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Tuesday, July 28, 2015

Maruti Suzuki Net Jumps 56% to Rs 1,192 cr in Q1

Net sales of the company grew 18% to Rs 13,078 crore annually

Maruti Suzuki, the country’s largest car maker, reported a 56 per cent jump, year-on-year, in its net profit in the June quarter and its net sales rose 18 per cent to Rs 13,078 crore.

The growth in profit was driven by higher volumes and realisations, a better product mix, and a favourable exchange rate.

The growth in net profit to Rs 1,193 crore was five per cent below Street estimates. On a sequential basis, net profit declined seven per cent, while net sales declined 1.5 per cent.

The company’s stock, which touched a new high of Rs 4,268 on Monday, closed the day at Rs 4,195.65, up 0.46 per cent from the previous close.

Maruti Suzuki’s sales volume in the quarter grew at a higher rate than most industry players. The company sold 341,329 vehicles during the quarter, registering a growth of 13.8 per cent, year-on-year. Domestic sales grew 13 per cent to 305,694 vehicles and exports grew  22 per cent to 35,635 vehicles.

The company’s management is confident of posting double-digit volume growth in the current financial year, despite challenges faced by rural and semi-urban areas due to a projected deficit in monsoon rainfall.

During the quarter, Maruti Suzuki’s operating margin, a key measure of profitability, expanded 462 basis points (a basis point is a hundredth of a percentage point), year-on-year, and 42 basis points, quarter-on-quarter, to 16.3 per cent. The margin would have been higher at 16.9 per cent were it not for a one-time asset impairment.

The company has also benefited from lower raw material costs and localisation. Raw materials as a percentage of sales have declined to 67.4 per cent in the June quarter from 72 per cent in the corresponding quarter of the previous year. Employee costs, too, are down along with other expenses. Lower promotions and discounts helped improve profitability.

“The operating profit is in line with our expectations even though the reported profit is lower than expectations, due to a reduction in other income and a higher tax outgo,” said Jinesh Gandhi, senior vice-president (research) at Motilal Oswal.

Maruti Suzuki’s other income fell 28 per cent to Rs 172 crore and tax expense almost doubled to Rs 477.6 crore. The cost of raw materials consumed went up six per cent to Rs 8,182 crore.

A weaker yen improved the company’s profitability. Maruti Suzuki has a significant exposure to the yen by way of imports, both direct and indirect, and royalty payments to its parent Suzuki Motor, Japan. The company imports about 15 per cent of its raw materials and pays a royalty of 5.5 per cent on sales.

 Reference -

Monday, July 27, 2015

Markets Down on P-Note Scare, China Woes

Sensex falls 550 pts, the most in 7 weeks; Metal, capital goods stocks lead decline; Bajaj Auto only gainer among Sensex stocks

The Indian stock market saw its worst performance in about seven weeks, owing to a crisis in China and adverse remarks on participatory notes (P-notes) by a special investigation team (SIT) of the Supreme Court.

Fears of a negative impact on foreign flows saw the BSESensex fall 550.93 points, or 1.96 per cent, to close at 27,561.38. The National Stock Exchange Nifty fell by a similar margin to close at 8,361.

Of the Sensex 30 stocks, 29 closed with losses.

Monday’s fall came amid a terrorist attack in Punjab that reportedly left at least 10 dead. Experts, however, said this didn’t have a direct impact on market sentiment, as investors typically focused on broader economic trends in emerging markets, as well as company-specific news.

The Supreme Court SIT had suggested the Securities and Exchange Board of India (Sebi) tighten regulations pertaining to P-notes. Foreign investors use these instruments to take exposure to India without registering with Sebi. Though many do so for ease of operations, the SIT suggested tax evaders could also be using this route.

The route accounts for Rs 2.75 lakh crore of investment into India.

On Monday, the Chinese market fell 8.5 per cent, its steepest decline since 2007. Media reports said the fall was on account of a failed attempt by the Chinese government to stem a stock market rout. The Shanghai Composite index was down 8.5 per cent, following a decline in profitability in June. Though the Chinese government has made several interventions to stem the fall in markets, stocks continued to decline on Monday, following some relative stability in previous sessions.

Reports indicated in China, 1,500 stocks fell by more than 10 per cent, and 2,170 of the 2,247 companies ended with losses on Monday.

Experts said global cues, too, contributed to the decline in Indian market. “There is nervousness in global markets, especially the Chinese market, which influenced markets here. People are also keeping an eye on the US Fed meeting to be held later this week,” said Gautam Chhaochharia, head of research (India), UBS.

The US central bank has indicated it would look at raising interest rates this year. Some believe this might have a negative impact on emerging markets such as India.

“The problems pertain to black-money related issues, a fall in China and the non-functioning of Parliament,” said Deven Choksey, managing director, K R Choksey Securities.

A logjam in Parliament is expected to have an impact on the National Democratic Alliance government’s reform agenda, based on which the markets hit new highs this year.

On Monday, Tata Steel was down 5.17 per cent, while Hindalco fell 4.4 per cent on sharp falls in the Chinese stock market. China accounts for most of the world’s metal demand. Reliance Industries was down 1.88 per cent. The only stock to end with gains was Bajaj Auto, which was up 0.41 per cent. The company reported record profits last week.

Reference -


Sunday, July 26, 2015

Godrej Lends Helping Hand to Realty Sector

To tie up with NCR developers unable to deliver due to funds crunch

Mumbai-based Godrej Properties is looking to take over some under-construction projects in the national capital region (NCR)-including in Gurgaon -where developers are unable to sell or give delivery to their customers or are short of funds.

"We have been approached by developers, who are not able to sell their units, for joint development. We will give our brand name, construct and sell their projects," Mohit Malhotra, executive director, Godrej Properties, told Business Standard.

Lending a brand name to help sell houses in a project started by another developer could well turn out to be a trend, given the piling inventory of unsold residential units and hardly any sign of revival in the industry. Other companies, including Sunil Mittal-promoted Bharti Realty, have also been approached by developers for joint development of projects in NCR, an executive said.

Pankaj Kapoor, managing director, Liases Foras, a real estate research firm, said, "Developers, who are stuck with their projects or have bought land earlier at a high price, are now selling in distress to other developers in Mumbai." But taking over an under-construction project to jointly develop it, attaching a new brand name and selling, is yet to catch up, an analyst said.

Malhotra refused to share the name of developers with whom Godrej Properties is in talks, and only said they were 'big names'. He said the company was looking for clean land-with all licences and approvals in place -and expects a deal to be signed soon. Typically, the realty arm of the group prefers to go for a joint venture model with land owners rather than outright purchase of land. It also follows a development management model, wherein it acts as a service provider.

"We charge a certain percentage of top line as fees. Our brand adds premium to the project and we ensure from cash flows that the project gets completed," he said.

The sector has been going through a slowdown. It is witnessing declining sales, high inventory and liquidity crunch for the past couple of years. According to data from Liases Foras, by the end of the March quarter, the inventory (unsold and sales) in NCR stood at 335.2 million square feet, out of which unsold was at 321.7 mn sq ft and a total 71 months of inventory.

Inventory in months denotes the time required to clear the stock at the existing absorption pace. A healthy market maintains an inventory of eight to 12 months but there have been delays ranging from three to five years across many projects.

Reference - 

Friday, July 24, 2015

Black money probe team pulls up Sebi

Asks market regulator to check creation of such wealth via stock exchanges, P-notes

 A Supreme Court-appointed special investigation team (SIT) on unaccounted money has come down heavily on the creation of such funds through stock exchanges and participatory notes (P-notes). In a report, the SIT said the Securities and Exchange Board of India (Sebi) should have an effective monitoring mechanism to study unusual rises in stock prices and the use of stock exchanges to evade taxes through long-term capital gains.

Sebi has also been asked to put in place a mechanism to monitor the beneficial owners of P-notes.

The SIT has recognised the recent steps taken by the regulator to scrutinise cases of tax evasion through  exchanges.

Sebi has been sharing such information with the income tax department. Now, the SIT has directed it to share that with the Financial Intelligence Unit, too.

The investigation into market manipulations shows the modus operandi involves companies with poor financial fundamentals raising huge capital by allotment of preferential shares to various entities. This is followed by a sharp rise in share prices, once preferential allotment is carried out, through circular trading. The artificially inflated stocks are then offloaded through companies funded by those seeking to convert unaccounted money into ‘white’ money.

Recently, Sebi had barred about 250 entities, both individuals and companies; the overall funds involved in this could be  Rs 20,000 crore.

The SIT, however, isn’t satisfied with a ban on such entities, advocating these entities be prosecuted under the Sebi Act. “The Enforcement Directorate should be informed to take action under the Prevention of Money Laundering Act for the predicate offences,” said the report.

  • Have an effective monitoring mechanism to study unusual rise in stock prices
  • Generate red flags, including on trading volumes, entities contributing to trading volume and financial background of firms through annual returns
  • Share such information with CBDT and FIU
  • Barring entities misused for taking benefits not enough; prosecution should be launched under Sebi Act
  • Form regulations to pinpoint ‘final beneficial owner’ of P-notes
  • Information on P-note holder shouldn’t be the name of company, but that of the individual whose KYC details are available
  • Have information on promoters or directors who exercise effective control over the companies holding P-notes
  • Examine if provision of allowing transfer of P-notes is  beneficial to easing foreign investment

Sources said Sebi had sent a list of violations by companies in the small and medium enterprise platform to the income tax department, adding the investigative agency had already started a probe against these entities. As of now, Sebi is examining 100 additional companies, for which interim orders would be passed. Here, overall illicit gains could be to the tune of Rs 50,000 crore, regulatory sources said.

Though Sebi is considered to be heading a multi-agency probe on black money creation in domestic markets, the regulator has been criticised for not intervening in these cases on time. This, too, was highlighted in the SIT report. “We believe with effective and timely monitoring by Sebi, a significant number of such instances can be checked in time,” the report said.

The SIT advised Sebi to red-flag instances pertaining to trading volumes, entities contributing to trading volume and financial backgrounds of firms through annual returns.

On P-notes, the SIT questioned the opacity of these instruments in identifying the beneficial owners. Based on data provided by Sebi, it said a major chunk of outstanding offshore derivative instruments invested in India were from the Cayman Islands (31 per cent). “This translates to about Rs 85,006 crore. In 2010, the Cayman Islands had a population of 54,397, according to Wikipedia. It does not seem conceivable that a jurisdiction with a population of less than 55,000 could invest Rs 5,000 crore in a single country,” the report said. “Sebi needs to examine the issue raised and come up with regulations through which the ‘final beneficial owner’ of P-notes/ offshore derivative instruments is determined.”

According to SIT, information with Sebi on ‘beneficial owners’ should be on individuals. “In no case should the information end with name of a company,” it said. The regulator has been tasked with keeping information on promoters or directors who exercise effective control over the company holding these derivative instruments.

Reference - 

Thursday, July 23, 2015

Lupin acquires US generics firm GAVIS for $880 mn

 Deal marks the largest acquisition by an Indian pharma company in the US

In its fifth foreign acquisition within 18 months, Lupin on Thursday said it would acquire New Jersey-based generic drugs firm GAVIS for $880 million to boost its presence in the US, the company’s biggest market (it accounted for 45 per cent of Lupin’s revenue last year). This is the largest acquisition by any Indian pharmaceuticals company in the US, where Lupin is sixth in terms of market share.

The company had entered a “definitive agreement to acquire privately-held GAVIS Pharmaceuticals LLC and Novel Laboratories Inc, subject to certain closing conditions, in a transaction valued at $880 million, cash-free and debt-free”, Lupin said in a statement. The deal, finalised through a competitive bidding process, is likely to be closed in the third quarter of this year. Lupin will fund the acquisition through cash reserves of $100 million and a bridge loan.

In an analyst call after announcing the deal, Lupin said GAVIS’s pending filings addressed a market value of about $9 billion.

However, the Lupin stock slipped about five per cent to close at Rs 1,728.60, owing to a 16 per cent drop in consolidated net profit for the June quarter.

ALSO READ: Lupin June quarter net drops 16%

Market watchers say the acquisition is expensive. As GAVIS recorded sales of $96 million in FY14, Lupin is paying 9.2 times the annual revenue for the acquisition. “Prima facie, the acquisition looks very costly, given the size of the company,” said Sarabjit Kour Nangra, vice-president (research-pharma), Angel Broking.

The company’s management said the acquisition wasn’t expensive. “GAVIS has a tremendous pipeline and a strong history of compliance with the US FDA. It has a highly profitable business with Ebitda (earnings before interest, tax, depreciation and amortisation) of 36 per cent. Its revenue is projected to grow three times by 2018. GAVIS accelerates our entry into the niche product market. Getting a foot in local pharma manufacturing in the US will help us,” said Vinita Gupta, chief executive officer, Lupin. She added the company would scout for more niche assets abroad.

The company said for the acquisition, it paid an Ebitda multiple of 16, against 18-19 for recent acquisitions. Sujay Shetty, leader (pharma, life sciences and medical devices practice), PwC, said there was a deal-making frenzy in the US and valuations were a bit stretched. The US, the world’s largest pharmaceuticals market, is critical to Lupin’s growth.

In FY15, the company’s revenue from the US increased 12 per cent to $891 mn, even as the US generic drugs market grew only mere 4.5 per cent. In the quarter ended June this year, however, Lupin’s business from the US declined 26 per cent.  

Gupta said GAVIS “is a pivotal acquisition for Lupin, as it aligns with our goal to expand and deepen our US presence.” The acquisition accelerated Lupin’s entry into niche areas such as controlled substances and dermatology, she added.

“We are confident Lupin’s proven commercialisation capabilities, vertically integrated manufacturing operations and supply chain strengths will accelerate GAVIS’s growth.”

GAVIS, which has 250 employees, specialises in the formulation, development, manufacturing and sales of niche pharmaceuticals products. Currently, it has 66 abbreviated new drug application filings pending with the US FDA and a pipeline of 65 products under development. GAVIS’s New Jersey-based manufacturing facility will be Lupin’s first manufacturing site in the US.

In February 2014, Lupin had acquired Netherlands-based Nanomi for an undisclosed amount. A month later, it acquired control of Mexican company Grin. In May this year, it bought Brazilian company Medquimica Industria Farmaceutica. The values of these acquisitions weren’t disclosed. Earlier this month, Lupin acquired ZAO Bio Biocom in Russia, again for an undisclosed amount.

  • GAVIS’s Ebitda margin is 36 per cent
  • Company’s revenue projected to grow threefold by 2018
  • With GAVIS, Lupin has 164 ANDA filings
  • Lupin has now become the fifth-largest company in filings with US FDA
Major outbound pharma buys

2006: Dr Reddy’s acquired Germany’s fourth-largest generic drug company, Betapharm, for $480 mn

2010: Sun Pharma bought stake in Israel’s Taro Pharma. Now, Sun owns majority stake in Taro, worth $260 million. 
 Reference -

Wednesday, July 22, 2015

Govt gets Rs 1 lakh crore spend cushion for FY16

To use it for infra spending, social-sector schemes, balancing the fisc

 With global crude oil prices, already low for a while, expected to remain below $70 a barrel for the rest of this financial year, besides an expected increase in indirect-tax buoyancy, the Narendra Modi-led central government is looking at a spending cushion of about Rs 1 lakh crore for 2015-16.

The savings, especially those on account of lower subsidies, are likely to be used for infrastructure spending, social-sector schemes, and for balancing the fiscal maths, Business Standard has learnt.

The government's total budgeted expenditure for 2015-16 is Rs 17.77 lakh crore - Rs 15.36 lakh crore meant for revenue expenditure, and Rs 2.41 lakh crore for capital spending. This is the Centre's highest-ever budgeted capital outlay, against the backdrop of Finance Minister Arun Jaitley's stated commitment to boosting public spending on infrastructure.

Over the past three years, the finance ministry - first under P Chidambaram and then under Jaitley - has had to effect massive government spending cuts to finance high subsidy bills and to meet ambitious fiscal deficit targets.

In no financial year since 2011-12 have the government's revised expenditure estimates been higher than budgeted estimates. And, even in that year, that was so because of a rise in revenue spending. The last time the Centre actually paid more in capital expenditure than budgeted estimates was in 2010-11.

This year, officials are confident there will be be no spending cuts, and the government might in fact have the rare headroom to spend more than budgeted, without worrying about fiscal arithmetic. "The situation is comfortable this year and we have a lot of fiscal breathing space. We expect savings on the subsidy side, primarily due to (low) oil prices. The budgeted spending targets will surely be met. We may even exceed those," said a senior government official.

On the revenue side, higher buoyancy on indirect taxes is expected to give Jaitley extra spending room. The Centre collected Rs 1.54 lakh crore in indirect taxes in April-June this year, up 37 per cent over the Rs 1.12 lakh crore in the year-ago period.

Among the additional measures that played a role in increasing indirect tax collections were an increase in excise duty on petroleum products between November 2014 and January 2015, the withdrawal of excise duty exemption on auto and other consumer durables, and an increase in service tax from 12.36 per cent to 14 per cent (effective June).

Officials confirmed the extra spending cushion will primarily be used for infrastructure projects at a time when corporate India's balance sheets are overstretched.

In the Budget for 2015-16, Jaitley had delayed the government's earlier fiscal consolidation road map by easing the deficit target for 2015-16 to 3.9 per cent of gross domestic product, against 3.6 per cent earlier. The move freed an additional Rs 70,000 crore for spending on infrastructure projects.

The Centre's capital expenditure in the first half of the current financial year is likely to rise a little more than 25 per cent over a year ago, to Rs 1.25 lakh crore, the highest ever for April-September in any year. The infrastructure and energy ministries have been told to spend most of their capital expenditure in the first six months of the year, with a promise they will be provided more under the supplementary demand for grants in the winter session of Parliament, if need be.

The remaining of the extra spending room, about Rs 30,000 crore, will be used for social-sector schemes and for balancing the fiscal maths, in case the Centre spends above the budgeted estimate. Sources admit the social-sector and poverty-alleviation schemes figure lower on the priority list this year, as the onus is primarily on state governments.

The government has this year cut its spending on sectors like health and education. This has been due to a 10 per cent increase in devolution to states from the Centre's tax resources, according to the recommendations of the 14th Finance Commission. According to Jaitley's statement in the budget session, an increase in devolution to states will get Rs 1.86 lakh crore more from the divisible pool.

The government also delinked eight centrally sponsored schemes (CSS) from central support, and partially delinked 24 that would be run with shared central and state funding. Some of the schemes fully or partially delinked include Backward Regions Grant Fund, Rashtriya Krishi Vikas Yojana, National Livestock Mission, Swachh Bharat, National Health Mission and Madhyamik and Uchcha Siksha Abhiyaan.

Oil prices have been comfortably below the $70-a-barrel level at which the Budget for this year was prepared. On Wednesday, West Texas Intermediate was trading $50.04 a barrel, while Brent Crude was trading at $56 a barrel. Low oil prices might lead to Rs 30,000-35,000 crore of savings in April-June on account of combined major subsidies.

The outgo for major subsidies like those on fuel, food and fertiliser are traditionally the highest for a year in the April-June quarter, as it includes pending payments and outlays for carried-over subsidy demands. The total combined major subsidies for the first two months of the current year were around Rs 49,557 crore. That is 30 per cent less than the Rs 71,250 crore in major subsidy outlays for April and May of 2014-15.

Officials also say that with regard to food subsidy, streamlining procurement and distribution operations, and a planned rollout of direct cash transfers for foodgrain beyond the Union territories could lead to a savings of Rs 4,000-5,000 crore. Major budgeted subsidies for the year total about Rs 2.27 lakh crore - Rs 72,968 crore for fertiliser subsidy, Rs 30,000 crore for fuel subsidies, and about Rs 1.24 lakh crore for food subsidies.

Reference - 

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