Poor revenues on account of lower volumes, discount on trucks, higher fixed costs and increasing finance costs negatively impacted the bottom line of the company.
After disappointing Q4FY13 results Ashok Leyland reports a net loss of Rs141.75 crore in Q1FY14. This was the first time since its first quarter results of FY2001-02 that the company recorded a net loss over a quarter. The company had posted a net loss of Rs9.40 crore in the first quarter of FY2001-02. Operating profit too, slid to its lowest since that reported in the June 2009 quarter. The operating profit of India’s No.2 truck-maker fell by 90% y-o-y to Rs23.25 crore from Rs240.70 crore in the same period last year.
In the first quarter of this fiscal year, the company recorded a 22% y-o-y (year-on-year) decline in revenues. Revenues fell to Rs2,363.81 crore from Rs3,026.89 crore reported for the same quarter last year. Lower contribution of M&HCVs and historically high discount of approximately Rs159,000 per vehicle affected revenues drastically. “Industry conditions remain tough, which is leading to higher discounts and impacting profitability,” mentions research firm Nomura.
According to other research reports, the weak economy affected the high margin medium & heavy commercial vehicles (M&HCV) segment which reported a decline of 27% y-o-y. Volumes declined by 37.30% qoq to to 21,721 units from 34,627 units in Q4FY13. Over the year, volumes declined by 21.50% y-o-y from 27,669 units in Q1FY13. The slowdown has even impacted the light commercial vehicle segment which declined by 6% y-o-y. Finance costs increased by 21% y-o-y to Rs100.67 crore due to higher working capital related to high inventory during the quarter.
According to a research report from Karvy Stock Broking, “exports declined 22.3% y-o-y to 2,334 units, primarily on account of ~74% Y-o-y fall in its exports to Sri Lanka to 340 units in Q1FY14, while management indicated improvement in other geographies of Middle‐East & Africa.” The broking firm also mentions that “In addition to ongoing M&HCV slowdown and LCVs begun declining, Ashok Leyland also started losing market‐share in both the segments, which will result in lower volume, going forward.”
Ashok Leyland also announced capex and investment to the tune of Rs200 crore each for FY14E, which would lower its interest burden, going forward. The company has hiked prices by approximately Rs 20,000 per vehicle at the beginning of July’13, which should benefit the company going forward.
After its share price plummeted 13% in the last few days Yes Bank sent a mailer to all its “valued” shareholders” citing broker research reports to hold on to their dear stock even as it prepares to declare quarterly results. Is SEBI concerned at all?
In a strange move, Yes Bank encouraged its shareholders to hold on to their stocks, citing stock brokers research recommendations. This is peculiar because it is not a usual practice to write to shareholders about stock valuation, especially before a quarterly result announcement due on July 24. Since 15 July, the company’s share price has taken a beating, plummeting over 13% from Rs500 to Rs433 at the time of writing this piece after Reserve Bank of India (RBI) tightened liquidity measures (which is likely to affect banks in the upcoming quarter, and beyond). The incumbent management is also involved in a nasty controversy involving the two promoter families, which has now become public. Yes Bank probably fears that its efforts to raise capital could be hampered, if its share price was to decline further. If that is so, it has surely chosen a funny way to deal with it.
The bank’s “Financial & Investor Strategy” team, whatever this means, sent a mailer to all its “valued” shareholders stating, “Despite the recent correction in the stock, leading brokerage houses have maintained their positive outlook on the stock with a strong expected growth outlook in earnings and profits.” It pointed out that “leading brokerage firms” like of Morgan Stanley and Goldman Sachs attached “BUY” recommendations.
How much value is there in these recommendations? It is pertinent to note that Morgan Stanley and Goldman Sachs were lead managers to Yes Bank’s previous qualified institutional placement (QIP) issue, in 2010. Apart from fixating on Goldman Sachs and Morgan Stanley analyses (and that too in detail), the mailer goes on to mention the likes of JM Financial Institutional Securities, Merrill Lynch, HSBC, Macquarie, Deutsche, all of which gave BUY ratings.
Furthermore, Yes Bank’s mailer mentioned specifics that are usually mentioned in an earnings release, clearly to boost its share price and give its “valued” shareholders a glimmer of hope. It said, “Diversity of deposits has improved significantly over the past 3 years on the back of retail deposit and CASA (current account-savings account) traction, CASA as at March 31, 2013 at 18.9%. More than 86% of deposits are from depositors contributing less than 0.20% of total deposit base individually. Yes Bank has limited concentration in deposit base. Yes Bank runs a positive interest rate gap in the short term (less than 6 months) bucket, hence with the current tightness in liquidity, increase in rates may have beneficial impact on margins.”
Yes Bank has diluted its equity base by 32.8%, since 2006. It has raised equity capital three times—Rs120 crore in December 2006 and Rs330 crore in December 2007. In January 2010, the bank raised Rs1,034 crore through a placement of shares to QIBs. In 2006, the equity base was Rs270 crore. Now it is Rs358.62 crore.
And now it has plans to hike foreign equity participation, by up to 60%, vis-a-vis global depository receipts (GDRs) or another QIP issue. In fact, in Yes Bank’s recent annual general meeting on 8 June 2013, the resolution to raise as much as $500 million was unanimously passed. In the AGM press release, Rana Kapoor, managing director and chief executive officer (CEO), talked of “deepening shareholder register” and widening “investor classes” but made no mention of minority shareholders and mentioned only qualified institutional investors and domestic institutional investors.
Furthermore, the family feud has been the talk of Dalal Street of late, which has embarrassed company’s officials. The two promoter families are feuding about board seats.
Madhu Kapur, widow of late Ashok Kapur (brother-in-law of Rana Kapoor) has sought to nominate her daughter Shagun Kapur Gogia, legal heir to Ashok Kapur’s 12% stake in the bank, to the board of Yes Bank. However, the Board of Directors of Yes Bank rejected her offer. Ms Kapur then petitioned the Bombay High Court, seeking the court intervention in the case. Moreover, she also has sought the court intervention to quash appointment of three directors of the bank namely Sanjay Palve, Rajat Monga and Pralay Mondal. She also alleges that the annual general meeting held on June 8 was not conducted in a proper manner and has asked the Court to direct Yes Bank to provide minutes of meeting as well as video recordings. The Court will give the final hearing on July 29.
There are allegations, according to the Economic Times, that Rana Kapoor’s loan got waived off by Rabobank, an erstwhile strategic shareholder of Yes Bank. Ms Madhu Kapur, the widow of late co-promoter Ashok Kapur (Rana Kapur’s brother-in-law) alleged that Rabobank forced Ashok Kapur to sell off his shares to repay the loan given to him. Recently, it was reported that Rana Kapoor’s family bought a house for an extravagant Rs128 crore next to Mukesh Ambani’s Antilla, on the ritzy Altamount Road in Mumbai.
Yes Bank recently was levied Rs2 crore penalty by RBI for failing to adhere to KYC and anti-money laundering norms.
Yes Bank is among the banks that do not disclose charges in its website such as number of free transactions at other bank ATMs in India and replacement of damaged debit cards, which is in violation of RBI circular. The story can be accessed here.
Those looking for safety and smooth returns from bond schemes like their fixed deposits, would be disappointed again
On 16th July, the Reserve Bank of India (RBI) tightened domestic liquidity to stem the rupee depreciation. As a result, banks started redeeming their surplus investments from liquid and gilt schemes of mutual funds. Mutual funds were net sellers of Rs12,546 crore, whereas FIIs were net sellers of Rs263 crore in the debt market. On account of the huge redemptions, bond yields shot up by 54 basis points from 7.56% to 8.01%, the biggest single-day gain since January 2009. The average net asset value (NAV) of bond schemes (having an asset above Rs100 crore) declined by 2.07% in a single day. Over the past two months, bond yields have gone up to 8.1% as on 16 July 2013 from a low of 7.09% as on 24 May 2013. During this period bond scheme have delivered a return of -3.09%.
While regular bond schemes declined by 2.94%, the much-touted dynamic bond schemes declined by 3.46%. This would have come as a rude shock to bond fund investors. They look for safety and smooth returns when they invest in bond schemes; an alternative to bank fixed deposits.
Over a one-year period ended 16th July, bond schemes delivered an average return of just 5.43% post tax – no better than bank FD. The top 10 bond schemes delivered an average post-tax return of 7.10% while the bottom 10 bond schemes delivered an average post-tax return of 3.74%. Dynamic bond schemes fared no better delivering an average return of 5.47% over the year. “Dynamic” is a marketing gimmick. Bond fund managers are incapable of timing the market since Central Bank can change the rules of the game overnight.
Considering that since April 2012, the RBI has cut interest rates by 125 basis points to 7.25% from 8.50%, this is not the kind of returns bond fund investors would be expecting. However, the massive sell off by foreign investors over the past month has led to a loss for bond fund holders. We are sure no Indian bond fund investors, bond fund managers or mutual fund companies had reckoned with this new factor – volatility in returns caused by FIIs entering and exiting the bond market. From the beginning of June to 15th July, FIIs have registered a net outflow of over Rs40,000 crore due to a changed outlook of interest rates in the US and the strength of dollar.