Inflation – Rising Cost of Doing Business in India

World’s leading banker, Citigroup has some harsh words for India in its report. Citi said,

It has become expensive to live in India but probably even more expensive to do business in India. A look at the rising costs of setting up business over the last 3 years – asset, capital and services based – suggests “business inflation” could be as high as 10-35% p.a., well ahead of 7-8% headline inflation. This could be meaningful, given India’s growth is primarily investment led.

The report further adds that Business inflation is raising break-evens and capital intensity, lowering returns.

Citi estimates, ballpark by nature, suggest that in cases, break-even periods are up 20-80% over the last 3 years, capital intensity is up 10-60% and distribution requires 2x sales to generate the same returns. A part of this pressure is global, and this does not apply to all but raises questions on the direction of returns.

Citi raises 4 questions 1. Growth rates – where will they settle? 2. Government/RBI policy stance, in the face of inflation and election [frequent elections, a dampener] . 3. Earnings momentum – slowing, but faltering? 4. Retail investor – will he come back and when ?

Bartronics India – Going Strong

Bartronics India (BIL) reported an outstanding 495% yoy growth in its 4QFY2008 Top-line. This was a result of impressive growth in its Automatic Identification and Data Capture (AIDC) Solutions business, specifically in the RFID Solutions business, as also contribution from the Smart Cards segment. BIL had acquired a US company towards early 2008, which contributed Rs 33cr to Topline.

During 4QFY2008, BIL reported a 116bp yoy contraction in EBITDA Margins owing to higher operating costs viz., Raw Material, Staff Costs and Other Expenses. These expenses rose, as a % of Sales, by 675bp yoy, 19bp yoy and 179bp yoy respectively, in 4QFY2008. BIL’s total outstanding order book position at the end of FY2008 stood at a significant Rs345cr and constituted 128% of total FY2008 Revenues.

Kansai Nerolac Paints Outperformer – ICICI

Kansai Nerolac Paints’ Q4FY08 results were subdued due to lower demand for industrial paints [Automobiles]. Top-line grew 8.1% y-o-y to Rs 308.4 crore from Rs 285.2 crore. Bottom-line grew by a meagre 2.8% to Rs 24 crore from Rs 23.3 crore. Increase in realizations (2% in decorative segment) boosted EBITDA margin to 13.1% from 12.7% in Q4FY07. During the quarter, the company’s decorative business posted positive results as the housing segment continued to do well. (more…)

Buy Techno Electric – SBI Caps

Techno Electric company has posted its Q4FY08 performance, which saw an improvement in all its divisions. The stock is in for a re-rating on the back of continued strong order inflow, huge order backlog and timely execution capability.

Techno Electric order backlog stood at Rs. 8,500 mn as on FY08. The total backlog is 2x of FY08 revenues. The company has bid for more than Rs. 2,500 mn till date. (more…)

Todays Writing Products Limited

Todays Writing Products Limited’s (TWPL’s) Q4FY08 results were in line with our expectations. The company is currently consolidating its business, both in the writing products segment and in its subsidiaries namely, Todays Stationery Mart Limited.

  • Net sales grew by 73% to Rs717.5mn
  • EBIDTA increased by 67% to Rs72.7mn
  • PAT (before extra-ordinary items) rose by 148% to Rs28.8mn
  • EBIDTA margins rose by 220 bps to 12.6%
  • PAT margins increased by 120 bps to 4%

During Q4FY08, TWPL registered a 14% QoQ increase in its topline, driven by strong export growth and stable domestic demand.

Nelcast Ltd – Good Growth

Nelcast Ltd reported 37.2% YoY top line growth to Rs 1139.2 mn for quarter ended March 2008 compared to corresponding quarter last year. For FY08, Net sales reported growth of 16.6% YoY to Rs. 3564.5 mn as compared to Rs 3057.6 mn in corresponding period last year. The company reported 10.1% YoY growth in EBDITA in Q4FY08 to Rs 127.1 mn compared to corresponding quarter last year. For FY08, EBITDA witnessed growth of 18% YoY. Total expenditure witnessed increase of 43.8% YoY during the fourth quarter mainly due to increase in raw material costs and other expenses. The company reported decline in its EBDITA margins by 410 basis points to 9.7% in Q4FY08 compared to 13.8% in Q4FY07.However for full year FY08, It maintained its EBDITA margins at around 13%.

Nelcast is set to be major beneficiary of accelerating trend of sourcing of auto components due to its high skilled labors, lower wage costs and proven track record.