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The European markets were the biggest gainers during the week. The benchmark indices in France and Germany rallied as much as 5.7% and 4.7% respectively during the week. The rally was triggered by hopes of more stimulus measures. The European Central Bank President, Mr Draghi, stated that the governing council "will not hesitate to act" if the market turmoil threatens the economic outlook. Thus, suggesting measures to bring in more stimulus to revive the economy.
Asian markets too closed the week on a positive note. Stock markets in Japan and China ended the week higher by 6.8% and 3.5% respectively. This came as a respite for investors after a sell off during the previous week, which saw benchmark indices in Japan falling by 11%. The sharp gains this week came in part because markets have tumbled so much this year, prompting some investors to hunt for bargains. Further, China resumed trading after a week's holiday on account of Lunar New Year. The indices rallied in China on hopes for fresh stimulus from China's leadership.
Top oil exporters Russia and Saudi Arabia have agreed to freeze production levels of oil. Reportedly, the Saudi, Qatari, Russian and Venezuelan oil ministers announced the proposal at the meeting scheduled in Doha. However, the deal is contingent on other oil producers joining in. This led to rally in crude prices.
Back home, the BSE Sensex ended the week higher by 3.1%. The earnings seasons have not cheered the Dalal Street as majority of the companies missed the consensus estimates for net profits. Further, the upcoming budget will be the key trigger for the stock markets in the short term.
Now let us discuss some key economic and industry developments during the week gone by.
As per an article in Business Standard, passenger car shipments from India witnessed a decline of 18.8% to 33,909 units in the month of January. This was due to challenges in top export markets like Algeria, Europe and neighboring countries. For the April-January period this fiscal, car exports declined by 5.2% to 4,39,208 units as against 4,63,391 units in the corresponding period last fiscal.
Further, Society of Indian Automobile Manufacturers (SIAM) stated that the Indian car exporters are also facing high taxation issues in Sri Lanka. Also, Europe, the biggest market for compact cars from India, is still recovering from a slump. During January, exports of passenger vehicles, including vans, utility vehicles and cars, declined 6.72% at 42,084 units from 45,114 units a year earlier.
Going by individual car exporters, Hyundai Motor India recorded a 56.6% drop in exports during January. For Maruti Suzuki India, exports declined by 36.3% while Nissan and Toyota Kirloskar Motor's exports saw a decline of 11.3% and 56.7% respectively.
Apart from exports, domestic car sales in January declined marginally to 1,68,303 units compared with 1,69,527 units in January 2015. The same was witnessed for the first time after 14 months of continued growth. This was seen as discounts dried up during the month of January with automakers correcting inventory at dealer levels post year-end freebies dole out.
India's exports shrank for the fourteenth straight month in January. The exports shrank on account of weak demand from the Europe geography. Reportedly, exports fell by 13.6% YoY, whereas the imports too contracted by 11.01%.
Exports of engineering and petroleum products contracted by 27.6% and 35.2% respectively. Whereas, export of drugs and pharmaceuticals grew by 12.9%.
On the positive side, overall trade deficit narrowed to the lowest in the preceding eleven months in January. The trade deficit reduced because of a sharp decline in the imports of petroleum products as well as electronic items.
The upcoming budget might provide certain incentives to boost exports. Further, RBI governor, Mr Raghuram Rajan has resisted pressures from exporters and policy makers to devalue the currency to support exports stating that sustained devaluation is neither feasible nor a good strategy.
|Top losers during the week (BSE-A Group)|
|Bank of Baroda||114||140||22.1%||216/109|
|Adani Port & SEZ||179||209||16.8%||375/170|
|Top losers during the week (BSE-A Group)|
Now let us have a look at some quarterly results that were announced in the week gone by.
Bank of Baroda reported its results for the quarter ended December 2015. The country's second largest public sector bank reported a loss of Rs 33.4 billion as compared to a net profit of Rs 1.2 billion in the preceding quarter.
The gross non-performing assets (NPA) surged by 64% QoQ to Rs 389.3 billion during the quarter. The gross NPA ratio surged to 9.68% from 5.56% in the preceding quarter. The NPA rose on account of Reserve Bank of India's (RBI) directive to vouch for visible stressed assets in their books.
A spurt in bad loans subsequently led to higher provisioning. The provisions grew by 225% to Rs 61.6 billion which in-turn dragged down their net profits. However, company has recorded the entire chunk of visible bad loans during the quarter itself, thus reducing the uncertainty to a certain extent pertaining to their asset quality picture.
The net interest income (NII), referred to as the core income for the bank from the lending business, declined by 17.6% to Rs 27 billion during the quarter.
Sun Pharmaceutical reported its result for the quarter ended December 2015. The net profits almost tripled to Rs 14.2 billion during the quarter as compared to a year ago. Reportedly, company's business from Israel provided a strong cushion to the profitability. Revenues from Israel based subsidiary grew by 9% YoY to US$ 258 million, whereas net profits reported a growth of 33% YoY to US$ 189 million.
However, sales from the US geography declined by 11% YoY to US$ 486 million. Reportedly, sales from US accounts for 45% of their overall turnover. Further, sales from branded formulations in India grew by 8% YoY to Rs 18.9 billion.
Reportedly, the company spent Rs 5.8 billion on research and development (R&D), which constituted around 8.3% of the overall turnover of the company.
Sun Pharma is restructuring Ranbaxy's operations and exiting from low margin and loss making businesses. The management indicated that the integration process is progressing well within the stated timelines and expects to realize synergies in accordance with its laid down timelines.
Although near term operating challenges continue to hurt Sun Pharma's performance, in the Indian pharma space, Sun continues to be one of the stronger players. Differentiated drugs across its subsidiaries will be key drivers for the company.
The biggest challenge is the clearance of issues at its Halol facility and will be an important trigger for the company.
Nestle India reported its results for the quarter ended December 31, 2015. The company has reported 44% decline in its net profit during the quarter on a YoY basis. The fall was due to the absence of Maggi noodles in its product portfolio during the first half of the quarter.
Net sales during the quarter fell 22.6% YoY at Rs 19.4 billion. However, net sales improved on a sequential basis. In the previous two quarters, the company had posted net sales of Rs 17 billion and Rs 19 billion, respectively. Net domestic sales during the quarter decreased 24% YoY while export sales decreased 2.2% YoY impacted by Maggi and partially offset by the export of milk and nutrition products.
Full year net sales decreased 17% YoY while net profit plunged 52% YoY. The ban on Maggi sales, which continued for nearly five months, was reflected in the company's yearly performance.
India's food regulator had passed an order to withdraw Maggi on allegations that the product contained lead and monosodium glutamate in excess of prescribed limits. However, Nestle India has since won the case by challenging the ban in the Bombay high court. Post this order, the product has been tested at three laboratories and was found safe.
For now, the company has resumed production of Maggi noodles. We had discussed our views on this Maggie fiasco and its impact on the company's business in one of the articles from 'The 5 Minute WrapUp'. You can read it here(subscription required).
Nestle India Ltd is one the biggest players in the FMCG segment. It has its presence in milk & nutrition, beverages, prepared dishes & cooking aids & chocolate & confectionery segments.
Coal India Limited (CIL) has reported its results for the quarter ended December 31, 2015. The company has reported 3.3% fall in its net profit at Rs 6.7 billion during the quarter on a YoY basis. The company's total income has decreased by 10% YoY to Rs 8.8 billion for the quarter under review.
On the consolidated basis, the company has reported 14% rise in its net profit after taxes, minority interest and share of profit of associates at Rs 37 billion for the quarter. Total income of the company increased by 5% YoY to Rs 209 billion.
The company further reported that a joint venture company- Rashtriya Coal Gas Fertilizers Ltd- was incorporated in November last year through an agreement between CIL, the Rashtriya Chemicals and Fertilizers Ltd, GAIL (India) Ltd and the Fertilizer Corporation of India. The JV company has an authorised share capital of Rs 500 million. Of this CIL will be holding 26%.
The company's output during the April-December period of the current fiscal went up to 373.5 million tonnes (MT), from 342.4 MT a year ago.
On a separate note, Coal India is planning to acquire coal mines in South Africa in partnership with local government amid falling prices of assets globally. The company, which accounts for over 80% of the domestic coal production, has targeted one billion tonnes of dry fuel output by 2020. It is set for a record production of 550 million tonnes this fiscal.
After much deliberation and delay, the Mines and Minerals (Development and Regulation) Act, 1957 has been revised and the government has passed the Mines and Minerals Amendment Bill, 2015. In our recent edition of the 5 Minute WrapUp Premium, we have looked at the impact of the Act on various mining and metal companies (subscription required).
Now let us move on to some of the key corporate developments in the week gone by.
In other news, shares of United Breweries (Holdings) plunged more than 11% on Tuesday after Punjab National Bank declared the company as a 'Willful Defaulter'. In November, State Bank of India had declared Vijay Mallya, Kingfisher Airlines and its holding company United Breweries Holdings as willful defaulters. Reportedly, majority of the banks led by SBI have decided to auction Kingfisher House in Mumbai on March 17 this year in a bid to recover a part of Rs 69.63 billion debt due from the now grounded Kingfisher Airlines. Punjab National Bank has an exposure of Rs 8 billion to the defunct airlines while SBI has an exposure of Rs 16 billion. Out of this, the banks, which recalled the loan in February 2013, could recover only around Rs 11 billion after selling pledged shares of UB Group companies.
As per an article in leading financial daily, HCL Technologies has acquired external information technology (IT) business arm of Sweden's Volvo Group. The total cash consideration for this transaction is pegged at Swedish Krona 1,130 million. This acquisition will enable HCL to add 40 new customers from Norway, Denmark, Finland, Sweden and France.
Reportedly, the company will also acquire 2,500 people working for the Volvo Group and will transfer them to HCL across eleven countries. Further, the company has also signed an IT deal with Volvo. Under the partnership, the company will create a technology transformation roadmap for optimizing Volvo Group's infrastructure and make it ready for the rapid advancements in business-enabling technology such as cloud, automation, business intelligence and big data.
Despite healthy deal momentum and a record high order book, the company's topline performance has been uninspiring in recent times. The high base and client specific issues have been key reasons for the poor performance. Further in our view there could be delivery issues as well, which could impact the company's growth.
As per an article in leading financial daily, National Thermal Power Corporation's (NTPC) utilization levels is on a declining trend. The utilization levels, popularly termed as Plant Load Factor (PLF) with regards to its coal fired plants fell by 3.7% YoY to 78.6% in the month of January. Reportedly, gas based plants fared even worse. The PLF of gas based plants dropped to an all-time low of 13.3% as compared to 29.3% a year ago. However, NTPC continues to perform better when compared to the sector, which is operating at a much lower PLF of 63%.
The trend in power demand will be the key metric to gauge going forward. The government has launched the 'Ujwal Discom Assurance Yojana' scheme; which would provide certain amount of financial relief to the State Electricity Boards (SEBs). However, such schemes will not have an immediate effect on the financials of SEBs. The improvement process would be gradual.
We continue to believe that NTPC is in the best position to take advantage of an increase in demand as it has adequate coal availability. Further, higher demand will also lead to improvement in PLF's which will help the company to earn an incentive of Rs 0.5 per unit.
Tata Motors is working on reducing the engine size for its diesel vehicles. The initiative comes in the wake of sales restrictions in this regard imposed for the Delhi-National Capital Region.
The company is looking to downsize its engines to below 2,000cc (two litres) for its models from its sports and utility vehicle portfolio. This is being done for the company to be able to resume sales in these areas. The company has also developed a one-litre diesel engine and a 1.2-litre petrol engine for its yet-to-be-launched Zica hatchback.
It shall be noted that earlier this year the Supreme Court banned the registration of diesel vehicle with an engine capacity of 2,000 cc or more in Delhi and National Capital Region (NCR) till 31 March 2016 owing to high pollution levels in the city.
As of now, six Tata Motors models- Aria, Movus, Safari, Safari Storme, Sumo Gold and Xenon- are affected by the ban. Further, at the recent Auto Expo the company showcased four new passenger vehicles. Of these, the Hexa, a multi-seater utility vehicle, carries a diesel engine 2.2-litre in size and, therefore, is ineligible for sale in Delhi-NCR. All the four vehicles are expected to reach the showrooms over the next 12 months.
We believe that the above plan for downsizing engines to below 2,000cc will aid the volumes of Tata Motors going forward. Further, the company's product plan includes 2 new vehicle launches slated for every year till 2020.
We believe global markets are likely to remain under pressure going forward. None of the concerns of global investors are likely to go away anytime soon. Indian markets too will continue to experience the fallout of this turmoil. However, long term investors need not be too concerned. The upcoming budget will be the key trigger for the markets in the short term. Times like these could offer good opportunities to enter good quality stocks at reasonable valuations.
And here's an update from our friends at Daily Profit Hunter...
The hammer candle did have the expected impact as markets bounced back sharply during this week. However, this wasn't a one way bounce. Markets traded on an extremely choppy note throughout the week. Currently, the index is placed just above the resistance zone of 7,200. If the index manages to hold this level in the coming week, one can expect some upside - else choppy action will continue. You can read the detailed market update here...
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