Energy stocks lead the decline

Tue, 2 Feb 11:30 am

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The Indian markets shed a substantial part of their early morning gains during the previous two hours of trade. While metal and realty stocks continue to attract investors’ interests, stocks from the banking and oil and gas space were responsible for the fall during the early session.

While the BSE Sensex is trading higher by 20 points (or 0.3%), the NSE Nifty is marginally down by 5 points (or 0.1%). The BSE-Midcap and BSE-Smallcap are also trading higher by 1% and 1.8% respectively. The rupee is trading at 46.24 to the dollar.

Power stocks are currently trading firm led by CESC, Torrent Power and Tata Power. Power major, NTPC announced its 3QFY10 results recently. The company’s revenues for the quarter fell by 1% YoY. This was on the back of lower realisations, which were seemingly on the back of passing on the lower fuel costs to its customers. However, these lower fuel costs helped the company expand its operating margins, and hence record a good operating performance. During the quarter, the operating margins stood at 30.1%, higher by 1.6% YoY. Apart from lower fuel costs, lower staff costs (both as percentage of sales) aided the margins as well. These factors led to a 5% YoY increase in operating profits. The growth at the bottomline level stood at 5% YoY as well. As for the performance during 9mFY10, the topline and bottomline were higher by 12% YoY and 10% YoY respectively. During the quarter, NTPC commissioned a 490 MW capacity plant at Dadri (UP), which increased its total generation capacity to above 31,000 MW by the end of December 2009.

Cement manufacturers have reported good set of numbers for the quarter ended December, 2009. The growth has been driven by driven by increased demand from housing sector, especially of low-cost homes, and infrastructure. Generally, cement sales start picking up from January and the peak period ends with the arrival of the monsoons in June. While the industry is likely to report double digit volume growth of 10% in FY11, upcoming capacities are likely to exert pressure on margins. The industry capacity in FY09 was 204.8 m tones. By the end of FY10, the industry capacity is expected to reach size of 270 MT, an addition of nearly 65 MTPA. However, the annual demand is expected to rise by 20 MTPA to 198 MT and in FY11 it is expected to be 220 MT.  Thus, the cement industry is likely to witness an excess capacity scenario in the medium term, which will impact realization and growth in earrings of the cement manufacturers.