Category: Breaking Corporate India Earnings News

With the recent cut in fuel prices and CENVAT, the Inflation is headed towards sub 5% level. The move has direct impact to reduce inflation by 0.5 ppt; total impact may be about 1 ppt.

CENVAT reduction can lower inflation rate by 2.5 ppt on complete pass-through, but actual impact may be much less. The CENVAT reduction can lower the inflation rate closer to 7.0% by end-December, even assuming a moderate pass-through.

Strong base effects starting January 2009 may lower inflation to sub-six percent at the start of the new year. Inflation is likely to trend down to 4.0% by end-March 2009 with further downside risks to this number. One can expect inflation to continue to decline to around 1% by July 2009, unless global oil prices reverse before that or some new shock comes.

Global rating Agency Fitch has downgraded the Ratings for Indian Real Estate Companies including DLF, Ansal Properties and Unitech.

• DLF has been downgraded from F1+ to F1 due to reduced liquidity position, which is driven by an overall slowdown in the real estate sector, resulting in slower sales and significant receivables from DLF Assets Ltd [Privately Held Company].
• Unitech – Long Term Debt rating is down to A- from A+ and outlook revised to Negative from Stable. Likely negative impact of the rapidly deteriorating real estate sector on Unitech’s ability to service debt given its current cash flow generation and amortising debt structure and reduced liquidity position.
• Ansal Properties and Infrastructure – Long term debt rating has been revised to BBB- from A- and outlook revised to Negative from Stable. Weaker than expected operating results, higher financial leverage levels than previously anticipated and reduced liquidity position resulting in increased refinancing risk.

Other who have faced the ire include Omaxe, Parsvnath and Sobha in Q3 of 2009.

Crude prices tumbled US$20/bbl in November 2008 led by concerns of a deep and lasting global recession resulting in weakening global demand and strengthening of the US Dollar. The following chart shows 14 year historical Crude Oil prices in USD / barrel.
Refining margins have declined sharply and plunged into negative territory in November 2008 led by demand weakness and sharp contraction in product (naphtha and gasoline) cracks. We could see a short-term rebound from current very low levels but expect refining margins to remain under pressure.

For December 2008, the marketing margin for gasoline at Rs10.9/liter (versus Rs1.3/liter in November and -Rs6.6/liter YTD), the marketing margin for diesel at Rs4.6/liter (versus -Rs0.1/liter in November and -Rs11.8/liter YTD). Subsidy losses on LPG and kerosene were at Rs72/cylinder and Rs16.3/liter for December 2008 compared to Rs217/cylinder and s20.9/liter in November 2008. Since current retail prices result in very high marketing margins, expect the Government to cut prices of diesel and gasoline over the next few days.

For the week ending 22 Nov ’08, headline (wholesale price index, WPI) inflation fell to 8.40% from 8.84% last week.

Contrary to softening of WPI, CPI continued the ascent for the third successive month in Oct’08 and crossed 10% mark first time in almost ten years. Primary food articles grew 10.48% y-o-y. Food grains, cereals, pulses, vegetable, egg, meat and fish are the main drivers of this rise.

Fuel index continues to fall on the back of non-administered fuel components. Manufactured products mostly edible oil, rubber and plastic products and basic metals have witnessed a continuous fall in the recent weeks.

Inflation falling will provide more comfort to RBI to ease the monetary policy and we expect further repo, reverse-repo and CRR cuts.

AOK (Allgemeine Ortskrankenkassen), German group of public health insurer, has indicated partial (44 APIs out of 64) results for the recent bidding for its two year tender. Amongst Indian players, DRL (Betapharm) has the highest interest in AOK business.

According to DRL, it has won 29 contracts so far (out of 220 awarded so far), which relate to seven APIs (out of 33 APIs bid by DRL). In our view, what matters is the value of contracts won (rather than the number of contracts), price compression.

We await results of the AOK tender for the balance of 20 APIs and disclosure by DRL on the net impact of AOK tender on its German business.

November was a disappointing month for the two-wheeler sector. Bajaj put up a dismal performance, which was significantly impacted by weaker retail demand and correction of dealer inventories. Bajaj’s domestic volumes declined by 51% YoY. Hero Honda performed above our expectations in November (flat YoY vs. -3-4% expected) and gained 30 bps market share MoM over Bajaj Auto. TVS’ domestic volumes also declined by 28% YoY.

Maruti Sales was down 25%. Domestic sales were down 27% YoY, driven by a 27% YoY decline in A2 segment volumes. We believe that Swift and Dezire volumes continued to hold out in this challenging environment, but demand for old models was extremely disappointing.

Mahindra & Mahindra November sales declined 38% YoY, driven by weak UV (- 41% YoY) and tractor sales (-32% YoY). Domestic tractor sales declined 33% YoY, reflecting a sharp reduction in dealer inventories to match the slowdown in retail off-take.