Financial services stocks on a downward spiral

A majority of stocks of financial services companies have been on a downward trend since May 2009

Out of the 12 financial services stocks from the Moneylife database, 11 stocks have been on an average downward trend of -18.5% from May 2009 till 26 February 2010. The only exception was Prime Securities Ltd, which gained 33% from Rs25 to Rs33.20 during the same period. Motilal Oswal Financial Services Ltd was somewhat resilient, which fell only 2% from Rs161.50 to Rs158.35, followed by H B Stockholdings Ltd, down 4% from Rs25 to Rs24.05 as on 26 February 2010.

Indiabulls Financial Services Ltd plunged 54% from Rs216.55 to Rs98.55; Geojit BNP Paribas Financial Services Ltd sank 26% from Rs47.05 to Rs34.95, India Infoline Ltd (dipped 25%) from Rs151.8 to Rs114. Both J M Financial Ltd and Religare Enterprises Ltd shed 24%.   

During the same period, the Sensex gained 12% from 14,625.25 and closed at 16,429.55. On the day of the Budget, five stocks inched up on an average of 3.4% while the remaining seven stocks in the Moneylife financial services database sank an average of 1.71%.

“Some of these companies are diversifying their business model. Indiabulls is into real estate. The retail focus is not as aggressive as it used to be six-seven years back. India Infoline, Motilal Oswal and Religare have sizeable client bases now. Religare is eyeing overseas acquisitions on the backing of Ranbaxy. It recently acquired Fortis,” said Chandrashekhar Layane, vice president, Fair Wealth Financial Services.

Fortis Healthworld Ltd, SRL Ranbaxy Ltd and Ran Air Services Ltd are now under the umbrella brand of Religare.

“Even the revenues of these companies were not strong, but post January, they have started improving. India Infoline had stopped its margin funding business (loans against shares) but it has now again started this business. It had stopped this business for seven-eight months. Post the Budget, sentiments are good in the market. Overall, stocks will go up due to a rally in the markets,” added Mr Layane.

Indiabulls Financial Services registered an operating profit of Rs85.15 crore in the December quarter of 2009 compared to Rs45.73 crore for the corresponding period last year. Edelweiss Capital Ltd posted 38% decline in its operating profit at Rs4.41 crore compared to Rs7.15 crore last year.

Geojit BNP Paribas Financial Services Ltd is trading at a price-earning (P/E) ratio of 15.72 as on 10 February from 184.49 in March 2009. India Infoline is trading at a P/E ratio of 15.64 as on 10 February from 92.88 during the same period while Religare Enterprises Ltd is at -269.30 P/E from 151.15. Religare posted a net loss of Rs4.41 crore in its December quarter results from a net profit of Rs5.82 crore for the corresponding period last year.

Religare Enterprises posted an operating profit of Rs8.58 crore (in the December quarter of 2009) from Rs5.92 crore in the same period last year, while India Infoline registered a 160% growth in operating profit at Rs88.73 crore in its December 2009 quarter from Rs34.15 crore in the same period last year. Similarly, JM Financial Ltd posted an operating profit of Rs9.63 crore in its December 2009 quarter results from Rs8.47 crore last year. JM’s P/E is at 626.77 from 187.82 in March 2009.

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    NTPC’s plan to transport coal through inland waterways in limbo

    The power company had signed an MoU with IWAI in September 2008 for transportation of imported coal to its three power plants using inland waterways. However, there is not much progress on the plan

    State-run power producer National Thermal Power Corp’s (NTPC) plan to transport coal by using inland waterways is still pending, even as the entity continues to struggle with acute shortages at two of its plants.

    In September 2008, NTPC had signed a memorandum of understanding (MoU) with Inland Waterways Authority of India (IWAI) to use National Waterway No 1 for transporting coal to its plants at Farakka, Kahalgaon and Barh.

    NTPC officials claim that the plan is in the feasibility stage, while IWAI officials had submitted the report to NTPC in February 2009. “The MoU has been signed between NTPC and IWAI. The understanding is in place, we have already completed the study,” said Arun Roy, director, IWAI, Guwahati.

    IWAI’s official site states that pursuant to the signing of the MoU, IWAI got a feasibility study carried out covering all elements and economics of transporting the coal across the identified waterway stretches. In Phase I, the stretch identified was Haldia to Farakka power station. Thereafter in Phase II, the movement was to be extended to Kahalgaon and Barh. The Draft Feasibility Report was handed over to NTPC in February 2009. However, keeping in view NTPC’s requirements, it now proposed to meet the needs of both Farakka and Kahalgaon Super Thermal Power Station in Phase I itself.

    While the option of using this route for coal transportation is still in the feasibility stage, NTPC’s power plants at Farakka and Kahalgaon continue to face coal shortage. These plants have constantly figured in the super-critical list with less than four days of coal supply, as per the Central Electricity Authority (CEA) website.

    According to Mr Roy, the waterway will be opened up for private players. “Any company can come and offer their vessels to NTPC as well as their rates. If NTPC finds their rates comparative with roads and railways, it will give the order to them. We from our side will provide the infrastructure like terminals. You need at least 20,000 to 25,000 vessels of thousand tonnes capacity (each) to transport the coal required,” explained Mr Roy.

    “This would (mean that) Australian coal (can be) shipped to Haldia up to the Diamond Harbour and from there unloaded to the barges and then shipped up to Farakka. We would not be required to enter Haldia port,” he added.

    While IWAI has the entire plan in place for this new mode of transporting coal, NTPC officials said a concrete decision on the private participation will be taken only after the feasibility study is completed.

    The main bottleneck for this project would be the non-availability of a long-term NTPC contract to use the inland waterway for transportation of coal. In the absence of such a contract, an investment of Rs600 crore which would be required to set up the infrastructure will not be viable. In addition, for a steady supply of coal, NTPC will be required to firm up long-term import contracts.

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    Nomura India appoints Nipun Goel as investment banking head

    The new executive spent 14 years at Merrill Lynch India before joining Nomura. He has wide experience in capital markets, both on equities and debt, corporate finance, client coverage and origination across several sectors

    Global investment bank Nomura has appointed Nipun Goel as its new head of investment banking and Nitin Jain as co-head of fixed income in India. Neeraj Gambhir, who is currently heading Nomura’s credit business in India, will co-head the fixed income business with Mr Jain.

    Mr Goel spent 14 years at Merrill Lynch India before joining Nomura. Mr Goel has wide experience in capital markets, both on equities and debt, corporate finance, client coverage and origination across several sectors.

    Before joining Nomura, Mr Jain worked with ICICI Securities for 14 years, where he was chief executive of the primary dealership. The business he ran was consistently ranked amongst the top three fixed-income houses in India.

    Mr Gambhir has 14 years of experience in Indian fixed income, currency and derivative markets. He joined Nomura in October 2008 from Lehman Brothers. He was chairman and board member of Fixed Income Money Market Dealers Association (FIMMDA) of India from 2006 to 2007.

    “These appointments underscore Nomura’s focussed and ongoing build-out plans for India and highlight the strength of our platform to attract outstanding professionals. We (will) continue to build and develop our team further,” said Vikas Sharma, chief executive, Nomura India.

    Nomura India received a merchant banking license in December 2008 and has a strong investment banking team presence in Mumbai providing relationship coverage, mergers & acquisitions and capital markets expertise.

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