Stocks
Earnings analysis (Q2FY11): Ashok Leyland; Canara Bank; Hind Zinc; ACC; Ambuja Cements; TCS

Ashok Leyland margins surprise positively; lower realisation and higher costs severely dent Ambuja’s profitability; ACC margins are at historical lows; TCS delivers best volume growth in 21 quarters; Canara Bank asset quality steady; Hindustan Zinc’s realisations better than expected

ASHOK LEYLAND Q2

Net sales: Rs27.14 billion (expected range Rs24.89 billion-Rs28.35 billion)
Net profit: Rs1.67 billion (expected range Rs1.34 billion-Rs2.09 billion)

Highlights:

  •  Net sales at the higher end of the expected range; net profits somewhere in between.
  •  EBITDA margins were much higher than expected, driven by lower raw material and labour costs.
  • Interest costs were higher (but these tend to spike in this quarter driven by higher working capital requirements).
  •  Brokers have upped their volume estimates for the year.

CANARA BANK Q2

NII: Rs20.03 billion (expected range Rs17.06 billion-Rs18.2 billion)
Net profit: Rs10.08 billion (expected range Rs6.38 billion-Rs10.36 billion)

Highlights:

  • NII exceeded even the higher end of expectations. Net profit at the higher end.
  •  Lending yields were higher q-o-q and better than expected - this helped offset treasury gains.
  • Treasury income fell. Fee income registered some growth (in line).
  • Cost of deposits was stable.
  • Loan growth was 22%, a little on the higher side of expectations; infrastructure 63%, housing 42% growth.
  •  Net NPLs increased a bit q-o-q.

HINDUSTAN ZINC Q2

Net sales: Rs22.01 billion (expected range Rs19.93 billion-Rs22.34 billion)
Net profit: Rs9.5 billion (expected range Rs8.64 billion-Rs10.24 billion)

Highlights:

  • Both profit and sales at the higher end of expectations.
  •  Zinc realisations were higher, both q-o-q and y-o-y, positive considering zinc prices fell 2% q-o-q.
  • Even volumes were up both y-o-y and q-o-q; growth was expected to be flattish q-o-q.
  • However, cost of production increased significantly too - net cost of production for zinc increased by 21% y-o-y to $977/ tonne - the company said this was because of higher power and fuel costs and higher stripping costs at its mines.
  • Updates: Its 100ktpa lead smelter at Dariba (Rajasthan) is likely to be commissioned by the end of December (which means there is a quarter's delay). After this, Hindustan Zinc will become the world's largest integrated lead-zinc producer with a total capacity of 1,064ktpa. Mine development at the Sindesar Khrud Mine is on schedule. The mill at this mine will also start by the end of December. Its silver refining capacity will touch 500 tonnes by March 2014 (company estimates) and since the refining costs are negligible, realisations will mostly flow straight to its earnings (it had produced about 140 tonnes of silver in FY10).

ACC Q3

Net sales: Rs16.37 billion (expected range Rs16.60 billion-Rs18.32 billion)
Net profit: Rs1 billion (expected range Rs1.72 billion-Rs2.64 billion)

Highlights:

  •  Both net sales and profit lower than even the lower end of expectations.
  • Margins are at historical lows.
  •  Volumes were slightly higher than expected but realisations dropped higher than expected.
  • Raw material costs were much higher than expected which the management says is because of higher costs for slag and fly ash; power and fuel costs were stable.
  • Market share decline continued - now at 10%.
  • Some volume benefits from its 2.8mtpa Karnataka plant may flow through in the December quarter.
  •  Prices have declined across all markets but the decline in north and central India has hit ACC the most.
  •  Analysts expect some seasonal uptick in the December quarter.

AMBUJA CEMENTS Q3

Net sales: Rs15.64 billion (expected rangeRs15.50 billion-Rs16.27 billion)
Net profit: Rs1.52 billion (expected rangeRs1.60 billion-Rs2.77 billion)

Highlights:

  • Revenues were at the lower end of the expected range while profits were even below the lower range.
  •  Realisation and profitability per tonne was sharply down - realisations were much weaker than even the lowest estimates; this was mainly because of a sharp fall in prices in the west where it sells 40% of its output.
  • Power & fuel costs were up due to higher imported coal costs and higher manufacturing of clinker.
  • Volume growth was in line with expectations with year-to-date growth at 7% and this quarter's growth at 5% y-o-y.
  •  A transport strike at its Suli and Rauri plants in Himachal Pradesh will dent volumes in the December quarter.

TCS Q2

Net sales: Rs92.86 billion (expected range Rs87.44 billion-Rs89.04 billion)
Net sales: $2 billion (expected range $1.88 billion-$1.93 billion)
Net profit: Rs21.07 billion (expected range Rs19.52 billion-Rs25.90 billion)

Highlights:

  • Massive outperformance at the net sales level driven by 11% volume growth (the highest in 21 quarters) - energy & utilities grew more than 40%; Europe revenues were up 20%.
  •  Net profit showed healthy growth.
  • Its EBITDA margin is now almost level with Infosys.
  • Management said they have a good deal pipeline; clients are investing in cost reduction; client budgets (preliminary) are encouraging.
  •  FY11 hiring guidance raised to 50,000 from 40,000.
  • Utilisation was up 300bps to 78%.
  •  Attrition remains the lowest in the industry.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).
 

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PM invites Japanese firms to invest in infrastructure projects

Tokyo: Observing that infrastructure deficit was posing a major constraint to India's growth, prime minister Manmohan Singh today said an outlay of over $1 trillion was envisaged for infrastructure projects during the next Five Year Plan beginning 2012 and invited Japanese firms to play a greater role in this endeavour, reports PTI.

 Mr Singh said his government was determined to continue the economic reforms to create a favourable investment environment and facilitate higher capital inflows and push the reform of both direct and indirect taxes with the aim of unifying indirect taxes into a single Goods and Services Tax (GST) in due course.

 Addressing a business luncheon attended by top business leaders from India and Japan, he noted that India's growth, which fell to 6.5% in 2008-09 because of the global economic recession, recovered to 7.4% in 2009-10 and is projected to be 8.5% in 2010-11.

 He hoped that India will return to 9% growth in 2011-12.

 "I am confident that strong fundamentals of the Indian economy will enable us to achieve our objective of double-digit growth in the coming decades," Mr Singh said.

 Underlining that he was not underestimating "many challenges" that are faced in achieving such high level of growth, he said "We need to close the infrastructure deficit, especially in the power, transport and communication sectors.

 "This is a major constraint on our development and we will give high priority to infrastructure development in the years ahead."

 Mr Singh said that India's investment needs will be at least $1 trillion, part of which will come from within but "we expect Japanese companies to also provide their support."

 He said during India's next Five Year Plan from 2012 to 2017 "we envisage financial outlays of over one trillion US dollars on infrastructure projects."

 Private investment will play a large role in achieving this target, Mr Singh said, while asking Japanese companies to play a much greater role in development of India's economy.

 From India, Mukesh Ambani, Reliance Industries (RIL) chairman and managing director; Sunil Bharti Mittal, Bharti CMD; Fortis chairman Malvinder Singh and HDFC chairman Deepak Parekh were among those present at the luncheon.

 

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Suspended animation of scrips: Investors suffer, and errant companies are let off the hook

Suspension of scrips, or delisting them, punishes investors and helps companies who want to ditch their retail shareholders after raising funds from them

After Moneylife wrote earlier about some 1,500 scrips being in suspended animation, even as the Securities and Exchange Board of India (SEBI) is set to tweak the takeover and delisting rules, intermediaries and investors are writing to protest the lack of action.

Suspension of scrips, or delisting them, punishes investors and helps companies who want to ditch their retail shareholders after raising funds from them. Companies merely need to violate the listing rules by refusing to pay the fees or making correct disclosures. Meanwhile, investors are stuck. They continue to pay the annual depository charges and cannot even close the DP account without transferring the shares; re-materialising them involves a further cost on what could be a worthless share.

An intermediary told Moneylife that, at present, of the 1,537 scrips suspended from trading, just 673 companies account for a combined equity capital of Rs14,119 crore. Virendra Jain of Midas Touch Investors Association says that nearly 800 companies file returns regularly. But, in most cases, investors are clueless.

Among the scrips that investors say they are clueless about are: Assambrook Ltd which was suspended on 3 July 2008 where around 8,000 investors, who hold 64% of the equity, are affected. While tea companies are doing well, shareholders of Assambrook are stuck with illiquid stock even though the shares were trading at Rs15 when it was suspended. Two others are: Delhi-based Talbros Engineering and Cochin-based Vysali Pharmaceuticals.

Interestingly, investors have repeatedly taken up this issue with CB Bhave, even when he headed the National Securities Depository Ltd (NSDL), but have not made much headway. One reason may be that most of these scrips are listed on the (older) Bombay Stock Exchange (BSE), whose turnover has steadily shrunk over the past 15 years to just under 4% of the total market, even though it has more than 3,000-odd shares listed on it with negligible trading. Clearly, it is unfair, and expensive, for the BSE to bear the cross for legacy issues. The regulator needs to step in on behalf of investors and make investor protection funds available to pursue these companies, initiate action against directors (one committee had suggested barring them from the boards of all companies) and file winding-up proceedings against the companies. Meanwhile, several investors and intermediaries have innovative ideas to revive trading in these scrips, if only the regulator would listen. One suggestion sent to Moneylife is to transfer these shares to one of the 20 defunct regional bourses which can provide an over-the-counter (OTC) platform to trade the shares and give them liquidity. These would be like the bulletin boards or pink-sheet exchanges that exist abroad, with lower regulatory requirements. Clearly, this and other suggestions need to be examined by the regulator to find a solution.

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COMMENTS

sathya cumaran

6 years ago

i have been cheated by IIFL by bse nse sebi

R Balakrishnan

6 years ago

Yes, indeed, delisting helps the bloody promoters. If SEBI is serious about investor protection, what should be done is to bar each and everyone (director/independent or otherwise, auditors and solicitors etc) from ever being associated with the capital markets and put up their names not only on the website of SEBI but also publish them in all national dailies.
The promoters should be held accountable. Punishing the shareholders is like helping the promoter to rob them.

sodhan

6 years ago

Many seafood cos during 1994 era collected huge money that it is sunrise sector.Largest co Sharat Seafood is delisted and promoter is enjoying with free public money.They also sold their stake at higher levels also converted limited co to almost private entity.Govt should take control of land bought for ponds as it is with public money.

sodhan

6 years ago

Many seafood cos during 1994 era collected huge money that it is sunrise sector.Largest co Sharat Seafood is delisted and promoter is enjoying with free public money.They also sold their stake at higher levels also converted limited co to almost private entity.Govt should take control of land bought for ponds as it is with public money.

sodhan

6 years ago

Many seafood cos during 1994 era collected huge money that it is sunrise sector.Largest co Sharat Seafood is delisted and promoter is enjoying with free public money.They also sold their stake at higher levels also converted limited co to almost private entity.Govt should take control of land bought for ponds as it is with public money.

Krupal K G

6 years ago

Investors associations, also , should take up the new listing business that is taking place on the First day trading. In case of Emami Infra, Prakash steelage, Bedmutha Industries etc., rampunt speculation has driven the price to dizzy heights and dropped like a hot potato. Bringing all the new listings under Trade to Trade for one or two months is the need of the hour. Anchor investors lock in period of one month is too short a period, it should be increased to minimum 3 months, to make the market healthy.

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