2008 | Dalal Street

Capital Expenditure Overrun for Corporates

October 15, 20081 min read

Credit Suisse studied some 34 of the large CAPEX projects by various Indian companies and found that the projects are expected to be 19-months behind schedule with 30% cost esclation.

The time overrun is the highest for greenfield steel projects as they are stuck in land acquisition or mine allotment. Excluding them, the average delay is 18 months and cost overrun is 15%. These delays increase the investment getting shelved which in turn adversely affects new capex announcements. India’s project execution history in the last 12 years suggests that shelved investment was more than the completed investment and almost a sixth of the announced capex.

Reasons for delay of projects:

50% Land Acquisition
20% Input Shortage
13% Finance problems
11% Scope change
11% Implementation delays

Going forward expect financing problems to ground or snail’s-pace progress of most projects.

Breaking Corporate India Earnings News

Larsen & Toubro PAT Up 32.47%

October 15, 20081 min read

India’s leading EPC company Larsen and Toubro – L&T reported a rise of 32.47% in its PAT for Q2FY09 at Rs 461 crore as against Rs 348 in same quarter of last year.

Net sales stood at Rs 7682.20 crore versus Rs 5499.94 crore. The company’s E&C revenues stood at Rs 5,989.63 crore versus Rs 4,259.92 crore, Electrical & Electronics revenues stood at Rs 760.48 crore Vs Rs 671.73 crore.

Net Margins declined to 8.8% Vs 10.7% [YoY]. More details will be updated soon.

Breaking Corporate India Earnings News

Axis Bank – Rock Solid Performance

October 14, 20081 min read

Axis Bank reported Rs4.0bn of net profit for Q2FY09. The robust earnings has been driven by better than expected NII and other income. The NII has grown by 55.2%yoy, while other income grew by 81.4%yoy. The operating profit grew 88.9%yoy to Rs8.7bn led by robust growth in the operating income.

The liability profile remained strong with CASA maintained at 40% of the deposits. While the assets saw some slippages, as the GNPA increased by Rs700mn over Q1FY09, the provision cover remained strong at 52.6%. The provisions for the quarter were higher at Rs2.6bn driven by a sharp increase in NPA provisioning. The NPA provisioning increased 110.5% to Rs2.4bn in Q2FY09.

Axis Bank is expected to report full year EPS of Rs 41.2 for FY09.

Breaking Corporate India Earnings News

Jaiprakash Associates Warrants – Daredevil Promoters

October 13, 20081 min read

The Gaur family of Jaiprakash Associates can be best categorized as Daredevil promoters in Corporate India, since they went ahead and exercised the 10 million warrants out of the first tranche (of 50 million warrants) at Rs397 per share (more than 400% premium to current market price Rs 80). The promoters had already brought in Rs3.97 billion on 50 million warrants earlier this year, while the minimum they were required to bring in was Rs1.99 billion. The excess brought in has been adjusted against the exercise of the 10 million warrants resulting in the inflow into the company from the holding company of ~ Rs1.6 billion.

We believe that the warrant conversion is a statement by the promoters of their level of confidence in the company. The cash infusion also indicates that the promoters could, over the next 18 months, convert further warrants (40 million warrants at Rs397 convertible by July 2009 and 120 million warrants at Rs249 convertible by January 2010). Any inflow on this account should reduce market concerns on funding issues for Jaiprakash Associates.

Related Reading:
JP Associates Research Note

How Anil Ambani Looted Indian Public Money in Reliance Power IPO

Economy, Markets and Macro Views

FII Vs Mutual Funds Inflows – Sensex Movement

October 13, 20081 min read

Historically, FIIs have been the major movers and shakers of the BSE Sensex. In most cases, the domestic Mutual Funds have taken the opposite approach, SELL when FIIs Buy and vice-versa. However, due to smaller participation by domestic funds [1/3rd of FIIs], FIIs tend to be the momentum movers. The following data shows how FIIs and domestic mutual funds have invested in the past 6 months in Indian equities. (more…)

Mutual Funds Review

Best Time to Invest – Prashant Jain

October 13, 20083 min read

Prashant Jain, Sr. Fund Manager and CIO of HDFC Asset Mgmt company says that this is the best time to invest in the Indian market if you are looking at a 24+ months horizon. He lives by what he preaches and holds more than 98% of his assets in Equities. Excerpts from his Q&A:

On the Macro, U.S has a very high deficit going forward and its an over-leveraged economy which has lead to series of problems. The Indian GDP will continue to grow at atleast 6% [Worst Case] while that of US will be less than 2% or may even go negative. Once the trend is clear, the de-coupling of valuations will surface among over-sentimental analysts who have reacted in India.
The Good News to India is fall in global commodity prices, really especially the Crude Oil which helps bring down the Indian fiscal deficit. This will calm down the Inflation and will go back to 6% or 7%.
Earlier, SENSEX of 14,000 was seen as base case. however, at 11,000, this is the best time to invest as valuations extremely low.In a high growth economy like ours, these dips should be treated as a fantastic opportunity to invest.
How India will sail through the current Global Crisis? India’s export GDP is less than 10%. Investment of Indian entities exposed to sub-prime is very very low / nil in most cases. FDI as percentage to Indian GDP is once again very low and most of the Indian industry is dependent on internal savings. In short term, there is a liquidity crisis in the market which will be resolved. If India was facing genuine banking problems then interest rates would be rising, which is not the case. If interest rates were to touch 20% then you can expect BSE SENSEx forward P/E to touch 5 [Currently trading at 11]
FIIs have damaged the Indian market by sudden withdrawal. Historically, Indian institutions and investors BUY when they SELL.
ICICI Bank is held by all the HDFC Funds. Its Balance sheet is extremely strong and Management has indicated that there is no disruption of its normal banking activity. ICICI is the largest private insurance company and this subsidiary alone accounts for its Share Price quoted on the bourses on Friday. It is mere reputation knock that has taken place.
Real Estate should cool off very soon and Homes should become affordable in the next 12 months.
Investors should not panic and switch to Debt funds, should rather be patient and continue to BUY Equity funds with 12+ months horizon.

We do like to endorse Mr. Jain’s views and continue to recommend investing in Equities. However, don’t expect returns in short-term.

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