Top Corporate News during the week
Excise duty relief for automobiles company – Whole automobile sector to benefit
In the interim Budget, excise duty on two-wheelers, passenger cars, sports utility vehicles (SUVs) and commercial vehicles has been slashedbetween 3 and 6%. The cut in excise duties, which would largely be passed on to consumers, would effectively translate into average pricereductions of Rs 1,500-80,000 depending on the vehicle category. The cut will remain in effect till 30 June 2014.
While compact cars (under 4 meterin length), Motorcycles and commercial vehicles will now be charged 8% excise duty as compared to 12% levied earlier; SUVs which were slappedwith an additional 3% duty in the last year’s Budget, saw the steepest cut at 6%. They would be charged at 24% excise duty against 30% leviedcurrently.
Mid-segment and large sedans will carry excise duty of 20 and 24% respectively, against 24 and 27% levied previously. It was alsoproposed to make appropriate reductions in the excise duties on chassis and trailors; the rates can be reviewed at the time of the regular Budget.We believe this development will help in revive the demand for automobile sector and we may see buying getting preponed before June 2014, so asto take advantage of low prices. The key beneficiaries are M&M (SUV portfolio), Maruti (small car portfolio) and Hero Motocorp (2W portfolio).
Renuka Sugars to sell 27.5% to Wilmar Intl for Rs 5.2 bn; Preferential allotment of 257.5 million shares of fresh equity at Rs 20.08 pershare; Open offer of ~243.1 million shares or 26% stake in Renuka Sugars at Rs 21.89 a share – Massive equity dilution at cheapervaluation has disappointed the street and the stock may react negatively in short term and will stabilize at 7-8% discount to open offerprice
Wilmar International Ltd, the world’s largest palm oil processor, is acquiring 27.5% stake in Shree Renuka Sugars Ltd (SRS) for Rs 5.2 bn. Througha second round, Wilmar will raise its investment to about Rs 12 bn. Both the tranches of investment will involve the issue of fresh equity capital bySRS. The acquisition is being carried out through Wilmar’s fully-owned subsidiary, Wilmar Sugar Holdings (WSH).
The deal values SRS at Rs 18.8bn. It has been proposed that proceeds of the stake sale will be used to repay SRS Rs 37 bn debt in Indian operations. The company’s consolidateddebt was Rs 84.8 bn as on March 31, 2013. The first step involves the investment of Rs 5.2 bn by Wilmar, through a preferential allotment of freshequity shares of up to 257.5 million at Rs 20.08 each. After the preferential issue, existing promoters, as well as Wilmar, will hold 27.5% of SRSexpanded equity share capital.
Then, Wilmar and the Indian promoters will carry out an open offer for up to 26% (or 241.5 million shares) of thecompany’s expanded equity share capital at Rs 21.89 a share. The second step will involve Wilmar and SRS’s existing promoters participating in arights issue to raise up to Rs 7.3 bn. Meanwhile, SRS has also signed a joint venture agreement with its promoters and WSH to jointly control thecompany.
Both parties will have equal shareholding and board representation in SRS. While existing promoters will continue to oversee thecompany’s management, Wilmar will be actively involved in strategic decisions. The deal will help partly reduce SRS’s consolidated debt, whichrose sharply after the company acquired two Brazilian units in 2009 and 2010.
We believe the deal has been stucked at low valuations and the street is disappointed as the deal will lead to massive equity dilution and minorityshareholders has nothing to gain out of this deal. We expect the stock to react negatively in short term and will stabilize at 7-8% discount to openoffer price.
GPPL announces strong set of 4Q results. Accumulate from medium to long term.
GPPL’s top-line during 4QCY13 increased 19.5% YoY to Rs.1,285mn on the back of strong growth in container volumes and higher realizationsOperating margin improved by 969bps YoY and 885bps QoQ to 57.5% on the back of strong container volume growth, higher refer volumes, betterrealizations and favorable exchange movement. On the back of strong operating growth the company’s Adj PAT increased by 68.6% YoY toRs.607mn. Overall GPPL has announced a strong set of results and we recommend “Accumulate” on the stock from medium to long termperspective
Economy & Other News
Vote on account 2014: Excise cut on automobiles, capitalgoods will boost steel demand
Steel firms, grappling with slow demand and low iron ore suppliescould look for some cheer in the FM’s proposal to slash excise dutyon automobiles. The move is expected to boost sagging automobiledemand, as car majors have already lined up a slew of newlaunches. Large domestic steel players who have put up capacitiesfor high value automotive steels, may have some reason to smile.
Moody’s: India’s rating underpinned by economic size,diversity
India’s Baa3 bond rating is supported by a large and diverseeconomy, high domestic savings and adequate foreign exchangereserves, Moody’s said. But large fiscal deficits, recurrent inflationand weak infrastructure pose challenges to ratings. FM PChidambaram in his interim budget, estimated the fiscal deficit to fallto 4.6% of GDP in 2013-14. The rating agency expects India’s fiscaldeficit to remain higher than peers as the country’s low per capitaincomes limit the government’s income tax revenue base, whileraising spending pressures.
U.K. Inflation Falls Below 2% Target For First Time Since 2009
U.K. CPI fell below the 2% target for the first time since November2009, giving room for the Bank of England to leave its record lowinterest rates unchanged for some more time and avoid any rate hikethat risks economic recovery. CPI eased to 1.9% in January from 2%in December. The rate was expected to remain at 2 percent. Coreinflation that excludes energy, food, alcoholic beverages and tobacco,moderated to 1.6% in January from 1.7% in December
China Manufacturing PMI Slides To 48.3 – HSBC
The manufacturing sector in China is contracting at an acceleratingpace, the latest PMI from HSBC and Market Economics revealed. ThePMI came in with a score of 48.3 for February, touching a sevenmonthlow. The headline figure was well shy of forecasts for 49.5,which would have been unchanged from the January reading. Themanufacturing output index came in at 49.2 – also a seven-month low -down from 50.8 in January.