Month: July 2008

SBI reported 15% growth in its net profits to Rs16.4 bn that came in line with consensus forecast. SBI’s operating P&L seems to cope well with rising rates.

Pre-provisioning profits (ex treasury, one-offs) are up 28% YoY; with a 45% growth in fee incomes, 300+bps on margins (though down), and controlled costs.This, with a little help from provision write-backs, offset a relatively large MTM charge.

SBI’s asset quality appears to have actually improved over the quarter. This would suggest a sharp turnaround from the previously weak quarter and is impressive. Management stays its high growth and market share gains course; appears to be working for now, though the environment suggests risks of this strategy are rising. SBI’s sustains aggressive growth (30%yoy), market share gain strategy. Growth also appears fairly broad-based – across segments and offshore.

SBI is expected to report FY09 EPS of Rs 109, slightly below FY08 levels but still impressive with the challenging global financial scenario.

Union Bank of India: Union Bank reported NII of Rs8.1b v/s our est. of Rs7.8b. Adjusted NII growth is 21% QoQ and 13% YoY. Interest expense declined QoQ in absolute amount despite 3% growth in deposits. While reported margins are stable QoQ at 2.63%; we believe adjusted margins have increased by >40bp QoQ to 2.7% in 1QFY09.

Both loans and deposits grew at a reasonable pace; more important, it has continued to improve the loan mix towards higher yielding loans (SME, retail) and deposit mix toward more CASA. While there is scope for further improvement, Union has shown consistent progress over the last 3-4 quarters.

Union’s asset quality was stable (ex-loan waiver impact), delinquencies contained and coverage remained high. UBI is set to increases its SME, retail and agri loan portfolios – segments that are currently under most pressure. Union Bank is expected to report FY09 EPS of Rs 28 to Rs 29.

India’s worst private bank, ICICI Bank has reported results below expectations. ICICI reported 6% yoy decline in net profits to Rs7.3 bn. Slower than expected loan growth and a sharper than expected decline in non-interest income [NII] were the key factors.

ICICI reported further deterioration in credit quality lead largely by uncollateralized lending. Gross and net NPA rose significantly on qoq and yoy basis. The increase in loan loss provisions is not commensurate with the level of increase in NPA.

Loan growth and NIM outlook would likely remain challenged by rising funding costs due to adverse asset-liability mismatch and dependence on wholesale deposits. All of the above would likely drive significant moderation in NII growth, in our view. Fee income growth will see further moderation due to anticipated slowdown in international banking business as well as retail banking fee income. Deterioration in credit quality would likely prompt the bank loan loss reserve ratio to rise going forward.

The difference between ICICI and HDFC or between K.V.Kamath and Deepak Parekh is evident – Kamath runs after top line without a second thought on quality of business while Parekh is behind bottomline with major focus on business quality. Parekh’s HDFC Bank has beaten Citi and SBI to be the second largest credit card issuer in India with an enitrely new business model of lending.

Ambuja Cements: Ambuja’s adj PAT came in at Rs3.4bn, 20% lower yoy on the back of a sharp rise in costs. Revenues grew 8% to Rs15.7bn on higher realizations. Margin pressures continued with EBITDA margins at 30% vs 38% last year and 31% in 1QCY08.

Volumes were almost flat at 4.4m tonnes. While domestic volumes grew 5%, exports fell 70% to 76,000 tonnes as a result of the export ban during the quarter. Realizations increased 9% yoy to Rs3,587/t (4% qoq). There was a significant jump in raw material, power and fuel and staff costs. Raw material costs increased 65% yoy. Power and fuel costs rose 35% yoy and 25% qoq to Rs730/t. With 30% of its coal requirements being met via imports.

According to consensus estimates, future looks bleak for Ambuja cements as it is likely to witness negative growth in EPS to Rs 7.2.

Grasim Industries: Grasim’s PAT came in at Rs5.1bn. EBITDA fell 5% yoy to Rs7.5bn and margins fell to 29% vs 32.5% last year. Cement & VSF margins declined yoy, while chemicals & sponge iron improved.

The cement division saw a decline in margins to 30% from 36% in 1QFY08, impacted by rising costs. Volumes grew marginally to 4m tonnes and realizations rose 9% yoy to Rs3,366/t (3% qoq) VSF’s margins fell to 31% from 36% in 1QFY08. Chemicals benefited from an increase in realizations (+30%) and volumes (+11%). Sponge Iron business EBITDA margins rose to 30% from 16% on the back of strong realizations (+62% yoy).

In-line with Ambuja Cements, Grasim is also likely to witness negative growth in EPS as it is likely to report an EPS of Rs 248 for FY09.

Tata Power Company reported Q1 FY09 profits of INR 1.9 bn which is flat y-o-y. However, adjusting for the incentive gains, tax provisions and forex gains, the earnings would be lower by ~ INR 120 mn. This fall can be attributed to lower other income which fell from INR 685 mn to 483 mn y-o-y. The revenues increased 34% y-o-y to INR 20.5 bn on account of higher fuel costs which are passed through to tariff. Fuel cost increased 45% to 12,894 for the quarter on y-o-y basis.

Tata Power’s subsidiary have done exceptionally well in Q1. NDPL PAT is up 20% YoY to Rs339mn. Powerlinks PAT has increased 12% YoY to Rs90mn. Power trading subsidiary has increased its revenue by 160% to Rs4.13bn and PAT by 96% to Rs14.1mn.

All capacity expansion projects are running on time. Specifically Mundra UMPP – Construction is on in full swing and work on boiler and turbine for Unit 1 and 2 has started; Maithon – Ordering of equipment is complete and civil work has started; 250MW Mumbai – CoD will be achieved by October 2008 and Haldia expansion is being commissioned now. Tata Power is expected to report an EPS of Rs 28.8 for FY09.

ABB Ltd:
ABB’s 2QCY08 PAT at Rs1.3bn up 21% YoY was expectations of Rs1.5bn primarily on account of slow sales growth of 15% YoY, led by execution of long cycle orders. Margins have held up well in an inflationary commodity price environment.

Order inflow growth was disappointing at 11% YoY, a clear sign of the difficult macro environment led by double-digit inflation, rising energy costs, volatile commodity prices and high interest rates.

Brokerages have cut earnings estimate for ABB by 8-10% and the company is now expected to report an EPS of Rs 28.77 for year ending Dec-2008.

Hindustan Unilever Q2 revenue growth accelerated to 21% Y/Y, driven by 21% growth in soaps and detergents and 19% in personal care. Recurring PAT rose c20% Y/Y, buoyed by sharp increase in other operational income (includes F/X gains and cost recoveries on R&D / offshore activities for Unilever). Revenue growth was primarily mix / price driven (overall FMCG volumes grew 8.3%).

Reported EBITDA margin declined 10bps to 15.1%; sans other operational income, margins declined 130bps Y/Y. Price hikes / mix improvements have mitigated cost pressures. Gross margins declined 43bps Y/Y, but encouragingly, increased 95bs Q/Q. A recurring trend across all FMCG results this quarter. Expenses rose c30%Y/Y and 15% increase in media rates.

Management brushed off concerns on the weak monsoons – indicated there is no slowdown as yet in rural demand. We believe, though, that there could be a lag impact. HUL is expected to report an EPS of Rs 11.7.

Marico has recorded 28.1% y-o-y revenue growth. Despite a price hike of around 10%, it was able to record 15% volume growth. Both the major brands, Parachute and Saffola, have reported healthy volume growth of 8% and 26%, respectively. Perfumed hair oils have also showed strong volume growth of 26%.

To offset raw material price inflation, the company has raised prices of most of its products. It is further planning to increase prices in 2QFY09. Rising revenues of perfumed hair oils are also expected to help maintain margins. Though it is confident of maintaining profit per unit, it expects margins to be under pressure.

Kaya Life revenues +62% yoy on a small base. At present, there are 69 outlets – management targets roll-out of 95 by end-FY10. Rising real estate rentals (an average 10-12% increase YoY) and high manpower costs are key concerns. Marico is expected to report an EPS of Rs 3 for FY09.