CP | Dalal Street

IT Services Revenue decline more probable now – Morgan

March 12, 20091 min read

Investors have so far focused on risk to pricing, but a reset of volumes could surprise on the downside. Morgan Stanley says cases of banks resetting overall portfolio spending on offshore vendors, leading to significant cuts in offshore spending. Resetting business volumes with existing clients is the biggest concern for IT vendors. Lower budgets and rationalization of portfolios is on the cards of major FIs.

Although companies have been able to maintain pricing for contracts so far, rates could come under severe pressure if overall volumes were to contract. (more…)

Equity Research

Sesa Goa – Cheap on valuations

March 12, 20092 min read

Sesa Goa is India’s largest iron ore producer exporter with an expected annual output of 16 mn tons in FY2009 and would go up to 25 mn tons by FY2012 following recent expansion initiatives. According to Sesa, with its average cost of production of US$24/ton, it is in the first quartile of the global cost curve and the cost of production at its Goa operations at less than US$15/ton are the lowest in the world.

Sesa Goa has operations in Goa, Karnataka, and Orissa. Logistics costs greatly impact performance across geographies. (more…)

Breaking Corporate India Earnings News

EPS Estimates of PSU Banks – Goldman

March 12, 20091 min read

Goldman Sachs has revised the EPS estimates of PSU Banks – SBI, PNB and BOB. The 3Q2008 results of these banks reflected strong demand for new loans, significant improvement in their pricing power for loans leading to higher NIM and significant gains on their bond trading portfolios due to rise in bond prices.

SBI:
SBI is expected to report an EPS of Rs 132.80 and Rs 147.35 for FY09 and FY10 respectively.

PNB:
Punjab National Bank is expected to report an EPS of Rs 51 and Rs 68 for FY09 and FY10 respectively.

BOB:
Bank of Baroda is expected to report an EPS of Rs 32 and Rs 36.02 for FY09 and FY10 respectively.

Economy, Markets and Macro Views

Diminishing capital flow Implications on Economy

March 11, 20091 min read

The spectacular rise in capital flows from FY05 (fiscal year ending March 2005) had significantly reinforced India’s growth and asset price cycles. The termination of this episode of strong capital flows, a fall-out of the current global credit crisis, is unleashing a significantly more challenging macro environment characterised by lower growth, structural fiscal deterioration and constrained liquidity.

India’s medium term potential growth rate should shift to a lower trajectory of 6.5% from the lofty 9% averaged during FY05-09. (more…)

Equity Research

Bosch Ltd – Affected by Auto Slowdown

March 10, 20092 min read

The slump in automobile sales in Q408 adversely affected Bosch’s performance and accordingly sales declined by 15% y-o-y to INR10.4bn. A higher contribution from the non-automotive business affected EBITDA margins which declined sequentially by 200bps to 16.8%.PAT declined by 24% y-o-y to INR942mn.

Penetration of diesel cars in India (~20% in India vs. ~53% in Western Europe) is set to increase as OEMs plan to launch CRDi-powered diesel cars. Also, diesel is ~40% cheaper than petrol in India. Already we have seen that diesel powered cars are (more…)

Breaking Corporate India Earnings News

External Commercial Borrowings making a come back

March 9, 20091 min read

Latest data indicate that ECBs have been holding up reasonably well. Flows in Jan 09 were up US$1.3bn, only marginally lower than the US$1.9bn seen in Jan 08. On a cumulative basis, however, ECB flows have slowed, to US$15.6bn in Apr-Jan FY09 from US$20.1bn in the same period last year.

However, the key is the sustainability of flows. This would depend on whether the current inflows are due to (i) recent policy changes or (ii) prior commitments. Inflows in Jan were largely due to borrowings by Vodafone Essar and Air India.

While companies are still accessing ECBs, borrowing via the foreign currency convertible bonds (FCCBs) route which had dwindled in the first few months has now ceased. In fact, with the bulk of the FCCBs turning out of the money (i.e., stock prices are trading at a discount to the conversion prices), the RBI introduced measures last year allowing companies to buy back FCCBs from rupee resources or by raising ECBs. However, due to limited funding, companies have found it difficult to buy back FCCBs.

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