Stocks To Watch: Dr. Reddy’s, ONGC, HPCL, Tata Steel

Asian equities opened mixed on Monday and U.S. Treasuries were steady. The euro advanced on optimism Germany’s Angela Merkel has made a breakthrough toward her fourth term after months of stalement, while the dollar recovered from earlier lows as the federal government shutdown continued.

The Singapore-traded SGX Nifty, an early indicator of NSE Nifty 50 Index’s performance in India, was a little changed at 10,911 as of 7:10 a.m.

Here Are The Stocks To Watch Out For In Monday’s Trade

• ONGC to buy government’s 51.1 percent stake in HPCL for Rs 36,915 crore at Rs 473.97 per share.
• ONGC chairman tells the press that merging MRPL and HPCL may be an option.
• Tata Steel to raise Rs 12,800 crore via rights issue.
• J Kumar Infra gets Rs 57 crore contract from Delhi Metro Rail Corporation.
• U.S. Department of Justice imposes $5 million fine on Dr. Reddy's over drugs not being in child-resistant packing.
• Venus Remedies withdraws QIP issue due to unavoidable circumstances.
• Bharti Airtel to transfer 25 percent stake in Bharti Telemedia to Nettle Infrastructure.
• Orchid Pharma says NCLT grants extension of 90 days for insolvency process.
• IFCI says government considering capital infusion of Rs 100 crore in FY18.
• Reliance Industries to partly start petcoke gasification unit this quarter.
• HDFC increases size of MTN program to $1.3 billion.
• DFM Foods launches new product in the domestic market.
• Pioneer Distilleries says workmen have agreed to call off the strike on Jan. 20.
• Welspun Enterprises completes acquisition of 49 percent stake in the projects from MBL Group for a total consideration of Rs 2,300 crore.

F&O Setup

• Nifty January futures trading at 10,810.8 - a discount of 6.2 points from a premium of 3.3 points
• January Series: Nifty open interest unchanged; Bank Nifty open interest down 1 percent
• India VIX ended at 13.9, up 0.7 percent
• Maximum open interest for January series at 11,000 Call (open interest at 62.2 lakh, up 24 percent)
• Maximum open interest for January series at 10,500 Put (open interest at 70 lakh, down 12 percent)

F&O Ban

• In ban: Balrampur Chini, Dish TV, DLF, Fortis, GMR Infra, HCC, HDIL, IFCI, India Cement, Jain Irrigation, Kaveri Seed
• New in ban: DLF
• Out of ban: Capital First, Jindal Steel, JP Associates, Reliance Power

Only intraday positions can be taken in stocks which are in F&O ban. In case of a rollover of these intraday positions, there is a penalty.

Active Stock Futures

Bulk Deals

Sunteck Realty

• Fidelity Emerging Markets Funds bought 47.05 lakh shares (3.2 percent) at Rs 404.95 each (average)
• Sri Gopikrishna Trust sold 39 lakh shares (2.7 percent) at Rs 405.8 each (average)

GSS Infotech

• Aspire Emerging Fund bought 8 lakh shares (4.7 percent) at Rs 33.28 each

Emco Ltd

• India Nivesh Capitals bought 4.2 lakh shares (0.6 percent) at Rs 20.18 each

Shah Alloys

• United India Insurance sold 1.30 lakh shares (0.7 percent) at Rs 18.5 each

IPO

• Amber Enterprises India subscribed 165 times on final day.
• Apollo Micro Systems lists today. Issue was subscribed 248 times. Base price 275 per share.

Earnings Reactions To Watch

Reliance Industries Q3 (QoQ)

• Revenue up 7 percent at Rs 73,256 crore
• Net profit up 2 percent at Rs 8,454 crore
• EBITDA up 6 percent at Rs 13,744 crore
• Margin at 18.8 percent versus 18.9 percent

Reliance Jio Q3 (QoQ)

• Revenue up 12 percent to Rs 6,879 crore
• EBITDA up 82 percent to Rs 2,627 crore
• EBITDA Margin at 38.2 percent versus 23.5 percent
• Net profit of Rs 504 crore versus net Loss of Rs 271 crore
• ARPU of Rs 154 versus Rs 156

Wipro Q3 (QoQ)

• Revenue up 2 percent at Rs 13,669 crore
• Net profit down 12 percent at Rs 1,931 crore
• EBIT down 13 percent at Rs 1,959.5 crore
• Margins at 14.3 percent versus 16.8 percent
• Q4 IT Services revenue seen in the range of $2.03 billion to $2.07 billion

HDFC Life Q3 (YoY)

• Net premium income up 19 percent at Rs 5,420 crore
• Net profit up 14.6 percent at Rs 207 crore versus Rs 180.6 crore

Chennai Petroleum Corp Q3 (QoQ)

• Revenue up 15 percent at Rs 8,587 crore
• Net profit up 22.5 percent at Rs 386 crore
• EBITDA up 31 percent at Rs 834 crore
• Margin at 9.7 percent versus 8.5 percent

GNA Axles Q3 (YoY)

• Revenue up 48 percent at Rs 167 crore
• Net profit up 57 percent at Rs 12.7 crore
• EBITDA up 37 percent at Rs 26 crore
• Margins at 15.6 percent versus 16.9 percent

DCM Shriram Q3 (YoY)

• Revenue up 30 percent at Rs 1,783.7 crore
• Net profit up 56 percent at Rs 213 crore
• EBITDA up 75 percent at Rs 329.8 crore
• Margin at 18.5 percent versus 13.8 percent

Godawari Power Q3 (YoY)

• Revenue up 57.6 percent at Rs 672 crore
• Net Profit at Rs 72 crore versus Rs 10 crore loss
• EBITDA up 87.8 percent at Rs 168.62 crore
• Margin at 25.1 percent versus 21.1 percent

HOEC Q3 (YoY)

• Revenue up 141 percent at Rs 13.3 crore
• Profit at Rs 12.8 crore
• EBITDA at Rs 12.9 crore from Rs 1.9 crore
• EBITDA margin at 97 percent from 34.5 percent
• Exceptional item of Rs 4.4 crore

CDSL Q3 (YoY)

• Income from operations up 37 percent at Rs 51.5 crore
• Profit up 25 percent at Rs 25.4 crore
• EBITDA up 58 percent at Rs 31.6 crore versus Rs 20 crore
• EBITDA margin at 61.4 percent versus 53.3 percent

Lux Industries Q3 (YoY)

• Revenues from ops up 28 percent at Rs 296 crore versus Rs 231 crore
• Profit up 30 percent at Rs 18.4 crore versus Rs 14.1 crore
• EBITDA up 28 percent at Rs 35.7 crore versus Rs 27.9 crore
• EBITDA margin at 12.1 percent versus 12.1 percent

JP Associates Q3 (QoQ)

• Revenue up 50 percent at Rs 1,109 crore
• Net loss at Rs 148 crore versus Rs 186 crore
• EBITDA up 269 percent at Rs 140.7 crore
• Margin at 12.7 percent versus 5.17 percent

Nifty Earnings To Watch

• Asian Paints
• Axis Bank

Other Earnings To Watch

• Dewan Housing Finance
• GNFC
• Havells India
• Just Dial
• Rallis India
• Sasken Technologies
• Vakrangee
• V-Guard Industries
• Tinplate

Brokerage Radar

IDFC Securities on ONGC-HPCL

• Lower premium a key positive for ONGC.
• Price would set fair value benchmark; Positive for the stock.
• Transaction to spur further consolidation in oil & gas space.
• Expect IOCL to merge its subsidiary (CPCL), and/or buy government stake in Oil India.
• Deal is EPS accretive for ONGC but leverage to increase.
• Long term prospects for ONGC remain robust.
• ONGC + HPCL to help price hedging objectives, but only partially.
• Expect ONGC to see some near-term pressure, unless it decides to monetise stake in IOCL.

BOBCAPS on ONGC-HPCL

• Expects deal to be entirely funded through debt.
• Consolidated debt-to-equity ratio to increase to only 0.4 times versus 0.2 times.
• Acquisition to give access to 26 percent return on capital employed business.
• Expect no merger or operational synergies as HPCL will be an independent entity.
• Acquisition to merely contribute as investment value.
• Deal valuation well within fundamental parameters.
• Deal creates a convenient template for other potential public-sector stake divestments.

Motilal Oswal on Reliance Industries

• Maintained ‘Buy’ with price target of Rs 1,069.
• Petchem drives standalone profitability; RJio turns profitable.
• Lower throughput impacts refining performance.
• Robust volume growth and healthy deltas drive profitability.
• ARPUs to hover at Rs 144 in current quarter, led by recent cut.
• Expect competitive intensity to remain high over 2-3 quarters.

IDBI Capital on Reliance Industries

• Maintained ‘Buy’; raised price target to Rs 1,100 from Rs 1,004.
• Positive surprises continue.
• December quarter results were better than expectation led by robust performance in petchem, retail and Jio.
• Petchem profit drove the show; Jio continues to surprise positively.
• Petcoke gasifiers to start from current quarter; outlook remains positive .

CLSA on Reliance Industries

• Maintained ‘Buy’; raised price target to Rs 1,125 from Rs 1,080.
• Big beat on Jio and standalone EBIT with a stellar December quarter from retail.
• Jio: Neat beat on revenue and operating income.
• 2018 may turn out to be the year of monetisation.
• Positives: full utilisation of Off Gas crackers, stabilisation of gasification project, ramp-up of JioPhone and start of broadband.

Credit Suisse on Jubilant Foodworks

• Maintained ‘Outperform’; raised price target to Rs 2,750 from Rs 2,140.
• Exceptionally strong on all fronts and expect it to sustain.
• Jubilant has been seeing a fundamental turnaround.
• Strong SSSG driven by orders even adjusted for GST.
• EBITDA margins spike but cost and productivity initiatives have more headroom.
• Management to refocus on growth in the next financial year.

CLSA on Jubilant Foodworks

• Maintained ‘Buy’; raised price target to Rs 2,800 from Rs 2,300.
• Beating the most bullish estimate, SSSG of 17.8 percent is a huge positive.
• Power of operating leverage played to its best.
• Management sounded fairly positive in its outlook.
• Expect earnings to grow at a CAGR of 38 percent over FY18-20.

Macquarie on HDFC Bank

• Maintained ‘Outperform’; raised price target to Rs 2,676 from Rs 2,589.
• Reported “boringly” consistent 20 percent YoY net profit growth.
• Growth momentum strong, led by retail loans.
• No challenges on divergences visible.
• Structural shift in credit costs upwards.
• Bank expects to gain market share from the bond market.
• HDFC Bank is strong, powerful compounding story with no asset quality issues.
• Expect strong earnings visibility and consistent high return ratios.

Morgan Stanley on HDFC Bank

• Maintained ‘Overweight’ with price target of Rs 2,500.
• Results show strong revenue/PPoP growth.
• Steady asset quality trends.
• CASA deposits grew given higher base following the spurt in deposits post demonetisation.

Credit Suisse on HCL Technologies

• Maintained ‘Outperform’; raised price target to Rs 1,100 from Rs 1,050
• Strong revenue growth in previous quarter; In-line margins
• Continuing softness in infra but better outlook in the next financial year.
• Continuing strength in engineering, and recovery in application services.
• Good growth in financial services.
• Expect reasonable growth, steady margins and attractive valuations.
• Stock is well placed for 2018 as growth should be in line-to-ahead of peers.

Edelweiss on HCL Technologies

• Maintained ‘Buy’; raised price target to Rs 1,125 from Rs 1,041.
• Growth led by America, ER&D; RoW and telecom key drags.
• IMS down for second consecutive quarter.
• Investments in IP partnership sustain.
• Long-term prospects bright; ER&D to drive revenue.
• See bright prospects in IMS though it has been weak.

Jefferies on ITC

• Maintained ‘Buy’; raised price target to Rs 320 from Rs 302.
• December quarter results was a mixed bag.
• Cigarettes, volumes soft with resilient margins.
• FMCG showed strong all-round show.
• Other businesses, hotels take the lead.
• Expect gradual recovery in ITC cigarette volumes.
• Expect better recovery in other businesses led by other FMCG.

Deutsche Bank on ITC

• Maintained ‘Buy’; raised price target to Rs 350 from Rs 325.
• December quarter was another in-line quarter.
• Cigarette volume declines 4 percent YoY, but flat QoQ.
• FMCG-others reported healthy sales growth of 16 percent.
• High probability of rational tax increase in Feb 2018 is a potential re-rating event.

Nomura on Kotak Mahindra Bank

• Maintained ‘Neutral’; raised price target to Rs 1,150 from Rs 1,070.
• Q3FY18 stable quarter with in-line net profit.
• Bank continues to deliver on extracting cost efficiency.
• Growth momentum steady; PPOP growth hit by weaker margins.
• Excellent performance by capital market subsidiaries.
• Prefer HDFC Bank to Kotak given undemanding valuations.

Macquarie on Kotak Mahindra Bank

• Maintained ‘Neutral’; raised price target to Rs 1,111 from Rs 1,090.
• Steady performance for the bank.
• Subsidiaries post robust performances, especially securities and life insurance businesses.
• Positive on bank’s business and the quality of management.
• Valuations leave limited potential for upside.

Edelweiss on Wipro

• Maintained ‘Hold’; raised price target to Rs 320 from Rs 280.
• December quarter earnings came below estimates.
• BFSI strengthening; client-specific issues in utility key drag.
• Digital ticket size expanding.
• Wipro’s revenue outlook has improved.
• Sector in turnaround mode, but Wipro expensive.

Macquarie on Wipro

• Maintained ‘Neutral’; cut price target to Rs 290 from Rs 300.
• Mixed bag performance in previous quarter in segments.
• Results continue to highlight volatility in growth.
• Still some time away from reaching industry level growth.
• EBIT Margin steady; Growth remains choppy.

Nomura on HDFC Standard Life

• Maintained ‘Buy’ with price target of Rs 450.
• Steady performance; Protection mix surprises.
• Continues to improve on its leadership in protection business.
• Embedded Value of Rs 14,400 crore and core RoEV of above 20 percent as of 9MFY17.
• HDFC Life gained share in current fiscal after a loss in share in previous fiscal.
• Expect steady performance to continue, given balanced product mix.

Deutsche Bank on ICICI Prudential Life

• Maintained ‘Buy’; raised price target to Rs 500 from Rs 490.
• Strong uptick in margins in December quarter; APE growth slow.
• Strong margin improvement but growth muted due to demonetisation base.
• Higher margin should be sustained; Focus on increasing protection share.
• Better placed to benefit from sector tailwinds.

Nomura on ICICI Prudential Life

• Maintained ‘Buy’; raised price target to Rs 540 from Rs 490.
• Big surprise on VNB margins.
• More legroom for margin expansion.
• ULIPs to remain unaffected by expected regulatory change.
• Expect current fiscal margins at 14.7 percent and increase our long-term margin expectations to 16-16.5 percent.
• ICICI Pru Life preferred insurance pick.

Media Reports

• Budgetary support for Railways to be cut by 27% in FY18 (Business Standard).
• Il&FS Arm Plans To Sell Rs 4,000 crore project To Canada Pension Fund (Financial Express).
• Future Group puts south Indian chain Foodworld on its grocery list (Economic Times).
• Vedanta, NCL, Torrent vie for GMR Energy’s plant in Chhatisgarh (Economic Times).