|Indias Diesel Deregulation Positive For Oil Companies-Fitch Ratings|
|The Indian governments 18 October decision to deregulate diesel prices will have a positive effect on the national oil marketing companies that are the principal retailers of petroleum products, says Fitch Ratings. The decision is also likely to lead to more private firms entering the diesel market in the medium term, resulting in greater competition.The decision to deregulate diesel prices is well-timed in light of the recent decline in international energy prices. The expected direct impact of both the diesel reform and natural gas price hike on Fitchs headline fiscal forecasts is limited; but the fiscal balances will be more robust to future oil shocks, since both diesel and petrol prices are now determined by the market. Furthermore, implementation of these politically sensitive reforms demonstrates that the government continues to roll out structural reforms gradually, and suggests that more far-reaching structural reforms may be in the pipeline.
The national oil marketing companies – Indian Oil, Bharat Petroleum and Hindustan Petroleum – will be the principal direct beneficiaries of deregulation, and the decision is positive for these companies standalone credit profiles. Under the previous rules, these retailers had to sell diesel (accounting for 40% of fuel sold) below market prices, and were partially compensated for the losses through the federal budget. Furthermore, the price control and subsidy system affected the working-capital positions of these companies, as there was a timing mismatch between the recognition of losses on sales and compensation from government – leading to higher debt.
The other beneficiaries are likely to be upstream oil companies such as Oil and Natural Gas Ltd and Oil India Ltd, which also bore a large part of the subsidy burden. These companies offered a USD56 per barrel discount to the national oil marketing companies – especially challenging when considering the fall in crude prices to around USD85. Fitch expects that the discount is likely to come down.
Fitch anticipates that deregulation will result in heightened competition for the existing dominant national retailers, and could hurt their profitability over the medium to long term. By allowing diesel to be marketed profitably, the sector will once again be attractive for private companies that had left when price restrictions were put in place. A large portion of the output of private refiners is exported, due in part to the restrictions placed on domestic sales. Private firms such as Reliance Industries and Essar Oil are likely to restart idled diesel retail operations, and should ultimately become more significant players. Their impact on the sector would not be seen immediately, though, as they would have to play catch-up to restart and establish retail infrastructure.
Results marginally below expectations
Stock up 3.4%
Alembic Pharma (CMP: `387/ TP:/ Upside
For the quarter, the company posted sales and profit, below expectations. The sales and net profit came in at `539cr V/s `568cr expected and `84cr V/s `88cr expected respectively, thus posting a yoy growth of 11.7% yoy and 31.7% respectively. The growth in the sales was lead by the domestic formulation business, which posted a yoy growth of 18.0%. Other segment, which did well, was API, which posted a yoy growth of 20.0%. The international generic posted a growth of 9% yoy, while Indian generics de-grew by 12% yoy. The international branded segment posted flat sales. On the operating front, the gross margins came in at 64.8% V/s 60.8% in 2QFY2014; consequently taking the operating margins to 21.2% V/s 19.6% in 2QFY2014. This along with the lower interest expenditure, which dipped by 31.9% yoy, aided the PAT to come in at `84.1cr V/s `63.8cr in 2QFY2014, a growth of 31.7%. We maintain our neutral rating on the stock.
Results below expectations, on sales and net profit front, margins robust
Stock marginally up
Indoco Remedies (CMP: `287/ TP:/ Upside
For the quarter, the company posted results much below expectations on the net sales and profit front. The sales came in at `226cr V/s `257cr expected, posting a yoy growth of 16.1%. The sales growth was mainly driven by the exports, which rose by 21.1% yoy, while domestic sales rose only by 13.3% yoy. The domestic formulations grew by 13.9% yoy, while formulation exports grew by 21.2% yoy. On the operating front, the gross margin came in at 64.8% V/s 61.2% in 2QFY2014; consequently taking the operating margins to 20.6% V/s 13.2% in 2QFY2014. This along with the lower interest expenditure, which dipped by 49.0% yoy, aided the PBT, to register a yoy of 148.3%. However, a 148.3% yoy rise in the tax expense during the quarter, lead the net profit to come in at`20cr V/s `30cr expected, a yoy growth of 23.7%. We maintain our neutral rating on the stock.
Results, robust on top line
Stock dips marginally
United Phosphorus (CMP: `331/ TP:424/ Upside :28%)
United Phosphorus Limited (UPL), posted a good set of numbers. For the quarter, the company posted sales of `2618cr V/s `2,269cr in 2QFY2014, registering a yoy growth of 15.4%. On the operating front, the company posted OPM’s of 16.7% V/s 16.0% in 2QFY2014, mainly driven by the GPM’s of 50.5% V/s 48.7% in 2QFY2014. The expansion in the OPM was lower than expansion in the GPM, on back of the 24.4% rise in other expenditure. This along with the lower other income during the period, which dipped by 32.2% yoy, lead the Adj. net profit to come in at `178cr V/s `171cr in 2QFY2014, a yoy growth of 4.3%. The reported net profit during the quarter was `166cr V/s `155, a yoy growth of 7.1%.We maintain our buy with a target price of `424.
|Indian Railways Freight Loading up by 4.20 per cent during April-September 2014|
|Indian Railways carried 532.44 million tonnes of revenue earning freight traffic during 1st April- 30th September 2014. The freight carried shows an increase of 21.44 million tonnes over the freight traffic of 511.00 million tonnes actually carried during the corresponding period last year, registering an increase of 4.20 per cent.During the month of September 2014, the revenue earning freight traffic carried by Indian Railways was 86.71 million tonnes. There is an increase of 1.85 million tonnes over the actual freight traffic of 84.86 million tonnes carried by the Indian Railways during the same period last year, showing an increase of 2.18 per cent.
Results below expected on net profit levels
Stock down ~7.0%
TCS (CMP: `2,700/ TP:/ Upside:)
TCS announced its 2QFY2015 results. While the dollar revenue was much higher than expected on sales front, the net profit came in lower than expected, on back of lower than expected EBDITA margins. On the sales front, the company posted a 6.4% sequential growth in USD revenues to US$3,929mn V/s US $3,859mn expected, with volume growth of 6.1% qoq. On constant currency (CC) terms the company posted a 7.4% qoq growth, of which organic growth during the period was 4.6% qoq on constant currency. In rupee terms, revenues came in at `23,816cr V/s `23,495cr, up 7.7% qoq.
The growth in the INR sales was equally driven by the key geographies, USA (5.3% qoq), Europe (3.8% qoq) and India and Asia Pacific, which grew by 9.0% qoq and 43.2% qoq respectively. In terms of verticals, the BFSI (4.3% qoq), Telecom (1.7% qoq), Retail & Distribution (5.9% qoq) and Manufacturing ( 26.7% qoq).
EBITDA margin came in at 28.5%, lower than expected 30.2% and a dip of ~29bps qoq. Consequently, PAT came in at `5,288cr V/s `5,414cr expected, an up-tick of 4.6% qoq. On the operational front, the company had the highest utilizations, which stood at 86.2% (ex-trainee), while including the trainee it was 81.3%. As per outlook, the company expects to post a growth higher than the NASSCOM growth target of 13-15%.
In terms of development, the TCS announced its merger with CMC wherein in the shareholders of CMC will receive 79 equity shares of Rs.1 each of TCS for every 100 equity shares of Rs.10 each of CMC held by them. The appointed date for the proposed scheme is 1 April 2015. We maintain our neutral rating on the stock.
Results better than expected on EBIT and net profit front
Stock down ~6.0%
HCL Tech (CMP: `1,656/ TP: `1,968/ Upside:18.8%)
HCL Tech during the quarter posted revenue marginally below, expectations, while EBIT and net profit came in higher than expected. The sales came in at US $1,433mn V/s US$1,469mn expected, a qoq growth of 1.9%.In Constant Currency (CC) terms, the sales grew by 3.2% qoq. In rupee terms, revenues came in at `8735cr V/s `8,945cr expected, up 3.7% qoq.
In terms of geography, the USA posted a 5.7% qoq on CC basis, Europe grew by 2.7% qoq on CC basis, while ROW de-grew by 6.4% qoq basis. In terms of verticals Financials Services grew by 3.0% qoq on CC, Manufacturing ( grew by 5.3% qoq on CC basis) , while Life Sciences & Healthcare along with the Public services de-grew by 1.7% and 5.6% qoq on CC basis respectively. The vertical which posted, highest growth was Retail & CPG which grew by 15.8% qoq on CC basis.
On the operating front, the EBIT margins came in at 23.9% a decline of ~32bps qoq V/s expected 22.0%. The utilization levels dipped to 82.7% ( including trainees) V/s 84.5% in 4QFY2014.Consequently, PAT came in at `1,873cr V/s `1,591cr expected, a growth of 2.1% qoq. In terms of order flow, the HCL has signed 15 Transformational engagements with more than US$ 1bn of Total Contract Value in this quarter, led by Global Infrastructure Services, Engineering and R&D Services, Application Services and the Digitalization suite across Software Product and Platform Engineering. Manufacturing and Consumer Services led the wins in verticals and US in geographies. We maintain our buy rating on the stock with price target of `1,968.
Ranbaxy- Settles litigation with State of Texas : Ranbaxy has settled the litigation concerning its participation in the Texas Medicaid Program. Under the settlement agreement, Ranbaxy will make payments to the State of Texas totaling US $39.8mn in a series of tranches through August 2015. The claims at issue related exclusively to the manner in which the Ranbaxy has historically reported pricing data to Texas Medicaid for certain of its drugs. As has been widely reported, the State of Texas has brought nearly identical claims against virtually every other major pharmaceutical manufacturer in the United States. Ranbaxy believes that it fully complied with all relevant laws; however the Company settled the matter to avoid any further distraction and uncertainty of continued litigation with the State of Texas. The said liability will not a major impact on the company’s financials and hence maintain our neutral on the rating on the stock.
Results above expectations on operating front
Stock up by ~5.8%
Infosys (CMP: `3,646/ TP: `4,700/Upside: 28.9%)
Infosys announced its 2QFY2015 results today. The company posted a 3.1% sequential growth in USD revenues to US$ 2,201mn V/s US$2,193mn expected. In rupee terms, revenues came in at `13,342cr V/s `13,279cr expected, up 4.5% qoq. On constant currency (CC) terms, the company posted a strong 3.9% qoq growth V/s 1.5% qoq in 1QFY2015. The key geography that grew well was Europe which grew by 6.5% qoq on CC terms, while USA grew by 3.2% qoq on CC terms. Other regions like India and ROW posted a 4.0% qoq CC decline and growth of 4.2% qoq CC respectively. In terms of domain, the FSI ( Financial Services Industry ) grew by 2.0%qoq on CC terms, Manufacturing grew by 4.5% qoq in CC. The domain that posted the highest growth during the period was ECS (Electricity, Communications and Services ), which posted a CC qoq growth of 8.8%. On the operating front, the EBIT margins came in at 26.1% V/s 24.6% expected ( 25.1% in 1QFY2015) on account of improved productivity. Consequently, PAT came in at `3,096cr V/s `2,948.9cr expected, a rise of 7.3% qoq.
The utilization levels improved to 75.2% V/s 74.8% in 1QFY2015, while excluding the trainees, the utilization levels, improved to 82.3% V/s 80.1% in 1QFY2015.Going forward, the company has maintained its future USD revenue growth guidance for FY2015 at 7-9% and EBIT margins to be sustained at these levels in a narrow band. On valuation front, the stock is cheap at current valuations of 15.5xFY2016E earnings, at a 30% discount to its peer like TCS, which we believe can narrow down once the growth pick-ups. Thus , we maintain our buy rating on the stock with a target price of `4,700.
|Moodys: Asian Liquidity Stress Index declines to 21.3% in September|
|Moodys Investors Service says that its Asian Liquidity Stress Index declined to 21.3% in September from 22.3% in August, the lowest level since December 2013.The decline, the fourth in as many months, came as the net number of rated high-yield companies with Moodys weakest speculative-grade liquidity score (SGL-4) decreased to 26 from 27 and the number of rated high-yield companies increased by one to 122.
The index — which increases when speculative-grade liquidity appears to decrease — remains well below the record high of 37.0% reached during the fourth quarter of 2008 amid the global financial crisis, says Annalisa Di Chiara, a Moodys Vice President and Senior Analyst.
It is a bit above the indexs long-term rolling average of 20.2% but still slightly below the trailing 12-month average of 21.9%, adds Di Chiara.
The liquidity sub-index for Chinese speculative-grade companies declined slightly to 20.0% in September from 20.3% in August.
And the number of high-yield Chinese companies increased to 65 from 64. Meanwhile, the number with an SGL-4 score remained unchanged at 13.
Chinas high-yield property sub-index rose, to 15.4% from 12.8% while the Chinese high-yield industrial sub-index declined to 26.9% from 32.0%.
The Indonesian sub-index remained unchanged at 12.0% as the number of Indonesian companies with an SGL-4 score remained at three and the total number of high-yield Indonesian companies remained at 25.
Moodys downgraded the CFRs of three companies in September and upgraded six. The downgrade/upgrade ratio of 0.5 in September does not necessarily reflect a positive shift in overall credit quality and environment, but rather company specific events that have improved their credit quality and liquidity. Indeed, downgrades exceeded upgrades for the fifth consecutive quarter.