Fundamentals February 13, 2013

Nik's Diary

The Indian market opened flat to positive, mirroring SGX Nifty which is trading marginally higher in the opening trades. The US markets witnessed relatively lackluster performance throughout the trading session as traders seemed to be staying on the sidelines ahead of President Barack Obama's State of the Union address later in the evening. Markets are likely to take cue from the president's remarks regarding the automatic government spending cuts looming at the end of the month. Investors will be also watching for any developments from the G-20 meeting, which will be held on Friday. Meanwhile, Moody's Investors Service said the downside risks to the global economic recovery have diminished since the end of last year, but a slow pace of economic growth is still likely in many economies. Meanwhile Indian shares rose in yesterday’s trading session, snapping an eightday losing streak, with investors shrugging off disappointing IIP (-0.6% for December 2012) and inflation data (CPI Inflation at 10.79% for January 2013). 

Industrial production declines  by 0.6%, CPI reaches a high of 10.8% 

Close on the heels of a gloomy 5 per cent GDP (gross domestic product) growth projection for the current fiscal which the Finance Ministry questioned for failing to reflect signs of an upturn in the economy, the Central Statistics Office (CSO), on Tuesday, handed down more negative data on the macro-economic front to vindicate its advance estimates. CSO data on the Index of Industrial Production (IIP) released here show that factory output contracted by 0.6 per cent in December 2012 in stark contrast to a growth of 2.7 per cent notched up in the same month a year ago, mainly on account of dismal performance by sectors such as manufacturing and mining which happen to be the primary drivers of overall economic growth. Moreover, the IIP data also revealed that after a robust 8.3 per cent expansion witnessed in October owing to festival season demand, December is the second consecutive month that growth in industrial production has remained in the negative territory as the contraction in November output stands revised further downwards from (-) 0.1 per cent to (-) 0.84 per cent.Accordingly, for April-December 2012-13, IIP growth stands reduced to an expansion by a mere 0.7 per cent as compared to a comparatively healthier increase of 3.7 per cent for the same period in the previous fiscal. Adding further to the gloomy scenario was the CSO’s data on retail inflation based on the consumer price index (CPI) which showed a surge to 10.79 per cent in January from 10.56 per cent in December. While rural consumer inflation inched up to 10.88 per cent from 10.74 per cent month-on-month, urban inflation also rose to 10.73 per cent from 10.42 per cent. Thus, even as Finance Minister P. Chidambaram disputed the low GDP growth figure while pointing to “some green shoots” of recovery visible, the economic data now available seem to signal the slowdown getting worse in the wake of high inflation in an environment of low growth. As per the IIP data, the dismal growth was on account of poor performance of mining and manufacturing sectors coupled with decline in production of capital, consumer and intermediate goods showing both a lack of consumer demand as well as investment.Growth in manufacturing, which constitutes over 75 per cent of the IIP basket, contracted 0.7 per cent in December 2012 as against a growth of 2.8 per cent in the same month a year ago. For the April-December period, the cumulative growth for the sector stands pegged at 0.7 per cent as against 4 per cent growth in the same period of 2011. Source: TheHindu

Indian IT exports to grow 12-14% in FY2014: Nasscom

An increase in global technology spending and opportunities created through adoption of disruptive technologies are expected to propel growth of Indian IT exports in 2013-14 and National Association of Software and Services Companies (Nasscom), the premier trade body for the Indian IT-BPM (Information Technology-Business Process Management) industry, expects the industry to clock export revenues of $84-87 billion, maintaining growth at 12-14 per cent. In its strategic review 2013, Nasscom said domestic revenues would grow at 13-15 per cent, and to reach Rs.118,000-120,000 crore in 2013-14. In spite of the challenges in the global market, Indian IT-BPM industry sustained its growth trajectory and was expected to clock export revenues of $75.8 billion with a growth of 10.2 per cent in 2012-13, Nasscom said in a statement. The domestic market also witnessed a year-on-year growth of 14.1 per cent, taking domestic revenues to Rs.104,700 crore in 2012-13. The Indian IT-BPM sector continues to be one of the largest employers in the country directly employing nearly three million professionals, adding over 180,000 employees in 2012-13. “The year 2012-13 can be characterised as the year of rapid transition and transformation leading the industry into expanding into newer verticals and geographies, attracting new customer segments, and transforming from technology partners to strategic business partners,” it said. “The Indian IT-BPM industry has demonstrated resilience and agility in the past year. Technology has today become an integral enabler for growth across all sectors and the industry is continuously evolving and innovating to emerge as a strategic partner to its customers,” N. Chandrasekaran, Chairman, Nasscom, said in a statement adding, “the thrust is IP-led solutions served over multiple platforms that has the customer at the centre of every module, and is transformative in nature.” According to Nasscom, some of the key growth drivers expected to open new opportunities for the industry are smart computing, ‘anything’-as-a-service, technology enablement in emerging verticals and the SMB market. Source: TheHindu

JLR retail sales up by a strong 32.3% yoy in Jan’2013

The company's UK subsidiary Jaguar Land Rover (JLR) reported 32% year-on-year (YoY) jump in global sales at 34,877 units in the month of January 2013.Tata Motors has surged almost 5% to Rs 312 in opening deals on BSE, after the company's UK subsidiary Jaguar Land Rover (JLR) reported a strong 32% year-on-year (y-o-y) jump in global sales at 34,877 units in the month of January 2013. "January sales were up across every major market with sales up 74% in China, 46% in Asia Pacific, 33% in the UK, 24% in North America and 10% in Europe," JLR said in a statement. Land Rover sales were up in all major markets with record January sales in several, including the UK, USA and Germany, the statement added. The stock opened at Rs 309 and has seen a combined 1.95 million shares change hands on the counter on BSE and NSE. Source: Business Standard

SAIL – RU3QFY2013

SAIL’s reported disappointing 3QFY2013 results as both net sales and net profit were below our estimates due to lower than expected sales volumes. SAIL’s 3QFY2013 net sales declined by 0.9% yoy to `10,495cr (below our estimates of `11,730cr) mainly due to lower realizations partially offset by higher volumes. The company’s realizations stood at `35,168/tonne, compared to `37,326/tonne in 3QFY2012. Staff costs and other expenditure increased 11.6% and 23.5% yoy to `2,081 and `1,865cr, respectively. EBITDA therefore decreased by 28.0% yoy to`1,138cr and EBITDA margin contracted by 408bp yoy to 10.8%. The company reported an exceptional item related to forex loss of  `31cr in 3QFY2013, compared to exceptional loss of `466cr in 3QFY2012. Hence, reported net profit decreased by 23.4% yoy to  `484cr. However, excluding exceptional items, adjusted net profit declined by 53.1% yoy to  `515cr (significantly below our estimate of `716cr) in 3QFY2013.  We expect SAIL’s operational and financial performance to be impacted by 1) inability to maintain/raise sales volumes amidst slower demand growth; 2) higher employee costs, and 3) delays/cost overruns in its brownfield expansion projects. SAIL is on the verge of expanding its saleable steel production capacity from 12.5mn tonnes to 24.0mn tonnes by FY2015. However, the current rich valuation discounts its anticipated volume growth over FY2012-FY2016E. Source: Angel Broking

HTMedia – RU3QFY2013

For 3QFY2013, HTMedia’s top-line and bottom-line performance was better than our expectations. The company’s top-line grew by 4.4% yoy to  `547cr (v/s our expectation of `535cr). Advertising revenue grew by 2% yoy to `415cr, primarily driven by volume growth. The circulation revenue grew by 12.3% yoy to `56.5cr driven by combination of higher circulation and higher realization per copy.  The OPM expanded by 109bp yoy to 16% aided by 134bp yoy decline in consumption of raw materials. Consequently, profit grew by healthy 11.4% yoy to `56cr. At the current market price, HTMedia is trading at 12.5x FY2014E consolidated EPS of `8.3. Source: Angel Broking

Motherson Sumi Systems – RU3QFY2013

Motherson Sumi Systems (MSS) registered a better-than-expected operating performance for 3QFY2013 driven by strong growth in the standalone operations and at the Samvardhana Motherson Reflectec (SMR) front. For 3QFY2013, consolidated revenues registered a strong sequential growth of 13.1% to `6,663cr which was better than our expectations of `6,168cr. The top-line growth was led by a strong performance at the standalone level (up 10.5%) and also on the SMR (up 16.4%) and Samvardhana Motherson Peguform (SMP, up 12.8%) front. On a yoy basis, top-line grew by 73.5% largely on account of consolidation of SMP operations which contributed `3,332cr to the top-line. SMR revenues were driven by pick-up in order execution at the new plants in Hungary, Brazil and Thailand. While the revenues in India grew by a healthy 9.7% qoq (27.8% yoy); revenues outside India grew strongly by 13.6% qoq (87.4% yoy). On the operating front, consolidated margins improved ~70bp sequentially (~100bp yoy) to 7.6% led by significant improvement in performance in standalone operations (margins improved 380bp qoq to 18.9%) and at the the SMR (margin improvement of 200bp to 7%) front. This was primarily on account of increasing capacity utilization levels across the key plants. The operating performance at the SMP level too remained stable during the quarter. Led by strong operating performance, consolidated EBITDA jumped 24.3% qoq (99% yoy) to `509cr. Nevertheless, the bottom-line declined 25.1% qoq to `103cr as MSS witnessed a forex loss of  `64cr related to the foreign currency loans. The depreciation expense too increased 17.5% qoq which had a negative impact on the profitability. While the bottom-line at SMR grew robustly to `15cr (against `6cr in 2QFY2013); SMP reported a net loss of  `34cr as against  `8cr profit in 2QFY2013 owing to the forex loss of `52cr. Source: Angel Broking