Stocks of TCS will be in focus as the company is expected to face material impact due floods in Chennai, which will hit its revenue in the current quarter.

The BSE Sensex and NSE Nifty opened in negative terrain on Monday tracking SGX Nifty and weak global markets ahead on inflation data for November based on the wholesale price index (WPI) and the consumer price index (CPI). At 9.23 am, Sensex was down 118.61 points at 24,925.82. Similarly, Nifty was down 28.15 points at 7,582.30.
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Below are the stocks that are likely to be in focus today:

TCS: Stocks were trading 1.07 per cent down at Rs 2361.60 (around 9.25 am) as the company is expected to face material impact  due floods in Chennai, which will hit its revenue in the current quarter.

Kalyani Forge Ltd: Shares of the company were trading 4.96 per cent up at Rs 277.00(around 9.30 am) after it said that it plans to double turnover to Rs 500 crore in the next 2-3 years by entering a new product range and expansion.

Bhushan Steel: Stocks of the company will be in focus as the National Green Tribunal on Friday ordered the closure of Bhushan Steel and Strips Limited situated in site -4 industrial area of Sahibabad in Uttar Pradesh for 4 weeks declaring it to be a polluting industry.

Cairn India: Stocks of the company were trading 1.79 per cent down at Rs 123.40(9.26 am) as it is set to launch the world’s largest enhanced oil recovery programme, investing about $760 million in the site where its first oil was discovered in the Thar desert of Rajasthan.

Maruti Suzuki: Prime Minister Narendra Modi said that for the “first time” India will export to Japan cars which will be made domestically by Maruti Suzuki as part of the ‘Make in India’ initiative.

Dabur: Seventy seven India-bound containers of Real Juice manufactured by Dabur Nepal, a subsidiary of Dabur India, were seized by Nepal’s anti graft body after receiving complaints about their quality.

IOC: IOC, India’s largest oil firm, will invest Rs 1.75 lakh crore over the next seven years on expanding refinery capacity, building petrochemical plants and laying pipelines, a company official said.

Indian Overseas Bank: State-owned Indian Overseas Bank (IOB) said it proposes to raise up to Rs 1,570 crore at the current market price from the public offer to fund its growth plan.

Hotel Leela Venture: The Competition Commission has given its nod for acquisition of Hotel Leelaventure’s Goa property by the Malaysia-based MetTube.

Infosys: Infosys has joined Amazon’s cloud infrastructure unit Amazon Web Services and a clutch of marquee Silicon Valley leaders including Tesla’s Elon Musk, Peter Thiel, Reid Hoffman, Y Combinator’s Sam Altman and Jessica Livingston to commit a $1 billion investment to OpenAI, a non-profit artificial intelligence research company announced.

Coal India: Opposing an immediate stake sale in Coal India Ltd, foreign investors have told the Finance Ministry that further disinvestment in the coal miner should be put off as the current market valuation is low.

Mahindra & Mahindra: Mahindra & Mahindra has incorporated a subsidiary ‘Airvan 10 Pty Ltd’ for the aerospace industry in Australia.

Vipul Ltd: Realty firm Vipul Ltd has raised Rs 150 crore from DMI Finance Ltd to develop a luxury housing project in Gurgaon.

Bharat Forge organised a meeting with analysts to discuss the company’s business plans. We were impressed by the efforts it has made to scale-up various segments of its business and develop new products to double its standalone revenues over the next five years. FY2016 is likely to be a weak year for the company, led by slowdown in the US truck market and oil & gas industry (~40% of standalone revenues) but new products/verticals will likely result in 16% CAGR (compound annual growth rate) in revenues in the FY2016-18 period. We maintain BUY with a revised target price of R965 (R975 earlier).

Scaling up the technology curve and sowing seeds for robust growth ahead: FY2016 is likely to be a weak year for the company, led by slowdown in the US truck, oil & gas and mining sectors which constitute 40% of Bharat Forge’s standalone revenues. The company is working on developing new products for the existing and new customers to increase its presence across various verticals. A key point to note is that it will be using its existing facilities to develop new products which gives us an idea of their flexible manufacturing practices. The four key areas of growth over the FY2015-18 period are likely to be: (i) 3X increase in passenger car forging revenues, led by new order wins from GM, Ford and Volkswagen, (ii) New order wins in the aviation segment which will likely add incremental $50m in revenues by FY2018, (iii) Import substitution in the Indian railways as GE (locomotive supplier) looks to localise in India and (iv) new transmission components developed for passenger vehicle OEMs where the company was not present earlier. We believe the transmission component business could add incremental $100m in revenues to the company. The company reasserted its guidance to achieve R70 bn in revenues in standalone by FY2018 while we are more conservative and build in R62 bn. We have not factored in opportunities in transmission components in our estimates as yet.

We cut our estimates by 3-5% over FY2016-18 to factor in weakness in the US truck business We have cut our consolidated earnings estimates by 3-5% over the FY2016-18 period led by 10-15% cut in our estimates for the US truck forging business revenues. We have cut our consolidated Ebitda estimates by 4-5% over the same period as the US truck business offers higher margins. We have thus cut our target price to R965 (from R975 earlier) driven by 3-5% cut in our earnings estimates. We have increased the target multiple for the standalone business from 22X to 23X on September 2017 EPS, as we believe the company is well placed to deliver strong revenue growth over the FY2016-20 period.

** The company expects flat revenue growth in FY2016e and reaffirmed its FY2018e revenue guidance of R70 bn: Overall, the company expects revenues to be flat y-o-y in FY2016e as revenue decline in industrial segments (primarily oil & gas and mining) will be offset by the ramp-up in passenger vehicle revenues and growth in the domestic truck business. The company reaffirmed its FY2018e standalone revenue guidance of R70 bn. We expect standalone revenues of around R62 bn in FY2018e as we have not built in revenue opportunity from new transmission components in our estimate.

** US heavy truck industry volumes will decline over the next two years: The company’s guidance points to Europe and US heavy truck volumes declining by 6% y-o-y and 4% y-o-y in CY2016e and CY2017e respectively. US heavy truck volumes will likely decline by 16% in CY2016e and 9% y-o-y in CY2017e while in Europe, heavy truck volumes will increase by 5% y-o-y in CY2016e and 2% y-o-y in CY2017e. The company has received new orders from Paccar and DAF in the US to which it did not supply earlier; hence its market share in the US will likely go up.

** Revenues from the passenger vehicle segment to grow 3X over the next three years: Bharat Forge has received orders from global OEMs including GM, Audi, Daimler, Chrysler, to supply machined forging components for passenger vehicles. This will drive strong revenue growth over the next three years. We expect passenger vehicle revenues to increase to around R10 bn in FY2018e from ~R3 bn in FY2015. Passenger vehicle segment revenues will account for ~15% of revenues in FY2018e as compared to ~5% in FY2015 as per the company.

** Developing capabilities to start manufacturing transmission components: Over the past 18 months, the company has developed transmission components for passenger vehicle OEMs. This is a new opportunity for the company as it does not manufacture transmission components currently. Kalyani Technoforge, a part of the Kalyani Group, acquired the Indian operations of Bodycote, a leader in thermal processing services worldwide in September 2015. Bodycote offers specialised surface treatment processes such as carburising, plasma nitriding, carbonitriding which are used for products such as high precision gears required for transmission and aerospace applications. We estimate transmission components in passenger vehicle forging to be ~$2 bn industry globally. Bharat Forge can incrementally add $100m in revenues in the transmission space by gaining 5% market share in the transmission component space.

** Revenues from aerospace segment will ramp-up in FY2017-18: The company has received orders for aerospace components from four customers. This vertical could scale up to $100m in four to five years. We expect this vertical to be a key growth driver for the non-auto export business in the next two years. We estimate the aviation component business to become a $50m vertical for Bharat Forge by FY2018.
* Defence could be another opportunity over the next five years: Bharat Forge will supply components for artillery systems for the defence industry. It highlighted the likelihood of the defence ministry floating tenders for $5bn in orders for defence systems which need to be supplied over the next
10 years. We estimate forgings to form 25% of these orders. Hence, forging components in the defence industry could be an opportunity worth $1.25 bn over the next 10 years for Bharat Forge which implies an annual opportunity of $125m.
* The company is also developing forging components for sub-sea drilling equipment in which Bharat Forge is not present currently. This will help the company offset the decline in the oil & gas business.
* The company will also supply forging components to GE for locomotives it is developing for the railways. It will also look at servicing Indian Railways’ need for engine parts.
* Hindustan Aeronautics Limited (HAL) imports 85-90% of its requirements of aviation components. Bharat Forge is developing components for HAL to reduce its import content.
* The company expects to become debt free by FY2018 led by strong cash flow generation.

Hindustan Unilever (HUL) held a session recently regarding the company’s transition to the new Indian Accounting Standards (IND AS) and the preliminary impact on its financial statements. We also had a chance to interact with the management, the key takeaways of which are detailed below.

Competitive intensity never stabilises
* A large number of new entrants were noticed in the Soaps and Detergents (S&D) space last year after the input prices had declined. Though the company acknowledged this fact, it said that these small players (the term it uses to refer to them is ‘mushroom players’) keep coming and going and that it would not be losing too much sleep over the same.
* When asked about the newest player in the market, Patanjali, the management mentioned that the company has done well so far, but then it has launched a slew of products across categories and each new launch does see initial success. The test would be to sustain this growth consistently over a long period of time. We too feel that these are early days and the key challenge would be how it manages the breadth of the portfolio. Our historical analysis says that both breadth and depth are usually difficult to attain simultaneously.

HUL’s pricing strategy
* HUL’s pricing strategy is based on the prices of its input commodities as well as the behaviour of the competition around it. Essentially, in an ideal scenario, it would target a modest improvement in Ebitda margins driven by inflation-led pricing, stable volume growth and cost savings.
* Over the last quarter, the company took a price hike in half of its portfolio (Personal Products), while taking a price cut in the other half (Soaps & Detergents). This price cut was taken to ensure that it maintains relative competitiveness. These are the categories where the company is less sensitive to prices and prefers to choose volume growth due to innovation.
* Its recent price hikes in detergents were based on its brand positioning and strength, whereas its pricing strategy in its personal products portfolio is largely based on providing value to the consumer.

HUL’s focus areas
* The management believes that Central India is growing at a faster rate than the rest of the country, due to which the company has a heightened focus on the region with a full team based in Lucknow. It is looking at market development in this region.
* Apart from innovation, the company plans to use 20% of its funds for market development. Category wise, the company wants to explore dishwashing liquids and fabric conditioners in the home care space, conditioners in the hair care space, higher order benefits products in the skin care space and soups and premium ice cream in the food space.
* The company mentioned that there is a huge level of interest in natural products both in domestic and foreign markets, due to which there is a need for the company to strengthen this part of its portfolio. It is already working towards the resurrection of its brand ‘Ayush’ and more initiatives are under way.

On Q3FY16
* The company mentioned that the recent floods in Tamil Nadu have been a disruption to its business, as a chunk of its demand comes from this region. However, it has ensured that it makes efforts to help alleviate the suffering and is providing whatever assistance it can.
* The company also admitted to winter being delayed this year, but is hopeful of the season starting soon. However, the company believes that it is somewhat resilient to these seasonal trends given the width and depth of its portfolio.

Going forward

* The company mentioned that it was too early for it to comment on the recent updates on the proposed GST or the 7th Pay Commission recommendations. However, overall, it views the implementation of GST to be positive for the industry as it will become a level playing field with less tax evasion and increase in efficiencies. If the final implementation is beneficial to the company, it will look to achieve a modest improvement in margins and then focus on market development with the funds.
* Regarding rural growth, the company admits that the pace of growth has slowed to the rate of urban growth, but the market is still growing. It equates rural consumers to consumers in tier-III cities, with most needs being aspirational.
* Regarding its portfolio in oral care, the management is still not satisfied with the performance of Pepsodent and is still working on improving the same.

Nomura’s view

Overall, we were satisfied with the management’s continued focus on premiumisation and its strategy towards its personal products portfolio. We continue to wait to see the corrective actions that the company takes in its oral care portfolio. While the near-term challenges remain for most consumer companies with a slowdown in consumption, we remain positive on HUL given its superior product portfolio, expansive distribution reach and management bandwidth. Maintain Buy with a TP (target price) of Rs 1,020.

Sebi has ordered attachment of at least 17 immovable properties and movable assets to recover over Rs 5.76 crore dues from Sun Plant Business and its three directors in a case related to illegal fund raising.

Most of the properties are in West Bengal.

Recovery proceedings have been initiated against Sun Plant Business, its directors/promoters — Basant Kumar Sasmal, Amit Kumar Chowdhury and Mahesh Chandra Prasad — for their failure to pay Rs 5.76 crore along with the money collected from investors till June 3, 2015, Sebi’s Recovery Officer Manjesh S Roy said in an order.

On October 28, notices were issued to the defaulters demanding them to pay the dues. However, the defaulters failed to pay the dues and did not respond to the notices, the order said.

“The funds available in the bank accounts and the securities available in the demat accounts of the defaulters are not sufficient for recovery of the dues,” it added.

The regulator has prohibited the entities from taking any benefit by way of disposal, transfer, alienation or charge in respect of the properties. They have also been asked to provide full details of all their movable and immovable properties.

Sebi has powers to attach properties and bank accounts, among other things, of persons and entities that have failed to comply with directions involving payment of penalties and other dues.