|
| Subscribe to latestequityresearchreports |
| Visit this group |
Monday, February 16, 2009
Market pins hopes on Interim Budget
The market is likely to remain upbeat at least for the first half of the coming week as the government is expected to announce a slew of measures in its interim budget to woo voters ahead of the general election due by May. However, a huge fiscal deficit could hold the government back from announcing any big-bang spending plans. Previous governments have refrained from changing the rates of direct taxes -- such as personal income and corporate taxes -- in interim budgets. But speculation is rife that this may change after Home Minister P Chidambaram said earlier this month that the budget may include some changes in the tax structure and further stimulus measures. “After the upmove seen on Friday, it looks like the market will continue the good work going into next week. However, this pre-budget rally may remain only till Tuesday. In fact, sector specific action -- especially in realty and auto & auto ancillaries -- is more likely next week as the government is expected to unveil certain stimulus packages to revive demand," said independent analyst Dilip Davada. He expects the 30-share Sensex to touch the 10,000 mark on Budget day. According to analysts, the Indian economy could do with another cut in interest rates as growth remains weak. Ahead of the interim budget on Monday, the government said it would continue to stimulate demand in an economy expected to grow at 7.1 percent in the 2008/09 fiscal year ending March, its slowest pace in six years. “The market has already factored in everything that the government may offer by way of stimulus measures. Also, the government has already given various sops by way of excise duty cut and relaxation of FDI norms, which the market has digested. Now, maybe an interest rate cut could help boost sentiment," said Anita Gandhi, head-institutional business at Arihant Capital.
Analysts' picks: GMR, Mundra, Ambuja, idea, ACC
Analysts' picks: GMR, Mundra, Ambuja, idea, ACC
GMR INFRASTRUCTURE
RESEARCH: HSBC
RATING: UNDERWEIGHT
CMP: RS 79
HSBC maintains the ‘Underweight' rating on GMR Infrastructure with a target price of Rs 53. There has been no respite in GMR's existing business. GMR's airport business faces: a) continuing decline in air traffic b) continuing delays in real estate development at Delhi airport, impacting fund availability , and c) inability to raise tariff at the Delhi and Hyderabad airports, impacting overall profitability. However, there has been some relief in the power business due to fresh gas supply and lower naptha prices. GMR runs a refinancing risk on the loan at the end of the two-year period. HSBC expects that in order to complete the Delhi airport in time, the government will have to provide incentives to GMR. These incentives might be in the form of allowing it to charge higher user fees or a higher equity contribution to meet the fund requirement. However, given the current financial condition of the airline industry, it would be difficult for the government to increase the charges without opposition from the airline industry. The outlook for the company remains weak given: a) no signs of recovery in airport traffic growth b) the ability to increase airport charges remains dependent on the government's approval c) no improvement in real estate outlook d) potential difficulties in refinancing its acquisition.
AMBUJA CEMENTS
RESEARCH: MERRILL LYNCH
RATING: UNDERPERFORM
CMP: RS 73
Merrill Lynch maintains 'Underperform' rating on Ambuja Cements due to lack of upside triggers. Ambuja's CY09 earnings decline will likely be modest versus other majors due to a tad better supply-demand outlook for west India. Ambuja sells ~30-40 % of volumes in the west, which is forecast to witness fewer capacity additions versus other regions. However, exposure to the north will likely hurt. Ambuja's CY08 EBITDA stood at ~Rs 1,770 crore, down ~13% y-o-y due to cost-led margin pressures. The company indicated that high-cost coal inventories, greater use of imported coal and year-end adjustments/provisions dragged 4Q results. 4Q realisations were up 1% y-o-y and 3% q-o-q ; cost increase was sharper at ~10-12 %. Volumes grew 5% y-o-y and 16% q-o-q . In its 4Q press release Ambuja said the industry's demand growth in CY09 will range between 6-8 %. This compares with 11-12 % volume growth witnessed in November-December 2008, likely led by pre-election government spending. Reflecting the pattern of previous election years, we worry that the recent demand impetus will ease in 3-4 months as elections draw closer.
IDEA CELLULAR
RESEARCH: INDIABULLS SECURITIES
RATING: HOLD
CMP: RS 51
Indiabulls Securities has reiterated the 'Hold' rating on Idea Cellular, however , it has downgraded the target price to Rs 49. Idea ended the third quarter with a handsome topline growth of 13.1% q-o-q , backed by a robust 13% share in the all-India net additions of 38 lakh and a 3.7% improved realisation of 65 paise per minute. Idea's market share (excluding Spice) is to inflate beyond 11% by March 2010 from the current 9.9%. The company's share of the market net additions is likely to peak at 14-15 % in FY10, given the upcoming roll-outs in five new circles and the overwhelming response received for the roll-out in Bihar and the re-branding in Punjab. Moreover, Idea's brand, which has all-India recognition, renders it a competitive edge over the other entrants in the new circles. The operating margin will likely remain under pressure in FY10E-11 E and is expected to come down to ~11% as Idea opts for higher opex rather than capex for network expansion. In addition, intensifying competition and penetration in Class C circles calls for competitive pricing, which would further bring down ARPUs to around Rs 250 and Rs 210 for FY09E and FY10E respectively. While the company's business model points towards a strong longer-term growth trajectory , the upcoming congestion in the telecom market would exert significant strain on its key operating and financial parameters, thereby limiting major upsides in the stock price.
MUNDRA PORT
RESEARCH: CITIGROUP
RATING: SELL
CMP: RS 368
Citigroup initiates 'Sell' rating on Mundra Port and Special Economic Zone (MPSEZ) as the stock looks expensive. MPSEZ is a private port (capacity ~55 mtpa) on India's west coast: 1) Strategically located for north-bound cargo; 2) Handles more container volumes than all major ports, except JNPT and Chennai; 3) Has one of the deepest drafts; 4) ~40% of projected volumes are under long-term contracts; and 5) SEZ over ~32,000 acres should support volume growth. Cargo/profits growth has been impressive at 53%/132% CAGR over FY04-08 . Citigroup expects cargo, revenues and profits to grow at 17%, 25% and 47% respectively over FY09-11 E, and RoEs to improve to 24% by FY11E from 11% in FY08. While Citigroup forecasts healthy cargo growth at MPSEZ, they see risks in the medium term given the deteriorating global environment. Volumes at major ports grew only by 4% y-o-y in April-November 2008 and fell 28% y-o-y in December 2008 at the DP World-operated container terminal at Mundra. A pullback in investments would hit development of the SEZ, a growth driver for the port. We value: 1) the port at Rs 262/sh; 2) SEZ at Rs 22/sh; 3) investments in subs at Rs7/sh. MPSEZ trades at 24x FY10E PE, a premium of ~85% to Asian ports' average of ~13x, which we find excessive despite EPS growth of 47% over FY09-11 E versus the Asian average of -1 %. Upside risks include better-than-expected traffic growth and demand for land at the SEZ.
ACC
RESEARCH: MACQUARIE
RATING: UNDERPERFORM
CMP: RS 577
Macquarie lowers the rating on ACC from `Neutral' to `Underperform' in the absence of cost-reduction levers and the stock lacks any positive catalyst except for cement prices. It believes that the current rally in the stock along with an improved business outlook is a good opportunity to book profits. ACC declared its CY08 results, which were about 11% below the estimates at the operating level due mainly to lower volumes and higher costs. Macquarie reduces the target price by 2% to Rs 452 to factor in lower volumes for the next year and also reducing CY09 and CY10 estimates to account for lower volume expectations because it foresees some delays to expansion plans. ACC has already exhausted the easy ways to reduce costs because most of its production is based on domestic subsidised coal. It already has coal-based captive power plants and it is reaching saturation in blending. The only major avenue is a merger with its sister concern, Ambuja Cements. The majority of 7 mtpa of further expansion will not be completed until CY10. ACC will, at best, grow in line with the industry.
GMR INFRASTRUCTURE
RESEARCH: HSBC
RATING: UNDERWEIGHT
CMP: RS 79
HSBC maintains the ‘Underweight' rating on GMR Infrastructure with a target price of Rs 53. There has been no respite in GMR's existing business. GMR's airport business faces: a) continuing decline in air traffic b) continuing delays in real estate development at Delhi airport, impacting fund availability , and c) inability to raise tariff at the Delhi and Hyderabad airports, impacting overall profitability. However, there has been some relief in the power business due to fresh gas supply and lower naptha prices. GMR runs a refinancing risk on the loan at the end of the two-year period. HSBC expects that in order to complete the Delhi airport in time, the government will have to provide incentives to GMR. These incentives might be in the form of allowing it to charge higher user fees or a higher equity contribution to meet the fund requirement. However, given the current financial condition of the airline industry, it would be difficult for the government to increase the charges without opposition from the airline industry. The outlook for the company remains weak given: a) no signs of recovery in airport traffic growth b) the ability to increase airport charges remains dependent on the government's approval c) no improvement in real estate outlook d) potential difficulties in refinancing its acquisition.
AMBUJA CEMENTS
RESEARCH: MERRILL LYNCH
RATING: UNDERPERFORM
CMP: RS 73
Merrill Lynch maintains 'Underperform' rating on Ambuja Cements due to lack of upside triggers. Ambuja's CY09 earnings decline will likely be modest versus other majors due to a tad better supply-demand outlook for west India. Ambuja sells ~30-40 % of volumes in the west, which is forecast to witness fewer capacity additions versus other regions. However, exposure to the north will likely hurt. Ambuja's CY08 EBITDA stood at ~Rs 1,770 crore, down ~13% y-o-y due to cost-led margin pressures. The company indicated that high-cost coal inventories, greater use of imported coal and year-end adjustments/provisions dragged 4Q results. 4Q realisations were up 1% y-o-y and 3% q-o-q ; cost increase was sharper at ~10-12 %. Volumes grew 5% y-o-y and 16% q-o-q . In its 4Q press release Ambuja said the industry's demand growth in CY09 will range between 6-8 %. This compares with 11-12 % volume growth witnessed in November-December 2008, likely led by pre-election government spending. Reflecting the pattern of previous election years, we worry that the recent demand impetus will ease in 3-4 months as elections draw closer.
IDEA CELLULAR
RESEARCH: INDIABULLS SECURITIES
RATING: HOLD
CMP: RS 51
Indiabulls Securities has reiterated the 'Hold' rating on Idea Cellular, however , it has downgraded the target price to Rs 49. Idea ended the third quarter with a handsome topline growth of 13.1% q-o-q , backed by a robust 13% share in the all-India net additions of 38 lakh and a 3.7% improved realisation of 65 paise per minute. Idea's market share (excluding Spice) is to inflate beyond 11% by March 2010 from the current 9.9%. The company's share of the market net additions is likely to peak at 14-15 % in FY10, given the upcoming roll-outs in five new circles and the overwhelming response received for the roll-out in Bihar and the re-branding in Punjab. Moreover, Idea's brand, which has all-India recognition, renders it a competitive edge over the other entrants in the new circles. The operating margin will likely remain under pressure in FY10E-11 E and is expected to come down to ~11% as Idea opts for higher opex rather than capex for network expansion. In addition, intensifying competition and penetration in Class C circles calls for competitive pricing, which would further bring down ARPUs to around Rs 250 and Rs 210 for FY09E and FY10E respectively. While the company's business model points towards a strong longer-term growth trajectory , the upcoming congestion in the telecom market would exert significant strain on its key operating and financial parameters, thereby limiting major upsides in the stock price.
MUNDRA PORT
RESEARCH: CITIGROUP
RATING: SELL
CMP: RS 368
Citigroup initiates 'Sell' rating on Mundra Port and Special Economic Zone (MPSEZ) as the stock looks expensive. MPSEZ is a private port (capacity ~55 mtpa) on India's west coast: 1) Strategically located for north-bound cargo; 2) Handles more container volumes than all major ports, except JNPT and Chennai; 3) Has one of the deepest drafts; 4) ~40% of projected volumes are under long-term contracts; and 5) SEZ over ~32,000 acres should support volume growth. Cargo/profits growth has been impressive at 53%/132% CAGR over FY04-08 . Citigroup expects cargo, revenues and profits to grow at 17%, 25% and 47% respectively over FY09-11 E, and RoEs to improve to 24% by FY11E from 11% in FY08. While Citigroup forecasts healthy cargo growth at MPSEZ, they see risks in the medium term given the deteriorating global environment. Volumes at major ports grew only by 4% y-o-y in April-November 2008 and fell 28% y-o-y in December 2008 at the DP World-operated container terminal at Mundra. A pullback in investments would hit development of the SEZ, a growth driver for the port. We value: 1) the port at Rs 262/sh; 2) SEZ at Rs 22/sh; 3) investments in subs at Rs7/sh. MPSEZ trades at 24x FY10E PE, a premium of ~85% to Asian ports' average of ~13x, which we find excessive despite EPS growth of 47% over FY09-11 E versus the Asian average of -1 %. Upside risks include better-than-expected traffic growth and demand for land at the SEZ.
ACC
RESEARCH: MACQUARIE
RATING: UNDERPERFORM
CMP: RS 577
Macquarie lowers the rating on ACC from `Neutral' to `Underperform' in the absence of cost-reduction levers and the stock lacks any positive catalyst except for cement prices. It believes that the current rally in the stock along with an improved business outlook is a good opportunity to book profits. ACC declared its CY08 results, which were about 11% below the estimates at the operating level due mainly to lower volumes and higher costs. Macquarie reduces the target price by 2% to Rs 452 to factor in lower volumes for the next year and also reducing CY09 and CY10 estimates to account for lower volume expectations because it foresees some delays to expansion plans. ACC has already exhausted the easy ways to reduce costs because most of its production is based on domestic subsidised coal. It already has coal-based captive power plants and it is reaching saturation in blending. The only major avenue is a merger with its sister concern, Ambuja Cements. The majority of 7 mtpa of further expansion will not be completed until CY10. ACC will, at best, grow in line with the industry.
Analyst's Picks: TCS
Analyst's Picks: TCS
TCS CMP: Rs 510.90
TARGET PRICE: Rs 630
Broking house IDFC-SSKI Securities has rated TCS as an ‘outperformer’ with a price target of Rs 630. “TCS is expected to be a key beneficiary of the accelerating trend in offshoring as clients leverage low-cost geographies to contain IT services spend. TCS has, in the past few years, increasingly derisked its business model by expanding into newer geographies (Continental Europe, China and Latin America) as well as through long-term contracts,” the IDFC-SSKI note to clients said. “TCS derives approximately 30% of its revenues from non-US and non-UK geographies. We expect 8% revenue (US dollar) compounded annual growth and 4% EPS CAGR for TCS over FY09-11 ,” the note added.
TCS CMP: Rs 510.90
TARGET PRICE: Rs 630
Broking house IDFC-SSKI Securities has rated TCS as an ‘outperformer’ with a price target of Rs 630. “TCS is expected to be a key beneficiary of the accelerating trend in offshoring as clients leverage low-cost geographies to contain IT services spend. TCS has, in the past few years, increasingly derisked its business model by expanding into newer geographies (Continental Europe, China and Latin America) as well as through long-term contracts,” the IDFC-SSKI note to clients said. “TCS derives approximately 30% of its revenues from non-US and non-UK geographies. We expect 8% revenue (US dollar) compounded annual growth and 4% EPS CAGR for TCS over FY09-11 ,” the note added.
NTPC joins hands with NPCIL
Power major NTPC has entered into an agreement with Nuclear Power Corporation of India (NPCIL) for developing nuclear power projects.
The combined entity will work together for development of nuclear power in India and for this purpose they have formed a Joint Venture Company for setting up nuclear power projects. The proposed Joint Venture Company will be a subsidiary of NPCIL in which NPCIL shall hold 51% equity and the balance 49% will be held by the company. At 10:15 am, the stock was trading down 0.33 per cent at Rs 182.30 on the BSE. Meanwhile, the market was trading weak on negative global cues. Sensex was trading 75 points down at 9560 points even as BSE mid and small cap indices were witnessing positive trend. Both were marginally up in the morning trade
.
The combined entity will work together for development of nuclear power in India and for this purpose they have formed a Joint Venture Company for setting up nuclear power projects. The proposed Joint Venture Company will be a subsidiary of NPCIL in which NPCIL shall hold 51% equity and the balance 49% will be held by the company. At 10:15 am, the stock was trading down 0.33 per cent at Rs 182.30 on the BSE. Meanwhile, the market was trading weak on negative global cues. Sensex was trading 75 points down at 9560 points even as BSE mid and small cap indices were witnessing positive trend. Both were marginally up in the morning trade
.
Buy Dishman Pharma, target of Rs 209: KRChoksey
KRChoksey has maintained its buy rating on Dishman Pharmaceuticals & Chemicals with a target price of Rs 209, in its February 3, 2009 research report. "In Q3FY09, the company’s sales have increased by 36.5% on a Y-o-Y basis to Rs 282.0 crore driven by strong performance from MM segment, US subsidiary Carbogen Amcis and also from the consolidation of Solvay Vitamin business. The net profit of the company increased by 23.5% Y-o-Y to Rs 39.7 crore. We maintained BUY rating to the stock with a target price of Rs 209, implying an upside potential of 78.3%," says KRChoksey's research report.
Reduce Aegis Logistics, target of Rs 58: KRChoksey
Reduce Aegis Logistics, target of Rs 58: KRChoksey
KRChoksey has recommended a reduce rating on Aegis Logistics with target price of Rs 58, in its February 05, 2009 research report. " Net sales decreased 20.9% y-o-y and 40.7% q-o-q to Rs 77.6 crore. The Liquid Logistics Division (LLD) business of the company fell by 7.7% y-o-y and 4.4% q-o-q to Rs 17.7 crore. The fall in liquid logistics was due to the economic slowdown which resulted in chemical importers like Reliance importing low volume of chemicals thus leading to a drop in revenue. We recommend a REDUCE to this stock with target price of Rs 58, which represents a downside of 9.4% from the current levels," says KRChoksey's research report.
KRChoksey has recommended a reduce rating on Aegis Logistics with target price of Rs 58, in its February 05, 2009 research report. " Net sales decreased 20.9% y-o-y and 40.7% q-o-q to Rs 77.6 crore. The Liquid Logistics Division (LLD) business of the company fell by 7.7% y-o-y and 4.4% q-o-q to Rs 17.7 crore. The fall in liquid logistics was due to the economic slowdown which resulted in chemical importers like Reliance importing low volume of chemicals thus leading to a drop in revenue. We recommend a REDUCE to this stock with target price of Rs 58, which represents a downside of 9.4% from the current levels," says KRChoksey's research report.
Hexaware: Defying logic
Hexaware: Defying logic
Going by the $50 million of cash on its balance sheet, the Street believes that Hexaware Technologies might buy back its shares. That, together with news of a possible stake sale to another firm, were the reasons attributed to the stock’s intra-day surge of over 100 per cent — it finally closed Thursday’s trading session 65.6 per cent higher at Rs 33.30. Over the past year, the stock had lost 71 per cent of its value and it is disconcerting to see such dramatic movements in stock prices just before the announcement of the company’s results, scheduled for February 16, 2009.
The promoter and executive chairman says he has not pledged any shares, nor has he sold any part of his stake in the past two years. He now holds a 23.58 per cent stake, which is lower than the 35.16 per cent held in December 2004.
With 40 per cent of revenues derived from the BFSI space, it’s not that Hexaware is expected to turn in very strong numbers. Over the past five years, revenues have grown a compounded 32 per cent, but despite a weak rupee, revenues were up just 8.4 per cent in the nine months to September 2008. Weak operating margins, down 390 basis points at 8 per cent dragged down the adjusted net profit by 52 per cent in the January- September 2008 period to Rs 420 crore.
Although it added 66 new clients in 2007, in 2008 so far there have been just 25 additions and Hexaware’s sales for the December 2008 quarter should be lower than the $ 66.3 million earned in the September 2008 quarter.
Even Patni Computers, a much bigger competitor,didn’t fare too well in 2008 though the weaker rupee helped it post a 33 per cent rise in revenues to Rs 3,492 crore. Despite that Patni’s operating profit margins fell sharply by 730 basis points to 10.6 per cent while the net profit was up just 10 per cent to Rs 493 crore, including a forex loss of Rs 89 crore.
Going by the $50 million of cash on its balance sheet, the Street believes that Hexaware Technologies might buy back its shares. That, together with news of a possible stake sale to another firm, were the reasons attributed to the stock’s intra-day surge of over 100 per cent — it finally closed Thursday’s trading session 65.6 per cent higher at Rs 33.30. Over the past year, the stock had lost 71 per cent of its value and it is disconcerting to see such dramatic movements in stock prices just before the announcement of the company’s results, scheduled for February 16, 2009.
The promoter and executive chairman says he has not pledged any shares, nor has he sold any part of his stake in the past two years. He now holds a 23.58 per cent stake, which is lower than the 35.16 per cent held in December 2004.
With 40 per cent of revenues derived from the BFSI space, it’s not that Hexaware is expected to turn in very strong numbers. Over the past five years, revenues have grown a compounded 32 per cent, but despite a weak rupee, revenues were up just 8.4 per cent in the nine months to September 2008. Weak operating margins, down 390 basis points at 8 per cent dragged down the adjusted net profit by 52 per cent in the January- September 2008 period to Rs 420 crore.
Although it added 66 new clients in 2007, in 2008 so far there have been just 25 additions and Hexaware’s sales for the December 2008 quarter should be lower than the $ 66.3 million earned in the September 2008 quarter.
Even Patni Computers, a much bigger competitor,didn’t fare too well in 2008 though the weaker rupee helped it post a 33 per cent rise in revenues to Rs 3,492 crore. Despite that Patni’s operating profit margins fell sharply by 730 basis points to 10.6 per cent while the net profit was up just 10 per cent to Rs 493 crore, including a forex loss of Rs 89 crore.
Ashok Leyland: In a trough
Ashok Leyland: In a trough
Fall in sales is hurting the firm’s profit.
Ashok Leyland ( ALL) may have produced more trucks and buses in January than it did in December — volumes were up 6 per cent — but that’s little consolation. With the outlook for the economy worsening, it's now clear that ALL will sell lower volumes in 2008-09, compared with the previous year. What's more, the company could well report a fall in sales in 2009-10 also, going by the trend of the past few months. In the nine months to September 2008, ALL produced slightly more than half the vehicles that the 84,006 units it made in 2007-08.
This loss of sales momentum could put the company in a spot because it is creating fresh capacity in Uttarakhand. This is a major concern, besides the firm’s high financial leverage for rating agency Fitch. It believes ALL’s increased capacity of 150,000 units would be significantly under-utilised because of the slowdown. What’s worse, much of the expansion has been funded by borrowings.
Morgan Stanley reckons the firm’s total debt could cross Rs 2,100 crore in the current year and stay at those levels next year. As a result, ALL’s interest bill is expected to rise from around Rs 115 crore now to around Rs 130 crore next year. Moreover, even though capital expenditure has been scaled back to around Rs 2,000 crore, depreciation charges will increase.
In the December 2008 quarter, ALL’s net sales declined 44 per cent to Rs 1,001 crore, though a fall in the cost of raw materials helped arrest the fall in the operating profit margin (adjusted) to 6.8 per cent. Net profits, however, crashed 84 per cent y-o-y to Rs 18.86 crore. ALL’s top line for 2009-10 could stay flat at levels of around Rs 6,000 crore estimated for the current year. However, operating margins could improve because of falling input costs.
Fall in sales is hurting the firm’s profit.
Ashok Leyland ( ALL) may have produced more trucks and buses in January than it did in December — volumes were up 6 per cent — but that’s little consolation. With the outlook for the economy worsening, it's now clear that ALL will sell lower volumes in 2008-09, compared with the previous year. What's more, the company could well report a fall in sales in 2009-10 also, going by the trend of the past few months. In the nine months to September 2008, ALL produced slightly more than half the vehicles that the 84,006 units it made in 2007-08.
This loss of sales momentum could put the company in a spot because it is creating fresh capacity in Uttarakhand. This is a major concern, besides the firm’s high financial leverage for rating agency Fitch. It believes ALL’s increased capacity of 150,000 units would be significantly under-utilised because of the slowdown. What’s worse, much of the expansion has been funded by borrowings.
Morgan Stanley reckons the firm’s total debt could cross Rs 2,100 crore in the current year and stay at those levels next year. As a result, ALL’s interest bill is expected to rise from around Rs 115 crore now to around Rs 130 crore next year. Moreover, even though capital expenditure has been scaled back to around Rs 2,000 crore, depreciation charges will increase.
In the December 2008 quarter, ALL’s net sales declined 44 per cent to Rs 1,001 crore, though a fall in the cost of raw materials helped arrest the fall in the operating profit margin (adjusted) to 6.8 per cent. Net profits, however, crashed 84 per cent y-o-y to Rs 18.86 crore. ALL’s top line for 2009-10 could stay flat at levels of around Rs 6,000 crore estimated for the current year. However, operating margins could improve because of falling input costs.
Gold on a bull run
Gold on a bull run
Increase in demand for physical gold among investors.
Commodity markets continue to remain volatile with players groping for direction. In recent weeks, across commodities, investor risk appetite has remained spasmodic. This has followed the flow of economic data, often not very encouraging. An incipient recovery in metals prices (especially steel and copper) led to some optimistic expectations about demand, but it evaporated soon enough.
Crude is currently facing a crisis of confidence. Decline in demand and inventory overhang have affected the sentiment. As prices have declined to $mid-30s a barrel, there is actually panic in the market as to what next. When would supply cuts begin to tighten the market fundamentals remains the key question.
Agricultural markets are moving in their own orbit. Fight for acreage, especially in the US between corn, soyabean and wheat is expected to intensify. Aberrant weather in the Southern Hemisphere and consequent adverse effect of volume of output (mainly soyabean) may provide an upthrust, but will be capped by large inventory and lackadaisical demand growth.
The stimulus packages of various governments are yet to show run their course before they begin to show some result. The US Treasurys plans to fix the financial sector are unclear.
Gold
In a scenario where most commodity markets are in the dumps, with little prospect for a quick price recovery, the eternal favourite of investors, gold has proved to be an exceptional performer. Price of the yellow metal has appreciated steadily, despite reasonably strong dollar and overall weak sentiment in commodity markets.
It has become a truly safe haven asset, if any confirmation was needed. Indeed, the price rise is despite decline in jewellery demand. There has been a dramatic increase in appetite for physical gold among investors.
According to reports, total exchange traded product holdings have risen at their fastest ever rate so far this year, growing by 200 tonnes to almost 1,400 tonnes.
Gold coin sales are also soaring with sales by the US Mint reportedly running at double their levels a year ago.
The uptrend in gold may continue as long as investment buying remains sufficient to offset weakness in jewellery demand.
Even if there occurs a broad commodity market revival with return of risk appetite, gold may not really suffer badly. An upside risk to crude prices, inflation expectations and imminent weakening of the dollar (all of which likely in the second half of the year) would continue to support the yellow metal.
In the short-term, however, in the event safe-haven buying eases for any reason, gold prices could come under pressure especially in a deflationary environment or during bouts of dollar strength.
Resumes bull trend
According to technical analysts at Barclays Capital, gold is resuming its secular bull trend. The break through 931 completes an almost year-long countertrend correction indicating new highs in the weeks and months to come. The March 2008 peak of $1,033 an ounce is the next key level to note.
While the market is likely to struggle at or near this area, there is expectation that it will ultimately break, as the metal continues to shine on an absolute and relative basis. Eight consecutive years of gains, when single-digit annual returns are followed by double-digit annual returns, speak of the strength of the larger, secular bull, as does the positive 2008 out-performance despite a severe decline across the commodity complex, the analysts said.
Measured targets are seen toward the 1,180 area for a gain of approximately 25 per cent, with longer-term targets substantially above there.
Global prices
Rising international prices of gold and weakening Indian rupee have combined to push domestic market prices through the roof. Gold 10 grams reached an unprecedented rate of Rs 14,700. Given that higher prices lead to demand compression in price sensitive markets such as India, physical demand for household consumption (jewellery) is reduced substantially.
Indias gold imports are sure to shrink further as high prices show no sign of abating. Of course, speculators who closely track overseas markets have a field day.
Increase in demand for physical gold among investors.
Commodity markets continue to remain volatile with players groping for direction. In recent weeks, across commodities, investor risk appetite has remained spasmodic. This has followed the flow of economic data, often not very encouraging. An incipient recovery in metals prices (especially steel and copper) led to some optimistic expectations about demand, but it evaporated soon enough.
Crude is currently facing a crisis of confidence. Decline in demand and inventory overhang have affected the sentiment. As prices have declined to $mid-30s a barrel, there is actually panic in the market as to what next. When would supply cuts begin to tighten the market fundamentals remains the key question.
Agricultural markets are moving in their own orbit. Fight for acreage, especially in the US between corn, soyabean and wheat is expected to intensify. Aberrant weather in the Southern Hemisphere and consequent adverse effect of volume of output (mainly soyabean) may provide an upthrust, but will be capped by large inventory and lackadaisical demand growth.
The stimulus packages of various governments are yet to show run their course before they begin to show some result. The US Treasurys plans to fix the financial sector are unclear.
Gold
In a scenario where most commodity markets are in the dumps, with little prospect for a quick price recovery, the eternal favourite of investors, gold has proved to be an exceptional performer. Price of the yellow metal has appreciated steadily, despite reasonably strong dollar and overall weak sentiment in commodity markets.
It has become a truly safe haven asset, if any confirmation was needed. Indeed, the price rise is despite decline in jewellery demand. There has been a dramatic increase in appetite for physical gold among investors.
According to reports, total exchange traded product holdings have risen at their fastest ever rate so far this year, growing by 200 tonnes to almost 1,400 tonnes.
Gold coin sales are also soaring with sales by the US Mint reportedly running at double their levels a year ago.
The uptrend in gold may continue as long as investment buying remains sufficient to offset weakness in jewellery demand.
Even if there occurs a broad commodity market revival with return of risk appetite, gold may not really suffer badly. An upside risk to crude prices, inflation expectations and imminent weakening of the dollar (all of which likely in the second half of the year) would continue to support the yellow metal.
In the short-term, however, in the event safe-haven buying eases for any reason, gold prices could come under pressure especially in a deflationary environment or during bouts of dollar strength.
Resumes bull trend
According to technical analysts at Barclays Capital, gold is resuming its secular bull trend. The break through 931 completes an almost year-long countertrend correction indicating new highs in the weeks and months to come. The March 2008 peak of $1,033 an ounce is the next key level to note.
While the market is likely to struggle at or near this area, there is expectation that it will ultimately break, as the metal continues to shine on an absolute and relative basis. Eight consecutive years of gains, when single-digit annual returns are followed by double-digit annual returns, speak of the strength of the larger, secular bull, as does the positive 2008 out-performance despite a severe decline across the commodity complex, the analysts said.
Measured targets are seen toward the 1,180 area for a gain of approximately 25 per cent, with longer-term targets substantially above there.
Global prices
Rising international prices of gold and weakening Indian rupee have combined to push domestic market prices through the roof. Gold 10 grams reached an unprecedented rate of Rs 14,700. Given that higher prices lead to demand compression in price sensitive markets such as India, physical demand for household consumption (jewellery) is reduced substantially.
Indias gold imports are sure to shrink further as high prices show no sign of abating. Of course, speculators who closely track overseas markets have a field day.
No slowdown effect on cement demand
No slowdown effect on cement demand
Despatches helped by infrastructure, retail offtake.
Has the cement industry managed to ward off the worst of the recent economic slowdown?
Strong despatch numbers from cement manufacturers over the past three months and relatively firm cement prices seem to indicate this.
Industry-wide despatches, which grew at 4.8 per cent in October, moved to a healthy double-digit growth in November and December and remained at over 8 per cent in January.
The despatches of the top 5 companies (ACC, Ambuja Cements, Grasim Industries, UltraTech Cement and India Cements) put together for the December quarter show a 5-per cent growth compared to a 2.5-per cent growth last year.
The northern and eastern regions led demand growth, expanding by 12 and 16 per cent respectively in the December quarter.
The eastern region’s record growth, however, was on a low base in the previous year.
Rural demand
Cement manufacturers cite several reasons ranging from good retail demand from semi-urban and rural areas, to infrastructure spending to higher minimum support prices for crops, to explain this trend.
“The demand in the rural markets of North and East increased due to a very good harvest and remunerative minimum support prices (MSP) announced by the Government.
The disposable funds available in the hands of the farmers were partly used for meeting their basic needs such as housing and the balance was put aside in the form of savings to meet their future needs”, says Mr J. Datta Gupta, Chief Commercial Officer, ACC.
“The main contribution in demand growth in the December 2008 quarter was from the government spending on infrastructure” says Mr Vinod Juneja, Managing Director of Binani Cement.
Optimistic still
Players are also optimistic about the growth sustaining over the next couple of quarters.
ACC expects cement demand to grow between 7 and 9 per cent up to June, riding on the back of retail demand, which has picked up due to government stimulus and rate cut measures.
ACC’s Mr. Gupta expects increased demand from the retail and infrastructure segments to offset the slowdown in the demand from the multi-storey and commercial space.
Binani Cement holds the view that government spending will continue to remain high till the general elections, driving demand, as ongoing projects need to be completed.
Prices ruling firm
With demand strengthening, prices are holding firm. In Mumbai and Chennai, a 50 kg bag is quoting at Rs 260, among the highest in the country, at the previous year’s level.
There are expectations of prices going up further from current levels.
Says Mr Juneja: “Prices are firming up from January following good demand. In the northern and eastern regions, prices have risen by Rs 10 a bag while in the western region, the increase is Rs 3-5 a bag.”
Despatches helped by infrastructure, retail offtake.
Has the cement industry managed to ward off the worst of the recent economic slowdown?
Strong despatch numbers from cement manufacturers over the past three months and relatively firm cement prices seem to indicate this.
Industry-wide despatches, which grew at 4.8 per cent in October, moved to a healthy double-digit growth in November and December and remained at over 8 per cent in January.
The despatches of the top 5 companies (ACC, Ambuja Cements, Grasim Industries, UltraTech Cement and India Cements) put together for the December quarter show a 5-per cent growth compared to a 2.5-per cent growth last year.
The northern and eastern regions led demand growth, expanding by 12 and 16 per cent respectively in the December quarter.
The eastern region’s record growth, however, was on a low base in the previous year.
Rural demand
Cement manufacturers cite several reasons ranging from good retail demand from semi-urban and rural areas, to infrastructure spending to higher minimum support prices for crops, to explain this trend.
“The demand in the rural markets of North and East increased due to a very good harvest and remunerative minimum support prices (MSP) announced by the Government.
The disposable funds available in the hands of the farmers were partly used for meeting their basic needs such as housing and the balance was put aside in the form of savings to meet their future needs”, says Mr J. Datta Gupta, Chief Commercial Officer, ACC.
“The main contribution in demand growth in the December 2008 quarter was from the government spending on infrastructure” says Mr Vinod Juneja, Managing Director of Binani Cement.
Optimistic still
Players are also optimistic about the growth sustaining over the next couple of quarters.
ACC expects cement demand to grow between 7 and 9 per cent up to June, riding on the back of retail demand, which has picked up due to government stimulus and rate cut measures.
ACC’s Mr. Gupta expects increased demand from the retail and infrastructure segments to offset the slowdown in the demand from the multi-storey and commercial space.
Binani Cement holds the view that government spending will continue to remain high till the general elections, driving demand, as ongoing projects need to be completed.
Prices ruling firm
With demand strengthening, prices are holding firm. In Mumbai and Chennai, a 50 kg bag is quoting at Rs 260, among the highest in the country, at the previous year’s level.
There are expectations of prices going up further from current levels.
Says Mr Juneja: “Prices are firming up from January following good demand. In the northern and eastern regions, prices have risen by Rs 10 a bag while in the western region, the increase is Rs 3-5 a bag.”
Will investing in PSU stocks for dividends pay off?
Will investing in PSU stocks for dividends pay off?
Coimbatore, Feb. 15 While dividend chasing may not be for the faint hearted, the fact that stock prices have come down sharply in 6-7 months gives an opportunity to investors to log on to stocks that are reasonably valued and benefit from dividend payouts.
There is fear that stock prices may head further south once results start trickling in if there is any decline in market sentiment. But the performance of companies in the past nine months would give a fair indication as to how they are likely to close the current fiscal and if they would stick to their dividend track record. A few PSUs have announced interim dividends, giving an idea of the payouts possible.
Generally, investment pundits advice not to take investment decisions solely on the basis of dividend yield because there is no guarantee that companies would persist with a sustained high dividend paying policy, particularly in an uncertain market environment. Moreover, stock investments are done with a view to benefit from share price appreciation rather than from dividend payout, which, even though generous and tax free, cannot equal value appreciation. But any high dividend yield would, to some extent, soothe the psyche of the investors battered and bleeding after steep value erosion in stock prices.
Hinges on Govt policy
It is in this context that investment in PSU stocks could be seriously considered. Generally, the successful PSU companies have been good dividend payers. The fact that the Central Government has been a major shareholder in them and that these companies are in core sectors such as oil, defence, engineering, banking, transport, metal and therefore relatively immune to financial turmoil were reasons for their dividend record. The economic stimulus package announced by the Government also would have a long-term impact on these companies. Of course, the oil marketing companies – IOC, BPCL and HPCL – which generally pay high dividend, were victims of Government policies and the high crude oil prices last year, making them prune dividend payouts. This time, it could be the turn of oil refiners like CPCL to cut down on dividend with oil prices on the decline.
Dividend yield
A look at the dividend payouts by some PSU last year gives an idea as to how much valuable the dividend yield could be because of the sharp decline in their share prices now. Some of them have seen dilution in equity due to bonus/rights issue and hence reduction in dividend percentage is possible. But the advantage to the investors is that they are investing when share prices are low and have the double benefit of value appreciation, when market rebounds, and dividend income.
Some of the high dividend (all data on per share basis) paying PSUs last year were Balmer Lawrie (Rs 17), BHEL (Rs 15.25), BEML (Rs 12), Chennai Petroleum Corporation Ltd (Rs 17), Container Corporation (CONCOR) (Rs 18.50), Dredging Corporation ( Rs 15), GAIL (Rs 10), LIC Housing Finance (Rs 10), ONGC (Rs 32), SCI (Rs 8.50) and SBI (Rs 21.50). The oil marketing PSUs – IOCL, HPCL and BPCL – which paid lower dividend last year, may be more generous this time as crude oil prices have nosedived sharply from a high of $145 plus a barrel to $40 a barrel. A few PSUs have set the tone for dividend outgo by announcing interim dividends – BHEL (Rs 9 for a share), GAIL (Rs 4), ONGC (Rs 18) and CONCOR (Rs 6).
Mr Hitesh Agrawal, Head-Research, Angel Broking, Mumbai, said it the correction in stock prices has made the dividend yield in many PSU stocks attractive. However, it was important to note that considering the weak domestic economic outlook and the liquidity constraints being faced by India Inc, the cash flows of most PSU companies would also be under pressure. Therefore, what was more important to remember was that the dividend yield, particularly over the next couple of years, may not be a repeat of the past.
Growth vs Dividend
On the growth versus dividend argument, Mr Agrawal said it “is important to note that in the absence of growth, dividends cannot be sustained for long. Thus, both these factors go hand in hand, though their distribution pattern may deviate for short periods of time.”
Oil marketing cos
On how he expected the oil marketing companies and oil refiners to decide on the dividend payout, he said the absence of secular growth trend in earnings has resulted in varying dividends for the oil marketing companies.
However, these companies have been able to manage the dividend payout in the range of 30 per cent to 40 per cent and the trend is likely to continue.
For FY-09, dividends are likely to be much in line with dividends for FY-08 (low dividend for a share) on account of higher subsidy burden and inventory losses during the year. For FY-10, the dividends may increase.
But Mr Agrawal said ONGC could pay a healthy dividend over the next couple of years on account of its strong balance sheet and huge cash flow from operations.
Also, higher Government holding and falling direct and indirect taxes’ collections are likely to result in Government asking higher payout from companies such as ONGC.
Coimbatore, Feb. 15 While dividend chasing may not be for the faint hearted, the fact that stock prices have come down sharply in 6-7 months gives an opportunity to investors to log on to stocks that are reasonably valued and benefit from dividend payouts.
There is fear that stock prices may head further south once results start trickling in if there is any decline in market sentiment. But the performance of companies in the past nine months would give a fair indication as to how they are likely to close the current fiscal and if they would stick to their dividend track record. A few PSUs have announced interim dividends, giving an idea of the payouts possible.
Generally, investment pundits advice not to take investment decisions solely on the basis of dividend yield because there is no guarantee that companies would persist with a sustained high dividend paying policy, particularly in an uncertain market environment. Moreover, stock investments are done with a view to benefit from share price appreciation rather than from dividend payout, which, even though generous and tax free, cannot equal value appreciation. But any high dividend yield would, to some extent, soothe the psyche of the investors battered and bleeding after steep value erosion in stock prices.
Hinges on Govt policy
It is in this context that investment in PSU stocks could be seriously considered. Generally, the successful PSU companies have been good dividend payers. The fact that the Central Government has been a major shareholder in them and that these companies are in core sectors such as oil, defence, engineering, banking, transport, metal and therefore relatively immune to financial turmoil were reasons for their dividend record. The economic stimulus package announced by the Government also would have a long-term impact on these companies. Of course, the oil marketing companies – IOC, BPCL and HPCL – which generally pay high dividend, were victims of Government policies and the high crude oil prices last year, making them prune dividend payouts. This time, it could be the turn of oil refiners like CPCL to cut down on dividend with oil prices on the decline.
Dividend yield
A look at the dividend payouts by some PSU last year gives an idea as to how much valuable the dividend yield could be because of the sharp decline in their share prices now. Some of them have seen dilution in equity due to bonus/rights issue and hence reduction in dividend percentage is possible. But the advantage to the investors is that they are investing when share prices are low and have the double benefit of value appreciation, when market rebounds, and dividend income.
Some of the high dividend (all data on per share basis) paying PSUs last year were Balmer Lawrie (Rs 17), BHEL (Rs 15.25), BEML (Rs 12), Chennai Petroleum Corporation Ltd (Rs 17), Container Corporation (CONCOR) (Rs 18.50), Dredging Corporation ( Rs 15), GAIL (Rs 10), LIC Housing Finance (Rs 10), ONGC (Rs 32), SCI (Rs 8.50) and SBI (Rs 21.50). The oil marketing PSUs – IOCL, HPCL and BPCL – which paid lower dividend last year, may be more generous this time as crude oil prices have nosedived sharply from a high of $145 plus a barrel to $40 a barrel. A few PSUs have set the tone for dividend outgo by announcing interim dividends – BHEL (Rs 9 for a share), GAIL (Rs 4), ONGC (Rs 18) and CONCOR (Rs 6).
Mr Hitesh Agrawal, Head-Research, Angel Broking, Mumbai, said it the correction in stock prices has made the dividend yield in many PSU stocks attractive. However, it was important to note that considering the weak domestic economic outlook and the liquidity constraints being faced by India Inc, the cash flows of most PSU companies would also be under pressure. Therefore, what was more important to remember was that the dividend yield, particularly over the next couple of years, may not be a repeat of the past.
Growth vs Dividend
On the growth versus dividend argument, Mr Agrawal said it “is important to note that in the absence of growth, dividends cannot be sustained for long. Thus, both these factors go hand in hand, though their distribution pattern may deviate for short periods of time.”
Oil marketing cos
On how he expected the oil marketing companies and oil refiners to decide on the dividend payout, he said the absence of secular growth trend in earnings has resulted in varying dividends for the oil marketing companies.
However, these companies have been able to manage the dividend payout in the range of 30 per cent to 40 per cent and the trend is likely to continue.
For FY-09, dividends are likely to be much in line with dividends for FY-08 (low dividend for a share) on account of higher subsidy burden and inventory losses during the year. For FY-10, the dividends may increase.
But Mr Agrawal said ONGC could pay a healthy dividend over the next couple of years on account of its strong balance sheet and huge cash flow from operations.
Also, higher Government holding and falling direct and indirect taxes’ collections are likely to result in Government asking higher payout from companies such as ONGC.
Monday, February 9, 2009
Expat Indians look homewards for employment (Source: TOI)
Expat Indians look homewards for employment
The global economic problem is slowly turning into a migration crisis. Thousands of expat Indians are set to return home from developed and emerging geographies in the West, SouthEast Asia and West Asia, where governments are coming under increasing pressure to salvage the jobs of the local population. The downturn, which has already taken a toll on millions of jobs worldwide, now threatens to give rise to artificial barriers to mobility across borders. “Pressure to employ the local workforce is gaining ground across world markets,” said Rajiv Kumar, director and chief executive of the Delhi-based think-tank Indian Council for Research on International Economic Relations (ICRIER). There are many instances of downturn and protectionism going hand in hand. The UK government is under pressure from striking British workers at a refinery and nuclear plant to abstain from employing foreign workers, mainly from continental Europe, even as the awmakers face a deafening clamour to trim expat workforce levels and the Saudi government has asked companies to retrench imported labour. “Labour mobility will be determined by the political economy,” said TV Mohan Das Pai, director HR, Infosys. “It’s natural that every country will try to safeguard its own workers’ interests.” And this, he feels, will increasingly happen across countries. A back-of-the-envelope calculation shows that nearly 50,000 Indian software professionals work abroad. These jobs may be at stake, with the US senators – Dick Durbin and Chuck Grassley – planning to introduce a legislation that makes it mandatory for Indian outsourcing firms such as Tata Consultancy Services, Infosys and Wipro to hire American employees before filing for H-1B visas for their Indian employees. Back home, things are no different. Under pressure from politicians and local staff, Jet Airways is showing the door to several expat pilots. “History is witness that whenever countries try to prop up protectionism, it intensifies depression,” Kamal Nath, commerce and industry minister, told participants at the World Economic Forum meet in Davos recently. Many governments and business leaders, who gathered at Davos last week, echoed Mr Nath’s warning against the rising tide of protectionism. Domestic concerns over job losses could lead to new trade barriers and fuel additional job cuts. India’s export sector is already reeling under massive demand destruction in the developed world. And, if industry lobbies are to be believed, the attrition levels have climbed to nearly a million. The International Monetary Fund, last week, pegged the global economic growth at a mere 0.5% this year, the slowest since World War II, while International Labour Organisation warned that as many as 50 million people could be rendered jobless in 2009.
While it is hard to predict the outcome of a recession of this magnitude, fears are rife that the number of the US visas will be curtailed,” said Dharmakirti Joshi, principal economist at rating agency Crisil. Migration to the Gulf, which employs the largest number of Indians outside the country, helped several families to tide over poverty in the past decades. There is no centralised data on the number of Indians working abroad. But the ministry of labour website suggests that at least 30 lakh Indians, mainly construction workers and nurses, are employed in the Gulf. And the flight to advanced countries helped thousands of technically-qualified Indian professionals to find their dream jobs. As the number of migrant Indian workers swelled over the years, overseas remittances added to the country’s forex kitty and afforded comfort to the government in framing economic policy. An unceremonious homecoming of thousands of white and blue-collared non-resident Indians would reduce overseas remittances and impact foreign exchange reserves. “One could expect remittances to come down, going forward,” points out Mr Kumar. Workforce mobility has helped overseas companies to get the right talent at lower wages and fuelled growth in several economies. Countries in the Middle East and Southeast Asia, where migrants comprise a major chunk of the population, could witness lower economic activity as a result of reverse migration. Moreover, going by research reports of several investment banks, Singapore and Gulf countries could see their population dwindling by 10%, jeopardising their overall economic activity. The return of migrants to India would put further pressure on the local job market. “There could be greater pressure on agriculture as construction workers return from abroad to join the large number of laid-off domestic labourers,” fears Mr Kumar.
The global economic problem is slowly turning into a migration crisis. Thousands of expat Indians are set to return home from developed and emerging geographies in the West, SouthEast Asia and West Asia, where governments are coming under increasing pressure to salvage the jobs of the local population. The downturn, which has already taken a toll on millions of jobs worldwide, now threatens to give rise to artificial barriers to mobility across borders. “Pressure to employ the local workforce is gaining ground across world markets,” said Rajiv Kumar, director and chief executive of the Delhi-based think-tank Indian Council for Research on International Economic Relations (ICRIER). There are many instances of downturn and protectionism going hand in hand. The UK government is under pressure from striking British workers at a refinery and nuclear plant to abstain from employing foreign workers, mainly from continental Europe, even as the awmakers face a deafening clamour to trim expat workforce levels and the Saudi government has asked companies to retrench imported labour. “Labour mobility will be determined by the political economy,” said TV Mohan Das Pai, director HR, Infosys. “It’s natural that every country will try to safeguard its own workers’ interests.” And this, he feels, will increasingly happen across countries. A back-of-the-envelope calculation shows that nearly 50,000 Indian software professionals work abroad. These jobs may be at stake, with the US senators – Dick Durbin and Chuck Grassley – planning to introduce a legislation that makes it mandatory for Indian outsourcing firms such as Tata Consultancy Services, Infosys and Wipro to hire American employees before filing for H-1B visas for their Indian employees. Back home, things are no different. Under pressure from politicians and local staff, Jet Airways is showing the door to several expat pilots. “History is witness that whenever countries try to prop up protectionism, it intensifies depression,” Kamal Nath, commerce and industry minister, told participants at the World Economic Forum meet in Davos recently. Many governments and business leaders, who gathered at Davos last week, echoed Mr Nath’s warning against the rising tide of protectionism. Domestic concerns over job losses could lead to new trade barriers and fuel additional job cuts. India’s export sector is already reeling under massive demand destruction in the developed world. And, if industry lobbies are to be believed, the attrition levels have climbed to nearly a million. The International Monetary Fund, last week, pegged the global economic growth at a mere 0.5% this year, the slowest since World War II, while International Labour Organisation warned that as many as 50 million people could be rendered jobless in 2009.
While it is hard to predict the outcome of a recession of this magnitude, fears are rife that the number of the US visas will be curtailed,” said Dharmakirti Joshi, principal economist at rating agency Crisil. Migration to the Gulf, which employs the largest number of Indians outside the country, helped several families to tide over poverty in the past decades. There is no centralised data on the number of Indians working abroad. But the ministry of labour website suggests that at least 30 lakh Indians, mainly construction workers and nurses, are employed in the Gulf. And the flight to advanced countries helped thousands of technically-qualified Indian professionals to find their dream jobs. As the number of migrant Indian workers swelled over the years, overseas remittances added to the country’s forex kitty and afforded comfort to the government in framing economic policy. An unceremonious homecoming of thousands of white and blue-collared non-resident Indians would reduce overseas remittances and impact foreign exchange reserves. “One could expect remittances to come down, going forward,” points out Mr Kumar. Workforce mobility has helped overseas companies to get the right talent at lower wages and fuelled growth in several economies. Countries in the Middle East and Southeast Asia, where migrants comprise a major chunk of the population, could witness lower economic activity as a result of reverse migration. Moreover, going by research reports of several investment banks, Singapore and Gulf countries could see their population dwindling by 10%, jeopardising their overall economic activity. The return of migrants to India would put further pressure on the local job market. “There could be greater pressure on agriculture as construction workers return from abroad to join the large number of laid-off domestic labourers,” fears Mr Kumar.
Sunday, February 8, 2009
ICICI Securities puts 'hold' on Tata Power
ICICI Securities puts 'hold' on Tata Power
CMP: Rs 752.95
Target price: NA
ICICI Securities has initiated coverage on Tata Power with a ‘hold’ rating while advising investors to consider aspects like loan servicing and project funding capabilities of the company. “Falling coal prices do not augur well for Tata Power as it has a long position on coal. The company’s subsidiaries may face difficulty in servicing loan taken to acquire 30% stake in two Bumi mines, KPC & Arutmin,” states the report. The brokerage also feels that the slowdown in metals in China and the resultant sluggishness in power consumption, long-term coal prices will most likely be at $40-45 per thermal equivalent (TE). “Thus, Tata Power will either refinance
$950-million loan or raise additional loan in India to repay the Bumi debt, which appears difficult given the highly leveraged balance sheet,” says the report. Moreover, Tata Power requires at least Rs 1,000 crore to fund its ongoing projects, notes the report.
CMP: Rs 752.95
Target price: NA
ICICI Securities has initiated coverage on Tata Power with a ‘hold’ rating while advising investors to consider aspects like loan servicing and project funding capabilities of the company. “Falling coal prices do not augur well for Tata Power as it has a long position on coal. The company’s subsidiaries may face difficulty in servicing loan taken to acquire 30% stake in two Bumi mines, KPC & Arutmin,” states the report. The brokerage also feels that the slowdown in metals in China and the resultant sluggishness in power consumption, long-term coal prices will most likely be at $40-45 per thermal equivalent (TE). “Thus, Tata Power will either refinance
$950-million loan or raise additional loan in India to repay the Bumi debt, which appears difficult given the highly leveraged balance sheet,” says the report. Moreover, Tata Power requires at least Rs 1,000 crore to fund its ongoing projects, notes the report.
Indian stocks still promising
Indian stocks still promising
Despite the biggest corporate fraud unravelling in January, Indian equities figured among the best performers in all the emerging markets, according to Morgan Stanley Capital International (MSCI). The index delivered a (-)2.1% for January as against MSCI’s Emerging Markets Index return of (-)6.6%. According to MSCI data, India’s MSCI index closed at 228.7 points. Only two other markets — Chile and Brazil — delivered better returns than India. While Chile delivered 10.5% for January, Brazil saw a growth of 4.5%. However on an annual return basis, India’s performance is poorer. The country delivered a (-)60.1% for the preceding 12 month period. Sensex too shed 2.3% on a sequential basis to close at 9,424.20 points, while NSE Nifty lost 2.90% to close at 2,874.80 points. Among the major negative news which dampened the sentiment in the country’s bourses were Ramalinga Raju’s fraud disclosure in Satyam Computer Services, 9.9% fall in India’s exports in November last year, and the contraction of the country’s manufacturing activity to a three-and-half-year low in December. “January was among the worst starts to a year that equity investors have ever seen. After a relief rally in December 2008, bears once again took hold of most of the equity markets across the globe. The negative news flows globally, coupled with relatively poor results in Jan-March 2009 quarter reported by the companies, led to a selloff in the global equity markets (including India). Satyam scam was a major negative event, which impacted the equity markets in India. However, some positive news flows like stimulus package announced by Indian & German Governments, hope of a second stimulus package in US & interest rate cuts along with softening inflation in India restricted the extent of fall during the month,” HDFC Securities said in a report.
During January, FIIs pulled out Rs 4,250.20 crore from markets, while mutual funds
sold equities worth Rs 11,182.50 crore against purchases of Rs 9,919.10 crore. Among BSE sectoral indices, BSE Realty was the worst performer with losses of 26.60%, Bankex shed 10.2% and capital goods were down by 9.5%. FMCG, Auto and Oil and Gas delivered positive returns.
Despite the biggest corporate fraud unravelling in January, Indian equities figured among the best performers in all the emerging markets, according to Morgan Stanley Capital International (MSCI). The index delivered a (-)2.1% for January as against MSCI’s Emerging Markets Index return of (-)6.6%. According to MSCI data, India’s MSCI index closed at 228.7 points. Only two other markets — Chile and Brazil — delivered better returns than India. While Chile delivered 10.5% for January, Brazil saw a growth of 4.5%. However on an annual return basis, India’s performance is poorer. The country delivered a (-)60.1% for the preceding 12 month period. Sensex too shed 2.3% on a sequential basis to close at 9,424.20 points, while NSE Nifty lost 2.90% to close at 2,874.80 points. Among the major negative news which dampened the sentiment in the country’s bourses were Ramalinga Raju’s fraud disclosure in Satyam Computer Services, 9.9% fall in India’s exports in November last year, and the contraction of the country’s manufacturing activity to a three-and-half-year low in December. “January was among the worst starts to a year that equity investors have ever seen. After a relief rally in December 2008, bears once again took hold of most of the equity markets across the globe. The negative news flows globally, coupled with relatively poor results in Jan-March 2009 quarter reported by the companies, led to a selloff in the global equity markets (including India). Satyam scam was a major negative event, which impacted the equity markets in India. However, some positive news flows like stimulus package announced by Indian & German Governments, hope of a second stimulus package in US & interest rate cuts along with softening inflation in India restricted the extent of fall during the month,” HDFC Securities said in a report.
During January, FIIs pulled out Rs 4,250.20 crore from markets, while mutual funds
sold equities worth Rs 11,182.50 crore against purchases of Rs 9,919.10 crore. Among BSE sectoral indices, BSE Realty was the worst performer with losses of 26.60%, Bankex shed 10.2% and capital goods were down by 9.5%. FMCG, Auto and Oil and Gas delivered positive returns.
HNIs back with appetite for investments (Source: ET)
HNIs back with appetite for investments
NEW DELHI: High net worth individuals (HNIs) are back in action. After a few months of lull, HNIs have begun to approach brokers and wealth managers to invest sizeable funds in the equity market. Several fund managers have confirmed to SundayETthat HNIs are now willing to re-enter the market. And in order to provide just-in-time services to their prized clients and grab a piece of their investment, brokers are unfolding several products and adopting various strategies. Clients are being lured to new portfolio management services (PMS) or new schemes under the existing PMS umbrella. Some wealth managers are also entering joint ventures with their peers to create new products and access new markets. Prasanth Prabhakaran, senior V-P & all-India head of broking at Kotak Securities, said HNI clients have become bullish on the equity markets again and are “ready to make investments now.” Dheeraj Sachdev, head of fund management, equity, with HSBC Global Asset Management, added, “HNI investors are optimistic on the equity market and have started investing gradually through various routes such as PMS, mutual funds or even direct equity.”
HSBC Asset Management (India) has recently added a new PMS scheme called HSBC Amanah India Shariah Portfolio, under its portfolio management services. According to Vikramaaditya, CEO of HSBC Asset Management (India), this product is an actively managed, open-ended equity offering whereby HNIs can invest in companies complying with Islamic Shariah principles. Religare Macquarie, a joint venture between Religare Enterprises and Macquarie Group, too, recently announced their wealth advisory service under the campaign of “active wealth management”, mainly to cater to HNI clients. SMC Wealth Management Services in a JV with Sanlam, too, has launched a pair of schemes under PMS. DK Agarwal, MD, SMC Wealth Management, said, “We have launched two products — arbitrage scheme and growth scheme. The arbitrage scheme is for HNIs having less risk appetite and expecting consistent returns on a regular basis, while growth scheme is for HNI clients aspiring for higher returns by putting money in the equity market and ready to take a comparatively higher risk.” According to Securities & Exchange Board of India (Sebi), a minimum of Rs 5 lakh is required to enter a PMS scheme. But the minimum investments differ from scheme to scheme. For instance, the threshold investment required in HSBC Amanah India Shariah Portfolio is Rs 25 lakh, it’s Rs 50 lakh for individuals and Rs 1 crore for corporate clients for SMC wealth management-arbitrage scheme.
NEW DELHI: High net worth individuals (HNIs) are back in action. After a few months of lull, HNIs have begun to approach brokers and wealth managers to invest sizeable funds in the equity market. Several fund managers have confirmed to SundayETthat HNIs are now willing to re-enter the market. And in order to provide just-in-time services to their prized clients and grab a piece of their investment, brokers are unfolding several products and adopting various strategies. Clients are being lured to new portfolio management services (PMS) or new schemes under the existing PMS umbrella. Some wealth managers are also entering joint ventures with their peers to create new products and access new markets. Prasanth Prabhakaran, senior V-P & all-India head of broking at Kotak Securities, said HNI clients have become bullish on the equity markets again and are “ready to make investments now.” Dheeraj Sachdev, head of fund management, equity, with HSBC Global Asset Management, added, “HNI investors are optimistic on the equity market and have started investing gradually through various routes such as PMS, mutual funds or even direct equity.”
HSBC Asset Management (India) has recently added a new PMS scheme called HSBC Amanah India Shariah Portfolio, under its portfolio management services. According to Vikramaaditya, CEO of HSBC Asset Management (India), this product is an actively managed, open-ended equity offering whereby HNIs can invest in companies complying with Islamic Shariah principles. Religare Macquarie, a joint venture between Religare Enterprises and Macquarie Group, too, recently announced their wealth advisory service under the campaign of “active wealth management”, mainly to cater to HNI clients. SMC Wealth Management Services in a JV with Sanlam, too, has launched a pair of schemes under PMS. DK Agarwal, MD, SMC Wealth Management, said, “We have launched two products — arbitrage scheme and growth scheme. The arbitrage scheme is for HNIs having less risk appetite and expecting consistent returns on a regular basis, while growth scheme is for HNI clients aspiring for higher returns by putting money in the equity market and ready to take a comparatively higher risk.” According to Securities & Exchange Board of India (Sebi), a minimum of Rs 5 lakh is required to enter a PMS scheme. But the minimum investments differ from scheme to scheme. For instance, the threshold investment required in HSBC Amanah India Shariah Portfolio is Rs 25 lakh, it’s Rs 50 lakh for individuals and Rs 1 crore for corporate clients for SMC wealth management-arbitrage scheme.
Reduce ACC, target of Rs 422: IIFL (Source: Moneycontrol.com)
IIFL has maintained its reduce rating on ACC with a target price of Rs 422 in its February 6, 2009 research report. "ACC’s 4QCY08 PAT (standalone) increased 19% YoY to Rs 3 billion, better than our expectation of Rs 2.6 billion. Adjusted for a sharp increase in other income and a charge for change in discounting rate for present-value employee benefit liabilities, PAT is marginally higher than our expectation."
"We continue to be cautious on ACC, as material growth in volumes is likely only after 3QCY09 (after the new plants have started production). Given that further efficiency gains are unlikely and the company’s dependence on imported coal and openmarket coal purchases is already low, ACC’s cost savings from falling coal prices would be low, compared to peers. ACC continues to be expensive, at P/BV of 1.9x on CY09ii. We maintain our REDUCE rating with a target price of Rs 422," says IIFL's research report.
"We continue to be cautious on ACC, as material growth in volumes is likely only after 3QCY09 (after the new plants have started production). Given that further efficiency gains are unlikely and the company’s dependence on imported coal and openmarket coal purchases is already low, ACC’s cost savings from falling coal prices would be low, compared to peers. ACC continues to be expensive, at P/BV of 1.9x on CY09ii. We maintain our REDUCE rating with a target price of Rs 422," says IIFL's research report.
Buy BEML, target of Rs 426: KRChoksey (Source: moneycontrol.com)
KRChoksey Research has maintained its buy rating on BEML with a target price of Rs 426 in its February 6, 2009 research report. "Net Sales of the company increased marginally by 1.7% (YoY) to Rs 632.9 crore due to slowdown in economy. On back of diversified business model, rich cash reserves (Rs 125.1 per share), healthy order book, railway business initiatives, we maintain our BUY rating on the stock, target of Rs 426," says KRChoksey's research report.
Sanghvi Movers: Buy
Sanghvi Movers: Buy
A reputable player in the crane-hiring business, Sanghvi Movers makes for an attractive investment despite the slowing economy, given its large fleet size, diverse user industry base and virtual monopoly in the higher tonnage cranes segment.
The company’s long-standing business liaisons with companies such as Reliance Industries, Suzlon Energy and BHEL may also stand it in good stead, as these companies are less vulnerable to a slowdown in investments in their core business.
At the current market price of Rs 68, the stock trades at about three times its likely FY09 per share earnings. Investors, however, can consider phasing out their exposure given the heightened volatility in the broad markets.
After having aggressively added to its capacity over the last couple of years, Sanghvi has, in keeping with the slowing economy, cut down on its capex plans. In the next fiscal, the company plans to spend only Rs 30-40 crore on improving capacity, which the management has indicated can go up to Rs 100 crore (towards delivery of the 1,400-tonner crane) if the erection works in Bhatinda and Bina refinery projects begin during the year.
This cautious approach towards capacity addition appears prudent in these times as it will not only help Sanghvi put its existing fleet to better use and keep utilisation levels steady (currently pegged at about 85 per cent), it will also help it divert funds towards reducing its debt burden, which it plans to wipe away completely in three years.
The company also enjoys a fairly strong demand visibility, though many infrastructure companies are going slow on their expansion plans. The company’s increasing exposure to the power sector may help keep its revenue stream steady as the sector is likely to see continued investments in future.
That Sanghvi has emerged as the sole bidder in many of BHEL’s tender-based order and is the front-runner for Sasan UMPP project underscores its position in the sector. However, the company’s long-term contracts with Suzlon may bear a close watch as they are up for renegotiation in March 2009.
For the quarter ended December 2008, the company reported a healthy 38 per cent and 35 per cent growth in revenues and profits respectively. But it is the performance at the operating level that commands particular attention. Sanghvi boasts of an operating margin of over 75.5 per cent (up 290 basis points), which lends comfort on its ability to weather the ongoing slowdown. While high interest and depreciation cost moderated net profit growth, growth remains at levels healthy enough to provide comfort on valuations.
A reputable player in the crane-hiring business, Sanghvi Movers makes for an attractive investment despite the slowing economy, given its large fleet size, diverse user industry base and virtual monopoly in the higher tonnage cranes segment.
The company’s long-standing business liaisons with companies such as Reliance Industries, Suzlon Energy and BHEL may also stand it in good stead, as these companies are less vulnerable to a slowdown in investments in their core business.
At the current market price of Rs 68, the stock trades at about three times its likely FY09 per share earnings. Investors, however, can consider phasing out their exposure given the heightened volatility in the broad markets.
After having aggressively added to its capacity over the last couple of years, Sanghvi has, in keeping with the slowing economy, cut down on its capex plans. In the next fiscal, the company plans to spend only Rs 30-40 crore on improving capacity, which the management has indicated can go up to Rs 100 crore (towards delivery of the 1,400-tonner crane) if the erection works in Bhatinda and Bina refinery projects begin during the year.
This cautious approach towards capacity addition appears prudent in these times as it will not only help Sanghvi put its existing fleet to better use and keep utilisation levels steady (currently pegged at about 85 per cent), it will also help it divert funds towards reducing its debt burden, which it plans to wipe away completely in three years.
The company also enjoys a fairly strong demand visibility, though many infrastructure companies are going slow on their expansion plans. The company’s increasing exposure to the power sector may help keep its revenue stream steady as the sector is likely to see continued investments in future.
That Sanghvi has emerged as the sole bidder in many of BHEL’s tender-based order and is the front-runner for Sasan UMPP project underscores its position in the sector. However, the company’s long-term contracts with Suzlon may bear a close watch as they are up for renegotiation in March 2009.
For the quarter ended December 2008, the company reported a healthy 38 per cent and 35 per cent growth in revenues and profits respectively. But it is the performance at the operating level that commands particular attention. Sanghvi boasts of an operating margin of over 75.5 per cent (up 290 basis points), which lends comfort on its ability to weather the ongoing slowdown. While high interest and depreciation cost moderated net profit growth, growth remains at levels healthy enough to provide comfort on valuations.
DLF: Hold
DLF: Hold
The company is among the better-placed developers to weather the current slowdown. Investors keen to participate in the yet-to-mature real-estate sector can consider accumulating the DLF stock.
The company is tactically altering business strategies and meeting the sector demands.
Vidya Bala
While much was being said about the slowing real-estate sector in mid-2008, the September quarter results of the bigger developers such as DLF did not hint at dire prospects for the sector. A gradual slowdown appeared to be on the cards, though. However, the last four months have seen the sector flounder as demand dried up, along with liquidity.
The latest quarter financials speak loud and clear — the realty sector is in the midst of a deep correction. So much so that, the largest developer in the listed space, DLF, witnessed a 62 per cent decline in sales and 69 per cent decline in net profits in the December quarter compared to year ago numbers. The stock market too has responded by beating down the stock by 56 per cent (to Rs 138 now), from its 2009 high of Rs 300.
Given the muted prospects for the company and the sector, should investors retain their exposure to the stock of DLF? They should.
Accumulate
In fact, investors keen to participate in the yet-to-mature real-estate sector in India can consider accumulating the DLF stock. We believe that the company is among the better-placed developers to weather the current slowdown.
It can achieve this by tactically altering business strategies and meeting the sector demands as and when there are signs of revival.
The company’s guarded approach of preserving its balance-sheet at the cost of postponing some revenues also appears prudent in these perilous times when it does not take much to get entangled in a debt trap.
The recent spate of incentives given to developers and home loan buyers, combined with the declining interest rates, can be expected to boost demand in the realty sector.
What to expect: Investors who bought the stock at higher levels can average their costs by buying at current prices. Hold with at least a three-five-year perspective to fully participate in a revival. At the current market price, the stock trades at 4.8 times its expected consolidated earnings for FY09. Investors may have to be prepared for a decline in earnings in FY-09 and muted performance until the first half of FY-10.
We expect a gradual revival after this period, primarily driven by the residential segment, followed by the retail space.
The fortunes of the commercial segment would, however, be tied mainly to the prospects of the IT sector and revival in this segment may take longer, as significant excess supply starts kicking in.
Pills to counter slowdown
Residential segment: DLF has been one of the early players to recognise the slowing demand scenario and shift strategies accordingly. The company, moved to mid-income housing over a year ago, when the premium segment demand appeared sluggish.
In fact, the company managed good growth over the first three quarters of 2008 due to its timely entry into this space.
The company has also been steadily reducing property prices at a time when even smaller players have been reluctant to do so. The weighted average price of its apartments sold in the December quarter at Rs 2,736 is over 40 per cent lower than its sale price a year ago.
Even over the last quarter, the average sale price declined by 8 per cent. In some of its new launches in the Rs 25-30 lakh category, its pricing has been aggressive in relation to the local market prices. On the other hand, it has completely postponed all launches of luxury homes.
DLF has also launched plotted developments in cities such as Pune and Hyderabad to hasten the working capital flow.
While these strategies are yet to yield expected results, we believe that it may be wrong to expect an immediate spurt in demand; the relatively attractive property offerings experimented in the mid-income segment, along with the declining interest rates, may help the residential segment, where DLF has about 14.4 million square feet under construction.
Office and retail segment: DLF has been taking a cautious stance on office space as it anticipates marginal cancellations with corporates putting on hold their expansion plans. DLF has, therefore, resorted to suspension of activity in about 35 per cent of its 35 million sq ft of commercial space under construction.
In more recent times, the company also shifted focus to the sale model rather than lease model (where such projects are typically sold to group company DAL).
This essentially means that sale to DAL would significantly come down in the near future.
Meanwhile, a good part of debtor dues from sales to be made to DAL by March 2009 may get monetised if DAL succeeds in securing private equity funding, which it is currently working on. Failure to do this may once again increase debtors outstanding from the group company.
Interestingly, while the volume of leases booked has dropped drastically, and lease rates are lower than the September quarter, the December office lease rate at Rs 51 per sq ft, is still higher than a year ago rate of Rs 43 (it is another matter that average costs too have gone up).
This suggests that DLF has been selective in choosing only those areas for leasing where prices are firm. This trend was visible in the company’s retail sales as well.
Aside from its shifting business mix, DLF has also postponed some of its capital-intensive hotel projects (other than joint venture projects) and denotified a special economic zone that was instead calibrated into a residential project.
These measures may help it respond to the changing market needs and keep liquidity flow from drying up.
Debt
As a result, DLF’s net debt:equity position has remained at a safe 0.6 per cent. The company has not incurred fresh debt for operations, the whole of the last quarter.
A good part of the debt has also been converted into long-term dues as a result of securitisation of sales/rent receivables. The average cost of debt is currently 11.9 per cent. For the quarter ended December 2008, DLF’s operating profit margins slumped to 56 per cent from 69 per cent a year ago. Reduction in revenues in the high-margin lease segment, entry into mid-income housing and the sharp slashes in price were the key reasons for the decline.
Margins may see further drag with more budget houses being sold in the coming quarters. Therefore, increase in volumes would be the key to reasonable growth.
The company is among the better-placed developers to weather the current slowdown. Investors keen to participate in the yet-to-mature real-estate sector can consider accumulating the DLF stock.
The company is tactically altering business strategies and meeting the sector demands.
Vidya Bala
While much was being said about the slowing real-estate sector in mid-2008, the September quarter results of the bigger developers such as DLF did not hint at dire prospects for the sector. A gradual slowdown appeared to be on the cards, though. However, the last four months have seen the sector flounder as demand dried up, along with liquidity.
The latest quarter financials speak loud and clear — the realty sector is in the midst of a deep correction. So much so that, the largest developer in the listed space, DLF, witnessed a 62 per cent decline in sales and 69 per cent decline in net profits in the December quarter compared to year ago numbers. The stock market too has responded by beating down the stock by 56 per cent (to Rs 138 now), from its 2009 high of Rs 300.
Given the muted prospects for the company and the sector, should investors retain their exposure to the stock of DLF? They should.
Accumulate
In fact, investors keen to participate in the yet-to-mature real-estate sector in India can consider accumulating the DLF stock. We believe that the company is among the better-placed developers to weather the current slowdown.
It can achieve this by tactically altering business strategies and meeting the sector demands as and when there are signs of revival.
The company’s guarded approach of preserving its balance-sheet at the cost of postponing some revenues also appears prudent in these perilous times when it does not take much to get entangled in a debt trap.
The recent spate of incentives given to developers and home loan buyers, combined with the declining interest rates, can be expected to boost demand in the realty sector.
What to expect: Investors who bought the stock at higher levels can average their costs by buying at current prices. Hold with at least a three-five-year perspective to fully participate in a revival. At the current market price, the stock trades at 4.8 times its expected consolidated earnings for FY09. Investors may have to be prepared for a decline in earnings in FY-09 and muted performance until the first half of FY-10.
We expect a gradual revival after this period, primarily driven by the residential segment, followed by the retail space.
The fortunes of the commercial segment would, however, be tied mainly to the prospects of the IT sector and revival in this segment may take longer, as significant excess supply starts kicking in.
Pills to counter slowdown
Residential segment: DLF has been one of the early players to recognise the slowing demand scenario and shift strategies accordingly. The company, moved to mid-income housing over a year ago, when the premium segment demand appeared sluggish.
In fact, the company managed good growth over the first three quarters of 2008 due to its timely entry into this space.
The company has also been steadily reducing property prices at a time when even smaller players have been reluctant to do so. The weighted average price of its apartments sold in the December quarter at Rs 2,736 is over 40 per cent lower than its sale price a year ago.
Even over the last quarter, the average sale price declined by 8 per cent. In some of its new launches in the Rs 25-30 lakh category, its pricing has been aggressive in relation to the local market prices. On the other hand, it has completely postponed all launches of luxury homes.
DLF has also launched plotted developments in cities such as Pune and Hyderabad to hasten the working capital flow.
While these strategies are yet to yield expected results, we believe that it may be wrong to expect an immediate spurt in demand; the relatively attractive property offerings experimented in the mid-income segment, along with the declining interest rates, may help the residential segment, where DLF has about 14.4 million square feet under construction.
Office and retail segment: DLF has been taking a cautious stance on office space as it anticipates marginal cancellations with corporates putting on hold their expansion plans. DLF has, therefore, resorted to suspension of activity in about 35 per cent of its 35 million sq ft of commercial space under construction.
In more recent times, the company also shifted focus to the sale model rather than lease model (where such projects are typically sold to group company DAL).
This essentially means that sale to DAL would significantly come down in the near future.
Meanwhile, a good part of debtor dues from sales to be made to DAL by March 2009 may get monetised if DAL succeeds in securing private equity funding, which it is currently working on. Failure to do this may once again increase debtors outstanding from the group company.
Interestingly, while the volume of leases booked has dropped drastically, and lease rates are lower than the September quarter, the December office lease rate at Rs 51 per sq ft, is still higher than a year ago rate of Rs 43 (it is another matter that average costs too have gone up).
This suggests that DLF has been selective in choosing only those areas for leasing where prices are firm. This trend was visible in the company’s retail sales as well.
Aside from its shifting business mix, DLF has also postponed some of its capital-intensive hotel projects (other than joint venture projects) and denotified a special economic zone that was instead calibrated into a residential project.
These measures may help it respond to the changing market needs and keep liquidity flow from drying up.
Debt
As a result, DLF’s net debt:equity position has remained at a safe 0.6 per cent. The company has not incurred fresh debt for operations, the whole of the last quarter.
A good part of the debt has also been converted into long-term dues as a result of securitisation of sales/rent receivables. The average cost of debt is currently 11.9 per cent. For the quarter ended December 2008, DLF’s operating profit margins slumped to 56 per cent from 69 per cent a year ago. Reduction in revenues in the high-margin lease segment, entry into mid-income housing and the sharp slashes in price were the key reasons for the decline.
Margins may see further drag with more budget houses being sold in the coming quarters. Therefore, increase in volumes would be the key to reasonable growth.
Reliance Growth Fund: Invest through SIP
Reliance Growth Fund: Invest through SIP
Investors can continue to hold the units of Reliance Growth Fund, while those with a penchant for risk can consider fresh investments by way of SIP (Systematic Investment Plan), going by its long-term track record in delivering strong returns.
The fund has outperformed its benchmark, the BSE 100, over one, three- and five-year periods. Reliance Growth has managed extremely good returns during boom periods in the market. While downside containment was an issue during protracted corrections, the fund has managed to improve on this count in recent times.
Though the fund did start out with a mid-cap focus, an increasing asset size and higher market volatility has seen the fund shift a larger portion of its portfolio to large-cap stocks in recent times. The fund may suit investors seeking to add a flexicap fund to their existing portfolio.
Reliance Growth has been among the top few performers in the diversified funds category over several years, helped mainly by its higher allocations to mid-cap stocks in the bull market. The returns delivered by the fund over a five-year period, at a compounded annual rate of 22.3 per cent, are better than most diversified large-cap funds.
During the bull-run of 2003-07, the fund managed a whopping compounded annual return of over 72 per cent.
During the market downturns in 2004 or 2006, it tended to lag its benchmark or peers during corrective phases. But in the market corrections in early 2007 and in 2008, the fund has improved significantly on this aspect and has contained losses better than its benchmark.
This has been possible largely because, from investing over 40 per cent of its portfolio in mid-cap stocks in 2007, the fund has brought mid-cap allocations down to 27 per cent levels. Portfolio
In recent times, the fund has considerably increased exposure to defensive sectors. The sectors that were hot favourites during the bull-run, such as capital goods, construction, and metals, have seen exposures reduced. Instead, the fund’s recent portfolio indicates that pharma, consumer non-durables and software are now among the top few sectors held.Fund Facts
The NAV per unit of the growth option is Rs 199.7.
Mr Sunil Singhania manages the fund.
Investors can continue to hold the units of Reliance Growth Fund, while those with a penchant for risk can consider fresh investments by way of SIP (Systematic Investment Plan), going by its long-term track record in delivering strong returns.
The fund has outperformed its benchmark, the BSE 100, over one, three- and five-year periods. Reliance Growth has managed extremely good returns during boom periods in the market. While downside containment was an issue during protracted corrections, the fund has managed to improve on this count in recent times.
Though the fund did start out with a mid-cap focus, an increasing asset size and higher market volatility has seen the fund shift a larger portion of its portfolio to large-cap stocks in recent times. The fund may suit investors seeking to add a flexicap fund to their existing portfolio.
Reliance Growth has been among the top few performers in the diversified funds category over several years, helped mainly by its higher allocations to mid-cap stocks in the bull market. The returns delivered by the fund over a five-year period, at a compounded annual rate of 22.3 per cent, are better than most diversified large-cap funds.
During the bull-run of 2003-07, the fund managed a whopping compounded annual return of over 72 per cent.
During the market downturns in 2004 or 2006, it tended to lag its benchmark or peers during corrective phases. But in the market corrections in early 2007 and in 2008, the fund has improved significantly on this aspect and has contained losses better than its benchmark.
This has been possible largely because, from investing over 40 per cent of its portfolio in mid-cap stocks in 2007, the fund has brought mid-cap allocations down to 27 per cent levels. Portfolio
In recent times, the fund has considerably increased exposure to defensive sectors. The sectors that were hot favourites during the bull-run, such as capital goods, construction, and metals, have seen exposures reduced. Instead, the fund’s recent portfolio indicates that pharma, consumer non-durables and software are now among the top few sectors held.Fund Facts
The NAV per unit of the growth option is Rs 199.7.
Mr Sunil Singhania manages the fund.
Subscribe to:
Posts (Atom)
