Nomura downgrades DLF, Ranbaxy and Tata Steel

Nomura has come up with its fortnight valuation monitor and finds that forward Sensex PE is at 13.3x after a minor downgrade in EPS. Earnings for Sun Pharmaceuticals, NTPC, Power Grid Corporation, GAIL and UltraTech Cement have been upgraded

Nomura Equity Research (Nomura) has come out with its fortnightly valuation monitor and has made huge downgrades to DLF, Ranbaxy and Tata Steel while upgrading Sun Pharmaceuticals, Power Grid Corporation and Gas Authority of India (GAIL). Meanwhile, its forecast of Sensex earnings multiple has declined from 13.6 times to 13.3 times, lower than its 5-year average of 14.98.

If you look at the above chart, it will show that FY14 EPS consensus forecasts have been down-trending since February 2012, while the Sensex forward PE has more or less remained steady despite economic stress and upcoming elections next year.

The table below shows some of the biggest upgrades and downgrades:


If you notice the above chart, Tata Motors has performed quite well (price-wise) but it was severely downgraded. Apparently, sales of Tata Motors were extremely disappointing and reflect the difficult times ahead for the automobile sector. If you recall, earlier, we had written how auto ancillaries shot up when the industry was actually going through a hard time (Is the auto industry booming or stagnating?).

However, as far as the Tata Group of companies is concerned, TCS seems to have done extremely well, by utilizing its scale to score more orders while Tata Steel has been performing poorly as its business model depends on how good the global and domestic economy is faring, which is to say—not very good.

The top five stocks upgraded are: Sun Pharmaceuticals, GAIL, NTPC, Power Grid Corporation and UltraTech Cement.

The top five stocks downgraded are: DLF, Ranbaxy, Tata Steel, Ambuja Cement and Tata Motors.

Nomura screened stocks on the basis of PE, PB and EV/EBITDA multiples. Take a look at select individual forecasts charts below:

Bharti Airtel has been performing average of late. Even though it raised tariffs, the move wasn’t good enough to offset declining margins in a competitive environment. If you look at the PE chart above, the market seems to be attaching a huge premium to this stock, in possible anticipation of outperformance. Yet, in the past, it hasn’t performed that well in relative to Sensex. Consensus is also consistently downgraded.

Asian Paints, DLF and BPCL would also seem ‘overpriced’. Nomura has seen consensus rating on DLF downgraded by over 20%, despite one positive aspect emanating from the budget on home loans. DLF also had been in the news for the wrong reasons last year, when it was linked to Robert Vadra.

Sesa Goa is on top of the EV/EBITDA valuation even though it isn’t the exactly the beacon for corporate governance. With analysts expecting commodity prices expected to correct in the next few years, this stock doesn’t look too good. In fact, consensus expectations on the stock are reaching new lows with each passing day.

According to the report, companies from the power & financials sector were screened based on price to book values. Cement, metals & mining, Tata Motors and Jaiprakash Associates were screened on the basis of EV/EBITDA multiple. All other stocks were screened based on P/E multiple. However, it is not known why Jaiprakash Associates and Tata Motors were singled out for EV/EBITDA valuation.

One of the few stocks that have been upgraded consistently and beating the Sensex is Sun Pharmaceuticals. This is because its subsidiary Taro Pharmaceuticals has been coming up with phenomenal performance numbers. However, some of the minority shareholders of Taro were, and still are, enraged about the price at which Sun Pharmaceuticals seems to have offered to buy out the remaining stake (which was way less than Taro’s prevailing market price), that Sun Pharma has dropped its plans of acquiring the company fully. It still retains a “controlling stake”, after years of legal wrangling. Taro Pharma was founded in Israel.

None of the Nifty 50 stocks, according to Nomura, are overpriced on the price-to-book basis, but NTPC, Power Grid Corporation and Punjab National Bank seem to be tantalising as far as value is concerned, but should be examined on a case-to-case basis. Coal India is undervalued on an EV/EBITDA basis.


Industrial production rises by 2.4% in January

For the April-January period of the current fiscal, the industrial production growth was at 1%, down from 3.4% in the same period of 2011-12

Industrial production, as measured by the Index of Industrial Production (IIP), rose by 2.4% in January from 1% in the same month last year, mainly due to an uptick in manufacturing output and enhanced power generation.


For the April-January period of 2012-13 fiscal, the industrial production growth was at 1%, down from 3.4% in the same period of 2011-12, according to official data released today.


Meanwhile, the decline in industrial output for December 2012 has been revised slightly upward to 0.5% from a contraction of 0.6% as per provisional estimates released last month.


The manufacturing sector, which constitutes over 75% of the index, grew by 2.7% in January, as against 1.1% in the same month of 2012.


The growth in the output of the key sector remained low at 0.9% in April-January this fiscal, as against 3.7% growth in the same period in 2011-12.


Power generation has increased by 6.4% in January compared to 3.2% growth in January 2012.


During the April-January period, electricity generation has gone up by 4.7%, compared to a growth of 8.8% in the same period in the last fiscal.


Overall, 11 of the 22 industry groups in manufacturing sector have shown positive growth during January compared to the same month last year.


Mining output contracted by 2.9% compared to a decline of 2.1% in the same month last year.


During April-January, the production showed a decline of 1.9% against a contraction of 2.5% in the year-ago period.


Capital goods output was down 1.8% in January against a contraction of 2.7%.


During April-January, the sector’s output contracted by 9.3% against a dip of 2.9% in the same period last fiscal.


However, consumer goods output saw a growth of 2.8% (2.5%). During April-January, the growth was 2.7% (5.4%).


The dip in consumer durables output stood at 0.9% in January compared to a contraction of 7.5% in the same month of 2012. During April-January, the growth in output stood at 3.2% (3.7%).


Consumer non-durables output grew 5.3% in January compared to 10.6% in the same month last year. The segment grew 2.3% in the 10-month period of this fiscal against 6.6% last fiscal.


Intermediate goods production also saw a growth of 2% in January compared to a decline in output by 2.5% in the same month last year.


During April-January, the segment recorded a growth of 1.7% compared to a contraction of 0.8% last fiscal.


Can civil courts be completely barred from exclusive jurisdiction of quasi judicial authorities?

Though the remedies provided under the statute and the powers conferred to special authorities are exhaustive in nature, civil courts can exercise jurisdiction with respect to a particular matter, unless expressly or impliedly excluded from doing so

The issue of jurisdiction is a question plaguing the judiciary in all matters that come before it for adjudication. One such question is the exercise of jurisdiction by civil courts in relation to matters falling under a particular statute and subject to the exclusive jurisdiction of special tribunals or bodies constituted under the respective statute. Though the remedies provided under the statute and the powers conferred to special authorities are exhaustive in nature, irrespective of the same, civil courts can exercise jurisdiction with respect to a particular matter, unless expressly or impliedly excluded from doing so.


Section 9 of the CPC


Section 9 of the Code of Civil Procedure, 1908, (CPC) confers jurisdiction over the civil courts to adjudicate upon all suits of civil nature, except such suits the cognizance of which is either expressly or impliedly barred. In other words, whenever the object of proceedings is enforcement of civil rights, a civil court would have jurisdiction to entertain the suit unless cognizance of the same is barred through a legislative instrument.


There have been a plethora of judgements since time immemorial adjudicating upon the issue of jurisdiction of civil courts where special authorities have been constituted for adjudicating  a specific subject matter of dispute. For instance, in Secretary of State Vs Mask & Co.the Privy Council observed that:

“it is settled law that the exclusion of the jurisdiction of the civil court is not to be readily inferred, but that such exclusion must either be explicitly expressed or clearly implied”.


Jurisdiction of civil courts: Section 397 Matters under Act

The Act has by virtue of Section 10GB expressly barred jurisdiction of civil courts to entertain suits and proceedings falling within the exclusive jurisdiction of the board. However, in the recent ruling of Greeneline Transit System Pvt Vs The Secy Cum Commissioner (“Greeneline Case”) by the Delhi High Court, the specific issue was whether the civil judge had jurisdiction to decide on matter under Section 397 and 398 of the Companies Act, 1956, which was subject to exclusive jurisdiction of the board and was pending before the board. It was observed by the HC that where a dispute involves questions of common law, in the present case the same being a breach of the provisions of the shareholders’ agreement between the parties along with other acts of oppression, the civil courts may exercise their jurisdiction.


Another vital question that requires determination in the process of ascertaining jurisdiction of a particular authority is the nature of dispute and if it falls within the ambit of a particular statute or not?


For instance, in a recent Supreme Court judgment of Chatterjee Petrochem(I) Vs Haldia Petrochemicals & Ors., the matter was adjudicated before the Company Law Board (Board) under Section 397 of the Companies Act. However, one of the issues pertaining to the non-fulfillment of obligations under a private contract was wrongly adjudicated by the Board as a matter falling under Section 397 of the Act. An appeal was preferred by the party aggrieved due to such breach of contract before the Supreme Court. The apex court held that the breach of private contract cannot be taken to be failure on the part of the company but it was a failure of one of the parties to a private arrangement to abide by its commitment and therefore the remedy in such a case did not fall under Section 397 of the Act. It further observed that even if the CLB had given a finding that the acts of oppression had been established, it would still be in a position to pass orders under Section 397 of the Act. Nevertheless, since the same was not the case, the appeal was dismissed by the apex court on the ground that the matter does not fall within the scope of Section 397 of the Act.


The Greeneline Case

  1. Facts:

The respondents in the petition approached a civil judge claiming restraint on the petitioner to operate a bank account which was operated by him as a sole signatory against the terms of the shareholders agreement between the petitioners and the respondent 2. The petitioner and the respondent 2, who was director of a company, had entered into a shareholder’s agreement wherein it was agreed that a bank account will be maintained by them in furtherance to the agreement and the petitioner as well as respondent 2 shall be the joint signatories to the same. However, subsequently, the petitioner opened a bank account with another bank where he was the sole signatory and transferred the funds from the previous bank account to the account where the respondent 2 was not a signatory.
Therefore the suit was filed by the respondent 2 in personal capacity against the petitioner. However, the petitioner contended that being a subject matter under Section 397 and 398 of the Act, the same is within exclusive jurisdiction of the CLB and hence the jurisdiction of a civil court to entertain such matters is barred under law.


The civil judge and the senior civil judge upheld the maintainability of the suit. Further the Sr civil judge also upheld the decision of the civil judge declaring a breach of the shareholder’s agreement by the petitioner herein.


The instant petition has been filed by the petitioner under Article 227 of the Constitution of India against the orders passed by the civil judge and the Sr civil judge. The major issue for consideration, inter alia, was that whether impugned orders suffer from a jurisdictional error or not i.e. whether a matter under Section 397 and 398 of the Companies Act can be subject to the jurisdiction of the civil court or not?


The petitioner placed reliance on the apex court ruling of HB Stockholding Vs DCM Shriram Industries, wherein it has been held that the grounds on which the relief was being sought were more or less similar to what was sought before the Board. Consequently, rejecting the plaint, this court found that there is an implied bar upon the civil court to entertain matters which are under the purview of Sections 397, 398 and 402 of the Act.

  1. Judgement:

The High Court differentiated between the aforesaid ruling and the instant case on the grounds of facts and also held that the reliefs claimed before the Board and the civil court by the respondent cannot be held to be the same. The court, for determining the issue of jurisdiction, placed reliance on a plethora of judgements, for instance, in the case of CDS Financial Series Vs BPL Communications, it was held by the Bombay High Court that:


“It is clear that when there is no express provision excluding jurisdiction of the civil courts, such exclusion can be implied only in cases where a right itself is created and the machinery for enforcement of such right is also provided by the statute. If the right is traceable to general law of contract or it is a common law right, it can be enforced through civil court, even though the forum under the statute also will have jurisdiction to enforce that right.”


The high court also relied upon the decision of the Supreme Court in Dhulabai Vs State of Madhya Pradesh where a five judge bench held that:


"(1)Where the statute gives finality to the orders of the special tribunals, the civil courts jurisdiction must be held to be excluded, if there is adequate remedy to do what the civil courts would normally do in a suit. Such a provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory tribunal has not acted in conformity with the fundamental principles of judicial procedure.


(2) Where there is an express bar of jurisdiction of the court an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil Court. Where there is no express exclusion, the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case, it is necessary if the statute creates a special right or liability and provides for the determination of the right or liability and further lays downs that all questions about the said right or liability shall be determined by the Tribunals so constituted, and whether remedies normally associated with action in civil courts are prescribed by the said statute or not. An exclusion of the jurisdiction of the civil court is not readily to be inferred unless the conditions above set out apply."


Further the High Court also took into consideration provisions of the Companies Bill, 2009, and stated that Section 391 of the Bill has expressly excluded the jurisdiction of civil courts in entertaining company disputes and avoid jurisdictional ambiguities. Drawing a comparison between Section 391 of the Bill and Section 397 of the Act, the Court came to a conclusion that in the context of the present Act, it is very clear and unambiguous that shareholders, who are qualified to approach the Board under Section 397/398 may choose to approach the civil court rather than the Board. Therefore, it is settled that there is no express bar on the jurisdiction of the Civil Courts in matters pertaining to intra-company disputes.                                                                                                                                                                                                                                                                    

Relying on the aforementioned precedents and observations, the High Court held that the civil judge and the Sr civil judge had primarily relied on the shareholder’s agreement to determine the rights of the parties. Further it was also held that the respondent was right in approaching the civil court for enforcement of his rights under the agreement. In addition, the High Court, holding its power under Article 227 to be supervisory and not appellate in nature, refused to interfere with the order of the trial courts.



The precedents laid down by the judicial authorities clearly establish a general rule that despite the existence of special authorities for the adjudication of disputes arising under a particular statute, the jurisdiction of civil courts to adjudicate the same cannot be barred. Section 9 of CPC substantiated by various precedents to that effect, has conferred wide powers on the civil courts enabling the courts to entertain disputes falling within the exclusive jurisdiction of a special authority. For instance, where the special authority so constituted fails to deliver proper justice or unless expressly or impliedly barred, the civil courts can very well entertain such matters.


As very well established by the recent ruling of the Delhi HC, the civil court can now exercise its jurisdiction upon matters relating to Sections 397 and 398 of the Act where a question of common law is also under dispute. The powers conferred on civil courts are wide enough so as to enable them to keep a check on such special authorities constituted under a particular statute. Thus complete exclusion of civil courts from exercising jurisdiction over matters falling within the jurisdiction of a special authority under a specific statute is a far-fetched possibility, which is expected not to be favored by the judiciary for preserving the efficacy of the proper functioning of the judicial and quasi-judicial authorities.



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