Jindal Steel consol PAT seen up due to one-time loss, high tax yr ago

13 Jul 2022

The bottomline of the Jindal Steel & Power Ltd in the quarter ended June is seen growing exponentially in the June quarter due to an extremely low base caused by high tax expenses and one-time loss in the year ago period.

The topline on-the-year growth is seen up on the back of higher realisations and a lower base effect.

Estimates by three brokerage firms peg Jindal Steel’s consolidated net profit between 7 bln rupees and 13.9 bln rupees in Apr-Jun with the upper end of the range being lower than the previous quarter’s net profit of 15.1 bln rupees.

In the year-ago period, the company’s consolidated net profit had plummeted to 413 mln rupees on account of a one-time loss of 12.4 bln rupees and tax expenses of 1.3 bln rupees from the divestment of its stake in subsidiary Jindal Power.

The consolidated net sales of Jindal Steel in the June quarter is estimated to be in the 99-141 bln rupee range, as compared to actual net sales of 106.1 bln rupees in the year ago period and 143.4 bln rupees in the previous quarter.

Jindal Steel will declare its results for the Apr-Jun quarter on Friday.

The steel sector experienced mixed fortunes in the June quarter with higher steel prices aiding the topline, and operating profit getting hit by higher international coking coal costs but getting benefitted by lower domestic iron ore prices.

Jindal Steel’s earnings before interest, tax, depreciation and amortisation is seen falling 48% on the year due to higher raw material costs by brokerage IDBI Capital Market Services.

Kotak Institutional Equities sees the company’s EBITDA per tn to fall 55% on the year, and 14% on the quarter, to 12,771 rupees in the June quarter, due to adverse impact of higher coking coal costs which would be partially mitigated by increase in realisations by 6% on the year and 2% on the quarter.

The market will watch for volume guidance for 2022-23 (Apr-Mar) by the company FY23E and seek an update on its debt reduction program.

Deepak Nitrite promoter shr buy will attract insider norms, says SEBI

12 Jul 2022

A tentative plans by the promoters of Deepak Nitrite Ltd to raise their stakes through open market buying of the company’s shares has not received the regulatory green light.

The promoters who were planning to buy the shares of the company included its chairman and managing director, Deepak Mehta, and its executive director and chief executive officer, Maulik Mehta.

As of Jun 30, the direct stakes of Deepak Mehta and Maulik Mehta were 16.01% and 0.1% respectively, and the total promoter holding was 45.7%, according to data from Informist Corporate Fundamental Database.

In February, Deepak Nitrite wrote to the Securities and Exchange Board of India in February seeking an interpretive letter under the informal guidance scheme norms.

The company asked SEBI whether open market purchase of its shares by its promoters would be in compliance with the insider trading norms given that the date and pricing of a qualified institutions placement issue the company was likely to make before Jan 26 was not announced yet.

A qualified institutional placement issue is an issue of fresh shares by a company made directly to eligible institutional investors and governed under separate provisions in the issue of capital rules.

SEBI’s reply to Deepak Nitrite in April, which was disclosed on its website today, clarified that promoters are covered in the definition of ‘insider’ and any selling or buying of the shares by them would attract the test of compliance with the insider trading rules.

The markets regulator said that information on details pertaining to any pending issue of shares that were only in the knowledge of insiders would qualify as unpublished price sensitive information.

The only exception to prohibition of trades by insiders under the SEBI rules is for specified insiders who are perpetually in possession of unpublished price sensitive information and who have publicly disclosed a trading plan in advance.

The trading plan, according to the rules, must stipulate basic parameters such as nature of trade, whether it will result in buying or selling, and the value of trades or the number of shares to be traded.

Deepak Nitrite has not disclosed any such trading plan for its promoters. Its promoters will, therefore, not be able to buy shares from the open market without complying with the insider trading rules.

Earnings Outlook: ACC consol PAT seen down on high input costs

12 Jul 2022

ACC Ltd's topline is seen as having recorded a double-digit growth on a low base in the quarter ended June, although sequentially it is seen flat on weak demand.

The company’s bottomline is seen having fallen on the back of contraction in operating profit due to rising input costs.

ACC's consolidated net sales in Apr-Jun are expected to be 43.3 bln rupees, 13.7% higher on year and 0.3% higher on quarter, according to an average of estimates by five brokerage firms.

The estimates put the company's consolidated net profit at 3.4 bln rupees, down 40% on year and down by 14% on quarter.

The company will declare its Apr-Jun results on Thursday.

ACC's volume in Apr-Jun is estimated at 7.5 mln tn by brokerage Kotak Institutional Equities. Low base of Apr-Jun quarter of 2021 will keep the on-year volume growth strong, the brokerage said.

Ramping up of new incremental capacity would be behind an on-year volume growth of 9%, brokerage Yes Securities said in its preview.

Sequentially, however, the volume is seen as having declined by around 4% by the two brokerages.

Sharp price hikes taken by the company during the quarter would have helped it clock better realisations, according to Kotak Institutional Equities, leading to a growth of 3% each on year and on quarter.

“We expect 12-15% QoQ (on quarter) increase in power-fuel cost led by higher pet coke and thermal coal prices in the past six months and a 5-7% QoQ increase in freight costs leading to 10% QoQ increase in costs/ton,” the brokerage said.

Rising input costs would have likely shrunk ACC’s operating margin in Apr-Jun and hit the net profit growth of the company. Tax costs are seen the uncertain factor that may buffer or worsen the fall in net profit.

Analysts will be closely watching management commentary on the future operations of the company given the big announcement during the June quarter that Adani Group will take over control of ACC, along with Ambuja Cement Ltd, in an all-cash buyout of Holcim Group’s stake.

SEBI Watch: Right to apply insider trading rule on trades in MF units

11 Jul 2022

The Securities and Exchange Board of India is keen to extend the applicability of insider trading rules to transactions in mutual fund units. It has made this clear through a paper released last week for public consultation.

Applying insider trading norms to mutual fund units represents a paradigm shift in regulations.

It promises to the retail investor in a mutual fund scheme that critical unpublished information pertaining to the scheme is not exploited by insiders to his detriment.

The mutual fund industry was managing 35.6 trln rupees of assets as of Jun 30, of which around 88% were in actively-managed schemes and the rest in index funds, index exchange traded funds and fund of funds.

SEBI is likely make its big move through the detailed proposals laid down in the consultation paper.

If and when these proposals see the light of day then every time anyone who is an employee of an asset management company, its trustee and any person connected with them enters into a transaction in the units of the relevant schemes then he will be subject to the new, extended insider trading rules.

If he bought, redeemed, or switched units, or traded in them in any other permitted form, because he knew something about the scheme that was going to materially affect the NAV of the scheme or the functioning of the scheme then he would have violated the insider trading rules.

The six-schemes-shut-down episode of Franklin Templeton Mutual Fund two years ago had revealed major failures of fiduciary responsibility by a few senior officials and directors of the AMC and the trustee companies managing the mutual fund.

These executives and directors, including their family members, had personal investments in some of the six affected schemes but they exited prior to the shut-down announcement.

When the schemes got shut down the other investors were stuck.

The domestic mutual fund industry is a large industry. One can appreciate the complexities in day-to-day management of the funds but that must be no reason to get undemocratic.

The whole scenario gets unfair when AMC and trustee company officials and directors enter or exit their own investments in the schemes of their employers using information they are privy to in their official capacities.

These officials must not lose sight of their fiduciary role at any time, even during times of crises. They must know that they are in their respective positions to ensure optimal use of funds invested by each and every investor in their schemes.

When violations such as those in the Franklin Templeton MF case happen it also raises concerns of malafide intent.

SEBI is, therefore, right in getting the fund industry officials into the ambit of insider trading rules.

It must also consider applying the same standards on the alternative investment funds industry whose assets are growing steadily every year.

The disclosures standards for the alternative investment funds are nowhere near the same as that for mutual funds, and the insider trading rules, if applied to them, will serve as an important check on their fiduciary standards.

Bajaj Hind to appeal SEBI order on non-disclosure of pollution orders

11 Jul 2022

Bajaj Hindusthan Sugar Ltd will appeal against a recent order by the Securities and Exchange Board of India imposing a 1-mln-rupee penalty for breaching disclosure provisions of the listing norms.

The SEBI order, passed on Friday, held that the company had not made material event disclosures as required by the listing norms.

The company failed to file with the stock exchanges information about action taken by the Central Pollution Control Board and state pollution control authorities on some of its units during 2018-19 (Apr-Mar) and 2019-20.

This happened in 14 instances and included show-cause notices, closure directions and penalties by the pollution control bodies.

These were material events and had to be disclosed to the stock exchanges, according to SEBI. It was also a breach of disclosures on environment, social and governance related matters.

“An appeal will be preferred by the Company to the Securities Appellate Tribunal in this regard,” the company said in a stock exchange filing today.

IIFL Wealth settles SEBI probe in Alkem Lab block deal rigging case

8 Jul 2022

Brokerage IIFL Wealth Management Ltd settled an ongoing probe against it by the Securities and Exchange Board of India for alleged price rigging by paying a settlement amount of 31.3 mln rupees.

Price rigging amounts to a breach of SEBI’s norms on prohibition of fraudulent and unfair trade practices norms.

SEBI’s settlement order today said that IIFL Wealth, along with another brokerage firm of the IIFL Group, IIFL Securities Ltd, allegedly manipulated the reference price considered for execution of block deals in shares of Alkem Laboratories Ltd during Apr-Sep 2019.

In February, IIFL Securities had settled this case by paying a settlement amount of 22.19 mln rupees.

The two brokerage firms were alleged to have manipulated the volume weighted average price of Alkem Lab shares in the cash market in order to meet a commitment given to both seller and buyer in the block deal.

Block deals are permitted to take place at a reference price that is determined by the volume weighted average price of a particular time period during a trading day.

The acts of the two brokers were alleged to be malpractices and in breach of SEBI's anti-fraud norms and stock broker regulations.

SAT orders SEBI to reconsider Cairn UK’s dividend claim on Cairn India

8 Jul 2022

The Securities Appellate Tribunal has directed the Securities and Exchange Board of India to hold an enquiry whether Cairn India, a subsidiary of Vedanta Ltd, violated the Companies Act and the regulator’s listing norms in withholding dividend of 3.41 bln rupees payable to Cairn UK Holdings

The appellate body, on Tuesday, ruled in a case filed by Cairn UK Holdings against SEBI’s rejection of its complaint against Cairn India for not paying dividends for three years from 2013-14 (Apr-Mar) to 2015-16.

Cairn UK Holdings held 9.8% stake in Cairn India during this period.

The market regulator had in an order in December 2019 rejected Cairn UK Holdings' complaint on the grounds that the company had handed over the unpaid dividend to the income tax authorities on their directions.

But SAT held in its order that the income tax department’s attachment order on the dividend payment expired on March 31, 2016, after which Cairn India could have paid the dividend due to Cairn UK Holdings.

In the wake of the SAT order, SEBI will have to reconsider Cairn UK Holdings’ claim and issue its order in the matter within six months.

If SEBI decides in Cairn UK Holdings favour, the 3.41 bln rupees dividend payment will reflect in the consolidated books of Vedanta.

Preponed shutdowns led to 3% QoQ fall in JSW Steel’s output Apr-Jun

7 Jul 2022

JSW Steel Ltd’s crude steel production from its domestic operations declined 2.6% on quarter to 5.72 mln tn in Apr-Jun, the company said in a quarterly update today.

The company said the sequential decline was “due to preponement of certain scheduled shutdowns during the financial year 2022-23.”

Compared to the year ago period, the production was up by 16%. In Apr-Jun 2021, the production of most sectors, including steel, were affected adversely due to renewed lockdowns in several states.

Of the 5.72-mln-tn production in Apr-Jun, 0.11 mln tn was in JSW Ispat Special Products, a jointly controlled entity.

JSW Steel’s production from its US plants was up marginally by 0.1% on quarter to 0.16 mln tn. In the year-ago quarter, the production was 0.14 mln tn.

Cement demand picked up in June but prices did not, say brokerages

6 Jul 2022

Cement dealers have indicated an uptick in demand in June according to the latest monthly surveys by brokerage firms.

But cement companies have not been able to take advantage and hike the selling price of cement due to a supply overhang in the market.

According to Jefferies India the average price of cement in the country declined by 1-2% on month in June even as dealers indicated improved demand. It said that supply increase in the markets were depressing the selling price of cement.

Apart from cement dealer checks, analysts have inferred a demand increase in cement from the railway freight data. According to JM Financial, cement volumes transported through rail freight were up 2% on month.

It was up by a larger quantum of 16% on year, but analysts have avoided using the on-year growth as any indication due to the fact that in June 2021 the cement sales were among the worst hit due to new lockdowns in various states during May-Jun.

Brokerage ICICI Securities attributed the increase in demand in June to “pre-monsoon push, pick-up in infrastructure projects, reduction in prices of steel, cement, etc. and better manpower availability.”

The brokerage also said cement companies would have got respite on the input costs front as pet coke prices were down in international markets, indicated by the fact that US pet coke prices fell 10% on month in June.

It also said that “increased sourcing of coal from low-cost destinations like Russia” may have allievated the cost pressures on sourcing overseas coal, which is another key input cost.

A report by Reuters news agency at the end of last month said that UltraTech Cement Ltd, the largest cement producer in the country, had imported 157,000 tn of Russian coal towards the end of the month.

Coal-importing domestic companies from cement, steel and other sectors usually source coal from Asian countries such as Indonesia and Australia.

For the entire quarter period from April to June, the railway freight data, according to JM Financial, indicated an on-quarter decline to 38.6 mln tn from 40.9 mln tn.

Going forward, the key to earnings improvement, said Jefferies, would depend on how stable the cement prices stay during the ongoing monsoon season and whether any cement price hikes post-monsoon can be effected and sustained.

Steel export fall in May, export duty hike may hit cos’ FY23 earnings

5 Jul 2022

The on-year fall in May in exports for finished steel products has increased concerns in the market that the hikes in export duties on steel products at the end of May will add to the challenges of domestic steel companies in growing their overseas sales.

The government had hiked the export duty on most steel products by 10-50% with effect from May 22.

In May, exports of the steel products, which were covered in the export duty hike, fell 39% on year to 749,000 tn, according to a metals sector analyst at a rating agency. Official commodity-wise exports data for May has not been released by the government so far.

The previous month too had seen an on-year decline in the exports

According to Ritabrata Ghosh, senior vice president at ICRA, the road for domestic steel companies will get bumpier in 2022-23 (Apr-Mar) leading to a fall in exports by 25% on year.

He said the export duty hike would likely make products of domestic companies less competitive in the international markets. Ghosh also expected international steel prices to be lower in the current financial year.

The May exports data, showing a on-year decline, is an indication that fundamental factors hit steel exports even before the government announced the duty hikes on May 21.

Tushar Shah, Co-Chief Executive Officer, CareEdge Research said the revenue and profit of steel companies will be affected due to the export duty hikes making their steel exports expensive and hard to grow. “In FY22 (2021-22), exports had contributed around 12% of the total steel production in India and had touched a record high of 13.5 million tonnes (mln tn) which aided the revenues and profits of steel companies during FY22.”

Shah is hopeful that the import duty cuts on key raw materials for the steel sector may partially support the cost structures of steel makers, but a decline in steel exports, which hold a considerable share in overall production – the decline of which would adversely affect the overall profitability.

In a quarterly update disclosed by Tata Steel today the company said its crude steel deliveries from domestic operations in Apr-Jun were lower by 2% YoY “due to moderation in exports following the imposition of 15% export duty.”

Steel companies’ reliance on driving sale growth through exports will depend on domestic demand. In its annual report for 2021-22 Tata Steel said that it had opted for higher proportion of exports during periods of softness in domestic demand.

In the company’s annual general meeting recently, its chairman N Chandrasekaran was emphatic that the domestic steel industry in India was globally competitive and therefore they “should be able to expand capacity in value-added steel products for both ‘make for India’ and ‘make for the world’”.

“This is a defining moment in history where the Steel Industry can leverage its competitive position and export its products globally,” he said.

But the ground reality is turning out to be different with lower steel prices and export duty hike.