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Fundamentals January 8, 2013


Nik's Diary
The Indian market opened flat to negative tracking the flat opening of SGX Nifty. Most of the Asian markets are trading in the red.  US stocks saw moderate weakness during trading on Monday, giving away some ground after moving sharply higher last week. However, the selling pressure was relatively subdued, and the market held on to the bulk of its recent gains. The major averages ended the day in negative territory but well off their lows for the session. The European markets finished  in negative territory on Monday, as investors took profits following the strong gains at the end of the previous trading week. Investors are continuing to evaluate the potential impact of the debt ceiling situation in the US and are preparing for the beginning of the US earnings season. Indian shares fell on Monday, with selling accelerating late in the session, weighed down by weakness in other Asian markets and European stocks as investors moved to the sidelines awaiting cues from central bank meetings in Europe and the UK this week and the fourth-quarter U.S. earnings season.

Government imposes 20% import duty on some Chinese flat steel products 
Bloomberg has reported that the government has imposed 20% import duty on some of the flat steel roducts from China in order to protect domestic steel mills from threat of imports. During January- September 2012, total steel imports by India have increased by 46.3% yoy to 5.9mn tonne. The duty imposed is expected to be effective for a period of 200 days. Steel stocks rose by 2-5% post this announcement. Iron  and steel imports together constitute about 2.5% - 3.0% of India’s total imports and we note that the recent rise in steel imports by India have been originating mainly from FTA countries (South Korea, Japan etc) which attract very  low import duty. I do not expect a meaningful rise in domestic steel prices due to the import duty. Further, I also believe that the move is unlikely to have any material impact on curbing overall imports in the economy.


Marico announces business, corporate and organization restructuring 
The Board of Directors of Marico has approved the restructuring of businesses, corporate entities and organization involving a) the demerger of Kaya Skin Care Solutions into a separate company by name Marico Kaya Enterprises Ltd (MAKE) and b) formation of a unified FMCG business with operations in India and abroad headed by a single CEO. The restructuring plan would be effective from April 1, 2013. As per the proposed Kaya demerger plan, MAKE will become the holding company of Kaya Ltd (India) and Kaya entities in the Middle East and South East. Currently the promoters of Marico have a 60% stake in Marico and post demerger the shareholding structure of MAKE will be identical to Marico’s current shareholding structure. Shareholders of Marico will be allotted one share of MAKE for every 50 shares held in Marico. The equity shares of MAKE will be listed in both BSE and NSE after all the statutory approvals are obtained.  Marico currently has three business verticals namely a) Indian Consumer products business b) International FMCG business and c) Kaya Skin Care Solutions (Kaya) with operations in India and abroad. Post the restructuring, Kaya Skin Care solutions would operate as a separate listed entity (MAKE). The Indian and International FMCG businesses which were till date headed by two different CEOs will be unified and will be headed by a single CEO.  Kaya has been a loss making venture for Marico. During FY2012, it made a loss of  `29cr at the PBIT level on net sales of  `279cr (a loss of  `33cr in FY2011). Demerger of the loss making venture would result in better return ratios for Marico. At the CMP, Marico is trading at 28x FY2014E earnings. Good Prospect.


FI’s turn down Glaxo’s open offer price 
As per media reports financial institutions, led by Life Insurance Corporation, have declined to participate in the open offer announced  by GlaxoSmithKline (GSK) for its Indian subsidiary GlaxoSmithKline Consumer Healthcare (GSK consumer) in November 2012. The institutions, which jointly hold 32% stake believe the open offer price of `3,900/share is unattractive. The tendering period for open offer is expected to begin from January 17th 2013. At the CMP GSK consumer is trading at P/E of 32.5x FY2014E estimates


Bank of Maharashtra to consider raising capital 
The board of Bank of Maharashtra is scheduled to meet on January 10, 2013 to consider the proposal to raise capital by issuing equity shares upto 20cr by means of FPO and/or rights issue and/or QIP in FY2014. As of 2QFY2013, CAR for Bank of Maharashtra remained one among the lowest at 10.7%, with tier-I at 7.1%. At CMP, the issue would aid the company to raise a sum of upto `1,280cr, thereby aiding its tier-I capital adequacy by nearly 200bps. Recently the bank had also successfully issued tier-II bonds worth  `1,000cr. 

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