Buoyed by rupee fall in Q2, Raymond fixes focus on exports

Despite extreme volatility in the currency, high inflation and slowing GDP, Raymond was able to overcome the tide very well.

M Shivkumar

CFO

Raymond

Textile major Raymond’s realisations were strengthened by the massive rupee fall seen in Q1 and Q2 i.e, between April and September, says M Shiv Kumar, chief financial officer, Raymond .

Speaking to CNBC-TV18, Kumar says the company’s strong Q2 performance has been the result of a revival in its apparel business that has also helped make profits. “All other business segments too have seen an all-round improvement,” adds Kumar.

Kumar is cautiously optimistic on the company’s Q3 performance given the macros don’t change drastically. “

Our thrust will now be on exports,” he highlights while saying the company is a net earner of foreign currency and will continue to up its export realisations.

. Q: It has been a good improvement that you have seen both in the well performing textile segment as well as in the branded apparels segment where you guys were facing some hits in the year gone by. Is there more margin improvement that one can expect in the quarters to come well beyond this 15.5 percent level you have clocked in this time?

A: There has been an all-round improvement in the performance of most of the business verticals. Lower rupee vis-à-vis dollar also helped us. In the textile segment we have a better product mix, higher realisation and continued increase in the offtake of combo packs.

Besides, operational efficiencies improved our textile performance which has contributed to better overall performance. Apparel is definitely showing signs of revival after a roller coaster ride for over six quarters and has returned to profits now. Secondary offtake in the consumer facing channel is witnessing good momentum and all are B2B business segments including denim, shirting, garmenting, they are continuing to do well.

In our engineering segment, notably tools and hardware is doing well and auto components, despite a tough economic environment in the automotive industry has performed well.

Our FMCG segment business has continued to do very well. Despite extreme volatility in the currency, high inflation and slowing GDP, Raymond was able to overcome the tide very well. Our interest cost was flat despite rising short-term rates and debt equity is reasonably under control.

Q: So going forward, what is the expectation both in terms of top line growth as well as margin estimates?

A: We are cautiously optimistic going forward subject to any change in the macro economic factors. Going by the first 15 days, it looks that the quarter is going to be good but it is too early to say beyond this because we have to go through this season and after that, we would like to see where we stand with respect to all our other businesses. It is also dependent on the economic revival and also any macro economic changes that may impact growth including interest rates.

We are also constantly engaging ourselves to evaluate various options and opportunities to maximize value in other segments of our businesses to increase the shareholder value. We are interacting with investment bankers, private equity players, and strategic partners with a view on expansion, debt reduction and unlocking value in the investment.

Q: Is there anything that you get by way of rupee deprecation help, do you have much by way of exports?

A: We have an export of about USD 200 million and import of about USD 100-110 million, so we are a net earner of foreign currency. We are in the denim segment exports to a large extent and the tools and hardware segment where our realisations have definitely improved between April and September on account of rupee depreciation.

Q: And you expect that this is going to give you more business in terms of volume and margins in the second half?

A: Our thrust is now on exports in these particular segments and we are running to good amount of capacity as of now. We will be increasing our export realisation in the garmenting segment. It has more to do with Silver Spark Apparel Limited and files and segment and there are some issues concerning realisation and export particularly in the tools and hardware segment. The moment we get into a different line of products, will go on for that improved export realizations on that segment as well.

Current rally to fade, but flows in EMs to continue: RBS

The ongoing rally in global equities will lose momentum going forward, feels  Mohammed Kazmi, Emerging Markets Research, RBS. The current phase of investor appetite for risk assets is will be only in the near-term, he says.

However, emerging markets will continue to see inflows on the back of a pick up in global growth, Kazmi says. EM funds are starting to look as an attractive investment option, he tells CNBC-TV18.

He also sees EM equities performing well despite the possible tapering of monthly asset purchase programme by the US Federal Reserve. However, fixed income instruments in EMs may be impacted due to the tapering, he adds.

. Q: Is risk-on back into global equities post the US government debt deadline being met?

A: For the short-term we are going to be in a risk-on environment. Over the last couple of weeks, investors were concerned with US debt ceiling deadline. Now that it is out of the way, people can start focusing on Janet Yellen as the new US Fed Governor; it should provide short-term respite.

We can see some reversal in some of these outflows in the short-term. When we head towards year end, risk-on positive momentum will fade and investors will become selective on asset allocation. This rally is going to fade.

Q: Emerging markets (EMs) equity funds have seen inflows in five out of the last six weeks. Do you see these flows continue into emerging markets equities?

A: Yes. Inflows will continue into EM equities. It is due to the pick up in global growth; EMs in particular. China has seen a pick up in growth and that is going to be supportive equities globally and EMs. With the US and Europe growth picking up, it will be supportive of EM equities. Emerging market equities suffered quite a lot last year and it provides a good entry level for investors to enter the asset class.

Q: What is your assessment of the quantum of flows that EM equities could attract perhaps over the next six months?

A: There is room for a huge increase in inflows into EM equities. Over the past couple of years, huge inflows into local currency bond funds was seen. Now we are seeing some reversal of that. Investors need to place their money elsewhere and EM equities are looking quite attractive given the improving growth story that we are seeing.

Confident of 15% plus $ rev growth for FY14: Persistent Sys

We think we can definitely beat the NASSCOM guidance and we will trend better than what we did last year that is about 15 percent.

Anand Deshpande

CEO

Persistent Systems

Anand Deshpande, CMD & CEO, Persistent Systems is confident of doing more than 15 percent revenue growth in dollar terms. “We are sure of beating the NASSCOM guidance of 12-14 percent dollar revenue growth,” he said in an interview to CNBC-TV18.

According to him, focus on newer technologies like cloud, analytics and mobility are gaining traction. The company also expects steady growth in intellectual property (IP) business going forward, which in turn will help improve margins going forward, he added.

For the company the revenues grew 21% quarter-on-quarter (Q-o-Q) at Rs 432 crore in Indian rupee (INR) terms, while net profit by 6.4% Q-o-Q  at Rs 60.79 crore.  It reported 8.6% Q-o-Q growth in dollar revenues at USD 68.5 million in Q2 led by robust 38% Q-o-Q growth in IP-led revenues.

Q: It is a fairly strong revenue growth of 8.6 and rupee revenue of 21 percent. Tell us to what extent you think you will be able to manage this kind of a run rate in subsequent quarters?

A: We had 8.6 percent quarter on quarter (QoQ) growth in dollar terms. We had 38 percent growth on the intellectual property (IP) revenues, which is the variable part of our business but overall the market conditions are good. We are seeing good activity and traction in the market across the board and our focus on some of these newer technologies like cloud, analytics and mobility are gaining a lot of traction.

So, overall we are quite optimistic about our numbers and while it is hard to predict exactly how the next few quarters will look like. Overall it is good going right now.

Q: IP was going to be my next question because that lumpy growth of 38 percent came in very handy after three quarters of non-performance. Can you give us some guidance on how this segment will perform since it is so difficult to judge?

A: We are going to see steady growth in general, in the IP business that we have setup. Last quarter we had USD 13.1 million in revenues from that front. Therefore, overall that is the plan and we are trying to grow our IP business and it will look good.

The only challenge is that a lot of it depends on few orders that can move around a bit. It is difficult to predict on quarter on quarter basis exactly what those numbers look like but if you look at it on year on year basis or on a long-term basis, you will find that the IP revenue is going to help in terms of getting things to happen.

One should also look at the growth in the IP revenue that has contributed to margin improvement at the earnings before interest, taxes, depreciation and amortisation (EBITDA) level as well. So, that is part of the strategy, so whenever we get good revenues on the IP side, you will see improvements in margins

. Q: Overall for the first half of the year your dollar revenue growth has been about 14.5 percent, for the full year do you think you will be able to beat the NASSCOM guidance of 12-14 percent dollar revenue growth?

A: Absolutely, we think we can definitely beat the NASSCOM guidance and we will trend better than what we did last year that is about 15 percent.

CAD to fall below 3.8% this fiscal: Montek

Current Account Deficit is likely to be lower than the projection of 3.8 per cent of the GDP and India will be in a better position to neutralise the impact of the tapering of monetary stimulus by the US Fed, Planning Commission Deputy Chairman Montek Singh Ahluwalia has said.

“The bottom line on CAD is that news is very good. It will be lower than 3.8 per cent,” Ahluwalia told reporters here.

The current account deficit is the difference between inflow and outflow of foreign exchange. During 2012-13, the CAD was at all-time high of 4.8 per cent of GDP or USD 88.2 billion. Government proposes to bring it down to USD 70 billion or 3.8 per cent of the GDP.

Elaborating further Ahluwalia said: “Taper is delayed. Secondly the CAD looks good. By the time taper happens, we are going to look in much better shape.. now rupee has come to a much more maintainable position. So the threat on the rupee will be much less as and when the taper happens. So we will be in a better situation (next year).

” Tapering refers to gradual withdrawal of monetary stimulus by the US Federal Reserve. The reversal of the easy money policy by the US is expected to impact the global markets as well as the economy.

Asked about the Planning Commission Member Saumitra Chaudhuri’s projections that CAD will be 2.5 per cent or range between USD 40-45 billion, Ahluwalia said: “It is not a Planning Commission’s estimate. This is his personal estimates.

” However supporting Chaudhuri’s estimates, he said: “If you view the growth grooming because of agriculture and (its) impact on non-agriculture demand which is not very import intensive then current account deficit may be lower.”

Elaborating further he said: “Finance Ministry made this projection (of CAD) six months ago…When Finance Ministry made its projection, may be, it had higher assumption of growth. The problem is that growth is low. The imports are affected because of growth.

” During the first quarter (April-June) this fiscal, Indian economy grew at 4.4 per cent lower than 4.8 per cent in the previous (January-March) quarter. Economy has grown at a decade low rate of 5 per cent last fiscal. The government expects the growth to range between 5 to 5.5 per cent this fiscal.

China’s Q3 GDP growth fastest this year, but outlook murky

China’s economy grew 7.8 percent in the third quarter, its fastest pace this year and in line with expectations, as firmer foreign and domestic demand lifted factory production and retail sales.

Yet any optimism from the government figures released on Friday could fade quickly as global demand remains volatile, which was underlined by a surprise fall in exports in September. Efforts at home to engineer slower but more sustainable growth will also weigh on the economy in coming quarters, analysts say.

“The Q3 GDP figure is in line with market expectations but the uncertainty is whether the current recovery is sustainable,” said Shen Jianguang, chief China economist with Mizuho Securities in Hong Kong.

“We think the recovery in the third quarter was mainly driven by the strong momentum of the property market.

” After three decades of blistering expansion fuelled by exports and investment, Beijing is trying to shift the economic mix so that activity is geared much more to consumption. That means a slowdown from the double-digit growth of previous years.

Analysts polled by Reuters had expected the world’s second-largest economy to grow 7.8 percent in the third quarter from a year earlier, picking up from 7.5 percent in the second quarter and compared with 7.7 percent in the first. The latest expansion was the strongest since 7.9 percent in the fourth quarter of 2012.

The data showed that the economy grew 2.2 percent on a seasonally adjusted basis from the previous quarter.

The GDP readings keep China on track to achieve the government’s 2013 growth target of 7.5 percent, stronger than other major economies but still the worst performance for the country in 23 years. Growth in the first nine months of the year was 7.7 percent, the data from the National Bureau of Statistics showed.

“We have confidence in fulfilling the targets set out for economic and social development in 2013,” Premier Li Keqiang said this month.

In other figures released on Friday, factory output in September rose 10.2 percent from a year earlier, slightly above expectations of 10.1 percent and slowing down from August’s annual pace of 10.4 percent.

Retail sales rose 13.3 percent from a year earlier, slightly below expectations for an increase of 13.5 percent.

Fixed asset investment, a crucial growth driver, rose in the first nine months of 2013 by 20.2 percent compared with a year earlier. Analysts had expected a rise of 20.3 percent.

Real estate investment increased 19.7 percent in the first nine months of the year compared with a year earlier, picking up slightly from 19.3 percent in the first eight months.

The fragility of China’s economic revival was underscored last week when data showed September’s exports fell 0.3 percent from a year earlier, in stark contrast to expectations for a 6 percent rise.

Weaker demand in southeast Asia had driven the surprise drop in exports, as fears of possible US monetary policy tightening led investors to retreat from emerging markets, bruising consumer confidence and demand for Chinese goods.

With China’s economic pick-up so shaky, most economists believe Chinese authorities are likely to stand still on monetary policy in the next year-and-a-half. But at the same time, few believe Beijing would dramatically loosen policy to aid growth, barring a sharp downturn.

Rupee rises tracking continued sell-off in dollar vs majors

The rupee is trading at 61.12/13 against the dollar versus its close of 61.23/24 on Thursday, tracking a continued sell-off in the greenback across all major currencies on worries of the economic impact from the weeks-long U.S. government shutdown.

The dollar nursed losses near an eight-month low against a basket of currencies on Friday as traders focused on the economic impact of an acrimonious showdown in Washington that dragged the United States to the brink of a debt default.

Gold set for best week in two months on US stimulus hopes

Gold, trading near one-week highs on Friday, was headed for its best weekly gain in two months on hopes that uncertainties in Washington would delay a stimulus tapering after US lawmakers reached only a temporary budget deal.

* Spot gold eased 0.2 percent to USD 1,316.31 an ounce by 0015 GMT, after gaining 3 percent in the previous session.

* Gold has added 3.5 percent for the week, largely on Thursday’s gains.

* After Congress ended a 16-day government shutdown and stepped back from the edge of an unprecedented debt default, US lawmakers launched an effort on Thursday to resolve budget differences in a less confrontational fashion.

* Many feared that lawmakers have set the stage for another standoff in the months to come as the deal reached earlier this week only lasts till early next year.

* The Federal Reserve will likely defer any decision to trim its massive bond buys until at least December, two top Fed officials suggested. Economists said the tapering could be delayed until early 2014 as the US recovers from the impact of the government shutdown.

* Investment management firm FinEx Group and the Moscow Exchange said they had launched Russia’s first gold-backed exchange-traded fund as part of a bid to turn Moscow into an international financial centre.

* SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 3.3 tonnes to 882.23 tonnes on Thursday.

Axis Bank up 2% on better-than-expected Q2; net up 21%

India’s third largest private sector lender Axis Bank pleased the street with net profit surging 21.2 percent — stronger-than-expected — year-on-year to Rs 1,362.3 crore in September quarter, sending shares nearly 2 percent higher. It was also boosted by other income.

Net interest income (the difference between interest earned and interest expended) rose 26.2 percent to Rs 2,937 crore during July-September quarter from Rs 2,327 crore in a year ago period, which was also ahead of analysts’ forecast.

According to a CNBC-TV18 poll, analysts on an average had expected the bank to report net profit of Rs 1,243 crore and net interest income of Rs 2,830 crore for the quarter.

Provisions and contingencies declined 3.5 percent sequentially (up 35 percent on yearly basis) to Rs 687.5 crore while capital adequacy ratio (as per Basel III norms) stood at 15.85 percent during September quarter as against 15.87 percent in June quarter.

Gross non-performing assets (NPAs) climbed 9 basis points Q-o-Q as well as Y-o-Y to 1.19 percent. Net NPAs rose marginally to 0.37 percent in September quarter from 0.35 percent in June quarter and 0.33 percent in a year ago period.

Gross NPAs jumped 10 percent sequentially (25 percent on yearly basis) to Rs 2,734.5 crore and net NPAs rose 6 percent Q-o-Q (28 percent Y-o-Y) to Rs 838.3 crore during September quarter.

Other income rose nearly 11 percent year-on-year to Rs 1,766.09 crore, “which included gain of Rs 281.62 crore on repatriation of accumulated profits of overseas operations and a loss of Rs 114.25 crore on transfer of government securities,” the bank said in its press release.

The bank transferred government securities with book value of Rs 7,566.36 crore from available for sale category to held-to-maturity category at a value of Rs 7,452.11 crore in accordance with RBI guidelines.

Advances of the bank increased to Rs 2.01 lakh crore from 1.72 lakh crore while deposits grew from 2.36 lakh crore to 2.55 lakh crore year-on-year.   At 13:44 hours IST, the stock was trading at Rs 1,094.50, up 1.22 percent on the Bombay Stock Exchange.

To be disciplined in bidding, aiming 26-28% margin: TCS

We continue to maintain discipline in the way we have been. There always will be deal-wise pressures.

N Chandrasekaran

CEO & MD

TCS

Tata Consultancy Services ( TCS ) will continue to ‘maintain discipline’ while bidding for orders, the company’s chief executive N Chandrasekaran said in an interview to CNBC-TV-18′s Menaka Doshi. What he could be hinting is that TCS will not compromise on price for driving volume growth.

Chandrasekaran said the order pipeline continued to grow at healthy rate and he was confident of it sustaining.

He said pricing remained stable at this point and that his company was targeting an operating profit margin of 26-28 percent. He denied there was pressure on pricing though realizations dropped for the second successive quarter in July-September.

“It has nothing to do with pricing. It is largely to do with the mix and the number of working days otherwise we won’t be able to have the kind of margins that have been delivered,” he said.

“If you look at the growth and the margins realisations, it will always vary. It is not the parameter to determine,” he said.

. Q: Congratulations on the sponsorship win for the New York marathon. What an audacious branding exercise. Are you going to be running for it?

A: Yes. In 2014. It is usually in November first week.

Q: Will you run with the Tata Consultancy Services (TCS) branding on your chest?

A: Of course yes.

Q: This reminds me of 2006 in Davos at the World Economic Forum, Infosys did something fairly audacious. At the Belvedere Hotel, where all the heads of states stay they threw out an Infosys flag from one of the room balcony’s and made sure that everybody who passed by that hotel saw the Infosys’ branding. Those were the heady days of Infosys. Are these the heady days of TCS?

A: I was not there in Davos 2006.

Q: Price realisations have dropped in the last quarter. This is the second straight quarterly drop. Seven out of the last ten quarters have seen a decline in these. Why?

A: The best way to look at it is first to correct the term. I would call it realisation not pricing realisation. Realisation is a combination of multiple factors; a mix geography and services perspective. It can happen. One quarter it can go up. Sometimes, it can decline by small amounts or it can increase by larger amounts.

Q: It is around 94 bps (basis points) in the previous quarter. Could this be an outcome of increased competitive pressure from your Indian peers and global ones?

A: It has nothing to do with pricing. It is largely to do with the mix and the number of working days otherwise we won’t be able to have the kind of margins that have been delivered. If you look at the growth and the margins realisations, it will always vary. It is not the parameter to determine.

Q: Should we be prepared for further realisation drops in the quarters to come

A: I wouldn’t know; it can go up. It will always oscillate within a narrow 1-2 percen

. Q: Doesn’t it impact your margins?

A: It doesn’t. If we show a 150 bps (bps) impact the other way, at that time too there should not be a situation where people go overboard saying that pricing is really starting to pick up. This is not pricing pressure; it has been stable.

Q: So it is not Infosys or Wipro or Cognizant snapping at your heels?

A: No. We continue to maintain discipline in the way we have been. There always will be deal-wise pressures.

Q: Given the developments in the last few quarters, does it seem that Infosys is on some sort of a come back trail? Are you seeing increased competitive pressures? Is that impacting your pricing power in any fashion at all?

A: There will always be competitive pressures in one deal or the other. We have to deal with that, but we are not seeing a pattern.