Dr Reddy’s Q1 net up lower-than-expected 7% to Rs 361cr

Generic drugs maker Dr Reddy’s Laboratories ‘ first quarter net profit rose lower-than-expected 7 percent year-on-year to Rs 361 crore, sending shares down over 2 percent on Tuesday.

The Hyderabad-based company’s revenue in April-June also missed street expectations, gaining just 12 percent to Rs 2,845 crore.

Analysts on an average had expected Dr Reddy’s to report a net profit of Rs 421 crore, on revenues of Rs 3,127 crore, according to a CNBC-TV18 poll.

The company’s EBITDA rose 13 percent to Rs 570 crore and operating profit margin slipped 80 bps year-on-year to 14.6 percent, much lower than analysts expectation of 21 percent.

Dr Reddy’s said, research and development (R&D) expenses soared 55 percent to Rs 240 crore. R&D spends in Q1 were 8.5 percent of the company’s total revenue, up from 6.2 percent of revenue in the year ago quarter.

The company’s global generics business revenue rose 15 percent to Rs 2,190 crore. Revenue from North America increased 37 percent to Rs 1,090 crore, but emerging markets (Russia, CIS and rest of the world territories) revenue grew just 9 percent to Rs 600 crore. Russia in particular only saw 4 percent growth, which the company attributed to a high base effect and changes in the market stocking pattern.

Generic sales from Europe declined 28 percent to Rs 160 crore mainly due 26 percent decline in revenue from Germany.

India revenue was also flat at Rs 350 crore.

“Implementation of the new (drug) pricing policy, which led to destocking in the trade, coupled with the Maharashtra trade strike had an adverse effect on the revenue for the quarter,” Dr Reddy’s said.

Also Read: NTPC Q1 net up on lower fuel cost, rev down 3%

It launched two new products — Zoledronic Acid injection and Lamotrigine XL — in the US market in the quarter and filed 2 abbreviated new drug applications with the US Food and Drug Administration. The company now has 64 ANDAs pending approval with the US drug regulator.

Dr Reddy’s revenue growth in Pharmaceutical Services and Active Ingredients space also rose just 6 percent to Rs 590 crore.

The “muted growth was on the back of lower number of ‘launch molecules’ to our customers in the quarter,” it said.

Dr Reddy’s shares finally closed at Rs 2,177.25 on NSE, down near 2 percent.

Petronet LNG Q1: Analysts expect 9% PAT growth at Rs 268 cr

State-owned Petronet LNG will report first quarter numbers today. Analysts on an average expect the net profit to grow by 9.4 percent year-on-year to Rs 268 crore, according to CNBC-TV18 poll.

Revenue is seen going up by 2.2 percent to Rs 8,626 crore in April-June quarter from Rs 8,441 crore in a year ago period.

Earnings before interest, tax, depreciation and amortisation (EBITDA) may rise 5.3 percent Y-o-Y to Rs 457 crore during the quarter while operating profit margin is expected to be flat.

According to a poll, higher short term and spot cargoes are beneficial due to trading gains. Trading gains will serve as a guide for 2013-14 as medium term contracts are being rolled over.

Investors should watch out for any update on commissioning of Kochi terminal and completion for the second phase of evacuation pipeline.

Utilisation will improve sequentially to near 100 percent, but that will be well below earlier highs of 110-114 percent.

Though, spot LNG prices have softened (from highs in January-February), but demand for spot LNG remains weak due to deteriorated macro-economic conditions.

SBI head says NRI bonds will not work in current situation

Bonds for non-resident Indians (NRI) will not work in current market conditions, State Bank of India chief Pratip Chaudhuri said on Tuesday.

Most countries are now issuing sovereign bonds, the head of the country’s largest lender said while speaking to reporters at a post-policy conference.

Earlier in the day, the central bank left interest rates unchanged as it supports a battered rupee but said it would roll back recent liquidity tightening measures when stability returns to the currency market, enabling it to resume supporting growth.

Rupee erases all gains since RBI’s tightening measures

The rupee fell to a two-week low on Tuesday, erasing all gains made since the Reserve Bank of India first announced early this month it would defend the currency by tightening cash, reflecting doubts about how long the central bank can sustain the measures.

Falls accelerated in the afternoon session after the RBI left interest rates unchanged and said it will roll back those liquidity tightening measures when stability returns to the currency market.

The RBI announced measures to drain cash in the evening of July 15, and followed up with additional steps on July 23.

The partially convertible rupee was trading at 59.88/90 per dollar at 1:27 pm, after falling to as low as a two-week low of 59.92 to the dollar, below its close of 59.89 on July 15.

The rupee had closed at 59.4150/4250 on Monday.

Reliance Infra’s Q1 net seen down on lower rev from E&C biz

Reliance Infrastructure is likely to post around 3.5 percent year-on-year decline in profit to Rs 316 crore for June quarter. Total income is also seen down around 1.4 percent to Rs 3399 crore Y-o-Y, states a CNBC-TV18 poll. Analysts also expect operating margins to dip 50 bps to 12.8 percent.

Read This: Reliance Infra starts Jaipur-Reengus road project

Numbers are expected to be muted for Reliance Infra this quarter on account of—

Higher interest cost

An around 1.5 percent Y-o-Y decline in revenue on lower engineering and construction (E&C) segment revenues

Margins in E&C business expected to remain a drag on the financials

However, restriction on Tata Power’s Distribution by MERC on cherry picking of high end consumers of Reliance Infra in Mumbai will help the firm recover higher cross-subsidy needs and regulatory assets

Declining order book which has hurt revenue visibility and hence the run rate of orders would be a critical, monitor for Q1 and going forward

Margins of the EPC division also need to be monitored

Stock strategy
Stock is trading close to its 52 Low of Rs 315 seen in Mar 2013 and has declined almost 23 percent in the last one year.

Is RBI June quarter policy a non-event?

The Reserve Bank of India (RBI) on Tuesday will announce its first quarter (April-June) monetary policy after taking a raft of measures in the last few weeks to halt the rupee’s free fall against the US dollar. A visibly worried central bank swung into action to curb the exchange rate volatility, which can potentially put the economic on the cusp of collapse.

Change of policy stance?

Till a couple of months back, bankers used to bet on the quantum of policy rate cut or the reduction of cash reserve ratio (CRR), the portion of total deposits banks keep with the RBI. Policy or repo is the rate at which banks borrow money from the RBI. It is currently at 7.25 percent while the CRR stands at 4 percent. Now, the situation is just upside down. The markets are speculating on rate hikes.

The Indian rupee recently hit record low at 61.32/USD. Since May, it has lost more than 11 percent against the greenback. This along with the widening current account deficit (CAD) have prompted the authorities to burn the midnight oil to devise strategies in wooing overseas investors. India’s current account deficit (CAD) stood at 4.80 percent of GDP in the previous financial year (FY13). On the back of higher gold imports, a higher CAD is a cause of concern. High import volumes push rupee down against the major currencies.

Will RBI hike rates?

“RBI may hike the repo rate by 50 basis points,” Moses Harding, an independent treasury expert with 32 years of banking experience told moneycontrol.com.

“Another 50 bps hike is expected in September. Traders should not give any panicky reaction to this action, if it happens. The effective interest rate has already gone up to 10.25 percent when RBI hiked the Marginal Standing Facility (MSF) and capped the repo borrowings. Now, a repo rate hike will not have any additional impact,” he said.

A couple of weeks back, RBI had raised the interest rate of Marginal Standing Facility (MSF) by 100 bps to 10.25 percent as against 9.25 percent previously. Banks can borrow money pledging their excess SLR (Statutory Liquidity Ratio in excess of mandated 23 percent) bonds in the MSF auction window. Last week, RBI capped individual repo borrowing to the tune of 0.50 percent of respective total deposits.

As per the mandated repo borrowing limit, banks together can borrow a little more than Rs 31,000 crore (based on deposits as on July 13, 2013). Banks, according to Harding, have to avail the MSF window to borrow money after exhausting their repo limits.

Must read: RBI tightens daily borrowing norms to douse rupee fire

Status quo….

“Traders (forex or bonds) have not built any fresh position expecting no rate action. The recent series of measures have had impact on the markets. However, we virtually cannot afford to term any RBI policy as a non-event. If rate hike takes place, markets will take it negatively,” said N S Raghuvangshi, president (treasury), Development Credit Bank.

Also read: Here’s why govt bonds remained unsold at RBI auction

Subjective policy…

According to Jitendra Arora, vice president at ICICI Prudential Life Insurance, though no rate action (cut/hike) is expected but this policy is going to be subjective.

“We need to read the lines between. How hawkish is the policy stance is something that will be closely observed. The central bank’s outlook on the economy will also bear future indications,” he said.

Earlier, the (rupee) liquidity tightening measures, aimed at making costlier, were seen as an alternative for rate hikes.

China slowdown digs a hole for US industrials

Industrial companies from Caterpillar to Norfolk Southern have felt the effects of the China economic slowdown and the knock-on effects it is having on commodities.

The days of double digit Chinese economic growth are clearly over. And as policymakers look to shift from an economy based on rapid credit expansion and heavy investment in infrastructure to one based on consumer demand, miners, their industrial suppliers and some transportation firms have had to adjust.

“The steadily sliding rate of GDP growth since 2009 highlights just how tired the model for economic growth founded on capital spending has become,” wrote Pictet Asia strategist Laurent Godin in a report. The Swiss asset manager predicts a more modest 6 percent to 7 percent growth from here and that weaker growth is sending reverberations through the commodities space.

Caterpillar, for one, slashed its full-year guidance as demand for its mining equipment drops off as falling China demand has forced miners to scale back new mining projects.

“Mining has come down,” Caterpillar CEO Douglas Oberhelman, told CNBC after its quarterly earnings miss. “All of our big mining customers certainly are spending less on capital.”

Indeed, mining companies like copper miner Freeport McMoran and coal producer Peabody Energy have announced plans in recent days to scale back capital spending.

And commodities prices, as measured by the Jefferies CRB global commodity index, have fallen nearly 6 percent this year and are down nearly 20 percent since mid-2011.

Gordon Johnson, managing director at Axiom Capital, said the issue is China.

“You’re seeing a significant slowing of growth in China due to a reduction in credit,” Johnson said. “That’s affecting the commodities sectors and that’s not reflected in stock prices or valuations.”

Caterpillar hasn’t been the only mining equipment supplier to feel the sting of slowing activity. Swedish rivals Atlas Copco and Sandvik highlighted falling demand from mining customers in their quarterly updates. Together both companies supply more than half the world market of underground mining equipment.

“The low investment levels from miners continues to be noticeable for this part of our business,” as the industry focuses on cost control and capital efficiency, Sandvik CEO Olaf Faxander said in a statement.

The slowdown has even hit the US rails. Norfolk Southern CEO Wick Moorman told CNBC, “Our export coal franchise, which is aimed at the metallurgical markets, has probably suffered a little more than some of the other franchises.”

He attributed it to slack demand from China, Australia’s improved competitive position as the Australian dollar weakens and a struggling European economy.

“Global conditions are really what influence the price of metallurgical coal worldwide,” the Norfolk Southern CEO said. “It’s something that will take a while to work through, and it’s something that we’ll work through, as well.”

Some analysts are optimistic that a bottom in the mining cycle is coming.
JPMorgan industrials analyst Ann Duignan anticipates the global macro data to stabilize, particularly as Europe starts to turn the corner. That should improve sentiment toward Caterpillar in particular, she notes.

“Going forward we think that as (the global economy) gets better, sentiment on Caterpillar’s stock is better, and so we are a buyer,” she said.
Caterpillar’s CEO also sees an eventual recovery in mining. “Seven billion people on the planet, going to nine, [and] rising living standards around the world require minerals and energy—and that’s mining,” Oberhelman said.

Others caution that the mining downturn may prove nastier than the optimists anticipate, particularly as China tries to rebalance its economy.
At CNBC’s Delivering Alpha conference earlier this month, Jim Chanos, the founder and managing partner of Kynikos Associates, laid out his short-thesis on Caterpillar predicated on a China slowdown.

“The bulls expect a capex decline in mining. But here’s the problem: they expect it to decline slowly,” Chanos told attendees.

Chanos pointed out that mining equipment spending was far higher than the historical average, driven in large part by the Chinese real estate bubble. The Chinese slowdown and the end of the global commodities supercycle will drive spending back down toward historical levels.

With the global economy still slowing, “the demand for metals will be low and falling, and the prices will be high and falling for some considerable time,” Roger Nightingale, strategist at RDN Associates, told CNBC.
And that could mean more pain for miners and their industrial suppliers.

Market weekahead: Debt, FX await RBI policy decision

Indian currency and debt markets will remain range-bound ahead of the Reserve Bank of India’s mid-quarter monetary policy review on Tuesday.

The RBI is widely expected to keep interest rates and cash reserve ratio on hold but investors will be focused on its statement after it raised short-term funding costs to shore up the rupee. Those measures are starting to have an impact. The rupee is expected to continue its rally next week with a slightly weaker dollar globally also aiding sentiment.

Also read: Indian shares await RBI decision, earnings

Dollar movements will also be watched as the Federal Reserve concludes a two-day meeting on July 31.The 10-year bond yield is seen holding in a broad 8.05 to 8.30 percent range, traders say.

Investors will be focused on the overnight cash rate which is expected to remain elevated as the RBI’s latest measures to drain rupee liquidity from the system take effect from July 27.

Cash rates surged to as high as 10.25 percent on Friday.

Key factors

Tuesday

RBI review decision (due 1100 IST/ 0530 GMT)

Wednesday

Monthly fiscal deficit data

Friday

Foreign exchange reserves data

Siemens’ board to discuss mgmt’s future at weekend: Sources

Members of Siemens’ supervisory board will meet at the weekend to discuss the future of the German engineering group’s management, two people familiar with the matter said on Friday, a day after the firm abandoned its 2014 profit target.

There was some respite for Chief Executive Peter Loescher on financial markets, with shares in one of Europe’s biggest industrial producers rising 1.4 percent after sinking around 8 percent on the profit warning a day earlier.

But with concern among financial investors growing about Loescher’s ability to turn around one of Europe’s biggest industrial producers, sources told Reuters that supervisory board members representing workers and shareholders had called separate emergency meetings for this weekend.

The agenda for both meetings – which come ahead of a joint meeting scheduled for Wednesday, a day before the company releases third-quarter results – includes an item on “the future composition of management”, one of the sources said.

Siemens’ supervisory board has 20 members and, as is customary in Germany, half of them represent the interests of workers and the other half those of shareholders in one of Germany’s three biggest companies by market value.

“I’m facing headwinds now, but it’s never been like me to give up or strike the sails quickly,” Loescher told German daily Sueddeutsche Zeitung in a preview of an interview due to run on Saturday.

Loescher has faced criticism for being too slow to react to the global economic downturn, and his credibility has been undermined by a string of profit warnings as management over-estimated the speed of economic recovery.

A symbol of Germany’s industrial backbone and the high added-value economic model that makes it the envy of the rest of Europe, Siemens is suffering from the stuttering global demand that saw German exports fall the most since late 2009 in May.

But while that substantially reflects the problems of the rest of the euro zone and a slowdown in China, some of Siemens’ competitors seem to be showing improvement where the German firm is not.

General Electric last week unveiled a surprise jump in its backlog of orders for locomotives, X-ray machines and scores of other products, and Dutch rival Philips has reported robust orders for ultrasound and scanning products.

Failing to deliver

Loescher last year launched a programme to save 6 billion euros over two years. But Siemens, whose products range from gas turbines to fast trains and hearing aids, has so far failed to make the progress Loescher promised.

On Thursday, the company said in a very brief statement it no longer expected to reach a target of raising its core operating profit margin to at least 12 percent from 9.5 percent by 2014.

“We have to face the tough reality of a weak global economy, especially in Siemens’ important core markets, and realise that the 12 percent is not reachable from today’s point of view,” Loescher said in the interview with Sueddeutsche Zeitung.

Siemens is scheduled to release third-quarter results on Thursday, and analysts expect Loescher to elaborate at that time on what prompted the company to scrap its margin target.

German media are speculating on who could replace Loescher if push came to shove. Magazine Manager Magazin said that shareholder representatives favour Siegfried Russwurm, chief executive of Siemens’ bread-and-butter Industry business.

Newspaper Die Welt said one option was to name finance chief Joe Kaeser as CEO, while another was for supervisory board Chairman Gerhard Cromme, who brought Loescher to Siemens six years ago, to take the helm on an interim basis.

Another possibility is that CFO Kaeser and Russwurm could share the job as co-CEOs, Sueddeutsche Zeitung said.

Reliance MF sells 99,794 shares of Kirloskar Pneumatic

On July 26, 2013 Kirloskar Industries Limited bought 1,00,000 shares of Kirloskar Pneumatic Company at Rs 479.93 on the BSE.

However, Reliance Mutual Fund sold 99,794 shares at Rs 480.

In the previous trading session, the share closed at Rs 479.95, up Rs 57.80, or 13.69 percent. It has touched an intraday high of Rs 480 and an intraday low of Rs 425.

The share touched its 52-week high Rs 550 and 52-week low Rs 400 on 16 January, 2013 and 04 March, 2013, respectively. Currently, it is trading 12.74 percent below its 52-week high and 19.99 percent above its 52-week low.