Category: Breaking Corporate India Earnings News

Infrastructure spending critical in the current economic environment – In the current domestic growth environment, while the private business capex is likely to suffer, we believe that the government’s effort to push infrastructure spending will be critical. Within the infrastructure segments, we believe the roads spending is the most important considering its strong multiplier effect.

Of the total 33,097km planned, only 10,858km had been completed as of February 2009. About 50% of roads tenders have yet to be awarded.

The progress on road development is likely to be tardy until the end of 2009. The new cabinet, which should be in place by June 2009, will need to spearhead this spending and, if need be, take the financial risk on its own balance sheet.

Leading passenger car manufacturer Maruti Suzuki has admitted for the first time that the launch of Tata Motor’s Nano would marginally affect the sales of its flagship model M800.

Reports quoted that the company could be forced to stop producing the M800 model by next year after stricter emission norms come into effect.

The current M800 model is Bharat Stage III (BS III)-compliant and the company would have to invest heavily in the engine assembly to upgrade it to meet the BS IV norms.

Maruti’s chairman R C Bhargava stated that the company is neither having any plans of cutting the prices of the M800 model or the Alto model nor is it planning to enter the segment being created by Tata’s Nano.

As per the company soda ash prices are stabilizing and demand in North America is stable despite slowdown as flat glass demand gets replaced by container glass. The company has also not scaled back price hikes it got in CY08 in UK and Netherlands.

Post channel checks and meeting with Tata Chemicals management we believe price correction in the stock is overdone given stabilizing prices in soda ash and strong expected free cash flow led by urea and iii) improving scenario in DAP.

Post de-bottlenecking, urea capacity is up 30% and is already functional. The company is in talks with Reliance Industries for gas supply and is likely to get ~US$6/mmbtu delivered cost. Moreover, we expect DAP and IMACID operations to become profitable in Q1 FY10 given strong correction in rock phosphate prices globally.

As per IRDA, new business premium collection (individual non-single premium and 10% of individual single premium) for the industry declined 8.4% in April-January 2009.

LIC has shown degrowth of about 26.3% in individual new business premium collections for the period April 2008-January 2009 against about 10.9% yoy new business growth posted by the private sector.

Among stocks under our coverage, HDFC Standard Life has posted muted growth of 13% for the April-January 2009 period compared to our estimate of 35% growth for FY09. ICICI Prudential posted degrowth of about 14.7% for the same period compared to our expectation of 20% for FY09. SBI Life Insurance posted about 28% growth for April- January 2009 compared to 50% yoy growth estimated for FY09. However, note that our growth estimates are on weighted premiums (including individual premiums).

Historically, the life insurance business is back-loaded in the January-March quarter and we can thereby expect a reasonable firming of growth rates. However, given the slowdown witnessed in industry due to the steep decline in the sale of equity market linked products, we expect the growth rates to come at below our estimates.

The near-term steel and cement demand is likely to be firm due to: restocking, government funded projects, rural demand, and prices (of steel) likely having bottomed out. However, most are not convinced of its sustainability, except for on-going government projects.

As segmental drivers differ, there is a low correlation in their growth rates. Risk to steel demand comes from general engineering, urban housing, and auto. Risks for cement come from urban housing and the commercial sector. Medium term infrastructure growth should help steel and cement.

Provisional domestic despatch growth of 7.8% YoY in February 2009 was in line with expectations, but lower than the 12-13% YoY growth in November – December 2008.

For the week ending 7 Mar -09, headline inflation (wholesale price index, WPI) dropped to 0.44%. It was below our (0.93%) and consensus’ (0.88%) estimates.

Fuel deflation fell further to -5.95%, pushed lower by the fall in electricity prices.

Primary article prices fall first time. Primary article prices moved down due to
the fall in food grains (cereals and pulses), vegetables, fruits and nonfood articles. Though food prices softened, food inflation is still relatively high.

Manufactured prices, no change. All the major components, such as food products, edible oils, transport equipment, metallic and nonmetallic products, did not change. Chemicals and chemical products witnessed further softening.

Slow growth and approaching deflation increases the possibility of a rate cut soon. We expect the LAF (liquidity adjustment facility) corridor to go to the 2.5-4% range by end 2009.