MOSt Market Outlook
Date:
Tuesday, November 20, 2012
World Markets
SGX Nifty
Dow
Nasdaq
FTSE
Nikkei
Hangseng
5605
12796
2916
5738
9162
21452
11.00
208.00
63.00
132.00
9.00
190.00
Market Outlook
POSITIVE
Expect market to open on a positive note on account of global cues. US market gained by 2%, S&P’s
500 Index’s biggest advance in two months, amid better-than-forecast housing data and as President
Barack Obama expressed confidence on a budget agreement with Congress. Base metal price on LME
surged by 2% and Brent crude was up by 2% to $111.7/bbl.
Research Updates/ News:
London Metal Exchange(LME) Rates
B.Crude$
$
111.70
2.50
Copper
$ 7,804.00
199.00
Aluminium
$ 1,977.00
26.00
Zinc
$ 1,945.00
26.00
MARUTI SUZUKI: Favorable JPY movement offset by adverse INR movement; Maintain Buy - Maruti
Suzuki import content including royalty is ~26% of sales, of which JPY exposure including royalty is
~21% (balance 2% is USD and 3% is EUR denominated). MSIL export revenues constitute ~12% of
sales, of which ~8.5% is USD denominated and ~3.5% is EUR denominated. Thus, MSIL is ~21%
short on JPY and ~6.5% long on USD. Over the years, MSIL EBITDA margins have been severely
impacted by JPY/INR movement. Since June-08, JPY has appreciated by 76% against INR, resulting in
a significant pressure on MSIL’ margins. We estimate ~11-12% margin erosion of MSIL’s margins due
to Fx movement since June-08. For FY14, our currency assumptions are 80 JPY/USD & 53 INR/USD,
translating into an effective JPY/INR of 0.6625.The stock trades at 15.2x FY14E consolidated EPS of
INR98.2 and 8.7x FY14E cash EPS of INR172.6. Maintain Buy with a price target of INR1,730.
CONCOR: Indian Railways increases haulage charges by 16-31% in two stages; Near term negative
for Concor; Cutting FY14 EPS by 4% - Indian Railways has increased haulage charges by ~16-31%
across segments in two stages (22% by December 1 and ~7% by February 1). In its 2QFY13
conference call, Concor’s management had mentioned that a ~20% hike in haulage charges could be
round the corner. The hike in haulage charge is ~31% (22% in Dec-12 and 7% in Feb-13) for freight
up to 20 tons and ~16% (9% in Dec-12 and 7% in Feb-13) for freight above 20 tons. Almost ~75%
of industry traffic falls within the 14-15 ton range. Hence, we expect freight hike to impact ~75% of
users by ~31% in two stages and the remaining by ~16%.
Nifty Trend
Short Term
Intermediate Term
10 DMA*
20 DMA*
DOWN
DOWN
Trend Reversal
5674
5671
MOSt Velocity (Reiterate Buy) (Medium Term with few months horizon)
Mcleod Russel
Buy
Company Description
MRIL has been cultivating tea since 1869 and is a part of the BM Khaitan Group. It demerged from
Current Market Price
323.0
Eveready in CY04. In CY05, MRIL purchased Borelli Tea Holdings Limited (Borelli) and 17 estates in
Maximum Buy Price
325.0
Assam, India. MRIL further acquired 100% stake in Phu Ben Tea Company Limited,
Portfolio Allocation
5.0%
Vietnam in CY09 and the Rwenzori Tea Investments Limited, Uganda in CY10 through Borelli. Borelli
purchased 60% controlling stake in Gisovu Tea Company Limited, Rwanda during FY11.
Investment Argument
MRIL is the world's largest producer of black tea, accounting for ~8% of India's and 2.5% of the
world's total black tea production. The area under its cultivation exceeds 38,000 hectares, spread
across India (Assam and West Bengal), Vietnam, Rwanda and Uganda.
Increase in Tea Prices: The company expects there will be production loss of around 25-30 mn kg (~3-
4%) in India during CY2012, which will lead to higher prices by around Rs 25 /kg (~15%) due to
growing consumption. The corresponding cost increase will be around Rs 18/kg
of production for the full year due to increased overhead cost.
Valuation and view:
We are positive on the stock with domestic tea consumption growth outstripping production growth in
next 4-5 years. This will have a positive impact on tea pricing in the coming years. Mcleod russel is the
largest company in tea production with a clean balance sheet and operating leverage atands to
benefit. Stock is trading at 10.6x FY13E EPS, recommend Buy with a target of Rs 350.
Motilal Oswal Securities Ltd., Palm Spring Centre, 2nd floor, Palm Court Complex, New Link Road, Malad (W), Mumbai - 64.
Mcleod Russel
MRIL is the world's largest producer
of black tea (96m kg in FY11).