Thursday, November 24, 2011

>INDIA STRATEGY: 2QFY12 Review: Slow but in line profit growth

Margins at 5-year lows
The bad news is that profit growth continues to be mediocre, growing 11.4%
during the quarter. The good news is that after sharp disappointments in the
previous 2 quarters, earnings were slightly ahead of our expectations for the
Sensex companies. Excluding oil PSUs, however, earnings were a slight
disappointment. Also, our earnings exclude forex mark to mark losses that impact
~3% of the Sensex earnings. However, the spread is still poor – almost half the
companies disappointed in earnings growth. Lastly, Margins continued to decline
with Sensex margins falling by 240bps and currently at 7-year lows.

Energy & Banks drive profit growth; Metals & telecom drag
Energy (RIL), Banks (ICICI Bank, HDFC Bank) and Consumers (ITC) were the
key profit drivers for Sensex earnings. The biggest contributors to slowdown in the
profit growth were Metals (TISCO, Hindalco), Bharti and DLF were the drag on
Sensex earnings.

Earnings downgrades continue; FY13 more at risk
The result season has seen FY12 Sensex EPS downgraded by 2% to Rs1115
and FY13 by 5% to Rs1275. This justifies our view that FY13 is at greater risk
than FY12 (we expect FY13 EPS to be downgraded to Rs1200).

To read the full report: INDIA STRATEGY

>CEMENT SECTOR: Seasonal uptick in prices continue

Key highlights of our interaction with cement dealers across the country:

Northern Region: Price hikes continue
Prices in this region have surged by Rs5-15/bag over the last month. The
availability of cement in the region has improved m-o-m. Though few orders for
non trade segment has commenced in certain pockets, major supplies are still
being diverted to trade segment to exploit the premium of Rs10-15/bag.
The region is showing slight improvement in the offtake but demand still hasn’t
reached high levels expected post the festive season. Meanwhile, producers are
making attempts to push further hikes with pockets like Haryana and Amritsar
expecting announcements of price increases in the coming week. However given
sharp prices hikes over last 3 months, we expect prices to stabilize at current
levels, given the fact that cement offtake is yet to improve meaningfully. Also with
the advent of winter season (which usually impacts construction activity in late
December & January because of extreme temperatures) we believe that any
further hikes are unlikely to get absorbed immediately).

Eastern region: Spike in clinker prices push up cement prices, further price hikes unlikely to be absorbed
Major price hikes of Rs20-25/bag have been taken in the region over the last one
month. This is the fourth consecutive month where producers have hiked prices
with the latest hike coming in on 22nd November. Main reason for this surge is the
spike in the prices of clinker in the region pushing cement prices further up. From
the lows of Rs235/bag in July-11 cement prices have improved by ~Rs60/bag
(+25%) to current levels of Rs290-293/bag.
Demand remains at the same level as last month. However dealers believe that
the prices have almost reached their peak and even if demand improved from
hereon it would not give much room for prices to be triggered upwards as the
markets would not be able to absorb such high price.

Western region: Further hikes expected led by improvement in offtake
Cement prices in this region have increased by Rs5-10/bag over the last one
month. Though offtake has improved marginally for the region, it is expected to
gain momentum only by December-11.
Dealers are expecting another round of hikes to happen in the next 10-15 days
itself. We believe that unlike other regions, west has the capacity to absorb the
price hikes as it is expected to show improvement in offtake to back up these

Central Region: Weak demand making absorption of hikes difficult
Demand in the region remains at almost the same level as last month. Prices were
hiked by Rs5/bag only in certain pockets like Meerut. However attempts of hikes in
other parts of the region have not materialized owing to the lack of healthy demand
growth. Currently prices are just Rs10-15 / bag away from their YTD highs.
Though areas like Bhopal are expected to hear hike announcements to the tune of
Rs10/bag in the coming week, it remains to be seen whether it could be absorbed by
the market. Dealers expect demand to show recovery only by December.

Southern Region: Prices hold fort despite monsoon slowdown
The region continues to be plagued by multiple issues with Political situations in
Telangana and Karnataka and additionally the monsoon season further dragging
down the cement offtake in this region. However led by producer discipline, prices in
the region hold fort in most pockets with slight reduction seen only in Tamil Nadu.

In certain regions like Hyderabad, brands Ultratech and Bharti have rolled back the
discounts extended to dealers as a result of which prices for these brands have
increased. Demand continues to be in the negative with offtake expected only post

To read the full report: CEMENT SECTOR

>Indian Housing Finance Market Outlook to 2015

Exploring the under-penetrated rural market

After the evolution of the housing finance industry in India, the housing industry has witnessed tremendous growth. The price of the financial products has increased and the increasing number of players has intensified the competition. Various companies are coming up with innovative ideas to market their product differently and effectively. The market has evolved from being dominated by the sellers to now being led by the buyers’ preference. With the constant increase in the personal disposable income of the middle class, buyers now have higher bargaining power with several options available in the housing finance market. Houses in India are available at reasonable prices which fit into the budget of average household. The increasing demand for homes has attracted various construction companies as well as home loan companies.

The economic stability in India reinstated the confidence of foreign players which had a positive bearing on the construction industry in the country. This opportunity gave foreign players opportunity to invest in India in large scale projects. The FDI (Foreign Direct Investment) limit in the country was raised to 100% in housing and construction projects after witnessing a positive response from the foreign players. The increased flow of funds stirred the growth in the sector.

The demand for households has increased over the period. The provision of houses for the poor in order to fulfill the shortages is one of the biggest challenges being faced by the government. Nearly 15% of the population in the urban areas resides in slums. According to the census of India, 35% of the individuals living in urban areas reside in a single room house and in nearly 68% of the cases 4 or more individuals reside in these single room houses. Nearly one fourth of the Indian population is below the poverty line. There is nearly a shortage of 24.71 million units of houses in urban areas out of which 99% belongs to the EWS and LIG. The above stated fact reiterates that there is a shortage of houses for the poor and the situation of housing for all needs to be addressed as quickly as possible.

The real estate sector is one of the major contributors which support the economic development in the country and forms a major component of the financial sector. The growth registered in this sector has a positive effect on other sectors such as generating employment thereby increasing the personal disposable income of people. Undoubtedly, housing investment is one of the stepping stones in the development of the economy.


Emergence of banks has led to a tremendous growth of the housing finance industry. The industry has registered an impressive growth of nearly 30% in the last 5 years

The growth of housing finance in the country is largely because of the growth in the commercial banks as well as Housing Finance Companies (HFC’s). Over the years, there has been a considerable growth witnessed in the number of HFC’s. As on mid of June, 2010, there were nearly 52 HFC’s operating across the country which are listed with the National Housing Bank (NHB).

Scheduled Commercial Banks (SCB’s) also offer home loans and help in mobilizing the savings. Apart from SCB’s and HFC’s, there are Co-operative Institutions and Micro Finance Institutions which operates in both rural and urban areas to serve the needs of various individuals.
Emergence of banks has led to a tremendous growth of the housing finance industry. The industry has registered an impressive growth of nearly 30% in the last 5 years. However, 2008 and 2009 witnessed a slight downturn in the economy because of the economic turmoil across the globe.

Over the years, the structure of the housing finance industry has evolved. Commercial banks have increased their market share whereas the share of HFC’s has registered a downfall. Owing to their enhanced area coverage and their accessibility to low cost deposits, the share of commercial banks has almost doubled from 31% in 2000-2001 to 60% in 2008-2009. The share of HFC’s has decreased from 69% in 2000-2001 to only 38% in 2008-2009. National Housing Banks (NHB’s) monitors the development and challenges which have a bearing on the growth of the housing finance market in the country.

To read the full report: HFM