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Tuesday, February 23, 2010
Daily News Roundup - Feb 23 2010
RIL has raised its offer for Lyondell Basell (LB) to US$14.5bn, US$1bn higher than its previous offer made in November. (BS)
Power Grid Corp of India plans to raise Rs35bn by selling shares to fund an expansion of its grid to end blackouts. (BS)
Religare Enterprises is close to buying a majority stake in US based venture capital and private equity investment firm Northgate for US$200m (ET)
Tata Steel expects the arrival of equipment and machinery worth Rs5bn for the 6mtpa project at Kalinganagar by the end of FY10. (BS)
The devastating fire at IOC’s Jaipur fuel depot has delayed commissioning of Cairn India’s pipeline for transporting crude from its Rajasthan oil fields. (BS)
The Government is likely to approach state-owned banks and institutions, including the biggest local investor, Life Insurance Corporation (LIC), to bail out REC’s equity issue, if investors choose to stay away. (ET)
Apollo Tyres plans to make Chennai its hub for both manufacturing and research and development (R&D) and is setting up a Rs20bn manufacturing facility. (BS)
ITC plans to launch noodles under the ‘Sunfeast’ brand name. (BS)
L&T will finalise plans to unlock value in its financial services arm in the next 12 months. (ET)
US-based investor fund QVT has proposed an alternative debt restructuring plan to Wockhardt. (BS)
Neyveli Lignite plans to set up a 4,000 mw UMPP at Cheyyur in Tamil Nadu's Kanchipuram district. (ET)
Max India to raise Rs5.3bn via issue of convertible debentures to private equity arm of Goldman Sachs. (ET)
MIC Electronics has bagged an order to supply video screens to Parramatta Eels National Rugby League Club in Australia. (BL)
Elecon Engineering has bagged three orders worth Rs228.7mn from Birla Corporation, IFFCO Kalol and Anrak Aluminum. (BL)
Tantia Constructions has received a Rs471.8mn order from Brahmaputra Cracker and Polymer. (BL)
HCL Technologies has won an IT infrastructure management contract from Electrolux, a global home appliances company. (BL)
PFC Consulting, a subsidiary of Power Finance Corporation, is believed to have formed two special purpose vehicles for executing two ultra mega power projects (UMPP) at Saakhi Gopal and Gogarpalli sites in Orissa. (ET)
Emami Group has made a foray into food and beverage business by launching healthy & tasty brand of edible oil. (ET)
DoT is working on a new proposal to give incentives from the universal service obligation (USO) fund to support wireline services in rural areas. (BS)
During April-January this fiscal, the private sector alone has commissioned 3,357MW of fresh capacity, as against 3,383MW added cumulatively by the Central and State sector projects. (BL)
Banks with poor customer service standards may have to set aside more capital, according to RBI. The regulator has also asked banks not to discriminate in lending rates between old and new customers, if they fall in the same risk category. (ET)
The RBI has decided to reduce the risk weight on loans to power sector projects guaranteed by state governments, unlocking funds worth Rs300bn for the sector. Lending to power projects currently attracts a risk weight of 100%, which is proposed to be lowered to 20% when such loans are guaranteed by state governments. (ET)
India has imposed anti-dumping duty of up to US$2,254 per tonne on import of certain stainless steel products—used by consumer durables and auto industries—from the US, EU, China and other countries. (ET)
Seeking direction!
If you can find a path with no obstacles, it probably doesn't lead anywhere.
Though India has successfully weathered the financial storm, the market remains in a limbo. With budget a couple of days away, the lackluster trend may remain. We expect a slightly lower start given that most world markets are in the red. The main indices have been stuck in a tight range amid concerns over fresh local as well as external headwinds. Even the broader market has been largely lackluster. FII flows have been erratic with a negative bias. Buying from local funds has been anything but tepid.
The NSE Nifty could meet resistance at around 4930. It has to sustain above 4950 convincingly to signal start of a fresh advance. Conversely, a break below 4800 might take it as low as 4650. We expect Nifty to remain in a range of 4800 to 4900 in the near-term. Of course, the budget could potentially alter the current market direction.
Global markets made a tentative start to the week as concerns about the speed of monetary tightening and worries over Greece’s fiscal position policy linger.
FIIs were net sellers in the cash segment on Monday at Rs1.02bn on a provisional basis while the local funds were net buyers of Rs1.17bn, according to figures published on the NSE's web site. In the F&O segment, the foreign funds were net buyers of Rs9.11bn. On Friday, FIIs were net buyers of Rs2.93bn in the cash segment, while Mutual Funds were net sellers at Rs1.48bn, according to SEBI web site.
Globally, the focus will be on Greek bond yields this week. If they rise too far the country's debt problems will get worse and the euro will suffer. Meanwhile, Europe is grappling with a sudden surge in labour unrest. The US senate voted to move forward on a $15bn jobs bill that was proposed by Harry Reid, leader of the Democratic majority in the Senate.
Asian stocks fell, led by mining companies and automakers, as metal prices declined and the stronger yen damped the earnings outlook for Japanese exporters.
The yen fell against higher-yielding currencies on prospects Japanese investment trusts will send funds overseas this week.
The dollar edged lower but remained close to an eight-month high on Monday as expectations of an early interest rate rise from the Federal Reserve dimmed.
Gold pushed higher but base metals were weaker as commodity markets made a mixed start to the trading week.
Crude oil fell in New York, paring gains from a five-day rally, on speculation that demand from US, the world’s biggest energy consumer, may be slowing. Oil slipped below $80 a barrel.
US stocks ended a choppy session lower on Monday as investors weighed earnings news, President Obama's health care proposal and Schlumberger's $11 billion buyout deal for oil services rival Smith International.
The Dow Jones Industrial Average lost 19 points or 0.2%, to end at 10,383.38. Last week, the Dow surged 300 points for its biggest one-week gain since November. The S&P 500 index finished virtually flat at 1,108.01. The Nasdaq Composite index too closed nearly static at 2,242.03.
The dollar fell versus the euro and gained against the yen.
US light crude oil for March delivery rose 35 cents to settle at $80.16 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery fell $8.70 to settle at $1,112.60 per ounce.
Treasury prices fell, raising the yield on the 10-year note to 3.79% from 3.77% late on Friday.
Schlumberger said that it was buying fellow oil driller Smith International in an all-stock deal worth $11 billion. The two companies' boards of directors have already approved the deal and shareholders are expected to follow suit. Schlumberger shares fell 3.7% and Smith shares gained 8.8%.
In other company news, Lowe's reported higher-than-expected quarterly earnings and revenue and said sales would keep rising in the current year. However, shares of the home improvement retailer were little changed.
Shares of Dow component Bank of America rose just over 2% after a judge approved the proposed $150 million settlement between the financial firm and the Securities and Exchange Commission.
New credit card rules aimed at protecting consumers went into effect on Monday. However, the regulations could result in consumers facing new charges and additional fees as the industry looks to offset the lost revenue.
President Obama presented his outline for health care reform, ahead of the bipartisan health care summit later this week. The 10-year, nearly $1 trillion plan would purportedly cover more than 31 million Americans currently not insured without adding to the budget deficit. The plan also allows the government to shoot down or roll back insurance premium hikes.
A survey from the National Association for Business Economics showed that most leading economists think the recovery will remain on track.
US stocks had ended higher last week as investors digested the Federal Reserve's decision to lift the emergency bank lending rate. Stocks also posted gains for the second week in a row after four weeks of declines.
But stocks are likely to be volatile this week amid ongoing concerns about the outlook for the US economy. Reports are due on housing, jobs and GDP growth.
Fed chairman Ben Bernanke testifies before Congress on Wednesday and Thursday. Lawmakers meet in Washington later this week to discuss the Toyota recall, bank health and fiscal stimulus.
European shares closed lower, snapping a five-session winning streak, as drug makers weighed on the top index. The pan-European Dow Jones Stoxx 600 index slipped 0.3% to 249.67. Last week it gained ground every day, ending the week up 3.9%.
The Greek ASE Composite Index was up 1.5% at 1,957.39 as Alpha Bank shares rose 4.3% and National Bank of Greece gained 4.4%.
The UK FTSE 100 index lost 0.1% to 5,352.07, the German DAX index traded down 0.6% to 5,688.44 and the French CAC-40 index slipped 0.3% to 3,756.70.
Markets ended near day’s low, erasing almost all the day’s gains on the back of heavy offloading witnessed in the index heavyweights like Reliance Industries, DLF, Grasim and ITC. BSE Sensex erased nearly 190 points and the NSE Nifty erased almost 60 points from their respective day’s high.
Overnight gains the US and Asian markets lifted the benchmark indices at open. As the day progressed, markets turned lackluster and struggled for further direction until, media reports flashed that Securities and Exchange Board of India (SEBI) busted a price rigging racket, sending the main stock indices down in the late afternoon trade.
The capital market regulator restrained 16 individuals from trading in connection with the price manipulation case. Among the stocks allegedly rigged up by the accused are: KSL & Industries, Jaybharat Textiles, Allcargo, Lotus Eye Care, etc.
Post the announcement, a number of Railway stocks suddenly fell sharply with stocks like Titagarh Wagons and Stone India fell over 9% each.
The BSE Sensex marginally added 45 points to end at 16,237 it hit an intra-day high of 16,423 and intra-day low of 16,201. While the NSE Nifty added 11 points to end at 4,856.
Among the 30-components of Sensex, 18 ended in the positive terrain and 12 ended in the red. DLF, Grasim, Reliance Infra, Reliance Industries and Reliance Comm were among the top losers. On the other, major gainers were Hindalco, Tata Steel, Infosys, Hero Honda and Hindustan Unilever.
Outside the frontline indices, the big losers in the broader market were Chambal Fert, RCF, GMDC, Hindustan Copper and KSK Energy. On the other hand, gainers included Renuka Sugars, OBC, REI Agro and Yes Bank.
Shares of Fame India were locked at 5% upper circuit to end at Rs86.45 after media reports stated that Reliance MediaWorks has made an open offer to purchase a controlling stake in the company after Inox Leisure bought a stake in it.
Reliance MediaWorks offered to buy 21.6mn shares, making up a 62.1% stake in Fame India, at an average price of Rs83.40 per share in the company, reports added.
Reliance MediaWorks objected the buy-out of Inox, stating that its much higher offer of Rs80 per share for the company had been rejected.
Fame promoter Shravan Shroff had sold its stake to Inox at Rs44-45 per share. However, later, Shroff came out and clarified saying that he had not received a written offer of a higher bid from Reliance.
Shares of Inox shot up by over 17% to end at Rs78.4. The scrip opened at Rs69.4 it touched an intra-day high of Rs79.7 and a low of Rs69.2 and recorded volumes of over 4.7mn shares on BSE.
Shree Renuka Sugars announced that it entered into agreement with Grupo Equipav for an investment of Rs15.3bn for majority stake in Equipav S A, Brazil. The balance stake in the venture would be held by the founding Equipav Group.
The company consists of two very large and modern sugar/Ethanol mills with co-genaration facilities in Sau Paulo state in Southeast Brazil having a combined crane crushing capacity of 10.5mn tons of cane per annum.
Shree Renuka Sugars will use Rs5bn through a QIP, besides promoters' contribution of Rs1.85bn. The remaining Rs8.45bn will be met from internal accruals, K K Kumbhat, was quoted as saying.
Shares of Renuka Sugars rebounded from day’s low and surged 3.5% to end at Rs186. The scrip opened at Rs185 it touched an intra-day high of Rs190 and a low of Rs176 and recorded volumes of over 3.6mn shares on BSE.
Shares of Nestle India slipped by 2.5% to end at Rs2580 after the company’s Q4 net profit slipped by 7.4% to Rs1.12bn for the quarter ended December 31, 2009 as compared to Rs1.21bn for the quarter ended December 31, 2008.
Total Income increased from Rs11.03bn for the quarter ended December 31, 2008 to Rs13.62bn for the quarter ended December 31, 2009.
The company however has posted a net profit of Rs6.55bn for the Year ended December 31, 2009 as compared to Rs5.34bn for the Year ended December 31, 2008.
Total Income has increased from Rs43.58bn for the Year ended December 31, 2008 to Rs51.67bn for the Year ended December 31, 2009.
US stocks end with mild losses
Energy and healthcare sectors weigh on overall market sentiments
US stocks oscillated between red and green territory for most part of the day on Monday, 22 February 2010, but ultimately ended with mild losses. Stocks started the session with a strong gain, but the advance quickly faded as participants reacted negatively to some of the details of President Obama's latest health care reform plan. Weakness in broader market, mainly in energy sector, led stocks decline.
At the end of the day on Monday, 22 February 2010, the Dow Jones Industrial Average ended lower by 18.97 points at 10383.38. Nasdaq ended lower by 1.84 points at 2242.03. S&P 500 ended lower by 1.16 points at 1108.01. Dow opened 6 points higher earlier during the day.
Eight out of ten sectors ended in the red led by the energy, utilities and materials sectors.
Bank of America and JP Morgan Chase were the Dow's best performers followed by Home Depot. Merck, Chevron and Exxon Mobil were the main Dow laggards.
The healthcare sector was a laggard today after the release of the president's health-care proposal, which suggests a tax on high-end health plans be delayed for all workers, not just those in unions, until 2018 and suggested new taxes to help make up for the lost revenue. The plan would cost $950 billion over 10 years. Market reacted negatively to the news but healthcare sector ultimately ended little lower.
Though the stock market's upside moves was limited, downside action in the broader market has also been contained this session. Financials also offered a supportive boon to the broader market. The sector was up as regional banks have been leaders in the sector.
Home Depot gained today after fellow home improvement retailer Lowe's reported a better-than-expected 27% jump in fiscal fourth-quarter earnings as profitability and sales tied to bigger-ticket projects improved.
Among merger related news, Schlumberger was a primary laggard following news that it has agreed to a stock-for-stock merger with Smith International. The stock weighed on the energy sector the most. In other merger and acquisition news, Thermo Fisher Scientific reportedly has made a $6 billion bid for Millipore.
In the currency market on Monday, the dollar index, which weighs the strength of dollar against the basket of six other currencies erased earlier losses and rose marginally against the euro.
Crude prices pared earlier losses and ultimately ended little higher on Monday, 22 February 2010. Prices were volatile, pared earlier losses, and rose following higher gasoline prices. Strikes at Total SA refineries and depots in France boosted prices of refined products. On Monday, crude-oil futures for light sweet crude for March delivery closed at $80.16/barrel (higher by $0.25 or 0.3%). The March contract expired today. On a year to date basis, crude is higher by 1.1%.
Precious metal prices ended lower on Monday, 22 February 2010. Prices slipped in synchronization with US stocks and crude prices. A steady dollar also pressured bullion metal prices. On Monday, gold for April delivery ended at $1,113.1 an ounce, lower by $9 (0.8%) an ounce on the New York Mercantile Exchange. During intra day trading, it rose to a high of $1,131.5. On Monday, March Comex silver futures ended lower by 15 cents (1.2%) at $16.22 an ounce.
Trading volume was light as many traders stayed on the sidelines. Composite turnover in New York Stock Exchange-listed companies hit 3.9 billion shares, well below the daily average so far this year.
Indian ADRs ended mixed on Monday. HDFC Bank was the main loser shedding 0.3%. Rediff.com was a main gainer soaring 2.7%.
Tomorrow, there no economic reports scheduled for the day. Earning reports will continue to pour in.
Crude ends up
Crude prices rise in tandem with higher gasoline price
Crude prices pared earlier losses and ultimately ended little higher on Monday, 22 February 2010. Prices were volatile, pared earlier losses, and rose following higher gasoline prices. Strikes at Total SA refineries and depots in France boosted prices of refined products.
On Monday, crude-oil futures for light sweet crude for March delivery closed at $80.16/barrel (higher by $0.25 or 0.3%). The March contract expired today. Last week, crude gained 7.7%. In January 2010, crude ended lower by 8.3%. On a year to date basis, crude is higher by 1.1%.
US stocks traded in the red with mild losses for most part of the day on Monday mainly bogged down by the healthcare sector.
In the currency market on Monday, the dollar index, which weighs the strength of dollar against the basket of six other currencies erased earlier losses and rose marginally against the euro.
Paris based, IEA, left its forecasts for global oil demand for 2010 virtually unchanged in its latest monthly report earlier this month. It forecasts demand of 86.3 million barrels a day in 2010, up 1.7%, or 1.4 million barrels a day higher than 2009.
Among other energy products on Monday, gasoline rose 3.01 cents, or 1.4% to end the session at $2.1158 a gallon in New York.
Natural gas fell to its lowest price in 11 weeks in New York on Monday in anticipation of milder weather that would cut demand for the heating fuel. Natural gas for March delivery fell 14.9 cents, or 3% to settle at $4.895 per million British thermal units. Gas fell 7.8% last week.
Crude ended FY 2009 higher by 78%, the highest yearly gain since 1999. It reached a high of $82 earlier in October 2009 and hit a low of $33.98 on 12 February 2009. Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 48.8% since then. Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.
At the MCX, crude oil for February delivery closed Rs 12 (0.32%) lower at Rs 3,699/barrel. Natural gas for February delivery closed lower by Rs 8.2 (3.5%) at Rs 225.1/mmbtu.
Market may fall on weak Asian stocks
The market may edge lower on weak Asian stocks. Asian stocks fell on Tuesday 23 February 2010, led by mining companies and automakers, following a rally that drove the MSCI Asia Pacific Index's valuations to a three-week high yesterday. The key benchmark indices in China, Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan fell by between 0.39% to 1.97%.
The Wall Street ended slightly lower on Monday 22 February 2010 as investors held back ahead of congressional testimony by Federal Reserve chairman Ben Bernanke. Health insurers' shares rose after President Obama proposed a revised overhaul of US healthcare. Energy shares were under pressure. The Dow Jones industrial average 18.97 points, or 0.18 %, to close at 10,383.38. The Standard & Poor's 500 Index slipped 1.16 points, or 0.10 %, to end at 1,108.01. The Nasdaq Composite Index slipped 1.84 points, or 0.08 %, to close at 2,242.03.
In key events to watch out for today US Federal Reserve chairman, Ben Bernanke is scheduled to testify before house and senate committees later today and tomorrow about monetary policy. Last week the Fed announced a surprise increase in the rate it charges banks for emergency loans.
Closer home, the economy will accelerate in the coming years as it recovers from the global downturn and the government will act to protect the poor from the impact of food inflation, the president said on Monday.
President Pratibha Patil said the economy was likely to grow about 7.5 % in the current fiscal year ending in March, and the government would aim for annual growth rate of 8 % in the next fiscal year and 9 % in 2011/12. Asia's third-largest economy is recovering, with factory output surging, but food prices are growing at the fastest pace in 11 years The president's annual speech, which lays down the priorities of the government for the year, reflected those concerns over inflation as food prices keep rising at an annual rate of nearly 20 %, primarily because of a poor summer harvest. The prime minister's economic advisory council last week said surging food prices threatened to fan broader inflation and endanger the economic recovery.
With growing evidence of economic recovery, including a record 16.8 % jump in factory output in December, the government is under pressure to rollback the fiscal stimulus deployed to soften the impact of the global financial crisis. Analysts expect Finance Minister Pranab Mukherjee to announce the expiry of some of the emergency measures in the budget speech as he looks to cut the fiscal deficit, which is on track to balloon to a 16-year high in the current financial year.
The market is likely to remain highly volatile this week with the focus being on the Railway Budget and the Union Budget 2010-11. Derivatives expiry on Thursday, 25 February 2010 is also likely to add volatility on the bourses.
The highly eventful week begins with the Railway Budget on 24 February 2010. It will be followed by tabling of Economic Survey on 25 February 2010 and the Union Budget on 26 February 2010.
As far as railway budget is concerned, the Railway minister Mamata Banerjee is likely to present a populist budget leaving passenger fares untouched, but rationalise the freight rates of certain commodities like iron ore, coal and cement. Banerjee is unlikely to tinker with the freight rates of essential commodities including food grains.
As far the Union Budget 2010-2011 is concerned, the government may announce increase in excise duties as a first step towards a gradual winding down of fiscal stimulus measures. It may also raise the service tax rate to 12% from 10%. It may be recalled that the government had slashed the Central Value Added Tax (Cenvat) rate for excise duty from 14% to 8% in two rounds starting in December 2008. It had also cut service tax by 2 percentage points. These reductions were effected in order to provide a stimulus to domestic industry. Since the overall prospects for growth are much brighter today, the finance minister may withdraw a part of the stimulus in order to boost tax revenue.
The Finance Minster may project a lower fiscal deficit for 2010-11 based on higher revenue projections due to economic rebound. It remains to be seen if there are structural reforms to reduce the subsidy burden such as decontrol of petrol and diesel prices as recommended by the Kirit Parikh committee recently.
The fate of three important fiscal bills, which had been stalled by the Left parties, will be closely watched. These are the Pension Fund Regulatory and Development Authority (PFRDA) Bill, Insurance Bill and Banking Regulation (Amendment) Bill.
Meanwhile, the recommendations of the 13th Finance Commission will be tabled in the parliament on 25 February 2010, just a day ahead of the budget. Analysts and economists expect the Finance Minister to provide a road map for the introduction of the key direct and indirect tax reforms viz. the direct tax code (DTC) and the Goods & Services Tax (GST) in the Budget.
As far as government expenditure is concerned, the thrust areas could be agriculture, water resources, power, roads & other infrastructure projects and social sector schemes.
The government should begin to lower its fiscal deficit in the budget set to be announced this week but should not cut capital spending on infrastructure, the prime minister's economic advisory council said in a report released on Friday 19 February 2010. The panel also projected economic growth of at least 8.2% in 2010/11, from over 7.2 % forecast for the current fiscal year. The fiscal deficit, running at a 16-year high of 6.8% of GDP this year, threatens to push up long-term market interest rates and constrain the setting of monetary policy, the prime minister's economic advisory council said. The panel also warned about the spread of food price inflation to the broader economy.
Meanwhile, the follow-on public offer of Rural Electrification Corporation (REC) was subscribed 59% on the second day of the bidding for the IPO on Monday, 22 February 2010, NSE data showed. The government has set the floor price of the follow-on public offer of Rural Electrification Corporation (REC) at Rs 203 per share. The issue, which is open till today, 23 February 2010, will see the sale of 12.87 crore equity shares and an offer for sale of 4.29 crore government owned shares.
The Key benchmark indices erased almost all the gains after an early rally on Monday, 22 February 2010 as investors turned cautions ahead of the Union Budget 2010-2011 later this week. The BSE 30-share Sensex rose 45.42 points or 0.28% to 16,237.05 on that day.
As per provisional figures on NSE, foreign funds sold shares worth Rs 101.58 crore and domestic funds bought shares worth Rs 116.60 crore on Monday.
Nifty future at a discount
Nifty February 2010 futures at discount
Nifty February 2010 futures were at 4,850.80, at a discount of 5.60 points as compared to the spot closing of 4,856.40. Turnover in NSE's futures & options (F&O) segment was Rs 81,018.24 crore, lower than Rs 92,723.13 crore on Friday, 19 February 2010.
The near-month February 2010 derivatives contracts will expire on Thursday, 25 February 2010, a day before the presentation of the Union Budget 2010-11 on Friday, 26 February 2010.
Tata Steel February 2010 futures were at discount at 570.40 compared to the spot closing of 573.
Shree Renuka Sugars February 2010 futures were at discount at 185.30 compared to the spot closing of 187.
DLF February 2010 futures were near spot price at 283.60 compared to the spot closing of 283.
In the cash market, the S&P CNX Nifty rose 11.50 points or 0.24% at 4,856.40.
Bullion metals end lower
Prices drop in tandem with US stocks and crude price
Precious metal prices ended lower on Monday, 22 February 2010. Prices slipped in synchronization with US stocks and crude prices. A steady dollar also pressured bullion metal prices.
Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa.
On Monday, gold for April delivery ended at $1,113.1 an ounce, lower by $9 (0.8%) an ounce on the New York Mercantile Exchange. During intra day trading, it rose to a high of $1,131.5. Last week, gold gained 3.1%. For January 2010, gold lost 1.2%. Year to date, gold is higher by 1.7%.
On Monday, March Comex silver futures ended lower by 15 cents (1.2%) at $16.22 an ounce. Last week, silver ended higher by 4.1%. In January 2010, silver shed 3.9%. Year to date in FY 2010, silver has dropped by almost 1.9%.
US stocks traded in the red with mild losses for most part of the day on Monday mainly bogged down by the healthcare sector.
In the currency market on Monday, the dollar index, which weighs the strength of dollar against the basket of six other currencies erased earlier losses and rose marginally against the euro.
The World Gold Council reported last week that demand for gold climbed 2.6% in the fourth quarter from the prior three-month period. Gold consumption increased to 819.7 metric tons with prices averaging 15% more on a quarter-to-quarter basis. Conversely, demand for gold fell 24% in the fourth quarter from a year ago, and was down 11% in 2009 versus the year earlier.
Gold had ended FY 2009 higher by 24%. Silver futures had ended 2009 up 50%. The dollar index had lost 4.2% against its counterparts last year.
Last year, after hitting a low at $807.30 per ounce on 15 January 2009, gold futures rallied almost 51% to hit an all-time high at $1217.40 per ounce during early December of 2009 but fell from those levels at the end. Silver futures had hit a low at $10.42 on 15 January 2009 and hit a high at $19.30 per ounce on 2 December 2009. Like gold, silver also ended lower than its all time high level.
At the MCX, gold prices for April delivery closed lower by Rs 124 (0.73%) at Rs 16,692 per ten grams. Prices rose to a high of Rs 16,889 per 10 grams and fell to a low of Rs 16,652 per 10 grams during the day's trading.
At the MCX, silver prices for March delivery closed Rs 253 (0.99%) lower at Rs 25,260/Kg. Prices opened at Rs 25,586/kg and fell to a low of Rs 25,150/Kg during the day's trading.
United Bank of India IPO Review
Poor track record and quality
The offer valuation has been aligned with the valuation at which other poor quality PSU banks are trading
United Bank of India was founded in 1950, with the merger of four East India based banks: Commilla Banking Corporation, Comilla Union Bank, Hooghly Bank and Bengal Central Bank. The bank has its presence predominantly in the north and north-east India. A wholly owned bank of government of India (GOI), United Bank is coming out with an Initial Public Offer (IPO) with a issue of 5,00,00,000 crore equity shares of Rs 10 each in a price band of Rs 60-Rs 66 per share through the book building process.
The IPO comprises a net issue of 4,75,00,000 equity shares of face value Rs 10 each to public and reservation of 25,00,000 equity shares for subscription by eligible employees (in the employee reservation portion). The bank has offered a 5% discount on the price band fixed, for the retail Individual bidders and has allocated 30% of the net issue for them. On the other hand, a major portion, i.e., 60% of the net issues is to be allocated to qualified institutional buyers and the remaining 10% to non-institutional bidders. After the issue, the shareholding of GOI will come down to around 84.20%.
The bank adjusted accumulated losses of Rs 278.44 crore against capital in 2006. Further, the GOI had allowed the bank to reduce its share capital by Rs 1266 crore to Rs 266.43 crore from Rs 1532.43 crore in 2008. Post-issue, the equity capital of the bank will be at Rs 316.43 crore.
The objective of the issue is primarily to augment bank's long-term resources in line with estimated growth in assets and maintain a comfortable capital adequacy ratio (CAR) in line with its estimated growth in assets. The bank's current capital adequacy ratio was 12.93% in the quarter ended September 2009 as against the RBI mandated 9% and GOI stipulation of 12%. Post IPO, the CAR of the bank would go up to 13.75%- 3.84% depending on the issue price.
Financial & Business Analysis:
For the year ended March 2009 (FY 2009), United Bank reported a 20% rise in the business mix to Rs 90264 crore with a 27% rise in advances at Rs 35728 crore and a 16% increase in deposits to Rs 54536 crore. On the financial front, the bank reported scintillating results with 147% jump in net profit to Rs 358.55 crore on the back of a 28% increase in the net interest income to Rs 1161.51 crore and a 10% dip in the provision and contingencies to Rs 259.59 crore.
For the half-year ended September 2009, the bank reported a net profit of Rs 231.10 crore on the back of Rs 618.85 crore of NII. Total business surged by 41% to Rs 105959 crore, powered by a 43% rise in deposits to Rs 64640 crore and a 39% increase in advances to Rs 41219 crore. NIM stood at 2%, the lowest among its peers. Cost of deposits was 6.47%.
The bank plans to increase the loan and advances portfolio to the retail sector by simplifying the current processes, launching new products and services and developing distribution channels.
The CASA (current account and savings account) deposits/ total deposits has witnessed a downtrend since FY 2007 from 42% to 38.6% in FY 2008, 37.8% in FY 2009 and 33.97% in H1 FY 2010.
The bank has not achieved the target of 18% of adjusted net bank credit to the agriculture sector and 10% to MSME in the past three fiscals. However, it has managed to decrease the shortfall from 6% in FY 2007 to 4.05% in FY 2009 for the agricultural sector and from 2% in FY 2007 to 0.72% in FY 2009 for MSME sectors.
Asset Quality:
The asset quality of the bank witnessed deterioration in FY09. The gross NPA percentage increased to 2.86% in FY 2009 as against 2.70% in FY 2008. But it since eased to 2.48% as of September 2009. The net NPA percentage also increased to 1.48% in FY 2009 as against 1.10% in FY 2008, but eased to 1.30% in H1 FY 2010.
The provision coverage ratio declined from 59.8% in FY 2008 to 48.5% in FY 2009 and came down further to 48.1% in H1 FY 2010. The restructured assets as percentage of advances have also increased from 1.08% in FY 2008 to 4.86% in FY 2009 and 5.98% in H1 FY 2010.
The provision coverage ratio was below the RBI mandated 70% and is also the lowest among its peers. As a result, it has to step up provisions in the next two-three quarters so as to reach 70% levels before September 2010.
Branch Connectivity & Performance:
On the technology front, the bank has implemented 100% core banking solution (CBS) across all branches to facilitate centralized operations through a central database. The bank has a wide presence, though it is concentrated in the rural (40%), semi urban and urban regions (41%), particularly in the east and north-east India. A sizeable portion (67.4%) of the deposits is from the eastern region of India.
The bank has added 54 new branches during the ten months ended January 2010, taking its branch network to 1,505 and 267 ATM's in 28 states and 4 Union Territories. Besides, the bank has four associate regional rural banks: Bangiya Gramin Vikash Bank, Assam Gramin Vikash Bank, Tripura Gramin Bank and Manipur Rural Bank.
The business per branch of the bank has jumped from Rs 53.62 crore in FY 2008 to Rs 62.21 crore in FY 2009 and Rs 72.92 crore for H1 FY 2010. Also, the net profit per branch has increased from Rs 10.36 lakh in FY 2008 to Rs 24.71 lakh in FY 2009 and Rs 31.81 lakh in H1 FY 2010. Still, these productivity parameters are low when compared to its peer group banks.
Strengths
* CASA at 33.97% as of September 2009 is relatively better compared to regional PSU banks like Vijaya Bank (23.5% as of December 2009), Indian Bank (30.96% as of September 2009), and Indian Overseas Bank (30.8% as of September 2009).
* Investments constitute 35.4% (including non-SLR) of deposits as of September 2009 as against the RBI prescribed minimum of 24%. The bank can take care of increase in demand for advances without over dependence on incremental deposits in the short term, by trimming down investments, if required.
Weakness
o Track record is not encouraging. NII is in the Rs 900-Rs 1100 crore range for the past five years. Net profit fell between FY 2005 to FY 2008 and bounced back in FY 2009. Its FY 2009 net profit was Rs 358.55 crore as against FY 2005 profit of Rs 300 crore.
o Poor asset quality and high restructured assets as percentage of advances.
o Very low provision coverage of 48% (compared to the RBI' s stipulation of a minimum 70%), which needs to be stepped up in the next few years, leading to sub-optimal net profit for the next few quarters.
o NIMs are one of the lowest amongst peers.
o There is asset liability mismatch with longer term loans of over 5 years accounting for about 31% of the total advances, exacerbated by lower term deposits and relatively lower CASA.
o Nearly 82% of branch network is concentrated in the eastern and north-eastern regions of India.
Valuation:
United Bank's annualized EPS for H1 FY 2010 on post-IPO equity works out to Rs 14.6. Considering the higher price band, post-IPO book value (BV) is Rs 98 per share and adjusted BV (ABV) Rs 81.2 per share. At a lower price band of Rs 60 per share, post IPO BV is Rs 97 per share and ABV Rs 80.2 per share
At the price band of Rs 60 to Rs 66 (without considering the discount of 5% to retail investors), P/E is 4.1 to 4.5. Comparable banks like Dena Bank, UCO Bank, Vijaya Bank are currently trading at P/E of 4-4.6 times annulaised H1 FY 2010 EPS. Even better placed Andhra Bank is trading at P/E of 4.6.
P/BV at both the bands is 0.6 and 0.7, while P/ABV 0.7 and 0.8, respectively. Most of the comparable banks are trading at around P/ABV of 0.8-1.0. Only Andhra Bank and Indian Bank, which are relatively better placed than United Bank, are trading at P/BV of 1.2.
Monday, February 22, 2010
Bulls give up early lead
Today's major news
Shree Renuka Sugars buys 51% in Brazil’s sugar firm; the stock jumps 3.70%
Ambuja Cements plans capital expenditure; the stock slides 0.76%
Tantia Constructions builds on new order; the stock slips 0.36%
Emami to enter food and beverage sector; the stock closes 2.67% higher
Larsen & Toubro launches asset management operations; the stock rises 0.81%
Post-market summary
Global signals
European stocks fell on early trades, snapping five days of consecutive gains led by drug makers with GlaxoSmithKline hit by fresh criticism on its diabetes drug. At the time of writing this report, FTSE 100 was up 0.22%.
All the major Asian indices except Shanghai Composite closed positive. SGX Nifty closed 9 points higher.
US stock futures opened high on Monday pointing to a stronger start for Wall Street.
Indian indices
Bulls started off well, maintained the hold for two-third of the session but begin to gradually lose the hold after that on continued selling in consumer durable and realty stocks to finish the day marginally higher. The day’s high was 16423 and the low was 16191. At finishing line, the Sensex closed at 16237, 45 points higher. Nifty closed 11.50 points higher at 4856.
Market sentiment
Despite ending high the advance/decline, the number of advancing shares to declining shares, was negative. Of the 2,907 stocks traded on the BSE, where only 906 stocks advanced, 1,924 stocks declined. Seventy-seven stocks closed unchanged
Sectoral & stock screening
Consumer durable and realty stocks played crucial role in pulling the market down with the BSE CD and BSE Realty down by 1.04% and 1.77% respectively. Information technology (IT) stocks had a good outing with the BSE IT up by 1.01%. The remaining sectors were either marginally up or down for the day.
On news of Shree Runuka Sugars acquiring 51% stake in Brazil’s sugar firm the former surged 3.70%, the most for any stock, followed by Hindalco Industries that increased 2.60% and Oriental Bank that rose 2.50%. Among losers, Chambal Fertilisers & Chemicals slipped the most by 5.64% that remained the highest loser in A group followed by Hindustan Copper that down by 4.90%.
Viewing volumes
Unitech, India’s second largest realty company, was the most actively traded share with over 6.63 crore shares changing hands on the BSE followed by wind power major Suzlon Energy (4.06 crore shares), India's biggest sugar refiner Shree Runuka sugars (3.69 crore shares), industrial finance company IFCI (2.58 crore shares) and Bajaj Holdings (2.48 crore shares).
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