Problem @ Bottom of Pyramid L: 4QFY13: Result Analysis ::Quants Partner

Problem @ Bottom of Pyramid L: 4QFY13: Result Analysis

Click here to view the entire graphical presentation.

Following are the key points that emerges from the analysis.

o   This quarter (4QFY13), consolidated profit of India Inc shrank by  11.4%.

o   The most concerning thing about this quarter’s result is 100% vanishing of small cap companies profits, given the fact that in Mar-12 quarter, profits were already down by 40+%.

o   Companies (Large, mid or Small) were able to maintain their sales but most of them were unable to maintain the profits margin, so PAT fell in case of all the 3 categories, pushing small cap in “LOSS TERRITORY”. Notably, this is the 1^st quarter in past 10 years, where small cap companies showed loss.

o   Small Cap facing tough time, lost entire grip, may have “Rippling Effect” on Indian Economy :  Negative Margins, raises the doubts, if small cap companies will continue their businesses, as generally, they don’t have strong balance sheet. Shutting down of small cap companies will have rippling effect on the economy, as Smallcap companies cater to the demand of Mid size companies which in-turn cater to the large companies. If policy measure fails to help small companies, further slowdown in the economy is inevitable. So, the problem is at the bottom of pyramid.

o   Power, I.T., FMCG, Pharma, Media and Real estate were the notable sectors which boosted the overall profitability of India Incorporation. Their weights have increased significantly.

o   Telecommunication, Auto, Metals & Mining, Fertilisers, Sugar, Shipping, Cement and Eng & Capital goods were the notable sectors who acted as dragger for overall profitability of India Incorporation. Their weights have decreased significantly.

o   Note that the analysis, excludes BFSI and Oil & Gas Sector.

o   All companies above $2,000 mn market Cap is considered as Largecap, below that but above $200 mn is considered as midcap, residual is small cap.

FII & DII trading activity on NSE, BSE and MCX-SX 05-06-2013

Category		Buy	Sell	Net
		Value	Value	Value
FII		2305.86	2217.37	88.49
DII		790.34	890.09	-99.75

 

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FII DERIVATIVES STATISTICS FOR 05-Jun-2013

FII DERIVATIVES STATISTICS FOR 05-Jun-2013
	BUY		SELL		OPEN INTEREST AT THE END OF THE DAY
	No. of contracts	Amt in Crores	No. of contracts	Amt in Crores	No. of contracts	Amt in Crores
INDEX FUTURES	44489	1323.73	64585	1920.91	256945	7667.21	-597.18
INDEX OPTIONS	448410	13288.64	439935	13123.68	1539314	45699.43	164.96
STOCK FUTURES	45054	1257.89	53863	1519.11	1003118	28174.39	-261.22
STOCK OPTIONS	29756	812.69	28113	767.63	54853	1420.77	45.06
						Total	-648.38

 

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On a growth path Pfizer :: Centrum

On a growth path
Pfizer’s results for Q4FY13 were better than our expectations. The company reported a growth of 3%YoY in revenues, 60bps in EBIDTA margin and 20%YoY in net profit before EO items. Sales growth was 19% on like-to-like basis due to the divestment of Animal Healthcare (AHC) business during the year. Pfizer is a cash rich, debt-free company with cash/share of Rs480. The company has declared Rs12.5 per share as regular dividend and Rs20.0 per share as special dividend from the divestment of AHC business, giving a dividend yield of 3%. We have a Buy rating for the scrip and a revised target price from Rs1,290 to Rs1,397 (based on 17x Sept’14 EPS of Rs82.2).

Sales growth lower: Pfizer reported 3%YoY growth in revenues from Rs2.73bn to Rs2.82bn in Q4FY13. Pharma business revenues (84% of total) grew by 10%YoY from Rs2.16bn to Rs2.37bn. Pharma growth was in line with the industry growth of ~11%. Its services and other business (16% of revenues) grew by 120%YoY from Rs201mn to Rs441mn. The AHC business posted no revenues against Rs354mn earlier. On a like-to-like basis, sales growth was 19%YoY.

Margin improves: Pfizer’s margin for Q4FY13 improved by 60bps from 18.6% to 19.2% of total revenues due to the decline in other expenses. Its material cost declined marginally by 10bps from 33.4% to 33.1% of net sales. Personnel cost increased by 420bps due to increase in manpower and annual increments. Other expenses declined by 460bps from 35.3% to 30.7% due to rationalisation measures.

Havells India Ltd :: Religare Research

In-line Q4: maintain HOLD on limited upside potential
HAVL posted an in-line Q4 with standalone sales/adj. PAT at Rs 11.7bn/ Rs 1.08bn (+10%/23%YoY). Standalone EBITDA margins rose 80bps YoY to 12.5% on a better product mix and lower ad spends. Topline growth was led by strong growth in Switchgears (↑31% YoY)/Lighting segments (↑20% YoY). The Cable segment remained a dampener (sales: ↓3%/EBIT margin: ↓300bps to 6%). Sylvania’s performance was impacted by softness in Europe/ currency volatility in Latin America. Maintain HOLD on limited upside.
 Traction in Switchgear led by new product line: The Switchgear segment (~27% of standalone business) saw a strong 31% YoY growth led by traction in new products (newly launched Reo contributed Rs 220mn/Rs 340mn in Q4/FY13). The segment saw an organic growth of 22% YoY. Sales for the Lighting segment were up 20% YoY.
 Weakness in Industrial Cables continues: The Cable segment (~40% of standalone business) saw a sales decline of 3% YoY during the quarter, impacted by weakness in industrial cables which de-grew 17% (domestic cables up 20%).
 Lower ad spends aid operating margins: Ad spends were down to 2% of sales (50bps lower YoY) helped by an overall improvement in EBITDA margins. Margins were also aided by a better product mix in the Consumer segment.
 Sylvania impacted by overall weakness in Europe, currency fluctuation: Sylvania’s sales for quarter were up 1% YoY (Europe flat/ Americas down 5% YoY).Operating margins for Europe were down 40bps YoY to 9.5% (including pension benefits; excluding this, margins were at 7.6%). Operating margins for Americas were down 320bps YoY to 3.8%, impacted by currency volatility in Latin America.
 Valuations: We restate a HOLD on HAVL with a Mar’14 TP of Rs 700, and maintain our estimates as current valuations price in the possible upsides in Sylvania.

Siyaram Silk Mills :: Karvy

Results in line, Expect Slower Margin recovery;
Reiterate “BUY” on Attractive Valuations
Siyaram Silk Mills (SSML) sales grew 8% while EBITDA and net income
declined by 9% and 24% YoY respectively during Q4FY13. For the year FY13;
sales grew 14% while EBITDA and net income declined 5% and 3%
respectively on subdued demand.
Revenue Growth: The Company’s top‐line grew 8% YoY to Rs. 2,896 mn (our
expectations Rs. 2,828 mn) during Q4FY13, while sequential growth was
registered at 4%. Amid stable realizations on challenging consumer behavior,
revenue growth is largely attributable to well maintained volume thrust.
Operating margins under pressure: The Company’s EBITDA declined 9%
YoY to Rs. 298 mn (our expectations Rs. 302 mn) during Q4FY13 on account
of higher staff and sales & promotional expenses. EBITDA margins for the
quarter slipped 194bps YoY to 10.3%. Net Income for Q4FY13 declined 23.8%
YoY to Rs. 130 mn (our expectations Rs. 137 mn) on higher tax payments
with effective tax rate of 39% for Q4FY13.
SSMLs total capex plan of 20 MMPA fabrics and 7.2 lac pcs per annum of
readymade garments, ~10MMPA and ~1.8 lac pcs capacity has been installed
while remaining expansion is slowed down keeping in view of the subdued
consumer demand. Also, during Q4FY13, the Company added ~25 stores to
reach approx. 165 stores. SSML is looking to expand its retail stores with ~90
stores additions in FY14 while aiming ~500 stores in the next 4‐5 years.
We revised our sales by 0.5% and 1.8% and EBITDA marginally by (1.2%)
and 0.1% for FY14E and FY15E respectively. Expected net income has been
revised by (0.9%) and 3.3% for FY14E and FY15E respectively, factoring in
higher tax rate going forward.
Outlook & Valuation
SSML’s revenue and net income are expected to grow at a CAGR of 18% and
22%, respectively over FY13‐15E. At CMP of Rs. 261, the stock trades
attractively at 3.0x and 3.3x FY15E EPS and EV/EBITDA respectively. We
reiterate our “BUY” recommendation with revised target of Rs. 390 (Rs. 344),
valuing at 4.5x FY15E EPS and 4.0x FY15E EV/EBITDA, which has a potential
upside of 49%.

Aban Offshore Strong fleet status :: Prabhudas Lilladher

! Results in‐line: Aban’s Q4FY13 results were in line with expectations, with
revenues at Rs9.6bn, 19.5% YoY and 5.6% sequential growth. Margins stood at
52.4% as against 53.63% in Q3FY13 and 52.4% in Q4FY12. On account of lower
ETR, PAT grew by 91.6% QoQ and declined 24.3% YoY. During the quarter, all
vessels, with the exception of Tahara, were working.
! Fleet Status: In March 2013, Aban Ice and DDI went off-contract. Of these, DDI
has already been re-contracted and will commence operations from July 2013
onwards. Aban Ice is currently being marketed. Further, Aban 7 completed its
contract in the month of May 2013 and is also being marketed.
! New Contracts: DDII, IV & V, which were contracted in the Middle East and
whose contracts were to expire in September 2012, have all been re-contracted
with the same parties. DDVII, whose contract ended in December 2012, got into
another contract immediately in Mexico for a period of 1005 days at a healthy
operating day rate of US$151K. DDI was also contracted at a healthy rate of
US$158K for a period of 1115 days.
! Valuations: Aban currently trades at a PER of 6.9x FY14 and 5.2x FY14. Given
the strong fleet status, whereby, the risk over the next couple of years is
mitigated, we maintain our positive stance on the company and value it at 6x
FY15 which translates to Rs378.

CanRobeco Dynamic Bond Fund: Invest :: Business Line

The bane of multi-level marketing :: Business Line

Daniel Pink may argue otherwise in his recent bestseller To sell is human, but not everyone is cut out to be a salesman or saleswoman. Yet, this is what multi-level marketing schemes actually promise - that anyone can be a marketer. The arrest and release last week of Amway India's CEO has put the spotlight on multi-level marketing (MLM) schemes.

So how do they actually work?

Most people will relate with being at the receiving end of fiery sales pitches extolling the virtues of a MLM or Network Marketing Scheme (NMS) and the new product which, though it is quite expensive, is the miracle cure for your problems. Often folks who submit to such friendly pitches over cheerful banter often realise that they couldn't say no because the seller is a relative or a close friend. You put up a brave front, buy the product. But it doesn’t stop with that. In a MLM, to really get to the top, you will have to expand the network, recruiting other people.

THREE PRINCIPLES

At the core of all MLM schemes lie three principles.

* They play on your economic insecurities. If you have inadequate money, a passionless job, rising expenditure and many unfulfilled aspirational needs, the promise is how the scheme can help you take that dream vacation in Cyprus, or buy a new car or an expensive watch.

* They recruit you with fancy recruitment meetings that have the look and feel of an Evangelist session. Newcomers are greeted by scores of older recruits showcasing how they attained power, status and money through the scheme.

* Once enrolled, you are told that you can attain quick riches by adding as many other people as possible to this ‘network’ and receiving a share in their commissions. This is where very few actually make it.

Most originators of MLM schemes succeed because they can always get new votaries to sign up, even if the ones down the line keep dropping out because they couldn’t keep up with the pressures of selling.

ENTREPRENEURSHIP

Many argue that becoming a network marketer is a stepping stone to entrepreneurship. Yet you will find that people who sign up, usually students, homemakers, young executives, are usually un-initiated in the basics of entrepreneurship or finance.

No angel investor is going to advise them on a successful business model. Nor do many of them have the expertise to accurately assess the financial results of their venture. Many of them use an income and expenditure view of the transactions, rather than a time-weighted return on investment. Others may end up absorbing the inventory losses all on their own. At the end, instead of taking baby steps towards entrepreneurship, quite a few may end up shrinking their savings.

Having worked long hours at a day job for many years, my take on pursuing a MLM career is simple. One, whether you are an employee or a business owner, your biggest asset is your career. Investing in yourself and your career through education has the best pay-offs. Do not fall for the glamour of a global company or its business model.

Don’t lean heavily on your inner and outer circle of friends and relatives to further your business. You can succeed only if your technical skills make you independently employable without your friend circles chipping in. There is no financial freedom that comes without hardships.

Taking up a profession should not expose you to the risk of becoming socially undesirable. Be your own architect. Why be an MLM evangelist?

(The author has worked in the finance industry since 1994. Views expressed are personal)