Barring India, Brazil and Singapore, the global stock markets have ended the current trading week on a positive note. With a weekly gain of 2.3%, the US was the top gainer. The UK, Japan and China followed suit with weekly gains in the range of 1.7 to 2%. A key reason for the gains in Asia was the good results reported by most of the companies in those regions.
On the other hand, Indian stock markets continued to face pressure on account of high inflation numbers not refusing to subside. The pressure seem to have increased with Prime Minister Manmohan Singh stating that inflation poses a serious threat to the nation's growth momentum going forward.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India, stocks from the metal and oil & gas spaces were amongst the top performers this week with the BSE-Metal and BSE-Oil & Gas indices ending with gains of about 0.7% and 0.6% respectively. On the other hand FMCG, realty and IT stocks were under pressure this week over concerns varying from inflation to interest rates and currency exchange rates. Smallcap stocks were also not in favour this week with the BSE-Smallcap Index ending lower by 2.5%.
Moving on to key corporate developments during the week, a handful of large cap companies announced their results for the quarter ended December 2010. Cement majors - UltraTech Cement, Ambuja Cement and ACC decaled their results this week. UltraTech Cement reported a 1% YoY increase in revenues, while its profits tanked by 36% YoY during the quarter. While the prolonged monsoons played a key role in the same, other factors such as non-availability of resources, lower realty and infrastructure spending and de-growth in the selected markets (south India, where the company has a significant presence) also played a role in the poor financial performance. The company's operating profit margin dropped by 7% YoY to 20.7% during the quarter. Further, the company's profitability was also impacted by higher interest expenses.
ACC's consolidated revenues declined by about 3% YoY during the quarter. This came on the back of a 1% YoY drop in volume sales. The company profits were severely hit due to rising input prices (of coal, power, and fly ash) and, at the same time, falling cement prices. Profits declined by 31% YoY during the year.
Ambuja Cements, on the other hand, reported a 4% YoY rise in consolidated revenues (full year CY10 results) on the back of an 8% YoY rise in domestic cement sales volumes. This indirectly indicates that the company witnessed a decline in realisations during the year. At the operating level, the company's margins declined by 1.7% to 24.7% for the full year. Net profits, however, rose by 4% YoY, partly due to an exceptional income (sale of investment). In addition, a lower effective tax rate also helped the bottomline.
Moving on from results from the cement space to the telecom sector - telecom major, Bharti Airtel also announced its 3QFY11 results during the week. The company recorded a 4% QoQ growth in consolidated net sales (including Zain Africa's business) during the quarter. It must be noted that the results are not comparable on a YoY basis i.e., as compared to 3QFY10, as the company did not have Zain numbers to show then.
During the quarter, revenues of both, the Indian and African mobile services, grew by about 4% QoQ. However, on the back of high operating costs, the company lost out on the margin front. Its consolidated operating margins during 3QFY11 stood at 31.6%, as against 33.7% during the preceding quarter (2QFY11). The pressure on margins has largely come on the back of continued investments in Africa. This is seen from the fact that Bharti's India business maintained its PBIT margins at 24% (same as in 2QFY11), the same for the Africa business dropped from 4.4% to 1%. A decline in the company's operating performance led to its profits to decline by 22% QoQ during 3QFY11. The company's current subscriber base stands at a mammoth 208 m spread across 19 countries. The company witnessed pressure on both its average revenue per user (ARPU) as well as the minutes of usage (MoU). These declined by 2% QoQ and 1% QoQ respectively during the quarter.
Power major, NTPC announced its results during the past week as well. The company reported a revenues growth of 19% YoY. However, its net profits remained flat. The company's operating margins declined to 30.8%, from 33.2%. One reason for the weak overall performance was the marginal growth in power generation (up 0.8% YoY) and volume sales (up 0.8%) during the quarter. These were impacted by the planned maintenance that the company conducted at some of its power stations, which led to lower availability of these plants. Also, on account of scarce supply of coal and gas, NTPC's plants operated at lower capacity utilisation as compared to 3QFY10. While the utilisation (measured by PLF or plant load factor) for its coal plants dropped from 90.5% to 87.2%, PLF for the gas plants declined from 73.6% to 66.3%. In order to meet some of its future fuel requirements, the company is looking to produce 45 m tonnes of coal from its own mines by 2017. While the plans look grand, as they have always been for NTPC, it's the execution that will count.
The stock of Siemens was the top gainer amongst stocks forming part of the BSE ‘A' Group. Gains in the stock were largely on the back of announcement that the parent company Siemens AG Ltd. will be increasing its stake in it by making an open offer priced at Rs 930 per share. Pursuant to the culmination of open offer the parent's stake in Siemens is likely to increase from 55% to 75%. Siemens AG Ltd is planning to increase its stake with the aim of further developing its business in India. The open offer is expected to open on 25 March and close on April 13. The stock ended the week at Rs 848.
Auto stocks have been under tremendous pressure over the past few months. But with the BSE-Auto Index ending lower by over 3% during the week gone by, there clearly seems to be no respite for the auto pack. Apart from factors such as rising input costs, interest rates and fuel prices (which have been on the minds of investors for a while now), concerns relating to the declining sales volumes seem to be worrying investors. This being with auto companies looking to pass on all the possible cost increases to customers which will make vehicles more dearer and invariably reduce the volume growth. During the week, a leading business daily reported that the government may look at increasing the excise duties on automobiles back to the pre-slowdown levels during this year's Union Budget. This would in turn increase the cost of vehicles by about 2%. Auto companies have already hiked prices by about 1.5 to 2% to offset higher input costs in recent times. It would be interesting to see what decision the Finance Minister takes later this month.
The rising inflation levels continue to be a threat for India, which seems to be fighting a losing battle with the same. During the week, India’s Prime Minister, Manmohan Singh has warned that the high price levels in our country are threatening growth momentum and that it needs to be brought down with great urgency. As per the latest reported data, food inflation in India stood at 17.1% as food prices and oil prices rose considerably. India’s central bank has already hiked rates seven times. But since the move is not really showing signs of improvement, the country now needs to focus on aspects such as strengthening the supply chains and proper & smooth distribution of India’s farm produce. It will indeed be interesting to see what the budget has in store for these initiatives to improve production and distribution of food supplies.