ACC - Q2CY13 result update - Centrum

Lower opex leads to higher OPM
ACC’s Q2CY13 result was above our and Bloomberg’s consensus estimates on
operational parameters with operating profit of Rs4.3bn (vs. est. Rs3.9bn) and
OPM of 15.5% (vs. est. 13.7%, Bloomberg consensus est. was 13.8%). Revenue at
Rs27.95 bn was in line with Rs28.1bn estimated. Profit at Rs2.6bn was in line with
estimated Rs2.5bn due to lower other income (Rs908mn vs. est. Rs1.1bn) and
higher tax rate of 29.5% (vs. est. 29%). The numbers are not comparable with
financials of Q2CY12 due to the merger of two subsidiaries’ financials in Q4CY12.
Cement demand has been under pressure for the past one year impacting the
pricing power of manufacturers (realization of the company is declining post
Q2CY12). Going forward, we expect recovery in cement demand in 2HFY14E,
which should result in improved pricing power for cement manufacturers
leading to improved profitability. We maintain Buy on the stock with a price
target of Rs1,389 based on 8x CY14E EBITDA.
 Sharp decline in margins: ACC reported revenues of Rs27.95bn (vs. est.
Rs28.1bn), EBITDA of Rs4.3bn (vs. est. Rs3.9bn) and adjusted profit of Rs2.6bn (vs.
est. Rs2.5bn). Higher-than-estimated operating profit was driven by sequential
improvement in OPM of the cement business despite a decline in sales volume
and realization sequentially. Reported numbers are not comparable on a YoY
basis due to the amalgamation of financials of two subsidiaries during Q4CY12.
Operating profit declined 33.4% YoY to Rs4.3bn and OPM contracted 7.9pp YoY
to 15.5%.
 Cement business’ profitability under pressure on lower realization and
higher opex: Revenue from cement business declined 3.3% YoY to Rs26.9bn
primarily due to 4.4% YoY drop in realization to Rs4,389/tonne. Sales volume
was up 1.2% YoY to 6.12mt. Operating cost/tonne increased 4.6% YoY to
Rs3,679/tonne led by higher raw material, employee, freight and other costs.
Operating profit of cement business declined 33.2% YoY to Rs4.3bn and OPM
contracted 7.2pp YoY to 16.2%. EBITDA/tonne of cement declined 34% YoY to
Rs710/tonne.

Financial Planning- July 27th : Business Line

 

India Strategy Tire Puncture, Not Engine Breakdown :: Morgan Stanley Research,

India Strategy
Tire Puncture, Not Engine
Breakdown
Key equity drivers turn shaky: Four crucial drivers to
our bullish view have been: a) the prospects of a
steepening yield curve – the bond market’s way of telling
us that growth is returning, b) rising real rates because
of falling inflation, c) improving domestic liquidity, and d)
a steady recovery in earnings. RBI action has hurt things
at the margin. The yield curve flattened – no surprise
since rising rates will put pressure on growth. Real rates
rose further but for the wrong reason – higher nominal
rates – not something equities cherish. Liquidity has
tightened and it appears that the RBI does not intend to
supply INR anytime soon. Earnings will likely get better
but the pace of improvement is a debate now.
This is not an end of the world story but it does put
brakes on the nascent bull market for now. We expect
the Nifty to trade in the 5600-6300 range for the rest of
2013 largely because the Bank index ex-HDFC Bank will
likely struggle to make headway. Valuations and
sentiment protect the downside but draining global and
local liquidity and fresh growth uncertainty will likely cap
the upside. Turning less bullish for the near term does
not mean we are bearish or less bullish on the medium
term. It means that investors should not expect the index
to break new levels in 2013 – this is now more likely a
2014 event when the dust settles on the INR (as fiscal
and monetary tightening feeds into the CAD). The
implications are: a) the market may not abandon quality
for cyclicals or value, b) banks underperform, and c)
dispersion of returns continues to rise. We persist with
GARP and, now, avoid deep cyclicals.
Indeed, a rising dollar will constantly challenge the rupee
but its relative position could improve in the next six
months. In the near term, India’s CPI and US labor data
(good data is bad news for the INR) will determine RBI
actions. Investors need not despair because ex-banks,
we think the market should deliver better-than-fair
returns for the balance of 2013. The consumer is healing
with falling inflation (good rains helping). Bottom-up
stock picking should still produce the goods.

Build a balanced portfolio :Business Line

I am 27 years old and have been investing through the SIP mode for the past three years in the following mutual funds: DSPBR Top 100 - Rs 5,000; Birla Sun Life Dividend Yield Plus - Rs 10,000; HDFC Top 200 - Rs 5,000; HDFC Equity - Rs 10,000; UTI Dividend Yield - Rs 10,000; Franklin India Bluechip - Rs 10,000; HDFC Prudence - Rs 10,000; Birla Sun Life MNC - Rs 10,000.

By end of this August, I shall be receiving Rs 50 lakh as a gift from my parents, which I propose to invest in long-term tax-free bonds so that the income generated can partially take care of my SIPs for the next 15 years.

Please let me know if my portfolio is appropriate and suggest suitable alternatives.

Darshana Kothari

You have a fairly large portfolio quite early in life. Make sure that you are able to build on it and generate a large corpus over the long term.

The SIP portfolio of Rs 70,000 is quite a large sum for monthly investments. We hope you have also invested in other avenues, such as debt (FDs, PPF and RDs), gold and real estate so as to build a balanced and a well-diversified portfolio.

Coming to your portfolio, there is considerable overlap in the mandate among the funds that you have chosen. You must choose funds with varying mandates and take care to diversify across asset management companies to benefit from various investing styles.

Instead of DSPBR Top 100, move over to ICICI Pru Focused Bluechip and invest Rs 10,000 in it. HDFC Top 200 and HDFC Equity have a huge portfolio overlap. Both funds have proven track records over the long term. Exit HDFC Top 200 and Invest Rs 10,000 in HDFC Equity.

You can continue to invest Rs 10,000 in Birla Sun Life Dividend Yield Plus. Exit UTI Dividend Yield and switch over to UTI Opportunities and invest Rs 10,000 there. Retain Franklin India Bluechip and HDFC Prudence.

Birla Sun Life MNC has performed extremely well in recent years. But its mandate is limited. If you can take higher risk, continue investing in the fund or switch over to Quantum Long Term Equity.

Coming to the second part of your question, it is nice to note that you will receive Rs 50 lakh from your parents.

But in this fiscal, as of now, there are no tax-free bonds open for subscription. Reports suggest that the Airports Authority of India may float such bonds later in the year.

Tax-free bonds pay out interest annually and have an upper limit for investments from retail investors, which is usually Rs 10 lakh.

So, you may not be able to invest the entire sum in tax-free bonds. You may consider investing in fixed deposits that pay out interest monthly and use it to part-finance your SIPs. Given that you will incur Rs 8.4 lakh annually for your SIPs, around half that sum has to come from other sources, such as your monthly income from a job.

Review the performance of the schemes in your portfolio once a year and rebalance, if necessary.

Honda - stepping up the price competition in the mass market segment :: JPMorgan

 Honda has introduced its lowest priced products in the Indian market
over the past month – the ‘Activa i’ and the ‘Dream Neo’. These
models are priced in line with the competition in the scooter / mass
market bike segment – thus addressing gaps in HMSI’s product
portfolio. We re-iterate our UW stance on Hero Motocorp and Bajaj
Auto, given that: i) industry growth remains weak, ii) scooters are
gradually expanding in the product mix, and iii) competition is
intensifying across segments.

Ambuja Cements - Cash goes out, equity base expands and becomes a holding company: Why we view the deal negatively :: JPMorgan

 In our view, Ambuja’s (ACEM) stock will react negatively to the proposed
ACC-ACEM transaction. The proposed transaction essentially transfers
Holcim’s stake in ACC (~50%) to ACEM through a share swap and cash deal.
After the completion of the transaction, ACC would become a step-down
subsidiary of ACEM (50.01 holding in ACC), while Holcim’s holding in
ACEM will increase to 61.39% following the additional share issue. The
implied ACEM/ACC swap ratio for the transaction is ~6.6x. Further, ACEM’s
board gave in-principal approval for stake increase in ACC by up to 10%
(maximum of Rs30B) over the next 24 months through creeping acquisitions.

Insure to protect standard of living :: Business Line

Employer-provided healthcare programme may not be adequate to cover your family.

Insurance is an important part of our lives, as it helps indemnify losses to protect our standard of living. The question is: How should you insure? The question assumes relevance because of three factors — low awareness for medical insurance, dominating presence of with-profit life insurance products and high volatility in the stock market. It is in this context that we discuss issues related to medical, life and investment-portfolio insurance.

NON-INVESTMENT INSURANCE

You should consider buying a medical insurance even if your employer offers a healthcare programme. For one, you could change jobs. And your new employer may not offer similar benefits. Also, your existing employer may choose to reduce coverage as a cost-cutting measure. Besides, employer-provided healthcare programme may not be adequate to cover your family. The issue is that medical insurance increases with age. So, it is better that you enrol for a medical insurance programme when you are 28 than when you are 40.

You should have a medical insurance for yourself and your dependants for as long as the insurance company offers coverage. You should also consider top-up plans with high deductibles. Such plans are cheaper and useful when you incur large expenses during medical emergencies.

Then, you and your spouse should have life insurance protection. The amount of insurance should be such that claims, if made, cover your family’s existing liabilities and loss of income due to death of the insured. You should buy term insurance contracts, even if it means not recovering your life insurance premiums if you survive the term. Remember, insurance is to indemnify losses, not to generate gains.

Do not buy with-profit insurance plans, as they are expensive and offer low returns. You can instead buy term insurance and invest the premium-difference in mutual funds to earn higher returns. And what about investment-portfolio insurance?

Suppose you want to accumulate Rs 10 crore for your retirement. A sharp decline in the value of your portfolio during your working life could mean that you may fall short of your required wealth at the time of your retirement. And that could affect your standard of living in your retired years. This risk is higher when your portfolio value declines during the last 10 years of your working life — a period that is called as the retirement risk zone. You face a similar risk when you create a portfolio to meet any objective such as funding your child’s college education. The question is: Can you insure your portfolio from losses and increase your chances of achieving your investment objectives?

Unfortunately, you cannot buy portfolio insurance because such products are typically available for institutional investors. And you cannot use exchange-traded options to effectively protect your portfolio because such options are shorter-maturity products, while your investment horizon is longer.

REBALANCING PROCESS

You do, however, have a built-in insurance in your portfolio — your rebalancing process. This is the process where you periodically reduce your equity investments as you approach your investment horizon date. That is, you lock-in to the unrealised gains on equity and lower your future losses by buying more bonds that mature at the end of your investment horizon. Rebalancing does not, however, protect your portfolio from unexpected market crashes. But neither will exchange-traded options.

Insurance is important to protect your standard of living, but it comes at a high cost. So, you should buy medical and life insurance that is required and at an optimal price. That means you need to shop for your insurance protection. Lower premiums are not necessarily better, especially if the company that charges higher premium has a better track record of hassle-free settlement. After all, you buy insurance because you want the insurance company to indemnify your family’s losses.