Tuesday, August 4, 2009

Closing Bell 30 July 2009

Closing Bell 30 July 2009

Sustained buying activity for most part of the day helped the Indian markets to close significantly in the positive today. The BSE-Sensex ended higher by around 230 points, while the NSE-Nifty ended higher by about 65 points. Both, the small and mid caps indices also closed firm, up by around 0.5% and 0.7% respectively. Gains were led by stocks from the FMCG, banking and IT sectors, while select energy and engineering stocks closed in the red. The overall advances to decline ratio was poised at 1.3 to 1 on the BSE

Most other Asian indices closed in the positive. The European markets are also currently trading firm. Rupee was trading at 48.42 against the US dollar at the time of writing.

As per a leading business daily, HUL, in a strategy to take on micro rivals and down trading, plans to offer a cheaper product in the oral care category. It may be noted that the company’s market share in the oral care is around 28% in value terms and it plans to increase the same. The share of market leader Colgate in the oral care space is 52% in volume terms. At present, the company’s rural penetration level in the oral care space is low. As a strategy, few months ago, the company introduced Rs 5 to Rs 10 packs of oral care paste in a few states, which helped company to improve its share in that states. Now, the company has decided a nationwide launch for such variants. Further, the company also plans to tackle down trading in the tea and laundry segment at the national level by leveraging its distribution network. In all, HUL plans to move towards volume share growth to offer mass end pricing. In the process, the company believes to eventually get back its lost value share. The stock of HUL ended in the green.

Gujarat gas announced its 2QCY09 results recently. The company has registered an 8% YoY growth in the topline during 2QCY09 due to growth in realisations from retail markets and optimisation of market mix. The operating margins improved by 3.9% as raw material cost declined by 1.3% (as a percentage of sales) on a YoY basis, while other expenditure declined by 2.7% (as a percentage of sales). The bottomline growth stood at 8% YoY during the quarter. Despite reporting lower other income (decreased by 63% YoY) and higher interest and depreciation costs, the growth in net profits has come in on account of robust 32.5% YoY growth in operating profits. The company’s board has recommended issue of bonus shares at 1:1.

Inflation (as measured by the WPI) dropped to -1.54% for the week ending July 18. During the previous week, the figure stood at -1.17%. During the same week last year, the inflation figure stood at 12.54%. Food prices continued their upward trend during the week, while prices of fuel products witnessed a decline on a week on week basis. India’s central bank, the RBI recently stated that the uncertain outlook for the monsoons is likely to perk up food-price inflation going forward.

The Indian markets remained firm during the previous two hours of trade on account of sustained buying activity across heavyweights. Currently, stocks from the IT and realty sectors are leading the pack of gainers, while stocks from the engineering and healthcare space are trading weak. The overall market breadth is positive with total gainers outnumbering losers in the ratio of 1.4 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading higher, up by around 100 points and 30 points respectively. The BSE-Midcap and the BSE-Smallcap indices are trading higher, up by around 0.6% and 0.8% respectively. The Rupee is trading at 48.46 to the Dollar.

Auto stocks are trading mixed. Ashok Leyland and Tata Motors are trading firm, while Maruti Suzuki is in the red. As per a leading business daily, Tata Motors has taken a new strategic initiative for its marquee brands - Jaguar Land Rover (JLR). The company plans to build all the future cars of these brands with light weight aluminium bodies in order to reduce input costs, reduce weight and CO2 emission. It is also developing a hybrid power train that will be introduced in future models of JLR. The company plans to widen and re-energise the product range of these brands by launching several new models in the coming years. It may be noted that Tata Motors had acquired the JLR brands last year in order to get access to technology and create a global presence. Interestingly, with the global credit crisis the auto sector across the world has experienced a major slowdown. Consequently, most of the auto companies across the world are facing difficulties in sustaining their operations and JLR is no exception to this. In fact, JLR sales volumes declined by around 32% between June 2008 and March 2009. However, with the initiatives taken by Tata Motors for JLR, it seems that the company may be able to ride out the difficult times.

Steel stocks are trading firm led by SAIL and Tata Steel. Tata Steel announced its 1QFY10 results yesterday. The standalone topline of the company declined by 8.7% YoY in 1QFY10 on account of lower realisations during the quarter. However, the volumes witnessed a robust growth of 22.3% YoY in 1QFY10 as compared to the corresponding quarter last year. Operating profits declined by 42.4% YoY led by higher operating costs, thus operating margins declined by 18.2% to 31% during the quarter. The bottomline declined by 46.9% YoY, slightly higher than operating profits, mainly on account of higher interest costs and depreciation charges during the quarter.

The Indian markets turned positive during the previous two hours of trade on the back of heavy buying activity among index heavyweights. Buying activity is being led by stocks from the IT and realty sectors, while select stocks from engineering and metal sectors are trading weak. The overall market breadth is positive with total gainers outnumbering the losers in the ratio of 1.3 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading higher, up by around 55 points and 25 points respectively. The BSE-Midcap and the BSE-Smallcap indices are trading higher, up by around 0.3% and 0.7% respectively. The Rupee is trading at 48.48 to the Dollar.

Cipla announced its 1QFY10 results yesterday. The company has reported 14% YoY topline growth during 1QFY10, largely led by the 29% YoY growth in its export formulations business. The operating margins witnessed substantial expansion of 8.6% during the quarter, largely due to a fall in raw material costs and other expenditure (as percentage of sales). Despite surge in interest costs and tax expenses, the bottomline grew by 73% YoY. The net profits were bolstered by the superlative 75% YoY growth in operating profits. Pharma sector stocks are trading mixed currently.

As per National Association of Software and Service Companies, the software and outsourcing industry is expected to report growth of 4% to 7% this fiscal to become US$ 48 to 50 bn in revenues. Last fiscal, the industry’s export revenues reported a growth of 14.6%. The single digit growth for FY10 is considered good given the economic environment. The export market is about thrice as much as the domestic market. So the slower growth of the export industry is likely to restrict the overall growth of the sector. The domestic market is expected to grow at a much faster rate of 15% to 18% as compared to outsourcing business. This robust growth in revenues of domestic business is likely to aid IT-BPO industry. The industry has made adaptations and adjustments in its working model to survive the downturn. Some of them are fixed price and outcome-based contracts, shifting of onsite personnel to offshore locations to reduce costs, etc. The core markets such as North America and verticals such as banking and financial services industry have started to stabilise. Furthermore, to achieve growth, the industry is looking at domestic segments and unexplored markets like South America, West Asia, and blocks of Europe. Software sector stocks are trading mixed currently.

The Indian markets have extended yesterday’s losses in line with their Asian peers and are currently trading in the negative. The overall advance to decline ratio stood at 1.4:1 on the NSE. Auto and software stocks are witnessing investors’ interest, while engineering, banking and pharma stocks are trading lower. As regards the global markets, the US markets ended lower yesterday, while the European markets ended in the green. The Asian markets are witnessing negative sentiments currently.

The BSE Sensex is trading lower by around 25 points. The NSE Nifty is down 20 points. The BSE Midcap and the BSE Smallcap indices are trading flat. The rupee is trading at 48.62 to the dollar.

2-wheeler major Hero Honda reported robust results for 1QFY10. The net sales witnessed a strong growth of 34% YoY on the back of a stellar 25% YoY increase in volume sales. The company managed to beat the industry, which saw a 12% YoY growth, yet again. It also reached a market share of 59% and crossed the 1 m volume mark during the quarter. The operating profits grew at an enviable rate of 87% YoY as lower raw material costs lead to nearly 500 basis points expansion in operating margins. Stellar operating profits translated into an equally robust bottomline growth of 83% YoY. The company has continued with its consistently robust topline performance driven by volume growth across segments and markets. As per the company, sales are expected to witness a gain of 7.5% this year and cross 4 m units. A strong business model coupled with favourable industry scenario and market leadership makes Hero Honda a strong play in the 2 wheeler segment. Auto stocks are trading firm.

FMCG stocks are trading mixed. As per a leading business daily, FMCG companies witnessed yet another quarter of double-digit topline growth. While the growth is largely volume driven as against the value growth witnessed last year, the performance remains strong. The high volume growth was led by increase in advertising and promotion expenses coupled with pricing adjustments, an increase in grammage and a spate of new launches and product innovations. Companies like Dabur, Marico, Godrej Consumers and Colgate witnessed strong double -digit growth, while FMCG biggies like ITC and HUL saw a lower growth of 6% YoY (non-cigarette business) and 2% YoY during the quarter respectively. Further, the companies also witnessed a margin expansion due to lower input costs. The companies are confident of volume growth to continuing both from the rural and urban areas. While monsoons would play a critical role during the current year, the continued focus of the government on rural areas, lower penetration and rising consumerism would aid the FMCG sector in its growth

Infrastructure is one of India’s biggest stumbling blocks. And events in recent years have made it clear that land acquisition is in turn the biggest stumbling block in creating infrastructure. In fact, land acquisition accounts for around 70% of infrastructure projects facing delays.

The National Highways Authority of India (NHAI) has plans of laying 20 km of roads each day. As of June 30, 202 projects are being implemented under the National Highways Development Project.

In an attempt to avoid land acquisition problems going ahead, it will open 150 special land acquisition units (SLUs) and 10 regional offices across the country. As per a leading daily, states like Rajasthan, Bihar, Uttar Pradesh, Gujarat, Orissa, West Bengal, Jharkhand, Maharashtra and Assam will be covered. It may be noted that Tamil Nadu and Karnataka already have SLUs.

In our opinion, this is a step in the right direction of greater decentralization of the NHAI. Being present merely in Delhi is not adequate as the actual action on the ground happens in various states.

Microsoft and Yahoo vs. Google
After much negotiation, Microsoft and Yahoo have finally decided to partner in the Internet search and advertising space in order to take on the might of Google. It may be noted that earlier, Microsoft had tried to acquire Yahoo, but failed. Under the new 10 year deal, Microsoft will provide the search technology on Yahoo’s site. Yahoo in turn will focus on publishing web content in areas like finance and sports.

We doubt if this move will threaten Google’s dominance – which holds 65% market share in the US. Microsoft and Yahoo put together muster only 28%. Given how favorably internet users view Google due to years of customer-friendly behavior, it is likely that its advantage will be sustainable.