Solicitor General Rohinton Nariman resigns

While Nariman has not given any reason for quitting his post, there have been speculations that he was unhappy over certain directions of law minister Ashwani Kumar and the ministry

Solicitor General of India (SG) Rohinton Nariman resigned put in his papers, 18 months after his appointment. The 56-year-old senior advocate was appointed as the SG, the second senior-most law officer of the country, on 23 July 2011.


While Nariman has not given any reason for quitting his post, there have been speculations that he was unhappy over certain directions of law minister Ashwani Kumar and the ministry. He was appointed after the then SG Gopal Subramaniam had resigned on 14 July 2011.


Subramaniam had resigned SG as the government appointed Nariman as special counsel to represent the government in a 2G related case in the Supreme Court, apparently without his knowledge.


Nariman is the son of eminent jurist Fali S Nariman. He argued for Mukesh Ambani’s RIL along with senior advocate Harish Salve in the dispute over the supply and pricing of gas from KG basin between the Ambani brothers.


Nariman was designated as a senior advocate at the age of 37 years in 1993 when the then Chief Justice of India M N Venkatachaliah amended the rules, for designating a lawyer as a senior advocate, by reducing the minimum age limit of 45 years.


Retail loans and agriculture loans running strong

RBI’s sector-wise monthly loan data for December 2012 reveals that credit cards, personal loans and vehicle loans are doing well

The RBI (Reserve Bank of India), in a sector-wise analysis of credit growth, released its monthly loan data for December 2012 and a Nomura Equity Research analysis of the key trends reveals a few important observations:


(a) Loan growth for FY13 is most likely to range around 13%-14%. YTD (year-to-date) loan growth has been 7.8% (non-annualised) and assuming the same quantum of loans in 4QFY13 as disbursed during 4QFY12, Nomura arrives at FY13F loan growth of 13.5%;


(b) Retail loans and agriculture loans are tracking the strongest—retail loans growing at 16.5% year-on-year and agriculture loans growing at 21.4% year-on-year. Within retail, the segments doing well are non-collateralized loans (credit cards and personal loans) and vehicle loans;


(c) Industry loans continue to be weak and YTD, the key growth drivers within the industry have been power, iron and steel, chemicals and roads.


As of December 2012, aggregate non-food credit growth was 14.3% year-on-year with primary contributions from industry (13.7% year-on-year), agriculture (21.4% year-on-year) and retail (16.5% year-on-year).  


On an YTD basis (April-December 2012), aggregate non-food credit growth was 7.8% over the base of March 2012 compared with 17% in FY12 and 20.6% in FY11. The key contributions to YTD growth have come from retail loans at 9.8% and services at 8%. Agriculture loans grew at 7% while SME loans grew at 4%. Ex-infra industry growth was 5.5% during this period, according to the Nomura analysts’ computation. 


Within the industry sector, YTD growth for key sub-sectors was at 17.8% for power, 15.7% for iron and steel, 9.7% for engineering, 10.6% for roads, and 10.8% for chemicals. Loans to the telecom sector were flat YTD, points out Nomura. 


Within retail loans, vehicle loans had the highest YTD growth at 16.6%, followed by non-collateralised loans at 13.7% and mortgages at 9.5%. On a year-on-year basis, vehicle loans grew at 22.2%, non-collateralised loans at 26.4% and mortgages at 16.4%. 


In the services segment, loans to NBFCs (non-banking finance companies) had the highest YTD growth at 14.3%. This is weaker than the growth seen during similar periods of FY12 and FY11. Trade and commercial real estate loans had YTD growth of 13.7% and 11%, respectively. 


If it is assumed that the same quantum of loan growth for January 2013 to March 2013 as was achieved during January 2012-March 2012, then the banking sector is likely to have loan growth of 13.5% for FY13F. This is marginally lower than the Nomura estimate of 14% calculated with the data for the period ending November 2012. 


Assuming that all these major sectors add loans similar to the quantum seen in January 2013-March 2013, Nomura believes that the banking sector is looking at the following potential growth rates for FY13F: aggregate non-food credit growth of 13.5%; industry growth of 13%; agriculture growth of 18.8%; SME growth of 11%; and retail loan growth of 15.5%.


BHEL sales decline for first time in a decade; down 4%

For the first time in a decade, India’s biggest power utility manufacturer has reported bleak results prompting analysts to put a sell recommendation to their clients. However, the management remains cautiously upbeat

Bharat Heavy Electricals (BHEL) has been in a bad shape for the past two-three years. However, when it announced its third quarter results for the period ended December 2012, many pundits and market watchers were in for a rude shock. BHEL had reported its first quarterly revenue decline, the first time in a decade. Net sales, for the quarter ended December 2012 declined 4% year-on-year (y-o-y) to Rs10,219.71 crore, when compared to the same period last year. Operating profit plummeted 20% y-o-y to Rs1,634.06 crore, for the reporting quarter. And the same story followed for its net profit which crashed 17% to Rs1,185.85 crore. This is a worrying trend for one of India’s largest power utilities manufacturer. Several analysts are bearish and have already advised clients to sell the scrip.

Nomura said in its report on BHEL, “The numbers re-confirm our long-standing concerns on sales and margin decline that would lead to pressure on the balance sheet too. In fact, the third quarter (3QFY13) marks the start of revenue decline for the company, in our view.” BHEL revenues missed the brokerage’s estimate by four percentage points. Nomura expects BHEL to be worth Rs174 per share.

Espirito Santo Securities (ESS) echoed similar concerns. It said, “BHEL’s third quarter (Q3FY13) disappointed us on all fronts,” and further said, “We expect further margin compression in FY14E and expect return ratios to decline from 31% in FY12 to 17.7% in FY14E.” It is bearish on the scrip and have recommended to its clients to sell the stock, believing BHEL is worth only Rs190 per share.

A preliminary Moneylife analysis shows a similar story. If we look at the net sales figures, the sales decline comes after several quarters of anemic single digit growth. The 4% decline in net sales is also below the company’s three-quarter y-o-y growth average of just 5%. More pertinently, its operating profit growth average has now touched zero percent when it crashed 20% during the December 2012 quarter. This puts pressure on the management to perform. Having said this, its valuation is somewhat ‘cheap’ given that its return on networth is high, at an impressive 27%. Its market capitalisation is quoting at over eight times its operating profits—not exactly cheap for a company that has been under-performing for the several past quarters.

BHEL’s performance is often considered to be the barometer of the power industry in India. It is one of the largest power equipment manufacturers and has a near monopoly. When you see poor results from BHEL, it tells you the state of affairs of the power industry in India – a giant stinking mess.

However, despite all this, it seems that the management is somewhat upbeat about the future, like most managers. One of the bright spots has been its focus on railways given that a lot of investment is being poured into the railway infrastructure. It hopes to win some orders along with Hitachi, one of its joint venture partners. Other positives included an order for a large boiler package for NTPC worth Rs6,300 crore for the latter’s Nabingar plant as well as for a hydroelectric power plant in Bhutan. The management hopes to close the 2013 fiscal with Rs30,000 crore worth of orders.

On the other hand, analysts are worried, most particularly about the lack of reforms in the power sector which would otherwise have been the catalysts for BHEL. Some of the issues faced by BHEL include a delay in receiving payments, lack of visibility from the defence sector and renewable energy segments. It has already stopped supplying equipment to Visa Power and Indiabull’s Amravati and Nasik projects. The networking capital has risen to alarming levels, highlighting the issue of cash flow that the company is facing. Networking capital is 36% of sales, which is massive figure. Most worrying of all is the amount of provisions that the company took for doubtful debts and contractual obligations—a total of Rs900 crore.

The management has stated that orders inflow has ‘bottomed’ and is witnessing a somewhat visible pipeline in the medium-term. The order book stood at Rs10,700 crore, far less than what most analysts believed to be. Will the company finally turn a new page?


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