ACC :: Centrum

Higher opex leads to margin disappointment
We downgrade our rating on ACC to Hold from Buy with a revised price target
of Rs1,242 (earlier: Rs1,286) due to a) earnings cut of 15.2%/13% for
CY13E/CY14E considering higher operating costs (other expense and
employee costs) b) disappointment in current quarters’ earnings and c)
expensive valuations post sharp run-up in the stock price in the past 1.5
months. The company posted disappointing numbers with EBITDA at Rs2.3bn
(est. Rs3.1bn) and OPM at 9% (est. 12.9%) primarily due to a) Rs100/tonne QoQ
increase in other costs and b) Rs41/tonne QoQ increase in energy costs. Going
forward, we expect improvement in earnings led by recent price hikes taken
by cement manufacturers and expected recovery in sales volume. However, we
believe that the valuation at 9.3x CY14E EV/EBITDA is expensive considering
the uncertain macro environment.

So much advice, so few advisers :: Business Line

As an investor you would probably be shocked to know that India is short of investment advisers. Your bank manager calls often to offer free ‘financial planning’ services. A good number of your neighbours are agents (the insurance, not espionage, variety) keen to update you on the newest pension plan. There are scores of helpful strangers who send you SMS tips on plans that double your money.

It was all this unsolicited advice that prompted the Securities and Exchange Board of India (SEBI) to formulate a new set of regulations for investment advisers earlier this year. The new regulations, which came into effect last week, lay down elaborate rules to ensure that investment advisers are qualified and professional and that they avoid conflict of interest and opacity in their dealings with clients. The only problem is, the rules apply only to registered investment advisers.

SEBI’s new regulations require that everyone who is in the business of offering investment advise register with the regulator. The deadline for this registration was October 20. But the surprising thing is with the deadline already over, SEBI has received only 70 applications from all over India. Of these, it has granted registration to just 11 individuals and firms who are now qualified to call themselves ‘investment advisers’.

What about the rest? Well, they have all chosen to remain outside the ambit of the new rules and thus aren’t ‘investment advisers’. Instead, they will remain product vendors, agents or distributors.

It is necessary that you, as an investor, take note of this, because it is unlikely that a financial services company or intermediary will tell you about it.

IT’S NOT ADVICE

But what has happened to the scores of individuals and firms who have been drowning me in unsolicited investment advice — you may ask. Well, they have chosen not to call themselves professional ‘investment advisers’ for many different reasons.

First, there are the 83,000 mutual fund distributors registered with the Association of Mutual Funds of India and the 22 lakh life insurance agents recognised by the Life Insurance Council. The majority of these agents have not sought registration with SEBI because they believe that they are exempt from the regulations.

Life insurance agents are supposed to be regulated by IRDA. As to AMFI-registered distributors, SEBI’s new rules exempt them if they offer advice ‘incidental’ to their primary activity. Distributors are probably grateful for this escape hatch because their main source of income today is the commission they earn from the mutual funds whose products they sell. Should they become qualified ‘investment advisers’, they would be forced to forego these commissions and instead charge a fee from you, the investor.

To avoid conflict of interests, SEBI’s regulations do not allow investment advisers to earn any income from the companies whose products they recommend. Given that a fee-based advisory model isn’t very prevalent in India, agents do not want to put their revenues at jeopardy by becoming investment advisers.

SEBI also specifies certain qualifications for registered investment advisers, which quite a few of these agents may not meet. Hence, they have simply decided to continue as ‘distributors’.

eClerx, :: Centrum

Revenue pop postponed, net-income surprises positively
We revise our estimates for eClerx’ revenues and EBITDA margins marginally but
increase our Net Income expectations anticipating lower forex losses than earlier.
We maintain Buy with a new Sep’14 TP of Rs1,105 (Vs earlier Sep’14 TP of Rs 1,068).
Though eClerx’s 2QFY14 revenues were somewhat below our expectations, up only
3.3%/14.4% QoQ/YoY in USD terms (vs. our estimate of 5.6% QoQ), we remain
optimistic about a very strong quarter in the near horizon given more optimism
about the Fin. Svcs. segment and continued sales investments. With better than
expected G&A control and stable pricing, we expect EBITDA margins to be around
the 39% mark for FY14-FY16.

Ambuja Cements:: Centrum

Steep fall in realization leads to OPM disappointment
We retain Sell rating on Ambuja with a revised price target of Rs149 (earlier:
Rs156) considering a) significant disappointment in current quarters’ results with
OPM at decade low levels b) downward revision of 9.4%/12% in CY13E/CY14E EPS
estimates, c) expensive valuations and d) expected dilution of 28% and cash outgo
of Rs35bn if restructuring deal proposed with ACC goes through. The result was a
significant disappointment with the company reporting EBITDA of Rs2.6bn (vs. est.
Rs3.5bn) and OPM at 12.7% (vs. est. 17.5%) primarily due to steep 6% QoQ fall in
realization contrary to ACC and UltraTech which posted realization drop of 1-2%
QoQ. EBITDA/tonne declined 52.4% YoY to Rs522 during the quarter and OPM was
at decade low levels. Though, earnings are expected to improve going forward, we
maintain Sell rating considering expensive valuations (12.6x CY14E EV/EBITDA).