Sunday, March 15, 2009
Dr. Reddy's Laboratories announced that the U S District (Southern District, New York) has granted a summary judgment that the Omeprazole Mg OTC ANDA filed by Dr Reddy's does not infringe the patents in suit related to Astra Zeneca's Prilosec OTC. Commenting on the judgment, Amit Patel, Head - North America Generics, Dr. Reddy's said, "We are very pleased with the favorable summary judgment in the Omeprazole Mg OTC litigation. This is a key event supporting our strategy to deliver one upside opportunity every year. We have submitted our ANDA filing and are we awaiting FDA response. At this point in time we will continue to work through the regulatory approval process while simultaneously progressing manufacturing and commercialization preparation". Omeprazole Mg is indicated for the treatment of heartburn and the Dr Reddy's formulation contains 20.6 mg Omeprazole Mg (Salt). The Prilose OTC brand product has annual sales of about US$362mn in the United States, based on IRI sales data as of July 13, 2008.
The total domestic passengers carried by Indian scheduled airlines in February was 33.36 lakhs, the Civil Aviation Ministry said. The total passengers carried by domestic airlines in January was 33.26 lakhs. Air India carried 5.74 lakh passengers, Jet Airways 5.97 lakhs, Jet Lite 2.49 lakhs, Kingfisher 9.04 lakhs, Spice Jet 4.13 lakhs, Paramount 0.61 lakhs, GoAir 0.84 lakhs and IndiGo 4.41 lakhs. The percentage share of the carriers in February was 17.2% for Air India, 17.9% for Jet Airways, 7.5% for Jet Lite, 27.1% for Kingfisher, 12.4% for Spice Jet, 1.8% for Paramount, 2.5% for Go Air and 13.2% for IndiGo. The seat load factor was 66.3% for Air India, 68.7% for Jet Airways, 74.2% for JetLite, 74.3% for Kingfisher Airlines, 78.5% for Spice Jet, 81.6% for Paramount Airways, 66% for Go Air and 82% for IndiGo.
The cumulative all-India GSM subscriber base has now grown to 277mn in Feb'09, up from 267mn in Jan’09, a growth of about 3.43%. Company wise break-up shows that Bharti Airtel, leader in the GSM space, added 2.73mn new customers in February 2009 while Vodafone Essar saw its subscriber base swell by 2.58mn new users. Idea Cellular has added 1.5mn new customers which includes subscribers of Spice Communications. At the end of February, Bharti Airtel held a market share of 32.88% with a total of 91.11mn customers, while Vodafone Essar had a market share of 23.79% at 65.92mn subscribers. BSNL accounted for 15.94% of the GSM market at 44.18mn customers and Idea held a market share of 14.98% at 41.51mn. Reliance Communications (RCOM) has added 3.3mn wireless customers in February, the company said. RCOM had 66.3mn subscribers at end-January, data from the telecom regulator showed.
Domestic sales of passenger cars jumped 22% in February due to lower sales last year and tax cuts announced by the Government to boost consumption in a slowing economy. Car sales last month stood at 115,386 units as against 94,757 units in the same month a year earlier, data released by the Society of Indian Automobiles Manufacturers (SIAM) showed. However, commercial vehicle sales in India slipped 31.6% to 31,069 units in February, as tight financing norms and economic slowdown continued to hit sales of buses and trucks. On the other hand, two-wheeler sales in February rose by 16% to 630,849 units from the corresponding month last year, the SIAM data revealed.
India's car sales in the year ending on March 31 will be flat or marginally negative, Dilip Chenoy, the director general of SIAM said in New Delhi today. Loan availability for two-wheelers, trucks and buses is still a cause for concern, he said. Chenoy attributed the rebound in February to the low base effect of last year. Car sales in February 2008 were low, as potential buyers had postponed purchases in anticipation of tax cuts in the Union Budget. Sales climbed in March last year after the Government cut excise duty on small cars, two-wheelers, three-wheelers and buses.
As expected, Larsen & Toubro (L&T), Tech Mahindra and Spice group submitted their registrations as potential bidders for the acquisition of a majority stake in scam-hit Satyam Computer Services Ltd. But, the Hinduja group, which was expected to be among the potential suitors, decided against bidding. Also, Capgemini, Europe's largest computer consultancy, said it has no interest in buying a stake in Satyam. Hewlett-Packard and Computer Sciences Corp. (CSC) are likely to have submitted a bid as well. Accenture and IBM too have reportedly not submitted an Expression of Interest (EOI).
Bidders were asked to register their interest by the end of March 12 to buy a 51% stake in Satyam. They will be asked to submit a detailed EOI and show availability of at least Rs15bn (US$290mn) by March 20. While potential suitors are expected to be attracted by Satyam's strong clientele and its large workforce, final bids will hinge a great deal on clarity on the company's finances and legal liabilities arising out of class-action lawsuits in the US. Satyam's board had appointed KPMG and Deloitte in January to restate accounts.
The Hyderabad-based IT major has been struggling for survival since founder and chairman B. Ramalinga Raju made a shocking confession in January, saying that he had manipulated Satyam's books of accounts for several years. The Government quickly moved to sack its Board and has appointed its own nominees on the Satyam board. Raju, the Managing Director and the chief financial officer have been arrested and are currently in jail.
Satyam announced that the process of registration of bidders has received adequate response from Indian and international bidders, including private equity (PE) firms. At its meeting on Friday, Satyam’s Board announced that it has taken steps to release the Request for Proposals (RFP) to all registered bidders. The Board has requested the former Chief Justice of India, S.P. Bharucha, to oversee and guide the Board throughout the selection process and he has kindly agreed. The Board met with Bharucha on March 11, in Mumbai and discussed the proposed process for the induction of a strategic investor.
Microsoft founder chairman Bill Gates has regained the top spot in Forbes magazine's annual ranking of billionaires worldwide, even as the worldwide economic recession slashed the number of billionaires to 793 from 1,125 last year. It was the first time since 2003 that the number of people on the world's richest list declined, and the biggest drop since the magazine began the ranking 23 years ago.
Gates, 53, had a net worth of US$40bn, down from US$58bn in 2008. Berkshire Hathaway chairman Warren Buffett, 78 - who last year ended Gates's 13 year reign atop the Forbes' richest list - slipped to second place. His net worth dropped to US$37bn from US$62bn.
The total net worth of the billionaires on Forbes' list shrank to US$2.4 trillion from US$4.4 trillion last year, with the average billionaire worth US$3bn, down from US$3.9bn. The top three wealthiest people in the world - Gates, Buffett and Mexican telecom tycoon Carlos Slim - lost a combined US$68bn.
"The global economy’s being battered by a financial hurricane that has wrought devastating damage on the world’s financial systems," Forbes CEO Steve Forbes said in a press conference in Manhattan yesterday. "It’s no surprise that billionaires have been battered along with the global economy."
Slim, 69, who controls Telefonos de Mexico SAB, fell to third from second as his net worth dropped to US$35bn from US$60bn. Larry Ellison, 64, CEO of software major Oracle Corp., rose to fourth from 14th, even though his net worth dropped to US$22.5bn from US$25bn.
The net worth of 656 billionaires on the list fell from a year earlier. Only 44 gained.
Last year's biggest gainer turned out to be this year's biggest loser. The net worth of Anil Ambani, 49, declined by US$31.9bn to US$10.1bn, still good enough for 34th place. In last year's ranking, his fortune had increased by US$24bn.
India lost more than half of its billionaires, while Russia lost two-thirds. The US had the most billionaires on the list, with 359, down from 469 last year. Europe had 196, Asia-Pacific had 130, the Middle East and Africa 58, and the Americas outside the US had 50.
The number of new billionaires fell to 38 from 226 last year. There were 355 people who dropped off the list. There are 72 women on the list, down from 99 last year. The average age rose to 63.7 years from 61 last year, partly because of the losses in Russia and China, where the average age of billionaires last year was in the 40s.
The bulls can have a relaxed weekend and hope their dream run continues for some time. Stocks may have skyrocketed in two days but not many would have made money or seen their portfolios inflate. Inflation and IIP data aside, the Indian market just seems to be riding the global wave, which thankfully has brought cheer to battered bulls.
The headwinds remain in place and it won’t take long for the mood to change from good to bad and then from bad to worse. How we wish we are wrong! Hate to sound so pessimistic at the end of a short and sweet happy week. But then we need to remind you, short spurts coinciding with some positive news keeps happening in a bear market. For no Grin and Bear it.
India's inflation, as measured by the wholesale price index (WPI), fell to its lowest level in six-and-a-half years in the last week of February partly due to high base of last year, data released by the Government showed. The annual rate of inflation, calculated on a point to point basis, stood at 2.43% for the week ended Feb. 28 compared to 3.03% in the previous week, the Commerce & Industry Ministry said today. Inflation was forecast to come in at 2.3%. It was at 6.21% during the year-ago period. This continues a progressive deceleration in inflation beginning the end of October, barring a two-week aberration in January. Such a low rate was earlier recorded in July 2002, when inflation stood at 2.5%. The index for "All Commodities" rose by 0.04% to 227.7 from 227.6 in the previous week.
For the week ended January 3, the annual rate of inflation stood at 5.33% as compared to the provisional estimate of 5.24% reported earlier, while the final WPI for the same period was 229.2 versus the preliminary forecast of 229.0.
In "Primary Articles", inflation decreased to 5.8% in the week under reference as against 6% in the previous week. In "Food Articles", inflation remained stable at 8.3% in the current and previous weeks, but sub-groups such as Fruits & Vegetables, Condiments, Spices and other food articles have recorded an increase in the price relative to the previous week. In "Non-food Articles", inflation fell to 1.3% from 1.7% in the previous week, while in ‘Minerals’, the rate of inflation remained steady at (-) 1.2% since the week ended February 14.
In "Fuel & Power", prices continued to decline, at (-) 5.1% vis-à-vis (-) 4% last week, mainly on account of a fall in non-administered oils. In "Manufactured Products", inflation rate decreased to 4% in the last week of February, from 4.5% last week. Within this group, notably Edible Oils, Basic Heavy Organic & Inorganic Chemicals as also Non-ferrous Metals depict a progressive decline in prices at (-) 8.3%, (-)11.2%, (-) 20.8% and (-) 9.7%, respectively. Iron & Steel has finally registered a negative rate of inflation of (-) 0.2%.
Inflation in the Food Index for the week ended February 28 declined marginally to 7.5% from 7.7% last week on account of a fall in Manufactured Food Products.
India's industrial production registered a negative growth rate for the second time in a row, as a sharp drop in demand (both overseas as well as domestic) prompted more cutbacks from factories, mines and utilities, according to Government data. The Index of Industrial Production (IIP) stood at 280.4 in January compared to 281.9 in the same month last year, representing a shrinkage of 0.5% from a year earlier, the Central Statistical Organization (CSO) said. Economists' estimates ranged between 1% contraction to 1% growth. Industrial production grew by 6.2% in January 2008. December's output was revised to a contraction of 0.6% as against the preliminary forecast of a 2% decline. Last month, the Government had revised November's provisional industrial output figure from a growth of 2.4% to an expansion of 1.7%. October's IIP reading was revised for a second time to a growth of 0.1% versus a revised contraction of 0.3% (- 0.4% provisional).
Manufacturing growth in January stood at (-) 0.8% compared to (-) 1% in December and a healthy 6.7% in January 2008. Growth in mining sub-segment shrank by 0.4% in January this year versus a growth of 1.8% in December and 2.9% in the year-ago period. Electricity output rose by 1.8% in January as against 1.6% in December and 3.7% in January last year. During April-January 2008-09, the industrial output grew by 3% versus 8.7% in the year-ago period.
As many as five 5 out of the 17 industry groups showed a positive growth during January 2009 compared to the corresponding month of the previous year. The industry group ‘Machinery & Equipment’ showed the highest growth of 17.5%, followed by 10.3% in ‘Other Manufacturing Industries’ and 5.3% in ‘Beverages, Tobacco and Related Products’. On the other hand, the industry group ‘Food Products’ showed a negative growth of 16.1% followed by 15.2% in ‘Wood & Wood Products' and 13.4% in ‘Transport Equipment and Parts.’
In what could be a pointer to continued investments, Capital Goods grew by 15.4% in January as against 5.2% in December and 2.6% in the year-ago period. Intermediate Goods contracted by 9.2% after shrinking 9.4% in December and growing by 8% in January 2008. Basic Goods registered a de-growth of 1% compared to a growth of 1.9% in December and 3.6% expansion in January 2008.
Spending by individuals too seem to have recovered somewhat following the series of stimulus plans and rate cuts over the past six months. Consumer Durables grew by 2.5% after contracting 4.1% in December and shrinking by 0.5% in January 2008. Consumer Non-durables rose by 0.7% versus 3% in December and 11.1% growth in the same month last year. Overall, Consumer Goods grew by 1.1% as against a growth of 1.5% in December and an 8.4% expansion in the year-ago period.
Under pressure from the US and other troubled economies, the Swiss government announced on Friday that it would cooperate in international tax investigations, breaking with its long-standing tradition of protecting wealthy foreigners accused of hiding billions of dollars. Austria and Luxembourg also said they would help.
Against the background of the financial crisis, international cooperation has grown stronger, especially against tax crimes, Swiss president Hans-Rudolf Merz said.
The decision was a hard one for the Swiss, whose renowned discretion has long attracted the wealth of famous foreigners as well as refugees fleeing political or religious persecution.
Swiss banks hold an estimated $2 trillion of foreign money , and financial services account for about 12% of the country’s GDP. According to the Boston Consulting Group, those holdings amount to onefourth of the world’s foreignowned assets.
The famed numbered accounts that do not bear the owner’s name will still be available for clients willing to pay for added anonymity. But the government will now be able to demand account holders ’ identities in cases of suspected wrongdoing, and to share that information with foreign authorities.
Switzerland’s move comes ahead of a meeting next month in which world powers will discuss stepping up their fight against tax cheats. The greatest pressure has been on Switzerland, which has been embroiled in a dispute with the US over Americans who have stashed their money in its biggest bank, UBS AG.
Seeking to avoid being blacklisted as uncooperative tax havens, other countries have also announced plans to open their books to foreign tax inspectors. Austria and Luxembourg said on Friday that they would offer more help on tax investigations. Over the past month, leaders have made similar promises in Singapore, Liechtenstein, Bermuda, the British islands of Jersey and Guernsey, and tiny Andorra on the border between France and Spain.
What do you want ?
IPL or Elections or both at the same time!
Vote in the right side of this Poll and let us know.
Is it the responsibility of the Govt to provide security rather than shying away and asking for IPL to be postponed/rescheduled
Note: IPL cannot be postponed with the current ICC schedule. So, it has to be cancelled.
Investors with a three-year horizon, wanting to take exposure to auto stocks, can consider accumulating the Mahindra and Mahindra (M&M) stock. Currently priced at Rs 344, M&M discounts its trailing four-quarter earnings by about 11 times. There could be a modest dilution in earnings due to a 7 per cent increase in equity following the acquisition of Punjab Tractors.
After a severe slowdown in the October- December 2008 quarter, the automobile industry has been showing signs of revival since January. Aggressive reductions in interest rates by the RBI are beginning to reflect in automobile financing options. Helped by easing of credit, auto sales have been showing signs of recovery since January 2009. M&M has posted a growth of over 15 per cent in volume terms in the first two months of 2009. Excise duty cuts on vehicles have also helped lower prices and stimulate demand.
M&M’s revenues originate mainly from the automotive and farm equipment sectors in the proportion of 58 and 41 per cent respectively (in nine months ended December 2008).
M&M derives about 65 per cent of its automotive revenues from utility vehicles (UVs), where it has steadily improved market share from 45 per cent in 2004 to 53 per cent now. Interest from institutional buyers such as small and medium businesses and cab operators has helped the company manage the slowdown better than most other vehicle-makers. Backed by sales of Scorpio and Bolero, M&M’s UV sales volumes were flat in 2008, after averaging a 14 per cent growth in the preceding three years.
Though the segment did witness deceleration in the December quarter, growth has picked up to 20 per cent in the first two months of 2009, driven by launches. LCVs and three-wheelers constitute 20 per cent of M&M’s automotive revenues (though it is not a prominent player in this segment) and this segment relies largely on rural demand.
Introduced in January 2009, Xylo, targeted at retail buyers, infused the much-needed buoyancy to M&M’s sales (4,000 units sold until February). Since it is strategically priced below other sedans and MUVs such as Toyota Innova and Chevrolet Tavera, Xylo appears well-positioned against competition.
Apart from this, the company launched an upgraded model of Scorpio this month. M&M has recently passed on to consumers the excise duty cuts, which , may be visible from the next quarter. The demand for SUVs usually accelerates ahead of elections and that may deliver a short-term boost to sales as well.
M&M holds 40 per cent market share in the farm equipment segment. After sustaining growth in the first half of this fiscal, the segment witnessed a 7 per cent decline in volumes during October-December 2008. Going by favourable factors such as adequate monsoon and increased credit availability in the hands of farmers, the segment appears well-placed to sustain sales growth this year. Punjab Tractor’s amalgamation with M&M, which is to take effect from this quarter, may add market share and strengthen M&M’s presence in the Northern market, though it is unlikely to have a material near term impact on the per share earnings.
After a sustained net profit growth of 25-30 per cent (excluding exceptional gains) in the five years to 2006-07, M&M saw a sharp deterioration in the profit picture in the first nine months of 2008-09, concentrated mainly in the December quarter. While revenues on a consolidated basis grew 13.2 per cent to Rs 21,652 crore, net profit after minority interest declined by 26 per cent to Rs 809.5 crore from Rs.1095 crore.
On a standalone basis, the December quarter saw the company report a loss of Rs 26 crore (before other income, interest and exceptional items), compared to a profit of Rs 280 crore in the same period last year. However, profits were depressed to a significant extent by forex losses of Rs 182 crore (gain of Rs 13.9 crore last year) taken this quarter. This pertains to cancellation of forward contracts and revaluation of foreign currency borrowings. Of this, Rs 136 crore may be of a one-time nature and is unlikely to impact profitability in the coming quarters.
While forex losses did play a role in depressing the profit picture, lower production and revenues — the company sold mainly from inventories — higher raw material costs and possible inventory losses on excise duty cuts also contributed to the decline in profit margins. However, with the company substantially drawing down its inventories in the December quarter and raw material costs (steel, aluminium and paint) easing significantly, profit margins may stage a sharp improvement, from here on. A recovery in sales volumes and the recent excise duty cut will also help improve revenues, helping better recovery of fixed costs. Going forward, though forex losses on existing loans (due from 2011) will remain a drag, lower interest rates on working-capital borrowings may help lower financing costs.
Fairly ambitious capex plans have also weighed on the M&M stock’s valuations. The company had previously lined up a capex of around Rs 7,500 crore. Due to the overall slowdown in the sector, the company has revised its plans downward to Rs 5,000 crore, phased out over the three years to 2012.
M&M appears to have funded the major portion of this by means of FCCBs and ECBs and is setting up a new UV plant in Chakan with a capacity of 3,50,000 vehicles. This plant would be operational from FY 2010. Debt-equity ratio, which stood at 0.6 at end-March 2008, continues to be at the same level.
Investors can consider buying the Steel Authority of India (SAIL) stock (Rs 82), given its low valuation. The stock trades at a price-to-earnings multiple of 4.5 times the trailing 12 month earnings. Though the jury is still out on whether the recovery in steel demand seen so far in 2009 is sustainable, SAIL remains one of the better-placed companies in the steel sector to weather the challenging times. A sharp drop in contract prices for coking coal and iron ore, expected to be negotiated for the coming year, suggests scope for margin expansion, even if steel prices continue to soften.
Low dependence on international orders, a focus on orders from government agencies which may benefit from higher public spending and low leverage and strong cash flows, make the company a preferred exposure in the steel sector. Investors in the stock, however, should be prepared for high volatility, as the stock’s performance may continue to carry strong linkages to global commodity price trends.
Domestic focus helps
The prospect of slowing and even recessionary trends in much of the developed world has weakened the demand for steel from user industries such as forgings, castings, automotive and construction. Both the US and Europe have seen a decline in construction and industrial activity in the last two quarters of 2008. Falling demand prompted production and price cuts by the global steel majors, with players such as Corus, Tokyo Steel and many others cutting back output by up to 30 per cent in October-November ’08.
In India, however, demand has held up better than in the other regions, with the industry’s production still up by about a per cent in the April-December 2008 period. Higher infrastructure spending by the government as a part of its two stimulus packages and a pick up in construction activities following low interest rates could help stimulate growth.
CMIE expects domestic steel production to grow by 1.5 per cent in 2008-09 and achieve a growth of 6.5 per cent in 2009-10. Responding to softening demand, steel prices have been under pressure since last year; hot-rolled coil prices fell 20 per cent from a high of Rs 48,500 per tonne in June 2008 to Rs 39,200 in December 2008.
SAIL’s sales fell in the quarter ended December 31, 2008, given a 11 per cent cut in HRC prices in November. While the effect of price cuts may continue to show up on revenues, a revival in steel volumes (up 9 per cent y-o-y in February ’09), driven by automobile and construction demand, offers some hope. On the cost front, iron ore contracts for the coming year are expected to see a price correction of 30 per cent-plus and coking coal prices are also expected to be 40 per cent lower for the year. Lower input costs would bring substantial margin relief for SAIL, given its high reliance on imported coking coal.
In the December quarter of 2008, SAIL’s profits took a hard blow (down 56 per cent) following a substantial increase in raw material costs as international coking coal prices shot up from $98 per tonne in 2007 to $300 per tonne in 2008.
Resilient to current slowdown
SAIL also looks better placed than its peers to tackle an uncertain global demand environment. SAIL derives just 3 per cent of its revenues from overseas, even as peers such as Tata Steel and JSW Steel have a much larger global exposure.
Within the domestic market too, 40 per cent of the orders are from the government agencies. With the stimulus packages promising higher infrastructure spending by the government, the company may sustain healthy order inflows in the coming quarters.
A diversified customer base is also an advantage, with the company serving a wide range of industries from construction, engineering, power, railway, to automotive and defence. The company has also been realigning its product mix, with value-added products now accounting for 40 per cent of production.
Even as other steel companies are shelving their capex plans, SAIL appears well-placed to bankroll its own expansion. The company had Rs 13,760 crore in cash balances by end-FY08, following strong operating cash flows of over Rs 8,300 crore during the year.
The company’s debt-to-equity ratio of 0.18:1 (in FY08) is low, allowing room to increase borrowings for the planned capex. SAIL has outlined a capex of Rs 53,000 crore for expanding its capacity from 14 million tonnes to 26 million tonnes by 2010-11. Of this, the company has already spent Rs 3,230 crore and has placed orders for equipment worth Rs 36,000 crore. As there are certain equipment sourcing-related delays, the projected additions to capacity may be delayed.
Given its relatively strong balance-sheet, we expect SAIL to reap benefits from recent interest rate cuts, though it may still contract higher borrowings for capex.
Shareholders with a long-term perspective can hold on to the stock of Piramal Healthcare given the company’s strengthening presence across both domestic formulations and CRAMS (custom research and manufacturing services).
The company’s established relationships with global pharma majors may help Piramal rake in steady revenues even as it restructures its strategies to better weather the current economic downturn. At current market price of Rs 187, the stock trades at about 7 times its likely FY10 per share earnings. However, even as the stock’s valuations appear reasonable vis-À-vis the growth potential it holds, the likely lag in turning its recent acquisitions to profitability and a high debt and interest burden may cap the upside potential in the near-term.
The company’s recent acquisition of Minrad, however, bears watching even as other acquisitions (Avecia and Morpeth) are yet to make meaningful contribution to the bottom line.
Over the next few years, custom research and manufacturing services are expected to be much in demand as the global pharma majors look to reduce costs. The recent deals in the pharma space and the fact that global pharma majors are actively seeking partners for CRAMS (especially so for drugs that are likely to go off patent over the next couple of years) validate this. While the competition in this space is quite high given the many players involved, Piramal appears to be in a position of strength, with manufacturing capabilities in place and long-standing relationships with many of the global pharma players. However, even as the long-term growth for CRAMS and Piramal’s own prospects appear promising, there may be a few short-term hiccups. For the quarter ended December 08, the company reported a tepid CRAMS sales growth (4 per cent).
This was attributable mainly to the de-stocking of inventories by some of the large pharmaceuticals (which, in turn, was driven by the tightening credit environment) and the decline in orders from smaller biotech companies due to drying up of their funding.
However, the company expects this to last only over the next couple of quarters, as long as the inventory rationalisation process is on. Based on its client interactions, the company predicts robust demand. The company has, therefore, scaled down its FY09 Indian CRAMS estimates to Rs 370 crore from the targeted Rs 400 crore.
To reduce costs further, the company has decided to move its CRAMS business from its foreign assets into India. While the company’s previous acquisitions — both Avecia and Morpeth — have not yet delivered outstanding profitability, the decision to move contracts to India may help broaden the client-sourcing base for the company.
Tough economic conditions are said to be prompting more customers to shift production from European facilities into India, given the cost advantages. While such moves may reduce the company’s topline to that extent, they may still prove earnings accretive, given the likely higher profit margins.
Further, Piramal is also increasing its focus on early phase contracts rather than pursuing large-sized commercial manufacturing contracts. This changed focus, though unlikely to result in immediate gains, may stand in it good stead over the long run by helping it increase its pipeline for commercial manufacturing contracts.
Piramal reported a 15 per cent growth in revenues during December 2008 quarter, driven primarily by the domestic formulations business, which grew by 22 per cent. Revenues from the custom manufacturing business, however, were sedate. Operating margins improved by 3.5 percentage points to 19.2 per cent. However, the company reported 18 per cent decline in profits for the quarter on account of forex losses of over Rs 35 crore (as against a gain of Rs 7.5 crore in the corresponding quarter last year). If not for the forex losses (or gains), the company’s profits would have grown by about 46 per cent. Also, the company currently has sufficient debt on its books (debt equity at 1.1), which the management has said would be brought down considerably by next year.
The company’s presence in domestic formulations also holds significant long-term potential. Helped by a large field force, strong brands and a robust new product pipeline, the company has managed to shore up its share in the market to 4.3 per cent this year from 3.7 per cent in November 2007. For 9MFY09, Piramal’s Healthcare Solutions segment reported a revenue growth of over 22 per cent even though the domestic formulations market grew by only about 10 per cent.
The company’s top 10 brands contributed about 25 per cent of its sales in the third quarter, while the new products made up for over 6 per cent. While the company may not enjoy high pricing power in a few of its products, a large field force may help it maintain its volume share.
Given that the company is not new to acquisitions, having carried out many in the past few years, its recent acquisition of Minrad International Inc, though a tad costly, appears to hold significant long-term potential. Being a leading inhalation anaesthetic products company, this product portfolio complements Piramal’s and in the long run may help strengthen its presence in the Global Critical Care (GCC) segment. Piramal will pay about $40 million for Minrad, which is making loss at an operational level and did about $23 million of sales for 9MCY08.
Investors with one-two year horizon can consider buying the Axis Bank stock as it is attractively valued. At the current market price of Rs 330, the stock trades at just 1.2 times its December book value of Rs 279 and at a PEM of 7.5. Axis Bank fell on the back of growing concerns over its asset quality due to high exposure to cyclical sectors, slowdown in lending activity and higher vulnerability due to lower provision coverage.
However, asset quality concerns appear overdone as the non-performing assets formed only 0.9 per cent of advances in December. Most of the corporate advances are investment-rated and the bank is adequately capitalised (13.8 per cent) to shelter from the credit risk. Steady fee income (43 per cent) and low-cost deposits (38 per cent) and strong advances growth (45 per cent CAGR for last five years) are the arguments in favour of the bank. Axis Bank has been consciously reducing the proportion of retail advances in its loan book (down to 20.7 per cent).
Axis Bank’s net profit for the nine months ended December 2008 grew by 74 per cent. While a fall in the proportion of low-cost deposits reduced net interest margins (3.36 per cent), exceptional growth in fee income (up 75 per cent), helped manage higher operating profit growth. Going forward, the bank’s cost of funds may decline as rates fall, but the pressure on NIM may continue due to lower lending activity and lower-yielding investments. Fee income from debt syndication may continue to flow in as more companies float debt issues. Though overall net profit growth may not be as high as it was in the preceding quarters, the stock’s valuation seems to capture lower expectations.
A retailer of branded jewellery, watches, and eyewear, Titan Industries is among the few retailers to have managed strong growth in the ongoing slowdown. A presence across price points in both its key businesses —watches and jewellery — and an extensive network spanning 461 outlets, ensure that the company can capitalise on most areas of consumer spending, premium or mass market, urban or semi-urban. Currently at Rs 721, the stock trades at 15 times its trailing earnings. Fears that higher gold prices will impact Titan’s jewellery business appear overdone, as its focus on premium clients and steadywedding-related demand hold potential to drive sales growth. Gold price upswings are unlikely to dampen margins as prices are passed through to the customers. Sales in the watches segment moderated late last year, growing just 4 per cent in the December ’08 quarter, but picked up from late January, with youth brand, Fastrack, and new launches helping sales.
Titan’s precision engineering business broke even in the December quarter, though eyewear business Eye+ is yet to achieve that. The business has good potential given the robust expansion — 30 stores in the last quarter alone — and the high margins possible in eyewear. Though Titan’s profits took a hit in the December quarter, it was mostly attributable to one-time extraordinary expenses and employee gratuity costs. Gross profit margins of jewellery actually improved 2.5 percentage points to 6.4 per cent. Titan Industries has the highest return on capital employed among its retail peers. Turnover of working capital, too, has steadily improved to its present eight times. A franchise mode of expansion and low leverage of 0.4 times also cushion it against funding constraints, a challenge to other retailers
Fresh investments can be considered in the State Bank of India stock.
Beaten down valuations, SBI’s increasing market share in deposits, which gives it leeway to reduce costs, and higher pricing power to attract borrowers make the PSU banking giant a good investment option.
SBI’s mammoth branch network (most of it already under Core Banking Solutions), increasing contributions from fee-based activities, comfortable capitalisation, a well-diversified loan book and high proportion of low-cost deposits (36.7 per cent of total deposits) are other advantages for SBI.
At current market price of Rs 952, the stock trades at less than its expected FY09 book value of Rs 965 and at 7 times its trailing one-year standalone earnings.
SBI has grabbed the first mover advantage in reducing lending rates. Having pegged its home loan rates at 8 per cent for the first one year (loans less than Rs 20 lakhs), it also cut rates on SME, auto and secured farm loans.
While this may aid growth in the advances book, it may not significantly reduce margins as SBI’s cost of deposits (5.95 per cent for December quarter) is significantly lower than the yields from these advances. Higher lending volumes may also more than compensate for the lower rates, maintaining profitability. For the first nine months of this fiscal, SBI’s net profit grew by 31.6 per cent, even as net interest margins were maintained at 3.16 per cent, due to higher yield on assets. The increase in other income was aided by service charges and treasury gains.
The credit-deposit ratio of the bank fell from 71 per cent to 67.6 per cent for the quarter ended December 31, 2008 partly due to the huge surge in deposits as investors found the bank to be a safe haven. SBI’s deposit growth (36 per cent in a year), unlike its peers, outpaced loan growth (29 per cent).
Though recent deposit rate cuts will be reflected only with a lag, high CASA allows the bank considerable leeway in reducing lending rates. SBI’s asset quality slippages are not low, with gross non-performing assets at 2.6 per cent of the total assets. Lesser provision coverage of 48.4 per cent also limits the shield against future slippages. The bank has already restructured some SME accounts and may have to restructure more advances.
The credit card defaults of the bank have put further pressure on the asset quality. In the current context, the next 2-3 quarters may see some slippage in the asset quality, but this is unlikely to lead to a systemic crisis. Though fee income may sustain, treasury gains may be limited by hardening bond yields. Consolidation of all State Bank subsidiaries will help the bank corner more than a quarter of share in total banking business.
The markets bounced back last week in tandem with other global markets, led by a strong rally in the US. The Sensex, which touched a low of 8,110, rallied sharply to a high of 8,793 – up 683 points – before settling with a gain of over 5 per cent (431 points) at 8,757.
Among the index stocks, Tata Motors, ICICI Bank, Sterlite and HDFC soared by 13-17 per cent each. Maruti, Reliance, Mahindra & Mahindra, Hindalco, Reliance Communications, Grasim, Infosys, Tata Steel, Larsen & Toubro and ACC rallied by 6-10 per cent. Bharti Airtel, however, plunged by over 7 per cent, and NTPC shed 4 per cent.
The index, after having seen a breakdown, has bounced back. Hence, the upmove looks susceptible and is likely to fizzle out sooner or later.
As per Fibonacci calculations, the Sensex has given a sell signal on both monthly and quarterly charts. The first signs of weakness from hereon should be the breaking of 8,435. On the upside, the Sensex is likely to face resistance at around 8,900-9,000 levels. In a very extreme scenario, this particular pullback may see the index move up to 9,580-9,650.
This week, the Sensex is likely to find support at around 8,495-8,415-8,335, while resistance on the upside could be at around 9,015-9,100-9,180.
The NSE Nifty moved in a range of 171 points. From a low of 2,556, the index rallied to a high of 2,726, finally ending with a gain of 99 points at 2,719. The index is likely to face some resistance at around 2,760, above which the index may move up to 2,825, which would be a crucial hurdle this week.
On the downside, the index is likely to find support at around 2,655 and, further deeper down at around 2,615-2,590.
From: KVL Narayan Rao
To: Everyone in NDTV Group
Subject: We shall overcome
Sent: Fri 3/13/2009 1:26pm
As you are aware, India and the world are in the midst of an economic crisis. NDTV, like all other media companies has also been affected by lower advertising revenues (the first thing that any corporate does at times of recession is to cut back on their advertising budget).
These are bad times indeed. While NDTV’s long term future is solid and sound, in the short term our results show an operating loss. These losses cannot, of course, continue.
We have all seen and enjoyed good times - and they will return.
In these tough times all of us need to come together and face the pressure as a team. I am afraid this means a cut in salary for all of us who earn over one lakh rupees a month.
From March 2009 onwards this means that:
1. The salary of anyone earning Rs 2 lakhs or more a month will be reduced by 20%;
2. The salary of anyone earning Rs 1 lakh or more a month up to Rs 2 lakhs will be reduced by 10%;
3. The salary of anyone earning less than Rs. 1 lakh a month will not be reduced.
Of course specific adjustments will be made at salaries that are around one lakh rupees and two lakh rupees to ensure fairness and that seniority levels are not affected.
If you have any queries please do contact Ajay Mankotia or Gagan Bhargava at the HR department. They are working closely with me on this.
Despite rumours, this is to confirm we will NOT be cutting back on many of our community facilities, like our crèche, NDTV’s doctor or medical schemes, drop backs for women after dark and many of the other facilities that are so important for NDTV.
This is one of the toughest decisions we have had to take in our 20 year history. It is being done because it is unavoidable. I look to everyone at NDTV for your understanding and a sense of urgency.
Let us all look forward to the storm passing and once again becoming a financially strong and vibrant NDTV.
We shall overcome and become stronger. That I promise.