Keynote Capitals Institutional Research - Industry Monitor September 5, 2011Industries covered • Banks • Cement • Infrastructure • IT • Media & EntertainmentExecutive SummaryRBI new bank licensing norms is open to allowing cash-rich companies, but with a lot of stringsThe central bank plans to issue an unspecified number of new bank licences, the first time since 2004.Eligibility criterion includes applicants plan for financial inclusion. There is a debate on whether companiesand conglomerates should be allowed to set up banks since funds could be misused. “Companies planningto seek bank licences under planned new norms may have to wait longer since statutes need to beamended to plug holes that could be exploited by them”, said RBI Governor Duvvuri Subbarao.CCI and CRISIL reports are the major highlights for cement industry for the weekAccording to senior official of Competition Commission of India (CCI), CCI’s director general has conducteda detailed investigation on over two dozen companies, including leading players such as ACC, AmbujaCement and UltraTech and found out guilty under Section 3 of the Competition Act and was named in hisreport. A leading independent research agency CRISIL issued a sector report on cement. It said thatprofitability of cement companies headed towards decade low by 2012-13. Major reason is a hugedemand-supply imbalance, fuelled by supply glut.Infrastructure battling with high interest rates scenario and slowdown in economyThe Sector has underperformed 0.39%, 0.94%, 0.58% and 1.04% over BSE500, Sensex, CNX500 andNifty respectively mainly due to slowdown in economy and rise in interest rate. Mundra port outperformedby 6.39%, 5.85%, 6.36% and 5.90% and Engineers India underperformed by 5.67%, 6.21%, 5.50% and5.96% over BSE500, Sensex, CNX500 and Nifty respectively.IT stocks surged on positive US outlook.Mr. Bernanke statement previous week that he was optimistic about the long-term prospects of the USeconomy even amid challenges from the slumping housing market and financial-market volatility fueled therally in the Indian IT stocks. He infused some confidence among the investors by saying that the US is notlooking at QE as the only solution to its problems. He said the country will look at other tools to stimulatethe economy. The Indian IT companies benefited from the Dollar appreciation against Rupee. As on 30-08-11 US$ = Rs46 against Rs44.23 on 02-08-11.Key highlights of Media & Entertainment industryThe main highlights of the Media & Entertainment (M&E) Industry are; Dish TV launched ConditionalAccess Module (CAM) device, TV broadcasters protest changes in Copyright Bill, PVR opens its 154thscreen in Surat, Gujarat and Salman Khans Bodyguard sets record for first-day box office collections ofRs20Cr.Weightages in major indicesSectors Sensex Nifty BSE 500 CNX 500Banks 24.53% 25.12% 23.75% 22.41%Cement 0.80% 1.62% 1.49% 1.49%Infrastructure 9.67% 9.79% 8.15% 8.15%Information & Technology 14.00% 11.56% 8.94% 8.95%Media & Entertainment NA NA 0.79% 0.79%
Banking Industry MonitorBanking Industry and its contribution to Indian equitiesBanking and other Finance firms together have the highest weightage in the Sensex and BSE 500 with24.53% and 23.75% respectively. The major players in BANKEX Indices are the private banks namelyICICI Bank (28.09%), which is the second largest bank in India with HDFC Bank (24.16%). Other banksinclude SBI (15.66%), Axis Bank (7.93%) and Kotak Bank (4.93%). The sector’s weightage in CNX Nifty is25.12% and in CNX 500 is 22.41%.Key highlights of RBI’s draft rules for bank licenses for corporateThe brief features/conditions stipulated in the guidelines are as follows: • The process of inviting applications for setting up new banks in the private sector will be initiated only after the Banking Regulation Act is amended. • Only entities/groups in the private sector, owned and controlled by residents, with diversified ownership, sound credentials and integrity and having successful track record of at least 10 years, will be eligible to promote banks. • Insistence that the new bank be set up only through a wholly owned non-operative holding company is an additional safeguard. • The minimum capital requirement has been raised to Rs500Cr (as against Rs200Cr earlier) and the CAR increased to 12% (9% for existing banks). • Foreign shareholding has been capped at 49% for the first 5 years, as against 74% at present. • At least 50% of the directors of the NOHC should be independent directors. • Holding company to hold at least 40% of paid-up capital for 5 years. • Business model should address how financial inclusion will be achieved. • New banks will have to ensure that 25% of their branches are located in rural areas. • The exposure of bank to any entity in the promoter group shall not exceed 10% and the aggregate exposure to all the entities in the group shall not exceed 20% of the paid-up capital and reserves of the bank. • Shares to be listed on the stock exchanges within 2 years of licensing. • Promoter/promoter group with an existing NBFC can either promote a new bank or convert itself into a new bank. • Promoter groups with 40% or more assets/income from non-financial business can float banks with a board that has majority independent directors.ICICI Bank opens second branch in SingaporeIndias largest private lender ICICI Bank opened its second retail branch in Singapore. "The opening of oursecond retail branch reflects our commitment to growing our footprint in the retail banking space inSingapore, which is a major hub in ICICI Banks international network," Chief Executive of ICICI BanksSingapore Branches, B K Iyer, said.ICICI Bank opened its first branch in Singapore in 2003, and launched its first retail branch in Singapore inSeptember 2010 after being granted the Full Bank Licence with Qualifying Full Banking (QFB) privileges bythe Monetary Authority of SingaporeRBI cautions public against investing in unregistered NBFIsThe RBI cautioned public against investing in non-banking finance institutions (NBFI), including ForexAchievements, which are not registered with the Central Bank.The RBI said, "some entity, which seems to be a foreign one, is operating in India" and doing NBFIbusiness -- accepting deposits, without obtaining a Certificate of Registration (CoR) from RBI. "The RBIwould like to clarify that no company by the name M/s Forex Achievements is registered as a companyunder the Companies Act 1956," it added.The company is misusing the name of RBI by displaying a fake CoR on its website for collecting depositsfrom the public.
Cement Industry MonitorCement Industry and its contribution to Indian equitiesMajor cement companies traded in BSE 500 and CNX 500 indices are ACC, Ambuja Cements, UltratechCement, Shree Cement and India Cements while the sectors weightage is 1.49% in both the indices. J PAssociates, which has diversified infrastructure business with sizeable presence in the cement industry, isonly player in the BSE Sensex with weight age of 0.8% while in CNX Nifty the total weight age of ACC,Ambuja Cements and J P Associates is 1.62%.25 Indian cement majors facing anti competition probe on prices - CCICompetition Commission of India’s director general has conducted a detailed investigation on over twodozen companies, including leading players such as ACC, Ambuja Cement and UltraTech in a crackdownon cartelization of cement manufacturers. As per report, the report submitted to the CCI chairman has heldmost of the companies guilty of cutting production to raise cement price and CCI is now seeking aresponse from these companies on the DG report.Mr. HC Gupta, chairman of CCI told Financial Chronicle that the director general investigated the matter forthe past six to eight months and that a detailed report is ready. He said that “We are sending letters to thecompanies in next 10 days, in which we will attach the report submitted by the DG, and seek responsesfrom these companies.”Another senior official from CCI confirmed that at least 25 cement companies were found guilty ofcartelization for the four years under assessment between 2007 and 2011. The official said that “ACC,UltraTech, JP Associates, Ambuja, Lafarge and many other companies have been found guilty underSection 3 of the Competition Act and were named in the report.”Cement profitability headed towards decade low: CRISILAccording to CRISIL Research, cement profitability will decline to its lowest level in the past 10 years by2012-13. A huge demand-supply imbalance, fuelled by supply glut, will drive cement profitability down. Thesupply glut will slacken cement manufacturers’ operating rates, restricting their ability to pass on a sharprise in power and fuel costs to consumers.Over the next two years, while cement capacities rise by 60mn tonnes per annum (mtpa), demand willincrease by a mere 30mtpa. Operating rates of cement manufacturers will therefore plunge to around 72%in 2012-13 from an already subdued 78% in 2010-11. Cost of power and fuel, a major input for cement, willincrease by around 18% in 2011-12, given a steep increase in coal prices by the industry’s dominantsupplier, Coal India Ltd. In addition, an increase in effective excise duty rates will lower cementmanufacturers’ net price realisations by 2-4%.“The magnitude of the demand-supply imbalance and cost escalation will halve the cement industry’sEBITDA margins from the current 20% to around 10% in 2012-13 - the lowest level in the past 10 years,”according to CRISIL. Small-sized cement manufacturers - with capacities of less than 2mtpa – are likely topost losses of about 2% at the EBITDA level in 2012-13. Large cement manufacturers - capacities of10mtpa or higher, however, will fare better than the industry average, with EBITDA margins of about 12%.The key reasons for the better performance of large cement manufacturers will be their greater use ofcaptive power and their inherent economies of scale. These companies meet three-fourth of their powerrequirements through captive generation. Small cement companies, in contrast, meet a mere 5% of theirpower requirements through the captive route, and source the remainder from the more expensive gridpower. Every 10 percentage point increase in captive power consumption can improve cement companies’EBITDA margins by 50 basis points.”Cement prices during the weekCement prices across various markets were Rs226 per bag in Delhi, Rs240 per bag in Kolkata, Rs280 perbag in Mumbai and Rs265-280 per bag in Pune. Prices showed a declining trend during the week.
Infrastructure Industry MonitorInfrastructure Industry and its contribution to Indian equitiesInfra includes infra development and Power & power distribution. The total weightage of the sector is 8.15%in BSE500 index and CNX500, where L&T alone contributes maximum at 3.89%.GVK Power to raise debt to fund Australia’s Hancock acquisitionThe company is likely to pay about $2.2bn for two Australian coal mines owned by Hancock Prospectingand would likely fund the acquisition by raising debt without much strain on key financial parameters as thecompany’s leverage is comfortable. The company’s current debt-equity ratio is 1.56x times. In FY11, thecompany’s debt was Rs5548Cr, while its equity stood at Rs3557Cr on consolidated basis. Powercompanies typically have a large debt-equity ratio due to the high cost of setting up the projects wherelarge loans are contracted. The company registered growth of 214.99% in its net profit for the year endedMarch 31, 2011 at Rs68.3Cr as compared to Rs21.7Cr for the year ended March 31, 2010. Its total incomeincreased by 108.01% at Rs123.1Cr for the year from Rs59.2Cr in previous year.Lanco Infratech’s step down subsidiary terminates its CSA with PerdamanGriffin Coal, a subsidiary of Lanco Resources Australia has formally terminated its Coal Supply Agreement(CSA) with Perdaman Chemicals and Fertilisers Pty (Perdaman) as the condition precedent to theimplementation of that CSA concerning Perdamans’ Financial Close was not met by Perdaman. It hasoffered to withdraw this formal termination and to provide Perdaman with additional time until October 15,2011 to achieve Financial Close including certain terms & conditions in line with the CSA. However, thisoffer will be open for acceptance by Perdaman until September 06, 2011.NTPC issue notices to distribution companies of R-PowerState owned power company, National Thermal Power Corporation (NTPC) has issued notices to cutpower supply to BSES Yamuna Power Limited (BYPL) and BSES Rajdhani Power Limited (BRPL) fromSeptember 7. The two distribution companies of the Reliance Power collectively owes Rs479Cr to NTPCas dues, of which BRPL owes Rs290Cr while BYPL owes Rs189Cr. BYPL and BRPL buys 2051MW powerfrom NTPC at Rs3.25 per unit for distributing in east, central, south and west Delhi. The two companieshave time till Tuesday midnight to not only payback NTPC but also renew the very important letter of credit.Failure to which will result in power cuts in Central-South as well as East Delhi.
IT Industry MonitorIT Industry and its contribution to Indian equitiesIT sector has weightage of 9% in BSE 500 and CNX 500 with major stocks are Infosys, TCS and Wipro.The sector is also represented through BSE IT and CNX IT indices. IT sector companies also constitutemajor portion of Sensex and Nifty with weightages of 14% and 12%.Infosys’ Concrete steps against visa issuesInfosys is facing Visa related issues in the US along with TCS, HCL Tech etc. Currently travel costconstitutes 4-5% of the revenue within which visa cost is 10-15% to the maximum. However, main concernis increase in rejection rate for H1B Visa which might result in either escalated cost on account of higherlocal hiring at overseas locations or manpower shortage. The company has moved its head of HR, NanditaGurjar to the US in a signal perhaps that it intends to engage more with its employees there and take theissue head on and also as an indication to the world that the company is viewing the entire episode inserious light.Infosys is focusing on Intellectual property to boost revenueInfosys offers business platforms on a subscription model from the cloud, as part of its strategy to focus onintellectual property to boost revenue. It has signed 20 large enterprise clients for its business platformsdelivered through the cloud, S. D. Shibulal said on Monday. Shibulal, who was formerly COO, took chargeat the company this month. The company has rolled out applications in the areas of human resource,procurement, social commerce, and digital marketing, and a white-label app store that offers services tomobile telephony operators.Infosys launched TalentEdge Cloud platform for HR operation and won mobile banking dealInfosys launched a cloud platform “TalentEdge” that brings together processes to help enterprisesstreamline HR operations and free up time spent on transactional HR activities such as payroll, attendance,and benefits processing. The company has won a $29-million mobile banking deal from ANZ Australia, oneof the largest listed companies in Australia with assets of AU$531.74 billion. ANZ is a customer of Infosyscore banking product Finacle since 2006 and has used the solution to quickly expand its business in Asia.Wipro sets its first rural BPO centerWipro BPO, the Business Process Outsourcing arm of Wipro Technologies, announced the inauguration ofits first rural BPO centre at Manjakkudi Village in Tamil Nadu. Wipro Technologies is the global informationtechnology, consulting and outsourcing business of Wipro. The Manjakkudi centre has a capacity of 120seats and would open with a 50 seat pilot project for an international client in the retail sector, theBangalore-headquartered company said in a statement.HCL Tech entered into partnership to grow P2P process.HCL Technologies (HCL) entered into a partnership with Basware Corporation for induction of the Finnishsoftware providers purchase-to-pay solutions to help improve its own customer delivery processes andachieve cost reductions. HCL will leverage Baswares invoice automation, procurement and connectivitysolutions for process enhancement and increased cost reduction to help its clients improve productivity.HCLs P2P solution will also provide significant improvements with respect to its clients working capitalrequirements by improving Days Payable Outstanding (DPO), eliminating duplicate payments, avoidinginterest charges on late payments and taking advantage of early payment discounts offered by suppliersthrough Baswares purchase-to-pay solutions.Pricing pressure from Mphasis’ parent and largest client, Hewlett Packard (HP)MphasiS reported a drop in onsite billing rates in the mainstay applications services business, giving theimpression that the pressure of price negotiations from HP is continuing. But the company clarified that thedrop in average billing rates is not owing to price cuts, but because it is now using fewer sub-contractorsand, hence, the rate charged to customers has commensurately come down. Mphasis completed theacquisition of Wyde Corporation on August 29, 2011. Accordingly, Wyde Corporation and its subsidiariesare the wholly owned subsidiaries of the Company.
Media & Entertainment Industry MonitorMedia & Entertainment Industry and its contribution to Indian equitiesMajor listed Media & Entertainment companies included in BSE 500 and CNX 500 indices are ZeeEntertainment Enterprises, Dish TV India, Sun TV Network, Jagran Prakashan and UTV SoftwareCommunications, while the sectors weight age is 0.79% in both the indices.Dish TV launched Conditional Access Module (CAM) deviceDTH major Dish TV has launched its Conditional Access Module (CAM) device, which allows consumerswith set-top boxes of other DTH service providers to switch to Dish TVs feed of television channels. Thedevice, being launched in select key markets, would be priced at Rs990 and is bundled with an annualsubscription of 95 channels and services.According to Trais regulations, all set-top boxes sold by DTH service providers should be CAM-compliant.TV broadcasters protest changes in Copyright BillTelevision broadcasting companies have opposed last minute changes introduced in the CopyrightAmendment Bill, 2010, which has led to television industry being excluded from the ambit of the statutorylicensing provisions.According to the News Broadcasters Association (NBA), the exclusion of television from the statutorylicensing provisions will inure to the benefit only of vested business interests and act to the seriousdetriment of the fast growing broadcasting industry.PVR opens its 154th screen in Surat, GujaratPVR Ltd., the leading entertainment company in India, has launched its 8 screen multiplex with capacity of1,753 seats at the Rahul Raj Mall in Surat. With this launch in Surat, PVR stands at 154screens in 35cinemas in 20 cities across India. The launch in Surat is a part of PVR’s organic growth strategy of panIndia expansion and increasing its presence in Tier II cities.Salman Khans Bodyguard sets record for first-day box office collections of Rs20CrSalman Khan’s movie ‘Bodyguard’ has set a new record for first days box-office collections. It netted anestimated Rs20Cr, beating the Rs14.5Cr opening of Dabangg (2010) and the Rs13.5Cr collected by AamirKhans 3 Idiots in 2009. Movie ‘Bodyguard’ is produced by Atul Agnihotri and Alvira Agnihotri, under thebanners Reel Life Production Pvt. Ltd and Reliance Entertainment.
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