Weekly Round Up – Week 28

  • The results season for quarter ended June’16 begins. It looks like not-so-good FY17 beginning for IT majors with both Infosys and TCS reporting pressure on margins. While consolidated sales grew by modest 1.2% and 3% on sequential basis, net profit decline by 4.5% and 0.4% respectively. On the other hand, Reliance Industries had a bumper quarter with profits rising by sharp 18% y-o-y, even though net revenue decline by 15% due to lower crude prices. (More on this, later)

  • It doesn’t seem to be exactly good time for the economy still. While IIP managed a decent recovery, Inflation still doesn’t offer any reason for comfort. Index of Industrial Production (IIP) grew at 1.2% in May against a contraction of 0.8% in April. The improvement has come about with improved performance of manufacturing sector which grew by 0.7% against a decline of 3.7% in April. However, inflation, based on CPI rose marginally to 5.77% for the month of June against 5.76% in May. The increase in driven by food inflation which rose to 7.79% from 7.47% the month before. It appears, it may take a few more months before Inflation comes down to comfortable level.

  • Nirma, better known as a detergent company, breaks into the Cement industry in a tough fight with its acquisition of Lafarge India’s business (capacity – 11 mtpa). While the valuation looks slightly higher than UltraTech’s acquisition of Jaypee’s business, it can be attributed to more number of players in the fray and difference in the ground realities. The company does have a small operating cement unit providing it the necessary expertise to handle this acquisition and materialise a necessary diversification, having been in the detergent business for many decades.

  • HDFC issues rupee denominated bond in the overseas market, the first Indian company to do so, garnering Rs 3,000 crore. Since these bonds also called masala bond, are denominated in rupee terms, the risk of currency fluctuation is borne by the bond investor and not the issuer. The masala bond opens up a new avenue for India Inc to raise resources without exposing themselves to currency risk. However, the coupon yield at 8.33% p.a is only 5 bps lower than its recent domestic issue implying a negligible interest arbitrage opportunity for the issuer.

  • Hindustan Construction Company (HCC) becomes the first company to benefit from the recently released RBI guidelines, S4A. As per the provisions of the scheme, part of the company’s debt will be converted into equity whereas it will have to pay interest and principal for the remaining part only reducing the pressure on cash flow. (More on this, later).
  • Theresa May is sworn in as the British Prime Minister taking the baton from David Cameron. Tasked with taking UK out of EU, she lead the country through the most challenging period in the recent history. Will she be the next Iron lady..?!


(Image courtesy of ddpavumba at FreeDigitalPhotos.net)

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