Weekly Snippets June 01, 2012 India March quarter GDP growth sinks to 9 year low at 5.3% All eyes are now on the RBI monetary policy review expected on June 18 Indian economy grew at a shocking 5.3% in the 4QFY12 (vs 9.2% in 4QFY11), a level last seen 9 years ago. This takes the overall FY12 growth numbers to an abysmal, lower-than-expected 6.5% down from a healthy 8.4% in FY11. During the quarter, growth in the manufacturing sector contracted to 0.3%, from 7.3% in 4QFY11. Farm output also exhibited a similar trend and expanded by just 1.7% during the quarter, compared to 7.5% in the 4QFY11. The government blames a slowdown in manufacturing and the tight monetary policy adopted by the RBI for this dramatic slowdown. The Rupee has been losing value against all the major currencies, especially USD, since April and hit an all-time low of 56.52 yesterday. It has shed nearly 24% year-to-date (Jan till date). Demand Slowdown Hits India Auto Sales NHPC Ltd - Analyst Meet Extract NHPC has posted a 28% increase in its net profit for FY12 at `2,772 Crs. Its sales rose by 36% in FY12 to `5,510 Crs from `4,046 Crs a year ago. The company has 13.58% share of installed hydroelectric capacity (14 hydropower stations) in India (5295 MW out of 38990 MW). The management has guided that Hydroelectricity capacity build-up of 4,502 MW (10 projects and the anticipated project cost is about `31,535 Crs) is under construction and 11,286 MW is in planning stage. All the 10 projects are expected to be commissioned in XII plan (2012-2017). NHPC targets to commission 4 projects totalling about ~1,200 MW in the current financial year. NHPC had invested `3,546 Crs towards development of projects in FY12 and management has guided a capex plan of `4,000 Crs in FY13E (total planned expenditure in XII plan is `29,000 Crs) to develop hydro power projects. The funding will be through internal accruals. The management has also planned market borrowing of `3000 Crs through term loans from banks, private placement of bonds and internal resources.
Tata Motors Ltd JLR Margins disappoints Tata motors Ltd (TML) reported 44.3% growth in consolidated sales in 4QFY12 to `50,908 Crs as against `35,287 Crs recorded in 4QFY11 driven by 48% growth in JLR volumes to 98,021 units. EBITDA for the quarter improved 47.9% to `7,179.5 Crs against `4,855.5 Crs recorded in 4QFY11. EBITDA margins expanded 30bps to 14.1% in 4QFY12. TML profit before exceptional items and tax surged 68% to `4,596 Crs in the quarter. The company had tax credit of `1,826 Crs in Jan-March in its subsidiary company. So post Tax credit PAT was up by 136% at `6,234 Crs. On a standalone basis TML reported 14.4% jump in sales in 4QFY12 to `16,391 Crs as against `14,325.5 Crs recorded in 4QFY11. EBITDA for the quarter improved 22.2% to `7179.5 Crs against `4,855.5 Crs recorded in 4QFY11. EBITDA margins expanded 60bps to 9.5% in Q4FY12 on YoY basis due to lower discounts and incentives in its car portfolio. PAT declined 1.4% to `565 Crs in 4QFY12 from `573 Crs recorded in 4QFY11. JLR margins dropped sharply on Q-o-Q basis from 17% to 14.6% in 4QFY12 as average realization slipped 2.7% Q-o-Q to GBP 42,277 due to higher contribution from Evoque and Freelander brand in product mix as per the management. Management Guidance Company is adding third shift in Halewood and Solihull plants to increase production of Evoque brand in FY13 from current production of 350,000 units. JLR has decided to consolidate its two primary operating companies in the UK Land Rover and Jaguar cars limited as a single subsidiary of Jaguar Land Rover PLC and be renamed as Jaguar Land Rover Automotive PLC later this year. Company is expected to launch new light weight Range Rover towards the end of FY13. Also new F-type is expected to be launched in FY14. JLR Capex guidance for FY13 stands at GBP 2 billion for R&D and Product development. Management expects overall incentives to increase marginally in FY13 with higher incentives in US and UK and lowest in china. JV with Cherry is under regulatory approval. JLR is expecting to increase localization in smaller model through JV. Current dealers in China for JLR stand at 100 and JLR expects it to increase it to 130 in next few years. Seeing the growth of its products in china JLR expects it to become NO. 2 market in terms of sales in current fiscal year. On domestic front Tata Motors is also adding 300 touch points to boost Nano sales, especially in smaller towns and rural areas. 2
Mahindra & Mahindra: Management Guidance and outlook for FY13E For FY13, Management expects passenger vehicle to grow by 10-12%, UVs growth rate to be higher than passenger vehicles. It expects its LCVs to grow by 10-11%, M&HCV at 5-6%, Two wheelers at 12% and flat growth in 3-Wheelers. The company expects tractor industry to just grow by 5-6% for the full year with demand picking up in 2HFY13E. In the automotive sector, M&M will have six very important product launches. SUVs, Rexton, electric vehicle, the sub four meter Verito, a new hard top van will be launched during this year. On the tractor side, M&M will be launching 3-4 variants of the already existing offering. M&M is also looking at launching a brand new tractor during the end of this year. M&M has planned a total capex of `5,000 Crs for the next 3 years and an additional investment of Rs.2000 Crs in group companies during the next 3 fiscals. 1QCY12 has been the first EBIDTA positive quarter for Ssangyong under the M&M management. Although, the company does not expect to report profit at PBT levels in FY13E but it anticipates an improvement at the EBIDTA level. Management has set a volume target of 160,000 vehicles for FY13E. M&M has completed deliveries for the initial 2 rounds of bookings for XUV 500. The 3 rd round of bookings will be opened on Jun 8 th 2012 on a nation-wide basis as compared to 19 cities in the earlier round. XUV500, launched on an international platform, will be rolled out in Australia, Chile and Western Europe as early as next month. Already this highly successful car is being sold in South Africa and Brazil and is selling 150 units a month in South Africa alone. Bharat Forge Ltd - Analyst Meet Extract At the consolidated level for FY12, Bharat Forge LTD (BFL) reported 23.6% growth in sales to `6368.4 Crs. The growth was driven by robust demand from Commercial Vehicle industry globally & sustained growth in non-auto business from India. EBITDA for the full year came in at `1085.1 Crs a growth of 27.2%. The consolidated entity posted a Net Profit after minority interest of `413.0 Crs, growth of 42.3%. The non-auto business grew 2.4 times in sales in past two years and continues to witness strong growth across sectors from marquee domestic & global customers its sales grew by 32% in FY 2012 to `1288.5 Crs. Non-auto contribution to the standalone business is 38% in FY12 up from 37% in FY11.BFL aims to take Non-Auto contribution to standalone revenue at 50% till FY15E. Exports in this segment grew by 37%. Total investment in Alstom Bharat Forge Power Ltd is at `1600 Crs with investment form Bharat Forge at `325 Crs. The JV will produce Turbine Generator (TG) set of 600-800 MW rating for power plant. The JV has been shortlisted for supplying 5 TG sets of 660 MW rating to NTPC. Delivery of first two Turbine Generator set of 660MW rating worth `1500 Crs will take place in 1HFY14E. 3
FUTURE OUTLOOK In domestic market the company expects single digit growth in M&HCV for FY13 however it expects LCV to continue to grow in double digits and is gaining significant market share in this segment. Eurpean, Chinese automotive market is expected to remain sluggish while US Automotive market is expected to remain strong. Growth in Exports is expected from the Non-Automotive business. With company focus on increasing the share of value added products in total sales and implementing cost control measures the margins are expected to up further in FY13E. BFL expects huge growth potential in railways among Non-automotive business in the coming years with orders coming from US, Russia & India. There are only three to four global players around the world in this segment. RESULTS CORNER ONGC net doubles to `5,644 Crs: Riding on better realisations and a favourable exchange rate ONGC's net profit more than doubled to `5,644 Crs in 4QFY12 on the back of high crude price and the fall in rupee offsetting a steep rise in fuel subsidy outgo. Net profit for FY12 rose 32.8% to `25,123 Crs. The company paid a record Rs 44,466 Crs in fuel subsidy in FY12, up from `24,892 Crs in the previous financial year. This subsidy outgo dented net profit by `25,535 Crs (for the FY12). The rise in the subsidy outgo, however, was offset by rupee depreciating from `47.95 to a dollar in 4QFY11 to `50.29 in 4QFY12. The company has set a target of investing `121,737 Crs under the 12th Five-Year Plan. The company has planned a capex of `30,432 Crs for this fiscal. Since there is no major production coming on-stream by the company, there are no positive triggers unless there is some announcement on the fuel subsidy front. If the subsidy increases further, it will be a big negative for the company. Coal India 4QFY12 net profit slips 5% on wage hike provision Coal India Ltd (CIL) has registered 29% jump in its consolidated sales for 4QFY12 at `19,419 Crs. However its net profit for the same period was down by 5% to `4013.4 Crs. Sharp fall in profit is largely due to 1380 bps fall in operating margin to 19.5% on the back of higher staff cost due to wage revision. In 4QFY12, its employee expense shot up by 89% to `9,069 Crs, at almost 50% of sales. The company has posted a 36 % rise in net profit at `14,788.20 Crs for FY12 compared with `10,867.35 Crs in FY11. CIL raised the wages of its ~365,000 workers with retrospective effect from July 2011, for which the company has provided ~`7,000 Crs in FY12. In FY12, CIL produced 436 MT (1% y-o-y growth) of coal, marginally short of its target of 447 MT for the year. For FY13E, CIL has set itself a production target of 464.1 MT, which according to management is challenging. 4
The company management has guided that there is no immediate plan to hike coal prices however the company would look to cut costs and shore up production to mitigate the effect of the wage hike. The major constraint for the company is the lack of availability of railway rakes. While it needs around 205 rakes per day to support peak production, only 184-185 are currently available. CIL will increase prices of coal produced by two of its subsidiaries (Western Coalfields and Eastern Coalfields) following an impact analysis of the system of grading coal based on gross calorific value, or GCV, implemented in January. Britannia 4QFY12 net up 23% at `53 Crs Britannia Industries net profit rose by 22.61% to `53.0 Crs for the 4QFY12 as compared to Rs 43.3 Crs in 4QFY11. The net sales of the company rose to `1,309.6 Crs during 4QFY12 against `1,121.7 Crs in the same period of previous fiscal. The company's net sales for FY12 rose to `4,947.0 Crs against `4,198.32 Crs in FY11. In FY12 the company has posted a net profit of Rs 186.7 Crs compared to `145.29 Crs in FY11. The Board of directors of the company has recommended a dividend of 425% (`8.50 / share on FV of `2) for FY12. Britannia s each business in India and overseas showed significant improvement in performance. The company has made several new introductions in the Health & Nutrition products as well as indulgent products. Its longstanding brand GoodDay completed 25 years and added new offerings like Choconut, Chocochip and Classic Fresh Bake cookies to its portfolio. A range of savoury snacks - NutriChoice Multigrain Thins, NutriChoice Multigrain Roasty and 50-50 Snackuits - were also launched. Oil India 4QFY12 net profit down 21%: looks at acquisitions for growth Oil India Ltd (OIL) reported a 21% drop in net profit at `444.8 Crs for the 4QFY12, against `1,014 Crs in the year-ago period. The net profit dipped after the government asked upstream firms ONGC and OIL to make good 39.7% (earlier it was 36.75%) of the `1,38,541 Crs revenue that fuel retailers lost on selling diesel, domestic LPG and kerosene at government controlled rates in FY12. From $51.1 a barrel in 4QFY11, subsidy per barrel of oil increased to $80.8 in 4QFY12. Thus the net realizations during the quarter slumped 26.5% to $38.9 a barrel, which in turn led to a 20.9% drop in profits. For the full year, OIL s share of OMCs under-recoveries rose 123% to `7,351 Crs. The company has limited head-room to increase oil output (oil production rose by 7.2% in FY12). To increase volumes it is looking to buy oil & gas assets and has earmarked `6,000-7,000 Crs ($1.3 billion) for overseas acquisition. The company has identified U.S., Canada, Australia and parts of Africa for acquisitions and hoped to seal a deal in the current year. OIL is looking to buy stakes in U.S. gas driller Chesapeake Energy Corp.'s Mississippi Lime basin and ConocoPhillips' oil sand assets in Canada. The company (one of the 11 firms) is also in talks to buy 51% stake in Mukesh Ambani's privately owned firm Reliance Gas Transportation Infrastructure Ltd (RGTIL). With negligible debt and `15,949 Crs worth of current assets on its books, the company can easily fund a sizeable acquisition. 5
Engineers India Ltd (EIL) achieves highest ever annual turnover Engineers India reported an increase of 14.96% in its standalone net profit to Rs 190.3 Crs in 4QFY12 as compared to Rs 165.6 Crs in the same period last year. During the quarter, the company saw a rise of 29.5% in standalone revenue to Rs.1225.3 Crs from Rs 946.54 Crs in the same quarter last year. Engineers India Limited (EIL) has registered a turnover of Rs. 3,698.8 Crs in the year ending March 31, 2012, an increase of 31% over the previous year. The net profit for the year has increased by 21.8% to Rs.636.3 Crs as against Rs. 525.5 Crs in the previous year.. Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai 400 052. Tel. (022) 4082 4082, Fax (022) 2649 7997. research@lmspl.com www.latinmanharlal.com, LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh) This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the secure-ties of companies discussed herein and may sell them to or buy them from customers on a principal basis. 6