Closing Bell 1st June 2009

Closing Bell 1st June 2009

Auto stocks ended the day on a firm note led by M&M, TVS Motors and Bajaj Auto. Auto sales numbers for the month of May 2009 have begun to trickle in. Two-wheeler major, Hero Honda announced a 23% YoY increase in volumes as compared to last year. On the other hand, its peer group company TVS Motors announced a 5% YoY rise in vehicle sales during the month. This rise in volumes was aided by higher domestic motorcycle sales and moped sales. However, exports for the month slipped by 21% YoY. For FY10, the company’s management has indicated that it expects the volumes to increase by 10% YoY. Further, India’s largest passenger car maker Maruti Suzuki, recorded a 16% YoY growth in volumes during the month of May 2009. This was largely aided by higher export sales, which grew by 87% YoY, while its domestic sales grew by 10% YoY.

Pharma stocks ended the day on a firm note led by Panacea Biotec, Wockhardt and Aurobindo Pharma. Glenmark Pharmaceuticals has received the final approval from drug regulator US FDA for marketing its anti-hypertension drug. As per the company, it will immediately commence marketing and shipping its generic in the US market. As per certain estimates, the market size of such hypertension drugs is poised to be around US$ 55 m (Rs 2.8 bn) as of March 2009.

The global economic slowdown has taken its toll on Indian exports, which for the month of April 2009 fell by almost one-third as compared to the same month last year. It may be noted that exports have now fallen for nearly 7 months in a row. During the month of April 2009, the figure stood at US$ 10.7 bn as compared to US$ 16.1 bn last year. During FY09, exports grew by a mere 3.4% to almost US$ 169 bn. On the other hand, the slowdown in domestic markets has also lowered imports by nearly 36% YoY during the same period. Imports on the other hand have dropped mainly on account of a 58% YoY reduction in oil import.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 180 points and 70 points respectively. The BSE-Midcap and BSE-Smallcap are also trading higher, up by around 2.7% and 3.1% respectively. The rupee is trading at 46.95 to the dollar.

Banking stocks are trading mixed. While SBI and Yes Bank are trading higher, Axis Bank and PNB are trading lower. As per a leading business daily, SBI is planning to increase its number of deposit holders in rural areas in order to raise more deposits at lower interest rates. It aims to add around 40 m rural deposit accounts by FY11. It may be noted that the bank has currently around 50 m accounts on the deposits side, while 10 m accounts on the advances side in the rural areas. It also plans to increase its CASA to 45% in FY10 as against 39% during FY09. Further, it plans to cover additional 50,000 villages during the current fiscal. In fact it has tied up with Indian Post to mobilize deposits and loans in rural areas. This is a positive move by the bank as it would enable it to mobilize low cost deposits from the rural areas and improve its net interest income margins which stood at 2.9% in FY09.

Steel stocks are trading higher led by Tata Steel and JSW Steel. As per a leading business daily, Tata Steel got approval from its lenders to reset the terms and conditions of covenants. Covenants are agreements between a company and its lenders that stipulate the condition under which loan is granted. It may be noted that Tata Steel had raised debt of £ 3.7 bn for the acquisition of Corus in 2007. The revised covenant package does not involve any additional finance from the lenders or rescheduling of debt servicing commitments. However, the company will not have to pay any extra interest cost for the remaining tenure of the loan. Also, as part of the agreement reached with lenders, earnings related covenants will largely be suspended till FY10 and would resume from FY11 with significantly higher flexibility as compared with the original covenants. Tata Steel will infuse £ 425 m into Tata Steel UK in a phased manner, out of which £ 200 m would be used to prepay debt at Corus in order to deleverage its balance sheet.

Though trading in the green, the Indian markets have pared some of their early gains during the previous two hours of trade on the back of selling pressure among the index heavy weights. Currently, stocks from the realty, metals and IT sectors are leading the pack of gainers, while select banking and telecom stocks are trading weak. The overall advance to decline ratio is poised at 3.6 to 1 on the BSE.

Power stocks are trading firm led by NTPC, Power Grid and Reliance Power. As per a leading business daily, NTPC is likely to acquire coal mines abroad. For this, the company has identified two to three coal blocks in Mozambique and Indonesia, for which due diligence is currently being done. Although, the company has recently signed a 20 years long-term Fuel Supply Agreement with Coal India to assure supply of coal for a portion of its capacity expansion, there is still a shortfall of coal supply of around 18 m tonnes during the current fiscal which is likely to be met through imports. It may be noted that NTPC has outlined massive capacity expansion plans with 22,000 MW greenfield projects by the end of the 11th five year plan period that would push up the coal requirements for NTPC going forward.

As per a leading business daily, M&M has launched a major revamp of its tractor business as it looks to sharpen its product line-up and protect its market share. The tractors from Punjab Tractor, which it acquired recently, will constitute the lower end category, while that manufactured by M&M will be slotted in the premium category. Both the categories will have different distribution and marketing channels. However, the back-end operations like sourcing of raw materials, manufacturing and product development will be the same. The company currently commands a market share of 41% in the tractor business. The stock of M&M is currently trading firm on the bourses.

Backed by strong global cues, the Indian markets are trading in the positive for the fourth session in a row. All the stocks on the NSE Nifty are trading firm with engineering, telecom and energy stocks leading the pack of gainers. The overall advance to decline ratio is poised at 6.9 to 1 on the NSE. As regards global markets, the US markets ended on a high note. For the month of May, Dow jumped 3.8%, while the S&P 500 rose 5.2% and the Nasdaq advanced 3.6%, their biggest three-month run since 2007. The European markets too closed higher last Friday. The Asian indices are currently trading firm.

Colgate announced its FY09 results last Friday. The topline saw a growth of more than 15% YoY during the quarter as well as the full year. Its market share improved to 52.2% (Jan - March 09) from 48.2% last year. Colgate outpaced industry growth, both in the toothpaste and the toothbrush category during 2008. While the toothpaste industry grew 14.5%, Colgate registered a growth of 18%. In the case of toothbrush, it saw a growth of 17.3% as against the industry growth of 7.6%. Operating margins during 4QFY09 improved by 3.9% YoY. For FY09, the margins improved to 20%, up 0.7% YoY. Excluding extraordinary items, the bottomline grew by 27% YoY during FY09. It paid a total dividend of Rs 15 per share for the year (dividend yield of 3.2%). With the penetration level of toothpaste being as low as 57% and the per capita level being 108 gm/year which is less than its Asian peers, there is huge scope for the company to grow. While the urban areas are expected to drive consumption, rural areas would drive penetration. FMCG stocks are trading firm.

Auto stocks have started the day’s proceedings on a firm note. As per a leading business daily, car major Maruti is expected to see an increase of 8% to 10% in the domestic car sales during the month of May backed by strong rural demand and buoyant exports. As per the company, exports have jumped more than 50% YoY during last month, driven by improved European demand. The rural market sales have increased to 9% of its total sales from about 3.5% earlier on account of concerted push in these regions by the company. This would be the fifth consecutive month when Maruti would clock over 70,000 units in sales. In April, its domestic sales grew 9% YoY and overall numbers (including exports) were up 15% YoY. Fiscal stimulus measures undertaken by the government as well as lowering of interest rates by some key banks has aided higher demand.