Maintain strict stop loss
In line with prevailing bias, the domestic markets traded under pressure on Friday and slipped below the crucial support levels. It was mainly due to cautiousness among the participants ahead of the two important macro-economic data: CPI inflation and IIP. The selling pressure was witnessed across the board and majority of sector indices closed in red. We shall be seeing participants reacting to macro-economic numbers in early trade on Monday. And that would set the tone for the rest of the day. Among the benchmarks the Nifty index has next crucial support at 8,150 mark and we expect some technical bounce from that level. As we have mentioned in our earlier post also, stocks fall more sharply during such corrective phase so the only way to escape from the unmanageable losses is to maintain strict stop losses or keep trading positions hedged.
Jayant Manglik, president-retail distribution, Religare Securities
Will gain from demand revival
We expect demand for bearings in India to revive in the next two years given the sector’s strong correlation to economic growth and rising demand traction from the end-user industries. Demand for bearings is driven primarily by the industrial, automotive and after sales segments. Bearings have a diverse range of industrial applications and hence the sector is strongly levered to any pick-up in economic activity. We expect industrial demand to pick up in 2015-2017. Automotive demand for bearings too is likely to increase led by growth in commercial vehicles, passenger vehicles and two-wheelers. Rising capacity utilisation in end-user industries should aid stronger after sales off take as well. The bearings industry in India has limited competitive intensity. This is typically due to technology barriers and established relationships between manufacturers and OEMs across the automotive and industrial businesses. We believe the threat of competition is fairly low in this industry and return on capital employed (ROCE) of players is sustainable over the long term. Companies in this sector typically have high ROCE, low debt: equity and robust free cash flow generation. We are bullish on domestic market leader SKF India (SKF) as well as Timken India (TMKN) and FAG India (FAG). All three have healthy ROCE and thus have BUY rating.
Cox & Kings (CKL) registered a 12 per cent revenue growth and 8 per cent increase in operating profit on a like-to-like basis (excluding the hived-off camping business). The Indian business’ revenues and operating profit grew by 17 per cent each while the education business revenues grew by 10 per cent.
The international leisure travel business was a drag on the profitability due to higher promotional and technology expenses. With improving consumer sentiment, CKL’s management expects the domestic outbound tourism segment (it accounts for more than 50 per cent of the Indian business) to grow by at least 25 per cent in the near term. The capacity utilisation at the education and Meininger businesses is expected to improve in the coming years. This should help in expanding the OPM of CKL’s consolidated business to 40 per cent in the coming years.
The company has plans to reduce its net debt further on top of a reduction in 2013-14. Debt reduction will be through internal accruals and it will result in cutting down interest costs by Rs 40 crore. We have marginally reduced our earnings estimate for 2014-15 to factor in the lower margins in the international leisure travel business.
However, we have broadly maintained our long term earnings estimates. We maintain our BUY recommendation on the stock. Sharekhan