■ Flat so far, but better than modest expectations — About two thirds of India’s biggest companies have reported 4Q09 earnings so far, profit growth has been flat yoy (lowest in seven years), but ahead of modest expectations (-5%). This trend is consistent across Sensex companies (21/30), and across Citi’s coverage universe (80/138), but on a broader basis 294/500 companies have done better, growing profits 8% yoy. Mixed performance across companies with 39/80 beating expectations, 29 lagging, and 12 in-line. Bottom-line the 4Q results are a little better than expected, and may be contributing to the improved mood.
■ Sales slacken further, while margins hold out (again) — Operating trends have tracked the previous quarter (3Q09), sales growth has fallen (2-3% yoy vs. 6-8% expected), while margins remained largely stable yoy and qoq. This weak demand and/or deflationary environment is a distinct negative, particularly given that margin support is likely beginning to erode, in our view. While Jan-Mar'09 could well be a ‘bottom’ quarter (from a real and market mood/confidence perspective), weaker demand vs. margin mix would make a rebound that much harder.
■ Broader market doing better than market top end — Interestingly, the broader market is doing better than bigger companies, with 294/500 companies recording 8% growth in sales and earnings. This could suggest medium sized businesses have not been hurt as much as the larger ones (big companies did better on way up), challenging ‘Conventional Wisdom’ that mid-cap businesses are more vulnerable and therefore should be valued lower too.
■ Banks and Cement lead, while Metals and Autos bring up the rear — Domestic cyclicals surprised on the upside, perhaps a result of too much caution built in, while Autos and Metals bring up the rear. The sunrise businesses of the last year, Real Estate and Retailing, do worst – falling 80-90% (not far from expectations).
To see full report: INDIA EQUITY STRATEGY
вторник, 2 июня 2009 г.
>IPCA LABORATORIES LIMITED (EMKAY)
Consistent performance, PAT impacted by Fx losses
Ipca’s focus on building brands through concentrating on branded formulation business has resulted steady growth in revenues and expansion in operating margins. Company has been consistently outpacing the industry growth in domestic formulation segment driven by increased focus on high growth life style segment. In Q4FY09, revenues grew by 29% to Rs3.1bn on the back of a) 38% growth in export formulation business, & b) 34% growth in domestic formulation business. On the operating front, the company reported a growth of 63% to Rs 533mn in Q4FY09, driven by a) 140 bps reduction in raw material cost & b) 300bps reduction in other expenses. Higher interest cost (up by 71%), tax out go (26.8% vs. 8.5% in Q4FY08) and MTM losses of Rs154mn, the company reported a decline of 65% in the bottom line to Rs 79mn. However adjusting to Forex loss of Rs 154mn and Rs 102mn for provision for investment/ loan in subsidiary, the APAT grew by 30% to Rs 296mn. For FY09, revenue was up by 22% to Rs 12.8bn and APAT was up by 64% to Rs1655mn. At CMP of Rs487, the stock is trading at 6.2x FY10E earnings. We upgrade our price target from Rs637 to Rs660 (8x one year forward rolling EPS of Rs82.5). We reiterate our BUY rating.
■ Branded formulation continue to grow at robust pace
Ipca’s focus on high margin branded formulation segment continued to drive revenue and margin growth for the company. Though the tender business for FY09 declined significantly from Rs 470mn to Rs 79mn, the overall domestic formulation business grew on the back of significant growth from lifestyle segments like CVS, CNS and Pain management. For FY09 the branded formulation business in export markets and domestic market grew by 49% and 24% respectively. The contribution of high margin branded formulation business in India and other semi –regulated market has increasedto 51% in FY08 from 48% of sales in FY09. Management has given a guidance of 18-20% growth in the topline in FY10E.
■ EBIDTA margins expanded by 420bps for FY09
Operating margins during the year expanded by 420bps to 20% on the back of 460 bps reduction in raw material cost. The reduction in raw material cost was mainly because of improved product mix and softening of solvent prices driven by reduction in crude oil prices. Going forward we expect, company to maintain similar operating margins.
■ Adjustment of Forex loss & Provisions
During the year, the company has reported a MTM loss of Rs 756.9mn out of which Rs 495 mn was on account of realized losses on forward contracts and Rs 262mn on account of MTM losses on forward contracts, maturing in next 6 months. The company has transferred Rs305mn in the ‘Foreign Currency Hedging Reserve’ account as MTM losses for the contracts which are maturing beyond 6 months. This amount will be charged to P&L account when this contracts will materialized depending upon the currency movement. Company has sold forward contracts worth $80mn at Rs47.5/USD,which is 43% of the projected export sales in FY10E. The company has also made a
provision of Rs 101.9mn for investment/ loan in Brazilian subsidiary.
To see full report: IPCA LABORATORIES LIMITED
>OIL MARKETING COMPANIES (IDFC SSKI)
With a stable and pro-reforms Congress-led government back in power, expectations of speedy and aggressive policy reforms in the areas of oil product pricing and strategic disinvestment have stoked a handsome rally in OMC stocks. Significantly outperforming the Sensex (14% rise) post the election results, IOCL, BPCL and HPCL have gained 23%, 20% and 24% respectively in just five trading sessions. At current prices, IOCL, BPCL and HPCL trade at 6.6x, 6.7x and 8.5x FY10E EV/ EBITDA respectively, and ~1x BV. At these levels, we believe the potential upside from product price deregulation in FY10 is already built into the stock prices. Also, we are skeptical of any concrete measures being effected on the strategic disinvestment front in the near term. We
also note that free pricing of petrol and diesel is feasible only till crude prices below US$65 /bbl, beyond which product price increases would become difficult to implement. We maintain our Neutral stance on the sector.
■ New government expected to be committed to reforms
Initial statements made by Congress party office bearers indicate that the incoming government will have firm focus on the reforms process. This implies that there may be some definitive action at last on the refining and marketing sector reforms that have been on ice for a long time. We see several economic and political reasons supporting the reform process currently:
• The relatively low crude prices would result in small increases in domestic fuel prices even after deregulation, making it politically convenient to implement the measure, while having little impact on inflation.
• The government will see a steep drop in its under-recovery burden, which would improve its stretched fiscal position. We see a reduction of Rs50bn from government’s oil bond contribution.
• Disinvestment of government stake in the OMCs will unlock value for the government, while a larger free float for the companies will result in better price discovery.
■ Lower crude price offers a window for change
Crude prices have cooled down substantially to USD55-60/bbl levels, and global demand continues to be subdued. In this backdrop, we see crude prices trading in a narrow range over the next 12 months, despite the current upturn seen in commodities (tracking the global equity markets). This provides the Indian government a good opportunity to push through a free market pricing regime. At the prevailing crude price levels, this would imply a small increase in
petrol prices and a marginal decrease in diesel prices.
■ Current prices close to international break-even levels
At a crude price of $55/bbl, the subsidy on petrol and diesel combined is estimated at Rs100bn, 84% lower than FY09 levels. We estimate that at a crude price of US$50/bbl, the under-recovery on petrol and diesel tends to be zero. Even at the prevailing crude price of US$60/bbl, removal of price controls will not result in any substantial increase in prices of petrol and diesel. Some reports indicate that at these levels, diesel prices will in fact be lower by ~Rs0.3/ltr,
resulting in substantial benefits to the economy.
To see full report: OIL MARKETING COMPANIES
also note that free pricing of petrol and diesel is feasible only till crude prices below US$65 /bbl, beyond which product price increases would become difficult to implement. We maintain our Neutral stance on the sector.
■ New government expected to be committed to reforms
Initial statements made by Congress party office bearers indicate that the incoming government will have firm focus on the reforms process. This implies that there may be some definitive action at last on the refining and marketing sector reforms that have been on ice for a long time. We see several economic and political reasons supporting the reform process currently:
• The relatively low crude prices would result in small increases in domestic fuel prices even after deregulation, making it politically convenient to implement the measure, while having little impact on inflation.
• The government will see a steep drop in its under-recovery burden, which would improve its stretched fiscal position. We see a reduction of Rs50bn from government’s oil bond contribution.
• Disinvestment of government stake in the OMCs will unlock value for the government, while a larger free float for the companies will result in better price discovery.
■ Lower crude price offers a window for change
Crude prices have cooled down substantially to USD55-60/bbl levels, and global demand continues to be subdued. In this backdrop, we see crude prices trading in a narrow range over the next 12 months, despite the current upturn seen in commodities (tracking the global equity markets). This provides the Indian government a good opportunity to push through a free market pricing regime. At the prevailing crude price levels, this would imply a small increase in
petrol prices and a marginal decrease in diesel prices.
■ Current prices close to international break-even levels
At a crude price of $55/bbl, the subsidy on petrol and diesel combined is estimated at Rs100bn, 84% lower than FY09 levels. We estimate that at a crude price of US$50/bbl, the under-recovery on petrol and diesel tends to be zero. Even at the prevailing crude price of US$60/bbl, removal of price controls will not result in any substantial increase in prices of petrol and diesel. Some reports indicate that at these levels, diesel prices will in fact be lower by ~Rs0.3/ltr,
resulting in substantial benefits to the economy.
To see full report: OIL MARKETING COMPANIES
>INDIA SCRAP SALES RISE AS GOLD TOPS INR15,000/10 GRAMS
Mumbai - Scrap gold sales in India, the world's largest consumer of the yellow metal, is likely to pick up pace following a sharp rise in local prices, industry officials said Tuesday.
This could be bad news for those waiting for a revival of Indian import demand.
Indian imports had briefly recovered in April due to strong demand during the Akshaya Trithya festival but imports slowed again in May and could fall further in June following the rise in prices.
If the uptrend in prices continue, there could be a repeat of the January-March quarter, when imports plunged to around 1-2 metric tons a month amid strong scrap sales and soaring import prices, traders said.
Spot gold in Mumbai, the largest bullion market in the country, has risen above 15,000 rupees per 10 grams, inching towards the all-time high of INR15,800/10 grams hit in February, prompting investors to book profit by selling their old gold in the market.
"We are seeing (daily) scrap sales of 50-100 kilograms in the last few days. This could double if prices continue to rise," said Ketan Shroff, managing director of Pushpak Bullions Ltd.
Average daily scrap sales in April were around 25-30 kgs.
People are expecting prices to rise to INR16,000/10 grams in the coming days following predictions that spot gold will hit $1,000/oz in the international market, he said.
"Many are waiting for prices to reach those levels before selling," Shroff said, adding most of the sales proceeds are being invested in local equity markets.
India's benchmark Sensex has gained nearly 80% since early March amid rising risk appetite among investors and on improved market sentiment following a clear win for the ruling Congress Party-led alliance in recent elections. Better-than-expected corporate results have also boosted sentiment.
Scrap Sales Picking Up In Smaller Towns
In Jaipur, another major market, scrap gold sales are yet to pick up speed, but as prices continue to advance there could be a rise in old jewelry sales, said Rameshwar Lal Goel, president of the Sarafa Traders Committee.
In Chennai, a major market in south India, scrap sales could rise to around 60-70 kg per day, from the usual average of 30 kg, if prices continue to rise, said Daman Prakash, director of MNC Bullion Pvt. Ltd.
"Scrap sales will not rise to the levels we saw in January-March, but some of the people who missed out during the last rally to INR16,000 will try selling now," Prakash said.
During January-March, average daily scrap sales in Chennai were 80-100 kgs, according to traders.
Shroff of Pushpak Bullions said increasing availability of scrap gold will impact imports in the months ahead.
India imported around 15 tons of gold in May, down from 29 tons in April.
"Banks have enough stocks with them, while jewelry offtake is slow. Fresh orders won't be booked at these levels and we could see negligible imports this month," said Shroff.
In June 2008, the country had imported 24 tons of gold, according to the Bombay Bullion Association.
"Unless prices correct to INR13,500/10 grams, imports are going to be very low for the whole year," said Goel.
He noted prices are unlikely to move downward anytime soon.
Source: COMMODITIESCONTROL
This could be bad news for those waiting for a revival of Indian import demand.
Indian imports had briefly recovered in April due to strong demand during the Akshaya Trithya festival but imports slowed again in May and could fall further in June following the rise in prices.
If the uptrend in prices continue, there could be a repeat of the January-March quarter, when imports plunged to around 1-2 metric tons a month amid strong scrap sales and soaring import prices, traders said.
Spot gold in Mumbai, the largest bullion market in the country, has risen above 15,000 rupees per 10 grams, inching towards the all-time high of INR15,800/10 grams hit in February, prompting investors to book profit by selling their old gold in the market.
"We are seeing (daily) scrap sales of 50-100 kilograms in the last few days. This could double if prices continue to rise," said Ketan Shroff, managing director of Pushpak Bullions Ltd.
Average daily scrap sales in April were around 25-30 kgs.
People are expecting prices to rise to INR16,000/10 grams in the coming days following predictions that spot gold will hit $1,000/oz in the international market, he said.
"Many are waiting for prices to reach those levels before selling," Shroff said, adding most of the sales proceeds are being invested in local equity markets.
India's benchmark Sensex has gained nearly 80% since early March amid rising risk appetite among investors and on improved market sentiment following a clear win for the ruling Congress Party-led alliance in recent elections. Better-than-expected corporate results have also boosted sentiment.
Scrap Sales Picking Up In Smaller Towns
In Jaipur, another major market, scrap gold sales are yet to pick up speed, but as prices continue to advance there could be a rise in old jewelry sales, said Rameshwar Lal Goel, president of the Sarafa Traders Committee.
In Chennai, a major market in south India, scrap sales could rise to around 60-70 kg per day, from the usual average of 30 kg, if prices continue to rise, said Daman Prakash, director of MNC Bullion Pvt. Ltd.
"Scrap sales will not rise to the levels we saw in January-March, but some of the people who missed out during the last rally to INR16,000 will try selling now," Prakash said.
During January-March, average daily scrap sales in Chennai were 80-100 kgs, according to traders.
Shroff of Pushpak Bullions said increasing availability of scrap gold will impact imports in the months ahead.
India imported around 15 tons of gold in May, down from 29 tons in April.
"Banks have enough stocks with them, while jewelry offtake is slow. Fresh orders won't be booked at these levels and we could see negligible imports this month," said Shroff.
In June 2008, the country had imported 24 tons of gold, according to the Bombay Bullion Association.
"Unless prices correct to INR13,500/10 grams, imports are going to be very low for the whole year," said Goel.
He noted prices are unlikely to move downward anytime soon.
Source: COMMODITIESCONTROL
понедельник, 1 июня 2009 г.
>HIGH NOON ON 1/06/09 (SHAREKHAN)
GAP FILLED
After a strong gap-up opening today the markets have given up all the gains and filled the bullish gap. The Nifty has taken out a strong resistance of 4510 on the upside, which is a positive sign for the market.The Nifty had formed an inverted head & shoulder pattern, which has already achieved its aggressive target of 4420. On the daily charts, the Nifty has the 20DMA and the 40DMA
at 3997 and 3748 respectively, which are crucial support levels. The momentum indicator is trading in the positive zone and has given a positive crossover.
The market breadth is positive with 974 advances and 275 declines. On the daily charts, support at 4300 and strong resistance at 4600 are indicated.
On the hourly charts, the momentum indicator has given a positive crossover and is trading in the positive zone.
Of the 30 stocks of the Sensex, Bharti (down 3.5%) and ICICI Bank (down 2%) are the top losers. ICICI Bank is looking negative and is likely to test Rs650 on the downside with strong resistance at Rs750. Of the sectors, the banking sector is looking negative and is expected to move downwards.
To see full report: HIGH NOON
INDIA: ENERGY: OIL - REFINING (GOLDMAN SACHS)
OMCs to depend on bonds despite reform; govt likely benefits most
Enthusiasm on potential pricing reforms has lifted OMC stocks
The stocks of Indian oil marketing companies (OMCs) have moved up sharply in the last few weeks on media reports (e.g., Reuters) suggesting that the government could free up auto fuel pricing up to oil price of US$75/bbl, (without reforms in cooking fuels). Though the petroleum minister is yet to take office, the government has remained noncommittal on this issue; as such, we remain unconvinced about the reforms actually happening, but take a look at how the OMCs would be impacted by potential reforms.
Partial reforms may not help OMCs; gov't likely main beneficiary
We believe that deregulation of only auto fuels may not boost the earnings of OMCs, since oil bonds and upstream payments would still remain critical for them due to large losses from cooking fuel sales. We find it hard to believe that the government would issue a large quantum of oil bonds to increase OMC profits and add to the fiscal deficit in the process. Collection from any windfall tax on oil producers would also likely be less than cooking fuel losses. Hence, we believe that partial reform would improve cash flows of OMCs but may not impact earnings.
The government could be the biggest beneficiary from this, in our view, as it would likely look to reduce issuance of oil bonds and also potentially increase upstream subsidy burden. We also believe that private refiners (RIL, Essar) could be included in the subsidy scheme going forward, rather than the government initiating pricing reforms to encourage private participation in domestic petroleum retailing.
With stock prices moving on expectations of reforms and oil price rising, significant scope for disappointment going forward
With hardly any impact on earnings on OMCs likely from partial reforms and the recent run-up in these stocks, we believe there is scope of disappointment in these stocks in the near term. Moreover, rising oil prices could make partial reform itself unlikely. We believe this sentiment-driven rally in OMC stocks is unlikely to get fundamental support.
Neutral on OMCs on lack of policy direction; move out on rallies
We remain Neutral on IOC, HPCL and BPCL with P/B-based 12-m TPs of Rs415, Rs260, Rs325, respectively, as we wait for some policy direction from the gov’t. We believe investors should reduce positions on any news flow-driven rally in the run-up to the Union budget in early July.
To see full report: OIL SECTOR
>SUZLON ENERGY (MORGAN STANLEY)
Another Stock Placement
Quick Comment: Due to a strained B/S (being repaired) and large stock pledges (promoters), the market has been concerned about stock overhang. While we were not expecting it, the promoters have announced a stock placement. Positives such as strong RE Power results and guidance, successful renegotiation of the bulk of its CBs, potential for better domestic credit conditions, and likely higher domestic infrastructure investment are being partially negated by
weak Hansen results and potential stock overhang from second promoters’ sale of $120mn (after selling $45mn two weeks ago). While the future risk of dilution from a primary stock offer or overhang from secondary sale cannot be ruled out, we believe that the restructuring of the remaining debt, potential stake sale in Hansen, and new order wins are likely to serve as positive catalysts.
What's new: Suzlon’s negotiations with Martifer to delay the last payment of €175mn (Rs11.4bn) for acquisition of RE Power have been unsuccessful. To raise cash, promoters are in the process of selling 4%+ of Suzlon stock to raise ~Rs5.5bn. Proceeds will be loaned to Suzlon (via Inter Corporate Deposits). Furthermore, Suzlon has secured a new credit line to draw down an additional Rs6bn. Proceeds from these two borrowings will be used to pay Martifer.
What we like: First, a solution to Martifer payment via this route compared with issuance of new shares at Suzlon avoids dilution to existing shareholders. Second, uncertainty regarding payment to Martifer is eliminated.
What we do not like: First, we are concerned about the frequency of the promoter sell-downs. Unless promoters assure the market that there are not going to be further disposals, it is likely to create a significant overhang. Second, a disposal of a partial stake in Hansen to reduce acquisition debt may have been a better strategic alternative. Potentially freeing up debt capacity, it may have allowed it to raise bank debt for full payment. Third, we are concerned about the timing of stake sales during a period when the market is awaiting its FY09 results and the results of its debt restructuring.
To see full report: SUZLON ENERGY
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