Mon, 14th Dec,2009

Weak Asian opening.
SGX Nifty down by 14 pts,

Updates :



MF distributors` nod not compulsory to shift investments: SEBI :
Market watchdog, Securities and Exchange Board of India (SEBI) has asked asset management companies (AMCs) not to compel investors to get no-objection certificates (NoCs) from their existing distributors for shifting their investments.

This is a reiteration of the Association of Mutual Funds of India (Amfi) advice to AMCs to allow investors to change their distributor on the basis of a letter from them.
SEBI said that it appears that this mandate is not being followed by the mutual fund industry. Some AMCs are insisting on the investor procuring an NoC from the existing distributor for this switch over, despite the guideline from AMFI.

SEBI tightens norms on incomplete MF documentation :
The Securities and Exchange Board of India (SEBI) has asked asset management companies (AMCs) to stop paying commissions to intermediaries, including banks and other distributors, who did not keep proper documents of their clients.The regulator has also asked fund houses to set up a separate customer service, mechanism for queries and grievances of unit holders
SBI seeks borrowers for its $3b :
Flushed with a war chest of $3 billion (nearly Rs 14,000 crore) and going slow on overseas acquisitions due to a sluggish recovery of the global economy, the State Bank of India (SBI) is seeking out Indian companies to whom it can lend the idle money.
During the fiscal year, the bank will open 44 overseas branches, most of them in Asian countries. For instance, the subsidiary, SBI Nepal, will have 11 branches, while the Canada subsidiary will expand from 8 to 12 branches. The expansion in the US will be through the bank’s California subsidiary.
The international operations are getting divided into five decentralised centres: Saarc countries, Africa, West Asia, the UK and the US. Each centre will have autonomy in its region.
International business now contributes about 10 per cent of SBI's total revenues. The bank intends to increase it to 20-25 per cent.

Realty fund Trikona Trinity shunts out its Indian adviser :
Trikona Trinity Capital, an India-focused real estate fund, has unceremoniously shunted out its Indian adviser Trikona Advisors (TAL) in the light of breaches pertaining to the terms of the 3-year old portfolio management agreement. Trikona Trinity, which has invested over $250 million since 2006, did not elaborate on the breaches committed by TAL, which claims that managed returns of approximately 86 million pounds with an internal rate of return of 97 per cent for the AIM-listed real estate fund.
Reacting to the development, TAL, which has 16-member team sitting across Mumbai, New Delhi, London and Cayman Islands, feels there is no basis in fact to the allegations made against it.


Mahindra top brass set to brainstorm over road map :
Come December 17, close to 500 top managers in the Mahindra business empire will head to the Knowledge City campus of Mahindra Satyam in Hyderabad's Gachibowli.

Marg Karaikal Port plans to go public :

Marg Karaikal Port, a wholly-owned subsidiary of Chennai-based infrastructure company Marg, may go for initial public offering (IPO) in the next financial year to meet its sales and operational requirements.

Inflation numbers, US cues to drive market :
The market is likely to remain positive this week. Investors are expected to take cues from the monthly inflation numbers due on Monday while on the global front

Fineotex Chemical plans to enter capital market :

Mumbai-based Fineotex Chemical is planning to come out with an initial public offer to meet its proposed expansion plans and has filed draft paper with the market regulator SEBI.

Reliance Life IPO likely in Q1 of next fiscal :
Anil Ambani Group's life insurance venture Reliance Life expects to tap the capital market with its initial public offer in the first quarter of next fiscal, a top company official

Wall St boosted by consumer data, UTX outlook :
US stocks rose on Friday as reports pointing to steadying consumer demand supported optimism that the burgeoning economic recovery will be sustainable.
Consumer and small-cap stocks led shares higher after a series of stronger-than-anticipated reports lessened concerns that a double-dip recession is in store.
November U.S. retail sales rose more than forecast to post their largest advance since August, while a separate report showed consumer sentiment improved in early December.

US markets end flat; Indian ADRs weak :
The US markets closed flat. The Dow Jones Industrial Average was up 65.67 points, or 0.63%, to 10471.5. The S&P 500 was up 4.06 points, or 0.37% to 1106.41 while the Nasdaq was down 0.55 points, or 0.03%, to 2190.31.

Indian ADRs ended lower on Friday. In the banking space, ICICI Bank was down 2.66% at $ 36.63 and HDFC Bank was down 2.63% at $ 131.28. In the IT space, Patni Computers was down 2.25% at $ 19.58, Wipro ended down 1.48% at $ 19.95, Satyam Computers was down 0.78% at $ 5.08 and Infosys was down 0.25% at $ 15.44. In the telecom space, Tata Communication was down 0.97% at $ 15.29 and MTNL was down 0.64% at $ 3.15. In others sectors, Sterlite Industries was down 1% at $ 17.82, Dr Reddy’s Labs was down 0.67% at $ 23.82, and Tata Motors was down 0.52% at $ 15.44.


Report on Tata Steel :

Investors may consider holding on to their Tata Steel shares. Uncertainties at its acquired European operations have been the key challenge for this profitable integrated low-cost steel producer, whose Indian and South East operations continue to remain one of the best bets in the steel industry. The stock trades at an EV/Tonne of about Rs 35,000. This is at discount to several Indian peers such as SAIL but at a slight premium to global peers such as Arcelor Mittal. While the European operations have shown early signs of revival, the key risk to Tata Steel's prospects arise from a delayed private demand recovery, especially once idling capacity is reinstated.



Indian steel price trends usually track global trends, remaining at asmall premium due to tight demand-supply.

With clear signs of recovery, the Indian economy has witnessed very healthy demand growth for almost all steel users — automobiles, electronics, industrial machinery. With steel supply expected to fall short of demand, the last two years have seen a slew of expansion plans by global and Indian majors. Tata Steel plans to ramp up capacities to 10 million tonnes from the current 7 million, with a greater percentage being flat products, which have better margins as a result of potential value addition. Automobile sales, which have seen a strong acceleration in volumes, even with some moderation, may provide Tata Steel with tremendous opportunities to capitalise on.

Emerging opportunities such as packaging, construction solutions and high-end flat products should see Tata Steel well poised to piggy-back on the well established Corus product line and research. Tata Steel's domestic operating margins have hovered around the 40 per cent mark and sales volumes grew 10 per cent between FY06 and FY09.

Realisations, in line with international steel prices, grew between 10 and 25 per cent over the same period. Profits after tax grew at an average of 13 per cent. With capacity being ramped up by up to 50 per cent by FY11, this should reflect on the standalone top line.

TATA STEEL: EUROPEAN STORY

Corus Steel, a wholly-owned subsidiary of Tata Steel, has a capacity of around 20-21 million tonnes of steel per annum accounting for roughly 10 per cent of European capacity and 65 per cent of Tata Steel's revenues in FY09. At the time of Tata Steel's acquisition, Corus had just returned to marginal profitability, after several years of sustained losses as a result of a high cost structure and legacy costs.

The scope for value addition and higher margins in the European markets, research and expertise in packaging, construction, automobiles and engineering grade steel are among the major reasons why Tata Steel acquired Corus. Though Corus by virtue of its huge capacity and wide product line is exposed to a variety of sectors all of them have been severely affected by the recession across Europe.

Tata Steel's European operations have seen very rough seas over the last four quarters taking a double hit from lower realisations and volumes.

The first half of FY10 saw revenue collapse by 51 per cent compared with the same period last year and a cumulative EBIDTA loss of close to Rs 2,500 crore. Lower raw material costs seem to have had minimal effect on the red bottom line. Efforts to streamline Corus' high cost structure include downsizing, mothballing plants and buying mines to secure raw material assets in an effort to hedge against commodity price fluctuations, the last of which is expected to take effect in 2012.

However, until these measures take effect, prospects for Corus may remain quite vulnerable to whether the recovery pans out. European commercial automobile sales are down 30-60 per cent in 2009, with sales sliding for 18 months in a row. But weighed against this, passenger automobiles, thanks to tax rebates and other incentives, have shown some early signs of growth in the last few months in contrast to the brutal drops witnessed earlier this year. Real-estate, industrial machinery and other sectors appear to have already bottomed out and some have managed single-digit growth. However, the numbers remain quite fragile as evidenced by the unexpected drop in German industrial output by 1.8 per cent in October.

Seen in this backdrop, Corus' plans to reinstate idling capacity does carry the risk of ‘oversupply'. The operations have, however, seen an improvement in capacity utilisation from the 50 per cent to about 75 per cent in the latest quarter. The second risk to the outlook arises from the uncertainty about private demand picking up once the stimulus-induced demand tapers off.

If private demand from infrastructure, real-estate, capital expenditure, automobiles and other sectors does not pick up, carrying forward the momentum provided by stimulus measures, steel producers could find themselves in the unenviable position of dealing with higher fixed costs and a renewed correction in realisations. Global steel prices, which are currently 40-50 per cent off their peak prices of mid-2008, have had a flat 2009 due to lack of demand in the second half of 2008 being balanced out by huge production cuts.

Debt repayments :

Tata Steel, which in retrospect did pay a high price for Corus, now carries a net debt position of $9.8 billion, down from $11 billion at the end of FY09. Several efforts have been taken to repay portions of the debt by raising funds through a GDR issue and shoring up the balance sheet by raising capital.
Other measures include deferring conversion of debt instruments on more convenient terms. The company has planned to repay another $180 million by end of this fiscal year. The dilutive effect for current shareholders, of equity expansion to pay back debt, is one of the downsides of this steel bet.
In the near term, steel realisations are likely to remain depressed, given the lumpy nature of Chinese demand and still shaky growth in developed nations. The latter makes volume growth an uncertainty.
However, what makes Tata Steel an interesting bet for long-term investors is its geographic profile, product mix and operational efficiency which in the long run are likely to serve investors well, even during downturns in the steel cycle.


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