Saturday, April 25, 2009

>Crude up on dollar; shakes off Wed supply data

London -Crude oil futures moved higher in London Thursday, boosted by a weaker dollar.

Prices were resilient despite oil stockpiles in the U.S., the world's largest energy consumer, at a 19-year high.

"It's holding up pretty well despite perceived bearish (U.S. inventory) stats yesterday," said Tony Machacek, a broker at Bache Commodities in London.

At 1130 GMT, the front-month June Brent contract on London's ICE futures exchange was up $0.50 at $50.31 a barrel.

The front-month June contract on the New York Mercantile Exchange was trading $0.91 higher at $49.76 a barrel.

The ICE's gasoil contract for May delivery was up $5.50 at $429.75 a metric ton, while Nymex gasoline for May delivery was up 52 points at 139.58 cents a gallon.

Buying interest from funds and day traders propped up prices Thursday, as some participants shrugged off Wednesday's data from the U.S. Department of Energy. The figures showed a 3.9 million barrel rise in oil inventories, coupled with a fall in demand to a 10-year low.

The muted reaction to the DOE figures reflected the recent strengthening influence of equities and macroeconomic factors on oil.

"Crude investors are presently more focused on the greenback together with the equity markets and rather inclined to disregard fundamentals," said Marius Paun, a broker at ODL Securities in London. In recent months, oil has become a safe haven for investors seeking refuge from a weaker dollar.

But the oil market's deteriorating fundamentals will be difficult to ignore for much longer, some analysts said.

"There is very little that can support the market at the moment," said Andrey Kryuchenkov, vice president of commodities research at VTB Capital in London, who pegged key support for Nymex crude at $48 a barrel.

"Depending on what happens to equity markets and the dollar, we could be in for some profit-taking on a sustained breach of this level in the next couple of days," he said.

Prices won't be able to withstand the weight of high inventories for crude oil and refined products, said Peter Beutel of trading advisory firm Cameron Hanover.

"The fundamentals are poor, we are running out of seasonal influence and (refinery) turnarounds are largely behind seems like a matter of time before prices fall," he said.


>Ambuja Cements (IDFC SSKI)

Broadly in line with estimates; CY09 earnings upgraded by 8% on recent cement price hikes....


• ACL reported Q1CY09 net sales at Rs18.5bn, marginally ahead of estimates of Rs18.2bn. Total volumes saw a 6.3% yoy increase to 5.1mn tons, led mainly by a 44% yoy jump in exports to 0.28mn tons, as domestic dispatches grew by 4.7% to 4.82mn tons. ACL’s overall volume growth during the quarter trailed the industry average of 9.5% as the company operated most of its plants at higher than full utilization and no major new capacities were added in the last 12 months.

• Net realizations increased by in line with estimates, by 5.5% yoy and Rs110/ton q-o-q to Rs3,638/ton. Growth in realizations was driven by price hikes across the country during the quarter – especially in ACL’s key markets in the north and west.

• Raw material costs increased by 13.6% yoy to Rs379/ton, due to higher clinker purchases during the quarter. ACL has commissioned grinding units ahead of corresponding clinker capacities, which necessitated higher clinker purchases, with purchased clinker costs moving up by 22% yoy during the quarter. We do not expect raw material costs to soften in the medium term, since the company’s expanded clinker capacities are likely to be commissioned
in phases starting H1CY09 and up to Q1CY10.

• Power and fuel costs, although lower by 11.3% on a q-o-q basis, were still higher by 30.9% yoy at Rs782/ton, as ACL did not benefit from the sharp fall in imported coal prices, due to relatively higher inventory levels.

• With the higher raw material and power and fuel costs offsetting the increased realizations, EBITDA increased by a muted 2% yoy to Rs5.25bn, marginally ahead of estimates of Rs5.08bn. EBITDA margins fell by 270bps yoy to 28.4%.

• Overall, ACL’s PAT remained flat on a yoy basis at Rs3.34bn, broadly in line with estimates of Rs3.23bn.

To see full reports: AMBUJA

>Yes Bank (IDFC SSKI)

Strong capitalization, uptick in margins


Yes Bank delivered robust PAT growth of 24% yoy to Rs801mn in Q4FY09, surpassing our estimates. The outperformance was driven by robust NII growth and lower operating expenses.

• Higher capital adequacy fortifies comfort on growth: Tier-I ratio improved to 9.5% (Basel-II) as against 7.8% in
Dec' 08 (Basel-I) boosted by Tier-I Perpetual bond issuance of Rs1.54bn. Overall CRAR increased to 16.6% from 14.6% in Q3FY09, bolstered by migration to BASEL-II during the quarter (14.5% under Basel-I).

• NII surpasses expectations; margins expand: NII was up by 45% yoy to Rs1.55bn, driven by 20bp qoq expansion in margins to 3.0%. Improvement in NIMs was driven by 80bp reduction in funding costs owing to a sharp decline in wholesale borrowing rates over the quarter. (Exhibit 1)

• Elevated provisioning expenses; Gross NPAs inch up: The bank made provisions of Rs322mn, marginally higher
than expectations. Bulk of these (~Rs 240mn) are attributable to NPAs, while the bank has taken a ~Rs50 MTM hit on the G-Sec investments (Exhibit 6). Gross NPAs rose by 24bps qoq to 0.68%, while net NPAs increased to 0.33% (0.15% in Q3FY09). Coverage has come-off to 51.5% from 66.4% in Q3FY09. (Exhibit 5)

• Restructuring likely to touch 1.2-1.4% of credit: The bank restructured standard advances worth ~Rs200mn (0.2%
of loans) during Q4FY09. Further, the bank has restructuring applications for standard loans worth ~Rs200mn (0.2% of book) and non-performing loans of Rs~450mn (0.4% of book). We expect Gross NPAs plus restructured loans to touch 1.2-1.4% of credit over the next 12 months before heading southwards.

• Lower expenses bolster earnings: Operating expenses declined by 3% yoy to Rs910mn (30% qoq decline on a high
base), due to 15% yoy de-growth in employee costs, while other expenses increased by 10% yoy. Decline in employee expenses is indicated to stem from rationalization of employees as well as lower wage inflation.

• Robust credit growth: Credit grew by 32% yoy and 13% qoq to Rs124bn. During the quarter, ~75% of the incremental loans were attributable to large corporates, with another 18% to mid corporates. At the same time, SME loan book remained flat over the quarter.

• Strong deposit growth; CASA slips: Deposit growth remained strong at 22% yoy and 19% qoq. While CASA
increased by 13% qoq and 25% yoy in absolute terms, strong deposit growth led to ~45bp qoq decline in CASA ratio to 8.74%. Given the corporate clientele, current deposits contribute ~75% to CASA. (Exhibit 2)

• Muted treasury gains; fee income remains a mixed bag: Other income declined by 17% yoy to Rs898mn on the
back of decline in treasury sales, retail and financial advisory fees. However, things are improving at the margin with sequential rise in financial advisory (up 51% qoq) and trade guarantee income (up 30% qoq) buoyed by uptick in trade credit and LC business. (Exhibit 3)

• Introducing FY11 numbers: We see a profit growth of 24% yoy in FY11 to Rs4.6bn, driven by a 30% growth in credit and steady margins. NII is estimated at Rs8.5bn –26% yoy growth. We expect fee income to grow at 30% yoy and CASA at 15%.

Amidst the economic slowdown and jittery capital markets, Yes Bank was hammered on concerns around the bank’s capital cushion. The stock has outperformed the Sensex by 38% since these concerns were alleviated by the management’s guidance of additional Tier-I capital issuance and migration to Basel-II (highlighted in our management meeting notes dated 6 April 2009). Management has re-affirmed that the bank is comfortable to sustain credit growth
of 20-25% without need to raise incremental capital over the next 12-18 months. In addition, re-pricing of whole-sale liabilities (costs down by 300-400bps over Q3FY09) is likely to drive an expansion in margins. Owing to likely improvement in NIMs and our comfort around asset quality, we are upgrading our estimates for FY10 by 6.9%. We expect a 22.6% CAGR in the bank’s earnings over FY09-11 (translating into 20.5% ROE). The stock is currently trading at compelling valuations of 1.1x FY10E and 0.9x FY11E adjusted book. Reiterate Outperformer with a price target of Rs120.

To see full report: YES BANK

>Investor's Eye (SHAREKHAN)

  • Stock Update >> Reliance Industries
  • Stock Update >> HDFC Bank
  • Stock Update >> Zee News
  • Stock Update >> Esab India
  • Stock Update >> HCL Technologies

To see report: INVESTOR'S EYE

>Flash Economics (ECONOMIC RESEARCH)

The importance of financial market liquidity for banks

The crisis has been characterised by the disappearance of liquidity in most financial markets. In this Flash, we look at the aspects that concern banks and the issues they give rise to:

• the first problem (to a greater extent for retail banks) is the disappearance of liquidity in the markets where banks raise funds (interbank, certificates of deposit, senior debt, covered bonds, ABS, etc.). This leads to an all the more serious problem when the intermediation position of banks is more substantial (i.e. the duration of assets is longer than the duration of liabilities);

• the second problem (to a greater extent for investment banks) is the disappearance of liquidity in the markets of assets held by banks, in particular via trading. This prevents the sale of these securities and forces banks to raise funds on a durable basis and not a transitory one (and this can spark a liquidity crisis) and means they need to be provisioned.

One could envisage a "radical" solution that would consist in:

• demanding banks have a small duration gap; but the role of banks consists in transforming short-term savings into long-term loans and this role disappears if they are not allowed to have a duration gap;

• slashing the size of trading books; but there is a vicious circle here: trading ensures market liquidity, and a ban on trading therefore leads to a problem.

If one does not want to use this radical solution, and therefore if one wants to allow retail banks to have a duration gap and investment banks to have trading operations, the only solution is for other economic agents to ensure liquidity in financial markets.

However, ensuring the liquidity of assets used by banks to finance themselves suffices, since then banks can finance their trading books even if the assets they hold (other than bank financing assets) become illiquid.

The last issue is how liquidity can be ensured in the markets of assets that finance banks. We would suggest:
• extending the government guarantee of deposits to these assets;
• give the role "of a buyer of last resort" of these assets to the central bank.

The crisis has been characterised by the appearance of massive risk premia in all financial markets, which result from the rise in default risk premia, but above all from the very strong increase in illiquidity risk premia, which stems from the virtual disappearance of liquidity from secondary asset markets, and explains why there are spreads that cannot be explained by default risk on its own.

To see full report: FLASH ECONOMICS


Stellar Performance

ACC Q1CY2009 pre-exceptional net profit at Rs4.08 bn is sharply ahead of our estimates (Rs3.40bn) on account of lower than expected other expenditure and lower Power and Fuel cost. Revenue for the quarter grew by 14.4% to Rs20.5bn, driven by 6.1% improvement in cement volumes (5.73mnt) and 7.9% increase in realizations to Rs3587 per ton. Sequentially realisation improved by Rs106/ton or 3%. Pre-exceptional EBIDTA (adjusting for a write back Rs197 million of reduction in value of actuarial liabilities) for the quarter was up 33.4% yoy to Rs6.28bn (our estimate of Rs5.31bn) while EBIDTA margins increased by 433 bps yoy to 30.5%, mainly on account of lower other expense. Sequentially P&F cost was down 14% reflecting the huge fall witnessed in international coal prices and thereby helping a sequential declined of 6.3% in total cost to Rs2491/ton. On account of strong dispatches, higher realizations and dramatic fall in international coal prices and other operating costs, we had recently upgraded our earnings estimate for ACC by 17% for CY09E to Rs59.5. We are further upgrading our earnings by 7.3% to Rs63.8 per share for CY2009. At current levels, the stock is trading at 10.1x CY09E earnings and USD79.9 EV/ton. We rate ACC as our top pick in sector and maintain our BUY recommendation on the stock with a price target of Rs697.


1) The reported result by the company includes write back on account of decrease in gratuity liability by Rs197 mn, which has occurred on account of change increase in discounting rate (G-Sec yields) sequentially for valuation of present value of employee benefit liabilities as per AS-15. We believe based on principle of conservatism these adjustments should have been done at the end of year. Also with the recent fall in G-sec yield this write back is likely to get reverse again. Hence we have added back Rs197 million to staff cost.

2) The State of Uttar Pradesh introduced VAT effective from January 1, 2008 pursuant to
which, sales tax exemption benefit was converted into a deferral scheme. Hence ACC’s reported net sales were lower by Rs 275.6 million for the quarter ended March 2008 and lower by Rs278.4 mn for quarter ended June 2008. Subsequently on representation by cement companies to restore sales tax benefit scheme, the State of Uttar Pradesh promulgated an ordinance during September 2008 restoring the sales tax exemption benefit. Consequently ACC net sales for quarter ended September 2008 included sales tax benefit of Rs 554 million for the period January to June 2008. For a like to like comparison we have added Rs275.6 million to Q1CY2008 net sales and shown like to like comparison on a per ton basis separately.

Results Highlights

■ ACC revenues for the quarter grew by 14.4% yoy to Rs20.55 bn on account of 6.1% increase in cement volumes (5.73mnt) and 7.9% increase in realizations to Rs3587 per ton. Sequentially realisation improved by Rs106/ton or 3%. Adjusting for note 2 mentioned above realisation improved 6.2% yoy.

■ Pre-exceptional EBIDTA at Rs6.28bn witnessed an increase of 33.4% yoy and was significantly ahead of our expectation (Rs5.31bn) mainly on account of lower than estimated other expense (Rs3.54bn as against our estimate of Rs4.1bn) and lower Power & Fuel cost (Rs718/ton against our estimate of Rs799/ ton).

■ EBITDA per ton on a yoy basis has witnessed an increase of 25.7% while the same on a sequential basis is up by a huge 33.5% to Rs1096 per ton. EBITDA margin for the quarter improved by 433bps yoy to 30.5% which was higher than our estimate of 26.3%.

■ Other expenses were down 11.5%yoy as last year expenses included approximately Rs250-300 of one time consulting fees relating to implementation of SAP and alternate fuel research. Also post February 2009 cement companies in Western and Eastern regions had cut rebates and discounts to dealers. This also has contributed to reduction in other expenditure for ACC.

■ Despite an 18% increase in Power and fuel cost (per ton Rs718) and 7.5% increase in Freight (Rs485/ton) ACC has management to restrict its total cost to Rs2491 i.e. an increase of just 1.5%. On a sequential basis it has actually declined by 6.3%.

■ However on a qoq basis, ACC power & fuel cost came down 13.7% reflecting the huge fall witnessed in international coal prices (ACC imports around 15% of its coal requirements). The benefit could have been much higher but for ACC carrying some high cost international coal inventory.

■ Interest cost was up 157.6% yoy to Rs144mn (we have treated Rs224mn interest provision on late payments of royalty on limestone as extraordinary exp) while depreciation charge was up 10.6% yoy to Rs789mn.

■ Consequently PBT for the quarter witnessed a growth of 27.4% yoy to Rs5.85bn. Pre exceptional net profit at Rs4.08bn up 24% yoy was significantly higher than our estimate of Rs3.40bn. The reported net at Rs4.04 bn was up 13.2% yoy (Q1CY2008 includes Rs368 mn on account of profit on sale of its investments in subsidiary)

To see full report: ACC


Audited Financial Result for the year ended 31st March, 2009



Audited Financial Results for the Quarter and Year ended 31st March 2009

To see report: MAHINDRA & MAHINDRA


Unaudited Financial Results for the Quarter ended 31st March 2009

To see report: IDEA



To see full report: HDFC BANK


Audited Financial Results for the year ended 31st March, 2009