Strong credit growth is expected to boost the financial sector and economic growth should spur the retail sector, but telecom would be subdued due to competition
IDFC Securities sees huge potential for the financial sector in the fourth quarter of fiscal 2010-11, on the back of strong credit growth and a limited decline in margins. The banking segment is poised for a 42% y-o-y rise in PAT, helped by a low base. While PSU banks are expected to report a 45% growth, private banks are likely to see a 37% growth and non-banking financial companies about 22% increase in net profit y-o-y.
According to Reserve Bank of India (RBI) data as of 11 March 2011, bank credit off-take remained strong, growing by 22% y-o-y, and deposit mobilisation gained pace with a 4% q-o-q rise, leading to a comfortable incremental CD ratio of around 55%. While the rise in deposit rates would exert stress on margins, moderation should be limited in Q4FY11 as banks continue to benefit from lending rate hikes and faster asset re-pricing. Net interest income (NII) for PSU banks is seen up 34% y-o-y, private banks and NBFCs are also likely to see a strong 22% and 29% y-o-y rise respectively.
The IT services sector, which normally has lower project pick-up in January, is expected to see a slower quarterly performance. Top IT companies are likely to see revenue growth of 3%-5% in dollar terms, q-o-q, which will be mainly volume-driven, while tier-2 companies would report revenue growth in the range of 2% to 5%. The sector would witness a modest increase in margins on the back of a weaker rupee, favourable cross currency and flatter employee pyramid.
Among companies in the sector, MindTree is expected to see an improvement in its performance, while TCS would be a let-down on account of a write-back in Q3FY11. Infosys Technologies is expected to announce a guidance of 17%-19% revenue growth in dollar terms and 12% to 14% EPS growth in rupee terms. IDFC is overweight on the sector, with TCS and Infosys as its top picks. Mahindra Satyam from the large-cap space and Persistent Systems from the small-cap space are also expected to do well.
Logistics companies are expected to report revenue growth of 14% y-o-y for the quarter under consideration. Operating margins will receive a boost on higher ground rent and low base effect. However, earnings growth will be under pressure on account of higher depreciation, interest charges and lower other income. IDFC rates Gateway Distripark as a strong company in this sector.
The retail industry is expected to sustain its over 25% growth in the fourth quarter of the just-concluded fiscal. Titan Industries is expected to see a 30% growth with its watch business improving by 20% and jewellery business expanding by 33%. However, EBITDA margins are expected to fall on lower sales. Shoppers Stop profit is likely to be impacted due to losses in HyperCity.
Pantaloon Retail's margins are expected to remain flat on higher input costs in the garment segment. On the other hand, Provogue's revenue growth has been pegged at 5% for Q4FY11 on high base effect in its export business while its retail business is expected to grow at over 20%.
Subscriber additions in the telecom sector at 6%-9% are expected to aid volume growth in the last quarter of fiscal 2010-11. The strong growth is expected to make up for the 3% fall in average revenue per user (ARPU), which would lead to low single-digit sequential growth in the wireless segment.
The GSM segment is expected to see a 7%-9% minutes growth, while Reliance Communications is likely to witness a subdued quarter on the disappointing performance in the earlier nine months of the fiscal in review. The mobile number portability driven re-adjustment of post-paid tariffs would trigger a 2%-3.5% decline in average realisations (ARPM) in Q4FY11.
Margin improvement in African operations is expected to offset the pressure for Bharti Airtel. Besides, the cricketing extravaganza is expected to boost the DTH fortunes of RCom and Bharti Airtel.
In the transportation segment, Jet Airways is expected to report a net loss for the fourth quarter due to spiralling crude prices and subsequently higher jet fuel prices. The airline is expected to report a net loss of Rs25 crore in Q4FY11. Yields are likely to come in 8% to 10% q-o-q as the fourth quarter is normally a weak period for the airline industry.
The shipping business is expected to see a 38% y-o-y decline as the outlook on freight rates remains subdued with global fleet additions keeping freight rates under pressure. GE Shipping is expected to end the quarter with a 23% decline in revenues and PAT at Rs93 crore.
Pratip Chaudhuri is concerned about the bank’s high level of NPAs; plans international expansion
Pratip Chaudhuri, the newly-appointed chairman of State of Bank of India (SBI), has said that it will be his aim to make the bank the leader in the retail segment, to reduce the bank's non-performing assets and expand its reach in the international market.
"My priority will be to make SBI the leader in the retail segment, amalgamation of associate banks, reduce NPAs, focus on international expansion, increase branches and ATM channels, improve technology and of course to give more attention to my employees," Mr Chaudhuri said at a news conference in Mumbai on Friday.
Mr Chaudhuri said, "There would no major shift in gears, the growth path that we have will continue. Our bank is a successful corporate bank. Our retail expansion would continue at the current pace and we will work to consolidate our position to become the leader in the segment. We will pay more attention towards improving deposit-taking activity to ensure optimal cost of funds. We will also take efforts to ensure that all branches are sufficiently manned."
SBI has reshuffled the portfolios of its top executives. Mr Chaudhuri also announced SBI's new management team. Hemant Contractor will be managing director of international banking, R Sridharan, the existing managing director handling associates and subsidiaries, will continue to hold this portfolio. Diwakar Gutpa will be chief financial officer, while A Krishna Kumar will be managing director-national banking, which primarily includes branch network and retail.
Banking consolidation in the country is limited to the private sector and SBI intends to change this picture. The bank will be aggressive on amalgamation in the future.
"We will continue our process of amalgamation of associate banks more aggressively without hurting depositors' interests, as we have enough experience of it. We did one merger every two years," Mr Chaudhuri pointed out.
Right now, the high level of NPAs is the main concern of the bank. SBI's level of NPAs is growing slightly faster than the industry average. Its gross NPAs for the October-December 2010 quarter stood at 3.17%, while net NPAs was 1.61%.
"There has been a bit of concern over the high level of NPAs on a comparative basis, but we will take adequate measures to ensure that the NPA percentages are better than the industry average," Mr Chaudhuri said.
Speaking about SBI's special home loan scheme, Mr Chaudhri said, "We will continue the scheme, but we will also review it from time to time and then we will take a call on whether to revise it or not. SBI's home loan scheme has provided homes to millions of people and that has given us leadership position in the home loan business. The regulator has asked for higher provisioning on such loans, but we will be in talks with the Reserve Bank of India and the final course would be a compromise which will address delivering value to home owners and the RBI's concerns."
SBI will also take concrete measures to increase its market share, but not at the cost of profits. The bank will lay emphasis on increasing the tenure of loans to improve returns, as it has found that short-term loans fetch lower returns.
SBI sees the telecom sector as a sunrise sector and it has started considering new proposals. "The telecom sector is a sunrise sector and we have approved a Rs1,000 crore loan for a leading telecom company. It is a good business and we don't want to miss the opportunity," Mr Contractor, who will head international banking, said.
Despite the dubious modus operandi it followed, the company has escaped the regulators’ net
Stockguru.India, (SGI) a fraud company operating as a self-styled investment adviser, has allegedly duped its investors of around Rs1,000 crore. According to these investors, the company's managing director is absconding.
In December 2010, Moneylife had reported about the dubious modus operandi of Stockguru.India and advised investors to stay away from investing in the company. (This MLM openly flouts SEBI norms and offers 120% returns in a year through stock market investment!)
Going by the comments posted on consumer complaint forums, as many as 2 lakh investors have been duped of a whopping Rs1,000 crore.
One comment reads: "It's really the height of deception. Lokeshwar Dev made a lot of promises and played with more than 2 lakh families. I (had) also invested hard-earned money and even advised many of my friends … as I found it to be a very lucrative plan. As per Lokeshwar's comment, he has run away to the US and will not return until he would be out of IT department boundaries and (it will) take several years. His web site, contact numbers, top leaders contacts are out of reach, hence there is nobody to help us."
Another comment says, "Stockguru.India was a pre-planned fraud by Lokeshwar Dev Jain. In February, he had to return 100% principal amount taken by his company six months back, so he himself complained to Income-Tax authorities about surplus cash in his office. Only a handful amount of money was seized, as Lokeshwar must have withdrawn the entire amount from the company's account, which is estimated at over Rs1,000 crore, before the raid which he was expecting. He kept making a fool of everyone for the next two months, so he could escape to the US along with his family."
SGI is a multi-level marketing (MLM) company that promised 20% returns per month. The company describes itself as the country's 'Premier Financial Consultancy', offering trading solutions in equity, derivatives, currency futures, commodities trading, initial public offerings (IPOs), insurance (life/non-life), general insurance, mutual funds, portfolio management services and terminal handling, all under one roof.
The MLM company's investment plan was very simple. You pay a minimum Rs10,000 as investment and Rs1,000 as registration fees. There is no limit on the maximum amount one can invest. It offers a return of 20% per month for up to six months and the principal amount invested is returned in the next six months. It also gives post-dated cheques of the principal and a promissory note as security. In short, on an investment of Rs11,000, the company offers to pay Rs12,000 in six months and the rest Rs10,000 over the next six months, that is a total of Rs22,000 or a 120% return in a year.
Such huge returns were suspicious, given the volatility in the market, but it did manage to attract a lot of investors.
SGI is not registered with the Securities and Exchange Board of India (SEBI) as an investment adviser, but still offers to trade on behalf of clients. It also operated without any trading licence from the Reserve Bank of India and SEBI. So, will the regulators take any action against the officials of the company?
Moneylife had raised this matter earlier, but it seems that the regulators ignored the issue. Hope this time around the regulators, who keep on harping that 'they care of retail investors', will punish the fraudsters and save the investors.
Moneylife Foundation, an affiliate of Moneylife, that is a not-for-profit organisation promoting financial literacy, has always advised people not to invest in MLM companies, which are not registered with SEBI or RBI. However, people continue to fall in the trap since they promise high returns.