Indian Equity Research and Investment Strategy
On fear of more than 20% hike in Petrol prices [Rs 10 to Rs 16 / litre hike expected], Auto stocks were unloaded on the bourses mercilessly. Bajaj Auto is down 11%, Maruti Suzuki down 4%, Hero Honda down 2%, Tata Motors down 2.5% and TVS Motors down 3%.
Auto firms are already facing a facing a challenging time. On the one hand, sales has slowed down due to higher interest rates and on the other hand a surge in raw material prices has squeezed margins.
India’s Economic Growth story can be grouped into three phases. (1) Prolonged below-trend growth period – 1998 to 2003. (2) Acceleration to Overheating Zone – 2004 to 2007; (3) Reverting to sustainable growth rate. We believe the underlying sustainable growth rate currently is 7.5-8% – the level at which the risk of overheating is low. (more…)
Though the revenue growth was good in this quarter, operating margins for the company were hit due to higher investments in the newer businesses. Going forward the growth in the cigarette business of the company will be severely impacted due to the recent changes in the excise duty structure in the Union budget. However, there might be some near-term strength due to migration of consumers from unfiltered to the filtered segment which would result in the company reporting strong numbers in the next few quarters. (more…)
India’s leading telecom company Reliance Communications and MTN Group, a leading emerging market telecom operator, have agreed to enter into exclusive negotiations for a period of up to 45 days with respect to a potential combination of their businesses.
The negotiations are currently taking place and a further announcement will be made when appropriate. It is to be noted that there is no certainty either on completion, or the timing of the said proposal. In the meantime, shareholders are advised to exercise caution in their dealings in the companies securities dealings until a further announcement is made.
Federal’s 4Q08 profits (+4% yoy) were 30% below estimates on higher-than-expected bond portfolio charges and some rise in loan loss provisions. Core operations grew by 37%, strong on the back of a sharp increase in margins. We believe its new capital allows management to seek higher growth opportunities, both organic and inorganic, and will be a key valuation driver.
Federal’s margins increased to 376bps (+60bps qoq) and were a key beneficiary of its new capital. While we expect NIMs to moderate from current levels, management seemed confident of maintaining them at 340-350bps despite aggressive 25% loan growth target.
Retail loans (and provisions) showed higher stress for a second successive quarter. While asset quality is fairly comfortable (0.2% net NPLs), we believe its rising predilection for retail and SME warrants greater caution in the current environment.
We expect a Negative Growth in EPS and it is expected to report Rs 27.49 for Fy09 lower than Rs 28.66 reported in Fy08.
Thermax’s Q4FY08 results were in line with expectations. At the consolidated level, revenues grew ~19% Y-o-Y to ~INR 10 bn, driven by better performance of the company’s subsidiaries. Standalone revenues grew ~13% Y-o-Y to ~INR 9 bn.
During the quarter, the energy business segment grew ~12% Y-o-Y, whereas the environment business grew ~7% Y-o-Y. The energy segment contributed ~77% to revenues with the balance being contributed by the environment segment. Consolidated EBITDA margins were up ~100bps Y-o-Y to 13.4% driven by higher margins in the energy business segment. (more…)