Jet, Kingfisher margins likely to crash on falling rupee

A falling rupee against the dollar has proved to be a double edged sword for ailing airlines struggling to fly in the black.

The aviation sector has already seen its operating cost go up significantly for the three months to September quarter as airline companies incur 30% expenses in dollar denomination. Secondly, the weak rupee could compress EBITDA margins to 3% from 12.3% Y-o-Y due to the weak rupee, say analysts

After falling to Rs 50 to a greenback few days back, the rupee is now at Rs 48.86 sending shockwaves to airline operators who are already reeling under losses for the past two quarters. While country’s largest private carrier Jet Airways had posted a net loss of Rs 123 crore for Q1, Kingfisher too posted a net loss of RS 263 crore on high fuel bills.

Jet Airways and Kingfisher Airlines officials with whom moneycontrol.com talked to have said that their Q2 topline has been dented as the rupee started to depreciate against the greenback by almost 12% when compared with the three months to June quarter.

"A sharp fall in the value of the rupee pushed up our external borrowing cost, lease rentals and salaries to expat staff. A falling rupee has bloated out operational cost by around 10% for the September quarter," says an official from a full service carrier.

Sample this:

Jet incurred Rs 361 crore towards employee salaries, Rs 207 crore on lease rentals and Rs 214 crore on interest payments on loans taken domestically and in dollar denominations when the rupee stood at Rs 45 against the greenback during Q1 of FY12. Now, with the rupee inching towards Rs 50 against the dollar, airlines will have a tough time maintaining costs, say analysts.

Also, while Jet has dollar denominated loans of around Rs 9,000 crore, its rival Kingfisher has a debt of around Rs 6,000 crore of which a significant amount is in dollar denomination. Fall in rupee will also increase the principal amount of loans for these companies.

Sharan Lilaney from Angel Broking explains, “Airlines are already making losses for the past two quarters and with lower purchasing value of the rupee, airlines are likely to report more losses this quarter.” He further adds that though Jet Airways and Kingfisher Airlines receive revenues from international operations in dollar terms, the impact will be offset by other larger expenses which they incur in dollar currency.

Though crude prices have slipped to $109.45  from $113 a barrel Q-o-Q, the weakening rupee has toned down the impact, say experts.

-Riken Mehta & Shaheen Mansuri

Setco Auto aims to triple revenues to Rs 1000 cr by 2015

Ranked among the world's top five clutch makers, Setco Auto , has set its sight on becoming Rs 1,000 crore turnover company by 2015.

"In about four year’s time, we see exports contributing 15% to total sales from the current 8%," Senior Finance Officer, Mohsin Virani told moneycontrol.com.

Setco Auto reported a jump of 39% in revenues at Rs 73 crore for the quarter-ended June 2011, YoY. During the period, company's bottomline almost jumped by 35% to Rs 7.07 crore.

"We were able to pass on the rise in commodity prices with a time lag of 3-4 months. This helped us combat high raw material prices effectively," Virani said.

The company gets around 47% of its revenues from Original Equipments Manufacturer (OEM) segment, while 42% comes from the replacement market.

"The replacement market garners 10% margins higher than OEM," Virani explained. 

The remaining 8% comes from exports, he said adding, "…nearly 60% of revenue is generated from Tata Motors alone. Top three clients from India contribute 85-87% of total revenues."

The company's current inventory turnover ratio is three times. "The outstanding loan book was Rs 90 crore, which includes term loan plus working capital. The average interest cost is 12.5%." Virani said.

The company expects to post Rs 70 crore topline and Rs 1.5 crore as bottomline from its two international subsidiaries. It is also planning to set up a clutch assembly facility in Africa to take advantage of the lack of organized players in that continent.

"We will start exporting to African countries by end of Q4FY12," Virani informed.

The favourable policy changes late last year helped Setco to add 10-12% realisations this year.    

"The company will be able to maintain OPM of 18-20% and NPM of 10-12% going forward despite slowdown," Virani said.

Shares of auto component maker were trading marginally higher at Rs 175.45, up 0.46%.

And you thought falling crude was good for Indian equities?

The widely held belief is that falling crude oil prices is good for India. That may hold true for the economy. But for the stock market? The chart below shows that lower crude oil prices need not necessarily trigger an upswing in stock prices.

Since 2005, Indian equities and global crude oil prices have more or less moved in the same direction. Indian shares did well even as crude prices were soaring to new highs, and declined when oil prices cooled off. Will the same pattern be repeated this time too? Only time will tell.

Riken Mehta

Order book stands at Rs 1035 cr: Bajaj Electricals

Topline performance has been good for the company in terms of volume growth. Topline has grown by 16.4 % from Rs 365 Cr to Rs 425 Cr. In terms of segment wise performance 30% growth in appliances; 22% growth in fans; 20% growth in lighting & 26% growth in luminaires business. 11% growth in E&P segment was better as compared to the last quarter of 8%. Consumer Durables & E&P businesses have shown better profitability in this quarter.

Segment wise performance:

Lighting: Net profit grew from Rs 7.7 Cr to Rs 8 Cr

Consumer Durables: Net profit grew from Rs 15.95 Cr to Rs 18.6 Cr

Engineering & Project Business: Net profit grew from Rs 12.7 Cr to Rs 17 Cr

The interest cost has gone up significantly from Rs 7.7 Cr to Rs 10.9 Cr; a rise of 41%. The total outstanding order book of the company stands at Rs 1035 Cr. No order cancellation was witnessed in this quarter. Order Book Break-up:

Special projects of Lighting & Rural Electrification Rs 500 Cr

Galvanised Poll: Rs 62 Cr; a rise of 15% in this segment

Street Light: Rs 60 Cr

Transmission lines tower: Rs 420 Cr

Since the company’s products are sold on cash system basis & not on loan system it is better insulated from the slowdown compared to its peers. The replacement sales are also doing well for the company. Bajaj Electricals still maintains the guidance of Rs 1700 Cr topline for FY09. With major commodities hitting multi year lows, the consumption of raw materials has gone down by 7% of sales. However purchase of goods has gone up from 70% to 73.4% of sales.

Also with lower commodity prices, the company has passed on the discount to consumers. A 3-4% price reduction in Fans segment was done while going forward the company will reduce the prices of mixer grinder as well. Inventory has considerably dried down by the company. A 7% increase in inventory compared to its 24% growth in the turnover of consumer business is reasonably well. However, in the E&P business, the inventory at the company level has gone up by 22%

The outstanding for the company has gone up by 6%. The total working capital deployment has gone up by 9-11% compared to its growth in turnover of 22%. The Luminaires segment witnessed margin pressures on bottomline in this quarter. In the Building Management System; the company may finalise some initial contracts in the near term. Bajaj Appliances has recently launched its new application named Platina in the northern region. It is witnessing good response from there & the company will soon launch it in other parts of India.

Bajaj Electricals is also implementing ERP solution from Oracle for better productivity across its enterprise. The company is also deploying strategy of assigning super distributors to sell some of its products in Haryana, Uttar Pradesh & Rajasthan. These distributors will sell more products in the rural areas going forward where the company has very little coverage. It is not seeing any pullback in the rural areas in consumer spending. The import comprises 4-5% of the company’s turnover. The rupee depreciation will not impact much to the company’s bottomline.

-Riken Mehta

21-day recap: From Maytas to Raju's fall from grace

Satyam Computer Services got exposed in 21 days. On December 16, Satyam broke the news of Maytas buyout. The acquisition eventually did not go through as it was severy opposed by the shareholders. A series of resigations from the Satyam board took place subesequently. The final blow came on January 7, when Satyam's promoter Ramalinga Raju wrote a letter to the board saying that Satyam's balance sheet was forged. The balance sheet showed inflated cash & bank balance of Rs 5040 crore. The accrued interest of Rs 376 crore in the books too was non-existent.

In the Q2 of FY09, reported revenues was to the Rs 2700 crore Vs actual revenue of Rs 2112 crore. The Q2FY09 operating margin reported was Rs 649 crore against Rs 61 crore. The Q2FY09 numbers had Rs 588 crore of artificial cash in books.

Here's a recap of what happened in the past 21 days.

December 16: Software major Satyam decided to buy Maytas Properties for USD 1.3 billion & 51% stake in Maytas Infra for USD 0.3 billion. Satyam's ADR plunged 55%

December 17: Satyam called off the deal; stock was down 30%, Maytas locked at 20% down circuit

December 18: Satyam announced Board meeting on December 29 to consider buyback

December 19: Post Maytas U-turn, Upaid filed motion against Satyam for USD 1.1 billion. Earlier in October, Satyam had filed a case against Upaid alleging it of ‘business disparagement’

December 23: World Bank admitted to put a ban on Satyam for data theft

December 25: Mangalam Srinivasan, Non-executive and independent Director resigned

December 26: Maytas ended its downward journey of six consecutive circuits

December 28: Prof. Krishna G Palepu, Non-executive Director and Mr. Vinod K Dham, Non-executive and independent Director of the company resigned

December 29: Satyam Board meeting postponed to January 10

January 3: A sale of pledged shares by lenders of the Ramalinga Raju family led to the family's stake in Satyam falling to 4.4% from 8.27%

January 6: Satyam clarified news item of merger with Tech Mahindra; ILFS announced sale of 2.45 crore equity shares of Satyam

January 7: Mr. B Rama Raju, Managing Director, admitted fraud; resigned; Satyam books inflated of Rs 5040 crore; DSP Merrill Lynch terminated its engagement with the company. Satyam down 78%

In this period, Satyam has lost market cap from Rs 15183 crore to Rs 2662 crore, a fall of 82%. It has certainly raised questions on corporate governance standards of Indian companies. If one looks at the whole scenario, then it is clearly visible that Satyam never had cash of USD 1 billion. By buying Maytas, Raju wanted to transfer company’s dummy entry of cash reserves from Satyam’s book to Maytas balance sheet. However, strong opposition evident from its ADR fall forced Raju to take a U-turrn and then the stock started falling like a pack of cards. Raju revealed that balance sheet figures were manipulated for the last six quarters. It is indeed a sad day for the Indian markets. Satyam’s historic journey ends on a tragic note.