Companies & Sectors
Auto Sales: Europe, US and India to drive global demand in 2015F

According to Nomura, in 2015F, strength in the US and China would continue to drive global auto growth, coupled with further improvement in Europe and India


Global auto demand would continue to be steady with a 3.2% increase driven by Europe, the US and India and these three markets would also drive profitability, says Nomura in a research note. It said, "In our opinion, the largest changes affecting the auto sector over the past six months on the macro front have been yen depreciation and lower crude oil prices."


"However," Nomura cautioned, "the market environment is likely to remain harsh in some emerging economies such as Russia, Indonesia and Brazil owing to currency depreciation and excess production capacity, while in Japan, we think there will be a further deterioration, particularly in the mini-vehicle segment."


According to the note, while lower oil prices are positive for the US and India, it would be negative for Russian auto market. It said, "Cheaper gas is likely to drive a mix improvement in the US market. For India, this means lower inflation and lower operating costs for consumers. On the other hand, oil dependent economies such as Russia are likely to suffer."


In 2015F, Nomura said, it looks for lower gasoline prices in the US to provide a further boost to the increasing consumer interest in light trucks, especially SUVs and crossovers. An increase in the sales weighting of high-ticket, high-margin light trucks should be a positive for many automakers. In India, which imports the majority of its crude oil, lower crude oil prices help to improve the trade balance and to dampen inflation, and help to reduce running costs via lower petrol and diesel prices. These factors will be positive for auto demand, it added.


"In contrast, auto sales are already falling in Russia, which is highly dependent on oil exports, and the rouble has been depreciating further. The country's auto parts industry is not yet adequately developed, and it imports many auto parts as well as autos themselves, thus we think the earnings environment for automakers will remain harsh owing to a negative impact from currency depreciation as well as lower volumes," the note said.


For India, Nomura sees strong economic recovery and lower fuel prices to support robust volume growth in FY16/3F. Segment wise, MHCVs are likely to grow 30%, passenger vehicles up 16%, while two-wheeler volumes are likely to grow around 12% in FY16/3F. "We believe benign commodity prices, lower discounts/ incentives and operating leverage benefits will drive margin expansion, leading to strong double-digit earnings growth for most of the Indian automakers in FY16/3F," it added.

Nomura said compared automakers listed in Japan, Korea, China, India, and Indonesia by their forecasted 2015 profit growth and P/E ratios relative to domestic stock markets. "Our screening revealed that Japanese automakers are the most appealing given expectations for rapid profit growth and low relative P/E multiples. Indian automakers look the next most appealing, as despite slightly high valuations compared to other regions, we expect profits to grow strongly over the medium term. In China, the passenger car market continues to grow despite stiff competition. Meanwhile, we expect limited price competition by Japanese automakers and thus think the impact of the weak yen on Korean automakers will not be as unfavourable as some investors expect. In Indonesia, automakers have added substantial production capacity over the past few years even as demand has stalled owing to a slowdown in the economy, higher gasoline prices, and rising interest rates. We think market conditions are likely to deteriorate further."


On global front, Nomura said its top picks are Mazda Motor and Nissan Motor as both the companies have scope to increase sales volumes and profits by leveraging company-specific factors such as technology and their new model cycle. These two automakers are also likely to benefit from favourable competitive conditions and forex rates in key markets, and lastly both automakers look attractive with low valuations, it added.


In its regional picks, Nomura said four automakers, Hyundai Motor (Korea), Great Wall Motors (China), Maruti Suzuki (India), and Toyota Motor (Japan) look appealing.


SC tells BCCI to let Cricket remain a gentleman’s game

The Supreme Court told BCCI that cricket must be played in its true spirit and should remain a gentleman’s game


The Supreme Court on Monday warned the Board of Control for Cricket in India (BCCI) against 'killing the game of cricket' saying it must be played in its true spirit and should remain a gentleman's game. The apex court was hearing the spot-fixing case related with the Indian Premier league (IPL).


"If you allow these things to happen, then you are killing the game of cricket,'' it said, while referring to IPL spot-fixing scandal.


"We take the findings of Justice Mudgal Committee’s report as gospel truth,'' it said.


While questioning the return of N Srinivasan as the chief of BCCI, the Supreme Court said, “Can’t make a distinction between BCCI and IPL. IPL is a by-product of BCCI.”


“Some people who are in BCCI now own a team. It has become a mutual benefit society. Ownership of team raises conflict of interest. BCCI chief has to run the show but you have a team, which raises questions. Can BCCI president own a team? How far is this fair?” it added.


Commenting on Srinivasan, the apex court said, "You will have to address question of conflict of interest as head of BCCI and also as owner of IPL team, whose official is found to be involved in betting''.


BCCI, however, dismissed any conflict of interest.


Global Offshore Case: SEBI raps HSBC Securities, India Star

Besides HSBC Securities, which acted as the merchant banker, SEBI also reprimanded India Star (Mauritius) that had made the open offer for Global Offshore Services


Market regulator Securities and Exchange Board of India (SEBI) has 'reprimanded' HSBC Securities and Capital Markets Pvt Ltd for failing to make adequate disclosures related to an open offer for shares of Global Offshore Services Ltd, erstwhile Garware Offshore Services Ltd made in 2008.


Besides HSBC Securities, which acted as the merchant banker, the market regulator also reprimanded India Star (Mauritius) Ltd, which had made the open offer. However, SEBI ruled that "a direction in the nature of ordering the acquirer to make another public offer is not warranted".


Prashant Saran, SEBI's Whole Time member, in his 30-page order said, "I reprimand the acquirer (India Star) and the merchant banker (HSBC Securities and Capital Markets) for failing to reach the standards of disclosures."


The ruling came on a complaint filed by one Amit Bhagvatprasad Barot in 2012 that India Star failed to make certain disclosures while making the open offer for acquiring additional shares of Global Offshore Services.


Barot had held shares of Global Offshore Services but had not participated in the open offer. In his plea, he had sought a fresh open offer. "I note the allegation that adequate disclosures, with respect to the persons in control of the acquirer, was not made. However, it has not been shown that the shortfall in disclosure would have changed the decision of the shareholders who had tendered shares in the open offer," Saran said.


Taking note of inadequate disclosures, SEBI cautioned that "repeated violations by either of them would be viewed very seriously."


The open offer closed in 2008 and Barot lodged a complaint in 2012, which is almost after four years of completion of the offer. Though there is no limitation period for such complaints to be made to SEBI, a period of 21 days is provided to the shareholders.


SEBI said that even if a complaint is received after one day of closure and completion of open offer formalities, the same would create a huge difficulty in undoing the process that is already complete. Further, it could also be possible that third party rights would have been created in the meantime.


Accordingly, SEBI said that it may not be appropriate or reasonable to allow the relief as sought for by the complainant, who requested the regulator to direct the acquirer to make another open offer and provide an opportunity to the shareholders to take an informed decision whether or not to tender their equity shares.


India Star made an open offer in March 2008 after increasing its stake in Global Offshore to 21.56% through conversion of optionally convertible debentures.


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