Q2FY13 Results: Bajaj Auto distinctly ahead of Hero Motocorp

Riken Mehta
Moneycontrol.com

Hero MotoCorp may be India’s largest two-wheeler maker by sales but it has been trailing number two player Bajaj Auto on most other parameters. Its net sales decline, for instance, was far higher than Bajaj in the second quarter. And while its profits declined, Bajaj Auto saw a marginal increase and operating margins too continued to lag Bajaj almost 600 bps.

The only positive one can pick from the Hero Moto numbers was the realisations which rose on the back of improved product mix and higher spare part sales.

Hero Moto also scaled down its guidance from 10% to 5-6% growth in FY13 in line with SIAM's industry guidance.

The market share of Bajaj Auto in domestic motorcycle segment jumped from 23% in April to 25.7% in September 2012. Hero Moto’s market share slumped from 56.4% to 50% in the same period. 

Hero still has a big lead over Bajaj when it comes to market share and units sold, but Hero is definitely feeling the heat amid the market-wide slowdown and increased competition.

Particulars	Bajaj Auto	Hero Moto
Net Sales Growth
YoY	-4.1%	-11.0%
QoQ	1.9%	-17.0%
PAT Growth
YoY	2.0%	-27.0%
QoQ	3.1%	-28.4%
Material Cost
YoY	-5.1%	-10.7%
QoQ	1.7%	-18.1%
Vehicles Sold
YoY	-9.9%	-13.7%
QoQ	-2.8%	-18.8%
Total Income/Vehicle	48128	38916
YoY Growth	6.4%	3.2%
Net Profit/Vehicle	7059	3,305
YoY Growth	0.1%	-15.40%
Operating Margins	19.7%	13.9%
Market Share	25.7%	50.0%

Chart of the day: L&T's order book size vs stock performance

Riken Mehta
Moneycontrol.com

Shares of Larsen & Toubro rose over 2% immediately after the company announced a 42% jump in its net profit on one time exceptional gains yesterday.

The heavy engineering and construction major surprised analysts’ community by recording a 30% growth in its order book during the quarter.

How did L&T’s order book grow 30% against an expectation of 15-20%?

Analysts had earlier pointed out that bigger projects are hard to come by as there are no roads or any major infra project coming up as there is a general industrial slowdown. Hence, what L&T did is—it shifted its focus to smaller projects, which may have had thinner margins, but helped it improve its order book.

The company got orders worth over Rs 15,000 crore from infra, hydrocarbons, buildings and factories and remaining Rs 5000 crore worth of orders from electrical and electronics and MIP segments.

The company which had estimated its order book to grow 15-12%,YoY to Rs 80,000-84,00 crore in FY13 has already accomplished 50% of its target till now but yet prefers to remain conservative on the order outlook.

What next?

The company’s CEO and MD. K Venkataramanan while addressing media persons said that the outlook is grim for the sector generally. Hence L&T is consistently fine-tuning business strategies. He also did not rule out that he would be looking at newer geographies globally to tap growth at a time when the domestic environment is lull.

Q2FY13 Results: How do Infosys, TCS, HCL Tech's numbers stack up?

Riken Mehta
Moneycontrol.com

As the second quarter earnings season plays out, it is becoming increasingly evident that  Infosys  has a lot of work to do before it can regain its position as bellwether of the IT services sector. Infy's September quarter numbers met market expectations, but the company lowered full year guidance as efforts to revamp the business model is taking time to show results. 

 As if rubbing salt in its wounds, TCS  has come up with yet another set of strong quarterly numbers, which makes it the clear favourite for investors looking to buy frontline IT shares. But TCS can't rest easy either; there is competition from HCL Tech which has been steadily improving its performance over the last few quarters.

HCL Tech's September quarter numbers beat analyst estimates by a comfortable margin. The catalysts for this healthy performance were several deal wins and business growth across its key geographies of US and Europe. 

Here is a look at the key operating numbers of the three companies during the quarter gone by.

The change in the outlook also reflected in the posture of the management of these companies. 
 
Infosys management painted a dull picture by slashing its earnings forecast. On the flip side, TCS management remained optimistic and signalled return of discretionary spending healthy for IT industry. HCL Tech, the fourth largest IT player beats street expectations by topping industry average growth. Vineet Nayar sees significant opportunities in next 6 months. Wipro, third largest IT player is yet to announce its results.

On the operational front, it is crystal clear now that TCS holds the numero uno position with HCL Tech on the second spot. Infosys has slipped to third spot on the podium.

Particulars	TCS	Infosys	HCL Tech
Revenue Growth (USD)
YoY	13.00%	2.90%	11.10%
QoQ	4.60%	2.60%	3.20%
Revenue Growth (INR)
YoY	34.30%	21.70%	31.00%
QoQ	5.10%	2.50%	2.90%
PAT Growth (INR)
YoY	44.00%	24.30%	78.10%
QoQ	7.10%	3.50%	3.60%
Operating margins	26.80%	26.34%	22.20%
Active Clients	1032	715	536
Client addition in Q2FY13	41	39	38
Growth in key business verticals (QoQ)
BFSI	4.70%	0.60%	3.60%
Telecom	5.20%	4.10%
Retail	7.00%	3.90%	10.20%
Employee addition	18654	10420
Attrition rate	10.20%	15%	14%
Currency Average Rate	54.76	54.85	54.69

GVK or GMR: Who will weather the 'no ADF' storm better?

Riken Mehta, Shaheen Mansuri, Sagar Salvi
Moneycontrol.com

Shares of GMR Infrastructure and GVK Power & Infrastructure , operators of the Delhi and Mumbai international airports, have lost over 4% in the last three trading days after the aviation ministry decided to scrap the airport development fee (ADF).

ADF, collected from passengers as part of traveling expense, was being used to fund upgradation cost, expansion or development of airports. Both these infra majors have a cost over-run of at least 22% on either bureaucracy-related issues, ever-increasing raw material prices, and specifically case of Mumbai airport, which is still not complete, land acquisition related issues.

ADF charges have always been a major bone of contention between airport authorities and passengers, who were asked to pay as high Rs 600 on domestic and Rs 1300 on international travel.

But it is not only the operators who will lose out. The Airports Authority of India (AAI), which has 26% stake in both these airports, has made around Rs 5,000 crore via ADF. According to ministry, the authority will infuse additional equity, as per the agreement, through other means such as infra bonds.

The jury is still out on whether AAI can really help the heavily debt laden companies. GMR has around Rs 10,000 crore debt (airport segment), while GVK has approximately Rs 2,000 crore to repay to lenders with high cost of borrowing.

GMR and GVK, who need a gap funding of Rs 1,175 crore and Rs 4,200 crore, have been assured by the airport regulator that rates will be revised after assessing the financial impact and their ability to infuse more equity.

Perhaps, this could be the reason why both company stocks recovered today after a steep fall yesterday.

All in all, GMR looks much better placed than GVK in the medium-term in terms of airport business. GMR, which has already completed the Delhi airport modernisation, has started collecting user development fee (UDF). But GVK is still struggling with relocation of the huge slum alongside the airport. As a result, it is missing out on raising money via UDF, which can be collected only after the project is complete to ensure fair returns on the investment made in airport services.

Parameters	GMR	GVK
Airport	Delhi	Mumbai
Traffic (mn PAX)	35.9	30.74
Cargo Tonnage (mtpa)	0.5	0.65
ATM (Air Traffic Movements)	317280	251512
Concession Period	30+30 yrs	30+30 yrs
Debt (Rs in Cr)	10000	2000
Revenue FY12	3574.29	597
PAT	-557.5	106.39
Stake in Airports	54%	74%
Price Change Since IPO	9%	-28%
Exposure to KFA	80 Cr	60 Cr

How Reliance GRM fares against Singapore GRM

Riken Mehta & Shaheen Mansuri
Moneycontrol.com

Ahead of Reliance Industries Ltd’s Q2 earnings announcement today, analysts have highlighted that improved gross refining margins (GRMs)— the difference between the cost of processing crude and the revenue from selling finished petroleum products—will partially offset weaker petchem margins and dwindling gas output from the energy giant’s KG-D6 fields.

According to a consensus of at least five brokerages, RIL’s GRMs, a key source of income for its core biz is expected to be anything between USD 9-9.5/bbl in comparison to Singapore  refinery which is estimated to average at USD 9.13/bbl during the quarter.

Due to the complex nature of its Jamnagar refinery, RIL’s  refining margins are benchmarked with the Singapore refinery which is also a testimony for other Asian refiners.

RIL has always highlighted the premium to the Singapore benchmark, but of late the premium has shrunk due to inventory losses.

Though, RIL’s GRMs in the sequential quarters have enhanced on improvement in LPG and naphtha spreads, business environment for refining companies continues to be tough the world over; blame weakness in demand and capacity additions globally.

Unit: $/bbl 

Why ATF prices no longer fuel airfares

Riken Mehta, Shaheen Mansuri & Sagar Salvi
Moneycontrol.com

Cash-strapped airlines will now be breathing easy, after a 4.3% cut in aviation turbine fuel (ATF) prices, the steepest decline in three-and-a-half months. However, the jury is still out whether this would translate into cheaper air fares.

Airlines and even travel agents don’t see fares easing. According to industry watchers, ATF price movement no longer dictates fares. In fact, airline representatives on several occasions have made it clear during media interactions that airfares will be market-driven and not by volatile ATF prices. They also say that due to a very high tax structure, ATF is almost 70% costlier in India than what airlines pay globally. Therefore, even if fuel prices decline, airlines can’t pass on the benefit to consumers.

Sample this: Fuel expense was approximately over Rs 6,000 crore for major full service airlines in FY11-12, up 40% (YoY), thereby making up a third of the total operating cost. As a result, even if fuel cost comes down by a percent or so, as it happened recently, airlines do not react due to the already existing fuel cost pressure on them. But they also say that they can bring down fares only if the ATF price falls continuously.

Meanwhile, data collected from several online travel portals and travel agents suggest that fares have not reacted to the movement in ATF prices. In fact, it is market dynamics that drive fare pricing. For instance, fare on the Mumbai-Delhi sector which averaged at Rs 23,000 in the first week of October last year due to the F1 races when ATF cost was 20% lower than what it is today. Interestingly, the average fare is around Rs 10,000-15,000 these days. Around that time even Kingfisher had started shrinking capacity due to financial stress and frequent pilots strike. Air India too had curtailed flight operation during the month due to a section of pilot not resuming work. So, one may not track ATF prices and hope for revision in airfares.

Kingfisher timeline: How Vijay Mallya's bird fell sick

Riken Mehta & Shaheen Mansuri
Moneycontrol.com

In the last one year, no other Indian corporate entity had created a buzz like the UB Group-promoted Kingfisher Airlines  (KFA), albeit for all the wrong reasons. From huge debts to internal issues with employees over delayed salary payments to bankers denying further extension of loans to flash strikes by aggrieved pilots, the KFA story is a recipe for disaster.

The situation, which turned grim since last year, has snowballed into a mammoth crisis with bankers issuing an ultimatum to Vijay Mallya, the owner of the carrier, to draw up an equity infusion plan by month-end. Banks have a total exposure of about Rs 7,000 crore to Kingfisher, of which about Rs 4,000 crore is in the form of term loans.

Have a look at the carrier's downfall in the past one year.

Oct 2011:  Exactly a year ago, news of KFA joining OneWorld Alliance in 2012 began doing the rounds. OneWorld is a global airline alliance. The move, market experts hoped, would boost the debt-ridden carrier's revenues anywhere between 10 and 15%.

Nov 2011: On one hand, the airline was all set to join a global alliance, on the other, issues relating to the operational efficiencies started cropping up. Soon Sanjay Aggrawal, CEO of the airline issued a statement saying the airline would rationalize network and drop unprofitable routes due to high operating costs and lower yields. The airline, according to reports, just could not manage operations due to financial crunch.

December 2011: SBI Caps, which the airline had hired to assess its business and recapitalisation needs, pegged KFA’s working capital requirements at Rs 680 crore. The lenders curtly told the airline to clear all its dues before seeking fresh loan. The arrears estimated by banks till the end of December were Rs 260-280 crore. That time KFA had debts of about Rs 7000 crore.

Jan 2012: SBI declared KFA, as NPA (Non-performing asset). SBI, with an exposure of Rs 1,457.78 crore, is the largest creditor and leads the consortium of banks in the DRP (Debt Recast Package).

Feb 2012: Other banks including Bank of Baroda, PNB, IDBI and Bank of India followed suit and declared KFA as an NPA. Simultaneously, KFA started to sink into a fresh crisis. Several flights were cancelled and aircraft were grounded. Of the 64 aircraft, only 22 were known to be operational by February 20. (cut out-with this)Kingfisher's market share dropped to 11.3%.

March 2012: The Income-Tax department started freezing KFA bank accounts as it was unable to pay all the dues as per schedule. KFA was meant to pay Rs one crore per working day. It reportedly missed the deadline set by the board and could not pay the dues until the evening on February 29.

April 2012: By now, pilots and engineers had struck work at least a dozen times due to nonpayment of salaries on time. Mallya had a series of meetings with his staff only to assure that he will pay salaries on time and the staff should stand by him in times of crisis.
 
May 2012: Employees resumed work with assurances from their boss that salaries will be given on time. But from the 69 flights it operated until a few months ago, the operations had shrunk to around 20 flights per day as many employees had left the airlines.

June 2012: The airline’s fleet shrunk further to 15 aircraft due to financial crunch and employee agitation. Regular meetings with bankers did not bear any fruits. But there were news reports about banks wanting to sell-off collateral pledged by the airline against loans.
 
July 2012: However, KFA stated that the meeting of the consortium of banks was convened in the normal course with a properly circulated agenda. There was no discussion on loan recovery or forced sale of any collateral, it clarified.

Aug 2012: The airline’s net loss for the June quarter more than doubled Rs 650.8 crore due to costs associated with non-operating aircraft. The airline had posted a net loss of Rs 263.5 crore in the same period last year. The airline maintained its stance that it will return to glory once it gets equity investors.

Sept 2012: The government announced 49% FDI in aviation, a move that could benefit ailing carriers like KFA. The airline welcomed the move saying the industry will be benefitted by it. KFA also said that the airline was in talks with various strategic investors for stake sale

Oct 2012: Yet another bankers meet is scheduled at the month-end. Not only has the airline been asked to present a fresh revival plan, but the BSE and NSE have also demanded details of stake sale news that has been floating in media. Mallya has been asked to respond stating whether any stake sale is actually happening or not.

How diesel prices have doubled in last decade

Riken Mehta
Moneycontrol.com

The latest price hike of diesel has sparked off a political debate and has angered the common man too. But economists argue that the raise was inevitable to ease economic pressures.

With this increment, diesel will now cost Rs 52.45/litre, which is a two-fold jump from Rs 23.29/litre available in September 2002. Based on Kirit Parikh committee's recommendations, the government decontrolled petrol in June 2010, but diesel continued to be subsidized. Oil marketing companies likeHPCL  , BPCL  , IOC  were selling the fuel at least Rs 13-15/litre lower than its actual cost.

Post the hike in diesel prices and capping of LPG cylinders to 6 per family, OMCs will see their under-recoveries shrink by roughly Rs 20,300 crore in FY13 than the earlier estimation of Rs 1.8 lakh crore.
 
Here's a snapshot of diesel price movement in the last 10 years. Data Source: www.mypetrolprice.com

How Apple stock has reacted to previous iPhone launches

Riken Mehta & Sagar Salvi
Moneycontrol.com

The internet is flooded today with all sorts of news and conjecture on Apple’s much anticipated product launch. The world's most valuable company by market-cap will try to close that gap on Wednesday with the unveiling of the newest iPhone, which is widely expected to offer 4G wireless technology for the first time, and a 4-inch display, up from the current 3.5 inches.

According to analysts, Apple could sell as many as 10 million iPhones by the end of September alone. By contrast, it took its closest rival, Samsung Electronics, about 50 days to sell 10 million of its flagship Galaxy S III smartphone.                   

Apple's new iPhone could contribute as much as a half a percentage point to US economic growth in the fourth quarter, according to analysts at JPMorgan Chase & Co. The company garnered 43% of its USD 108.2 billion in sales last year from the iPhone.

iPhone sales also are what investors watch the most closely. Apple shares typically rally ahead of, and sell off after, a major product launch. Apple’s shares fell in July after the company reported disappointing sales of the handset.

However, they have gained 15% in the past six weeks to touch an all-time high on Monday.  For the year, the shares are up by 64%.

Chart: Timeline - iPhone launches versus Apple share price movement since previous launch