Recovery, credit quality stabilisation to be gradual
Ratings agency CRISIL has said that credit quality of Indian companies is beginning to stabilise after being in virtual free fall for FY09 as companies are having easier access to funds following the Union government's fiscal and monetary easing and positive stock market conditions coupled with lower commodity prices which have led to lower working capital requirements.

 In a study, the ratings agency, however, cautioned that the recovery in credit quality will at best be gradual and may not necessarily be smooth.

 “There are signs that both the monetary and fiscal easing and the lower commodity prices are temporary. Additionally, unlike in the late 1990s, we see no prospect of a sudden and sustained upturn in economic conditions to lift corporate performance. We can therefore rule out a sudden jump in modified credit ratio (MCR) of the kind we saw in 1999-2000, when MCR rose to 0.92 from 0.61,” said Raman Uberoi, senior director, CRISIL.

 In India, fiscal and monetary authorities have begun to explore an exit from the present supportive stance and the timing and extent of these measures is likely to have a significant bearing on the pace and extent of economic recovery after the current phase of stabilisation, the ratings agency said. 

In a research note, Standard Chartered Bank said although signs of recovery are apparent, most importantly in the industrial sector, the disappointing monsoon could impact private consumption expenditure which is a major contributor to overall gross domestic product (GDP) and remains weak. 

 Echoing the same, credit information company Dun & Bradstreet (D&B) said that a confluence of factors such as sustained improvement in index of industrial production (IIP), increase in direct tax collections and improving business sentiment indicate that the process of economic recovery has set in. Despite these developments, the pace of economic recovery is expected to be slow due to the emergence of certain downside risks such as a potentially lower agriculture growth and surging primary food articles inflation, D&B said. 

 CRISIL, the unit of Standard & Poor's further added, the return of stability to the global economy has also meant that commodity prices in India have retraced 25% to 35% of their decline from the peak levels of mid-2008.

 “Access to funds has eased considerably, but there is significant uncertainty with respect to exchange rates and consumer demand. Large exchange rate movements can hit export-dependent sectors hard, and domestic demand can be affected by rising prices in general and food prices in particular," said Ajay Dwivedi, director, CRISIL Ratings.  

"We also note that the Reserve Bank of India’s window for restructuring of bank assets helped many companies avoid distress over the last 12 months. Looking ahead, we see a long and bumpy road for recovery in corporate credit quality,” Dwivedi added.

 Kaushal Sampat, chief operating officer, Dun & Bradstreet India said, “A sustained growth in industrial production will primarily be driven by the consistently improving business sentiment and recuperating demand conditions. Given the emergence of certain downside risks to growth and the limited scope for further fiscal stimulus, the timing of 'exit' strategies in terms of accommodative monetary policy becomes even more critical." 

D&B said it expects that while RBI might consider increasing the cash reserve ratio (CRR) for draining of excess liquidity from the system anytime till the end of the current fiscal, it may maintain a status quo in terms of other policy interest rates. However, these changes to CRR are unlikely to happen in the policy review of October 2009.                              

-Yogesh Sapkale [email protected]

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    ‘Wake Up Sid’ proves lucky for PVR
    UTV’s latest movie Main Aur Mrs Khanna could only pull 50% of the crowd to the theaters but its previous movie Wake Up Sid, a Ranbir Kapoor starter, which was released in theatres on 2nd October is still able to pull in 85% occupancy.

    PVR’s first weekend collection for the movie was about Rs2 crore across India and in the Diwali weekend the numbers crossed Rs25 lakh.
    “On Diwali weekend, especially on Friday and Sunday, we reported 80%-90% occupancy level across India and this movie is holding good in our theaters,” said Prakhar Joshi, head programming, PVR cinemas.
    The movie produced with a budget of Rs15 crore by Dharma Productions and distributed worldwide by UTV Motion Pictures, was able to garner Rs2.2 crore over the first weekend. The movie also collected about $165,934 in the UK while for the US the collections were $355,532. In the Gulf region the film’s per print average was $9,575.
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    Coal India hikes price by 11%, power and cement take a hit

    ANZ Bank, Goldman Sachs, UBS, Citigroup, Merrill Lynch and five other global analysts have forecasted that Asian coal prices will fall by 20% in 2009. However, against the analyst price fall warnings, coal prices in India have increased which is likely to put more pressure on power and cement sectors.  

    "Depending on the contribution to the cost of production, the affect of the hike in coal prices will also affect the cost involved accordingly," said Rakesh Dubey from mJunction which is one of the largest online dealers in India. He said that the power industry is going to take a hit of 15% and cement will see around 30% hike in production cost.
    Coal India Ltd increased coal prices by 11% in September/October, thanks to sharp increase of thermal power projects in India. Asia is the largest consumer of coal and accounts for 4,800 million tonnes (MT) out of world consumption of 7,000MT.
    Power industry consumes around 300MT of coal every year and accounts for 75% of total coal consumption that produces around 475 billion KWh of electricity. The indicative price increase is around 15% and largely depends on power plant distances from coal mines. "The power utilities will calculate the input cost in production and accordingly they will fix the tariff," added Mr Dubey.
    The cement industry with capacity of 198.3MT consumes 3% of coal as raw material. Around 12MT of coal is used in this industry and accounts for 30% of the cost of cement production.
    The coal price rise is substantial as cement prices were still close to Rs 3,670 per tonne during September 2009. Since cement is facing the market resistance, it has to bear the additional cost on coal.
    The steel industry with an annual capacity of 60MT also uses 3% of total coal. Since coal price hike is not substantial in total cost of steel it will not affect the pricing of steel. Though coal is vital to the power sector, the major casualty of the recent hike in coal prices would be the cement sector.
    The power utilities would be in a position to pass on the difference in prices to the customers; this is not possible for the cement industry. Given the current low demand in the cement market, the cement units are unlikely to pass the hike in coal prices to their customers.
    -Dhruv Rathi with Amritha Pillay [email protected]


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