India Current Account gap likely to Widen
Thursday, December 31, 2009India's balance of payments (BOP) projections for 2QFY10E suggest that the current account deficit (CAD) is set to widen to over 3% of GDP from little over 2% in 1QFY10. Kotak expects trade gap to widen to US$29.8 bn in 2Q from US$26 bn in 1Q and CAD to widen to US$9.2 bn in 2Q from US$5.8 bn in 1Q.
Given the large discrepancy between RBI and DGCIS data on foreign trade, the trade gap could contain potential surprises. The discrepancy had widened sharply to nearly US$14 bn for 1QFY10 data, 2.4X of the current account gap itself, making reliable projections difficult.
Strong foreign investments likely to strengthen capital account - net FII inflow of over US$ 8 bn. Banking capital likely turning positive with US$3 bn inflows in 2Q versus outflow of US$3.4 bn in 1Q. Capital account had turned positive in 1QFY10 after US$9.6 bn of net outflows in the two preceding quarters.
Update:
The current account deficit increased significantly to US$12.6 bn (4.2% of GDP, annualized) in QE-Sept 09 compared with a deficit of US$5.9bn in QE-June 09. The market was expecting a current account deficit of US$5.6bn in QE-Sept 09. The current account deficit (excluding remittances) widened to 8.8% of GDP, annualized, in QE-Sept 09 compared with 6.4% of GDP in QE-Jun 09. On a trailing 4Q basis, current account deficit remained stable at 2.25% of GDP as of QE-Sept 09 from 2.3% of GDP as of QE-Jun 09.
Published by Webmaster @ 11:18 AM IST.
NIIT Corporate Training - NO Improvement Yet
Wednesday, December 30, 2009Corporate learning solutions continue to show diverging trends with discretionary spend items namely, custom content and print learning products remaining soft. With 50% revenue coming from these two segments, prospects for the segment remain muted.
Momentum in government school sign-up has ebbed after a strong start to the year. However March quarter is usually a strong quarter for school additions and NIIT hopes to get a fair share of the current school pipeline. NIIT is also exploring opportunities in public private partnerships in model schools and skills enhancement. NIIT has ceded leadership in private schools to competitors.
NIIT has changed its strategy and is transitioning itself from an IT training firm to a full services training company.
Published by Webmaster @ 12:46 PM IST.
Shriram Transport buys loans from GE Capital Group
Tuesday, December 29, 2009Shriram Transport Finance (STFC) has bought loan receivables from GE Capital Services India and GE Capital Financial Services for a consideration of about Rs11 bn. The book value of these loans is about Rs12 bn (loans backed by new CVs of about Rs9 bn and new construction equipment loans of about Rs3 bn), thereby implying a high yield of ~23-24% on the transaction for STFC (as against a coupon rate of 13-14% on new vehicle loans).
STFC will service the aforesaid loans as the originator plans to reduce its focus on CV finance business. STFC's strong franchisee network of about 480 branches, assets of Rs260 bn, across the country will likely enable it to service the loans. According to the management, all the loans are current (non-delinquent) and have a balance maturity of about two years.
The transaction will imply faster disbursements and higher loan growth at STFC. The loan pool (Rs11 bn) is approximately equal to one month of STFC’s disbursements. STFC will earn a yield of ~23-24% on the transaction though the operating and credit costs may be somewhat higher than loans originated by STFC.
Published by Webmaster @ 10:18 PM IST.
Colgate Palmolive - Where is the Suraksha Chakra Heading ?
Saturday, December 26, 2009Colgate continues to witness steady toothpaste volume growth of 12-13%. The company has been witnessing market share improvement in both its flagship toothpaste brands,
Colgate Dental Cream (CDC) and Cibaca.
Management is effectively guiding for 15-16% adspend to sales ratio in H2F2010. Since Colgate's adspend to sales ratio in H2F2009 was 13%, it is likely to witness an increase of around 180 to 380 bps rise in adspend to sales ratio in H2F2010.
Management notes that HUL has increased its adspend in the last couple of months and has taken some price correction by increasing the size of SKU at the same price points. Although, there are no market share gains by Dabur.
Although the company is open to increase its presence by introducing new product offerings from its parent's basket, currently there is no new category that is being test marketed and the focus is solely on Oral Care.
Colgate is witnessing input cost inflation of 5-6% on yoy basis and this is on account of the increase in Sorbitol and packaging costs. The company has a forward cover on Sorbitol for the next two quarters, and hence there is unlikely to be any significant impact on gross margins.
Published by Webmaster @ 10:06 AM IST.
US FDA Targets Ranbaxy / Daiichi Sankyo's American Facilities
Thursday, December 24, 2009Woes for Ranbaxy continued as the FDA has issued a warning letter to Ranbaxy's liquid manufacturing plant at Gloversville (NY), citing cGMP violations (inspected in Jul/Aug 2009). It is one of the three plants in Ohm Labs; the others did not have any material deviations. Ranbaxy has engaged a consulting firm to address the issues.
Ranbaxy has indicated the plant accounts for under 10% of US (c.2%-3% of total) sales. Sales would continue and while approvals are likely to be on hold, there are not too many major filings pending approval from this plant. We see a worst case impact at c.2%-3% and c.5% of core sales and EPS respectively, and believe the FTF pipeline appears secure.
While this development, by itself, does not appear to have a material impact on financials or the key drivers, it is likely to affect recently rising confidence levels w.r.t. the stock among investors, given its past issues with the FDA [Whether targeted because American Pharma giant failed to outbid Japanese major, Daiichi Sankyo]
However, Daiichi Sankyo is committed to its plans and long term investors need not worry.
Published by Webmaster @ 9:09 AM IST.
RIL KG gas find - Implications
Wednesday, December 23, 2009Reliance Industries (RIL) yesterday announced its third consecutive gas discovery (in as many wells) in its deepwater block D-3 in the KG Basin (KG-DWN-2003/1), where it holds a 90% stake (UK-based Hardy Oil owns the remaining 10%).
Analysts await the regulator's [already under Oil Minister, who is under Reliance] decision on commerciality of the discovery, we believe this discovery reiterates the exploration upside potential of RIL from eastern India offshore. RIL owns 10 blocks in the prolific KG Basin and another 8 blocks in the adjoining prospective Mahanadi basin. No EPS / Estimates have changed on the back of this news yet.
As we move into 201, more news flow from RIL's other exploration blocks, as two more rigs add to RIL's current count of three in India (one each in D-6, D-3 and Cauvery Basin).
Published by Webmaster @ 5:40 PM IST.
Godrej Consumer - Steady Growth but Outlook Not Clear
Tuesday, December 22, 2009Godrej Consumer is witnessing steady growth across its key soaps and hair color segments. However, compared to Q2F2010, GCPL is likely witnessing slower revenue growth. Importantly, management is less clear about the industry outlook due to the following three factors:
- Significant pressure on consumer wallet on accountof highest ever food inflation
- Irrational and rising intensity in competitive pressures in soaps categorydriven by ITC and
- Anniversary of price hikes, thus negligible improvement in sales realizations on YoYbasis.
GCPL appears to be quite keen to expand its presence in the African and East Asian Markets inorganically. Due to the high entry barriers in a few of these markets, the company is primarily looking at an entry strategy through an acquisition.
Published by Webmaster @ 11:12 AM IST.
State of IT Outsourcing Market
Friday, December 18, 2009Indian IT / Outsourcing companies, some of which have transformed themselves from Pure-Play IT Offshore Development into Business Consulting and IT Management companies. Across the board they seems to be cautious of pipeline conversion to bookings and then further the bookings conversion into revenues, as clients remained more focused on getting it right than getting it started.
The telecom outsourcing market (Infosys 17%, TCS 20% and Wipro 27%) remains weak across developed markets.
Expect only modest earnings upside for Indian vendors from our current estimates. We prefer companies better geared to the recovery - Infosys, Wipto, TCS, HCL, Tech Mahindra. Predictability and timing of improvement remains challenging.
UBS's Views on the IT Sector at Current State of Market is as follows,
TCS remains the only stock under our sector coverage with a Buy rating due to its higher level of forward-looking investments, strengths in the financial services vertical and emerging markets. We have Neutral ratings on Infosys Technologies and HCL Technologies and a Sell rating on Wipro.
Published by Webmaster @ 2:05 PM IST.
Risks to Complete Recovery of Economy
Thursday, December 17, 2009India's biggest macro risk is a second successive drought that would push the economy off the global recovery track. This would likely pull FY11 growth down to 5.5% levels from our normal-rains base case 7.7%.The direct hit on the harvest would be reinforced by shrinkage in rural demand as incomes fall again. Besides, the RBI would likely be forced to tighten to anchor 5% inflation expectations as depleting buffer food stocks would fire up agflation. In the double drought of 1987-88, India had also slipped behind the global recovery of the time.
Crude OIL @ USD 120 / barrel - A rising oil import bill and portfolio outflows to oil producers would likely push India's import cover (ie, months of imports fundable by fx reserves) to single digit for the first time in 10 years. This, in turn, would limit the RBI’s ability to buy oil bonds from oil refiners and neutralize the monetary impact by releasing fx to fund higher oil imports.
Double Dip May Hurt - India is at a relative advantage clocking 6% growth in FY11-12 if the rains are normal. That said, we do not expect, let us be clear, a double dip. Even if a "W" does materialize, the growth impact of falling external demand should be restricted to 150bp on the demand side as exports are but 18% of GDP. India is dependent on foreign capital for project finance of 3-4% of GDP and this could hit the growth to minor extent.
Published by Webmaster @ 1:51 PM IST.
Airlines - Take Off Strong in November
Wednesday, December 16, 2009Indian airline passenger traffic recorded a strong 29.8% YoY growth during the month of November. This concurs with our view of strong traffic growth for the industry for FY10 and FY11. Despite slightly lower market share MoM, Jet Airways (including subsidiary JetLite) has retained its leadership in terms of market share.
Expect industry-wide yields to improve due to a restricted increase in supply and improving traffic. Yields have already seen an industry wide increase of +20% on the back of fare hikes done by the carriers. Better seat factors should also enable sector to improve margins and return to profitability.
The current softening of crude prices would enable the industry including Jet Airways and SpiceJet to post strong numbers for the month of December.
Published by Webmaster @ 11:14 AM IST.
Implications of Moody's Revised Ratings on Outlook for India
International rating Agency, Moody's has revised the rating for India's Economic Outlook.
- The local currency sovereign bond rating at Ba2, Moody's has revised the outlook from stable to positive.
- Foreign Currency Bank deposits ratings have been raised from Ba2 to Ba1
changes are a reflection of (a) India's strong growth prospects (b) its robust external position and (c) its demonstrated ability to withstand the global financial crisis.
Here is the complete Guide to Moody's and S&P / Fitch Rating
Investment Grade:
Moody's: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3
S&P/Fitch: AAA, AA+, AA, A+, A, BBB+, BBB, BBB
Non-Investment Grade:
Moody's: Ba1, Ba2, Ba3, B1, B2, B3
S&P/Fitch: BB+, BB, BB-, B+, B, B
As Indian citizens, it hardly matters to us about these ratings since we have stronger faith in the Discplined and Ethical Central Bank, the RBI which has saved India from crisis.
One can always argue that these ratings decide the FII flow, but the Indian Insurance / Pension scheme have become a driving force in the market, can you believe it ?
Published by Webmaster @ 9:00 AM IST.
Advance Tax 3rd Q 2009-2010
Tuesday, December 15, 2009Here is Breaking News about Advance tax by various Indian Corporates for Q3 FY 2009-10. Those paying lesser advance tax have been highlighted in Red.
Tata Motors pays Rs 100 crore versus Nil (YoY)
M&M pays Rs 195 crore versus Rs 4.5 crore (YoY)
Tata Steel pays Rs 650 crore versus Rs 260 crore (YoY)
Hindalco pays Rs 100 crore versus Rs 40 crore (YoY)
HUL pays Rs 200 crore versus Rs 155 crore: Sources
L&T pays Rs 270 crore versus Rs 312 crore (YoY)
Grasim Q3 advance tax at Rs 150 crore versus Rs 75 crore: Sources
UltraTech pays Rs 90 crore versus Rs 65 crore (YoY)
HDFC Q3 advance tax at Rs 320 crore versus Rs 280 crore: Sources
Dena Bank pays Rs 65 crore versus Rs 60 crore (YoY)
IndusInd Bank pays Rs 65 crore versus Rs 22 crore (YoY)
Bank Of Baroda pays Rs 330 crore versus Rs 220 crore (YoY)
Bank Of India pays Rs 102 crore versus Rs 370 crore (YoY)
Tata Power pays Rs 81 crore versus Rs 29 crore (YoY)
Tata Chem pays Rs 40 crore versus Rs 83 crore (YoY)
Indian Oil Q3 advance tax nil versus Rs 1,100 crore (QoQ)
BPCL Q3 advance tax at nil
Central Bank pays Rs 138 crore versus Rs 163 crore (YoY)
Bajaj Auto pays Rs 320 crore versus Rs 105 crore
Published by Webmaster @ 12:09 PM IST.
IP Growth Declines MoM but Remains Strong YoY
Saturday, December 12, 2009Industrial production (IP) growth declined by 1% MoM sequentially on a seasonally adjusted basis, but remained strong at 10.3%YoY in October: This compares with growth of 9.6%YoY (revised upwards from 9.1% earlier) in September and 11.0%YoY in August 2009. The sequential retracement in IP growth in the month of October was largely in line with expectations on account of seasonal factors like the Diwali festival holidays. However, the growth in October was below market expectations (as per
Bloomberg survey) of 12%YoY.
Growth in the electricity segment decelerated to 4.7%YoY in October, compared with 7.9%YoY registered in the previous month. Growth in the mining and manufacturing segments accelerated to 8.2%YoY and 11.1%YoY, respectively. Growth in consumer and intermediate goods was up, while basic and capital goods growth was moderate.
The overall trend in IP growth should remain strong in the coming months. The early indicators for November are showing an accelerating trend - viz automobile sales.
Published by Webmaster @ 4:59 AM IST.
Infosys iRace + New Model Unveiled at Analyst Meet
Tuesday, December 08, 2009We attended the Infosys Technologies Analyst meet and here are the key takeaways. One-third of the total revenues from non-linear streams in the long term. Power focus on S&M team expansion / investments and re-alignment of human asset base (called iRACE) for higher technical / management / vertical depth.
Infosys envisages a revenue mix of 1:1:1 from business transformation, strategic global sourcing and new engagement models.
Organisation structure strengthened via increased thrust on technical / managerial skills development, higher investments in S&M and raising performance benchmark. S&M team strengthened via 30% increase in sales force from 700 to 900/ 1000 by year end.
HRD - Investments in building technology depth (2) creation of 25 career streams (3) creation of career paths and lattices (4) increasing span of control (Software Engineers: Project Analysts: Project Managers now increased to 1:3:9 vs 1:2:4.5 earlier) and (5) enhancing bill ability of its human resource asset.
India business update: Presently revenue from India contributes 1.2% to total revenue (Q2FY10). India biz has a 90 people sales team and 25 clients across verticals. Government is the biggest IT spender in the domestic IT market.
New verticals for higher growth include Lifesciences & Healthcare, Government.
Published by Webmaster @ 5:32 PM IST.
Reliance Power - Court Order will Delay Dadri Project
Sunday, December 06, 2009The Allahabad high court ruled that procedures followed by Uttar Pradesh state government to acquire land of 2,500 acres for Reliance Power (RPWR) Dadri project were improper. The land was acquired for setting up of 7.4GW power project at Dadri based on gas from Reliance Industries.
While the dispute relating to gas supplies to RPWR's gas-based plants from RIL-operated KG D-6 block is still under judgment, we believe the uncertainty on land for Dadri project will further delay it. We now estimate the Dadri project will come on stream in FY13E vs. FY12E before, assuming availability of gas supplies from KG D-6 block over medium term.
Delay in Dadri project commissioning would further strain future cash flows of RPWR, as 1) we forecast no meaningful cash inflow from projects under construction; for instance, we do not expect Sasan to generate positive cash flows till FY14E.
SOTP valuation is Rs 119 for Reliance Power for FY12. Expensive!!!!
Published by Webmaster @ 9:27 AM IST.
Brokerages Volumes not getting any better
Thursday, December 03, 2009Cash equity volumes are showing no signs of improvement since the bump up in May 2009, driven by the General Election outcome and a global equity rally. In fact, at Rs4,264bn in November 2009, the monthly cash volumes are now back to pre-May levels.
The decline in the overall cash volumes is accompanied by similar trends in Institutional volumes. DII and FII volumes declined by 11.4% MoM and 25.2% MoM, respectively in November 2009.
DII weak volume trend is almost surely an outcome of weak AUM growth of the domestic mutual fund industry and low trading intensity of Insurance players (whose AUMs are still growing). The equity AUMs of the mutual fund industry have grown by 47.3% YTD October end, versus 35.6% rise in the Nifty over the same period, indicating only modest inflows.
We have been positive on the Indian Brokerage sector based on an improvement in all the key revenue segments for the sector. Clearly, for stocks in this sector to now outperform the broader market, improvement in trading activity and corporate fund raising is going to be crucial and will be monitored closely. Edelweiss Capital remains our top pick in this space.
Published by Webmaster @ 11:18 AM IST.
New NPA Provisioning Norms - Welcome
Wednesday, December 02, 2009The RBI has instructed banks to provide for 70% of non-performing assets (NPAs) by Sep 2010. More importantly, banks are allowed to include technically written-off loans to calculate the provision coverage ratio (PCR).
Technically written-off accounts are NPAs that are outstanding in the books of banks' branches, but have been written-off, fully or partially, at the Head Office level. Including these in the gross NPA computation has helped improve banks' PCR.
Inclusion of technically written-off accounts in the calculation of the PCR is a positive development for large-cap banks like SBI, ICICI and Canara. While SBI's PCR stands to improve from 43% to 58%, ICICI's and Canara's are likely to rise to 65% (51%) and 74% (28%) respectively.
Published by Webmaster @ 2:03 PM IST.
