Category: Breaking Corporate India Earnings News

Goldman Sachs – GS covers 105 stocks across 15 sectors in India. The research house expects slowdown across the board.

A modest deceleration in sales growth for stocks under GS coverage from 32% in 1Q FY09 to 28% this quarter. EBIT margins to compress from 22.5% in 2Q FY08 to 21.0% in 2Q FY09E (expect FY09E to be the second consecutive year when EBIT margins contract). These factors, combined with higher interest costs, are likely to result in a sharper slowdown to net income. As a result, expect net income to grow by 8% this quarter, versus 21% growth in 1Q FY09.

Sector specfic, expect metals, financials and cement to see a decline in net income this quarter. Utilities, oil & gas, healthcare, real estate and agriculture will see slower growth than last quarter. One-year forward multiples for GS coverage group have compressed sharply since markets peaked in January 2008. This does not mean that GS coverage group is oversold, since static multiples cannot adequately capture a slowing growth dynamic.

Reserve Bank of India (RBI) announced a cut in the cash reserve ratio requirement (CRR) for banks by 50 bp today to be effective from October 11, 2008. The cut is expected to infuse liquidity in the domestic money market which has seen a sharp squeeze as reflected in the overnight interest rates in the money market and high recourse to the RBI by the banks for liquidity recently. Going further, expect the RBI to relax CRR and statutory liquidity ratio (SLR) in order to manage liquidity if global conditions continue to deteriorate and expects the central bank to cut interest rate in 1Q2009.

P-Note Ban and Lifting the same Saga:
SEBI banned P-Notes few months ago and was speaking loud about the know-your-investor etc. However, it has lifted the same in view of the current market conditions to boost inflows into the market. I guess it is time for all the good men to come to the aid of poorly managed affairs in the Government.

Reliance Industries (RIL) has issued 120m shares to its promoters at Rs1,402/share. The shares were issued on the exercise of options attached to the 120m warrants issued preferentially to the promoters in April 2007.

Prior to exercising the warrants, RIL management did some book adjustments on transferring shares held by various group companies as treasury stocks without any voting rights. [Some analysts are unhappy by the way RIL has done this adjustment – price at which group companies benefited the shares etc]

RIL’s outstanding shares are up to 1,574m shares. The promoter’s stake in RIL is now up to 42.4% from 37.6% after issue of 120m shares. Another 12.6% of treasury shares are controlled by RIL management and held for benefit of all shareholders. Including treasury shares the stake controlled by promoters is up to 54.99% from 51.28% before issue of 120m shares

Amidst Global Financial Crisis, the Indian Economy is likely to end up with a Soft Landing after 5 years of growth. In a report, Merill states that the soft landing is possible only due to lower crude oil prices which will cool of the double digit inflation but the bad news is growth cycle is irretrievably past peak with the return of capacity exhaustion.

Merrill has cut FY10E inflation forecast to 5.5% (from 6%) to price in lower oil
prices, in-line with RBI expectations of 5%. RBI to ease the money market to reverse repo mode (at a higher 6.5% LAF reverse repo rate) from the present repo mode (at the 9% LAF repo rate).

US$90/bbl will likely ease pressure on the government to hike prices drastically. The current account deficit will likely slip to 2.7% of GDP in FY09 (from 3%) and 1.9% in FY10 (from 2.3%). This will put the macro numbers in better shape.

Dealer dispatches were again mixed this month with strong dispatches in two wheelers (especially Hero Honda) and relatively weaker trends were visible in the passenger car segment. Two-wheeler dispatches appear strong, aided by strong rural demand, whereas in cars, retail demand continues to be very weak.

Hero Honda, Bajaj Auto & TVs Motors:
Hero Honda dealer dispatches were up 23% YoY. Bajaj’s domestic sales declined 4% YoY, whilst TVS’ domestic sales were very strong up 17% YoY. Hero Honda continues to build inventory levels ahead of the festive season to match demand

Maruti Suzuki:
Domestic sales were up 3% Y/Y driven by strong sales of Swift and Dezire volumes and increase in inventory levels at the dealer end ahead of the festive season in Oct-Nov. Swift sales were up 31% Y/Y. A2 segment declined by 8% Y/Y. Maruti is waiting for the India Babus to get their accumulated Pay Check on Hand so that they can re-launch their Wheels of India marketing campaign again.

Mahindra & Mahindra:
Sept sales rose 17% YoY; driven by strong Utility Vehicles sales (+31% YoY) aided by strong sales of Non-Scorpio segment (+46% Y/Y) which offset weak Scorpio sales (-13% Y/Y). Tractor sales declined by 7% Y/Y.

India’s 1QFY09 balance of payments played out, more or less, on expected lines. The current account deficit, at US$10.7bn. Notwithstanding a higher trade deficit and FII outflows, other flows continue to be strong. Beyond a robust FDI, invisibles actually surprised on the upside.

The disappointing news is that corporate external commercial borrowings slipped to a paltry US$1.6bn during 1QFY09 from US$7bn during 1QFY08. This reflected, in our view, the double whammy of tight credit conditions. Given that India lacks a local source of project finance, ECBs are critical to financing investment plans. External debt stagnated at US$221bn during the June 08 quarter.

Finally, expect the INR to regain ground in 2HFY09 with most of the adverse factors – risk aversion, oil, and USD strength – likely playing themselves out.