Indian Equity Research and Investment Strategy
The Reserve Bank of India in a surprise move has cut the CRR by 100 bps taking the total cut in the past 10 days to 250bps. CRR is now down from 9% to mere 6.5%. This is probably one of the sharpest cuts in the Indian financial history. The move will infuse Rs 40,000 crore liquidity into the system, thus meeting the industry’s demand of Rs 100,000 crore put forth few days ago.
Additionally, the RBI has also revised Interest rates on FCNR and (more…)
Credit Suisse studied some 34 of the large CAPEX projects by various Indian companies and found that the projects are expected to be 19-months behind schedule with 30% cost esclation.
The time overrun is the highest for greenfield steel projects as they are stuck in land acquisition or mine allotment. Excluding them, the average delay is 18 months and cost overrun is 15%. These delays increase the investment getting shelved which in turn adversely affects new capex announcements. India’s project execution history in the last 12 years suggests that shelved investment was more than the completed investment and almost a sixth of the announced capex.
Reasons for delay of projects:
India’s leading EPC company Larsen and Toubro – L&T reported a rise of 32.47% in its PAT for Q2FY09 at Rs 461 crore as against Rs 348 in same quarter of last year.
Net sales stood at Rs 7682.20 crore versus Rs 5499.94 crore. The company’s E&C revenues stood at Rs 5,989.63 crore versus Rs 4,259.92 crore, Electrical & Electronics revenues stood at Rs 760.48 crore Vs Rs 671.73 crore.
Net Margins declined to 8.8% Vs 10.7% [YoY]. More details will be updated soon.
Axis Bank reported Rs4.0bn of net profit for Q2FY09. The robust earnings has been driven by better than expected NII and other income. The NII has grown by 55.2%yoy, while other income grew by 81.4%yoy. The operating profit grew 88.9%yoy to Rs8.7bn led by robust growth in the operating income.
The liability profile remained strong with CASA maintained at 40% of the deposits. While the assets saw some slippages, as the GNPA increased by Rs700mn over Q1FY09, the provision cover remained strong at 52.6%. The provisions for the quarter were higher at Rs2.6bn driven by a sharp increase in NPA provisioning. The NPA provisioning increased 110.5% to Rs2.4bn in Q2FY09.
Axis Bank is expected to report full year EPS of Rs 41.2 for FY09.
The Gaur family of Jaiprakash Associates can be best categorized as Daredevil promoters in Corporate India, since they went ahead and exercised the 10 million warrants out of the first tranche (of 50 million warrants) at Rs397 per share (more than 400% premium to current market price Rs 80). The promoters had already brought in Rs3.97 billion on 50 million warrants earlier this year, while the minimum they were required to bring in was Rs1.99 billion. The excess brought in has been adjusted against the exercise of the 10 million warrants resulting in the inflow into the company from the holding company of ~ Rs1.6 billion.
We believe that the warrant conversion is a statement by the promoters of their level of confidence in the company. The cash infusion also indicates that the promoters could, over the next 18 months, convert further warrants (40 million warrants at Rs397 convertible by July 2009 and 120 million warrants at Rs249 convertible by January 2010). Any inflow on this account should reduce market concerns on funding issues for Jaiprakash Associates.
Related Reading:
JP Associates Research Note
How Anil Ambani Looted Indian Public Money in Reliance Power IPO
Historically, FIIs have been the major movers and shakers of the BSE Sensex. In most cases, the domestic Mutual Funds have taken the opposite approach, SELL when FIIs Buy and vice-versa. However, due to smaller participation by domestic funds [1/3rd of FIIs], FIIs tend to be the momentum movers. The following data shows how FIIs and domestic mutual funds have invested in the past 6 months in Indian equities. (more…)