April 12, 2012

Feb IIP growth at 4.1%, CSO revises Jan nos down to 1.1%:

The growth in February industrial production (IIP) has come in at 4.1%, which is an improvement over the January number. The January IIP number has been revised to 1.1% from 6.8% (provisional). The Central Statistical Organization revised January IIP figure after it spotted an error in sugar output numbers. Based on the January provisional numbers, a CNBC-TV18 poll had estimated February IIP growth flat at 6.7% .
Manufacturing output, which constitutes nearly 76% of total industrial production, declined to 4% versus 7.5% year-on-year. Mining sector growth, which has been been underperforming for a while, has come in at 2%. Capital goods index at 10.6% is an improvement month-on-month. Consumer non-durables growth in February stands at 5%.
Core sector, which contributes almost 38% to industrial production, grew by a sharp 6.8% in February from a year earlier. Core sector comprises key infrastructure industries of coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity.
Economists and market experts speaking to CNBC-TV18 said all indicators point towards a slow down that makes a case for repo rate cut in the Reserve Bank's monetary policy on April 17. This hope was refelected in bonds that rallied after the February numbers were released; consequently rupee fell marginally. The stock market barely reacted to the February industrial output numbers.
There is a concern on falling manufacturing growth. MS Unnikrishnan, MD, Thermax is worried that the situation is going to be worse in the subsequent quarters. "If the RBI does not intervene very quickly, the manufacturing sector is going to show negative numbers in Q1,Q2 and Q3 of FY13. It is a very alarming situation for the industry at this point in time," he said.
Sector-wise IIP data
Manufacturing sector growth at 4% Vs 7.5% (YoY)
Capital goods growth at 10.6% Vs -5.7% (YoY)
Consumer non-durable goods growth at 5.1%
Mining sector growth at 2.1% Vs 1.2% (YoY)
Electricity growth at 8%
Basic goods growth at 7.5% Vs 5.5% (YoY)
Intermediate goods growth at -0.6% vs 6.3% (YoY)
Consumer durable goods growth at -6.7% vs 18.2% (YoY)
What will be RBI's stance in its monetary policy review?
Gaurav Kapur, Senior Economist, Royal Bank of Scotland is expecting the RBI to cut the repo rate by 25 basis points on Tuesday.
He explains, "I think the bond market at this point could have a lot more confidence that the RBI would actually cut rates because the next key number of inflation is likely to be lower than 7% which is what the RBI has been indicating for the month of March. So going by that this would bolster the case for a rate cut. I think the January number did not provide any sense of comfort on the fact that growth has indeed been slowing down."
Agrees Shubhada Rao, Chief Economist, Yes Bank that the RBI has a tough task in hand now post dismal January IIP data. She, however, points out that the data is quite noisy and RBI refers to two "three other source of data as well while considering its monetary policy review.
"A lot of noisy data goes into the GDP numbers as well like a capital goods number would go into gross fixed capital formation data and so on. However, it is clear that that there is a decline pace of economic activity," she adds.
Echoing a similar sentiment, Mohan Shenoi, Treasurer, Kotak Mahindra Bank feels that the market is expecting a 25 basis points rate cut on April 17.
Bond yields
According to Shenoi, bond yield could go down to 8.35% or so but may not be sustainable at those levels because the supply pressure had still not gone off.
"In the last one week, the global financial markets were on risk-off mode and for the first time today they are on risk-on mode. We have to see whether this risk-on will continue for sometime or whether it will switch back to risk-off because that also has an impact on our bond market through the oil prices," he elaborates.

Unitech closes 4.42% up after winning case against Telenor:

Shares of Unitech surged over 6% in trade on Thursday after CNBC-TV18 reported that the real estate developer has won a case against its JV partner Telenor in Company Law Board (CLB).
Unitech and its estranged telecom partner Norway's Telenor last month had exchanged proposals inside the closed chambers of the CLB Chairman on probable sale or purchase of shares in their joint venture company Uninor.
Unitech counsels during argument told CLB that Telenor, which holds majority stake in Uninor, had invoked arbitration under Share Subscription Agreement to seek damages and indemnity, but was rescinding Share Holders Agreement.
Telenor which holds about 67.25% stake in Uninor has held Unitech responsible for the breach of warranties related to the cancellation of JV firm licences by Supreme Court and wants to the realty from Uninor after the verdict. It has served notice to Unitech for indemnity claim.
Unitech's move to seek Arbitration has been opposed by Telenor and Uninor. Telenor Counsel in CLB has earlier argued that Unitech has no right to seek arbitration as they have filed petition before the CLB.
Citing various judgements and court cases, Telenor counsel has said once plaintiff files a suit, it has no right to refer the case for arbitration.
However, Unitech counsel contested some of the judgements that were cited by Telenor and said that the situation in cases cited by Norwegian firm are not similar to that of ongoing case between Unitech and Telenor at CLB. The counsel further argued that the arbitration application made by Unitech is indication that company has willingness to seek arbitration and depends on the decision of court.
Sources say Telenor’s plan to buy Unitech for Re 1 gets thwarted with the CLB order. Now, the matter will be decided via arbitration, which will be fair but a lengthy process.
"While (we) will now consider our next legal options, it is very clear that Telenor Group will do all that is necessary to secure the future of Uninor's employees, customers and partners," a Telenor spokesman said in a statement to Reuters.
Telenor will have to resolve this before they get new partner as proposed. Asserting that it is in India for a long-haul race, Norway-based Telenor Group declared that it would indeed participate in the Supreme Court-ordained auction for the 2G spectrum by teaming up with a yet-to-be identified new local partner. It would have a majority 74% in the still-to-be-formed new company.
The Norwegian Group had already moved the Foreign Investment Promotion Board (FIPB) seeking approval for its proposed new joint outfit and investment.
Has Unitech really won?
Though the news comes as a big relief to the beleaguered realty major, however, investment analyst SP Tulsian is not too excited about the development.
"Firstly, Unitech wanted USD 150 million for their 32-33% stake in the telecom company, while the foreign partner Telenor was offering peanuts. So, I don’t know whether now the matter will be referred to the arbitration, which can be heard only in the Singapore or in the overseas court, which itself will be a very expensive, and long drawn process," he told CNBC-TV18 in an interview.
Unitech shares ended trade up 4.42% at Rs 29.55 a piece.

Mitsui Sumitomo to Buy 26% Stake in India’s Max New York Life:

MS&AD Insurance Group Holdings Inc. (8725), Japan’s biggest casualty insurer, will buy a 26 percent stake in Max New York Life Insurance Co. from the owners of the closely held venture in India.
Mitsui Sumitomo Insurance Co., a unit of MS&AD, will purchase 16.63 percent from New York Life Insurance Co. and 9.37 percent from Max India Ltd. (MAX), the Indian company said in a statement to the stock exchange today. The statement didn’t disclose the total value of the transaction. The deal is valued at about 27 billion rupees ($531 million), according to two people familiar with the sale.
Enlarge image
MS&AD Insurance Group Holdings Inc., Japan’s biggest casualty insurer, plans to buy a 26 percent stake in Max New York Life Insurance Co. for about 27 billion rupees ($531 million), according to two people familiar with the transaction. Photographer: Sanjit Das/Bloomberg
MS&AD, formed in 2010 through a merger of Mitsui Sumitomo Insurance, Aioi Insurance Co. (8761) and Nissay Dowa General Insurance Co., has been turning to foreign markets and cutting costs in Japan as the nation’s stagnant economy and declining population damp demand. The insurer is targeting profit of 30 billion yen for its overseas businesses, compared with 12 billion yen in the last fiscal year ended March 31.
“MS&AD has been saying they want to expand the life insurance business in Asia, so this isn’t a big surprise,” said Ayako Nakajima, an analyst at Standard & Poor’s in Tokyo. “India is an emerging market where you can bet on the potential for growth, but at the same time, it’s not a mature market like Japan’s so there are risks that need to be closely monitored.”
Yuki Fujikawa, a spokesman at MS&AD, confirmed earlier today that the insurer is in talks.
Stock Falls
New York Life will exit the Indian life insurance market upon completion of the sale, the people said. The deal is expected to close in the second half of the year, they said.
The deal will be entirely in cash and represents a multiple of 3.3 times so-called embedded value, or net assets plus the present value of future profits, as of March 31, 2011, the people said.
MS&AD shares declined 1 percent to 1,560 yen at the close on the Tokyo Stock Exchange. MS&AD shares have gained 9.4 percent this year. Shares of Max India headed for their biggest gain since June 2011 in Mumbai trading, rising 6.6 percent to 200.65 rupees.
Citigroup Inc. was the financial adviser to Mitsui Sumitomo, according to the people. Godwin Chellam, a Hong Kong- based spokesman at Citigroup, declined to comment.
Max New York is a joint venture between Max India, which invests in health care and technology, and New York Life, the biggest U.S. life insurer owned by policyholders. The U.S. insurer holds 26 percent of the venture, the maximum possible under current regulations.
Overseas Expansion
Max New York Life reported an 8 percent increase in revenue to 44.7 billion rupees for the nine months ended Dec. 31, according to a company statement on Business Wire India. Assets under management grew 18 percent to 153.57 billion rupees over the same period in fiscal 2010, the company said.
MS&AD is not alone in trying to expand abroad to grapple with a shrinking domestic market. In December, Tokio Marine Holdings Inc. (8766), Japan’s second-largest non-life insurer, agreed to buy Delphi Financial Group Inc. for $2.7 billion in its biggest acquisition in three years after buying Philadelphia Consolidated Holding Corp. in 2008 for $4.7 billion.
The purchase will allow MS&AD to have a foothold in India through the nation’s seventh-largest insurer, as the Japanese insurer expands its business in emerging Asian markets, the Nikkei newspaper reported earlier.

Maruti’s Ertiga will blow you away with its low price:


The shockingly affordable pricing of Maruti Suzuki‘s first multi-purpose vehicle (MPV), the Ertiga, betrays the company’s anxiousness to succeed in a segment it has never played in before.

The base petrol version of the car is priced at just Rs 5.89 lakh, ex-Delhi. This is much lower than the Toyota Innova’s base price of Rs 8.7 lakh and Mahindra Xylo’s base price of Rs 7.44 lakh (Toyota and Mahindra prices as per www.carwale.com).

Though Managing Executive Officer (Sales & marketing) Mayank Pareek was at pains to explain on Thursday that the Ertiga was in a segment by itself and cannot be compared to either the Innova or the Xylo or any other MUV available in the Indian market right now, Maruti’s cautious pricing shows the company has high hopes that the Ertiga will do in the MPV segment what the Swift did in the super hatch segment in 2005.

Maruti Ertiga. Image courtesy Maruti Suzuki India
The Ertiga is coming when Maruti has closed 2011-12 battered and bruised – its market share has fallen below the 40 percent mark for the first time in memory. Though the decline (it was about 44 percent in the previous fiscal) was largely attributed to production constraints for much of the year, some of it is also because of sales remaining lukewarm in critical models such as the Alto.

Pareek denied the company had any plans to lower prices of its mini cars to boost sales and said Ertiga was launched keeping the growth of the MUV segment in mind. He said this segment accounts for 14 percent of the overall car market and has seen compounded annual growth rates of 20 percent for the last three years. For now, Maruti has also dismissed any suggestions that it is slowly expanding its portfolio away from small cars.

Maruti has spent Rs 410 crore in developing the Ertiga, which is based on the Swift platform. The 7-seater is a bit smaller in length than both Xylo and Innova, with a length of 4,265 mm and height of 1,685 mm. The car comes in three petrol and three diesel options and Maruti claims its fuel efficiency is the best in class – 16.02 kmpl for the petrol variant and 20.77 kmpl for the diesel variant. The K14 petrol engine has a displacement of 1,400 cc while the diesel is 1,300 cc. So the Ertiga is a bit shorter, a bit less wider than competitors and also boasts of a smaller turning radius of 5.2 metres.

The pricing is introductory for now and is likely to increase after some months, but by then Maruti would have tested the market and response of competitors to this offering. Pareek said Ertiga is anyway not targeted at the taxi segment – where a lot of sales for the Innova and the Xylo come from. It is meant for the urban family of 3-5 people, for use in daily commutes and for long weekend drives. This is the first Maruti car which has been developed keeping Indian customers and road conditions in mind.

In fact, India is the first launch market for the Ertiga and completely knocked down (CKD) kits manufactured here would be exported to South-East Asian countries – CKD exports have already begun with Indonesia.

Maruti said it has flexible manufacturing and, therefore, can handle volume fluctuations on account of domestic market vagaries as well as export demands.

The high-end variants of Ertiga come with features like electronic power steering, power windows, steering-mounted audio controls, a high-end stereo system, air conditioning and heating with blowers for the second row of seats as well and safety features such as ABS, EBD and two front airbags.