Indian markets are seen opening flat to moderately higher. High volatility may persist on account of expiry of March F&O contracts as traders rollover positions from March to April series. Asian markets are trading lower; tracking overnight losses in the US equities fell after US president Barack Obama warned that the crisis in the Ukraine may escalate. The US and the European Union agreed to work together to prepare ossible tougher economic sanctions in response to Russia’s behavior in Ukraine. Also data released on Wednesday showed an unexpected drop in US capital-goods orders. Together the concerns are weighing on investor sentiment. S&P 500 lost 0.7% to 1,852. Back home, Rupee continued its advance by 34 paisa to close at 60.14. Heavy foreign buying has sent domestic shares to record highs, with net purchases reaching a $3.1 billion so far this year. Net inflows into the debt market stand at $5.85 billion. Yesterday also FIIs bought Rs 1004 in cash markets and 885 crs in index futures (mainly short covering). They sold Rs 554 crs in stock futures. DIIs selling has reduced. On Wednesday, small gains pushed key benchmark indices to record closing high. Nifty garnered 11.65 points or 0.18% to settle at 6,601.40, a record closing high. However, the market was moving narrow range ahead of March F&O expiry. There was a positive sentiment in the market after USDINR fell to 8-month low at 60.14, expectation of stable government in forth coming Union Election and continued FIIs buying interest. Metal, Auto, Capital Goods and Banking stocks witnessed smart rallies. However, Pharma and Tech stocks declined. Asian market gained half to one percent on account of impressive US data. Many momentum midcap stocks like Ashok Leyland, Arvind Mills, Srei Infra, Oberei Hotel gained 3-8%. Metal stocks like SSLT, Hindalco, Tata Steel and SAIL surged 2-6%. Base metal prices on LME have gained 1-2%. Banking stocks gained after 10-year G-Sec yield fell to 8.78%. Opening at 6615 with an upward gap, the Nifty moved up to 6627 and the saw selling which took it below the high of the preceding day to reach 6580 and then revived to end above the psychological mark at 6601, up 11 points for a 0.18% gain. On medium term, Nifty continues to be in the 6430 to 6660 range, waiting for a breakout. Supports are at 6500 & 6430 respectively. Intraday resistance and supports are at 6628.
MARKET MOVERS
Oberoi Realty : Shares in Oberoi Realty rallied 9.69% to Rs 217.95 on the BSE after the real estate developer has acquired Tata Steel’s Mumbai land for Rs 1,155 crore.Tata Steel, on Tuesday, sold its 25-acre Borivali land parcel in Mumbai for Rs 1,155 crore to Oberoi Realty through e-auction.“The Committee of Independent Directors appointed for the oversight and governance of the sale process by the Tata Steel Board today declared Oberoi Realty Limited as the highest bidder of the auction on the basis of their final bid of Rs 1,155 crore, after several rounds of bidding,” the steel giant said in a statement.Oberoi Realty won the tough bid defeating other realty majors to acquire the property. Educomp Solutions: Shares in Educomp Solutions rallied 5.32% to Rs 24.75 on Wednesday on getting approval for its corporate debt recast package from CDR panel. "The request for restructuring debts outstanding on reference date (July 08, 2013) comprising working capital debt of Rs 399.04 crore and long term debt of Rs 83.05 crore with CDR lenders has been approved by CDR Empowered Group vide letter of approval dated March 19, 2014," the company said in its filing. The company further said the restructuring package agreed with CDR lenders (led by State Bank of Patiala) envisages extended repayment tenure of 10 years including moratorium period of 2.5 years from cut off date (April 01, 2013) and funding of interest for a period of 2 years from cut off date. The education solutions provider had approaced CDR cell for restructuring of its debts on June 27, 2013. Then the CDR cell had admitted the flash report of company in its meeting held on July 25, 2013. Sun Pharma: Shares in Sun Pharma felled 2.23% to Rs 566.40 as Johnson & Johnson (J&J) has resumed supplies of Doxil in the US with the release of first lot. The earlier-than-expected launch by J&J is negative for Sun Pharmaceuticals , as the Street had anticipated the latter’s sole supplier status for a longer period. Analysts have reduced Sun Pharmaceuticals'sFY15E earnings 5% factoring in lower Doxil sales.
FUNDAMENTAL PICK
We expect Dabur’s volume growth to remain in the 8-10% band. Project CORE would provide an additional catalyst for FY15 and FY16. Gross margin expansion of 100bp and operating leverage in International division would help achieve 19% EPS CAGR over FY14-16. Dabur offers the best earnings visibility in the tier-II Consumer space. Buy. No material change in demand; expect 8-10% volume growth: According to the management, demand conditions have not changed materially over the last six months. Early signs of pick-up in urban demand, which the management had alluded to during the 3QFY14 Conference Call, are still evident. If there is no further worsening of the macro environment, we believe Dabur should sustain its 8-10% volume growth band in FY15. Project CORE: Doubling urban chemist reach: Dabur has launched Project CORE (Chemist Outlet & Range Expansion) to drive penetration of its Healthcare portfolio in urban chemist outlets. It intends to more than double its reach to 75k outlets. We draw comfort from Dabur’s superior execution of Project DOUBLE, where it more than doubled its rural reach in two years without diluting margins. Focus areas for FY15: F&B, Healthcare and Hair Care: We expect Dabur to focus on Food & Beverages (F&B), Healthcare and Hair Care in FY15. We expect new launches/renovations in these categories. Dabur is test-launching Milk Shakes and Drinking Yoghurt; one of these could see national rollout in FY15, in our view. Mix improvement to drive up margins: We expect gross margin to expand 100bp in FY15, driven by portfolio mix improvement coupled with annual price hikes of 4-5%. However, the gross margin expansion is unlikely to flow through to operating margin in entirety, as we expect Dabur to remain competitive on ad spends to support new launches. We build in 70bp operating margin expansion in FY15. Buy, with a target price of Rs 200: Consistent volume growth with steady margin expansion should drive our expected 19% EPS CAGR over FY14-16. We like the management’s strategy of building long-term growth drivers by enhancing distribution reach and driving portfolio innovation. Dabur offers the best volume led earnings growth visibility and remains our top pick in our tier-II consumer coverage. Maintain Buy with a target price of Rs 200.
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MARKET MOVERS
Oberoi Realty : Shares in Oberoi Realty rallied 9.69% to Rs 217.95 on the BSE after the real estate developer has acquired Tata Steel’s Mumbai land for Rs 1,155 crore.Tata Steel, on Tuesday, sold its 25-acre Borivali land parcel in Mumbai for Rs 1,155 crore to Oberoi Realty through e-auction.“The Committee of Independent Directors appointed for the oversight and governance of the sale process by the Tata Steel Board today declared Oberoi Realty Limited as the highest bidder of the auction on the basis of their final bid of Rs 1,155 crore, after several rounds of bidding,” the steel giant said in a statement.Oberoi Realty won the tough bid defeating other realty majors to acquire the property. Educomp Solutions: Shares in Educomp Solutions rallied 5.32% to Rs 24.75 on Wednesday on getting approval for its corporate debt recast package from CDR panel. "The request for restructuring debts outstanding on reference date (July 08, 2013) comprising working capital debt of Rs 399.04 crore and long term debt of Rs 83.05 crore with CDR lenders has been approved by CDR Empowered Group vide letter of approval dated March 19, 2014," the company said in its filing. The company further said the restructuring package agreed with CDR lenders (led by State Bank of Patiala) envisages extended repayment tenure of 10 years including moratorium period of 2.5 years from cut off date (April 01, 2013) and funding of interest for a period of 2 years from cut off date. The education solutions provider had approaced CDR cell for restructuring of its debts on June 27, 2013. Then the CDR cell had admitted the flash report of company in its meeting held on July 25, 2013. Sun Pharma: Shares in Sun Pharma felled 2.23% to Rs 566.40 as Johnson & Johnson (J&J) has resumed supplies of Doxil in the US with the release of first lot. The earlier-than-expected launch by J&J is negative for Sun Pharmaceuticals , as the Street had anticipated the latter’s sole supplier status for a longer period. Analysts have reduced Sun Pharmaceuticals'sFY15E earnings 5% factoring in lower Doxil sales.
FUNDAMENTAL PICK
We expect Dabur’s volume growth to remain in the 8-10% band. Project CORE would provide an additional catalyst for FY15 and FY16. Gross margin expansion of 100bp and operating leverage in International division would help achieve 19% EPS CAGR over FY14-16. Dabur offers the best earnings visibility in the tier-II Consumer space. Buy. No material change in demand; expect 8-10% volume growth: According to the management, demand conditions have not changed materially over the last six months. Early signs of pick-up in urban demand, which the management had alluded to during the 3QFY14 Conference Call, are still evident. If there is no further worsening of the macro environment, we believe Dabur should sustain its 8-10% volume growth band in FY15. Project CORE: Doubling urban chemist reach: Dabur has launched Project CORE (Chemist Outlet & Range Expansion) to drive penetration of its Healthcare portfolio in urban chemist outlets. It intends to more than double its reach to 75k outlets. We draw comfort from Dabur’s superior execution of Project DOUBLE, where it more than doubled its rural reach in two years without diluting margins. Focus areas for FY15: F&B, Healthcare and Hair Care: We expect Dabur to focus on Food & Beverages (F&B), Healthcare and Hair Care in FY15. We expect new launches/renovations in these categories. Dabur is test-launching Milk Shakes and Drinking Yoghurt; one of these could see national rollout in FY15, in our view. Mix improvement to drive up margins: We expect gross margin to expand 100bp in FY15, driven by portfolio mix improvement coupled with annual price hikes of 4-5%. However, the gross margin expansion is unlikely to flow through to operating margin in entirety, as we expect Dabur to remain competitive on ad spends to support new launches. We build in 70bp operating margin expansion in FY15. Buy, with a target price of Rs 200: Consistent volume growth with steady margin expansion should drive our expected 19% EPS CAGR over FY14-16. We like the management’s strategy of building long-term growth drivers by enhancing distribution reach and driving portfolio innovation. Dabur offers the best volume led earnings growth visibility and remains our top pick in our tier-II consumer coverage. Maintain Buy with a target price of Rs 200.
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