Friday, January 17, 2014

Global, Economy & Markets:

Global, Economy & Markets

India GDP growth of 8-9% in '15 won't surprise 
Jim O Neill, former chairman, Goldman Sachs Asset Management
17 Jan 2014; CNBC-TV18 

On global economic recovery & equities: I am quite confident that we will see more signs of strength in the economic activity. I would not be surprised if the world economic growth closes to 4 than 3 percent; the consensus is just over 3 percent. One would think that that would be good for equities, but the problem is that quite a few markets are generously priced or certainly not cheap. It is going to be certainly less of a straight line for equity markets and maybe we have some more volatility this year than we had last year. 

On timeline of tapering: They have given us a pretty strong sign that the planning at the moment had reduced an additional USD 10 billion every meeting. I do not really see any reason to shift away from that despite the payroll numbers. If you look at a lot of the other economic data including some of that published yesterday is resulting in most people revising their forecasts for economic growth for Q4 last year stronger, so I am expecting that Fed is going to stick to the kind of perfect tapering that they have told us.

In the face of such tapering how are global fund managers going to allocate money in 2014? My guess is a lot of them essentially end up behaving like the trend is your friend and if you owned US equities and you were underweight to a lot of these emerging worlds at least as is a defined person would have done better than those that did not. That is how we will probably start-off the year despite the fact that US market is expensive and despite the fact that some parts of the emerging world are giving really good value. I suspect that we are going to end up with a decent year for equities this year. It is going to depend on economic policy leadership from outside the US, especially from China, Europe, Germany and maybe even in India with the very important election.

On Indian Economy: India is really interesting this year. Some signs of improvements on the external account, some decent things going on at the central bank with a change in leadership there I would say and the election coming up in the spring and it would not take that much for Indian markets in my opinion to have a very good 2014, but it requires stronger and better leadership in terms of getting stuff done. What is missing is a government that is strong enough to deliver and that could happen this year. It would not completely surprise me that this time next year people are talking about Indian growth of 8-9 % for the rest of the decade. But we are not going to know the answer to that really until the election is out of the way.. 

Add high-beta stocks to portfolio, better times ahead: BNP
Manishi Raychaudhuri, MD, Asian Equity Strategist, HoR
15 January 2014; CNBC-TV18

Manishi Raychaudhuri, MD, Asian Equity Strategist thinks that we are in for better times in 2014 as far as Asian equities are concerned. We may not have a significant rerating but earnings growth of about 10-12 percent should ensure that Asian equities including Indian equities move up by a commensurate amount in course of 2014 and the big drawback that we saw in 2013 which was the earnings or rather the equity returns getting rattled away by the currency, I don't think that is likely to happen in 2014. Even for India for example, I think the local currency returns and the dollar denominated returns are likely to be pretty similar this year.

The core part of an Indian equity portfolio should actually concentrate on net exports and private consumption, particularly rural consumption. We are left with IT services, pharmaceuticals, merchandise exporters and some of them are in the auto space. We are also left with some of the rural consumption plays like Mahindra & Mahindra (M&M) and ITC. 

Raychaudhuri think that in 2014, one has to focus on some part of the high beta universe - selectively in engineering, infrastructure companies and private sector banks. We are focusing on those private sector banks which are not so much exposed to wholesale funding and which have a much larger current account savings account (CASA) deposit ratio. 

Raychaudhuri is negative on metals space, be it base metals, non-ferrous or ferrous, because the extent of overcapacity that has been created in the metals universe is nowhere close to being washed out. Particularly in China and other parts of Asia capacity utilisation remains quite low. Steel prices had risen recently, but Raychaudhuri felt it was more due to a combination of seasonal and one-off factors. This is kind of a short-term blip. Therefore one would be advised to possibly re-enter Tata Steel only after some more correction.

In the midcap universe, there is still significant degree of valuation discount compared to the large caps. We think that select midcaps particularly in certain sectors are likely to do well. We just tend to focus on good companies, which have a strong growth outlook and good management quality. There are such midcaps possibly in the IT services universe, the likes of Persistent Systems or MindTree of Tech Mahindra. There are some of them in the pharmaceutical, retailing or the so called business to consumers’ space..

Corporate
To hike KG-D6 gas production by 50% by Dec'14: BP India 
Sashi Mukundan Region Prez & Country HD BP India;
16 January 2014; CNBC-TV18

Sashi Mukundan Region Prez & Country HD BP India KG-D6 gas production will rise by 50 percent to 16 mmscmd by CY14. Mukundan welcomed the new gas price regime, and said BP would contribute 30 percent and Niiko Resources 10 percent towards the bank guarantee RIL has to submit to avail of the new gas price from April 1, 2014. BP India expects to quadruple its production by 2020 if it gets right support and approvals from the government. 

Mukundan says the new gas price notification is a step in the right direction -- getting towards the arms length market-determined pricing. The intent is clear, with the government trying to bring this to a market pricing. Clearly, this is the good thing because as we get closer towards the market price it helps in companies stepping up, taking more risks, doing more activity in this area. And what we really need in this country is more activity.

At the end of 2013 we were producing around 11 mmscmd of gas. With just the interventions that we are doing right now with the field, also the fact that we had an oilfield which is producing most of its oil and now we are getting ready to blow down the gas in that. When you take all of this together by the end of this year before we start putting in the compression we hope to at least increase the production by another 50 percent. Our project plans continue, which will start coming in 2018 and beyond. Our series will come up somewhere between 10 and 15 mmscmd a day, satellites and so forth. 

The global giant has deciding to give shale gas a skip in India, and is looking at LNG and petchem as future engines of growth. It’s considering an equity participation in Mundra and a USD 1 billion investment for a 50:50 joint venture with state-run Indian Oil to set up one of the world's largest acetic acid facilities in Vadodra..

Shift in business model driving high margins: 
Anant Gupta,CEO, HCL Tech
16 Jan 2014; CNBC-TV18

HCL reported a net profit of Rs 1,496 crore (up 5.7% QoQ) on revenues of Rs 8,184 crore (up 2.8 %). The company’s net margin rose from 17.8% in the previous quarter to 18.3% despite the fact that the company effected a wage hike.

Calling it a strong and balanced growth that showed up across businesses and verticals, HCL Technologies CEO Anant Gupta said the firm's impressive second-quarter showing could be attributed to a renewed focus on clients and introducing efficiencies within the firm.

CFO Anil Chanana said the wage hike was offset by greater efficiencies and savings on depreciation and general and administrative expenses and a general over the past year, HCL’s net margins have gone up from the 25% range to over 30%. 

“The company has started a shift in the business model from time and material services to outcome-based services. The new model is risky but if you know it well, it supports high margins,” CEO Gupta said.

Indian pharma to revive by Apr; see better margins
Pankaj Patel, Chairman & MD Zydus Cadila
14 Jan 2014, CNBC TV18

On US market:- US as a market offers a tremendous opportunity. Firstly, the market is very large and the Indian companies have just scratched the surface. The opportunity to grow in US for Indian companies is significant for two-three reasons. The market has a lot of untapped opportunities where generics have not yet come in. Furthermore, Indian companies have obvious cost advantage and this cost advantage actually helps the company to really compete on the US market. Over a period of last 10 years, Indian companies have established themselves into US market as a reliable supplier and I am clearly seeing that this will give us more opportunity in future and the growth journey will continue. 

On US FDA inspections and issues:- I think US FDA has responsibility to make sure that safe returns are available for the US population and in the process they have they have stepped up their inspection in India because India has emerged as a major supplier. It is actually going to help the industry in long-term because what will happen is that industry will graduate to the next level and I very strongly believe that this is a good thing to happen for us as an industry and it is going to become a boost to future growth for the industry. 

On domestic pharma business recovery:- I think the industry would start recovering now. I think the initial shock period is over and the cost reduction which has happened would also over a period neutralize. I expect by April, May when one year will be completed of the new pricing, one would start seeing higher growth which is going to be double digit. Industry for last couple of months has already shown positive growth and I see clearly by April-May the industry will move into double digit growth. 

On research and development (R&D) spend going forward: We continue to spend about 7% of our turnover on R&D and that will be continued in future as well. We have 20 different programs under which we are continuously working, we have 3 lead programs which are moving towards phase II clinical strategies and we will continue our journey. This is a very long-term journey as you know it takes 10 years to develop a new chemical entity and we are moving in a way to create a basket of products which will actually make us an innovation based company.

R&D spend to go up by 9-10% in next few years
Satish Reddy Vice-Chairman & Managing Director Dr Reddy's Laboratories 
15 January 2014; CNBC-TV18

On R&D spend going forward:- We already indicated about a year back that it will go up in the coming years. Just to give an idea of the numbers, I think first quarter we talked about around 9 percent and I think that is what it is going to be, between 9 and 10 percent for the next few years.

On drug discovery:- There was a problem with the class of compounds that we were working around and ultimately when the entire class came under a cloud we had to abandon the programme. So discovery got reprioritised after that. We shut down the lab in Atlanta and then we brought this whole discovery programme under a company called Origin -- which was 100 percent owned by Dr Reddy’s and then it became part of the business model.

Research focus:- The company’s focus on spends in terms of research; specially in medium to longer term, which has also been moved towards what we called the proprietary products.

On biosimilars:- There are biosimilars at one end, although they can be called generics, but they do not call for innovation at a completely different level. There are proprietary products, which are more of speciality generics. Besides, there is also a big amount which is being spent and also it is going up in complex generics. It is where the company has again moved up quite a bit and that is one of the areas, which is taking up a significant focus of R&D at this point of time.

Ad revenue up 15% minus election advantage
Girish Agarwaal, Non Executive Director, DB Corp
16 January 2014; CNBC-TV18

DB Corp’s Q3FY14 net profit jumped 34% YoY to Rs 94.5 crore, compared to Rs 70.6 crore in the third quarter of last fiscal. 

Non Executive Director Girish Agarwaal says overall advertising revenue grew 18 %. Taking out the election advantage, ad revenue grew 15 percent, he says

Apart from elections, the big category which has shown a growth is automobile, lifestyle, fast moving consumer goods (FMCG) and real estate. Because of Diwali season these categories were prominent in the market and we were able to take this growth importantly in all our markets especially Gujarat, MP and Rajasthan. 

The borrowing which has gone down largely because of whatever the repayment were due, has been paid; there is a six monthly payment to be done on the balance loan which we are doing as per schedule. So, there is no preponement of repayment happening from our side since the total exposure on loan is limited. 

Preoperative expenses on Bihar were already factored in the last quarter and also maybe some part in the month of January also. After January 19 when we are launching our Bihar edition, there will be regular operational expenses on investment in Bihar and that will also be part of the profit and loss (P&L) going forward.

 
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source: Axis bank

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