Top Corporate News during the week
Maruti Suzuki to seek minority shareholders’ nod over Gujarat plant – Changes in certain structures of the deal positive in short term for Maruti
Maruti has decided to seek the approval of minority shareholders as a measure of good corporate governance for setting up a Gujarat plant under parent company’s subsidiary. The company said 3/4th or 75%, of the minority shareholders will have to give a nod to the deal for it to go through. Suzuki holds the majority 56% stake in Maruti, the rest is held by the Indian public, institutional investors as well as LIC (7%).
The deal was opposed by at least four insurance firms and 12 mutual funds — all holding shares in Maruti. According to the street, there is the fear that the deal will reduce Maruti from a car manufacturer to a trading concern.
As per the new proposal, all capital expenditure for the new plant will be funded by depreciation and equity brought in by Suzuki, instead of using a “mark up” on cars. Also, in case the parties mutually decide to terminate the contract manufacturing agreement, the facilities of the Gujarat subsidiary will be transferred to Maruti at book value instead of the fair value method worked upon earlier. We believe the new structure of deal is in favour of minority shareholders and removes the ambiguity on transfer pricing and is positive in short term for Maruti.
TCS foresees weaker Q4 due to slower demand in major markets, however expects to beat industry estimates for FY2015. Negative in short term; Accumulate on dips.
Tata Consultancy Services Ltd (TCS) said in a meeting with analysts that it expects a weak Q4 on account of a slow start to the year after the holiday season and a ―softer‖ Indian market following uncertainty during an election year. The management also expect margin to decline by ~ 40- 50 bps for Q4 on cross currency movement and higher investments. On the positive front the company expects its revenue growth next financial year to exceed that of the industry and also maintain its long term margin expectations.
Govt allows five more banks to import gold in India – Easy availability will lead to reduction in premiums over the market rate; Marginally positive for jewellery industry – Titan, TBZ etc
The Reserve Bank has allowed 5 domestic private banks to import gold. The move could boost supplies and bring down premiums in the domestic market. The central bank has allowed imports by HDFC Bank , Axis Bank, Kotak Mahindra Bank, IndusInd Bank and YES Bank.The government had enforced an 80/20 rule in July, making it mandatory to export a fifth of all gold imports. Under that, only six banks and three state-run trading agencies that had facilitated export of gold or jewellery in 3 years were allowed to import.
The six banks were mostly state-run lenders. The move to allow more banks to import gold may raise shipments to 40 tonnes a month from more than 20 in February. India used to ship in 70 tonnes a month, the biggest import after oil that had pushed the current account deficit to a record in the year ended March 2013. We believe this development to be marginally positive for jewellery industry – Titan, TBZ etc.
Economy & Other News
RBI’s foreign exchange reserves in gold fall 15%
The central bank’s foreign exchange reserves in gold fell 15% in value between March and September last year, and the yield on reserves fell 2 basis points amid low interest rates across the developed world. The RBI parks its foreign currency reserves with other central banks, Bank for International Settlements (BIS), overseas branches of commercial banks and sovereign and quasi-sovereign debt instruments.
Sugar output down 8.5% till Mar 15 of this year: ISMA
The country’s sugar production has declined by 8.5% to 19.38 million tonnes till March 15th of the current marketing year due to lower output in key producing states, according to industry body ISMA.
The production stood at 21.1 million tonnes in the corresponding period last year. Indian Sugar Mills Association (ISMA) has revised overall sugar production forecast downward by 5% to 23.8 million tonnes for the ongoing 2013-14 marketing year (October- September). Last year, the output was 25.1 million tonnes.
U.S. Industrial Production rises 0.6% amid rebound in Manufacturing Output
U.S. industrial production rose by more than expected in the month of February. The industrial production increased by 0.6% in February following a revised 0.2% decrease in January. Economists had been expecting production to rise by about 0.2% compared to the 0.3% drop originally reported for the previous month. The stronger than expected rebound by industrial production was largely due to a notable increase in manufacturing output.
Japan Trade Deficit ¥800.3bn
Japan posted a merchandise trade deficit of ¥800.3bn in February sliding into the red for the 19th consecutive month. The headline figure missed forecasts for a shortfall of ¥600.9bn following the downwardly revised record deficit of ¥2,791.7bn in January (originally ¥2,789.9bn). Exports were up 9.8% also shy of expectations for 12.5% following the 9.5% increase in the previous month.
Last week was action packed with Russia moving rapidly to Annex Crimea- the Black Sea Peninsula and West imposing First round of sanctions against Russia to press Putin against Crimea grab. Sanctions prompted S & P to cut Russia’s outlook to –ve. Separately, Fed signaled faster timetable for interest rate increase. With the outlook for the pace of policy tightening faster than the market expectation, it raised fear of possible outflows from EMs back to US. Domestic market found legs on back of ―Namo Mania‖ helping it to stand tall amongst the global uncertainty. YTD FII buying crossed $ 2.5 bn.
Chinese growth slowdown which is becoming an increasing cause of concern will be the focal point of global attention as investors eye PMI data due on Monday for possible signs of slowdown. Data on Industrial profits; also due next week would be the focal point of attention. On Russia/Crimea front, things could get murkier in case Trade and/or Financial Sanctions are imposed on Russia as it would involve retaliatory action from the later. Next 3-4 week promise to be highly volatile for the local market.
While we have FnO expiry for March series, investors will be eyeing RBI policy due on 1st April. It becomes important as the inflation – both CPI and WPI has been falling and the growth continues to flounder. Cyclicals would be in focus as we head towards the general elections. Select mid caps would find support on account of year end NAV popping. Result season kicks off w.e.f. 2nd week of April adding to stock specific volatility