Earnings Analysis: Sesa Goa, HDFC Bank

Sesa lowers volume estimates; HDFC Bank retail loan growth very strong


Net sales: Rs9.07 billion (expected range Rs6 billion-Rs10.2 billion)
Net profit: Rs3.88 billion (expected range Rs2.6 billion-Rs4.8 billion)


  •  Realisations at $76/tonne were much lower than market expectations; CLSA has predicted a drop in global iron ore prices by the end of the year based on higher supplies from India after monsoons and more supplies coming in from Brazil and Australia.
  •  Volume growth was in line with expectations. However, Sesa lowered FY2011E volume growth guidance to 10% from 20% because of the ban on iron ore exports by the Karnataka government and logistics constraints for iron ore shipments in Orissa and Goa. Karnataka made up 20% of volumes in FY10.
  •  What came across in its conference call after earnings is that its plan to expand production capacity to 50 million tonnes (MT) by the end of FY13 may not happen chiefly because of delays in getting environment clearance. The expansion of its Orissa mine may also be delayed. Many brokerages will probably lower their estimates. 
  •  The general consensus conclusion about its Cairn acquisition is that it was not in the value zone and took away from its main business - most fair values for Cairn range between Rs280 and Rs340 but Sesa has paid Rs355/share (if its open offer is not fully subscribed it will have to acquire the rest of the shares from Vedanta at Rs405/share). However, the acquisition is likely to add to its EPS for FY12 and FY13 by more than 10% and 20% respectively.

Conference call highlights:

  •  Iron ore production cost (including royalties) was $90-95/tonne for the Orissa mine and $40/tonne for the Karnataka mine.
  •  Sesa reversed the provision it had created in Q1 for taxes since it now believes its profits could be lower than it initially estimated for FY11. It believes that its tax rate for the year could be 15%-16% vs. 18% earlier. Its EOU benefits expire in this financial year after which it will have to pay full tax.
  •  It has environment clearance for mining for 25MT (17MT in Goa, 6MT in Karnataka, additional 2MT in Orissa).
  • Its capital expenditure in FY11 will be Rs14 billion of which it will spend Rs12 billion for pig iron and mine capacity expansion.
  •  Its cash and cash equivalent at the end of September were Rs76 billion.


NII: Rs25.26 billion (expected range Rs24.59 billion-Rs25.55 billion)
Net profit: Rs9.11 billion (expected range Rs8.98 billion-Rs9.61 billion)


  •  Both net profit and NII were at the higher end of expectations; loan growth at 38% y-o-y was also on the higher end of the range due to some short-term wholesale loans; core loan growth was at 33%. 
  •  Pace of NPLs is coming off and this will mean lower loan loss provisions cushioning impact of possible lower fee income growth in the future.
  •  Corporate loan book grew faster than the retail book at 46% y-o-y (9% q-o-q); retail was up 31% y-o-y (8% q-o-q) but makes up for 52% of the total book. Among retail loans, auto loans were up 36% y-o-y at Rs232 billion; retail loan growth is high considering HDFC Bank did not buy any loans from HDFC in the quarter.
  •  CASA, which had dipped in Q1, was back to 50% plus levels; HDFC Bank's deposit growth remains above industry average at 30% y-o-y.
  •  As expected, cost of funds increased and led to a marginal fall in NIMs to 4.2%.
  •  Fee income declined q-o-q and it made a treasury loss of Rs0.5 billion against a profit of Rs1.6 billion in Q2FY10; fee income growth continues to lag credit growth.
  • Staff expenses have risen sharply leading to a rise in operating expenses. 
  •  It opened 40 branches and 328 ATMs in Q2 taking its total branch network to 1,765 and ATMs to 4,721. 

(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).



Shibaji Dash

6 years ago

Anil Agarwal's Cairn gamble has pushed his entire stable to the realm of predictive astrology, at least for the time being, say until the endof FY 10-11.

Ambit Capital appoints Saurabh Mukherjea as head of equities

Broking firm Ambit Capital said it has appointed Saurabh Mukherjea as the head of equities.

The equity business will now be headed by Mr Mukherjea, leaving Andrew Holland to continue to focus on Ambit's Investment Advisory business full time. Mr Mukherjea and Mr Holland will report to the CEO, Ashok Wadhwa.

Mr Mukherjea has over 12 years of experience in the equities business. He has done his post graduation in science from the London School of Economics. He was the cofounder of Clear Capital, an equity research firm, in 2003. He sold Clear Capital to Execution Noble in 2008 and moved to India to set up Execution Noble's institutional equities business.

Mr Holland has extensive experience of equities spanning over 25 years across Asia and Europe. Mr Holland would continue to head the Investment Advisory business, said the company in a press release.


Personal finance Wednesday

ICICI Bank launches NRI remittance service; L&T offers tax saving infrastructure bonds; Axis MF launches Axis Gold ETF; Birla Sun Life MF floats Birla Sun Life Short Term FMP-Series 1; SBI Mutual Fund unveils SBI Debt Fund Series-90 Days-35; LIC premium income rises more than Rs1,000 crore from two new ULIPs

ICICI Bank launches NRI remittance service

ICICI Bank has launched I-Express, an instant cross-border money transfer option for non-resident Indians (NRIs).
The service would be available through the ICICI Bank's select partners in the Gulf countries, the Bank said in a statement.
I-Express facility offers the remitter - the option of visiting any partner outlet for instant credit into the beneficiary account maintained with ICICI Bank in India.
Under this service, the funds would be instantly remitted and the beneficiary could withdraw the money immediately, the Bank said.
"ICICI Bank not only offers funds transfer facility into the accounts of beneficiaries held in its own branches in India, but also helps in crediting funds into accounts of beneficiaries held in over 65,000 branches of other Indian banks," an ICICI Bank spokesperson said.

L&T Infrastructure Finance offers tax saving infrastructure bonds

L&T Infrastructure Finance has introduced tax saving infrastructure bonds. The Long Term Infrastructure Bonds have four different investment options. The face value of each bond is Rs1,000 and applicants will have to subscribe to a minimum of five bonds. All the four options have a 10-year tenor. All the bonds will be listed on National Stock Exchange (NSE) and can be traded after the initial lock-in of five years.

Series 1 and 2 will pay interest rate of 7.75% per annum and have a buyback facility after seven years, while series 3 and 4 will pay an interest of 7.5% per annum and have a buy back facility after five years. The issue closes on 2nd November.

Under section 80CCF of the Income Tax Act, investment amount of up to Rs20,000 would be eligible for deduction from taxable income. This limit of Rs20,000 per annum is in addition to Section 80C, 80CCC and 80CCD. All funds raised by the bonds would be utilised to finance various infrastructure projects.

Axis MF launches Axis Gold ETF

Axis Mutual Fund launches Axis Gold ETF, an open-ended exchange traded fund (ETF). The investment objective of the Scheme is to generate returns that are in line with the performance of gold. Each unit of the ETF will be approximately equal to 1gm of gold.

The Scheme opens on 20th October and closes on 3rd November.  The Scheme then reopens on or before 16 November 2010. The exit load for the Scheme is nil.

Each unit of the Scheme will be issued at a face value of Rs100 plus premium equivalent to the difference between the allotment price and the face value of Rs100.

The units of the Scheme will be issued, traded and settled only in dematerialised form.

The minimum investment amount is Rs5,000. The minimum target amount is Rs1 crore. In case of authorised participants, it is 1kg gold per application. The corpus of the Scheme will be invested in gold bullion-fineness (or purity) of 995 parts per 1,000 (99.5%) or higher. 

Domestic Price of Gold is the benchmark index. The Scheme will be managed by Anurag Mittal.  

Birla Sun Life MF floats Birla Sun Life Short Term FMP-Series 1

Birla Sun Life Mutual Fund has launched Birla Sun Life Short Term FMP-Series 1, a close-ended income scheme. The Scheme will invest in debt securities and money market instruments.

The Scheme will have growth and dividend (payout) option. The Scheme will have duration of 139 days from the date of allotment. During the new fund offer (NFO), the units will be offered at face value of Rs10 per unit. The Scheme opens on 20th October and closes 22nd October. The exit load for the Plan is nil. The minimum investment amount is Rs5,000. The minimum target amount under the Scheme shall be Rs10 crore.

CRISIL Short Term Bond Fund Index is the benchmark index. Kaustubh Gupta is the fund manager.

SBI Mutual Fund unveils SBI Debt Fund Series-90 Days-35

SBI Mutual Fund has launched SBI Debt Fund Series-90 Days-35, a close-ended income scheme. The investment objective of the Scheme is to provide regular income, liquidity and returns to the investors through investments in a portfolio comprising debt instruments such as government securities, PSU & corporate bonds and money market instruments maturing on or before the maturity of the Scheme.

The Scheme will have growth and dividend (payout) option. The Scheme opens on 20th October and closes 21st October. During the new fund offer (NFO), the units will be offered at face value of Rs10 per unit. The minimum investment amount is Rs5,000. The minimum target amount is Rs1 crore.

CRISIL Liquid Fund Index is the benchmark index. Rajeev Radhakrishnan is the fund manager.

LIC premium income rises more than Rs1,000 crore from two new ULIPs

Life Insurance Corporation (LIC) of India has crossed the Rs1,000 crore mark under its two new unit-linked insurance plans (ULIPs)-Pension Plus and Endowment Plus. The total premium income under these two plans was around Rs1,282 crore on 18th October. These new plans were introduced in September following the new guidelines laid down by the Insurance Regulatory and Development Authority. Pension Plus was launched on 2nd September. It is a unit linked deferred pension plan. About Rs150 crore of premium has been collected under the Plan from more than 30,000 policies. Endowment Plus was launched on 20th September. More than Rs1,000 crore has been garnered from the plan from more than 2 lakh policies in 29 days.

On 30th September, the new business premium income of the Corporation was Rs23,321 crore from 1.45 crore policies. The first premium income has registered an impressive growth rate of 83.07%.


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