Wednesday, April 15, 2009
GOLDMAN NUMBERS CHEER UP WORLD ST | Dalal Street To Mirror Trend In Asian Mkts Today
GOLDMAN NUMBERS CHEER UP WORLD ST
The Economic Times, April 19, 2009,
Dalal Street To Mirror Trend In Asian Mkts Today
Our Bureau MUMBAI
WORLD markets cheered the much-awaited rebound in the first-quarter earnings of US bank Goldman Sachs, sparking hopes that other key financial houses would follow suit. Asian investors are holding on to it like a ray of hope while money managers, though confident that the development will lower the risk aversion to emerging markets, are snooping for more clues to figure out whether it is a one-off case or not.
“More than anything, such positive events in recent weeks have changed the risk perception of overseas investors and triggered some flow of money into equities, but a bit of caution is certainly warranted,” said Kotak Asset Management’s VP-equity funds, Krishna Sanghavi.
After the Goldman results on Monday night, Asian markets such as Hong Kong and Singapore on Tuesday rose 4.5% and 1.1%, respectively, while European indices gained 1-2%. Investors in Indian equities were denied an opportunity to extend gains to Tuesday on the back of positive Goldman earnings, as markets were closed for Ambedkar Jayanti.
The US market, which was banking on possible spinoffs from the Goldman numbers and Federal Reserve chairman Ben Bernanke’s statement that the slump may be slowing down, slipped. At the time of going to press on Tuesday, stocks were trading marginally lower on an unexpected fall in retail sales and producer prices there.
Back home, market players said stocks on Wednesday would mirror the trend in other Asian markets.
GOLD DUST
On Monday,
Goldman announced earnings of $1.81 billion in Q1 as a surge in trading revenue outweighed asset writedowns
Buoyed by the earnings and a 54% gain in its stock price, it raised $5 billion in a share sale to help repay $10 billion in government rescue funds
The bank said it sold 40.65 million shares at $123 each, 5.5% less than Monday's closing price of $130.15
After AIG bailout, banks that bought credit-default swaps got $22.4 billion in collateral and $27.1 billion in payments to retire contracts
Goldman was most profitable Wall St firm before it converted to a bank in 2008 & posted its first quarterly loss since going public in 1999
If Goldman returns the money, it may pressure other banks to follow suit or risk appearing dependent on the government
The Impact
World markets cheer rebound in Q1 earnings of Goldman Sachs
After the Goldman results Monday night, Asian markets such as Hong Kong and Singapore on Tuesday rose 4.5% and 1.1%, respectively, while European indices gained roughly 1-2%.
Asian investors are holding on to it like a ray of hope
Money managers confident the development will lower the risk aversion to emerging markets, but are looking for clues to figure out if it is a one-off case
Earnings may decline, sales flatten out for March quarter
Earnings may decline, sales flatten out for March quarter
The Hindu Business Line, April 15, 2009, Page 1
Realty, metals expected to post large profit declines.
Aarati Krishnan
It is time for a reality check after the euphoric 34 per cent rise in stock markets over the past five weeks.
As Infosys flags off the March quarter earnings season on Wednesday, India Inc is expected to report one of its worst performances in recent years.
Sales for Indian companies are expected to be flat or even shrink a little for the March quarter as they fell prey to insipid demand, a cutback in capital spending and lower prices and realisations.
The numbers may show cost pressures have eased off a bit, thanks to the sharp fall in prices of crude oil and commodity inputs.
But companies are unlikely to have reaped the full benefits of lower input costs this quarter.
Interest costs, the key variable contributing to profit falls recently, are expected to remain high, as only select top-notch borrowers have benefited from recent interest rate cuts.
In this backdrop, market participants are forecasting a decline or a modest growth in profits for most sectors of India Inc.
Sales slowdown
Leading brokerage Motilal Oswal Securities expects Sensex companies to report a 3.4 per cent decline in their sales and a 15.2 per cent fall in profits for the March quarter. “Most sectors would report either a decline or single-digit growth in earnings with just 3 out of 16 sectors we cover, reporting double-digit earnings growth. The decline in aggregates would be largely due to sharply lower earnings from metals and real estate,” says the brokerage in its Results Preview.
IDFC-SSKI is a tad less pessimistic, forecasting a 9.4 per cent fall in the profits of Sensex companies, with the picture becoming much worse (a 13.3 per cent decline), if oil companies are left out. IDFC-SSKI predicts that the Sensex companies will close the quarter with a measly 0.9 per cent sales growth (ex-oil and banks). It expects a 9.7 per cent contraction in operating profits due to cost pressures.
Neither brokerage has factored in write-backs from AS 11, in their estimates.
The exclusion of the “forex loss” element from the reported earnings may end up painting a rosier earnings picture for several highly leveraged companies.
Realty, metals
While overall earnings remain sombre, the saving grace may lie in the huge divergence in results, expected between sectors.
Real estate and metals are the sectors expected to report the worst set of March quarter numbers. Profit estimates for real estate companies are bleak, as brokerages estimate that flagging demand, lower prices and spiralling interest costs will reduce profits by anywhere between 70 and 85 per cent over last year, for leading players in the sector. Metal companies too are forecast to register sharp falls of 50-90 per cent in quarterly profits, on the base effect, as lower realisations reflect in margins, even as input costs remain high.
Oil marketing companies are expected to see a better profit picture with lower crude prices cutting under-recoveries.
Telecom, power, banks, infrastructure and FMCG are sectors expected to clock reasonable sales as well as profit growth, with forecasts for a 5-15 per cent earnings growth.
The prognosis for IT is mixed, with predictions for a flat to slightly positive topline, while profits may grow 7-11 per cent relative to last year.
Market hopes
Market participants expect sectors such as automobiles and cement to improve their performance sequentially (helped by better sales and despatches respectively), though profits may continue to fall year-on-year.
Given this backdrop, it is interesting that realty and metals, the sectors expected to unveil the poorest set of numbers, are the ones that have led the recent stock market rally.
The 50 per cent rise in the BSE Realty index and the 47 per cent surge in the BSE Metal index, make them the best sector performers over a month.
Is it a case of stock prices already discounting the worst, or being swept up by optimistic expectations?
That will be clear as stocks in these sectors react to the results announcements over the next few weeks.
Cement cos again building cartel: Builders
Cement cos again building cartel: Builders
The Economic Times, April 15, 2009, Page 11
Rajesh Unnikrishnan & Mithun Roy, MUMBAI
THE tug of war between cement manufacturers and construction groups has reached a flash point with construction players seeking fresh government interference in alleged cement cartelisation move and high cement prices.
Cement and gold are the only two commodities that have seen a sharp rise in prices while other resources have fallen sharply, say people familiar with the developments.
“In January this year, the government reintroduced the import duty and countervailing duty and made cement imports dearer. During the past few months, cement companies have been increasing prices and we strongly believe that the industry is acting as a cartel,” a Builders’ Association of India senior official said.
Since January, cement makers, including big players such as ACC, Ambuja Cements, Grasim and UltraTech, raised prices by Rs 7-10 per 50-kg bag. ACC increased prices by Rs 7 per bag while Ambuja raised it by Rs 3 in April. Aditya Birla group companies, Grasim Industries and UltraTech Cement, have raised prices by Rs 5-7 per bag, dealers said. At present, retail cement prices have gone up to Rs 260 a bag, on an average.
Construction industry officials say while the domestic installed cement capacity is 205 million tonnes, the companies run at capacity utilisation of 160 mt. “When demand is strong, why are the cement companies not increasing capacity?” one official asked. Cement comprises 13-15% of the cost component of a construction project.
When contracted, Cement Manufacturers’ Association president HM Bangur declined to comment. Ambuja Cements marketing head Ajay Kapur told ET, “There is no point of cartelisation in the current market conditions. We are selling cement at the best-possible price.”
Cement analysts don’t foresee prices to soften in the short run. In the long term, however, they expect prices to fall as new capacities come up for production. The outlook for the first quarter of 2009-10 looks better than last year, and an 8% incremental growth is expected in the current fiscal year, analysts added. ACC MD Sumit Banerjee recently told ET that prices need to go up to Rs 300 per bag. “ACC’s plans to invest in creating new capacities. It will not be easy for us to go ahead without our future expansion plans beyond 2011,” he added.
In 2006, the director general of investigations and registration (DGIR) studied prices of cement over two years, 2005-06, and found that the increase in the cost of production was Rs 136.14 per tonne, or Rs 7 per 50-kg bag.
Prices, on the other hand, increased by Rs 56 per bag in Delhi and Rs 50 in Mumbai during the period. As per the Cement Manufacturers’ Association annual report for 2005-06, production rose 11.16% over the previous year.
The Economic Times, April 15, 2009, Page 11
Rajesh Unnikrishnan & Mithun Roy, MUMBAI
THE tug of war between cement manufacturers and construction groups has reached a flash point with construction players seeking fresh government interference in alleged cement cartelisation move and high cement prices.
Cement and gold are the only two commodities that have seen a sharp rise in prices while other resources have fallen sharply, say people familiar with the developments.
“In January this year, the government reintroduced the import duty and countervailing duty and made cement imports dearer. During the past few months, cement companies have been increasing prices and we strongly believe that the industry is acting as a cartel,” a Builders’ Association of India senior official said.
Since January, cement makers, including big players such as ACC, Ambuja Cements, Grasim and UltraTech, raised prices by Rs 7-10 per 50-kg bag. ACC increased prices by Rs 7 per bag while Ambuja raised it by Rs 3 in April. Aditya Birla group companies, Grasim Industries and UltraTech Cement, have raised prices by Rs 5-7 per bag, dealers said. At present, retail cement prices have gone up to Rs 260 a bag, on an average.
Construction industry officials say while the domestic installed cement capacity is 205 million tonnes, the companies run at capacity utilisation of 160 mt. “When demand is strong, why are the cement companies not increasing capacity?” one official asked. Cement comprises 13-15% of the cost component of a construction project.
When contracted, Cement Manufacturers’ Association president HM Bangur declined to comment. Ambuja Cements marketing head Ajay Kapur told ET, “There is no point of cartelisation in the current market conditions. We are selling cement at the best-possible price.”
Cement analysts don’t foresee prices to soften in the short run. In the long term, however, they expect prices to fall as new capacities come up for production. The outlook for the first quarter of 2009-10 looks better than last year, and an 8% incremental growth is expected in the current fiscal year, analysts added. ACC MD Sumit Banerjee recently told ET that prices need to go up to Rs 300 per bag. “ACC’s plans to invest in creating new capacities. It will not be easy for us to go ahead without our future expansion plans beyond 2011,” he added.
In 2006, the director general of investigations and registration (DGIR) studied prices of cement over two years, 2005-06, and found that the increase in the cost of production was Rs 136.14 per tonne, or Rs 7 per 50-kg bag.
Prices, on the other hand, increased by Rs 56 per bag in Delhi and Rs 50 in Mumbai during the period. As per the Cement Manufacturers’ Association annual report for 2005-06, production rose 11.16% over the previous year.
Cement prices not likely to fall
Cement prices not likely to fall
The Financial Express, April 15, 2009, Page 3
Smita Joshi Saha, Mumbai
The hue and cry raised regarding the government trying to once again keep a check on domestic cement prices seems to have faded out. The government has not issued any letter to the cement industry, said sources.
As per news reports, the Department of Industrial Policy and Promotion (DIPP) was to issue a letter to the Cement Manufacturers Association (CMA) to cut cement prices. Industry watchers feel that it’s more of a hullabaloo with the general elections round the corner.
Industry players, on condition of anonymity, said prices cannot be just reduced immediately. Price rise is a temporary phase and will rationalise once the monsoon sets in, they said.
“From banning exports and imposing 12% ad-valorem duty on cement selling above Rs 250 per 50 kg bag to making cement import duty free, the government has intervened several times. This had resulted in an uncertain price environment, which, together with a significant increase in input costs, has had an adverse impact on margins,” said a cement manufacturer requesting anonymity.
Ignoring any kind of intervention, cement players are at present betting big on the first two quarters of the current year to be reasonably good on the backdrop of government’s stimulus packages. Prices are also expected to rise further marginally in the short term and realisations would be better, say industry players.
“We expect the first two quarters of 2009 to be reasonably good for the cement industry due to the government’s focus on infrastructure and low-cost housing. Good retail demand coming from semi-urban and rural markets will also contribute,” said ACC chairman NS Sekhsaria while addressing the company’s 73rd annual general meeting.
Binani Cement managing director Vinod Juneja said, “At present, there is no sign of demand slowdown. We are expecting good realisations in the fourth quarter. Prices may rise by Rs 2-3 per bag if demand continues to increase at the same pace.”
Meanwhile, Enam Securities in its recent report said, “Cement prices have recently increased by Rs 6-30/ bag due to supply shortfall on delay of most planned capacities, higher ramp up time for new plants and breakdown of existing plants. However, we expect prices to start softening from monsoons and drop significantly in H2 FY10, as new supply (46 million tonne of fresh capacity by Mar 2010) hits the market and demand growth slows.”
Experts believe that the Ebitda margins of the top cement companies in the fourth quarter is expected to be in the range of 32-35% against an average 24% in Q3 FY09.
The Financial Express, April 15, 2009, Page 3
Smita Joshi Saha, Mumbai
The hue and cry raised regarding the government trying to once again keep a check on domestic cement prices seems to have faded out. The government has not issued any letter to the cement industry, said sources.
As per news reports, the Department of Industrial Policy and Promotion (DIPP) was to issue a letter to the Cement Manufacturers Association (CMA) to cut cement prices. Industry watchers feel that it’s more of a hullabaloo with the general elections round the corner.
Industry players, on condition of anonymity, said prices cannot be just reduced immediately. Price rise is a temporary phase and will rationalise once the monsoon sets in, they said.
“From banning exports and imposing 12% ad-valorem duty on cement selling above Rs 250 per 50 kg bag to making cement import duty free, the government has intervened several times. This had resulted in an uncertain price environment, which, together with a significant increase in input costs, has had an adverse impact on margins,” said a cement manufacturer requesting anonymity.
Ignoring any kind of intervention, cement players are at present betting big on the first two quarters of the current year to be reasonably good on the backdrop of government’s stimulus packages. Prices are also expected to rise further marginally in the short term and realisations would be better, say industry players.
“We expect the first two quarters of 2009 to be reasonably good for the cement industry due to the government’s focus on infrastructure and low-cost housing. Good retail demand coming from semi-urban and rural markets will also contribute,” said ACC chairman NS Sekhsaria while addressing the company’s 73rd annual general meeting.
Binani Cement managing director Vinod Juneja said, “At present, there is no sign of demand slowdown. We are expecting good realisations in the fourth quarter. Prices may rise by Rs 2-3 per bag if demand continues to increase at the same pace.”
Meanwhile, Enam Securities in its recent report said, “Cement prices have recently increased by Rs 6-30/ bag due to supply shortfall on delay of most planned capacities, higher ramp up time for new plants and breakdown of existing plants. However, we expect prices to start softening from monsoons and drop significantly in H2 FY10, as new supply (46 million tonne of fresh capacity by Mar 2010) hits the market and demand growth slows.”
Experts believe that the Ebitda margins of the top cement companies in the fourth quarter is expected to be in the range of 32-35% against an average 24% in Q3 FY09.
SEZ developers need more time to finish projects
SEZ developers need more time to finish projects
The Financial Express, April 15, 2009, Page 3
Press Trust of India, New Delhi
Faced with a severe financial crunch, several special economic zones (SEZ) developers have approached the commerce ministry seeking more time to complete their projects.
“Some companies have asked for extension of time,” commerce secretary GK Pillai said. Pillai heads the inter-ministerial board of approval which clears the proposals for setting up of SEZs where units are given tax exemptions. Export Promotion Council for export-oriented units (EOUs) and SEZ units director general L B Singhal said, “It is natural because of the current economic slowdown ... demand for space has also come down.”
After each stage of approval—in principle and formal—the developer is given time to proceed and return to the government for final notification. Even after final notification, the promoter gets time to make the SEZ functional.
While Pillai did not disclose the companies approaching the commerce ministry for extension of time, sources said developers, mainly from the real estate sector, have put their SEZ plans on the back-burner. The real estate majors such as DLF, Parsvanath Developers, Rahejas and Emmar have received formal approvals for tax-free enclaves. Several of these projects have been deferred.
The valuations of realty firms have crashed in the last few months after a meltdown in the stock markets, making it difficult for them to tap the capital market for resources. Besides, several of them have sought their debt restructuring from banks.
With exports contracting and IIP in the negative zone, investments into SEZ seems to have slowed down.
Demand from IT sector gets back some sizzle for SEZs
Demand from IT sector gets back some sizzle for SEZs
Business Standard, April 15, 2009, Page 2
Rituparna Bhuyan / New Delhi
Demand for special economic zones (SEZs) appears to be reviving even as realty developers are shying away from developing these tax-free enclaves due to liquidity crunch, according to experts who are tracking SEZs.
Recently, DLF requested the commerce ministry to derecognise at least five of its nine notified information technology SEZs. Parsvnath, another real estate developer, put its plans for developing 12 SEZs on hold and stopped land procurement for most of them.
However, market experts say that this does not mean that demand for such SEZs, especially aimed at the IT sector, has crashed. “In the past two weeks, I have got many queries on IT related SEZs as well as some engineering zones,” said Tapan Sangal, Senior Manager, PricewaterhouseCoopers, an audit and consulting firm.
Simultaneously, investors are also doing some due diligence on SEZ projects to see whether some projects are bankable, Sangal added.
According to the data available with the commerce ministry, there are 274 notified SEZs in the country which are eligible for tax benefits under the SEZ Act of 2005. However, many of these notified SEZs have been witnessing muted development activity, due to lack of funds as well as absence of interest from prospective clients.
Experts say they have also come across some immediate demand for the SEZ space in the National Capital Region in the past few days.
“We see a demand and supply mismatch for SEZs, at least in North India. While demand is there, developers are now looking at bridging their present cash flow requirements and have put SEZ projects on hold,” said Rajiv Chugh, partner, Ernst and Young.
Analysts feel that good infrastructure and talent pool in North India could be a possible reason for the immediate requirement of certain foreign companies in setting up base in SEZs.
Overall, the new queries, as well as the demand for space, experts feel, has resulted out of the new business strategies that are looking at cost effective business locations.
“Companies abroad, especially in the US, are undertaking cost benefit analysis of outsourcing in the wake of the local tax benefits offered to them to retain jobs in the US. However, the cost arbitrage would still make these companies realise that it is still economical to outsource certain processes to India,” added Chugh.
In a region like Chennai, of the 5.8 million square feet of SEZ space available, only 0.6 million square feet is vacant. “This is not a bad vacancy. Developers have put SEZ projects on hold. Hence, existing players, with ready available space, should do well,” said Ramesh Nair, Managing Director, Jones Lang LaSalle Meghraj.
SEZ denotification to improve cash flow management: While experts see some renewed interest in the SEZs, real estate developers are tuning their business interests to suit their immediate cash flow requirements. Analysts point out that a SEZ project means back-ended revenues.
According to government officials, the Board of Approvals on SEZs under the commerce ministry will take a look at DLF’s plea for denotification, once the model code of conduct is lifted after elections. Notification is the final clearance, after which a developer starts enjoying tax benefits while developing SEZs.
“The Board will look if there has been any development at the sites where the notified zones are located,” the official added. A DLF spokesperson said the company would not comment on the issue.
Experts say liquidity crunch combined with low demand for developed projects leads to cash management problems for realtors. “Therefore, developers may be inclined to free up the SEZ land and use the same for other projects or purposes,” said Vikram Doshi, Executive Director, KPMG.
In this scenario, options for real estate companies include shifting focus to residential projects, where time to develop and realise the money is less.
“Residential projects do not have such cash flow challenges since the classic model prevalent in India matches the development of the project with the cash collected from the customers to some extent. But of course, there is always the challenge of finding the customers,” he added.
Moreover, plots that have been derecognised as SEZs can be used by developers as collateral to get the required funds. “These are business decisions and does not reflect on all SEZs. In fact, if companies are getting buyers for freed-up SEZ plots, it is a good sign that there are buyers,” said Sangal.
'Worst is over; India to be on recovery path in 2-3 quarters'
'Worst is over; India to be on recovery path in 2-3 quarters'
Hindustan Times - Business, April 15, 2009, Page 19
NEW DELHI: The worst is over for India and in the next two to three quarters from now the economy would be on its path of recovery, global financial services major Macquarie said.
“We will see a slow recovery as we go forward,” Macquarie said. “The recent run-up (the Sensex is up 29 per cent since its low on March 9) does raise the risk of a near term correction, but does not detract from the likelihood of the economy having alre ady seen its worst and being on the way to recovery in 2-3 quarters from now,” it added.
Hindustan Times - Business, April 15, 2009, Page 19
NEW DELHI: The worst is over for India and in the next two to three quarters from now the economy would be on its path of recovery, global financial services major Macquarie said.
“We will see a slow recovery as we go forward,” Macquarie said. “The recent run-up (the Sensex is up 29 per cent since its low on March 9) does raise the risk of a near term correction, but does not detract from the likelihood of the economy having alre ady seen its worst and being on the way to recovery in 2-3 quarters from now,” it added.
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