Wednesday, March 3, 2010


An economy is measured by its GDP growth, which contracts or expands based on the potential activities in that economy. Those activities are classified in terms of operating work in the industrial discipline, the consumption by its citizens & the government spending in distinct affairs to stimulate the economy. However, apart from these classifications a macroeconomic view could be used to determine the economic endeavour in the economy; namely the crude oil consumption.

The trough phase which hit almost all economies in the world was portrayed by the slump in consumption of crude oil. The price on the energy complex witnessed a seesaw movement since 2008, due to faltering value in the US Dollar & escalating demand from China, aided the price to hit to a record level of $147 per barrel on July 2008. However, as global economy started to ail triggered slump in the global oil demand, therefore affecting its price, which hit a low of $32.4 per barrel at NYMEX.

The fall in demand was extended in 1st quarter of 2009, which reflected on crude price internationally, as it recorded a low of $36per barrel; a modest change from its previous year level of $32.4 per barrel. In the early of 2009 in March, the OPEC took steps to curb its supply levels to indemnify its losses, when price fell.

The demand of crude oil depends on the demand for heating oil & gasoline. These are the byproducts which has the most consumption. The demand on these products had stubbed, weighing on crude oil price, which traded at $37-$44 per barrel from January – April 2009. The lower prices forced refiners to shut their operations, especially in the 1st half of 2009, as refining cost had almost pared with wholesale prices.

With the revival of the US & Chinese economy in the 3rd & 4th quarter 2009, which posted better manufacturing & domestic growth, aided the crude oil price to rise towards $82 per barrel. Crude oil prices touched a high of $81.78 growing 127.61% from its yearly low & furthermore recorded growth of 77.94% for the year-to-date for 31st December 2009, since 2008.

The halt in refinery operations persuaded the prices to rise as reduction in supply of byproducts ensured rise in prices. The extension of demand dynamics came in from Asian countries such as China, South Korea, Japan & India which led the pack in 2009. However, one of the major reasons for the crude oil price to rise to over $81 per barrel was the slack in the value by the US Dollar. This shed almost 9% for the year 2009, as benchmark rates are dollar-denominated.

The 152nd OPEC meeting hosted in Vienna in March 2009 was the 1st step adopted in order to elate the price in the energy sector, where the outcome of the assessment resulted into curb in the crude oil supply, which aided the price to ascend from its yearly low of $36 per barrel. The curb on the production quotas from the OPEC members were mainly, due to the slump in demand from the US, Europe and Japan which cut their consumption capacity substantially, especially in the US & Europe, as trough hit their industrial & manufacturing growth. The supply by OPEC was reduced at 800,000 bpd, which helped in lifting the price to over $50 per barrel.

During May-June 2009, economic conditions in China bolstered the growth in the price of crude oil, as major industry & service sectors aided in the GDP level to rise due to the reflationary measures adopted by the country. China, the 2nd largest consumer for crude oil in the world, extended its reputation of being a voracious consumer in 2009. It consumed more than 6% in 2009 from its previous year’s level; China consumed 33.35 Million metric tonnes of oil in June 2009, the highest monthly consumption in that year. The consumption was more than 2.6% from its previous corresponding month in 2008.

To read the full report: CRUDE OIL


Riding on the regional bandwagon…
With its pure regional play and leadership position in key markets, DB Corp is well poised to capitalise on robust advertisement demand in the vernacular space, buoyed by consumption shifting to Tier II and Tier III cities. Riding on the regional bandwagon and implementing its aggressive marketing and pricing strategies the company has outpaced its peers. Continuing the trend, we expect the topline to grow at 11.9% CAGR (FY09-12E). With an improving operational performance and lower interest outgo on account of debt repayment, the PAT is expected to grow at 74.1% CAGR (FY09-12E). We are initiating coverage on DB Corp with a BUY rating.

DB Corp – Robust advertisement revenue growth
DB Corp’s presence in Tier II and Tier III cities coupled with its stronghold in its key markets had supported strong ad revenue growth. The consolidated advertisement revenue of the company grew at a CAGR (FY07-09) of 22.1% from Rs 486.6 crore to Rs 725.6 crore, while that of our print universe grew by 18.9% over the same period. Riding on pure regional play and vernacular diversification, the ad revenue for DB Corp is expected to grow at 14.3% and 13.4% in FY11E and FY12E, implying 12.8% CAGR over FY09–12E to Rs 1042.7 crore.

Expansion in new territories to give thrust to circulation revenues
Dainik Bhaskar is the second largest read newspaper in India with an AIR of 128.8 lakh. Consolidation in existing territories and new launches would result in 6.9% CAGR (FY09-12E) in circulation revenues to Rs 245.7 crore led by 4.6% CAGR (FY09-12E) in number of copies sold per day to 43 lakh copies and 2.2% CAGR (FY09-12E) in revenues per copy.

With increasing income in non-metros and consumption shifting to smaller towns and villages, media companies with a regional presence have been more resilient to the slowdown. We expect the current trend to continue and players that cater to regional demand would continue to
command a premium over national players. At the CMP of Rs 228, the stock is trading at 17.7x FY11E EPS and 16.5x FY12E EPS. We value the stock at 19x (~5% discount to Jagran Prakashan) FY12E EPS to arrive at a target price of Rs 263. We initiate coverage on DB Corp with a BUY rating.

To read the full report: DB CORP


Key highlights of 3QFY10 consolidated results:
Volumes: JLR – Tata Motors posted a growth of 28% qoq in JLR wholesale sales. The company sold 56,726 units of JLR in 3QFY10. The retail sales stood at ~55,000 units in 3QFY10 vs. ~47,000 reported in 2QFY10.

Revenues: Tata Motors’ consolidated revenues stood at Rs260.0bn in 3QFY10, up 47% yoy compared to 3QFY09 and up 23% qoq.

RMC: The RMC as a % to net sales was up by 35bps qoq at 66.9% in 3QFY10.

JLR reports 28% qoq growth in volumes; operating efficiencies kick in

Staff Cost: The staff cost was down by 220 bps qoq in 3QFY10 to 8.7%. It stood at Rs22.7bn versus Rs23.0bn in 2QFY10 thus signifying better operating efficiencies due to higher volumes.

EBIDTA: The consolidated EBIDTA margin improved by 420bps qoq to 11.7% in 3QFY10 versus 7.5% reported in 2QFY10. The EBIDTA stood at Rs30.5bn, up 92% qoq.

Other income: The Company reported negligible other income of Rs47mn in 3QFY10 versus Rs4067 in 2QFY10.

Interest and Debt: The interest cost in 3QFY10 stood at Rs5,458mn versus Rs5,590mn in 2QFY10. The total net debt outstanding is around Rs23bn.

Depreciation: The depreciation for 3QFY10 stood at Rs13,072mn vs.Rs8,479mn in 2QFY10. It also had a product development expense write off of Rs857mn in 3QFY10 versus Rs858mn in

Exceptional Item: It includes a notional loss of Rs2,342mn on revaluation of foreign currency borrowings, deposits and loans. The company had reported a notional loss of Rs2,184mn in 2QFY10.

PAT: The company reported a profit of Rs6,503mn, against a loss of Rs25.9bn in 3QFY09, translating into a EPS of Rs12.0.

View and Recommendation
The domestic story of Tata Motors continues to show robust growth on the back of revival in Commercial vehicles. The sales appear to be improving month on month for JLR which makes us cautiously optimistic about the revival. The new products and cost reduction initiatives have helped the company to report a positive EBIDTA margin although the increased interest cost and depreciation have eaten into the operating profits of the company. The stock is currently trading at a P/E of 15.2xFY11 E standalone EPS of Rs46.8. We maintain Accumulate on the stock.

To read the full report: TATA MOTORS

>India Consumer: January 2010: Food category outpaces HPC category’s growthChart

Retail sales off-take down marginally in Jan-10:

•FMCG sales grew by 9.5% YoY in Jan-10, compared to 12.1% growth in YTDF2010, as per AC Nielsen data for Jan-10.

•Top 10 players continued to witness deceleration in sales growth, with sales in Jan-10 growing 4.9% vs. 7.4% in YTDF2010. Industry growth was down marginally to 9.5% in Jan-10, as against 10% in Dec-09. HUL, Dabur and Marico witnessed a decline in revenue growth for Jan-10.

Food’s category outpaces HPC category growth in Jan-10: Laundry volume growth continues to witness significant acceleration (16% growth in Jan-10), although value growth remained muted at 2%. In our view, strong volume growth in laundry is on account of higher fill levels being offered by the industry participants. The noodle (24%), skincare (18%), biscuit (18%), chocolate (15%) and tea (14%) categories grew much faster than the industry. Coffee and talcum powder volume remained negative, with volumes down 4.4% each in Jan-10 (YoY basis). Despite high ad-spend in shampoo, the category registered flat growth in Jan-10. Interestingly, P&G, ITC, Nestle and Britannia’s retail sales off-take have grown faster in Jan-10 as against the growth witnessed for YTDF2010.

HUL(-0.9% growth in Jan-10 vs. 4.6% YTDF2010) lost market share sequentially across most categories (viz. laundry, skincare, toothpaste and coffee). HUL improved market share sequentially, however, in soap, shampoo and tea. HUL’s soap market share seems to be stabilizing at lower levels, as HUL has been investing heavily in its brands. Amongst the brands, Lux (price hike in Jan-10) lost market share (-30bps) sequentially, while Lifebuoy gained 20bps during Jan-10. Surf and Wheel were able to maintain share sequentially, but Rinlost as much as 25bps market share in Jan-10. HUL has already taken a price cut in Rin to arrest the market share decline. Meanwhile, P&G’s Tide gained 60bps sequentially in Jan-10.

Dabur (4.5% growth in Jan-10 vs. 8.2% YTDF2010) saw a slowdown in retail sales off-take in Jan-10, but continued to gain market share in toothpaste (primarily driven by Babool). Dabur Hair oil revenues have declined the most in last four years (down 5.5% in Jan-10), and Dabur lost 250bps market share (YoY) in Hair Oils.

Colgate(9.6% in Jan-10 vs. 9.7% YTDF2010) –although it has been able to maintain its seven-year high market share in toothpaste, its Colgate Dental Cream market share saw a decline, whereas Cibaca gained market share sequentially. Colgate’s toothpowder volumes have continued to decline since April-09.

Nestle (14.8% in Jan-10 vs. 13.8% YTDF2010) witnessed a marginal decline in its noodles market share in Jan-10 (16bps YoY).All other categories –coffee, chocolate, milk powder and baby foods –saw a year-on-year improvement in market share (100-500bps). Nestle’s coffee market share continues to improve, reaching a new lifetime high of 51.7% in Jan-10.

GCPL (12.6% in Jan-10 vs. 16.1% YTDF2010) improved its soap market share (+112bp YoY and +16bp MoM), primarily driven by Godrej No. 1, while Cinthol maintained its share in Jan-10. Hair color growth has slowed down dramatically from about 12% in 9MF2010 to about 2% in Jan-10. ô€‚¾Marico’s (-2.9% in Jan-10 vs. 5.2% YTDF2010) muted revenue growth continued in Jan-10, as it lost market share in hair oil and coconut oil on a year-on-year basis, but both categories interestingly witnessed market share gains sequentially. Parachute coconut oil has now witnessed a volume decline in market share on a YoY basis for the last nine months in a row.

P&G (15.5% in Jan-10 vs. 14.8% YTDF2010) has witnessed an acceleration in growth rate, driven by improvement in market share in laundry and feminine hygiene. Head and Shoulders gained share (+20bps MoM), while Pantene lostshare (-12bps MoM). The skincare category gained 50bps YoY, albeit off alow base (1.5% market share in Jan-10), driven by the launch of the Olay skin care product portfolio in India.ô€‚¾Britannia’s(4.9% in Jan-10 vs. 1% YTDF2010) brands mostly maintained market share sequentially; retail sales-off take saw a sharp improvement in Jan-10 (YoY).

ITC (11.2% in Jan-10 vs. 8.1% YTDF2010) gained 120bps YoY in soap market share, driven by Vivel (+60bps). ITC’s wheat flour lost as much as 500bps sequentially in Jan-10.

L’Oreal (19.7% growth in Jan-10 vs. 26.1% YTDF2010) witnessed acceleration in growth on the back of improvement in market share in hair color and skincare (YoY). The company now enjoys an lifetime-high market share in the hair color category.

To read the full report: INDIA CONSUMER