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Posts Tagged ‘FY11

Suspense on under recovery sharing continues

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Q3FY11 witnessed the spectacle of the PSU OMCs (IOCL, BPCL, HPCL) postponing announcement of their quarterly results since the Govt. was taking its time in declaring its share of the gross under recovery burden for that quarter. As things stand now, our estimated gross under recovery for Q4FY11 is ~ Rs 31 bn, which is almost double the gross under recovery figure of ~ Rs 15.8 bn for Q3FY11. The sheer amount of the subsidy burden makes this quarter’s results particularly interesting!

The prevalent under recovery sharing pattern entails the upstream sector (ONGC, OIL India, GAIL) to bear 33% of the subsidy, the Govt. to bear 50% of the subsidy and the remaining 17% to be borne by the OMCs. However, due to the meteoric rise of crude during Jan – Mar 2011 and no revision in retail prices of petrol, diesel, kerosene & LPG, the under recoveries have ballooned to ~ Rs 31 bn.

There is a concern that the upstream sector, which benefits from rising crude prices, may be asked to bear a higher share of the subsidy. Such a move, if implemented, would be negative for the entire upstream sector. Moreover, it may result in very poor investor response to the upcoming FPO of ONGC. A higher subsidy burden would be particularly negative for GAIL as it is not an oil exploration company like ONGC & OIL India, and hence, doesn’t benefit from rising crude prices. Hence, while high crude prices and higher subsidy burden roughly balance each other out for ONGC and OIL India, it is not so for GAIL as it has no upside but only downside in such a scenario.

To assuage investor concerns on this front, the Petroleum Ministry has time and again insisted that it would not increase the burden on the upstream sector beyond 33% of the gross under recovery. Meanwhile, enough hints have been dropped about raising petrol and diesel prices after the state assembly elections conclude, as per our expectations. However, this will impact FY12 under recoveries, and not Q4FY11 under recoveries. We expect the Govt. to bear upto 55% of the subsidy burden so that the OMCs can report a minimum ROCE of 12%. This episode only serves to highlight the continued dependence of the OMCs on the Govt.

From the desk of Deepak Darisi

Written by Fundamental Side

April 29, 2011 at 2:16 pm

Posted in Fundamental Side

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Momentum Continues in Mo-Town

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Automobile sales for January– Macro pressures fail to dampen the momentum

Hero Honda – (TP – Rs1,777, NEUTRAL)

Hero Honda reported a 19.7% yoy strong growth to 4.66 lakh units in January, but it was a ~7% dip mom. We believe the company will face strong headwinds going forward as Honda goes solo in the Indian markets aggressively and the company underperforms its two wheeler peers on margin as well as volume front in the wake of competition.

Mahindra and Mahindra – (TP- Rs 878, BUY)

M&M reported a strong 22% yoy growth in its auto segment to 35,718 units, with passenger UV sales growing 11%yoy and the 4W pick-up segment which includes Gio and Maxximo posting an 18% growth yoy. Maxximo has maintained its 23% market share in the geographies where it is launched. The company has recently announced the launch of another LCV ‘Genio’ priced at Rs5lakhs. Since the termination of JV with Renault, Logan seems to be regaining its lost pride, as it is posting strong growth month on month. In January, M&M sold 1,120 units of Logan as compared to 555 units in January 2010 and 896 units sequentially. LCV sales grew by 28% yoy, marked by the increase in the sales of LCVs from Mahindra NavistarJV. Farm Equipment Segment(FES) posted a very robust growth of 22% yoy to 19,340 units, while sequentially also they grew by 17%. On a cumulative basis, the company has grown by 28% and 21% in the auto and FES segments respectively.

Maruti Suzuki – (TP – Rs 1589, BUY)

Maruti Suzuki (MSIL) once again sold volumes in the vicinity of 1,10,000 units at 1,09,743 units after a lackluster December. This was a growth of 15% yoy and 22% mom. The company has stuck to its guidance of selling 1,10,000 units per month till the end of FY 11E. MSIL have sold more than 1 mn units cumulatively in the interim of the year for the first time. In the full year we expect it to sell 1.2mn units and post FY11E, management expects it to sell 1,16,000 units per month (1.4mn p.a.). Within the segments, the bread and butter A2 segment of hatch backs posted 24% growth, while the A3 segment witnessed 33% growth. The C segment which contains the recently launched Eeco also showed a good traction of 28% rise on a yoy basis. Exports continued to slide down by 36% as non Western European markets are yet to show signs of pick up.

Tata Motors – (TP – Rs 1580, BUY)

January sales for the company were extremely strong with a 12% mom growth and a 15% yoy growth to 75,423 units, the highest ever sales for the company defying the macro concerns like interest rate hike and inflation worries. CV growth pace was robust in the month, as M&HCV grew by 5% yoy, while LCV grew by 17% yoy. Overall CV sales grew by 12% yoy. PV segment grew by 14% yoy to 28,460 units while utility segment sales grew by 26% yoy. Indica range saw a de-growth of 8% yoy as competition has started to intensify in the hatch back segment where the company has a limited product portfolio in the PV segment, especially the hatch backs. Indigo sales saw a sales growth of 17% yoy. Nano sales were higher m-o-m at 6,703 units vis-à-vis 5,784 units in December and a dismal November performance of just 500 units on attractive marketing ventures. Cumulative sales of Nano are ~53,000 way below their expected full year target of >100,000 units.

TVS Motor – (TP – Rs86, BUY)

TVS sold 165,152 units in January, a growth of 30% yoy, while on a mom basis it showed a 4% decline. The sequential drop was due to a temporary maintenance shutdown of its plants in the month of January. Three wheeler sales came at 3,427 units. Going forward, the company has maintained its annual guidance of 2mn vehicles in FY 11E by selling more than 1.75 mn units per month in the remaining two months. Management is expecting the export volumes to pick up in the next two months while domestic volumes to get slightly impacted by interest rate hike, though we believe that 2 wheelers will not get significantly impacted by it.

Written by Fundamental Side

February 1, 2011 at 6:02 pm