Progress of monsoon will determine market sentiments
The index recovered smartly last week by three per cent after three consecutive weeks of slide. Broader market participation was indicative from the fact that the CNX mid-cap and small-cap indices outperformed the benchmark by registering gains of 3.5 per cent and 3.8 per cent respectively. By sector auto, oil and pharma stocks were in limelight while metals and PSU banks found few takers. However, despite the bounce back, FIIs continued to remain net sellers by about Rs 2700 crore.
Alleviation of fears that were hurting sentiments until last week has been the primary reason for the current pullback. The above average performance of the monsoon so far, coupled with the April IIP growth coming in at 4.1 per cent and a restrained CPI inflation at 5 per cent were amongst the key domestic factors aiding sentiments. Further, only a modest increase in MSP is also good news for the food inflation to be kept under check.
On the global front a dovish Fed commentary supported equities as an asset class which also benefited the Indian stock market. Going forward in the absence of any key domestic or global expected news flow the progress of monsoon will continue to dictate short-term market sentiments. Also important is the spatial distribution of monsoon going ahead, as sowing of crops takes place in the months of July and August. Apart from this, with Greece’s current bailout program running out by the end of this month, the progress made on resolving this issue will also affect global investor sentiments.
Hitesh Agrawal, head research, Reliance Securities.
Smart acquisition to increase profit
PVRs definitive agreement to buy DT Cinema will increase its market share in northern belt. The average ticket price of DT Cinema is higher. Though the funding of the deal is unclear PVR plans to execute it through a mix of debt and equity. The deal could lead to three-five per cent of equity dilution in the near term assuming 70:30 equity and debt funding. But eventually it is expected to be EPS accretive. We believe the deal will be value addition for PVR in the longer term. DT Cinemas has 29 operational screens and 10 screens to be commissioned in a year. The properties are in premium locations. The deal is said to be valued at about Rs 500 crore. Though the deal may appear pricey the valuations looks justifiable.
Healthy volume growth
All Cargo Logistics (ALL) has couple of positives going for it. It includes healthy volumes in the key multimodal transport operations (MTO), recovery of volumes in the container freight station (CFS) segment and last improvement in margins. The company’s latest numbers reveal not so encouraging PAT of Rs 555 million which was below our expectation of Rs 690 million. Volumes were stable but realisations dropped. It is important to note that fourth quarter is usually weak for logistics industry. Sales were reported at Rs 14.1 billion. EBIDTA came in at Rs 1.07 bn translating into weak operating margin of 7.6 per cent primarily due to lower realisations and provisioning for discounts given for the year in the current quarter. We continue to assign a PE of 16x FY17E earnings to the stock on the back of immune nature of MTO (LCL) business to weak trade, latest acquisitions which help diversify the business, stable performance of the CFS segment and estimated recovery in global trade.
Subdued fourth quarter results
New capacity additions and slowdown in electricity demand pulled down power companies in fourth quarter 2015. Regulated player NTPC reported modest numbers due to lower generation, high interest and depreciation costs while PGCIL reported above market expectation numbers driven by higher capitalisation. Private companies like Adani Power and Tata Power continued to show poor numbers on account of legal dispute pertaining to change in Indonesian law impacting project viability. JSW energy result was better than market expectations on account of stabilization of Rajasthan west and Ratnagiri plants. KSK Energy and CESC continued to disappoint on the result front on account of coal availability issue. During fourth quarter 2015 all India power deficit was the lowest since January 2012 owing to supply outstripping demand.
Profitability margin was mixed bag for companies. While Tata Power and JSW Energy showed improvements in margin on account of lower fuel costs, companies like CESC, Adani Power & KSK Energy faced lower margins on account of lower generation and spot coal purchase. Regulated players like NTPC and PGCIL fared better due to higher operating efficiency. Except for PGCIL and JSW Energy all other companies reported fall in net profits on account of poor operational performance. NTPC reported drop in profits on account of lower output and higher interest and depreciation costs. Reliance Securities