Business Top 5: Corporate governance issue continues to drag Sun Pharma stocks down; Wipro announces 1:3 bonus

Wipro’s board announced a bonus of 1:3 alongwith an interim dividend of Re 1/share.  |  Photo Credit: Thinkstock

1. Sun Pharma – Corporate governance concerns continues to ail stock

Stock down 13.7 per cent in the last 2 days over fresh whistle-blower complaint losing almost Rs 14,000 cr in m-cap going to its lowest point in almost six years. A 172-page complaint sent to the Securities and Exchange Board of India alleges one of drugmaker’s distributors, which has been declared as a related party, did Rs 5800cr rupees worth of transactions with a realty firm that is controlled by a director on Sun Pharma’s board, according to a Moneylife report. Sun Pharma in clarification to exchanges said that company has not received the alleged “172‐page whistle blower complaint” and therefore we are not privy to the contents of the document being referred in the said media article. Hence, we cannot comment on the points being raised in the said media article.In December Sun Pharma  MD Dilip Shanghvi in an hour-long chat with investors had maintained that the company follows highest standards of corporate governance.

ANALYST REACTION ON SUN PHARMA

Ranvir Singh of Systematix Shares : “A few people are very concerned on the corporate governance issue, but I think the management has already clarified most of the things… and one of them was their sales to Aditya Medisales, there also they had clarified. My understanding is that because up to 2017, Aditya Medisales was not required to be reported as a related party’

2. Budget & Markets – Correlation

Historically, the market has approached the budget with long positions. Four out of last five years, the BSE Sensex has gained one month prior to the budget with 2016 being an exception

Sensex Return Pre Budget

Budget Date      Prior Month

1-Feb-18           5.6

1-Feb-17           3.9

29-Feb-16          -7.5

28-Feb-15          0.6

28-Feb-14          3

The post budget analysis shows no clear trend for the return delivered one month post the budget. However, if the return one month after the budget is negative then the three months afterwards also ends negative. Whenever, the one month return has been positive then the return after three months has been even more.

Sensex Return Post Budget

Budget Date      Next 1 Month     Next 3 Months

1-Feb-18           -4.8                   -2.1

1-Feb-17           3.9                    6.3

29-Feb-16          10.2                  15.9

28-Feb-15          -4.8                   -5.2

28-Feb-14          6                      14.7

3. Wipro – Q3 Review

Wipro’s Q3 results are a mixed bag but with a positive overtone. $ Revenue grew 1.8 per cent QoQ to $2,046 mn which was near the mid-point of management’s guided band while operational and bottomline performance was a solid beat. Operating profits after adjusting for the carved out Indian PSU & govt business grew over 35 per cent sequentially to Rs 2,909 cr which translates into EBIT margin of 19.8 per cent, an expansion of 480 bps from last quarter but the improvement looks exaggerated due to one-off hits in previous quarter. Strategic Business Unit-wise Banking & Financial Services led growth with a solid 5.3 per cent increase and Energy & Utilities was 2nd best growth contributor with an uptick of 4.6 per cent in constant currency terms QoQ. Geographically, key markets like Americas grew 3.7 per cent, Europe 2.7 per cent. Digital business which now accounts for a third of overall revenue grew 6.4 per cent QoQ. The board announced a bonus of 1:3 alongwith an interim dividend of Re 1/share. All these make for a positive review except the Q4 IT Services revenue guidance which is subdued with a flattish to best 2 per cent growth outlook, especially when closing quarter of the fiscal is usually a good one for the company.

4. Kajaria Ceramics – Steady Q3

Kajaria Ceramics posted a robust Q3 & delivered a volume growth of 16 per cent. Company revenues grew by 15 per cent while profit growth was up 24 per cent on a YoY basis.Margins contracted by 60bps on year on year basis. During the quarter sanitary-ware segment attained optimum capacity utilization. Management spoke to ET NOW and was reiterated their earlier growth rate of 14-16 per cent. They believe the decline in crude oil price along with Government sops for the MSME sector will aid in growth going forward.

5. Reliance Industries – Street Cheers robust profitability

Reliance Industries was the top Nifty gainer, ending the day with gains of over 4 per cent. It ended the week higher by 8 per cent. Brokerages were upbeat post the robust profitability showed by the company in various segments.

BROKERAGE VERDICT: RIL Q3

Name                Call                   Target

JP Morgan         Hold                  1100

Macquarie         O/perform          1315

Credit Suisse     O/perform          1320

Motilal               Buy                  1424

IDFC Sec          O/perform          1310

HSBC               Buy                  1402