Companies & Sectors
Q3FY11 analysis: PNB asset quality under pressure, RIL strong margins, Wipro profit lags rivals

Punjab National Bank’s reliance on bulk deposits continues to be a worry; Reliance Industries’ higher profits due to higher other income somewhat disappointing; Wipro sees model volume growth, flat margins

Punjab National Bank (PNB)

Asset quality continued to be under pressure. While net interest income (NII) was at the higher end of expectations, profit was at the lower end, mainly because of the sharp rise in loan loss provisions (up 1.5 times year-on-year) and higher than expected provisions for pension and gratuity liabilities.

PNB’s reliance on bulk deposits continues to be a worry and so does the falling CASA ratio (down to 39% from 41% in the September quarter). These factors coupled with a sharp rise in deposit rate are estimated to lead to a margin contraction. Loan growth is also expected to moderate due to a delay in infra projects (this has been the fastest growing area for the bank).

PNB restructured an additional Rs800 crore of loans, which make up 6.5% of the total loans. Incremental delinquency has been higher than last year. For the nine months ended 31st December it is around Rs3,100 crore compared to Rs2,000 crore in the corresponding period last year.

The bank has assumed its total pension liability due to the second pension option at Rs3,600 crore and expects to provide for this over the next five years. Therefore, annually, the charges work out to Rs720 crore.

Punjab National Bank Q3 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010

Net interest income




Employee expenses








Net profit




NIMs %




Gross NPLs




Gross NPLs %




 Over a three-month period PNB’s share price is down 12% compared to a 4% Sensex fall. Over a month the share (down 6%) has underperformed the Sensex (down 4%).

 Reliance Industries

Reliance’s net sales and net profit were at the higher end of expectations. However, it’s somewhat disappointing that the profits were higher on account of higher other income and lower tax.

The management has indicated that KG-D6 gas output may not rise significantly in the near term. Brokers who haven’t already done so are revising FY12-13 output levels to 50-55 mmscmd. While gas production from the MA field has ramped up to 7-8 mmscmd (largely in line with expectations) production at the more important D1-D3 fields has fallen to 44 mmscmd. RIL had estimated that it would achieve a peak of 80 mmscmd. Brokers now assume the peak to be achieved in FY14 which is a severe setback.

As expected, petrochemical volumes and margins were strong. Crude throughput was good at 16.1mt cf and gross refining margins were also strong at $9/bbl. Since gas is now not going to be a major earnings driver, refining margins will be back in focus. RIL will need to maintain its refining margins above $9 per barrel in FY12 to avoid downgrades. Petrochemical margins will also need to be strong.

Reliance Industries Q3 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010

Net sales




Net profit





Over a three-month period, Reliance’s shares (down 8%) have underperformed the Sensex (down 4%).  Over a month, the shares are down 8% compared to a 4% fall on the Sensex. The shares were up about 2% on the day of the results.


Both IT service revenues and net profit were in line with estimates. Modest volume growth of 1.5% and flat margin in IT services despite +0.6% onsite and 3.7% offshore productivity gains were key disappointments.

More large accounts (the company now has three $100 million+ and four $90 million+ relationships) and growth of its enterprise business are positives, but the attrition rate (24% annualised) continues to be a worry.

TK Kurien’s appointment as CEO of the IT business has been taken well by analysts.

Wipro's Q3 FY11 highlights


Dec 2009

Sep 2010

Dec 2010

IT services revenues ($ million)




Net income (Rs crore)




 Over a three-month period, Wipro’s shares (up 3%) have outperformed the Sensex (down 4%).  Even over a month, Wipro’s shares are flat compared to a 4% fall on the Sensex.

 (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.)


Global crude steel may not be able to maintain its current growth rate, says top economist from steel ministry

Rising input costs due to disruption of supply from major coal-producing regions and fears of suppressed demand may slam the brakes on last year’s rally

After recording a growth of 15% last year, global crude steel production is not likely to maintain the current pace in 2011, Dr AS Firoz, chief economist at the Economic Research Unit of the Ministry of Steel, has told Moneylife.

World crude steel production surged by 15% to 1,414 million tonnes (MT) in 2010 compared with 1,229MT in 2009, said the World Steel Association (WSA), which represents around 170 steel producers.

"World crude steel production rose very sharply by 15% in 2010 as against (the) production of 2009. One of the main reasons (for this hike in production) was that world crude steel production was compared to the low base in 2009 due to the global meltdown, which started in 2008 and continued till mid-2009. Because the base is higher now, you cannot expect this kind of growth every time. This year, I think global crude production growth would be around 4% to 5%," said Dr Firoz.

In 2008, global world crude production stood at 1,327MT.

Apart from India, all major steel-producing countries and regions recorded double-digital growth last year. The EU and North America had higher growth rates due to the lower base effect of 2009, while Asia and the Commonwealth of Independent States (CIS) recorded relatively lower growth, said WSA.

Maintaining the leading position in crude steel production, China registered a growth of 9.3% to 626.7MT, while Japan showed an impressive growth of 25% in 2010. However, China's share of world crude steel production declined from 46.7% in 2009 to 44.3% in 2010.

India was the laggard in 2010, recording just 6.4% growth over 2009 to 66.8MT.

"Yes it's true… India's production growth rate was lower than other major steel (producing) countries. And the main reason was capacity constrains," added Dr Firoz.

Indian steel majors Steel Authority of India (SAIL), Tata Steel and JSW Steel have geared up for a ramp-up in their production capacities in forthcoming years.

Tata Steel has raised around $770 million through its follow-on public offer for various purposes, in which enhancing production capacity by 3MT to 10MT at its Jamshedpur plant by December 2012 is on the cards. SAIL expects to complete its Rs70,000-crore expansion programme by 2012-13. After acquiring the sick Ispat Industries, the Sajjan Jindal-led JSW Steel is also expected to enhance its production levels.

"It's difficult to predict demand growth at this moment, but the demand scenario looks okay. Industrial production is growing by 2.5%, then can you imagine what would be the situation of the steel industry?" asked Dr Firoz.

However, rising input costs have become a major concern for steelmakers. Prices of iron ore and coking coal, the main ingredients for making steel, have been surging on account of low supply from the Queensland region of Australia, due to the heavy flooding in this region. Queensland is one of the main suppliers of coking coal in the world.

Coking coal prices in spot markets have been around $300 a tonne; while contract prices are nearly $225 a tonne in this quarter. Experts predict that coking coal prices are expected to touch $300 a tonne in the next quarter if the flood situation in Australia does not improve.

Due to rising input costs and high international metal prices, Indian steelmakers have increased prices. However, Dr Firoz feels that the rally may not sustain.

"Prices of raw materials and steel are related. But I cannot say that increased raw material prices can lead to higher steel prices, as it depends on the strength of the market. If the market remains good, only then can steelmakers increase prices," said Dr Firoz.


Deutsche MF floats 91 days scheme

Deutsche Mutual Fund has launched DWS Fixed Term Fund-Series 79 (DFTF-79), a close-ended income scheme.

The objective of the Fund is to generate income by investing in debt and money market instruments maturing on or before the date of the maturity of the scheme.

The new issue opens on 24th January and closes on 31st January. The minimum investment amount is Rs5,000. The tenor of the scheme is 91 days.

CRISIL Liquid Fund Index is the benchmark index. Kumaresh Ramkrishnan is the fund manager for the scheme.


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