the fastest growing telecom market in the world. The mobile subscriber base of Bharti Airtel in India is growing at a scorching pace of 3 million subscribers per month. The company also has the largest number of active customers (92%) among all mobile telecom operators. The company is all set to exploit the 3G opportunity in India, as it launches these premium services across all 13 circles that it had bagged in the auction. This is expected to accelerate the increase in company`s non voice revenue. Bharti`s Africa operations have been stabilizing with subscribers growing steadily and its market share in the continent improving. The company is also focusing on rural customers. While one out of every 5 subscriber nationally is a Airtel customer, in case of rural customers this ratio is one out of four. 3G, Africa operations and the rural markets in India are going to be the growthdrivers for the company going ahead. The mobile rates have already reached rock bottom with the new players running out of steam.  This presents acquisition opportunities for Bharti in the near future. The expected broadband revolution is set to boost the revenues of the company`s telemedia services arm, going further. Though Bharti`s ARPU`s have been declining, they are expected to stabilize at the present levels. Bharti Airtel has a market capitalization of Rs 1,444.391 billion. and is trading at a share price of Rs. 380.35. The consolidated TTM EPS is Rs. 15.6 translating into a TTM PE of 24.5. The price to book value stands at 3.0. The stock is an attractive buy considering the growth prospects of the industry as well as the company.

We recommend a ``BUY`` on the stock with an investment horizon of 12 months and target price of Rs. 450.

 

 

 

Investment

 

KJMC has recommended `Hold` on Bajaj Corp with a pricetarget of Rs 124 as against the current market price (CMP) of Rs 114 in its report dated June 21, 2011. The broking housegave the following rationale:

Quarterly Result Analysis
                                   
>For Q4FY11, the netrevenue of the company grew by 28% at Rs 1098.4 million compared to Rs 860.9 million proceeding year samequarter. It recorded a healthy volume growth of 21% for thequarter. 

>The EBITDA margins have drop down to 28.0% from 38.7% on yoy basis because of high raw material and advertisement expenditure. EBITDA recorded a degrowth of 8% at Rs 307.7 million 

>Reported PAT degree by 2% at Rs 268.9 million mainly because of one time write off expenditure of Rs 63.3 million.

>For FY11, the net revenue of the company grew by 21.8% at Rs 3586.7 million compared to Rs 2945.6 million in FY10. The average volume growth during FY11 came in at 14.9%. 

>EBITDA margins decreased by 290 bps at 30.2%, majorly on account of high input cost. Adjusted PAT grew by 19.0% at Rs 998.6 million while adjusted PAT margins stood at 27.8% compared to 28.5% in FY10. 

>The board of directors has recommended a dividend of Rs 1.90/share at 190% of face value of Re 1/share.

Outlook & Valuation

We expect ADHO, the flagship product of the company to perform well in FY12, however 8.5% price increase taken by the company can negatively affect its volume. Moreover, themanagement is bullish on crude oil prices which can have cascading impact on LLP prices. In the light of rising input cost the management may resort to further increase in price which will significantly dampen the volume growth. In FY12E, we expect revenue growth to be at 18.2% contributed by 9% volume growth and 8.5% realization growth. 

We expect adj. EPS to remain flat in FY12E at Rs 6.9 compared to adj. EPS of Rs 6.8 in FY11.We have valued the company on DCF basis and raise our target price to Rs 124 from our earlier target price of Rs 116. 

We recommend to `Hold` the stock with target price of Rs 124 which is 9% above the CMP of Rs 114. The target price is 16.8 FY12E EPS.

 

 

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Disclaimer : This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. And not soliciting any action based upon it. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. We or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report

 

 

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