Finacea Times (Sept 15)

FINACEA TIMES September 2015

Quarter Review

The quarter that ended June 2015 brought decent growth for the Indian auto sector.

Barring the MHCV segment whose topline grew close to 23%, the overall industry

still grew by 0.9% including two, three & four wheelers and ancillaries. The rural de-

mand was subdued as anticipated due to low farm incomes. Thus, players like M&M

and Hero Moto corp. that had a greater presence in rural markets, posted a negative

YOY growth in sales numbers. The gross margins continued to rise due to consistent

fall in commodity prices and enabled the industry, as a whole, to expand GPM by

303 basis points.by 32.8%.

IN THIS ISSUE

Auto Sector

Analysis

Steel Sector

Analysis

Bajaj Auto: The Company’s performance was below industry expectations with domestic consumption and

exports both falling on QoQ with an inferior product mix; some passed through the currency benefits in

export markets. EBIDTA margin stood at 20.3%

Eicher motors: Lower Other Income and higher Tax Rate led to a miss on the bottomline with PAT rising

13.6% on QoQ. However, given the current growth trajectory and cult following of Royal Enfield, the top-

line is expected to benefit.

Hero MotorCorp: Even though rural markets dented growth, increased demand in urban markets raised

the PAT by 18.8% on QoQ. Moreover, soft commodity prices and cost reduction boosted up gross mar-

gins.

Even though they gained in the motorcycle segment, they have plans to regain lost grounds in scooter

segment with two back to back launches.

M&M: PAT fell to 3.3% YoY due to given subdued farm earnings. On the sales front, the volume fell in all

segments and pushed the margins further. In the coming months, the company plans to launch two new

Laggards and Leaders Ashok Leyland: The Company posted stellar numbers in the quarter gone above industry estimates and out-

performed the sector as a whole with a 45% growth in sales. Due to better product mix and lower input

costs, the profit margins grew by 340bps.

Industry Outlook

Given the macroeconomic conditions of the economy, the auto sector is poised to grow in the coming

few quarters, the growth led by passenger and commercial vehicle segments. Rural demand though,

would be mooted further due to less than normal monsoon this season.

What could potentially aid to the growth, is the easing of interest rates, rising disposable income, gov-

ernment reforms picking up, bottoming commodity prices and the coming festive season.

Anticipating strong tailwinds from these factors, the industry has lined up a number of new launches.

MSIL is coming up with three new launches around the season, Ford is coming up with two and M&M,

Renault and Tata are joining the bandwagon. In the two wheeler segment, Honda holds a kitty of 9

launches in the coming months with Bajaj, Hero Moto corp. and TVS coming up with 2 launches each.

Net Sales (Rsmn)

Growth (%) Ebitda (Rsmn)

Growth (%) OPM Change (bps)

Company Q1FY16 YoY QoQ Q1FY16 YoY QoQ Q1FY16 YoY QoQ

Ashok Leyland

38,412 55% -15% 3,887 235% -15% 10.10% 543 -3

Bajaj Auto 56,135 7% 18% 11,397 15% 37% 20.30% 141 274

Eicher Motors

29,167 30% 14% 4,316 52% 18% 14.80% 213 55

Hero Mo-tocorp

69,553 -1% 2% 10,479 11% 25% 15.10% 160 273

Mah&Mah 98,304 -4% 3% 12,525 -1% 29% 12.70% 37 261

Maruti Suzuki

134,249 18% -1% 21,891 65% 1% 16.30% 462 42

Tata Mo-tors

610,195 -6% -10% 98,150 -16% 6% 16.10% -207 240

TVS Motor 26,212 14% 7% 1,637 34% 1% 6.20% 94 -36

Sector Analysis on Force Motors Quarterly results review

Force Motors has posted their results for the first quarter ending 30th June, 2015. The company recorded a net profit of Rs. 35.8 crore for the quarter as against Rs. 19.4 crore in the previous year. The total income for the quarter accounted at Rs. 640 Crore, up from the previous year's Rs. 545 crore. EBITDA for the company was at Rs.55 crore as against Rs.37 crore, while the EBITDA margins im-proved from 6.7% to 8.6% in the current quarter .

-Shantanu Srivastava 2015-17

Stock Valuations

The share price of the company surged from Rs 524 on 30th June 2014, to Rs 1511 on 30th June this year,

registering an increase of 188 percent in 12 months. The stock currently trades at Rs 2365 and gained

6.75 percent on Friday on the National Stock Exchange (NSE).

Force Motors’ increasing demand in LCV sector helps it to boost revenue. The company derives around

68% of its revenue from LCV’s and most of the vehicles sold in this segment are Passenger vehicles which

account for 88% of the total LCV sales. Their current domestic tractor Sales Volume is 28% higher than that

of the previous year. Also, Force Motors’ utility vehicle’s segment accounted for a 10% YOY growth so far.

The former financial year was able to provide Force Motors with promising results and has ensured their

top position in the Automotive Industry.

Q1/14 Q2/14 Q3/14 Q4/14 Q1/15

524

823

1075

13981511

Force Motors Quaterly Price Movement

Industry Ratios

Key Ratios FY14 FY15

EBIDTA Margin (%) 4.8 6.2

EBIT Margin (%) 0.6 2.8

Net Profit Margin (%) 3.9 4.3

Dividend Payout ratio (%) 5.1 6.5

RoE (%) 6.3 7.7

ROCE (%) 1 5

-Siddharth Chauhan 2015-17

Though domestic steel consumption grew to 20.076 million tons (MT), which was an increase by 7%, In-

dian companies tackled huge losses in the first quarter of 2015-16. One of the major reasons behind this

imbalance was an increase in imports from countries like China, Korea and Japan that disrupted the mar-

ket share of domestically produced steel. Also, the downfall in the iron ore industry resulted in the steel

Name of the Company

2014-15 1st Quarter (Rs in Crore)

2015-16 1st Quarter (Rs in Crore)

JSW Steel 657(Profit) 107 (Loss)

JSPL 418 (Profit) 339 (Loss)

SAIL 530 (Profit) 321.64 (Loss)

TATA STEEL

On the global front, the world steel industry is diagnosed with a huge over capacity due to slowdown in major steel consuming regions like Japan, The U.S. and The European Union.

In order to curb these losses, the government is planning to impose a 20% duty on the Hot-Rolled steel import, which can potentially have an impact on the competition for its domestic manufacturing sector. The price of Hot-Rolled steel has fallen in the bracket of Rs3000–Rs4000 per ton in the April–June quar-ter. The latest government action on steel imports came after significant downward price pressure on India’s steel production. The overall steel demand has been easygoing, growing at a steady rate of 4.6% in the April–August quarter. It is expected that during this fiscal year domestic steel’s demand will be around 5%, similar to that of the June quarter. Imposing duty will further prevent the fall in the prices of domestic steel but they won’t be able to the hike price as there is no demand. It will also discourage im-ports from Korea and Japan.

Last week TATA STEEL raised about Rs2500 Crores by selling its stake in TATA MOTORS. Such activities along with improvement in operations can safeguard the companies from the ongoing crisis.

The high debt situation of the Steel companies poses to be a great threat to the asset quality of banks, as their performance has not kept pace with their investments. Losses in the steel industry are hamper-ing the banking system of the country, which is already suffering through a bad debt of 3Lakh Crore ru-pees. Most of these banks are public sector banks and have given out loans for projects taken up by the steel industry. The high proportion of NPAs has been weakening their capacity to give further loans to boost the economic growth. As a result of all this, the government will have to inject more capital into the banking system to ensure the smooth functioning of banks.

According to experts, after looking at the performance in the June quarter, it might take around 18-24

months for the current slump to overturn and they are also of the opinion that reviving the demand is

crucial as compared to the duty imposed.

STEEL SECTOR

-Shishir Toshniwal 2015-17

SECTOR ANALYSIS ON TATA STEELS

Established in 1907 in India, Tata Steel Group today is among the top-ten global steel companies. Tata

steel recently declared their quarterly results for the first quarter of financial year 2015-16.

Tata Steel rose by 2.71% to Rs 253.60 on BSE after their consolidated net profit jumping to Rs 1248.61 crore from 814.09 crore over the last quarter because of a one-time exceptional gain and other in-comes. There was a 15.23% fall in their Total income to Rs 31062.50 crore from 36643.35 in Q1 June 2015 over Q1 June 2014 due to a decline in their Net Sales.

Effect on stock prices

The quarterly results were announced on 11th August 2015.Meanwhile, the BSE Sensex was down 133.94 points, or 0.48%, to 27,732.15 on 12th august 2015.

On BSE, so far, 3.70 lakh shares were traded in the counter, compared with an average volume of 8.09 lakh shares in the past one quarter.

The stock hit a high of Rs 256.20 and a low of Rs 251.15 further hitting a 52-week low of Rs 245.25 on 31 July 2015. The stock hit a 52-week high of Rs 554 on 19 August 2014.

The stock had underperformed in the stock market in the past one month till 11 August 2015, falling 12.12% compared to a 0.74% rise in the Sensex.

Bottom line The large-cap company has an equity capital of Rs 971.22 crore.

Face Value Tata Steel's bottom line in Q1 June 2015 was propelled by a surge in non-operational income. This was also due to one-time and exceptional items. The operating performance was weak. The company's Earnings Before Interest, taxation, depreciation and amortization (EBITDA) after adjusting for one-time and exceptional items fell 35.28% to 2799 crore from 3600 crore in Q1 June 2015 over Q1 June 2014. Tata Steel's non-operational income or other income jumped 252.62% to Rs 762.17 crore in Q1 June 2015 over Q1 June 2014.

Consolidated steel deliveries fell to 6.33 million tons in Q1 June 2015 from 6.46 million tons in Q1 June 2014.

Significant import of steel during the quarter was behind the fall in the steel prices in India. Tata Steel's turnover from its Indian operations fell 13.12% to Rs 9094 crore from 12698 crore in Q1 June 2015 over Q1 June 2014.

SWOT Analysis

Strength

1. Tata steel Raises over 14 million tonnes of ores from its captive collieries, iron ore mines and quarries all across India 2. Tata steels Adaptability in the fast changing market 3. Excellent integration with Corus which has more than 2000 metallurgists. 4. Control over raw materials 5. Economies of scale 6. Tata brand name 7. Operations in 26 countries and a commercial presence in over 50 countries

Weakness 1. Operational efficiency is not as good as competitors and international leaders 2. Lagging in technological aspect.

Opportunity

1. Newer technologies- The Corex process, The Hismelt pro-cess, Direct iron ore smelting 2. Public private partnership with government 3. Acquisition of coal blocks in Asia, Africa and other areas.

Threats 1. Rising coal prices and depleting minerals 2. Government & regulatory norms 4. International competition form market leaders

Competition

Competitors

1. SAIL 2. JSW Steel Ltd 3. Essar Steel Ltd 4. Arcel or Mittal 5. POSCO

Present situation Tata steel is being traded for 215.40 on BSE as on 24th September, which is significantly lower than the previous quarter ; the average price of stock being 217.34 in this second quarter . The present consolidated market cap is 20919.98 Cr; the total share capital is 971.40 with the share face value of

-Abhishek Singh 2015-17

Three Chinese brothers, Bu, Chu, and Fu, want to illegally live in America. The brothers decide to change their names to seem American. Bu changes his name to Buck. Chu changes his name to Chuck. And Fu got sent back to China. A lady sees some Chinese characters on a Chinese menu. She likes them, so she goes home and makes a shirt with the symbols on it. Later that day, she bumps into a Chinese person. The person looks at her and says "Do you know what your shirt says?" The lady admits that she doesn't know and asks the man to translate. The man says, "Your shirt says 'cheap but good'."

A recent study has revealed the top 3 greatest mysteries of life that people struggle with on a daily basis.

1. If sliced bread is so great why is the person who invented it not famous?

2. If blind people wear sunglasses then why don’t deaf people wear earmuffs?

3. If Chinese people all look the same, why do they need passports?

Financial Literacy Word Scramble

Scrambled Words Answer Pattern Clues

entr ___ ___ ___ ___ ___ ___ Need

esgntali ___ ___ ___ ___ ___ ___ Crime

snloa ___ ___ ___ ___ ___ ___ Building your Credit

epesxens ___ ___ ___ ___ ___ ___ Living

estxa ___ ___ ___ ___ ___ ___ Withholdings

svgsian ___ ___ ___ ___ ___ ___ Funding your future

agsol ___ ___ ___ ___ ___ ___ Future

Fun Page

Design Credits – Ankur Sikdar, Jayavardhan Reddy, Mahender Konda, Shamik Biswas

-Siddharth Jain 2015-17