Investment in brewery market to improve: Praj Industries

We are not looking for huge capital infusion at this point in time. We will have normalised capital in the range of about Rs 20-25 crore to be spent in the year coming forward.

GAJANAN NABAR

CEO & MD

Praj Industries

Praj Industries , a technology and engineering solutions provider for the production of bio-fuels and biochemicals has reported a subdued quarterly result for April-June period.

Gajanan Nabar, CEO & MD, Praj Industries’ outlook remains cautiously optimistic as the company’s revenue improved by 20 percent Y-o-Y with its emerging business contributing 40 percent in Q1. In an interview with CNBC-TV18, he adds that the company is not looking for huge capital infusion right now.

On the brewery front, he hasn’t seen much investment in the last two years. However, he expects an improvement in investment in the forthcoming quarters.

Q: Can you first start by taking us through your numbers for the quarter and also explain what has changed sequentially that your performance dragged on a sequential basis?

A: Quarter-on-quarter (Q-o-Q) there is a dip in the performance as we have always seen the first quarter is slightly sluggish in our kind of business. However, if you see year-on-year (Y-o-Y) this quarter, there is a 28 percent improvement in the revenues and also improvement in the EBITDA and PAT margins.

Broadly, our business is structured into two broad categories. The core business which is ethanol and breweries segment and the second one is the emerging business which is water, critical process equipments and high purity water.

The contribution of the emerging business has been in the range of about 40 percent this quarter that is significantly higher than what we have seen in the last whole year. I think that is in the right direction. We also have higher export sales this quarter close to 48 percent against the corresponding quarter last year and that has contributed to improvement in the margins.

Q: Can you just tell us what we can expect in terms of growth from Praj in the rest of FY15 and what exactly is the order book, where does it stand at this current point in time and what about your capex as well?

A: Praj does not give guidelines of our numbers but outlook from the overall sentiment standpoint remains cautiously optimistic. We have to see some more action on the ground to actually start seeing traction in the order book on India level. However, we are certainly seeing improved sentiments that would help the business going forward. So, that is one.

Second is we are not looking for huge capital infusion at this point in time. We would have normalised capital in the range of about 20-25 crore to be spent in the year coming forward. That is where we are.

Q: The government has proposed that ethanol blending be increased to 10 percent from 5 percent in petrol. What kind of impact do you see for your company if you could give us some numbers?

A: This government is pretty pro ethanol blending policy and we believe that that is good for India overall, it is sustainable, it brings in the sustainability of index up, it is good for the overall economy and it reduces import content of oil. However, right now though we have a 5 percent blending mandate we are just getting to about 1.37 percent overall. So, there is a long way to go to even go to 10 percent. First we have to reach the 5 percent barrier that we are currently facing. I think there are further more tweaking and changes in the policy making have to happen to get to 10 percent. If we go to 10 percent it opens up the whole new opportunity window for all of us.

Q: What about the breweries market and what kind of outlook can you give us for the rest of the year for that business?

A: Last couple of year’s brewery market was very stagnant. There were not too many investments that happened in India. However, we are seeing the last six moths a lot of action in tat area too. So, that probably people will see in our numbers going forward that our brewery business would contribute much better than it contributed in last two years. More importantly Praj also has envisaged and entered into international brewery where we have got two large orders which we had announced earlier and both the orders are tracking very well. So, we are going to see further more action for Praj in international brewery areas too. So, overall the news is positive on brewery but the order book traction will have to happen in the next six months time.

HUL Q1 adjusted PAT seen up 8.4%, volume growth outlook key

Hindustan Unilever  (HUL), the subsidiary of Anglo-Dutch company Unilever, will announce its first quarter (April-June) earnings on Monday. According to CNBC-TV18 poll estimates, analysts expect adjusted profit after tax of the company to increase by 8.4 percent at Rs 960 crore during the quarter compared to Rs 885 crore in same quarter last year.

In the year-ago period (Q1FY14), it had reported an exceptional gain of Rs 106 crore on account of sale of properties and restructuring costs. However, the reported profit after tax is likely to fall by 5.8 percent to Rs 960 crore from Rs 1,019 crore during the same period.

Tax rate and royalty payment will have some impact on profitability. Analysts expect a sharp hike in tax rate from 23 percent to 29 percent and royalty hike impact to the extent of 50 basis points year-on-year.

Total income from operations may jump 9.8 percent on yearly basis to Rs 7,474 crore from Rs 6,809 crore. Operating profit (EBITDA) is seen rising by 10.7 percent to Rs 1,201 crore and margin may expand 20 basis points at 16.1 percent compared to the year-ago period.

Analysts feel the volume growth may continue to remain benign, especially discretionary space, citing weak consumer sentiments. Personal products, packaged food, and beverages may drive Q1 earnings, say analysts, adding Fair & Lovely re-launch has been witnessing encouraging response and sequentially strengthened. In Q4FY14, adjusted volume growth was 4 percent on a high base of 6 percent (which included 80 bps benefit built in due to up-stocking on account of transport strike). Analysts say April-June quarter of FY15 will benefit from a low base as Q4 had inventory filing ahead of the transporter’s strike. Favourable base in personal products and foods will result in 4-5 percent volume growth and price-led growth of 5 percent while higher product mix and pricing coupled with cost control will drive margin expansion during the quarter, they add.

Key factors to watch out for are outlook on the volume growth, management commentary on expected timelines for a revival in the volume growth trajectory, response to the launch of premium ice cream brand Magnum and early impact of deficient monsoon, if any.

FY15 ad Will lower spend to Rs 25-45 cr: Just Dial

Just Dial disappointed street with its bottomline and operating performance in the first quarter (April-June) of current financial year . However, its revenues were in line and its net profit increased marginally to Rs 28.1 crore as against Rs 28 crore in the corresponding quarter previous year impacted by advertising spend.

The leading local search engine company will reportedly spend Rs 25-45 crore on advertisements as against an estimate of Rs 60-90 crore. However, healthy growth is witnessed on search plus trends, says JustDial CFO Ramkumar Krishnamachari in an interview with CNBC-TV18.

Despite having the rights to now operate in all markets globally, Just Dial global is not in a position to operate in the United States and Canada, adds Krishnamachari.

Q: It was a good set of numbers. The only headline miss is on margins and that too on account of one time Rs 10 crore ad spend. Could you tell us what would be the FY15 total ad spend going forward?

A: The original plan that we indicated, Rs 60-90 crore ad spends, which we did a couple of quarters back- we mentioned that we are going to be reviewing that. We have reviewed and it’s not going to be anywhere in that range of what we were planning to spend. So what is the exact quantum that we will end up spending on ads is something probably we will have more clarity in this quarter. The exact quantum may not be that high. We have a strategy cut out as far as marketing our search plus services and product is concerned. So it will be a combination of viral, plus digital backed by some amount of television advertising. So how much and what quantum, perhaps we will have more clarity as we move forward in this quarter. But it is not going to be in the range that we originally envisaged. So that’s how the plan looks like, as of now.

Q: Any ballpark guidance in terms of ad spends and will it be evenly spread from hereon according to you?

A: It could be difficult, if you were to put a range of numbers, it could be anywhere between maybe 25 crore-45-50 crore. So that’s the range that it’s likely to look at and definitely, within this range there will be a significant amount of one-time spend that will be there. So that’s how we look at it.

Q: What was the search matrix for Q1 FY15? What were the total searches and how much came from SMS, mobile interest and PC internet?

A: As we have seen, we have had healthy trends on the mobile front but then we are reviewing what sort of operating matrix we need to disclose in light of the search plus traffic coming in. So probably we will be able to throw some light in the next couple of quarters what are the kind of matrix that we will be disclosing. So as far as trend is concerned, it looks very healthy and it is inline with where search is moving in India specially going to the mobile internet platform. So we have seen very-very healthy growth on mobile internet front with voice tapering down and PC Internet maintaining a steady growth. So overall I would say the search plus trends look very healthy and considering the fact that we have launched our search plus, even though we have not done any mass communication on that.

Q: The Company is considering terminating an agreement with Just Dial Global which operates in US as well as the Canadian markets. Can you take us through reason for termination in particular?

A: As you know JD Global was another promoter company which was part of the group before the initial public offering (IPO) and then as per the advice of the bankers we had separated it out. And they had the license to run US and Canada. Now they have come back to us saying that they are not in the position to continue operations in US and Canada and in light of that we are reviewing the license agreement, which is likely to be terminated, in all likelihood it’s a formality. So Just Dial India will have all the rights to operate in all the global markets and the entire transaction in this whole process will be negligible cost to the JD India shareholders, but potential upside for any global operations will rest with the JD India Company.

Hinduja Flagship Ashok Leyland   is focusing on non-truck business and exports. Addressing the media after the company’s Annual General Meeting, Vinod K Dasari, Managing Director, Ashok Leyland said, “We want the exports and non-truck business to grow very fast. That will sustain the business and on top of it, we have done enough to reduce our cost, reduce our break-even so that even if our truck business does not come back very quickly, we should not be in trouble.”

The commercial vehicle major Ashok Leyland is looking non-truck business for growth. Dasari said “The five other businesses – buses, light commercial vehicle, power solutions, spare parts and defence are all growing very fast.” The non-truck contributes to 50 percent, he added.

The company claims to be growing outside India too. “Exports to the Middle East and Bangladesh continue to perform very well and Sri Lanka in the first quarter . Last year, it did very badly but now you can see there are very large orders from the Sri Lankan government,” Dasari added.

Ashok Leyland is also gearing up for more launches. The company will launch JANBUS at Kolkata on July 30. Dasari said,” JANBUS, the low-floor bus, will be launched by next week. Vehicles, with Neptune engines will be rolled out in the next 3-4 months.” The company has already bagged an order of 1600 buses under the JNNURM programme.

At a time when the Heavy Commercial Vehicle segment is recovering, Dasari said, “Compared to the previous year, Heavy Commercial Vehicle has done slightly better, partly because we corrected the inventories in our southern dealers that made an improvement. But if you look at overall inventory on a sequential basis, it is still early signs to say that it is coming back. The decline has slowed down. So I am hoping that it is going to stop and I believe that in next 4-5 months, things should come back.”

Aimed to establish itself in the overseas market, the company is looking beyond being an Indian Company. G Hinduja, Chairman, Ashok Leyalnd said, “Ashok Leyland had established itself in the domestic market, where it faces competition from at least 10 global players, as the second largest commercial vehicle manufacturer It is now looking at new MARKETSand has the product line up to back it. The overseas subsidiaries will help it return to profitability and resume dividend payments. Investments abroad, including in the Optare electric bus and double decker bus, give it new capability.

FY15 sales target Glenmark retains; to launch 8 pdts in US

Glenmark Pharmaceuticals  Friday retained its FY15 revenue growth guidance of 16-18 percent in a conference call with analysts to discuss its first quarter earnings.

It expects to report an operating profit of Rs 1500-1525 crore this year, and is penciling a 23 percent increase in R&D spending.

The company told analysts that it has received USD 5 million from Sanofi as licensing fee. It said its clinical trials for GBR 900 were progressing well.

GBR 900 is a first in class monoclonal antibody for the treatment of chronic pain targeting TrkA, the receptor of nerve growth factor.

The company also said its GBR 830 molecule to treat autoimmune diseases was showing good promise. Earlier this month, the company said that GBR 830 would be shortly entering human trials.

The company’s gross debt stands at Rs 3117 crore and net debt at Rs 2467. However the company said it does not see the debt as a cause for concern.

Glenmark said it continues to gain market share in respiratory and derma space, and sees derma is a strong growth driver for India.

The company expects its domestic sales to grow 18-20 percent, and is expecting to launch 8 products in the US.

It does not see the recent price cuts in the drugs in the National Pharmaceutical Pricing Authority (NPPA) list as a big issue.

 

ICICI Prudential Life Insurance : sector needs nearly Rs 25000cr capital

In a big boost for the insurance sector, the Cabinet has approved 49 percent foreign investment in insurance companies. This will be allowed through the FIPB route , ensuring management control in the hands of Indian promoters.

Welcoming the move, Prashant Sharma, CIO, Max Life Insurance said that foreign investors are looking to invest in insurance companies in India.

Sandeep Batra, Executive Director, ICICI Prudential Life Insurance added that insurance industry current requires nearly Rs 25,000 crore of capital. However, ICICI Prudential Life is adequately capitalized and doesn’t need funds immediately, he said.

Latha: What have you heard from the promoters, are they looking in more foreign investment, are they getting a lot of foreign interest at this juncture?

Sharma: Given the attractiveness of the industry there would be lot of interest from the foreigners, generally speaking but having said that whether the promoters or the management want this to happen at a certain point, is their prerogative and that may happen at some point in time in the future if the conditions are attractive and desirable for everybody concerned.

Latha: Has the parent spoken to foreign partner or spoken to other people. What is the kind of interest at current levels from foreigners because the rules do not allow foreign control, it is little more money that they can put in, they will not get control and it has to go through the approval route?

Sharma: We will have to see what exactly the guidelines are but it will depend on both the parties when they will discuss the offer at hand. Having said that it is a welcome move for the industry in general, it brings in a lot of long-term capital, the capital which is required for not only the insurance sector but for the country in general. Insurance companies are long-term investors of capital, be the bond market, be it equity markets.

This is a welcome move from the industry and country’s perspective. However, whether it makes sense for two promoters – will be seen at a particular point in time when both of them sit down. On the exact guidelines we will have to probably read as to whether they are conducive in the current environment or they will be more appropriate at a future point in time. So it will get evolved over a period of time, it is not something which will get decided in the next couple of weeks is what my sense is.

Sonia: What is your take – the fact that foreign insurers will have to come through only after they get the Foreign Investment Promotion Board (FIPB) nod? In that sense an extra layer has been added before they come in. Do you think that would be any hurdle and how much of a positive would this be for the industry as a whole?

Batra: This is a very welcome move and a long awaited move. In the life insurance industry about Rs 35,000 crore of capital has been invested over the last decade or so and 15 percent growth of assets under management (AUM) from here. We will require a capital of Rs 25,000 crore odd. Therefore, any increase in avenues and which capital can be raised is certainly welcome and foreign capital is welcome for the industry, so that is both for the life and general side.

Latha: You have spoken with the Prudential management, are they enthused enough to bring in the capital anytime soon, should we expect capital changes in the current year?

Batra: As far as ICICI Prudential is concerned, we are very adequately capitalised. We have a solvency ratio of 370 percent which is more than double the regulatory requirement. We as a company do not need capital immediately because as growth happens – that’s a completely different matter but what happens between the promoters is for them to decide and they will take a decision at an appropriate period of time.

End of 2014 Market in good condition Sensex target 26300: Citi

 

Market is in good shape, and has headed up fairly consistently, says Aditya Narain of Citi Group who is guest editor at CNBC-TV18 for the day.

Narain said the STOCK prices indicate that bottom has moved up with the downside capped at 5-7 percent. Going ahead, the nature of growth will be fairly broad based; both for the economy as well as stocks, the guest editor said.

He advises investors to be little patient and not get perturbed by occasional consolidation phases. “Last 10 days have been really good, and we may see moderate returns in next one year”  Citi has a year-end target for Sensex at 26300 and sees FY15 earnings growth at 9 percent and that for FY16 at 16 percent.

Citi is overweight on IT, Banks, OIL & Gas and cement which he terms as balanced sectoral view. He says next 18 months will be good for Bank Nifty.

Latha: What is your take on the MARKETS?

A: It has been a pretty good 10 days so I think we shouldn’t ask for market returns every single day. So the MARKETS are generally in good shape, we generally believe directionally they are headed up and fairly consistently. So yes we are on the right track.

Latha: Is the bottom of the MARKETS now distinctly moved up? For one we have had some bit of good news coming in, the earnings at least so far have been largely better than expected, that at least is according to our polls, you may have another opinion. As well the monsoon deficit is steadily declining, global markets are in a fairly decent spot, is that giving you a feeling that the bottom has moved up?

A: I think in some sense if you just look at stock prices clearly the bottom has moved up. I think the nature of the economic revival that one can also expect is going to be more broad based than very specific either stock wise or sector wise. So in that sense you are going to see this bottom tending to effectively move up. I think the nature of the growth is going to be actually fairly broad both at the economic level and also at the stock level.

Sonia: Your December Sensex target stands at 26300, we are already at 26100 plus and we have about five months to go for the year to end. Would you want to scale it up today?

A: Not today but we had a good month, we have had a good six months so we need to be a little patient. Directionally the MARKET is going to trend up, I think it is effectively being fairly broad but I don’t think it is going to keep running in the kind of speed it has actually run at. So I do think through the end of the year is going to be a little bit more moderate in terms of absolute returns.

Sonia: So what would the absolute returns look like by the end of the year?

A: Our target is 26300 so we will stick to that target. We are less flippant than STOCKS in changing our recommendations and targets.

Sonia: You said in your note that it will be more about valuations than near term earnings growth. What do you mean by that, would you be concerned about the fact that valuations in the Indian markets have reached a premium compared to other EMs?

A: I think the story is that you are sitting at valuation levels which are at or about longer term averages and if you really have to start valuing the MARKET it has to be benchmarked to those kind of multiples. So effectively what we are saying is you have to be little cautious of extrapolating huge multiple expansions from here. Rather you have to wait for earnings to start picking up so that market levels actually tend to go up. It is not as if you will not have excesses or points in time when it gets over stretched or pulls back a little bit but I would be surprised if at this stage you would want to start pushing up mean multiples for the market in a very aggressive manner.

June exports dip in warning sign for Japan economic outlook

Japan’s exports unexpectedly fell in June for a second straight month in a worrying signal that weak external demand could continue to drag on the economy’s recovery from a sales tax rise.

Exports fell 2.0 percent in June from a year earlier, compared with a 1.0 percent increase expected by economists in a Reuters poll, data from the Ministry of Finance showed on Thursday.

That followed a 2.7 percent decline in the prior month, which was the first annual drop in 15 months.

Sluggish exports, a weak spot in the economy, have been a concern for policymakers who hope that a recovery in external demand would help offset the pain from the April sales tax hike to 8 percent from 5 percent.

“This raises more concern about how the economy will do after the sales tax hike and makes the government less likely to proceed with the next tax hike scheduled for next year,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

“Weak exports alone will not prompt the Bank of Japan to ease policy, but if consumer spending also weakened, then expectations for a policy change would increase.”

Exports to the United States, a key MARKET, fell 2.2 percent in June from a year ago as more Japanese companies produce goods in other countries, such as Mexico, for U.S. consumers.

Exports to China, another important MARKET for Japan, rose 1.5 percent year-on-year in June. Exports to Asia, which account for more than half of Japan’s total exports, fell 3.8 percent in June from a year earlier.

Imports grew 8.4 percent in the year to June, matching the median estimate, bringing Japan’s TRADE balance to a deficit of 822.2 billion yen (USD 8.10 billion), the MOF data showed, marking two full years of trade shortfalls.

BOJ Governor Haruhiko Kuroda said last week exports would increase eventually as overseas MARKETS, mainly in advanced economies, recover.

The BOJ’s aggressive monetary stimulus helped weaken the yen by roughly 20 percent in 2013, boosting exporters’ profits and share prices. However, the yen has moved sideways this year versus the dollar, limiting gains in export proceeds.

The government raised the sales tax to 8 percent from 5 percent in April, but it could delay a second tax hike to 10 percent scheduled for October next year if the economic outlook weakens.

Products biz should see growth of 15-20% Y-o-Y: Polaris

Revenue and margins in the next three quarters to be better than Q1.

ARUN JAIN CMD

Polaris

Polaris  reported a 15.6 percent decline in its first quarter consolidated net profit to Rs 38.3 crore against Rs 45.4 crore on a quarter-on-quarter basis. Even the consolidated revenues dipped 7 percent to Rs 600 crore (Q-o-Q).

In an interview to CNBC-TV18, CMD, Arun Jain said the company is cautiously optimistic on margins and expects growth to improve significantly second quarter onwards. He sees revenues and margins in the next three quarters to be better than Q1.

Jain expects an EPS of Rs 20 for the services business and feels the products business should see a growth of 15-20 percent Y-o-Y.

Latha: Your services sector – you have said that this is a planned culling of your businesses but nevertheless it is a fairly big fall, 11.6 percent fall in your services revenue, what is your guidance at this?

A: If I look at the whole thing as part of the strategy of demerger, it is Q1 after the demerger announcement has happened. I think definitely this fall is very substantial and this fall has two elements, one was a closure of the project in Q4 which has contributed 50 percent of the fall and 50 percent of the fall is a designed fall for aligning the services business to the market needs, which is emerging more in area of banking, in the area of digital, in area of global payments, in area of global risk managements and in area of data analytics. So these are four areas in which market demand is emerging.

So when we took a first decisive step of demerger in March, next step is – in the first quarter, let us take the step rather than lingering on the step. So at least investor knows that this is behind us and then we go forward when the demerger comes out. We don’t lose the opportunity of what the market opportunities are coming in. So when we analyse 2015 budget of banking and financial corporation, the investments are coming in these four areas and these four areas we have very sharply focused and using high performance outsourcing, we want to align our business. So I thought this was a best time between April to June, so that we can go back to the customers sometime in July to September for taking care of pie of the next year’s Budget.

Sonia: At your conference call you said that you remain cautiously optimistic for the next three quarters, what does that mean in terms of both your margin performance as well as your revenues, do you think you could get back to some growth on both these parameters or will we have to face a couple of more quarters of a degrowth both on topline and margins?

A: In yesterday’s conference call, we responded very positively and growth on the revenue side in next quarters has a visibility for the growth of the revenue numbers in Q2 onwards.

On margin side, we are cautiously optimistic because we are investing parallely to build up a leadership capacity for service business to take leadership in this. So that capacity how much amount and when the person will be joining is a kind of a cautious optimism about the margin level of 18 percent.

See Nifty around 9000 in one year; like ICICI, BoB: StanC

Dhiraj Agarwal, director, Institutional Equities, Standard Chartered Securities expects Nifty to touch 8900-9000 in the next one year. According to him, the tide has turned around for the market and leadership will come from sectors apart from banks. He, however, feels a correction of around 10 percent can come at some point of time given that no bull market is one way and a correction is but inevitable.

Speaking to CNBC-TV18, Agarwal says he prefers private banks over public banks.  He picks  ICICI Bank as his top pick among private banks and is also bullish on  HDFC Bank and Axis Bank . Among public banks, he likes  Bank of Baroda and State Bank of India . Among other stocks, Agarwal is bullish on  Tata Steel and Power Grid . He is optimistic on oil marketing companies and likes  ONGC in the pack.

Q: Where do you see the markets a year down the line, are you in 8,500 camp?

A: Year down the line, I think the market should be up, more of 8,900-9,000 kind of a band. I think the tide has turned. Things are happening behind the scenes, which will eventually reflect in a higher gross domestic product (GDP) growth and high earnings numbers.

Q: What are the constituents that can take this market to 9,000 levels? Will it be the sectors that have led this market up until now i.e. banks or do you see some participation emerging from other pockets as well?

A: I think there will be participation in other pockets as well. If you see the last one month to a month and a half itself, the best performing sector is pharmaceuticals. It is not banks, it is not infrastructure. Last one month, the second best performing sector is IT. So from hereon, market will be more bottom-up in terms of stocks that are doing well or the companies that are doing well, where there are continuous earnings upgrades, which will perform better as compared to the names and companies, which are not. So one big sort of a mean reversion in trade, which was to happen of beaten down sectors, which were trading at almost distressed valuations coming back to mean that trade is by and large played out. So from hereon, it will be less thematic and more bottom up.

Q: Should we read that as avoid public sector undertaking (PSU) bank stocks?

A: Not necessarily, even within PSU bank stocks there will be winners and losers, so even for infrastructure there will be winners and losers or IT. So with that as bottom up, you can find winners in every sector and losers in every sector.

Q: What can be the one thing that can derail the market now? Do you think the global cues could give our market some time to breathe or is this just a one way rally on the way up despite some niggling worries from across the globe?

A: No bull market is one way. In fact, I was looking at some of the data for the previous bull market 2003 to 2007 when Nifty went from below 1,000 to more than 6,000 and I counted 17 instances of double digit correction in those five years, which means three every year on an average. Therefore, we are bound to get a 10 percent type correction at some point of time soon. But these are more tactical pullback within a secular bull market.