Category: Breaking Corporate India Earnings News

FMCG sales grew 5.9% YoY in October 2009 (the slowest growth since Feb-07) compared to 14.8% growth in F1H10. The TOP10 players witnessed deceleration in sales growth, with sales in October growing 1.7% vs. 9.9% growth in F1H10.

Hindustan Unilever witnessed a deceleration in sales across its major categories (viz. laundry bars, toothpastes, soaps, shampoos, tea, laundry powder, and skincare), leading to de-growth of 0.4% (vs. 8.1% in F1H10) for the first time since February 2007.

Dabur witnessed a deceleration in revenue growth, from 9.6% in F1H10 to 3.9% in October 2009.

Colgate’s sales growth in toothpaste and toothpowder slowed down, leading to overall growth of 5.9% vs. 10.5% growth in F1H10.

Nestle saw sales growth slowing from 15.8% in F1H10 to 6.7% in October 209, with noodles, milk powder, chocolates, and coffee sales growth decelerating in October 2009.

P&G’s laundry powder, shampoos, and feminine hygiene sales led to a slowdown in sales growth from 16.4% in F1H10 to 7.6% growth in October.

Britannia has witnessed de-growth since Jul-09, with the pace accelerating in October 2009 to 4.5%

Indian are ~40% of UAE’s population; forming ~10-12% of India’s inward remittances. 31% of the 5.3m Indians in the Gulf are in UAE.

UAE forms ~8% of India’s non-oil exports and 3.0-3.5% of India’s nonoil imports. DP World operates five container terminals in India, accounting for 40% of India’s container traffic.

L&T has two joint ventures in the UAE, others with business interests include Gammon India. EMMAR world’s leading realty player originationg from Dubai has a JV with MGF in India.

Nagarjuna has invested Rs700m in a Dubai real estate project. Punj has 15% of its order backlog of Rs268bn from the Middle East [Dubai is negligible though]

Bank of Baroda has 10 branches in the Gulf (largest), but mostly small banking exposure, mainly for remittances. Bank lending to UAE funded projects in India unknown.

BHEL won its single largest order ever, which also happens be its 1st super-critical order from Pvt. IPP, worth Rs56bn for 3x660MW from JP Power for its Bara TPS in UP.

BHEL won its largest order, which also happens be its 1st super-critical (SC) order from Pvt. IPP worth Rs56bn for 3x660MW from JP Power. Apart from 4.5% add to backlog and improving visibility, key implications are a) BHEL gets closer to its indigenisation thresh-hold with order of 7 SC sets of 8-10 SC sets required, b) BHEL could also win an additional Rs35bn order in FY11E for phase II of this project being a supplier to the first phase and c) realization healthy @ Rs28mn / MW vs sub-critical @ Rs20mn / MW.

BHEL’s total order Backlog is +21% at Rs1.26tn, 1H Inflow weak to correct in 2H.

We expect the next 2 years to be shortage years, sugarcane farmers are anyways expected to be paid a price much higher than the support prices. So FRP [fair and remunerative price] would not have any impact on our near term earnings.

We build in a sugarcane price of Rs2,100/tonne (FRP=Rs1,300/t; SAP=Rs1,650/t) for the U.P. players, initial media reports suggest that the companies have started the season with a price of Rs1,800/quintal. In any case, given the supply tightness we believe that the mills would be able to pass on higher costs top consumers.

Near Term Weakness on Stocks
We expect continued negative news flow related to farmers agitation against FRP. This is likely to have a negative impact on stocks of the U.P. players Bajaj Hindustan and Balrampur Chinni. Seasonally, sugar prices soften due to higher supplies as sugarcane crushing picks up. This may also lead to weakness in sugar stocks. Domestic sugar prices are trading at close to import parity and 8-10% higher than our SY10-11 estimates, which poses significant upside risks to forecasts.

RIL has made initial cash offer for LYO’s assets, to be considered as an alternative plan under Chapter 11 proceedings which the latter is undergoing. The final offer would be made after due diligence, which then will be decided upon by the creditors vs. the initial reorg plan and other equity financing proposals.

LYO has global leadership position in polyolefins and propylene oxide and is a leading licensor of polyolefin technology and catalysts. The company also has refining capacity of 420 kbpd (~21 MMTPA), with Houston refinery having high complexity (~12)
and generated EBITDA/bbl of US$15/bbl in 1H08

While petchem assets provide size and may be some cost-cutting benefits in the long-term, the US refinery may not provide significant inroads into US apart from operational synergies (crude sourcing, etc.)

Kotak Analyst in a Research Note said,

The impact on RIL’s stock would depend on the valuation of the transaction. We do not see any real synergies between RIL’s current India-centric operations and LB’s operations in Europe and US. Also, the process may be fairly long-drawn and complicated given regulatory and legal issues.

However, RIL is headed by Mukesh Ambani and he definitely has the vision to create Wealth in Long Term.

The Hansen stake sale at GBp95/ share fetches suboptimal value even though it may have helped bypass the stalemate on strategic sale process. We highlight a sharp decline in Hansen’s share price since the announcement of a secondary placement by Suzlon.

The transaction implies that Suzlon did not see the strategic sale of Hansen materializing in the near future and strategic buyers were not interested at the expected price. A sharp decline in Hansen to GBp100 from GBp140 appears to reflect the market’s wariness at the lack of interest from strategic buyers at the expected price, hence the much lower valuation.

The value of the placing is about GBP224 mn (about Rs17 bn). This is about 14% of the current net debt of Suzlon’s wind business. We believe the Hansen sale would not provide any valuation upside as we were attributing a higher valuation to Hansen but this may help partially restore the balance sheet and customer confidence. Suzlon would eventually sell the remaining 26% stake as well.