ITC profit jumps, beats estimates

Friday said net profit rose 25.8% to Rs1,009.91 crore in the quarter ended September from the year-ago period, driven largely by a 21.35% increase in revenues from cigarette sales.

Sales rose 14% to Rs4,292.59 crore, boosted by the betterthan-expected performance of all divisions except hotels.
Profit beat the median estimate of Rs924 crore by 20 analysts polled by Bloomberg.

Revenues from agri-business jumped 19% to Rs1,028.28 crore, while the paperboards division posted net sales of Rs790.38 crore, 12.8% higher than last year. Revenues from the hotel business, however, declined 23.77% from last year to Rs186.28 crore because of poor occupancy and average room tariff, ITC said in a press statement.

The company managed to reduce losses in its non-cigarette fast moving consumer goods business during the quarter to Rs85 crore, from Rs116.55 crore a year ago. It may not be long before the new businesses that ITC launched, such as personal care products, packaged food and apparel, start contributing to the company’s profits, according to analysts.

The lifestyle retailing business has already turned profitable. Over the past year, ITC has managed to reduce rents by as much as 30% and all Wills Lifestyle stores in 30 cities are now recovering costs, according to Atul Chand, chief executive of ITC’s lifestyle retailing division.

Apart from this, about onefifth of the lifestyle retailing division’s revenues come from contract manufacturing of garments and accessories for designer brands such as Calvin

Klein, Polo Ralph Lauren, Trussardi and MaxMara. "Exports are a high-margin business," Chand added.

ITC currently has some 50 Wills Lifestyle stores, which sell ready-made apparel. Over the next six months, it is going to launch at least two stores a month, said Chand. The company is now looking to enter cities with smaller populations, and for the first time, is going to get into local franchise arrangements.

"The knowledge of the market is really important. So to enter tier-II and tier-III cities, we are looking to tie up with local businessmen," he added.

The company, which currently manages all its stores, will design the franchiseemanaged stores and train their staff.

ITC also sells apparel under the John Players brand, aimed at the mass market segment, through about 250 stores.

"At the beginning of the year, ITC had taken a lot of steps to rationalize costs in all its businesses," said Anand Shah, research analyst at Angel Broking Ltd. "The results are visible."

Net margins during the quarter expanded to 23.5% compared with 21.3% a year ago, he added. Gross margins in the cigarette business expanded to 56.9%, from 55.56% in the second quarter of fiscal 2009.

Analysts estimate cigarette sales to have grown by volume too during the quarter till September. "It could have been a nominal growth--say 5-6%-but it seems there was some volume growth," said Shah.
Cigarette sales accounted for about 51% of ITC’s net revenues during the quarter till September.

ITC shares rose 5% to Rs259.85 apiece on the Bombay Stock Exchange on Friday, while the bourse’s benchmark equity index, the Sensex, closed marginally higher at 16,810 points.

"The robust performance seen in the July-September quarter should be sustainable," said Rajesh Agarwal, director of CD Equisearch Pvt. Ltd, a Kolkata-based broking firm. "It should continue for at least two more quarters, and in the second half of the year, even hotels should perform better."

ITC said its hotels had witnessed some "recovery in business in the last couple of weeks of the quarter (till September)". Pre-tax profit from hotels during the quarter fell to Rs31.56 crore, from Rs68.74 crore last year.

Pre-tax profit in all other businesses was higher than fiscal 2009. Pre-tax profits from cigarettes was 24.3% higher at Rs1,251.67 crore.
Though net revenues from the paperboard business increased only 12.8%, pre-tax profit at the division jumped 52.33% to Rs186.22 crore. "Investments made in the paperboard business last year have started paying off," said CD Equisearch’s Agarwal.

Pre-tax profit from the agribusiness during the quarter more than doubled to Rs174.08 crore from Rs76.40 crore, largely due to robust sales of leaf tobacco, ITC said. The company is India’s biggest leaf tobacco exporter.

ITC’s earnings per share for the July-September quarter was Rs2.67, 14.6% higher than the quarter till June.

Mah Satyam ups Upaid out-of-court offer to $40m

Mahindra Satyam has increased its out-of-court settlement offer to Upaid by four times to USD 40 million, sources told CNBC-TV18’s Kritika Saxena. Upaid had rejected the earlier USD 10 million offer. The settlement is on high priority for Mahindra Satyam but Upaid may not be satisfied with the new offer.
According to sources Mahindra Satyam is looking aggressively to increase the out-of-court settlement offer that they have made for Upaid. They have increased the offer from USD 10 million to USD 40 million which is four times the earlier offer. There has been a separate team set aside in order to decide what is the exact out-of-court settlement that they would be making in fact they are pitching aggressively for this offer.
Upaid not happy?
Meanwhile, Upaid is still not happy with this amount of USD 40 million. When we contracted the company -- they clearly stated that while they could not give us specific and detailed explanation as to the out of court settlement. They were clearly not happy and this amount is not acceptable to Upaid while Mahindra-Satyam do not offer us a comment on that and said that this was speculative and they could not talk about this specific out of court settlement.

Backdrop to Upaid-Mah Satyam row:

Upaid is seeking about USD 1 billion by way of damages on account of alleged fraud and forgery by the company. So yes Mahindra Satyam is definitely working hard to woo Upaid but we will have more on this later on

SBI raises $750m through overseas bond issue

The much awaited overseas bond issue of State Bank of India (SBI) is complete. CNBC-TV18’s Gopika Gopukumar learns that the bank has raised USD 750 million through this issue.

It was a much awaited and much looked at bond issuance. SBI has successfully raised around USD 750 million through five year overseas bonds. Now, these bonds are called medium-term notes and these are largely raised in the overseas market.
We understand that SBI has priced this five-year bond issuance at mid-swap plus 190 bps. Now, this mid-swap is an equivalent of London Inter bank Offered Rate (LIBOR) and is largely for a longer tenure maturing bond.
SBI also has received orders worth around USD 3.3 million out of which they have decided to retain only USD 750 million. We understand that SBI will be using these funds for their overseas operations largely for lending activities. There have been five bankers who have been part of this bond issuance and these include JP Morgan, Deutsche Bank, Citigroup, HSBC, and Barclays Capital. We also understand that private banks, hedge funds, mutual funds have been part of or have subscribed to this bond issuance.

Source: Moneycontrol.com

SAIL FPO - First phase of FPO to meet SAIL’s expansion plans

As part of its divestment process, the government is considering a two phase follow-on public offer (FPO) in Steel Authority of India (SAIL). It will offload 10% in the first tranche, which will fetch it Rs 8,000 crore. The first tranche is likely to occur this fiscal while the second tranche might happen in FY11.
Commenting on the same, Steel Secretary PK Rastogi says the SAIL divestment proposal includes government sale and a fresh issue. "The Centre will divest 10% in SAIL via government sale, fresh issue."

He says the first phase of the FPO will meet the expansion plans of SAIL.

See favourable response to NTPC divestment: Enam

In a follow on public offer, the cabinet has announced a 5% divestment inNTPC. The government’s stake would now reduce to 84.5% from 89.5% earlier post this divestment.

Commenting on the divestment plans for the power major, Yogesh Kapoor of Enam Securities said that theinvestors were likely to look at the NTPC divestment favourably and that the government was making calibrated moves for PSU divestments. He added that it was too premature to comment on the NTPC FPO allotment or the pricing for the offer.

Earlier, RS Sharma, CMD of NTPC, clarified that there would indeed be no fresh issue of shares from NTPC and Mr Sharma is also quite confident of a strong response this time. The thing is that 5% will go into the market that shall certainly give liquidity in the market so it will certainly help that so that’s one aspect. So far as NTPC is concerned it is going to be excellent.

Here is a verbatim transcript of Yogesh Kapoor’s exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: Enam was involved with NTPC’s IPO which came in 2004, it was quite successful and a money making exercise for public as well but now in the past we have seen power Initial Public Offering (IPOs) not doing too well like Adani and NHPC- what is your own sense of valuation of this space and the power IPOs.

A: I think as far as power IPOs are concerned, if one looks at the NHPC IPO, I think the IPO was fairly priced and we have to appreciate the fact that NHPC kind of companies are well tracked companies with strong base with about 5,500 megawatt capacity in place. 5,000 MW plus is already in execution mode.

So these are matured profitable companies and they will come at fair valuations; not cheap, nor expensive. The government and bankers have been very proactively looking at the valuations and looking at fairly pricing these. Leaving aside short-term aberrations in the market price, these transactions should do well going forward.

Q: What is the quantum you think that the government could raise by the end of FY10 and which companies do you think would be at the forefront of this divestment plan now?

A: It is very difficult to pinpoint, which companies will go for the listing and for follow on offerings from the governments stable. The way we are seeing and the trends are indicating I think government is making a much calibrated move in terms of selecting each company very-very carefully. So these will be very company specific decisions. There will be various factors in terms of valuations of these companies, the visibility on their performance going forward.

As you see, NTPC, which has a very successful track record of operations, has a huge growth potential, visibility is very strong the government obviously will be very keen to divest and they have decided to divest 5%. Investors will look at this transaction very-very favourably because it is only 10% which is in the public adjusting capital and long term investors will be looking at it pretty much favourably to participate in the stock.

As far as other transactions are concerned, I think it is for the government to take a decision on each case. One keeps hearing about a lot of companies whether it is CoalIndia, SAIL, etc but I think the decision will be taken by the government in each case very specifically.

Q: The government will be coming out with a lot of IPOs and I think Enam will be involved with a few of them. From the NHPC experience, there is a talk in the market that there could be a proposal to reserve the NTPC follow on issue for reserve maybe about 70-80% of that just for retail public and give them a bit of a discount so price it sub-Rs 200; you think that is something that is one line that government can adopt?

A: I think it is too premature to figure out as to how the follow on offering will be distributed among the various categories of investors. Whether it is institutional investors or the retail or the HNIs, but I think by and large government is quite keen that the new transactions that are happening in the government companies which are going public they should be widely distributed and there should be a very good participation from all categories of investors so it will be a balance between institutional and non-institutional investors. So I do not think there will be very heavy buyers in favour of one segment and all will be allowed to participate in terms of discount etc and exact sharing. The government will actually see what the regulatory framework is and to what extent they have flexibility and I am sure within that the government will do its best to offer a fair value to retail and non institutional investor also.

Q: We have seen that in case of NTPC there will only be FPO and in case of Sail the company will come out with fresh share issue also. So going forward do we see from the government’s stable a mix of FPOs and also companies coming out and raising money?

A: Absolutely, it will all be very company specific decision and government is aware of the fact that there are companies which will need money for their own operations and growth and I think that is how the government creates value in these companies by allowing them to raise capital, grow their businesses.Rural Electrification Corporation (REC) is an example where government has already taken a decision, where in fact the largest chunk is going towards the primary offering by REC and a smaller component is going through a secondary sale. So those will be the decisions taking in each case, looking at the company requirements as well as government tagging along and divesting some of its share and creating value for the investors all across.

Q: Specifically for NTPC how do you see valuations looking now- do you think the FPO will be offered at a discount considering the past and how aggressively they were priced earlier?

A: It is too premature to talk about the discount in NTPC but it’s a large offering. And at the same time it is a company with a very well tracked, has rewarded shareholders right from the first listing in 2004. I am sure government will keep investors interest in mind while pricing the offering but it would be too premature to indicate as to how the pricing will work.

Sesa Goa Q2 cons net profit down at Rs 166 cr

Sesa Goa has announced its Q2FY10 results. Its consolidated net profit stood at Rs 166 crore versus Rs 336 crore.

Consolidated income from operations stood at Rs 632 crore versus Rs 924 crore.

NTPC Follow up offer

In a follow on public offer, the cabinet has announced a 5% divestment in NTPC. The government’s stake would now reduce to 84.5% from 89.5% earlier post this divestment.

Here is a verbatim transcript of Sajeet Manghat’s comments on CNBC-TV18. Also watch the accompanying video.

The NTPC follow-on-public (FPO) offering would be a big one. If you look at the market cap of NTPC, it is around Rs 176,000 crore and a 5% divestment would mean we are looking at a current market price in the range of Rs 8,860 crore. This is just on the basis of current market price. This is expected to go up because of the kind of reaction which we are going to see in the markets and it will take atleast a month or two before the FPO will come into the market but it will be a big FPO to the tune of nearly USD 2 billion and it may perhaps be the first fast track issuance, which NTPC would be witnessing. The entire guidelines came out in 2007 and since then not a single company has gone through this route but what bankers have told us is that it could be a fast track one for NTPC primarily because it meets all the guidelines, it has been listed on the stock exchanges for three years, the average free float market cap for NTPC is over Rs 10,000 crore and that gives it the eligibility criteria to go for this issue. What the merchant bankers will have to do is get a principle nod from stock exchanges and file the prospectus with Sebi for record purposes only. So there would be no delay in getting a Sebi in NTPC’s case.

Tech Mahindra signs multimillion dollar deal

Tech Mahindra has declared its Q2FY10 results. Its net profit went up 28.71% to Rs 169 crore versus Rs 131.3 crore and revenues up 2.6% to Rs 1,141.8 crore versus Rs 1,113 crore, QoQ.
Quarterly numbers were in line to mildly positive. CNBC-TV18 expected net revenues at Rs Rs 1,101.4 crore and net profit at Rs 142.9 crore. EBIDTA (earning before interest, depreciation, tax and amortisation) increased to Rs 292.5 crore from Rs 280.5 crore. Margins improved to 25.6% versus 25.2%.

Its net profit went up 28.71% to Rs 169 crore versus Rs 131.3 crore (QoQ).

Its revenues were up 2.6% to Rs 1,141.8 crore versus Rs 1,113 crore (QoQ).

It did not see a significant decrease in business from British Telecom (BT), its major client and also a stakeholder.

Company's current pound to dollar hedging at £ 290 mn @ $1.8

Merger With Mahindra Satyam is another 8 To 12 months away.

It saw growth in emerging markets.

The Company has a debt of Rs. 2,179 crores as of 30th September, 2009.

During the quarter the company refinanced Rs 1,150 crores of debt reducing the effective interest rate on the debt portfolio to 8.7% per annum.

The company derived 28.4%, 60.9% and 10.7% of its revenues from the US, Europe and Rest of the World respectively.

It has signed a multimillion dollar deal with one of the Greenfield Operators in India for providing end to end IT outsourcing for its green field launch.

The company has signed a deal with a GSM operator in Africa for E2E implementation of Siebel CRM system.

It has signed a BPO deal with one of the leading telecom service providers in India providing CDMA, GSM and DTH services.

Q2 results: Best buys for your portfolio now

Even as the stock market continues to surge buoyant on foreign inflows and the improving earnings picture for most Indian companies — as is evident from second-quarter results season currently underway — how should you position yourself in terms of stocks and sectors? Or is this the time to liquidate your holdings given the fact that prices of most stocks have seen a phenomenal rally in the past few months? Analysts answer.

View on markets

The market has been trading at 16 times forward earnings estimate, which was fair value, said Rajat Rajgarhia of brokerage firm Motilal Oswal Securities. “If you look at the global markets, every market is making a new high on a 12-month basis. So, we are just following global trends right now.”

Amit Dalal of Amit Nalin Securities said that, going forward, the market will take its cues from US markets and also earnings of industry leaders like State Bank of India (SBI) and Reliance Industries (RIL).

Rajgarhia said that in case a market correction was to set in, investors should be wary of stocks that have run up the most in the recent rally. “Metals definitely rank on top of the list,” he said. “There most of the cases are factoring in the prices which the under lying commodities are trading at, so you can see some correction there. Engineering is another space where despite a long-term [positive] view, valuations look stretched in most of the cases even on FY11 basis.”
Information technology: “We saw some good numbers from some midcap IT companies like KPIT Cummins,” Dalal said. The technology sector, he said, holds the most promise in terms of what those stocks will do by FY10-11.

“TCS is a stock that investors can bet in the technology space,” said Rajgarhia. “The numbers for this quarter have been good and the guidance especially that TCS has been giving more in qualitative terms seems to be indicative of good times going forward.”
Sugar: Dalal said there was room for an earnings upgrade for sugar stocks given the shortage of sugarcane in the country. “Balrampur Chini may make something like Rs 250-300 crore next year and that comes to an earnings per share (EPS) of about Rs 12-15, so that could go up to Rs 160-170.”

Metals: “China’s demand for metals that started in April-May has peaked off now,” Dalal said. “I would not expect further rise in metals stocks from hereon. I remain underweight on all metals.”
Earnings of metal companies may look bad on a year-on-year basis, said Rajgarhia, though non-ferrous companies should report better on a quarter-on-quarter basis. “Metal stocks are more a function of how the day-to-day business environment and underlying commodity prices are behaving because earnings are generally following with a lag of one-two quarters. As the outlook in the global economy and commodity prices have improved, we have seen a meaningful upgrade at least in the forward estimate in most of the metal stocks,” Rajgarhia said, adding that he liked Sesa Goa and Sterlite Industries in the sector.

Banks: Among banks, Dalal said he was positive on South Indian Bank and Karnataka Bank.

Monsoon led fall

Today's market, everyone says, fell cos of the monsoon.
Another reason could be the weak world markets which are awaiting US job data on Friday.

Mahindra - largest tractor manufacturer also fell today. Companies like Bajaj, Bharti and Maruti, which were betting on rising rural demand fell.

The monsoons also add a risk to economic growth and keeping inflation within limits. Kotak has downgraded the GDP growth target from 6.5 to 4.8%.

Bad monsoon

How does a bad monsoon affect a investor like you and me?

• Are you holding businesses which cater to agri business? This directly affects you. eg. Aries agro, Kaveri seeds, Monsanto, Bayer. edible oil companies like Marico or Ruchi soya, partially ITC and HUL. Bad monsoon is a negative for most of these companies.
• What about fertilizers? Fertilizers will be lesser in demand during bad monsoons and probably bought lesser in the season following as farmers may not have cash in hand. examples are Chambal, nagarjuna, GSFC, Madras fertilizers, RCF, Zuari
• Sugar companies like Balrampur, bajaj hindustan, Sakthi, Triveni engg tend to fall as sugarcane is in short supply.
• FMCG and white goods companies face pressure as demand for them comes down due to lesser money flow in rural areas.
• Auto industries, jewllery and many other industries see lesser demand from rural areas in years of bad monsoons.

More than all these concerns, the short term direction of the market, may go up or down in a bad monsoon. This really depends on the world markets and other macro-economic data. Sometimes, the markets expect the bad news from monsoons to be offset by urban areas. Though the current trend is positive, watch out for the earnings in these companies. These may perform to a lesser extent compared to ones that have better earnings visibility.

The bad monsoons may result in higher inflation as the food prices would rise. The GDP growth rate also suffers as India is very much dependent on agricultural income. So, overall this is a negative for all stocks as well.

NHPC IPO

IPO opens today, ends on August 12th.
price band is from 30 to 36.
Total issue size is 5K06K crore.

Chances of you getting some shares is rare until you apply for the full lot. It is in great demand and as any PSU IPO's have done, this would also be in short supply. The PSU IPO's are also priced on the lower side compared to most private companies. Most Indian brokerage houses do recommend this IPO. Some feel NTPC and powergrid are better power PSU plays.

The price at which NHPC may list may really depend on market levels at the time of listing. NHPC would list at a premium of Rs. 10 (i.e at 46) if market sustains 4650 level. Below 4500, NHPC may at or below issue price.

US Jobless claims down, but markets are waiting for Friday

Markets are awaiting the employment numbers for July. These are expected to be out on friday (Aug 7th). So, US markets are in red. Most feel that this is not the end of the rally. The markets are junst in wait-n-watch mode. Things will get back to bullish ways once everyone is assured that the recession is ending.
Indian markets may open down today as well, but do not short till the end as market end may depend on how European markets open. And this in turn depends on the ECB and BoE interest rate decisions.

Reliance Money sees SENSEX to rally past 17K

Reliance Money says Sensex could see some profit booking for now. but in the medium term, one can expect the SENSEX above 17K. Dismal monsoon continues to be a concern. Disinvestments planned by the government could play positive. If the international situation remains stable or rally, the Indian market would rally as well.