September 04, 2022

ANALYSIS: SAT ruling in Kotak Bank case puts bourses on the back foot

1 September 2022

The recent order by the Securities Appellate Tribunal upholding an appeal by Kotak Mahindra Bank Ltd against National Stock Exchange of India's order to the bank to refrain from invoking the pledge of securities of defaulting broker Arcadia Share and Stock Brokers has again shined the spotlight on the bourses' jurisdiction over entities dealing with their members.

It also puts the bourses into a quandary on how to deal with a broker who siphons off securities from clients, pledging these to borrow funds for its own use and then refuse make good the shortfall of securities in client accounts.

The NSE had made a claim on the securities in the broker’s demat accounts saying it included clients’ securities and consequently the pledge of these securities was illegal.

The appellate body however said NSE did not have the legal jurisdiction to issue directions to banks and other entities other than its trading members.

While the NSE is expected to appeal against the SAT's ruling in the Supreme Court of India a recent difficult experience in the court on a similar matter will make it akin to walking on burning coal.

In a similar case the SAT had, in November last year, quashed NSE's order against Axis Bank directing it to freeze the bank accounts of defaulter broker Karvy Stock Broking to meet the claims of investors against the brokerage.

In that order, too, the SAT held that NSE's bye laws permitted it and its defaulter committee to issue directions only against a trading member, which was Karvy Stock Broking in the case being heard, and not against a third party, which was Axis Bank the appellant.

The NSE immediately went to Supreme Court of India appealing against SAT's order. The Supreme Court, however, dismissed the exchange's appeal on Feb 14 saying that "we are not inclined to interfere the order passed by the Securities Appellate Tribunal."

But there are reasons why NSE's hand can be seen to be stronger in the current case pertaining to Kotak Mahindra Bank.

For this one will have to first look at SAT's line of thinking in the Axis Bank case. The Securities and Exchange Board of India, which was a party to that case, had strongly argued before the  SAT that since the monies in Karvy's Stock Broking's bank accounts were proceeds from unlawful activities by the broker it had the first right of claims on it.

On the other hand, Axis Bank had argued that it had a banker's lien on Karvy's deposit accounts as it had extended loans to the broking firm which became non-performing.

The SAT made an important point in that ruling that it would have accepted SEBI's contention had evidence been shown to exist that the monies in the broker's bank accounts were linked to the siphoning off of clients' securities and were not the exclusive monies of the broking firm.

But now in the Kotak Mahindra Bank there may be evidence to show that a chunk of the securities lying in Arcadia Share and Stock Broker's demat account were not the broker's own shares bought by it from its own funds but were rather clients' securities that had been illegally siphoned off by the broker.

The NSE had got a forensic audit carried out on the broker's operations which had shown that it were the clients' securities that were illegally pledged by the broker. The SAT order mentions this aspect but does not consider the implications from it.

The NSE may consider using the evidence from the forensic auditor's report to tell the Supreme Court that the securities in the broker's demat accounts were unlawful and therefore the broker could not be considered as the legal owner of the securities as Kotak Mahindra Bank had argued before SAT.

The NSE had declare the broker a defaulter and expelled it from the exchange’s membership on Jul 2, 2021, for the misuse of clients' funds and securities and failure to resolve investor complaints against it.

The market regulator is also expected to see that stock exchanges' stand is vindicate since its own circulars require stock exchanges to direct banks and depositories to freeze bank and demat accounts when dealing with a case of broker default.

September 03, 2022

ACC's CFO Yatin Malhotra resigns, held position for two years

1 September 2022

ACC Ltd's Chief Financial Officer, Yatin Malhotra, has resigned with immediate effect, the company said in a filing with stock exchanges on Wednesday.

The reason behind the resignation was not provided by the company or the CFO. Securities and Exchange Board of India's listing regulations requires disclosure of reason behind resignation in the case of independent directors but not when the CFO of a company resigns.

Malhotra was the CFO of ACC from September 1 2020. Prior to him, Rajani Kesari was the CFO from August 1 2019 to August 31 2020.

According to the company's annual report for 2021 (Jan-Dec) Malhotra was paid a remuneration of 20.7 mln rupees in 2021 which included 1.61 mln rupees performance linked incentive for Sep-Dec 2020 and "performance shares of Holcim Ltd (ultimate holding company)" of 1.18 mln rupees.

ACC's promoter holding was recently been acquired by the Adani Group and the open offer by the acquirer under the takeover rules is currently going on.
Holcim Group recently sold its entire stake in ACC and Ambuja Cements Ltd to the Adani Group for 501.8 bln rupees and the open offer by the acquirer under the takeover rules is currently underway.

September 02, 2022

MOIL cuts prices of manganese ore by 10-15%

1 September 2022

--[I] MOIL: Cut prices of grades of ferro by 15% today
--[I] MOIL: Cut prices fines and chemical grades by 10%

MOIL Ltd has cut prices of select ferro grades of manganese ore by 15% with immediate effect, the company said in a filing with stock exchanges today. This applies to ore with "manganese content of Mn-44% and above," the company said.

For other manganese ore grades the prices have been reduced by 10%. The prices of fines and chemical grades of manganese ore have also been revised downwards by 10%.

The company also said that the price of electrolytic manganese dioxide has been increased with effect from today to 1,65,000 rupees per tn from 1,55,000 rupees per tn.

High input costs, weakening demand pose challenges, says Excel Ind

1 September 2022

Chemical producer Excel Industries Ltd has pointed to prices of key raw materials rising to "new highs" in recent weeks in its annual report for 2021-22 (Apr-Mar).

"In addition to the unfavourable input cost situation... we are seeing a weakening of demand in several key end user segments and geographical areas," the company said.

The company was also encountering a "customer pushback to further price increases"

The profitability of Excel Industries is likely to get impacted by these factors in the current and next quarter.

The company admitted in its annual report that it expected the business environment in the current financial year "to be very challenging."

An equity fund manager at a large fund house told Informist that yellow phosphorus prices have stayed elevated in the current quarter and that this was a major raw material for Excel Industries.

Excel Industries imports its key raw materials. Yellow phosphorus prices are steered by Chinese producers, who have access to domestic supplies.

The company noted this risk in its annual report. "China has a track record of taking advantage of this situation by pegging the price of the Raw Materials at a high level and at the same time pricing the downstream intermediates and finished goods aggressively," it said.

But current reports from China are pointing to temporary shutting down of yellow phosphorus manufacturers in Sichuan due to lack of power supply. Operational producers are reluctant to offer reliable quotations according to these reports.

Prices of yellow phosphorus in Yunnan and Guizhou regions of China have jumped by over 20% in the last one month, data from Shanghai Metals Market, a leading online metals data provider. The yellow phosphorus with benzene content of 99.9% or more was quoted at around 26,500 yuan per tn in early August and it was quoting at 31,900 yuan per tn.

Excel Industries produces specialty chemicals, intermediates and actives and sells to end user segments like soaps and detergents, lube oil additives, mining chemicals, polymer additives, agrochemicals and pharmaceuticals.

August 31, 2022

Tata Steel funds arm's capex, acquires new shares for 540 mln rupees

30 August 2022

Tata Steel Ltd has funded capital expenditure of its wholly-owned subsidiary Tata Steel Mining by acquiring freshly issued equity shares of the latter for 540 mln rupees.

Tata Steel said in a stock exchange filing today that the subsidiary company issued 28.2 mln equity shares of face value of 10 rupees at a premium of 9.15 rupees per share on a preferential basis to Tata Steel on Monday.

The cash paid by Tata Steel for the issue this will be utilised by Tata Steel Mining for capital expenditure purposes. Tata Steel holds 100% equity in the subsidiary company and the equity holding went up to 850.12 mln shares after Monday's preferential share issue.

Prior to this transaction, Tata Steel has paid Tata Steel Mining 6.45 bln rupees during the current financial year for acquiring 336.85 mln shares issued by the latter on a preferential basis at a price of 19.15 rupees a share which included a premium of 9.15 rupees a share.
 
This was done to fund the subsidiary company's acquisition of 100% shares of Rohit Ferro-Tech and was done in two tranches -- one in April and the second one in June.

Grasim to incur 27.6-bln-rupee capex Jul-Mar in viscose, chemical ops

30 August 2022

Grasim Industries Ltd's chairman Kumar Mangalam Birla's emphasis on the company's capital expenditure plans for its existing businesses in viscose staple fibre and chemicals and the new paints business in the annual shareholders meeting held on Monday came on the back of elaborate details provided by the company earlier this month post disclosure of June quarter results.

Birla told shareholders that existing businesses' capex guidance of 31.2 bln rupees for the 2022-23 (Apr-Mar) will be "towards capacity creation and modernisation of plants" as against 19.6 bln rupees capex incurred in 2021-22.

But recent data by the company indicated that only 11.4% of the guided capex figure for 2022-23 was spent in the June quarter.

The Jul-Mar period of the current financial year will, therefore, see a surge in capex spending by Grasim Industries in its existing businesses alone. The company is expected to spend 27.63 bln rupees during these nine months.

Paints capex
Birla told shareholders that of the additional capex amount of 100 bln rupees for the new paints business the company had spent 6.1 bln rupees as of the end of 2021-22.

The recent data by the company showed that another 2.1 bln rupees of paints capex was incurred in the June quarter.

It meant that going forward Grasim would likely incur capex of 91.8 bln rupees towards the paints business alone.

But the company recently indicated that it will start spending bigger chunks of the 100-bln-rupee planned capex for paints from the second half of the current financial year onwards in order to meet the target of 2024-25 for going live with paints production.

The company's chief financial officer, Ashish Adukia, told analysts and investors in a recent post-earnings conference call that from now on the capex spends in paints will "be front loaded because we've started ordering for equipment etc."

Adukia said that paints unit construction was going on in almost four sites. "Directionally, yes, there will be large paints capex next year along with other capex," he said.

Viscose capex
Of the total guided capex for existing businesses, Grasim had earmarked 14.31 bln rupees for the viscose staple fibre segment for the current financial year of which 5.87 bln rupees is for capacity expansion and 8.44 bln rupees is for maintenance and modernisation.

But tn the quarter ended June the company had incurred only 11% of the targeted amounts for each of these two elements.

The viscose staple fibre capex is unlikely to include any brownfield expansion, Grasim's managing director Hari Krishna Agarwal told analysts in the recent conference call in response to a question. He said the company would "love to do that… but for the time being that is not… on the drawing board."

According to Agarwal the company was trying to balance and optimise the capex spends with the debt requirements keeping debt to equity ratio and debt to EBITDA ratios in mind. EBITDA is earnings before interest, tax, depreciation and amortisation.

Chemicals capex
In its chemicals segment Grasim has committed a capex of 12.63 bln rupees for the whole of 2022-23 but the actual expenditure as of June 30 was only 10.1%.

The company is, therefore, expected to spend 11.35 bln rupees more in the Jul-Mar period of the current financial year.

The full year capex target in chemicals covered 7.19 bln rupees towards capacity expansion with 0.66 bln rupees spent in Apr-Jun and 5.44 bln rupees towards maintenance and modernisation of which 0.62 bln rupees capex was incurred in the June quarter.

Grasim has also targeted capex of 4.23 bln rupees for its operations in viscose filament yarn, textiles and insulators. Of this, the company incurred 0.69 bln rupees in Apr-Jun.

Debt concerns
Analysts have expressed concerns of the high rate of capex by Grasim.

The company's consolidated net debt went up to 67.8 bln rupees as of Jun 30 from 43 bln rupees at the end of March. The gross debt stood at 171.4 bln rupees as of Jun 30 while liquid investments were worth 103.6 bln rupees.

Tata Steel independent director quits to join US energy department

29 August 2022

Tata Steel Ltd's independent director David Crane has resigned from his position in order to join the US Department of Energy.

Since his new position required him to step off from all private sector positions Crane has put in his resignation, the company said in a stock exchange filing today.

Crane will leave the Tata Steel Board on Sep 5 and join his new position the next day according to his resignation letter

He joined Tata Steel's board as a non-executive independent additional director on Oct 11 last year.

After Crane's departure from the board position Tata Steel will have five independent directors and six non-independent directors.

In 2021-22 (Apr-Mar) the company had seen one independent director resign, another retire and a third one re-appointed on expiry of term. It has also appointed two new independent directors in that year which included Crane.

August 30, 2022

SEBI Watch: NDTV case vindicates SEBI's stand on indirect acquisition

29 August 2022

The Adani Group's ongoing attempt to acquire a controlling stake in New Delhi Television by converting debt into equity shines the spotlight on an order last month by Securities Appellate Tribunal on how these loans should be viewed.

SAT overturned a Securities and Exchange Board of India order holding that the 4-bln-rupee interest-free borrowing by NDTV promoters under onerous conditions from Vishvapradhan Commercial should be treated as equivalent to the acquisition of a stake by the latter.
 
In the original order of June 2018, SEBI had pointed out that Vishvapradhan Commercial's loan agreement with the NDTV promoter company, which held 26% stake at that time, was not a normal lending transaction and its primary purpose was to acquire the broadcaster's shares.

To prove its point, it pointed out that the loan agreement gave Vishvapradhan Commercial the right to convert its loan into shares aggregating to a 99.99% stake in the NDTV promoter company "at any time during the tenure of the Loan or thereafter without requiring any further act or deed on the part of the Lender."

The market regulator had, therefore, concluded that "the exercise of the right to convert warrants into shares of RRPR (promoter company) thereby indirectly acquiring 26% of NDTVs equity is not dependent on the repayment of the loan."

Based on this finding, it held that Vishvapradhan Commercial had breached the takeover code by not making an open offer for NDTV shares after signing the loan agreement.
 
But these contentions were subsequently thrown away by the Securities and Appellate Tribunal while hearing appeals by Vishvapradhan Commercial and NDTV promoters.
 
On its part, SAT said that from a reading of the loan agreement and the call option agreements it was clear that either the loan had to be repaid or the call, conversion or purchase options would get exercised. SAT said the wording of the agreement indicated that VCPL would be entitled to exercise the warrant conversion if the loan remains unpaid at the end of the tenure. “In our opinion, it does not mean that the warrant conversion option could be exercised even after the loan is extinguished," SAT had said.

Thus, it rejected SEBI’s contention the warrants could be exercised even during the tenure of the loan.

The events of the last few days have given us new material to evaluate whose position was closer to reality. The events show that SEBI had its finger on the pulse of the complex web of covenants in the legal agreements between the promoters of NDTV and the lender.
 
The question in the minds of every minority shareholder of a listed company today is: If a promoter uses its shares to borrow or carry out deals under such onerous clauses, can it continue to be considered the true owner of those shares? It also points to the need for promoters to disclose the terms under which they resort to raising funds against their shareholding.
 
Separately, another worrying aspect is that SAT seems to have overlooked the fact that when it issued its order last month, the 10-year tenure of the loan was already over, and Vishvapradhan Commercial could, at any moment, convert its loan into shares of the promoter company.

Even if one accepted SAT’s reading that default was a condition for the conversion of the debt into shares, SAT should have asked why no open offer was made immediately after July 2019 when the loan expired and presumably slipped into default.

SEBI has got every reason to tap itself on its shoulders given how the NDTV case has turned out. But it must introduce the controlling shareholder concept in our securities market as this column argued for recently (https://www.informistmedia.com/sebi-watch-ndtv-case-shows-need-to-relook-controlling-shrholder-norm/).

August 28, 2022

Metal Stocks Outlook: Weak steel and aluminium price outlook to weigh

26 August 2022

Metal stocks came in a under a bit of fire this week with Nifty Metal losing 2.3% in average value over that of the previous week.

This is likely to be the scenario next week also as uncertainties around price outlook and margins play in the minds of the metal sector investors.

According to a report by Kotak Institutional Equities earlier this week the domestic steel prices have declined 20% in the last three months due to regional price weakness and that they would continue to remain under pressure given the current premium to import parity. It also said that even if export duty on steel were to be cut it will have only limited benefits.

Downside risks to prices are also seen for aluminium. The brokerage felt that current aluminium prices, which have remained range bound in last one month after seeing a sharp fall earlier, are not likely to rise as majority of smelters in Europe were running at cash losses and production curtailment announcements were starting to be made by the producers.

Headwinds in metal and mining sectors still persisted, said Edelweiss Securities in a sector update today. It said that domestic hot rolled coil price in the traders market slipped further this week "owing to high inventory at steel producers and expectations of price cuts in the first week of September."

It also pointed to a slowing demand for secondary rebars leading to a dithering in its prices.

August 26, 2022

Bayer CropScience gets nod on related trade but some shareholders oppose

24 August 2022

The results of voting on resolutions in the annual shareholders meeting of Bayer CropScience Ltd on Monday indicate that a section of non-promoter shareholders were opposed to the jump in related party transaction limit with the ultimate promoter holding company Bayer AG to 30 bln rupees from 18 bln rupees.

The ordinary resolution on related party transactions, in which promoter shareholders were not permitted to vote as per Securities and Exchange Board of India's norms, saw 20% of non-institutional public shareholders and 14.1% of institutional public shareholders vote against the proposal.

Overall, 14.1% of public shareholders who voted in the meeting were against the proposal. But since the ones voting in favour were greater than 50% the company got the approval to hike the related party transaction limit.

The shareholder approval will now enable Bayer CropScience to buy goods from, or to effect sales to, Bayer AG, along with other specified types of related party transactions for a total value of 30 bln rupees every year from 2022-23 (Apr-Mar) to 2026-27.

The company has justified the need for related party transactions with Bayer AG on the grounds that it gave access to scientific know-how and enabled it to become part of Bayer’s global supply chain.

It also justified the jump in the limit to "future growth plans.”

In terms of proportion of Bayer Cropscience's annual revenue in 2021-22 the raised related party transaction limit of 30 bln rupees amounted to 63%. It was higher at 70% in the previous financial year.

Further, the 30-bln-rupee limit was 2% of Bayer AG’s consolidated turnover in 2021 (Jan-Dec).

Earlier, Bayer Cropscience had taken shareholder approval in August 2017 to make related party transactions with Bayer AG for 18 bln rupees every year till 2021-22.

The value of related party transactions with Bayer AG in 2021-22 was 16.7 bln rupees, close to the 18-bln-rupee limit.

It indicates a likelihood of Bayer CropScience utilising the new 30-bln-rupee limit near to its full extent in the current financial year or in the following years.

In the shareholding pattern of Bayer Cropscience as of June 30, foreign promoter entities including Bayer AG, Monsanto Company and two others, and domestic promoter entities Bayer Vapi and Monsanto Investments India, together held 71.4% of the company's shares.

Bayer AG is the ultimate promoter holding company of Bayer Cropscience.

Freight rates not yet normalised, remains elevated, says Fine Organic

24 August 2022

The situation with respect to recent sharp increase in freight and forwarding expenses still remained dynamic and freight rates were not yet normalised, the chairman and managing director of Fine Organic Industries Ltd, Mukesh Shah, said in the company's annual shareholders meeting on Tuesday.

The specialty chemicals company which makes food emsulsifiers, and polymer, rubber and other additives had seen freight and forwarding expenses rise sharply in 2021-22 (Apr-Mar) "due to increase in sea freight cost brought by the shortage of containers and global supply chain disruption."

Shah said that sustainable operating margins in the future could only be ascertained later based on the next few years performance and global business environment and that the company's short term endeavour was to maintain operating margin in the range of 18-20%.

Fine Organic Industries' consolidated operating margin, as denoted by the earnings before interest, tax, depreciation and amortisation margin, went up sequentially in the June quarter to 28.7% from 25.8%. The operating profit rose 35% on quarter to 2.1 bln rupees.

The operating costs showed a sequential rise of 17% to 5.3 bln rupees, data from Informist Corporate Fundamental Database showed, but a higher increase of 21% in net sales to 7.5 bln rupees enabled the company to record an operating profit growth.

Shah said that the June quarter rise in revenue was "primarily attributed to better realization across the product segments and some increase in volumes." He pointed out that the company got some opportunities to grab upon due to global supply chain disruptions which resulted in a surge of export demand for the company's products.

Global supply chain disruption like, inadequate availability of Raw Materials,  shortage of containers and other challenges brought by macro-economic factors,  have given us some opportunities to grab upon which also resulted in surged  export demands.

The share of exports to total revenue jumped to 70% in the June quarter from 60% in the whole of 2021-22.

Fine Organic Industries, according to its recent investor presentation, exports oleochemical based additives to 75 countries and is its largest producer in India.

Shah said that the company didn't know how long the challenging global situation will remain for it exploit new opportunities in the export market.

August 25, 2022

Goa Carbon's Paradeep unit shutdown likely to last 7-10 days

23 August 2021

The maintenance shutdown at the Paradeep unit of Goa Carbon Ltd from Saturday will likely be for 7-10 days, a senior company official told Informist.
 
In a filing with the stock exchanges on Monday, the company said that the operations at Paradeep unit had been temporarily shut down for maintenance work. In a separate exchange filing on Monday the company also informed of a similar shutdown in its Bilaspur unit from Friday.
 
Goa Carbon produces calcined petroleum coke and sells to domestic and overseas aluminium and steel companies. Of its three manufacturing units at Goa, Paradeep and Bilaspur, the Paradeep unit is the biggest with an annual production capacity of 168,000 tn. The Goa unit has a 100,000 tn annual capacity while that of the Bilaspur unit is 40,000 tn.
 
The company has been regularly putting one or more of its three units under temporary shutdowns in the last few quarters.
 
Goa Carbon effects such shutdowns for maintenance work and "due to the absence of viable export and domestic orders".

The latest one in Paradeep will likely be a minor one, according to the company official. "It is also a conscious decision by the company to optimise the feed rate and also to optimize the costs; else we would not like to take a shut down," he said.

In the September quarter of last year too, the Paradeep unit was shut down for 13 days while the shutdown period in Goa unit was six days and that in Bilaspur unit was 49 days.

Longer shutdowns were taken by the company in the June quarter when the Paradeep unit was shut for 27 days, Goa unit for 76 days and Bilaspur unit for 36 days.
 
Despite the lengthy shutdown periods by Goa Carbon in the June quarter the net sales jumped 64% on the year to 2.1 bln rupees, data from Informist Corporate Fundamental Database showed.
 
The operating profit, as denoted by the earnings before interest, tax, depreciation and amortisation, rose significantly to 273 mln rupees in Jul-Sep from 45 mln rupees in the year ago quarter. The net profit too jumped to 145 mln rupees from 1.2 mln rupees.
 
Goa Carbon's customer base is dominated by Hindalco Industries Ltd and Vedanta Aluminium and Power which together account for around 80% of the company's total revenue, a report by rating agency Acuite Ratings and Research said in April.

August 13, 2022

Viscose margin Jul-Sep under pressure as China prices dn, says Grasim

12 Aug 2022

The softening in viscose staple fibre prices in China since June will make it difficult for Grasim Industries Ltd to sustain price increases taken in the June quarter and consequently put pressure on the operating margin of its viscose segment, the company indicated in a conference call with analysts and investors today.

"China being the biggest producer and consumer of VSF (viscose staple fibre) has a big influence on international prices. Since end of June, viscose staple fibre prices have started correcting in China and in India we have to adjust a little bit," the company management said.

The company was addressing analyst queries on whether the price decline of around 6-9% in China since end of June would have an adverse impact on Grasim's viscose segment margins going forward and whether the high margin levels in the segment were behind.

The company management said that in the September quarter it may not be able to effect price hikes in viscose staple fibre sales like it did in the June quarter due to the current environment in the international markets and particularly because the ongoing correction in viscose staple fibre prices in China was quite severe.

"So margins (in viscose segment) will be under pressure and will not be like in favorable quarters," the management said.

The viscose segment margin was also affected in the June quarter contracting sharply to 11.6% from 23.2% a year ago.

The operating profit, defined as earnings before interest, tax, depreciation and amortisation, of the viscose segment went up by a mere 2% on year to 5 bln rupees.

But the viscose segment revenue more than doubled to 43 bln rupees in Apr-Jun and made up for nearly 60% of total revenue.

This came on the back of a volume rise of 76% on year to 197,000 tn and improved sales realisations.

The company said that the viscose staple fibre volume growth in the June quarter was aided by around 51,000 tn contribution from its brownfield expansion at the Vilayat site.

The viscose filament yarn volume was up 34% on year to 10,300 tn in Apr-Jun.

Overall, Grasim's sales jumped 93% on year to 72.5 bln rupees in Apr-Jun while its net profit rose 68% to 8.1 bln rupees.

Metal Stocks Outlook: Global steel oversupply, weak demand to weigh

12 Aug 2022

Base metal stocks may come under pressure next week due to concerns of global oversupply in steel from surge in the metal's exports from China amid weak global demand.

Metal stock investors will also weigh the commentary made by the managements of Hindalco Industries and Steel Authority of India Ltd this week after they declared their results for the June quarter.

Aluminium and copper producer Hindalco said that it the cost of production will rise in the high teens in Jul-Sep due to the flow-through effect of high coal costs in the June quarter. It said that the current Jul-Sep quarter will likely be the company's worst quarter from the cost of production point of view because the majority of the coal problems and the high cost coal that it had to buy during May-Jun was getting consumed in the current quarter.

On the other hand, steel maker SAIL said that its imported coking coal costs were down in July to 38,000 rupees per tn from 39,500 rupees per tn in Apr-Jun. It expected the cost to come down further by 4,000-5,000 rupees per tn in the current month and further from September onwards.

But SAIL also specified that the high-priced coal inventory at the end of the June quarter is getting consumed in the current quarter and the full benefit of the coal price fall will be realised only in the December quarter.

The Nifty Metal index ended this week 4.6% higher.

Axis Capital said in a report this week that with steel demand currently being weak globally the surge in exports from China had fueled concerns on oversupply. It said hopes of a stimulus-driven demand recovery in China was fading away.

Grasim Ind Apr-Jun net profit, sales up sharply but margin contracts

12 Aug 2022

The profitability of Grasim Industries Ltd fell in the June quarter on higher operating costs, while the operating profit, sales and net profit rose sharply.

The Aditya Birla Group company reported a net profit of 8.1 bln rupees for the quarter ended June, up 68% on year. It was above analyst estimates of 5.2-6.1 bln rupees.

The sales jumped 93% to 72.5 bln rupees, and were above analyst estimates of 63.8-70.2 bln rupees

Grasim's operating profit, defined as earnings before interest, tax, depreciation and amortisation, also rose sharply by 69% on year to 13.6 bln rupees.

But a substantial rise in operating costs in Apr-Jun led to the operating margin contracting to 18.6% from 20% a year ago.

The cost of materials consumed jumped 83% on year to 33.4 bln rupees while power and fuel costs rose sharply by 92% on year to 12.3 bln rupees.

Grasim's revenue growth was aided by a doubling of revenue in its viscose segment to 43 bln rupees driven by a sales volume increase of 76% in viscose staple fibre to 197,000 tn and improved realisations in the segment. The viscose filament yarn volume was up 34% on year to 10,300 tn during the June quarter.

The company said that the viscose staple fibre growth in the June quarter was aided by around 51,000 tn contribution from its brownfield expansion at the Vilayat site.

In the company's chemicals segment, the volume performance was not great. The caustic soda sales were up only 17% on year to 278,000 tn while the chlorine and HCL consumption in value added products was up 34% on year to 86.7 mln tn.

The company said that average global caustic soda prices peaked at $769 per tn on the back of higher energy prices and supply chain disruption. A weak demand environment prevailed in the chlorine user industry in segments like dyes and pigments, and as a result the chlorine sales realisation continued to stay negative, the company said.

However higher sales realisation in the chemicals segment led to a 90% jump in revenue to 27.3 bln rupees.

The bottomline was mainly aided by the sharp rise in operating profit.

Tax expenses were 2.2 times higher at 2.1 bln rupees.

Pidilite Ind expects Jul-Sep input costs to be "highest", impact operating margin

12 Aug 2022

Pidilite Industries Ltd expects the operating margin in the September quarter to be flattish due to consumption of unutilised key raw materials from the June quarter when the prices were at their peak, the company told analysts in a conference call with analysts and investors on Thursday.
 
The adhesive-to-construction-chemicals company's managing director, Bharat Puri, also told Informist that the consumption of key raw material vinyl acetate monomer would likely be in the $2,300-2,500 per tn range in the September quarter as compared to $2,200-2,400 range recorded in the June quarter.
 
This represents a $100 per tn, or around 5%, increase in the vinyl acetate monomer cost in the September quarter and would restrict any expansion of the operating margin.
 
In the June quarter, Pidilite's operating margin, defined as the earnings before interest, tax, depreciation and amortisation margin, contracted to 17.1% from 17.8% a year ago. In Jan-Mar, the margin was 16%.
 
The profitability of the company during the quarter was hit due to a jump in raw material expenses. They rose 72% on year to 15.7 bln rupees, accounting for nearly 60% of the total expenses. But calibrated price hikes and 44% volume growth led to the consolidated EBITDA rising sharply by 52% on year to 5.3 bln rupees.
 
Puri told analysts in the call that he saw the near term as challenging because of two reasons.
 
The company saw the highest level of input costs in the June quarter and "a large part of those input costs will be consumed in the current quarter (Jul-Sep)," he said. Therefore, from an operating margin point of view the near term will be very challenging.

Puri said the raw material costs as a percentage of sales will likely be the highest in the September quarter. The operating margin will be impacted by this and on how the product mix works out, he said.

The second reason, according to Puri, was that the company was seeing a slowdown in growth in the rural and semi-urban areas due to a significant rise in the cost of building materials in the last one year.

“Until the effect of a good monsoon and money going into the hands of the rural and semi-urban consumers, which will happen in the second half of the current financial year, the near term will remain challenging,” he said.

In the June quarter Pidilite’s consolidated net sales were up 60% on year to 31 bln rupees while the net profit jumped 61% on year to 3.5 bln rupees.

August 12, 2022

Cost of production in Jul-Sep may rise 17-19% on qtr, says Hindalco

 11 Aug 2022

Hindalco Industries Ltd expects the cost of production to rise in the high teens in the Jul-Sep quarter due to the flow-through effect of high coal costs in the June quarter, the management told analysts in a conference call with investors and analysts on Wednesday.

Coal costs is reflected in the power and fuel expenses of the aluminium and copper producer.

The cost of production in the June quarter was 17% higher than that in the previous quarter, the company said.

"Probably Q2 (September quarter) will be in some way our worst quarter from the cost of production point of view because the majority of the coal problems and the high cost coal that we had to buy during May-Jun will be consumed in Jul-Sep quarter," a senior official said.

The company expects the production costs to rise sequentially in the high teens which could mean that the rise would be in the 16-19% range.

The company said the coal has been the biggest factor in the rise in the cost of production since the company had to source 31% of their coal from the auction market after the government restricted the linkage coal supply to non-power producers.

The premiums in the auction market had risen substantially to 500%, the company said.

The company expects the share of shrinkage coal from 50% to 65% in the December quarter with coal supply woes easing gradually.

On a standalone basis, Hindalco's power and fuel expenses rose 32% sequentially to 25.1 bln rupees and it made up for 15.1% of operating expenses. Raw material expenses, which made up for 59% of expenses, recorded a decline of 17% sequentially.

The standalone operating margin of Hindalco contracted to 15% in Apr-Jun from 17.2% in the previous quarter. The operating profit, defined as earnings before interest, tax, depreciation and amortisation, declined by 10.3% sequentially to 29.3 bln rupees.

Jul sales volume over 1.4 mln tn, SAIL expects further recovery ahead

11 Aug 2022

Steel Authority of India Ltd sold over 1.4 mln tn of steel in July and expects the current month to record the highest sales volume for August of any year, its management told analysts and investors in a conference call today.

The steel public sector unit reported a weak set of earnings numbers for the June quarter on the back of 5.4% decline in sales volume to 3.2 mln tn from the year ago period.

It was in this context that the company addressed concerns on volume growth front. The company said it was confident of volume recovering in the remainder of the current financial year on the back of a bounce back in domestic steel consumption.

The company's net profit for the June quarter fell 80% on year to 7.8 bln rupees. But its sales went up by 16% to 249.3 bln rupees on the back of improved sales realisation.

The company disclosed in today's analyst call that the net sales realisation in the June quarter was 66,829 rupees per tn as compared to 59,495 rupees in the March quarter.

Since coal costs went on a decline for the company in the current quarter till date the sales realisations in July had fallen.

The company said its imported coking coal costs were down in July to 38,000 rupees per tn from 39,500 rupees per tn in Apr-Jun. It expected the cost to come down further by 4,000-5,000 rupees per tn in the current month and further from September onwards.

The imported coal consumption in the June quarter was around 85% of total coal consumption. Indigenous coal made up for the rest and its costs were much lower at 13,000 rupees per tn in the June quarter.

SAIL's cost of materials consumed jumped 2.8 times to 176.8 bln rupees in Apr-Jun. This affected its operating performance.

The operating profit, defined as earnings before interest, tax, depreciation and amortisation, dived 61% on year to 26.1 bln rupees in the June quarter and its operating margin contracted substantially to 10.9% from 32.3% in the year ago period.

August 11, 2022

Hindalco Apr-Jun PAT and sales rise strongly, but margin contracts

10 Aug 2022

Hindalco Industries Ltd reported a strong increase in its net profit and sales for the June quarter but high operating costs weighed on its operating margin.

The metal company's consolidated net profit in Apr-Jun rose 48% on year to 41.2 bln rupees, its highest ever, topping analyst estimates of 30-32.3 bln rupees. Its consolidated net sales were up sharply by 40% on year to 580.2 bln rupees which too topped analyst estimates of 524.4-534 bln rupees.

A substantial rise in energy costs and raw material expenses dashed any hope of operating margin expansion. But higher price realisations ensured that the consolidated operating profit, defined as earnings before interest, tax, depreciation and amortisation, was up 37% on year to 84.3 bln rupees.

The company's consolidated operating margin contracted to 14.5% in Apr-Jun from 14.9% a year ago.

The weak operating performance of Novelis Inc, a wholly-owned overseas subsidiary of Hindalco, weighed on the metal company's operating profit and margin. Novelis declared its June quarter results on Aug 3.

In Apr-Jun, flat shipment volume and high operating costs restricted Novelis' operating profit growth to just 1% on the year to $561 mln. In rupee terms, Novelis' operating profit went up to 43.3 bln rupees in the June quarter from 40.9 bln rupees a year ago.

Novelis' operating margin contracted sharply to 11% in Apr-Jun from 14.4% a year ago. The company attributed the sharp rise in operating costs to high energy costs.

Hindalco's consolidated power and fuel expenses were up 67% on year to 40.2 bln rupees while raw material expenses were up 36% on year to 353.1 bln rupees.

Segmentally, the aluminium upstream segment recorded a moderate increase in shipment volume in Apr-Jun to 333,000 tn from 325,000 tn a year ago. But aluminium downstream sales volume fell 5% on year to 78,000 tn.

Copper cathode rod sales jumped 73% on year to 80,000 tn while copper metal sales increased to 101,000 tn from 80,000 tn.

Sequentially, Hindalco's consolidated net profit was up only 7% and net sales were up by only 4%.

The consolidated net debt of the company went up to 421.9 bln rupees on Jun 30 from 391 bln rupees on Mar 31.

JSW Steel Jul output 1.57 mln tn, up 1.6% month on month, flat rolled products output down 4%

10 Aug 2022

JSW Steel Ltd's crude steel production stood at 1.57 mln tn in July on a standalone basis, the company said in an exchange filing on Tuesday.

It was up 14% on year. But it was only 1.6% up as compared to June.

In June the crude steel production by the company was 1.54 mln tn, as calculated from the company's quarterly production data for Apr-Jun and its monthly production data for April and May.

Of the crude steel production in July, flat rolled products output was 1.07 mln tn, down 4% on month and up 15% on year.

The long rolled products output stood at 365,000 tn, up 22% on month and 19% higher than the year ago period.

Earnings Review: SAIL net profit falls 80%, hit by steep EBITDA fall

 10 Aug 2022

Steel Authority of India Ltd's bottomline in the June quarter was hit severely by a volume decline and a drop in operating profit.

The company's net profit for the June quarter fell 80% on year to 7.8 bln rupees. It, however, topped analyst estimates of 5.3-7.6 bln rupees.

The steel company in which the government holds a 65% stake reported net sales of 240.3 bln rupees, up 16% on year. It was below analysts' estimate of 244.7 bln rupees.

The sales growth was restricted as volume declined 5.4% on year to 3.2 mln tn in Apr-Jun even though crude steel production rose 15% to 4.3 mln tn.

The company said that the volume decline was on account of subdued market demand.

It said that the decline in global demand for steel had a direct bearing on the domestic market. The weak demand and fall in steel prices during May-Jun had a bearing on the price realisation, the company said.

Among SAIL's largest three steel plants, the one at Bhilai saw net sales rise to 70.3 bln rupees in Apr-Jun from 55.8 bln rupees a year. Net sales from the Rourkela steel plant were up at 64.7 bln rupees from 59.2 bln rupees while that from the Bokaro steel plant increased to 67.2 bln rupees from 64.5 bln rupees.

The operating profit, defined as earnings before interest, tax, depreciation and amortisation, dived 61% on year to 26.1 bln rupees.

The company's operating margin contracted substantially to 10.9% in Apr-Jun from 32.3% in the year ago period. It was also lower than previous quarter's 15.6% margin.

The company attributed the operating profit fall to challenges in sales realisations, and high cost of production due to increase in imported coking coal prices.

Sequentially, SAIL's net profit was down 68% and net sales declined by 22%.

The company's consolidated net profit stood at 8.1 bln rupees in Apr-Jun, down from 39 bln rupees a year ago. Its consolidated net sales were up 16% on year to 240.3 bln rupees.

Pidilite Ind PAT up 61%, sales up 60%, but margin contracts 70 bps

10 Aug 2022

Pidilite Industries Ltd's consolidated net profit jumped 61% on year to 3.5 bln rupees in Apr-Jun on the back of a 60% rise in consolidated net sales to 31 bln rupees.

The operating profit, defined as earnings before interest, tax, depreciation and amortisation, of the company, was up sharply by 52% on year to 5.3 bln rupees.

But high operating costs during the quarter reined in the operating margin which contracted to 17.1% from 17.8% a year ago.

Sequentially, Pidilite's consolidated net profit rose 39% while net sales were up 24%. The operating profit was also up 32%.

The profitability of the company was hit due to a jump in raw material expenses. The cost of materials consumed, which made up for nearly 60% of total expenses, rose 72% on year to 15.7 bln rupees.

The cost of purchase of traded goods was also up substantially by 79% to 2.5 bln rupees.

Pidilite's managing director Bharat Puri said that the sales growth in volume and value terms was broad-based across business segments and geographies.

He said that due to rising input costs the company took calibrated pricing action.

"While the near term remains challenging, we remain cautiously optimistic on the medium term given the recent softening of input prices led by lower oil prices, a good monsoon and continued good demand conditions in the housing and home improvement sector," Puri said.

Grasim's Apr-Jun net profit seen up 8-26% YoY, down 43-51% QoQ

10 Aug 2022

Grasim Industries is expected to report a net profit of 5.2 bln-6.1 bln rupees for the quarter ended June according to estimates by three brokerage houses.

The company will declare its quarterly results on Friday.

The net profit estimates put it higher by 8-26% from the net profit of year ago period and 43-51% lower than the previous quarter.

The estimates peg Grasim's net sales between 63.8 bln rupees and 70.2 bln rupees, 70-87% higher than a year ago and flat to 10% higher than the previous quarter.

The sales growth in June quarter will be aided by the low base of year ago period and ramp up of capacities during the quarter.

Brokerage ICICI Securities expects Grasim's operating profit, as denoted by the earnings before interest, tax, depreciation and amortisation, to jump 38% on year "on the back of strong profitability in chemicals division."

It expects the viscose staple fibre segment EBITDA to go up due to better realisations and ramp up of new capacities.

When the company reports its June quarter results on Friday investors will be monitoring the company's outlook on demand in viscose staple fibre and overall input costs for the rest of the current financial year.

August 10, 2022

Earnings Review: Tata Chem net profit surges on operating profit jump

 9 Aug 2022

Higher realisations and moderate volume growth were enough for Tata Chemicals Ltd to offset sharp rise in energy costs and raw material expenses and record a significant increase in operating profit in the quarter ended June.

It led to a 2.1 times rise in consolidated net profit to 5.9 bln rupees as compared to the year ago period. The reported net profit was higher than analyst estimates of 3.4 bln-4.5 bln rupees.

The consolidated net sales were up 34% on year to 40 bln rupees which too were above analyst estimates of 37 bln-39.5 bln rupees.

Tata Chemicals' sales were higher on the back of rise in realisations in sales of soda ash and sodium bicarbonate in domestic and export markets of US, Kenya and UK.

This was despite soda ash volume declining 1% to 885,000 tn. The increase of 5% in sales volume of sodium bicarbonate to 58,000 tn aided the company's sales.

There was a volume growth in salt sales as well. It went up 2% to 418,000 tn.

ACROSS GEOGRAPHIES
Tata Chemicals' domestic revenue jumped 48% to 8.3 bln rupees.

Tata Chemicals said that domestic demand for soda ash and sodium bicarbonate was strong during the June quarter and the company's Mithapur unit operated at full capacity. The company sells soda ash, sodium bicarbonate and salt in the domestic market.

The domestic soda ash volume was up by only 1% on year to 167,000 tn but sodium bicarbonate sales increased sharply by 8% to 27,800 tn and salt sales were up by 6% to 311,900 tn.

In the US market where the company sells only soda ash the revenue growth was 34% on year to 8.4 bln rupees even though the sales volume was lower by 1.7% at 577,600 tn.

Tata Chemicals' Kenyan operation saw soda ash sales jump 84% to 1.3 bln rupees. But the volume was near flat at 83,100 tn.

Revenue growth was the lowest in UK with sales rising 31% on year to 4.1 bln rupees.

There was a fall in UK sales volume of soda ash and salt. While soda ash volume fell 4.3% to 67,500 tn that of salt fell 8.3% to 96,000 tn. Sodium bicarbonate sales were however up by 3.7% to 27,100 tn.

HIGHER PROFITABILITY
The consolidated operating profit, defined as earnings before interest, tax, depreciation and amortisation, of the company jumped 69% to 10.2 bln rupees in Apr-Jun. The EBITDA margin expanded to 25.4% from 20.2% a year ago.

The EBITDA growth was primarily driven by higher realisations. It was the highest in domestic, UK and Kenyan operations.

The company said that soda ash realisations increased across units with US and Kenya export pricing remaining firm.

The realisations in the UK market were higher as input costs rose sharply and the company was able to pass on the costs to its customers.

But the EBITDA from the company's agrichemicals subsidiary, Rallis India, fell 7%. Tata Chemicals holds a 50% stake in its subsidiary Rallis India which declared its June quarter results last month.

COMPANY OUTLOOK
Tata Chemicals' managing director and CEO R Mukundan said that global demand environment in the company's products and their applications remains strong.

"While this positive momentum is expected to continue in the near to medium term, the input side environment especially energy remain at elevated levels coupled with logistic challenges that continue to be seen in the market," he said.

August 09, 2022

Earnings Outlook: SAIL may sail through on sales but PAT seen diving

8 Aug 2022

Steel Authority of India Ltd is expected to report a net sales of 244.7 bln rupees, up 19% on year, for the quarter ended June according to an average of the estimates by four brokerage houses.

The net profit is pegged between 5.3 bln rupees and 7.6 bln rupees, down 80-86% on year, according to estimates by three broker firms. Another broker firm, IDBI Capital Market Services, estimates SAIL’s net profit to be further lower at 3.1 bln rupees.

The company will declare its June quarter results on Wednesday.

Analysts see the topline aided by single-digit volume increase and double-digit rise in steel prices in Apr-Jun as compared to the year ago period.

Brokerage Kotak Institutional Equities sees SAIL’s volume going up by 6% on year and steel realisation to increase by 10% due to higher steel prices in the domestic market.

The operating margin of SAIL may fall in Apr-Jun “due to impact of higher coking coal prices,” according to brokerage Axis Securities.

"Higher coking coal costs and rigid employee costs will lead to sharp fall in EBITDA/t (operating profit per tn) for SAIL compared to its peers," said brokerage, IDBI Capital Market Services.
    
Sequentially, SAIL’s net sales are seen lower by 20%, and the net profit estimate is 68-78% lower.

After the company announces its June quarter results on Wednesday, investors will monitor company guidance on volume for 2022-23 (Apr-Mar), and updates on capital expenditure incurred and planned.

Hindalco’s Apr-Jun consol net sales seen up but volume may fall

8 Aug 2022

Hindalco Industries is expected to report a consolidated net profit of 30 bln-32.3 bln rupees for the quarter ended June according to estimates by three brokerage houses. The company will declare its quarterly results on Wednesday.

The net profit estimates put it higher by 8%-16% than that a year ago.

Analysts see the bottomline getting propped up by higher selling prices of aluminium. However a one-time tax gains in the year ago period and elevated input costs during the quarter will be a drag on the net profit growth.

The estimates were made before Novelis Inc, a wholly-owned overseas subsidiary of Hindalco, declared its results for Apr-Jun on Wednesday.

Novelis reported a near-flat net profit of $307 mln due to high operating costs. This is likely to have a major impact on Hindalco’s consolidated net profit.

Novelis net profit contributed nearly 60% of Hindalco’s consolidated net profit in the year ago quarter, back of the book calculations show.

The estimates by three brokerage houses peg Hindalco’s consolidated net sales between 524.4 bln rupees and 534 bln rupees, 27%-29% higher than a year ago.

It seems very likely that Hindalco’s net sales growth will be above 20% in Apr-Jun since that of Novelis was 32%. But although the $5.1 bln net sales reported by Novelis represented a sharp rise the company’s sales volume was down by 1% to 962,000 tn.

Higher realisations, though, helped drive the overseas subsidiary’s sales

Hindalco’s domestic aluminium sales are unlikely to register high increase. According to Axis Securities, the company’s domestic aluminium production may stay at 322,000 tn, up only marginally from 319,000 tn a year ago.

Of Hindalco’s consolidated net sales in the year ago quarter Novelis’ share was nearly two-thirds.

Sequentially, the estimates for Hindalco’s consolidated net profit and net sales levels are both lower.

The Novelis figures for Apr-Jun indicate a mixed trend though. Novelis’ net profit jumped 38% on the quarter while its net sales were up by just 5% and sales volume was down 3%.

When the company details its earnings on Wednesday, comments on the aluminium and alumina price trend going forward and input cost pressures will be monitored by investors.

NALCO Apr-Jun net profit, sales up strongly but margin contracts

8 Aug 2022

The operating margin of National Aluminium Co Ltd declined marginally in the June quarter even as the consolidated net sales, net profit and operating profit increased sharply. A substantial increase in input costs checked any expansion in the operating margin.

The company's aluminium segment performance drove the strong topline and bottomline performance of the company during the quarter, while alumina segment performance was weak.

The consolidated net profit of the aluminium and alumina producer rose 60% on year to 5.6 bln rupees on the back of a 53% jump in consolidated net sales to 37.8 bln rupees.

NALCO's earnings before interest, tax, depreciation and amortisation also increased sharply by 50% to 8.7 bln rupees.

But a surge in energy costs and raw material expenses stopped any operating margin expansion. The EBITDA margin was 23% in Apr-Jun, 50 bps lower than that in the year ago period.

NALCO's power and fuel costs which made up for 44% of total expenses in Apr-Jun jumped 79% on year to 13.4 bln rupees.

Its raw material expenses rose significantly by 87% to 7.3 bln rupees. It contributed 24% to total expenses.

But a strong control over other expenses which went up by just 3% to 4.9 bln rupees meant that the EBITDA rose strongly.

The company's sales performance in Apr-Jun was driven by aluminium segment sales which jumped 72% on year to 29.8 bln rupees.

The alumina segment sales growth was moderate in comparison. Its sales went up by 12% to 12 bln rupees.

The operating profit performance during the June quarter was also driven by the aluminium segment. The aluminium segment profit doubled to 8 bln rupees, while the alumina segment recorded a loss of 71 mln rupees as compared to a profit of 1.2 bln rupees a year ago.

Sequentially, NALCO's consolidated net profit was 46% down and net sales were 13% lower. It reflected demand pressures in the June quarter.

The company's EBITDA margin of 23% in Apr-Jun was also sharply lower than 37.3% in the March quarter.

The government owns a 51.3% stake in NALCO.

The company today declared a final dividend of 1.50 rupees per share for 2021-22 (Apr-Mar).

August 07, 2022

Earnings Outlook: Tata Chemicals' sales, net profit seen up but operating margin may contract

5 Aug 2022

Tata Chemicals Ltd is seen reporting good topline and bottomline performance in Apr-Jun, but its operating margin may have taken a hit due to high input costs.

The consolidated net profit of Tata Chemicals in the June quarter is expected to be between 3.4 bln rupees and 4.5 bln rupees, according to estimates by three brokerage houses. In the year ago quarter the consolidated net profit was 2.9 bln rupees, while it was 4.6 bln rupees in the previous quarter.

As per the estimates the consolidated net sales will likely be between 37 bln rupees and 39.5 bln rupees. The consolidated net sales was 29.8 bln rupees a year ago and 34.8 bln rupees in the previous quarter.

The company will declare its results for the June quarter on Tuesday.

A revival in a construction activity across the globe would have improved flat glass demand and consequently improved the demand for soda ash, according to brokerage ICICI direct.com Research in its preview report.

“We expect export business for North America unit to have performed well and thus, should have given respite to the overall performance,” the brokerage said.

Soda ash contributed a little over 50% of Tata Chemicals’ consolidated revenue in 2021-22 (Apr-Mar), data from the company’s annual report for the year showed.

According to brokerage Kotak Institutional Equities, US margins could potentially improve on the back of better international realisations, while the UK and Africa businesses should hold steady.

The operating profit margin will likely to remain at 20%, down 22 bps on the year, according to ICICI direct.com Research.

Tata Chemicals holds a 50% stake in its subsidiary Rallis India which declared its June quarter results last month.

Rallis India’s net sales increased by 17% on the year to 8.6 bln rupees in Apr-Jun while its net profit fell 18% to 675 mln rupees.

The revenue contribution of Rallis India to Tata Chemicals’ consolidated revenue is estimated to be around 7%. In the March quarter it was 7.3% based on back-of-the-book calculations.

Metal Stocks Outlook: Rally slowing, may come to a halt next week

5 Aug 2022

Next week the market will try to make sense of conflicting news on China’s economy to gauge the absence or revival of the country’s steel requirements. Domestic steel makers stand to improve their sales if there is a revival in China’s realty construction.

While some believe the news of Chinese proposals to revive the realty and infrastructure projects, others are taken over by news reports of property crisis in China worsening.

This week saw the metal stocks rally weaken considerably with the Nifty Metal index rising but only by 2% on the week. The index has risen sharply last week by 7.7%.

Global conditions apart, analysts were upbeat on domestic steel demand given the fall in steel prices since May. “Whatever demand got stuck due to high steel prices prior to May when the exports tax was introduced and prices cooled off thereafter may be released in the current quarter,” said a metal sector analyst with a leading brokerage firm.

However, till such time clear signs of demand recovery is visible the market is likely to stay cautious. The traders will also have an eye out for any signs of recovery in demand for steel from Europe.

There is one thing that all analysts are sure about. The high operating margins of metal companies in the quarters of 2021-22 (Apr-Mar) will not be replicated in the current financial year. “That period is over,” said the metal sector analyst.

These factors will hold metal stocks in check next week which will see one trading holiday on Tuesday.

August 05, 2022

PI Ind sees strong FY23 demand outlook but raises sales guidance only a little

4 Aug 2022

The upward revision by PI Industries Ltd in its revenue guidance was not significant nor specific. The company has announced a slight enhancement of revenue guidance for 2022-23 (Apr-Mar) to 20%-plus from 18-20% given in May.

The company’s management told analysts in a post-earnings conference call today that it is mindful of uncertainties in current global scenario and therefore cautious in the revenue guidance.

This, however, stood in contrast with the strong demand-led revenue growth outlook made by the company for the current financial year.

In particular, PI Industries is expecting a continued scale-up in overseas demand for its custom synthesis and manufacturing (CSM) products with robust momentum in new enquiries and conversion to continue.

The June quarter saw the company deliver a 30% jump in exports volume, which were largely CSM product based. Export sales increased sharply by 42% and accounted for 74% of total net sales which rose 39% to 2.6 bln rupees.

PI Industries became more dependent on export-driven revenue growth in Apr-Jun as the domestic revenue was up by merely 4% and probably saw a flat or slightly lower volume as compared to the year ago period. The company sells insecticide and other agrochemical products to farmers and other customers in the country.

The company told analysts in response to a query that the export sales emanated from the CSM order book which stood at $1.4 bln at the start of the quarter. But the order book has got filled up and continues to stand at $1.4 bln at the end of the June quarter, the company said.

“Given current uncertain environment… our customers and suppliers want a normalization of scenario before entering into long-term contracts,” a senior management official said during the analyst call.

The projections of robust demand momentum were based on volume estimates provided by PI Industries’ customers.

Even though the company is confident of expanding operating profit and margin, the ability of the company to sustain price hikes in the domestic agrochemical segment and overseas CSM segment will also be tested if the commodity price cycle trend turned adversely and cost headwinds sustained.

This is seen from the fact that in the Apr-Jun quarter the operating margin expanded by just 9% or 180 bps to 22.1% even as the operating profit jumped by 40%.

Earnings Review: PI Ind profit up on export volume and currency gains

4 Aug 2022

PI Industries Ltd’s bottomline grew in the quarter ended June on the back of a sharp increase in exports volume, pass through of rising input costs and currency gains.

The consolidated net profit of the chemical company increased by 39% on the year to 2.6 bln rupees in Apr-Jun. The standalone net profit of 2.5 bln rupees was above analyst estimates of 2.3 bln rupees

PI Industries’ consolidated net sales rose by 29% on the year to 15.4 bln rupees. But adjusted for currency gains from its export sales, the company’s net sales were up by 21%. Exports sales accounted for 74% of total sales.

The standalone net sales of the company stood at 15 bln rupees and was slightly above analyst estimates of 14.8 bln rupees.

Exports volume jumped by 30%, the company said in its investor presentation following the results announcement.

The June quarter sales increase in the domestic market was a mere 4% on the year. Had the company not taken price hikes during the quarter the domestic net sales may have gone down.

PI Industries’ consolidated operating costs rose by 27% on the year to 12 bln rupees in Apr-Jun and the operating margin was higher at 22.1% as compared to 20.3% in the year ago period.

The rise in operating costs was lower than that of net sales mainly due to lower increase in cost of materials consumed and employee expenses.

The cost of materials consumed went up by only 9% on the year to 8.7 bln rupee in the June quarter while employee expenses were up by 8% to 1.3 bln rupees.

However, the other expenses, which included sales promotion costs, jumped 31% to 2.1 bln rupees.

The company said that it maintained higher inventory levels in Apr-Jun at 15.8 bln rupees and its working capital stood at 102 days as of June 30 as compared to 103 days as of Mar 31.

The capital expenditure of PI Industries was 506 mln rupees in the June quarter.

The company said it aimed to deliver 20% sales growth in 2022-23 (Apr-Mar).

SEBI Watch: Bring controlling shareholders proposal back on the table

 4-August-2022

The Securities Appellate Tribunal recently ruled against Securities and Exchange Board of India’s orders in the case of New Delhi Television promoters’ loan agreements with Vishvapradhan Commercial and resulting breach of the takeover regulation.

SEBI had earlier held that Vishvapradhan Commercial breached the takeover regulations by failing to make an open offer.

In another order SEBI held that NDTV’s promoters Prannoy Roy, Radhika Roy, and RRPR Holding violated the listing and anti-fraud regulations by not making disclosure on the loan agreements and their terms to the company or stock exchanges. Since it was material and price sensitive information, the investors and board of NDTV were deceived and the acts of the three promoters were, therefore, fraudulent, SEBI held in its order.

The SAT had combined the appeals against these two and other related orders of SEBI in the same matter.

Its ruling in the case deals a blow to SEBI’s efforts to get promoters of listed companies to be transparent and upfront about the fetters and covenants on their shares when they borrow money. SEBI must, therefore, appeal against the ruling.

The Tribunal’s interpretation went against SEBI as there were grey elements in the regulations whose interpretation could have gone either way.

At the core of the contentions was the meaning of control and acquisition of control under SEBI’s takeover regulation.

According to the regulation, “control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable…, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.”

The “in any other manner” provision in this definition applied to the NDTV promoter case. SEBI had rightly held that covenants or conditions in the loan agreement between Vishvapradhan Commercial and NDTV promoters gave the former indirect control over the company.

Further, the clause on the acquisition of control in the regulation specifies that “irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company.”

This would lead one to interpret that a control can be acquired irrespective of whether or not an actual acquisition of shares took place.

But these two clauses became the bone of contention in the case before SAT.

The Tribunal in its wisdom decided that the loan provisions did not result in acquisition of shares till such time that the NDTV promoters didn’t default on repayment of the loan.

It did not accept SEBI’s contention that through the debt covenants Vishvapradhan Commercial had acquired veto rights in 26% shareholding held by promoters and this resulted in the acquisition of control.

It said that so long as the loan remained unpaid by NDTV promoters, Vishvapradhan Commercial continued to have the warrant conversion option, the purchase option, and the call option, under the call option agreements.

“It is a settled position of law that when there are options with convertibility, unless such options are exercised, the obligation to make an open offer…is not triggered.”

SEBI must, however, not treat this interpretation as settled since the complexities in the shareholding structures of companies have gone up significantly and some of these are designed to side-step the regulations.

In fact SEBI must reconsider the proposals made in a consultation paper in May 2021 that called for replacing the promoter and promoter group concept with the concept of controlling shareholders and persons acting in concert.

SEBI has not accepted this and other proposals made in the consultation paper.

Investors and other securities market participants are intuitively aware that in an increasing number of cases the real controlling shareholders are not among those listed in the promoter category.

The NDTV promoter case setback must motivate SEBI to accept the path-breaking proposals made in that paper.