October 31, 2014 Banking and Financial Services Sector Update (Sector Analysts: Jyoti Gupta, Akshat Kulshreshtra, Ankita Kumar) Market Performance: Bank Nifty rallies over 1,000 points in six trading sessions. It went up over 3% in two days. Among Individual stocks Kotak Mahindra, IndusInd Bank, Yes Bank and Axis Bank gained 1-2 % each to hit their respective record highs on NSE. HDFC and ICICI Bank neared their lifetime highs. Among public sector banks, SBI, UBI, Andhra Bank, Bank of India, Bank of Baroda and Canara Bank rose 1-3% on NSE. Despite the appreciation in the past few sessions, a lot of these stocks are still below their 52-week highs Stock Strategy: In terms of performance, private banks are showing higher growth, earnings and asset quality. Kotak Mahindra Bank trades at par with HDFC Bank on P/B and at Rs 30% premium to HDFC Bank on P/E MAJOR NEWS: Banks offering free withdrawals from ATM Leading Banks, including HDFC and ICICI and Axis Bank, are continuing to offer free withdrawals from ATM. Several public sector Banks such as Yes Bank and Kotak Mahindra Bank are allowing unlimited withdrawals from the third party ATMs to customer with larger balances. Kotak Mahindra allows free withdrawals in ATMs for customers having balance upto Rs 10000
Bank Nifty rallies over 1,000 points in six trading sessions. It went up over 3% in two days.
Among Individual stocks Kotak Mahindra, IndusInd Bank, Yes Bank and Axis Bank gained 1-2 % each to hit
their respective record highs on NSE.
HDFC and ICICI Bank neared their lifetime highs.
Among public sector banks, SBI, UBI, Andhra Bank, Bank of India, Bank of Baroda and Canara Bank rose 1-3% on
NSE.
Despite the appreciation in the past few sessions, a lot of these stocks are still below their 52-week highs
Stock Strategy:
In terms of performance, private banks are showing higher growth, earnings and asset quality.
Kotak Mahindra Bank trades at par with HDFC Bank on P/B and at Rs 30% premium to HDFC Bank on P/E
MAJOR NEWS:
Banks offering free withdrawals from ATM
Leading Banks, including HDFC and ICICI and Axis Bank, are continuing to offer free withdrawals from ATM.
Several public sector Banks such as Yes Bank and Kotak Mahindra Bank are allowing unlimited withdrawals from
the third party ATMs to customer with larger balances. Kotak Mahindra allows free withdrawals in ATMs for
customers having balance upto Rs 10000
October 31, 2014
Saradha Scam: CBI to Examine Reserve Bank Officials CBI will re-exmaine some RBI officials in connection with Saradha Scam probe. The examination will be about the
clarifications of some documents. The agency will inspect the loopholes which were exploited by the chit fund
scheme operators. The agency has recently filed 25 page charge sheets containing the names of 3 accused-
Sudipta Sen, Debjani Mukherjee and Kunal Ghosh
October 31, 2014
FMCG Sector Update
(Sector Analysts: Amrit Pal Singh and Kirti Chablani)
ITC Q2 Results Update
Net Profit up by 8.7% year on year to Rs.2,425 crore
Net Sales grew by 14.8% year on year to Rs.8,930 crore
Analysts expected Net Profit of Rs.2458 crore on Rs.9,063 crore. Hence, the results were below expectation
Operating profit climbed 9.9% y-o-y but the operating margin declined by 170 basis points to 38%
Cigarettes business saw a 14% growth Y-o-Y to Rs. 4,251 crore. However the EBIT margin of this business
declined 120 basis points to 67.8% from 69%
FMCG revenue grew by 11.9% Y-o-Y to Rs. 2,196 crores
Hotel business reported a 5.9% growth Y-o-Y at Rs.261.6 crores
Agri business saw a 16.2% growth Y-o-Y at Rs. 2,059 crores
Paperboard,packaging and paper business saw a 8.9% YoY growth to Rs. 1,284 crores
Godrej Consumer Q2 Results Update
Net profit up by 20.3% YoY to Rs.234.5 crores
Net Sales grew by 4.6% YoY to Rs. 2,048 crores
Operating profit climbed by 11% YoY to Rs.329 crores and the operating margin increased by 100 basis points to
16.1%
HUL Q2 Results Update
Net profit up by 8.1% YoY to Rs.988 crores
Net Sales grew by 10.8% YoY to Rs. 7,639 crores
Operating profit climbed by 14.5% YoY to Rs.1242 crores and the operating margin increased by 50 basis points
to 16.3%
Revenue on soaps and detergents business grew by 11% YoY to Rs.3,755 crores and EBIT margin declined by
40 basis points to 13.6%
Revenue on Personal products business grew by 9.9% YoY to Rs.2143 crores and the EBIT margin grew by 160
basis points to 24.4%
Revenue on Beverages business grew by 7.6% to Rs.899 crores and the EBIT margin grew by 30 basis points to
17.3%
The board of HUL declared an interim dividend of Rs.6 per equity share to be paid on or after 14th November
Jubilant Foodworks Q2 Results Update
Net profit declined by 12.7% YoY to Rs.29 crores
Net Sales grew by 14.7% YoY to Rs.501.07 crores
Total Expenses grew by 19.11% YoY to Rs.463.71 crores
(Sector Analysts: Arihanth Jain, Manish Rathore and Priyanka Mohanty)
Metals and Mining:
Stock price performance of key companies
STOCK PRICE (in INR) CHANGE
TATA STEEL 489.10 +14.60 (+3.08%)
HINDALCO 163.60 +3.25 (+2.03%)
SESA STERLITE 255.60 +2.55 (+1.01%)
Demand for steel is expected to increase by about 80% from 1.3bn tonnes in 2010 to 2.3bn tonnes
in 2030.
McKinsey and Co estimate that iron and steel energy efficiency and end-use steel efficiency could deliver
$278bn in resource savings by 2030 and go some way towards addressing the metals scarcity crisis.In
purview of this the demand for steel is expected to rise.
Copper up on strike action, weaker dollar
Copper rose on Monday on news of planned strike action in Indonesia and Peru and as the dollar fell following results of European bank health checks, though gains were limited by an expected surge in supply of the metal next year. The dollar fell versus the euro following the results of bank stress tests, though reaction was subdued by weakening German business morale data.A weaker dollar makes dollar-priced metals cheaper for -European and other non-U.S. investors.
Sesa Sterlite's profit down 32% to Rs 1,658 crore
Sesa Sterlite, subsidiary of Vedanta Resources Plc, posted a 32 per cent year-on-year decline in its net profit during the second quarter ended September. But the net profit of Rs 1,658 crore was slightly higher than the Bloomberg consensus estimates of Rs 1,619 crore.
Gold Mining Stocks Diverge in Wake of Metal’s Decline
A chasm is opening up between the best- and worst-performing gold mining stocks as the price of the metal
languishes near a four-year low. Profits have been squeezed after the industry’s costs to build and operate mines
ballooned during gold’s 12-year bull run that lasted from 2001 to 2012, while debt levels rose as producers chased
acquisitions that they’ve since written down by billions of dollars.
Fitch Publishes Metals & Mining Chartbook
The report provides comparison among major issuers, a quick backdrop on macroeconomic and demand drivers for
metals and mining and includes steel market, base metals market, gold and coal charts.
October 31, 2014 Metals, mining see renewed activity on bourses after coal reforms
Metals, mining, power and cement counters on the stock exchanges saw renewed activity on Tuesday a day after the
Union Cabinet recommended promulgation of an ordinance to facilitate e-auction of coal blocks to private companies.
Real Estate:
Stock price performance of key companies
STOCK PRICE CHANGE
GMR INFRA 21.75 +0.65 (+3.08%)
DLF 124.10 - 0.05 (0.04%)
FDI in real estate may double after easing of rules: NAREDCO
Foreign direct investment (FDI) in the real estate sector could jump over two-fold in the next one year with easing of FDI rules in the construction sector, realtors' body NAREDCO said today. Reduction in minimum built-up area to 20,000 sq meters from 50,000 sq meters and reduction in capital investment to $ 5 million from $ 10 million has the potential to more than double FDI inflows into housing, commercial real estate, hotels and townships in the next one year
Bangalore's real estate market set to remain high
Bangalore’s residential market is likely to remain highly active in future with 243,000 units expected to be supplied in the next five years (until 2018). The cumulative demand for residential housing (until 2018) is projected to be 438,600 units with 44% in the MIG and 31% in the LIG. Considering the high requirements, demand is likely to remain unmet in all segments with a total demand-supply gap of around 196,000 units with a high paucity (38% of total shortfall) in the HIG.
Realty industry needs funding reforms The government’s recent policy initiative to ease foreign equity norms in construction by reducing the minimum capital requirement from $10 million to $5 million and built-up area from 50,000 sq mts to 20,000 sq mts may well provide a lifeline for fund-starved, debt-ridden property developers. Yet, more reforms to boost credit flow are needed to provide a long-term solution to the funding crisis faced by the realty industry.
Sebi ban: Securities Appellate Tribunal asks DLF to explain use of money from mutual fund redemption. The Securities Appellate Tribunal (SAT) has directed real estate developer DLF to file an affidavit by November 3 stating the purpose for which it intends to use money that has been parked in mutual funds and the amount it requires for running the company till the end of this calendar year
Debt-ridden GMR plans to raise Rs 5,400 crore
GMR Infrastructure plans to raise up to Rs 5,400 crore through sale of assets and issue of fresh equity in the next three months to a year, in a bid to bring down its debt burden and to finance projects. At the end of the last financial year, the company's debt stood at Rs 45,000 crore - six times its equity. The funds raised will be utilised to check this debt, and also to infuse Rs 900 crore equity in the upcoming 1,370 Mw thermal power plant in Chhattisgarh.
October 31, 2014
Pharma Sector Update
(Sector Analysts: Kanika Singh, Neha Kumar and Ravi Karanam)
Cipla takes on Novartis, asks government for 5 patent revocations: DIPP to look into merit of case
The Commerce and Industry Ministry is looking into the merit of Cipla's demand for revocation of patents of Swiss drug
major Novartis for respiratory drug Indacaterol.
Earlier this week, Cipla (fifth largest drugmaker by revenue) had demanded the Department of Industrial Policy and
Promotion (DIPP) to revoke five patents of Novartis citing 'need for public health access'. Cipla claimed that Novartis has
received the patent grant since 2008-09, but it has chosen not to manufacture the drug in India. Novartis imports only a
negligible quantity of the product through its Indian licensee Lupin. Novartis imported only 53,844 units of the drug in
2013, which satisfied only 4,500 patients. Cipla claims that there are more than 1.5 crore declared patients in India who
need this drug and that there is a shortage of 99.97% in the market.
The DIPP is now examining whether the claims made by Cipla holds applicability under the Section 66 of the Indian
Patent Act (IPA) 1970. Under this section, the Centre can revoke a patent in "public interest" if it is of the opinion that a
patent or the mode in which it is exercised is "mischievous to the State" or generally prejudicial to the public. However, as
per the Act, the department is bound to give an opportunity to Novartis to be heard before taking any decision on the
matter.
Since the procedure undertaken by the DIPP is quasi-judicial in nature, the case could take substantial time to reach a
final decision. Meanwhile, Cipla has already launched its low-cost generic version of the respiratory drug Indacaterol
priced at about Rs 130 per pack of 10 pills as opposed to Indacaterol's price of Rs 677. In the previous such case, the
legal battle between Indian pharma companies and Novartis, over the blood cancer drug Glivec, had taken seven years.
The final decision of patent revocation came earlier last year.
Eli Lilly transfers TB drug technology to 7 manufacturers for free
Global healthcare company Eli Lilly and Company completed the technology transfer of multi-drug resistant tuberculosis
(MDR-TB) drug Cycloserine in India to Shasun Chemicals and Drugs Ltd. Chennai. Considered as a novel approach, Eli
Lilly embarked upon transferring its manufacturing technology and know-how for capreomycin and cycloserine free of
charge to seven manufacturers. Eli Lilly said all seven partners have received regulatory approvals, including those from
the World Health Organisation's pre-qualification programme and other stringent regulatory authorities, to supply high
quality versions of these two medicines to people with MDR-TB.
Pfizer and Wyeth Ltd. merger approved
The Bombay High Court has approrved the amalgamation of Wyeth Ltd. with Pfizer Inc. In November 2013, the
companies had decided to merge their operations in India under the 'Pfizer brand' to boost business.
In October 2009, Wyeth USA merged with Wagner Acquisition Corporation (a wholly owned subsidiary of Pfizer Inc) which
consequently made Wyeth Ltd. subsidiary of Pfizer Inc in India.
October 31, 2014 Dr Reddy's Laboratories plans to file 2 NDAs with USFDA within a year
Drug maker Dr Reddy's Laboratories has planned to file two new drug applications (NDA) with the US Food and Drug
Authority ( FDA) by the end of next year.
The first NDA will be filed within this fiscal year followed by the other filing in the next few months. Though the company
has not disclosed the area of therapy for these NDAs, they mentioned that the drugs are in the late phases of clinical
trials.
Currently the trials are conducted in the areas of dermatology and neurology. In one of its filings with SEC, the company
had earlier said that it was working on six new drugs in different areas.
In the proprietary business as well, their assets are robust in dermatology and neurology. While in neurology, it is primarily
migraine, in dermatology the target is steroid-response kits, dermatoses, acne, rosacea and actinic keratosis.
The company expects to file 1-2 NDAs per year from 2016-17 onwards, it said in the latest investor presentation.
India relies on China for 90 per cent of drug raw materials
India depends heavily on imports of many key raw materials from China for making of 15 essential drugs including several
antibiotics.
This gives China a stronger position by either increasing prices of the drugs where it enjoys virtual monopoly or strained
relationships could lead to severe shortages.
Some of these drugs imported are painkiller such as paracetamol, Aspirin; antibiotics such as Amoxicillin and Ampicillin,
Cephalexin, Cefaclor, Ciprofloxacin, Ofloxacin, Levofloxacin; first line diabetes drug Metformin; antacid Ranitidine.
Pharma companies in consonance with the latest revised pricing by NPPA
The price cuts for 348 medicines introduced by the NPPA in september, was strongly opposed by the pharmaceutical
companies. The companies had filed a petition challenging the government's new drug pricing order. However, on court's
direction to settle the matter, the companies collectively met with the centre. After two meetings and long deliberations
with each other, the companies appear to be in consonance with the revised pricing
(Sector Analysts: Anshu Mishra and Ankit Bacchuka)
Major News
Bangladesh has faced a nationwide blackout on 1 Nov 2014. Power Grid corporation of India which transmits power to Bangladesh
has confirmed the problem is due to non-drawl of electricity by Bangladesh’s substation.
Taking yet another developing north eastern states, centre has came out with a scheme to invest Rs 4754 crore for strengthening transmission and distribution system in Arunachal Pradesh and Sikkim.
Meghalaya government is planning to start renewable power enabled micro grid systems in selected villages.
Cabinet Committee on Economic Affairs is planning to hold a meeting in a week to decide on urgent issue of pooling of imported and domestic fuel prices to help stressed power stations with a combined capacity of 91,000 mw for reviving the economy.
Upcoming Projects
Global solar technology manufacturer SunEdison Inc signed an MoU Rajasthan government to establish 5,000 MW capacity of solar power at about 25,000 acre of land in Rajasthan in next five years.
EPC major BGR Energy has received Rs 250 crore order from Tamil Nadu Transmission Corporation Ltd for establishment of 230KV AIS Substation at Villupuram, 110KV GIS Substation at Thirumangalam South, and 110KV AIS substation at Palavadi in Dharmapuri district
NHPC has signed an agreement with Uttar Pradesh New and Renewable Energy Development Agency for setting up its first solar power project in the state at a cost of Rs 400 crore .
Mergers and Acquisitions
(CCI) has cleared Adani Power to buy Lanco Infratech’s 1,200-MW imported coal-fired power plant at Udupi in Karnataka for Rs 6,000 crore.
(Sector Analysts: Ashwin Jain, Mili Handa and Piyush Sethi)
Steep rise in LPG consumption:
In September,2014 there has been an increase in the cooking gas consumption by 16% which is recorded as the fastest pace in last 42 months. Also the cooking prices have been raised by Rs 3 per cylinder from 23rd October, 2014 due to the rise in the commissions paid to the dealers.
Reasons for the increase in LPG consumption-
Increase in the cap of subsidized cylinders from 9 to 12
Decline in domestic LPG prices
Delay in rolling out direct transfer scheme
Thus increasing the demand of domestic LPG for auto LPG and commercial LPG.
Exploration in South China Sea:
There has been an opposition against exploration activity in South China sea which will be impacting the sovereignty and
the interests of China. Also this oil exploration in South China sea has been a sensitive issue as there were ships colliding
with each other for days. Many Chinese people were also killed and some injured in anti China riots in Vietnam. Peace
and stability in the sea is what they are expecting from other countries.
Platts Top 250 Global Energy Company Rankings:
Below are the Platts Top 250 rankings for some of the major oil and gas companies -
Company Name Platts Rank
ONGC 21
RIL 22
IOC 43
Coal India 47
GAIL 97
Cairn India 104
HPCL 153
These rankings are given on the basis of – asset worth, revenues, profits, returns on invested capital through which the
financial performance of the company is assessed.
October 31, 2014
Compounded Growth Rate:
Company Name Compounded Growth
Rate (in last three years)
Essar – 16th fastest growing
company in the world
27.9%
Cairn India 22.2%
GAIL 20.5%
RIL 17.8%
Gas supplies cuts by GAIL:
In order to meet the fuel requirements of CNG and piped gas supplies in cities, GAIL had cut down the supplies to 30
industries in South Gujarat. This discriminatory action by GAIL seems to work in contrary to Make in India program as it is
impacting the viability of the operating units.
Natural gas price hike:
A 33% of natural gas price hike from $4.2 per mmBtu from Nov 1st onwards. As a result of which RCF (Rashtriya
Chemicals and Fertlizers) are planning to increase the prices of potassium and phosphorus fertilizers in order to maintain
their margins.
Expected fall in petrol and diesel prices:
It is expected that the diesel and petrol prices will fall Rs 2.50 a litre soon which will be a 16 month low for petrol prices.
Companies are having margins of about $7-8 per barrel on petrol and diesel (as per international oil price data). This is
due to the sharp fall in international oil prices.
