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Afternoon Despatch & Courier
MUMBAI | MONDAY, FEBRUARY 10, 2014
« TOP VIEW
We had anticipated that growth in the second half will improve and I am happy that our estimate has come true. This estimate of 4.9% for the whole year will in all likelihood be revised upwards in the first, second and final revisions over the next two years. I am confident that the final estimate will be not less than 5% for the whole year. — Finance Minister P Chidambaram
« BROKERAGE RECOMMENDATIONS SHAREKHAN CALLS A ‘BUY’ ON FIRSTSOURCE SOLUTIONS
Velocity Parameters Neutrally Trended NSE India : CNX Nifty — Daily Market Report for: Monday (February 3, 2014) By Dominic Rebello
REVIEW OF THE PREVIOUS DAY:
The Nifty rose marginally on Friday (February 07, 2014) a net 26.90 points (0.45%) and closed at the 6063 point level. The market opened up with a gap at the 6077 points level. It then rose further and registered the day’s high at the 6079 points level at 9.16 a.m. The index then declined and turned into a range bound movement until 2.25 p.m. It then declined into the red and registered the day’s low at the 6030 points level at 2.45 p.m. The index then bounced back into the green and turned into a range bound movement until closing at the day. The Nifty witnessed a volatile session moved in a range of 49 points. Sentiment was bullish and amongst the 50 Nifty stocks 34 were gainers, while 16 were losers. Substantial buying was seen in metal, healthcare and realty stocks, while some selling was seen in IT, technology, FMCG and consumer durables stocks.
TECHNICAL ANALYSIS: Volume: Volume (Qty shares) decreased 1.93%. This change is small and indicates a moderate participation by investors. Market Breadth: Overall Market Breadth on the NSE was positive. Amongst all the traded stocks, 820 were gainers, 638 were losers and 71 remained unchanged.
Slow Stochastic Indicator: The Slow Stochastic Oscillator has risen in the neutral zone. The Slow K line in the Stochastic Oscillator is above the slow D line (positive if it continues). RSI Indicator: The RSI is above the 30 level and is now rising (positive if it continues).
MACD Indicator: The MACD is below zero and is turned flat (positive if it rises). It is below its 9-day Average (negative).
ADX Indicator & DI Lines: The +DI line is below the –DI line but both lines are converging (positive if it continues). The ADX is rising while the Market Index is rising, which indicates that the present up trend is increasing in strength.
Support Levels: For short-term traders the immediate main support is at the 5958 points level. The next support is at the 5877 points level.
Resistance Levels: The immediate main resistance is at the 6372 points level. The next resistance is at the 6424 points level. Pivot Point Analysis: For intra-day traders the support and resistance levels are calculated according to the pivot point theory and are: Pivot point = 6058 (This is the level where the trend is likely to change during intra-day). Support (1) = 6036. Resistance (1) = 6085.
HDFC SECURITIES CALLS A ‘BUY’ ON NAVNEET EDUCATION
Support (2) = 6009. Resistance (2) = 6107.
OUTLOOK FOR TODAY: On Japanese candlestick patterns the index has formed a second consecutive doji pattern. This indicates that the indecisiveness amongst investors continues. The next candle formation will confirm whether the bias is towards the buy or sell side of the market. However, the index is above its 5 and 200 days moving average. Further, the velocity parameters are neutrally trended. Both these indicate a positive bias. But the index is still below its 15 and 25 days moving averages and both the averages are declining. This is negative. As such these are mixed signals. Investors are advised to adopt a wait and watch policy, until a clear reversal signal is visible.
Work with strict stop losses on all positions
MOVING AVERAGES (TREND INDICATORS) The index: Is above its 5-day average (at 6024) Positive. Is below its 15-day average (at 6149) Negative. Is below its 25-day average (at 6180) Negative. Is above its 200-day average (at 5977) Positive.
Overall Market Strength/Weakness: The indicators and oscillators discussed here are indicating a weak market but with a positive bias.
CMP: Rs. 26 Target Rs. 37 Key points: It’s shaping up well: In 2012 Firstsource Solutions Ltd (FSL) was on the brink of a financial burn-out, with a dwindling OPM, market share losses and a huge debt burden. On top of that, its stakeholders were losing confidence fast. Against this backdrop, the company has scripted a perfect turn-around story with costrationalisation initiatives, improving client mining activity and a pruned debt profile (it has paid off FCCBs worth $237 million). Over the last two years, the turn-around story has shaped up well with the EBITDA margin improving from 8.2% in FY2012 to 11.6% currently, profit growing at a CAGR of 77% over FY201214E and cash flow generation improving enough to comfortably service its debts. Valuation—a turn-around story at discounted valuation: Given the strength of the turn-around story and the improved visibility of its earnings growth, we see a strong case for further re-rating in its stock price. The key re-rating triggers in the stock are: (1) a strong margin improvement; (2) acceleration in cash flow generation; (3) timely repayment of debt; (4) and an improvement in the return ratios. Though in the last one year the stock has already been a strong outperformer and has risen by almost 122%, but we see further upside from here. Our 12-month price target is Rs37; we have valued FSL at 5x EV/EBITDA based on FY2016E earnings (a 30% discount to the average one-year forward EV/EBITDA of 7.4 of the past five years) to factor in the risk of execution, the debt repayment and the possibility of a one-time big dent from the charges related to the impaired assets (linked to the MedAssist acquisition; non-cash charges). At our price target the stock would be valued at 6.6x FY2016E EPS. We initiate coverage on FSL with a Buy rating and a 12-month price target of Rs 37 (a 53% upside).
Disclaimer: Investment recommendations made in ‘ADC’ are for information purposes only and derived from sources that are deemed to be reliable but their accuracy and completeness are not guaranteed. ‘ADC’ or the analyst/writer does not accept any liability for the use of this column for the buying or selling of securities. Readers of this newspaper who buy or sell securities based on the information in this newspaper are solely responsible for their actions. ‘ADC’ and/or its affiliates and/or employees and/or the author, his company or his acquaintances may have interests/ positions, financial or otherwise in the securities mentioned in this newspaper.
CMP: Rs. 54 Target Rs. 68 In-line quarter, growth revival key Navneet Education (NEL) 3QFY14 results were in-line. Revenue grew by 7% YoY, EBITDA 14% and earnings 10%. Publication revenue declined 4% YoY owing to lack of government order. Stationery segment revenue grew by strong 32% led by exports. In 9MFY14, NEL’s revenue grew by 8% YoY, earnings declined 1% (+3% adjusted for notional forex loss of ~Rs 35mn). Absence of government order in Publication, paper cost inflation and notional forex loss impacted performance in 9MFY14. Nevertheless, the triggers (viz. syllabus change led by common curriculum evolution, government orders for supplementary books, expansion in Andhra Pradesh and Delhi-NCR) should support growth in FY15-16. Maintain estimates. Retain BUY with TP of Rs 68 (unchanged) at 12x FY15E EPS. Publication – revenue disappoints: Segment revenue (60% of total) in 3Q declined 4% YoY (+5.5% in 9M) to Rs 796mn. Government order for supplementary books contributed ~Rs 270mn in FY13 vs. nil in 9MFY14 leading to moderation in growth. EBIT margin declined by 23bps in 3Q to 26.7%, flat in 9MFY14 at 34.7%. However, with visibility on syllabus change in FY15 in Gujarat and FY16 in Maharashtra, we expect growth momentum to pick-up. Maharashtra contributes ~55% of segment revenue, rest from Gujarat. Further, NEL has completed the content creation for Standard I to VII CBSE textbooks. NEL looks to market them in states beyond Maharashtra and Gujarat with potential to make it a decent sized sub-segment. If successful, this would lead to additional growth. Stationery – healthy performance led by exports : Revenue grew by healthy 32% to Rs 525mn (+14% in 9MFY14). Rupee tailwind and robust export order led to growth. EBIT grew by 8x YoY in 3Q owing to part reversal of notional forex loss of ~Rs 33mn on export receivables. But, margins declined by 255bps YoY in 9MFY14 due to rise in paper cost, competition in domestic business and notional forex loss. However, led by strong export orders from large retail chains in developed markets, we expect the segment to register ~10-12% revenue growth with stable margins. Valuation and view : With robust earnings CAGR of 15%, dividend yield of 3.5% (~50% payout), NPL is trading at attractive P/E of 11.3x/9.6x FY14/15E EPS. BUY with a TP of Rs 68 at 12x FY15E EPS. Please send all business and corporate related mails to business@afternoondc.in