27 June 2013

India Jewellery Retail Key trends/issues; demand/regulatory changes to be keenly watched : JPMorgan

Our discussions with key jewellery retailers indicate that recent fall in gold prices
led to sharp uptick in volume growth for gold jewellery during the months of April
and May 2013. This was also supported by ongoing wedding season and some
auspicious days during these months. Demand trends have moderated a bit post
the initial rush but still remain fairly healthy. Gold rush, however, led to lower
proportion of diamond jewellery sales and this could weigh on % margins in
Q1FY14; though absolute profit growth is likely to be higher. Recent RBI
notification restricting gold imports by consignment route though unfavorable
may not impact the organized players much

India Financial Services Can Banks Cut Rates? No.- Morgan Stanley Research,

India Financial Services
Can Banks Cut Rates? No.
Given RBI’s rate cuts investors have been expecting
banks to cut deposit rates. This view/hope has been
helped by the continued decline in WPI inflation.
Our view has been that banks will struggle to cut
deposit rates (and hence base rates) by more than
25-50 bps and post SBI numbers, even that looks
unlikely.
The problem with lack of transmission of low rates
in India has been deposits – The banking system LD
ratio has stayed sticky at close to historically high levels
of 77-78%. While loan growth has slowed to around 15%
YoY, deposit growth has been even weaker at closer to
13%. The key reason, in our view, is the fact that real
deposit rates (adjusted for CPI) are meaningfully
negative. Banks will not get pick up in deposit growth
unless real rates rise.
SBI indicated massive deposit competition ahead –
The bank’s LD ratio was even higher than the system at
82%. This explains the deposit rate hike by the bank in
March 2013. Management said that for F14 it is targeting
loan and deposit growth between 20-25%. With system
growth likely to be between 12-14%, this implies that SBI
will aggressively compete for deposits. Also given that
the current Chairman retires in September, he may want
to follow on this fairly aggressive guidance. If SBI does
not cut deposit rates, others will be unable to, given
SBI’s size and positioning.
The 2008 rate cut cycle was very different from the
current one – A number of market participants are
focused on bond yield and impact on SOE banks. Our
view is that, yield decline will help, but it’s a band-aid
solution. To get out of the asset quality trap that these
banks have got into, cost of capital needs to drop
sharply – that’s not happening.
This is unlike the 2008/2009 cycle. By August 2009, LD
ratio for banks had declined to 69%, allowing banks to
cut deposit rates by as much as 400 bps and GDP
growth also rebounded. This helped the banks. This is
unlikely to recur in F2014.

Consumer: Shopping Cart Deep dive into the laundry care market :: JPMorgan

We take a deep dive into the Indian laundry market in this report and
discuss emerging trends in this category. The laundry segment remains
one of the largest HPC categories in India in terms of size and, despite
high levels of penetration, consumer uptrading and higher per capita
usage, would still enable low double-digit growth (mid single digit vol
growth) for this category (for branded players) in our view. This category
has seen huge volatility in margins owing to history of price wars and
severe competition, however of late we have seen recovery in profitability
led by more rational price competition and easing commodity prices.

Retain or sell the flat. :: Business Line

I had purchased a 1,000 sq ft flat at Thiruporur in the outskirts of Chennai for Rs 25 lakh in August 2010. I took a housing loan for Rs 13.83 lakh. I had purchased the property mainly for tax saving purpose and also to settle down after retirement.
I retired from service in 2012. But I could not reside in that flat since both my daughters are working in the city. I am now living in a rented flat.
I won’t occupy the flat for another 5 years. The flat is at present vacant and cannot be rented out even at a nominal rate as supply is many times the demand in that area.
At present, at best I can let it for a rent of Rs 7,500. From the rent I need to pay a maintenance charge of Rs 2,300 per month.
I assume that in the next five years, there would be a lot of improvement in the area. At present I can sell the flat for Rs 31 lakh and with that I can close my outstanding liability of Rs 11 lakh. If I deposit the sale proceeds in SBI max gain HL scheme, I can get tax free interest savings of 9.95 per cent per annum. Please advise as to whether I should retain or sell the flat.
— D. Rajarathinam

ICICI Prudential US Bluechip Equity :: Business Line

  

M&M-4QFY13 Results Review: Management upbeat on tractor segment recovery, re-iterate OW: JPM

 4QFY13 Adjusted PAT of Rs 8.2bn (+26% y/y) was ahead of our and
street estimates – the variance was driven by improved profitability.
EBITDA Margin came in at 12.1% (+90bp q/q) driven by higher
margins both in the automotive and FES divisions. (The reported PAT of
Rs.8.9B included profit of Rs.906m from the sale of Mahindra Holiday
shares). We re-iterate our OW stance on M&M – given the expected
revival in the high margin tractor segment.

It’s the end of the copper bull run :: Business Line

Mixed statements from the Fed have caused speculation on how soon the Fed would start pulling back
The untroubled days from the past decade now seem to be well behind the copper industry as it prepares to face a much more challenging and uncertain future. Copper prices were range-bound during May, despite a number of potentially bullish developments. While the bearish fundamentals have been present for quite some time, markets are now taking their time to figure where they want to head eventually. The average LME price for copper was at $8,830 in 2011 to $7,950 for 2012 and has come down further to $7,626 for the current year.

PUNJAB NATIONAL BANK Consolidation on cards; asset quality key monitorable :Edelweiss

We recently met the senior management of Punjab National Bank (PNB).
Management reiterated its focus on consolidating balance sheet growth
given the uncertain business environment, where focus on containing
asset quality will take precedence over growth. The bank believes
challenges on slippages persist(lumpy gems& jewellery account to
elevate Q1 slippages) however; focus on recoveries will offset pressure
from slippages. Deliberate efforts towards conservative growth will help
stabilise asset quality, though current level of stressed pool at 15%
remains a key monitorable (GNPLs of 4.3% + restructured pool of 9.9%).

‘Margin’ of safety :: Business Line

Businesses with high operating margin are easier to run, not to mention ‘more fun’ compared to their low-margin cousins.
Margin of safety is typically associated with investing. It is a term introduced by Benjamin Graham and later popularised by Warren Buffett. What it means is to buy a business well below its intrinsic value so that the risk of investment loss is mitigated.
This article is about a different margin of safety — the operating margin of a business.

CLSA - ITC

Cash machine
ITC’s FY13 annual report highlights: a) ROE expanding to an all-time high led by an
improvement in new FMCG and agri; b) while increase in working capital
moderated OpCF growth, lower capex helped and FCF rose 26%; c) cigarette prices
in India today are highest relative to income and illegal cigarettes form ~18% of
the market; d) ESOPs granted at ~0.8% of outstanding capital. We continue to rate
ITC as O-PF and revise up our SoTP based target price to Rs370/sh.