Stocks
Maruti Suzuki Q2 net profit zooms nearly three-fold to Rs670 crore

Maruti Suzuki's September quarter net profit surged 194.7% to Rs670 crore while sales increased 26.5% to Rs10,211.8 crore

Maruti Suzuki India Ltd, the country's largest carmaker reported a 195% higher net profit during the second quarter on cost reduction and positive impact of forex. Moreover, the company's September quarter results last year were affected due to labour problems at Manesar.

 

For the quarter to end-September, the company, a unit of Japanese Suzuki Motor Corp, said, its net profit increased to Rs670 crore from Rs227.5 crore while total sales, rose 26.5% to Rs10,211.8 crore from Rs8,070 crore, same period last year.

 

In a regulatory filing Maruti Suzuki said, "The company's performance during the quarter has to be viewed in the context of unusually low levels of profit in the second quarter of last year owing to labour problems at Manesar. Higher localisation and cost reduction initiatives by the company also contributed significantly to bottom-line growth during Q2. The overall impact of foreign exchange was positive during the quarter."

 

During the September, the carmaker reported a 19.6% growth in vehicle sales. It sold 2.75 lakh units, including exports, during the second quarter.

 

Maruti Suzuki closed Monday marginally higher at Rs1.513 on the BSE, while the 30-share benchmark ended marginally down at 20,570.3.

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Structure of Bourses: What Is the Way Forward?

The NSEL scam has opened a big can of worms about the integrity of the entire regulation and supervision infrastructure, including the efficacy of the slew of independent regulators set up over the past 25 years.

After the Harshad Mehta scam of 1992, the National Stock Exchange (NSE) came into being, conceived and implemented by the late Dr RH Patil who combined sharp commercial sense with strong public spirit. The NSE, a professionally-run bourse, emerged as the best model to ensure fair and transparent trading systems. This seemed in line with global thinking that ‘professionals’ are ideally suited to run exchanges—not trading members and brokers who often take decisions that are self-serving. From there, it was a short step to thinking that high salaries for ‘professionals’ and linking their incentives to the profits earned by the bourses, would keep them focused on ensuring higher returns for shareholders, year after year. The next phase was to assume, as happened all over the world, that exchanges are commercial entities that could be promoted by entrepreneurs and made to compete.

So, over the next 25 years, we have seen the evolution of three different models of exchanges. The Stock Exchange, Mumbai (BSE) which was a broker-run club for over a century of its existence, was forced to turn into a professionally-run bourse by a series of regulatory changes.

The NSE was set up as a professionally-run bourse promoted by large institutions and banks. The game-changer was supposed to be the now-discredited, entrepreneur-led private model that was aggressively pushed by Jignesh Shah who grabbed the opportunity for private players to enter the commodity derivatives space. This former BSE employee from its technology department first succeeded with Financial Technologies (FT) which captured the market for brokers’ front-office software. He then made a success of the Multi Commodity Exchange (MCX) and went on to set up exchanges abroad, to position himself for a bigger role as an institution builder.

However, the Rs5,600-crore scam in the National Spot Exchange Limited (NSEL) may have ended those dreams. It has also opened a big can of worms which raises questions about the integrity of the entire regulation and supervision infrastructure, including the efficacy of the slew of independent regulators that have been set up in the financial sector.

For instance, the ministry of consumer affairs allowed NSEL to operate outside the purview of the commodities regulator; the ministry of corporate affairs (MCA) which allowed the creation of entities that gave the illusion of being public sector organisations or associations; the depositories which entered into dematerialisation agreements and various regulators, including the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Forward Markets Commission (FMC), who ought to have questioned NSEL’s operation but chose to keep quiet. The same regulators found the FT group fit to run commodity and currency derivatives and equity trading bourses.
The professionally-run model is also creating fissures. On 23rd October, The Mint reported that a set of global private-equity (PE) firms has raised several pertinent questions about the NSE as well as India’s regulatory flip-flops with regard to the listing of bourses. The Mint quotes the letter as saying “These frequent changes in the regulatory fabric are arbitrary and unfair to investors and create a lot of uncertainty.” The investors claim to have invested in the NSE after the Justice Kania committee report which recommended listing of bourses. This report was overturned by the Bimal Jalan committee appointed by SEBI during chairman CB Bhave’s tenure. The Jalan committee’s recommendations were rejected by SEBI with a new set of rules. It is widely believed that these flip-flops were influenced by the two warring bourses—the NSE and MCX.

After the NSEL scam, there has been a flurry of actions, dictated by the finance ministry which is now in charge of administering the FMC, the commodities regulator.

In a directive, the FMC has asked that the articles of association of MCX be amended to ensure that no shareholder director is made a permanent director. It has also asked all directors of the FT-MCX group, including Jignesh Shah (its non executive vice chairman), to step down and has appointed a team of independent directors to run the bourse independently. Jignesh Shah has bought time until 30th October and may be examining his legal options.

There is also a contract with Financial Technologies guaranteeing that it cannot be removed as a technology partner for 33 years, failing which the bourse will have to pay a compensation of Rs1,800 crore. The contract itself raises some questions. Did the FMC, RBI and SEBI know there was such a contract guaranteeing FT’s business arrangement? FMC, as the primary regulator of MCX, ought to have objected to such a contract. RBI and SEBI, which permitted MCX-SX to launch the currency-derivatives segment, long before Jignesh Shah’s bruising court battle to force SEBI to allow him to start equity trading, seem to have missed the contract too. Did they fail to understand it, or was it deliberately hidden from them?

In fact, various media leaks suggest that SEBI permitted MCX-SX to launch currency trading even though the finance ministry had repeatedly raised questions about it being ‘fit and proper’ to acquire shares in the Vadodara bourse. Ironically, the 2007 letter was written by MS Sahoo, a director in the finance ministry who became a whole-time member of the SEBI board after a brief consulting assignment with the NSE.

There is also the fact that MCX-SX was given permission to trade currencies by the same SEBI top brass which had charged him with dishonesty when it came to permitting him to launch equity trading. Unfortunately, the dirty war between the NSE and MCX-SX, as well as the partisan approach of the regulator under CB Bhave’s chairmanship, had muddied the waters leading to a complete lack of clarity about whether Jignesh Shah was being wrongly persecuted or was up to tricks himself.

What Now?
Various regulatory actions following the NSEL scam seem designed to discourage listing or private ownership of bourses, marking a significant change in policy that is entirely dictated by the massive and embarrassing scam. In effect, just after India’s first independent regulator, the Securities & Exchange Board of India, celebrated 25 years of its existence, we are at the crossroads again. But can such far-reaching policy changes be made without any plan or public discussion? What happens to the PE funds and other high net worth investors who bought NSE shares on the expectation that it will be listed? Or the questions that they have raised about its gilded management? Will the next step for MCX be a delisting of its shares? Or being overseen by a randomly-chosen board?
The letter written by a law firm on behalf of PE funds accuses the NSE of making very moderate dividend payouts to investors while sitting on a cash pile of over a billon dollars. At the same time, top management salaries are not linked to performance and are sky-high. NSE’s vice chairman Ravi Narain’s last known gross remuneration was an stupendous Rs7.88 crore and managing director Chitra Ramakrishna also has among the highest paycheques in corporate India. Will the NSE be allowed to continue as a secretive, professionally-managed, unlisted entity with the support of key finance ministry bureaucrats and public sector entities?

Clearly, it is time for some fresh thinking on the future of bourses and this cannot be done by any single regulator or through a series of openly partisan committees. Ideally, this should have been the work of a group like the FSLRC (Financial Sector Legislative Reforms Commission). Unfortunately, with three of its key directors writing dissent notes to the report, the FSLRC’s two-year effort at the cost of over Rs8 crore is correctly buried, before it raised many uncomfortable questions about who exactly was dictating its recommendations. We now need fresh thinking on the regulation of bourses, but it is unlikely to happen before the next general elections, even as many fatwas with far-reaching consequences are being issued daily.

Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]

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COMMENTS

Vaibhav Dhoka

3 years ago

What will be status of MCX shares in case of deli-sting?

REPLY

Kumar

In Reply to Vaibhav Dhoka 3 years ago

It will not be traded in the stock exchanges. Also the promoter has to give exit opportunity to the retail investors.

Colgate Palmolive Q2 net profit falls 25% on higher advertisement costs

During the September quarter, the FMCG company reported growth in net sales. However, its net profit fell due to 34% increase in costs associated with advertisements

Colgate Palmolive India (Colgate) reported a 25% fall in its second quarter net profit despite 16% rise in sales. Its net profit fell due to higher cost of advertisement, the company said.
 

For the quarter to end-September, the fast-moving consumer goods (FMCG) company said its net profit fell to Rs109.5 crore from Rs145.1 crore while total revenues, including sales, increased 16% to Rs895.7 crore from Rs773.8 crore, same period last year.
 

Colgate in its quarter to end September reported 22% increase in expenditure at Rs766.06 crore compared with Rs627.24 crore a year ago period. From its total expenditure company’s expenditure on advertisement stood at Rs119.47crore compared with Rs88.92 crore a year ago period, an increase of 34%.
 

"During the quarter, the company achieved a volume growth of 10% over the same quarter of previous year led by a strong growth of 9% in toothpaste category wherein the company further enhanced its leadership position," Colgate said in a release.

Colgate declared an interim dividend of Rs9 for FY2014.
 

Colgate Palmolive ended Monday about 4% down at Rs1,228 on the BSE, while the benchmark Sensex closed marginally down at 20,570.

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COMMENTS

Adam Jewl

3 years ago

The company’s revenues from emerging markets have increased its speed over the last two quarters. Its gradual revenues from emerging markets grew 9.5% during 3QFY13, following 8.5% growth in 2QFY13. Analysts expect gross margins to improve by 7% points (ppts) in FY13 and 5ppts in FY14, following growth in emerging markets. I got these facts from: http://goo.gl/1whC6R

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