The Indian Government led by Dr Manmohan Singh has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem.
The first priority was to re-assure the people of the stability of the financial system in general and of the safety of bank deposits in particular. To this end, steps were taken to infuse liquidity into the banking system and also to address problems being faced by various non-bank financing companies. These steps have ensured that the financial system is functioning effectively without suffering the kind of loss of confidence experienced in the industrialised world.
Having assured stability of the system, the Government has focussed its attention on countering the impact of the global recession on India's economic growth. On the monetary side, the RBI has sought to pump sufficient liquidity into the banking system to enable bank credit to meet the expanded requirements of the economy keeping in mind the contraction in credit from non-bank sources. Banks have been provided adequate liquidity through a series of reductions in the CRR and additional flexibility in meeting the SLR requirement. Interest rate reductions have also been signalled by reductions in the repo and reverse repo rates, the most recent of which was announced on Saturday when both the repo rate and the reverse repo rate were cut by 100 basis points. Access to external commercial borrowings has also been liberalised so that borrowers capable of accessing funds from abroad are allowed to do so. The banks are being encouraged to counter what might otherwise become self-fulfilling negative expectations by enhanced lending to support economic activity.
These measures in the area of money and credit are being supplemented by fiscal measures designed to stimulate the economy. In recognition of the need for a fiscal stimulus, the government had consciously allowed the fiscal deficit to expand beyond the originally targeted level because of the loan waivers, issue of oil and fertilizer bonds and higher levels of food subsidy. In addition, the following steps are being taken:
1. Plan Expenditure:
In order to provide a contra-cyclical stimulus via plan expenditure, the Government has decided to seek authorisation for additional plan expenditure of upto Rs 20,000 crore in the current year. In addition, steps are being taken to ensure full utilisation of funds already provided, so that the pace of expenditure is maintained. The total spending programme in the balance four months of the current fiscal year, taking plan and non-plan expenditure together is expected to be Rs.300,000 crore.
The economy will continue to need stimulus in 2009-2010 also and this can be achieved by ensuring a substantial increase in plan expenditure as part of the budget for next year.
2. Reduction in Cenvat:
As an immediate measure to encourage additional spending, an across-the-board cut of 4% in the ad valorem Cenvat rate will be effected for the balance part of the current financial year on all products other than petroleum and those where the current rate is less than 4%.
3. Measures to Support Exports
i) Pre and post-shipment export credit for labour intensive exports, i.e., textiles (including handlooms, carpets and handicrafts), leather, gems & jewellery, marine products and SME sector is being made more attractive by providing an interest subvention of 2 percent upto 31/3/2009 subject to minimum rate of interest of 7 percent per annum
ii) Additional funds of Rs.1100 crore will be provided to ensure full refund of Terminal Excise duty/CST.
iii) An additional allocation for export incentive schemes of Rs.350 crore will be made.
iv) Government back-up guarantee will be made available to ECGC to the extent of Rs.350 crore to enable it to provide guarantees for exports to difficult markets/products.
v) Exporters will be allowed refund of service tax on foreign agent commissions of upto 10 percent of FOB value of exports. They will also be allowed refund of service tax on output services while availing of benefits under Duty Drawback Scheme.
4. Housing
Housing is a potentially very important source of employment and demand for critical sectors and there is a large unmet need for housing in the country, especially for middle and low income groups. The Reserve Bank has announced that it will shortly put in place a refinance facility of Rs.4000 crore for the National Housing Bank. In addition, one of the areas where plan expenditure can be increased relatively easily is the Indira Awas Yojana. As a further measure of support for this sector public sector banks will shortly announce a package for borrowers of home loans in two categories: (1) upto Rs.5 lakhs and (2) Rs 5 lakh-Rs 20 lakh. This sector will be kept under a close watch and additional measures would be taken as necessary to promote an accelerated growth trajectory.
5. MSME Sector
The Government attaches the highest priority to supporting the medium, small and micro enterprises (MSMEs) sector which is critical for employment generation. To facilitate the flow of credit to MSMEs, RBI has announced a refinance facility of Rs.7000 crore for SIDBI which will be available to support incremental lending, either directly to MSMEs or indirectly via banks, NBFCs and SFCs. In addition, the following steps are being taken.
(a) To boost collateral free lending, the current guarantee cover under Credit Guarantee Scheme for Micro and Small enterprises on loans will be extended from Rs.50 lakh to Rs.1 crore with guarantee cover of 50 percent.
(b) The lock in period for loans covered under the existing credit guarantee scheme will be reduced from 24 to 18 months, to encourage banks to cover more loans under the guarantee scheme.
(c) Government will issue an advisory to Central Public Sector Enterprises and request State Public Sector Enterprises to ensure prompt payment of bills of MSMEs. Easing of credit conditions generally should help PSUs to make such payments on schedule.
6. Textiles
(a) An additional allocation of Rs.1400 crore will be made to clear the entire backlog in TUF Scheme.
(b) All items of handicrafts will be included under 'Vishesh Krishi & Gram Udyog Yojana'.
7. Infrastructure Financing
A large number of infrastructure projects are now being cleared for implementation in the Public Private Partnership mode. These projects may experience difficulty in reaching financial closure given the current uncertainties in the financial world. In order to support financing of such projects, Government has decided to authorise the India Infrastructure Finance Company Limited (IIFCL) to raise Rs.10,000 crore through tax-free bonds by 31/3/2009. These funds will be used by IIFCL to refinance bank lending of longer maturity to eligible infrastructure projects, particularly in highways and port sectors. In this way it is expected that IIFCL resources used for refinance can leverage bank financing of double the amount. Depending on need, IIFCL will be permitted to raise further resources by issue of such bonds. In particular, these initiatives will support a PPP programme of Rs.100,000 crore in the highways sector.
8. Others
(a) Government departments will be allowed to take up replacement of government vehicles within the allowed budget, in relaxation of extant economy instructions.
(b) Import Duty on Naphtha for use in the power sector will be eliminated.
(c) Export duty on iron ore fines will be eliminated and on lumps will be reduced to 5%.
The Government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity.
Monday 8 December 2008
Thursday 20 November 2008
It's real! Realty sector facing rough weather
Reliance Money has come out with report on various key sectors of Indian Economy. Here is the one pertaining to Real Estate.
Slowdown visible in Topline
Negative macro factors have taken a toll on the real estate sector. Except Akruti and
Phoenix mills all the other companies reported negative growth in topline (QOQ) in
the range of 2% to 16%. Companies in our universe reported negative growth of 1%
and 8% on YoY and QoQ respectively. Lower volumes were realized by most of the
developers because of increase in home loan rates and high price points. Companies
like DLF launched mid income housing (lower margins) which received a positive
response. Companies like Puravankara and Omaxe are planning to develop 64,500
and 10, 00,000 affordable house units in medium to long term.
Input cost pressure dents profitability
Higher input cost clearly impacted margins. Companies in our universe reported
negative EBITDA growth of 11% on QoQ basis and 2% on YoY. Except Phoenix, Akruti
and Peninsula all companies reported negative EBITDA growth QoQ. EBITDA Margins
remained flat YoY and declined by 200 bps on QoQ.
Bottomline under pressure
The current low volumes, rising input cost and tight liquidity has lead to a decline in bottomline. Liquidity crunch in the global and domestic market impacted the sector
adversely. Drying out of funds from all sources has lead to rise in cost of debt to 15% for most of the companies. Interest cost increased significantly by 123% from Rs.
1295 mn in Q2FY08 to Rs. 2889 mn in Q2FY09. With recent measure like reducing
CRR, Repo rate, & SLR by government to reduce interest rates most of the banks has
responded positively by reducing their PLR. PAT reported negative growth of 500 bps
YoY and 200 bps QoQ. PAT margins for top two real estate i.e. DLF and Unitech
declined 1000 bps and 400 bps YoY.
We beleive there is a close relationship between the economic growth and the prices
of commercial (office) market and retail demand. Demographic factors determine
the prices of housing segment though the interest rates in the economy also plays
important role in price discovery of housing segment. The BSE real estate index has
slipped by over 85% from its high of 13848 on 08th Jan 2008. Liquidity crunch in the
economy has badly hit the sector in the last quarter. Fund flow from the primary
market and private equity (PE) has dried out and therefore real estate companies are
in need for more debt. Raising debt has become difficult due to global liquidity crunch in the international market and ECB restrictions. Banks continues to postpone leading decision, despite sanctioned limits to the sector. As per various media reports property prices have corrected in the range of 15% to 35% from its peak depending upon the location and region. Most of the developers which were confident of sales picking up in the diwali festival season were wide of the mark.
Sector Outlook
Drying up of volumes, liquidity issues along with rising input cost is a curse to real estate companies. Inspite of these issues developers are not ready to reduce the list price. However indirect reduction in prices through discounts and freebies are part of the transaction. Real estate companies are taking several cost cutting measures to improve their margins in the face of the global economic turmoil. Most of the developers are now focusing towards Lower Income Group (LIG) and Middle Income Group (MIG)housing segment (Affordable housing). Also the focus has shifted from accumulating land to execution of current projects. Most of the developers are keeping away from launching of new projects. Malls rental rates are also expected to rationalize. In commercial space focus has shifted from IT/ITES commercial development segment to non IT/ITES commercial development as slowdown is expected in the sector. It’s time for the developers to recalibrate and reprice their products. On the other side buyers are in “Wait & Watch Policy” and are in no hurry to entry any transaction. We expect Q3FY09 will be tough ride for real estate sector. Decreasing commodity prices and interest rates will help the sector get rid of dark clouds in medium to long term. However atleast for the next 12 - 18 months, real estate companies are likely to face rough weather.
Slowdown visible in Topline
Negative macro factors have taken a toll on the real estate sector. Except Akruti and
Phoenix mills all the other companies reported negative growth in topline (QOQ) in
the range of 2% to 16%. Companies in our universe reported negative growth of 1%
and 8% on YoY and QoQ respectively. Lower volumes were realized by most of the
developers because of increase in home loan rates and high price points. Companies
like DLF launched mid income housing (lower margins) which received a positive
response. Companies like Puravankara and Omaxe are planning to develop 64,500
and 10, 00,000 affordable house units in medium to long term.
Input cost pressure dents profitability
Higher input cost clearly impacted margins. Companies in our universe reported
negative EBITDA growth of 11% on QoQ basis and 2% on YoY. Except Phoenix, Akruti
and Peninsula all companies reported negative EBITDA growth QoQ. EBITDA Margins
remained flat YoY and declined by 200 bps on QoQ.
Bottomline under pressure
The current low volumes, rising input cost and tight liquidity has lead to a decline in bottomline. Liquidity crunch in the global and domestic market impacted the sector
adversely. Drying out of funds from all sources has lead to rise in cost of debt to 15% for most of the companies. Interest cost increased significantly by 123% from Rs.
1295 mn in Q2FY08 to Rs. 2889 mn in Q2FY09. With recent measure like reducing
CRR, Repo rate, & SLR by government to reduce interest rates most of the banks has
responded positively by reducing their PLR. PAT reported negative growth of 500 bps
YoY and 200 bps QoQ. PAT margins for top two real estate i.e. DLF and Unitech
declined 1000 bps and 400 bps YoY.
We beleive there is a close relationship between the economic growth and the prices
of commercial (office) market and retail demand. Demographic factors determine
the prices of housing segment though the interest rates in the economy also plays
important role in price discovery of housing segment. The BSE real estate index has
slipped by over 85% from its high of 13848 on 08th Jan 2008. Liquidity crunch in the
economy has badly hit the sector in the last quarter. Fund flow from the primary
market and private equity (PE) has dried out and therefore real estate companies are
in need for more debt. Raising debt has become difficult due to global liquidity crunch in the international market and ECB restrictions. Banks continues to postpone leading decision, despite sanctioned limits to the sector. As per various media reports property prices have corrected in the range of 15% to 35% from its peak depending upon the location and region. Most of the developers which were confident of sales picking up in the diwali festival season were wide of the mark.
Sector Outlook
Drying up of volumes, liquidity issues along with rising input cost is a curse to real estate companies. Inspite of these issues developers are not ready to reduce the list price. However indirect reduction in prices through discounts and freebies are part of the transaction. Real estate companies are taking several cost cutting measures to improve their margins in the face of the global economic turmoil. Most of the developers are now focusing towards Lower Income Group (LIG) and Middle Income Group (MIG)housing segment (Affordable housing). Also the focus has shifted from accumulating land to execution of current projects. Most of the developers are keeping away from launching of new projects. Malls rental rates are also expected to rationalize. In commercial space focus has shifted from IT/ITES commercial development segment to non IT/ITES commercial development as slowdown is expected in the sector. It’s time for the developers to recalibrate and reprice their products. On the other side buyers are in “Wait & Watch Policy” and are in no hurry to entry any transaction. We expect Q3FY09 will be tough ride for real estate sector. Decreasing commodity prices and interest rates will help the sector get rid of dark clouds in medium to long term. However atleast for the next 12 - 18 months, real estate companies are likely to face rough weather.
Sunday 16 November 2008
Bad news from earnings' season
India Inc. Profit, Growth Continues to Slip
Morgan Stanley has pointed out in its India Strategy report that Corporate India’s growth and profits continue to be south bound reflecting the Indian Economy scenario amid global financial crisis.
Here are our key takeaways from the recently concluded September 2008 quarterly earnings season:
• Corporate India (represented by a MS sample of 105 companies) reported a 29% fall in net earnings for the quarter ended September 2008 – an alltime low. This compares with a trailing five-year quarterly average growth of 28%.
• Excluding the Energy sector, growth was 11% YoY – a five-year low compared with a trailing five-year quarterly average growth rate of 30%.
• Our coverage universe surprised negatively versus MS analysts’ expectations. MS analysts’ were expecting net profit growth of 3% for our coverage universe (12% ex-energy).
• Given that F2009 earnings were revised down for nine out of 10 sectors and for market aggregates at the end of the season, it could be said that the quarterly earnings disappointed consensus. Downward revisions outstripped upward revisions 2:1 at the end of the season versus where earnings were at the start of the season.
• The Sensex constituents grew earnings 5.5% YoY on an aggregate basis, behind MS analysts’ forecasts and its worst performance since June 2002.
• Broad market earnings (sample of 1,038 companies) continued to show weak performance with earnings falling 7% YoY.
• Notably, four out of the 10 sectors reported 20%-plus growth in profits.
• At the sector level, the best performances came from Utilities and Technology. The laggards versus the aggregate numbers were Consumer Discretionary, Energy, and Healthcare. Save for Technology and Financials, all sectors reported a slippage in operating margins YoY.
• Versus MS expectations, the biggest positive surprises came in Consumer Discretionary and Financials while the negative surprises came in Energy and Healthcare.
• Excluding the volatile Energy sector, revenue for our sample rose 26% YoY – a seven-quarter high and a strong performance considering the macro environment, explained in part by high inflation.
• EBITDA margins fell 720bp YoY and 122bp YoY excluding the Energy sector. This took EBITDA growth to a two-year low of 26.6% for the sample Ex-energy and to a 5½ year low of 14.6% for the aggregate sample.
• The key problem for net profit growth was the declining share of net financial income in pretax earnings and the rising depreciation expense. Other income fell YoY whereas interest costs rose at their fastest pace in history.
Morgan Stanley has pointed out in its India Strategy report that Corporate India’s growth and profits continue to be south bound reflecting the Indian Economy scenario amid global financial crisis.
Here are our key takeaways from the recently concluded September 2008 quarterly earnings season:
• Corporate India (represented by a MS sample of 105 companies) reported a 29% fall in net earnings for the quarter ended September 2008 – an alltime low. This compares with a trailing five-year quarterly average growth of 28%.
• Excluding the Energy sector, growth was 11% YoY – a five-year low compared with a trailing five-year quarterly average growth rate of 30%.
• Our coverage universe surprised negatively versus MS analysts’ expectations. MS analysts’ were expecting net profit growth of 3% for our coverage universe (12% ex-energy).
• Given that F2009 earnings were revised down for nine out of 10 sectors and for market aggregates at the end of the season, it could be said that the quarterly earnings disappointed consensus. Downward revisions outstripped upward revisions 2:1 at the end of the season versus where earnings were at the start of the season.
• The Sensex constituents grew earnings 5.5% YoY on an aggregate basis, behind MS analysts’ forecasts and its worst performance since June 2002.
• Broad market earnings (sample of 1,038 companies) continued to show weak performance with earnings falling 7% YoY.
• Notably, four out of the 10 sectors reported 20%-plus growth in profits.
• At the sector level, the best performances came from Utilities and Technology. The laggards versus the aggregate numbers were Consumer Discretionary, Energy, and Healthcare. Save for Technology and Financials, all sectors reported a slippage in operating margins YoY.
• Versus MS expectations, the biggest positive surprises came in Consumer Discretionary and Financials while the negative surprises came in Energy and Healthcare.
• Excluding the volatile Energy sector, revenue for our sample rose 26% YoY – a seven-quarter high and a strong performance considering the macro environment, explained in part by high inflation.
• EBITDA margins fell 720bp YoY and 122bp YoY excluding the Energy sector. This took EBITDA growth to a two-year low of 26.6% for the sample Ex-energy and to a 5½ year low of 14.6% for the aggregate sample.
• The key problem for net profit growth was the declining share of net financial income in pretax earnings and the rising depreciation expense. Other income fell YoY whereas interest costs rose at their fastest pace in history.
Monday 27 October 2008
IRB Infra on profit highway
• H1 PAT at Rs. 95.38 cr is 75% of FY08 PAT
MUMBAI: IRB Infrastructure Developers Limited one of the largest toll road operating companies in India has declared unaudited consolidated Q2 profit of Rs. 41.21 crores on consolidated Income of Rs. 201.61 crores.
The consolidated half-yearly profit stands at Rs.95.38 crores on half-yearly consolidated total Income of Rs. 431.68 crores.
As IRB was listed in February 2008, a year-on-year comparison of financials is not possible. However, a comparison with 2008 annual results shows that IRB’s PAT for the half year at Rs. 95.38 crores has already crossed the half-way watermark of last year’s annual PAT which was Rs.126.57 crores.
Announcing the results, Mr. V. D. Mhaiskar, Chairman & Managing Director of IRB infrastructure Developers Ltd. said, “Our vertically integrated operations (construction to tolling) and focused expertise in the road sector is sure to translate into higher returns in the coming quarters as well.”
IRB Surat-Dahisar Tollway Private Limited, subsidiary of IRB Infr,a has progressed well to achieve financial closure for Surat Dahisar project in near future. Due to turmoil in financial market, financial closure is likely to take some more delay. However, company is confident in achieving the same at an early date.
IRB Infrastructure Developers Ltd. is an integrated infrastructure development and construction company in India with significant experience in the roads and highways sector. The Company is one of the largest private developers in western India and the largest toll road operating company in India. It is an established infrastructure company in the roads sector and has a large portfolio of completed and operational BOT projects in the roads infrastructure sector.
MUMBAI: IRB Infrastructure Developers Limited one of the largest toll road operating companies in India has declared unaudited consolidated Q2 profit of Rs. 41.21 crores on consolidated Income of Rs. 201.61 crores.
The consolidated half-yearly profit stands at Rs.95.38 crores on half-yearly consolidated total Income of Rs. 431.68 crores.
As IRB was listed in February 2008, a year-on-year comparison of financials is not possible. However, a comparison with 2008 annual results shows that IRB’s PAT for the half year at Rs. 95.38 crores has already crossed the half-way watermark of last year’s annual PAT which was Rs.126.57 crores.
Announcing the results, Mr. V. D. Mhaiskar, Chairman & Managing Director of IRB infrastructure Developers Ltd. said, “Our vertically integrated operations (construction to tolling) and focused expertise in the road sector is sure to translate into higher returns in the coming quarters as well.”
IRB Surat-Dahisar Tollway Private Limited, subsidiary of IRB Infr,a has progressed well to achieve financial closure for Surat Dahisar project in near future. Due to turmoil in financial market, financial closure is likely to take some more delay. However, company is confident in achieving the same at an early date.
IRB Infrastructure Developers Ltd. is an integrated infrastructure development and construction company in India with significant experience in the roads and highways sector. The Company is one of the largest private developers in western India and the largest toll road operating company in India. It is an established infrastructure company in the roads sector and has a large portfolio of completed and operational BOT projects in the roads infrastructure sector.
Friday 24 October 2008
Aditya Birla Nuvo reports excellent results
Aditya Birla Nuvo continued to work on its defined strategy of building a strong foundation for all the businesses which includes:
Achieving pan India presence in the Telecom business;
Expanding customer reach and augmenting its portfolio in the Financial Services business;
Transformation from a wholesale garment company to a “High-end apparel retailing” company through continued expansion of retail space and variety in wardrobe and
Improving operating efficiency through full utilisation of existing capacity and supporting business through cost effective sites and locations in the BPO business.
As a result, while the company grew in revenues as per plan, the consolidated profitability does not truly reflect the results of the investments and efforts made due to
a) The gestating impact of the aggressive growth initiatives bunched together
b) The nature of Life Insurance business where new business premium, though profitable in the long run, causes strain in the first year due to the accounting procedure of amortising all expenses in the first year itself.
Revenues on growth path
The Company’s standalone revenues in the second quarter grew by 45% to Rs. 1,336.6 Crores from Rs. 921.4 Crores, largely driven by higher volumes and better realisation in the Fertilisers, the Carbon Black and the Garments businesses.
The Company’s consolidated revenues are up by 29% to Rs. 3,594.1 Crores from Rs. 2,795.6 Crores. All the businesses are on the growth trajectory.
• The Telecom business registered a 47% rise in revenues at Rs. 2,299.2 Crores up from Rs. 1,562.2 Crores. Idea ranks 5th with 30.38 million subscribers as on 30th September 2008. After launch of operations in Mumbai and Bihar (including Jharkhand) circles and acquisition of controlling stake in Spice that operates in Punjab and Karnataka circles, Idea is now operational in 15 circles. With the planned launch of services in Tamil Nadu (including Chennai) and Orissa circles by the calendar year end, Idea’s footprint will cover approximately 90% of India’s telephony potential.
During the quarter, Idea received Rs. 72.9 billion through sale of 14.99% stake to TM International at Rs. 156.96 per share. Consequently, Nuvo’s stake in Idea stands reduced to 27.02%. Idea’s subsidiary Aditya Birla Telecom has also received the FIPB clearance to sell 20% stake to Providence for USD 640 million.
• The Life Insurance business, during the quarter, achieved 59% growth in new business premium income at Rs. 672.8 Crores supported by expanded distribution reach and enriched product portfolio. During April-August 2008, for which the latest industry data is available, Birla Sun Life Insurance achieved 121% growth compared to 56% growth attained by private players and ranked 5th with a market share of 8.15%. Revenues, during the quarter, grew from Rs. 869.7 Crores to Rs. 999.4 Crores. It has launched 261 new distribution centres during the half year itself to reach a total of 600 centres. In view of the current slow down in the financial services sector, the business has decided to strengthen the existing branches rather than opening of new branches.
• The BPO business reported 15% growth in revenues from Rs. 393.7 Crores to Rs. 453 Crores. Growth could have been higher but for the global slowdown.
• In the Garments business, revenues surged by 20% to Rs. 325 Crores from Rs. 270.1 Crores. Continued discount sale offerings stimulated demand across the industry. During the quarter, 24 new Exclusive Brand Outlets (EBOs) were launched, taking the controlled retail space to 5.7 lacs square feet across 279 EBOs.
Investment phase of growth businesses had gestating impact on consolidated profitability
Standalone net profit, during the quarter, is up by 19% at Rs. 65.3 Crores from Rs. 54.9 Crores. At the consolidated level, the Company has reported a net loss of Rs. 104.6 Crores against net profit of Rs. 47.8 Crores attained in the corresponding quarter of the preceding year.
• The Telecom business reported lower net profit at Rs. 144.1 Crores vis-à-vis Rs. 220.3 Crores. The start up losses and brand building costs for Mumbai circle impacted the bottom-line. Going forward, the business will benefit from cash inflows from TM International and Providence, new roll outs and the Spice acquisition which gives Idea the critical circles of Punjab and Karnataka.
• In the Life insurance business, the net loss increased to Rs. 200 Crores from Rs. 83.9 Crores. This was largely due to the growing share of new business premium and higher spends on expansion of distribution network, which are key growth drivers of the business. The new business is fully profitable. However, income from it will accrue over the policy period, as is the case with the nature of this business. The new ramp up will lay a strong foundation for the future growth of the company. The proposed acquisition of Apollo Sindhoori will be driving significant synergies through cross selling.
• In the BPO business, the net loss increased to Rs. 25.7 Crores from Rs. 20.3 Crores due to forex rates. Efforts are on to plough back profitability by enhancing operating efficiencies, increasing share of high paying KPO segment and migration to low cost locations. The business is making all efforts for break-even by the year end.
• Profitability in the branded garments business improved due to improved sales from retail segment which absorbed high lease rentals and higher discounting. In the apparel retail subsidiaries, the pre-launch expenses of stores and branding costs constrained the bottom-line.
Lower capacity utilisation in the contract manufacturing business due to weak order flow has impacted its profitability for which corrective actions have been taken.
Most of our businesses are progressing well on the designed path to leverage growth opportunities. Aditya Birla Nuvo is optimistic about meeting the challenges of strategic growth initiatives and enhancing its revenues and earnings. The investments pumped, more specifically into the Life Insurance, BPO and Garments businesses, which have created a stretch on profitability in the short term as per plan, will go a long way towards value creation for shareholders.
Achieving pan India presence in the Telecom business;
Expanding customer reach and augmenting its portfolio in the Financial Services business;
Transformation from a wholesale garment company to a “High-end apparel retailing” company through continued expansion of retail space and variety in wardrobe and
Improving operating efficiency through full utilisation of existing capacity and supporting business through cost effective sites and locations in the BPO business.
As a result, while the company grew in revenues as per plan, the consolidated profitability does not truly reflect the results of the investments and efforts made due to
a) The gestating impact of the aggressive growth initiatives bunched together
b) The nature of Life Insurance business where new business premium, though profitable in the long run, causes strain in the first year due to the accounting procedure of amortising all expenses in the first year itself.
Revenues on growth path
The Company’s standalone revenues in the second quarter grew by 45% to Rs. 1,336.6 Crores from Rs. 921.4 Crores, largely driven by higher volumes and better realisation in the Fertilisers, the Carbon Black and the Garments businesses.
The Company’s consolidated revenues are up by 29% to Rs. 3,594.1 Crores from Rs. 2,795.6 Crores. All the businesses are on the growth trajectory.
• The Telecom business registered a 47% rise in revenues at Rs. 2,299.2 Crores up from Rs. 1,562.2 Crores. Idea ranks 5th with 30.38 million subscribers as on 30th September 2008. After launch of operations in Mumbai and Bihar (including Jharkhand) circles and acquisition of controlling stake in Spice that operates in Punjab and Karnataka circles, Idea is now operational in 15 circles. With the planned launch of services in Tamil Nadu (including Chennai) and Orissa circles by the calendar year end, Idea’s footprint will cover approximately 90% of India’s telephony potential.
During the quarter, Idea received Rs. 72.9 billion through sale of 14.99% stake to TM International at Rs. 156.96 per share. Consequently, Nuvo’s stake in Idea stands reduced to 27.02%. Idea’s subsidiary Aditya Birla Telecom has also received the FIPB clearance to sell 20% stake to Providence for USD 640 million.
• The Life Insurance business, during the quarter, achieved 59% growth in new business premium income at Rs. 672.8 Crores supported by expanded distribution reach and enriched product portfolio. During April-August 2008, for which the latest industry data is available, Birla Sun Life Insurance achieved 121% growth compared to 56% growth attained by private players and ranked 5th with a market share of 8.15%. Revenues, during the quarter, grew from Rs. 869.7 Crores to Rs. 999.4 Crores. It has launched 261 new distribution centres during the half year itself to reach a total of 600 centres. In view of the current slow down in the financial services sector, the business has decided to strengthen the existing branches rather than opening of new branches.
• The BPO business reported 15% growth in revenues from Rs. 393.7 Crores to Rs. 453 Crores. Growth could have been higher but for the global slowdown.
• In the Garments business, revenues surged by 20% to Rs. 325 Crores from Rs. 270.1 Crores. Continued discount sale offerings stimulated demand across the industry. During the quarter, 24 new Exclusive Brand Outlets (EBOs) were launched, taking the controlled retail space to 5.7 lacs square feet across 279 EBOs.
Investment phase of growth businesses had gestating impact on consolidated profitability
Standalone net profit, during the quarter, is up by 19% at Rs. 65.3 Crores from Rs. 54.9 Crores. At the consolidated level, the Company has reported a net loss of Rs. 104.6 Crores against net profit of Rs. 47.8 Crores attained in the corresponding quarter of the preceding year.
• The Telecom business reported lower net profit at Rs. 144.1 Crores vis-à-vis Rs. 220.3 Crores. The start up losses and brand building costs for Mumbai circle impacted the bottom-line. Going forward, the business will benefit from cash inflows from TM International and Providence, new roll outs and the Spice acquisition which gives Idea the critical circles of Punjab and Karnataka.
• In the Life insurance business, the net loss increased to Rs. 200 Crores from Rs. 83.9 Crores. This was largely due to the growing share of new business premium and higher spends on expansion of distribution network, which are key growth drivers of the business. The new business is fully profitable. However, income from it will accrue over the policy period, as is the case with the nature of this business. The new ramp up will lay a strong foundation for the future growth of the company. The proposed acquisition of Apollo Sindhoori will be driving significant synergies through cross selling.
• In the BPO business, the net loss increased to Rs. 25.7 Crores from Rs. 20.3 Crores due to forex rates. Efforts are on to plough back profitability by enhancing operating efficiencies, increasing share of high paying KPO segment and migration to low cost locations. The business is making all efforts for break-even by the year end.
• Profitability in the branded garments business improved due to improved sales from retail segment which absorbed high lease rentals and higher discounting. In the apparel retail subsidiaries, the pre-launch expenses of stores and branding costs constrained the bottom-line.
Lower capacity utilisation in the contract manufacturing business due to weak order flow has impacted its profitability for which corrective actions have been taken.
Most of our businesses are progressing well on the designed path to leverage growth opportunities. Aditya Birla Nuvo is optimistic about meeting the challenges of strategic growth initiatives and enhancing its revenues and earnings. The investments pumped, more specifically into the Life Insurance, BPO and Garments businesses, which have created a stretch on profitability in the short term as per plan, will go a long way towards value creation for shareholders.
Tuesday 14 October 2008
Reliance Money buys stake in HK commodity exchange
First Indian firm to acquire a stake in an international exchange
Becomes the second largest shareholder in HKMEx
Reliance Money to get a seat on the HKMEx board
Mumbai, October 14, 2008: Reliance Money, part of the Reliance Anil Dhirubhai Ambani Group, has acquired a 15 per cent stake in Hong Kong Mercantile Exchange (HKMEx). With this holding, Reliance Money becomes the second-largest shareholder in the commodity exchange and will have a board membership. Reliance Money is the first Indian firm to acquire a stake in an international exchange.
"Even as Asia has emerged as a key market for global commodities, the region does not have a strong commodity exchange. We believe that our deal with HKMEx will help us capitalise on the growing demand for commodities in this region," said Mr. Sudip Bandyopadhyay, Director and CEO, Reliance Money.
Reliance Money has recently received approval from the FMC and Ministry of Consumer Affairs for acquiring 10 per cent stake in domestic National Multi-Commodity Exchange of India. It plans to up this stake to 26 per cent.
"We plan to build synergies between both the exchanges thereby leveraging on the growth potential of commodity trading in India, China and the rest of Asia," added Mr. Bandyopadhyay.
HKMEx proposes to start trading in the first quarter of 2009 and will kick-start its operations by offering dollar-denominated oil contracts. It would also diversify into other commodities going forward.
Becomes the second largest shareholder in HKMEx
Reliance Money to get a seat on the HKMEx board
Mumbai, October 14, 2008: Reliance Money, part of the Reliance Anil Dhirubhai Ambani Group, has acquired a 15 per cent stake in Hong Kong Mercantile Exchange (HKMEx). With this holding, Reliance Money becomes the second-largest shareholder in the commodity exchange and will have a board membership. Reliance Money is the first Indian firm to acquire a stake in an international exchange.
"Even as Asia has emerged as a key market for global commodities, the region does not have a strong commodity exchange. We believe that our deal with HKMEx will help us capitalise on the growing demand for commodities in this region," said Mr. Sudip Bandyopadhyay, Director and CEO, Reliance Money.
Reliance Money has recently received approval from the FMC and Ministry of Consumer Affairs for acquiring 10 per cent stake in domestic National Multi-Commodity Exchange of India. It plans to up this stake to 26 per cent.
"We plan to build synergies between both the exchanges thereby leveraging on the growth potential of commodity trading in India, China and the rest of Asia," added Mr. Bandyopadhyay.
HKMEx proposes to start trading in the first quarter of 2009 and will kick-start its operations by offering dollar-denominated oil contracts. It would also diversify into other commodities going forward.
Sunday 12 October 2008
N-powering India - Wait & Watch
India needs more power. The country's peak time power shortfall is 14.8% of demand
and this gap is expected to widen. Currently, India's total power generation stands at 124 GW. Of that, coal comprises 55%, hydroelectric 26%, natural gas 10%, renewable
5% and nuclear energy only 3%.
Background of the India-US nuclear deal
The primary reason for India's poor nuclear power production has been chronic
uranium shortage, which incidentally was the main driving force for the India-US
nuclear deal. India won the right to buy nuclear energy supplies after the 45-country
Nuclear Suppliers Group granted a waiver for sales to the country outside the nuclear Non-Proliferation Treaty on Sept. 6, 2008. This deal ends a 34-year embargo and gives India the right to buy nuclear reactors from abroad and access nuclear fuel from the global market.
Estimated market size
According to a recent McKinsey report, the demand for power is likely to rise from the current ~120 GW to ~360 GW by 2017. The total power generation capacity will have to be pushed up by ~240 GW. Assuming that the share of nuclear energy grows to 7% (as estimated by many analysts), India would need nuclear power generation of ~25,000 MW. Also, if we assume that all nuclear power reactors are of 1000 MW size, with each costing ~USD 4 billion, the total market size, in terms of value, would be ~USD 100 billion.
Market structure and players
The nuclear power generation business is capital-intensive. A nuclear power plant costs Rs. 18-19 crore per MW capacity to build, against Rs 4-5 crore for a coal-fired plant or Rs 3-4 crore for one running on gas. So, the ensuing market structure is likely to omprise of many large sized players and still be fragmented in nature. For instance, USD 1.2 billion GVK group, BHEL, L&T, Tata Power, Jindal and Videocon are among the 40 companies in contention for contracts to build nuclear reactors and ancillary infrastructure. This fragmented market structure may result in priceundercutting and lower returns on investment (ROI) initially for all players. Currently, only one player, Nuclear Power Corporation of India Ltd (NPCIL), with an installed capacity of 6,500 MW, operates in the market. NPCIL operates only 40% of its capacity, mainly on account of lack of uranium supplies.
Drivers
Huge market size: The opportunity worth USD 100 billion is the prime driver for the market. Almost 40 domestic companies were vying to enter the market even before the US Congress cleared the deal. Cost structure of the business: In a conventional plant, fuel costs constitute 50% of the total cost and capital expenditure constitutes the remaining 50%. In a nuclear plant, the capital expenditure makes up for 80% of the total cost while fuel costs account for only 20% of the total cost. In the long term, a nuclear plant becomes cheaper to run than a conventional unit. This implies that the business will be of a fixed cost nature and will not be subject to the vagaries of raw material prices.
Entry Barriers
India's Atomic Energy Act of 1962 allows only government-owned companies i.e. with at least a 51% GOI (Government of India) stake, to enter the market. However, this will be amended soon to allow private players to enter the market.
Lack of a public-private partnership (PPP) model: This model is needed to sort out issues like power purchase agreements, tariffs, taxes and liabilities in the event of an accident. Currently, the GOI bears the liability for the cost of damages, in case of an accident. Long gestation period and high initial costs: A nuclear plant takes 3-5 years to build as against 2-3 years for a conventional thermal plant. Also, in the initial stages, electricity from a nuclear plant costs Rs 6.5 per unit as against Rs 2.5-3.0 from conventional units. All of these may result in component supply contracts encashment only after the plant becomes operational and starts generating cash inflows. The long gestation period and low initial returns may dissuade small players from entering the market.
Opportunities
The recent financial crisis in the US is estimated to be ~USD 2 trillion in size. To fill out this void, the US government will try to increase the GDP as fast as possible. This may lead to increased sale of nuclear power technology and wares to India. The ease of availability of technology and wares may attract more players and increase the total market size. The above-mentioned opportunity may also help India to wrest the deal along with fuel supply agreements from US vendors. This will also increase competition among all foreign vendors (for instance France) and will help Indian companies in clinching better deals.
Threats
Dependence on foreign fuel supplies: This has been a threat in the past too. Although fuel supply agreements may be incorporated in the deal, there is a lack of assured indigenous supply. India's uranium mines are mainly in Jharkhand, Andhra Pradesh and Madhya Pradesh, which are Naxalite (terrorist) infested territories, and much of these mines are thus out of bounds for exploration. Another uranium ore site in Meghalaya faces serious environmental objections. There has been a good find in Domiasiat near the Bangladesh border, but that too is subject to security issues. Also, Indian uranium is poor in quality. The ore concentrations are only 300 parts per million (ppm) as against optimally required 600-700 ppm. Going forward, this will be a threat, as any consolidation among suppliers will lead to disruption of supplies and losses in the business.
Conclusion
Given the long gestation period, the earnings stream will be visible after a long time. Investors can follow a wait and watch policy for entering this market.
Credit: www.ghallabhansali.com
and this gap is expected to widen. Currently, India's total power generation stands at 124 GW. Of that, coal comprises 55%, hydroelectric 26%, natural gas 10%, renewable
5% and nuclear energy only 3%.
Background of the India-US nuclear deal
The primary reason for India's poor nuclear power production has been chronic
uranium shortage, which incidentally was the main driving force for the India-US
nuclear deal. India won the right to buy nuclear energy supplies after the 45-country
Nuclear Suppliers Group granted a waiver for sales to the country outside the nuclear Non-Proliferation Treaty on Sept. 6, 2008. This deal ends a 34-year embargo and gives India the right to buy nuclear reactors from abroad and access nuclear fuel from the global market.
Estimated market size
According to a recent McKinsey report, the demand for power is likely to rise from the current ~120 GW to ~360 GW by 2017. The total power generation capacity will have to be pushed up by ~240 GW. Assuming that the share of nuclear energy grows to 7% (as estimated by many analysts), India would need nuclear power generation of ~25,000 MW. Also, if we assume that all nuclear power reactors are of 1000 MW size, with each costing ~USD 4 billion, the total market size, in terms of value, would be ~USD 100 billion.
Market structure and players
The nuclear power generation business is capital-intensive. A nuclear power plant costs Rs. 18-19 crore per MW capacity to build, against Rs 4-5 crore for a coal-fired plant or Rs 3-4 crore for one running on gas. So, the ensuing market structure is likely to omprise of many large sized players and still be fragmented in nature. For instance, USD 1.2 billion GVK group, BHEL, L&T, Tata Power, Jindal and Videocon are among the 40 companies in contention for contracts to build nuclear reactors and ancillary infrastructure. This fragmented market structure may result in priceundercutting and lower returns on investment (ROI) initially for all players. Currently, only one player, Nuclear Power Corporation of India Ltd (NPCIL), with an installed capacity of 6,500 MW, operates in the market. NPCIL operates only 40% of its capacity, mainly on account of lack of uranium supplies.
Drivers
Huge market size: The opportunity worth USD 100 billion is the prime driver for the market. Almost 40 domestic companies were vying to enter the market even before the US Congress cleared the deal. Cost structure of the business: In a conventional plant, fuel costs constitute 50% of the total cost and capital expenditure constitutes the remaining 50%. In a nuclear plant, the capital expenditure makes up for 80% of the total cost while fuel costs account for only 20% of the total cost. In the long term, a nuclear plant becomes cheaper to run than a conventional unit. This implies that the business will be of a fixed cost nature and will not be subject to the vagaries of raw material prices.
Entry Barriers
India's Atomic Energy Act of 1962 allows only government-owned companies i.e. with at least a 51% GOI (Government of India) stake, to enter the market. However, this will be amended soon to allow private players to enter the market.
Lack of a public-private partnership (PPP) model: This model is needed to sort out issues like power purchase agreements, tariffs, taxes and liabilities in the event of an accident. Currently, the GOI bears the liability for the cost of damages, in case of an accident. Long gestation period and high initial costs: A nuclear plant takes 3-5 years to build as against 2-3 years for a conventional thermal plant. Also, in the initial stages, electricity from a nuclear plant costs Rs 6.5 per unit as against Rs 2.5-3.0 from conventional units. All of these may result in component supply contracts encashment only after the plant becomes operational and starts generating cash inflows. The long gestation period and low initial returns may dissuade small players from entering the market.
Opportunities
The recent financial crisis in the US is estimated to be ~USD 2 trillion in size. To fill out this void, the US government will try to increase the GDP as fast as possible. This may lead to increased sale of nuclear power technology and wares to India. The ease of availability of technology and wares may attract more players and increase the total market size. The above-mentioned opportunity may also help India to wrest the deal along with fuel supply agreements from US vendors. This will also increase competition among all foreign vendors (for instance France) and will help Indian companies in clinching better deals.
Threats
Dependence on foreign fuel supplies: This has been a threat in the past too. Although fuel supply agreements may be incorporated in the deal, there is a lack of assured indigenous supply. India's uranium mines are mainly in Jharkhand, Andhra Pradesh and Madhya Pradesh, which are Naxalite (terrorist) infested territories, and much of these mines are thus out of bounds for exploration. Another uranium ore site in Meghalaya faces serious environmental objections. There has been a good find in Domiasiat near the Bangladesh border, but that too is subject to security issues. Also, Indian uranium is poor in quality. The ore concentrations are only 300 parts per million (ppm) as against optimally required 600-700 ppm. Going forward, this will be a threat, as any consolidation among suppliers will lead to disruption of supplies and losses in the business.
Conclusion
Given the long gestation period, the earnings stream will be visible after a long time. Investors can follow a wait and watch policy for entering this market.
Credit: www.ghallabhansali.com
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