RBI's rate hike unlikely to dampen demand: Auto industry

New Delhi: The Indian automobile industry, which has been on a record breaking sales spree this fiscal, today said an imminent increase in interest rates by banks following the Reserve Bank of India's (RBI) decision to hike key short-term lending and borrowing rates, is unlikely to dampen demand, reports PTI.

The RBI raised its key short-term lending rate by 25 basis points and borrowing rate by 50 basis points with immediate effect, which is expected to spike cost of funds for the banks and eventually makes loans expensive.

"We believe there is enough power in the economy and these rate hikes will not impact demand. Even in the short term, as the festive season is round the corner, we expect demand to continue," Society of Indian Automobile Manufacturers (SIAM) president Pawan Goenka told PTI.

He, however, said the auto industry was surprised by the central bank's move to hike borrowing rates (reverse repo) rate by 50 basis points.

"For us the increase of 50 basis points (bps) on reverse repo was something unexpected as inflation had started coming down. We were expecting in the region of 25 bps," Mr Goenka said.

Expressing similar sentiments, Maruti Suzuki India chief financial officer Ajay Seth said although interest rate hikes always had some impact on the demand side but since the rate hike is not much, there could not be any significant impact.

"What is more important for us is liquidity and the RBI has not touched the cash reserve ratio (CRR), which is good although we were not expecting a rate hike as inflation has started to come down," he added.

Hyundai Motor India director (marketing and sales) Arvind Saxena, however, said the rate hikes could act as a dampener to the festive season sales.

"The auto industry is looking forward to a good festive season but this interest rate hike may act as a dampener.

Frequently rising interest rates might slow down the market, especially in the festive season," Mr Saxena said.

Domestic automobile sales have been on a record breaking spree this fiscal with the industry clocking 12,63,293 units in August, the highest ever achieved in a month, bettering the previous best of sales of 12,37,461 units in July this year.

Domestic passenger car sales, which stood at 1,60,794 units in August, were the best ever monthly sales, bettering the previous best of 1,58,764 units in July this year. Total two-wheeler sales of 9,57,304 units in August, also broke the previous record of 9,38,514 units set in July this year.


Cairn asserts it has no differences with the govt or ONGC

New Delhi: Cairn Energy Plc today said it has no differences with the oil ministry or with partner Oil and Natural Gas Corporation (ONGC) on sale of a majority stake in its Indian arm, for which it is seeking all necessary approvals and expects to close the deal by year-end or early 2011, reports PTI.

"It makes good copy (to highlight differences between Cairn Energy and the government or ONGC). But believe me there are no differences," Cairn Energy Plc chief executive Bill Gammell said here today.

He said he expects Cairn to sell the majority stake in Cairn India to London-listed Vedanta Resources and close the deal by year-end or early next year.

"We are seeking all necessary approvals... and are working with the government and our partner ONGC (on the issue)," he added.

ONGC has a 30% interest in the 6.5 billion barrel Rajasthan fields, the centrepiece of the Cairn-Vedanta deal

Vedanta Resources Group is yet to get the Securities and Exchange Board of India's (SEBI) approval for an open offer to acquire up to a 20% stake from minority shareholders at a price of Rs355 a share, Rs50 less than what it is paying Cairn Energy for a majority stake.

The open offer, as per the schedule announced by Vedanta last month, is to open on 11th October.


Microsec’s IPO does not appear attractive

The company does not have a pan-India presence; it faces well-entrenched competitors and it operates a business fraught with risk 

Kolkata-based financial service provider Microsec Financial Services Ltd (MFSL) is entering the primary market through a 100% book-building issue. The IPO opens on 17th September and closes on 21st September.

The price band is at Rs113-Rs118 per share. The company is expecting to mop up Rs141.25 crore at the lower end and Rs147.50 crore at the upper end of the price band. A total of 1.25 crore shares will be issued.

Qualified Institutional Buyers (QIBs) will be allocated 62.50 lakh shares, out of which 5% (3.12 lakh shares) will be allocated to mutual funds. Retail investors will be allotted 43.75 lakh shares. Rating agency CRISIL has assigned an 'IPO Grade 2' to the issue, which indicates 'Below Average Fundamentals'.

MFSL's business primarily comprises granting loans against shares. That makes the company extremely vulnerable to fluctuations in the markets.

The company has a total of 239 branches across 16 states, and 178 of them are situated in West Bengal. It operates in a fiercely competitive broking and investment banking environment.

MFSL plans to use the proceeds of the IPO to expand its financing business (where it will invest Rs113 crore); expand the domestic operations of its subsidiary Microsec Capital Limited by adding 30 new branches (proposed investment Rs8 crore), and will augment the subsidiary's existing technological capacity (Rs7.5 crore).

As on 30th June, 2010, it had around 26,000 clients in its broking business.
MFSL posted a net profit of Rs24.45 crore for the year ended March 2010 on a total income of Rs58.47 crore. Revenues from equity broking and related services for the years ended 31 March 2009 and 2010 were Rs15.62 crore and Rs19.47 crore respectively.  

Its EPS (earnings per share) for the past fiscal year was Rs12.58. Based on the post-issue equity and EPS of FY10 its PE works out to 14.7 at the lower end of the price band and 15.40 at the upper end of the price band. MFSL's listed peers like Motilal Oswal Financial Services, Indiabulls Financial Services, Emkay Global Financial Services, India Infoline, and Edelweiss Capital are trading at PE of 14.2, 12.3, 10.8, 15.0 and 15.3, respectively.

SBI Capital Markets Ltd is the sole book-running manager while Link Intime India Private Ltd is the registrar to the issue.


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