Category: Business

FMCG Q4 FY18: Sector Expectations – The Hope Of Sustained Recovery

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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It’s that time of the year again, analysts making calls to companies, distribution agents, sharpening pencils, updating excels and tweaking estimates to prepare for the quarterly earnings. For companies in the FMCG Sector, the task is a little more difficult than the others, because comparison of performance with prior quarters would be iffy due to the various distortions in the base variable.

FMCG sector earnings were most impacted by demonetisation & Goods and Services Tax (GST) related hiccups last year. GST rates for a large swathe of daily consumption items were revised lower in November 2017, so Q4 FY 18 will have the first full quarter impact of lowered prices and higher off-take.

In the previous quarter things started to look up. Almost every consumer company reported better-than-expected results coming off a very favorable demonetisation base. Margins improved due to benign raw material costs and GST uncertainty of the first half of 2018 was finding its feet again.

Most importantly, there was a heightened sense of optimism in the management commentary post earnings. For instance, Hindustan Unilever, in their Q3 earnings statement said “Expect gradual recovery in demand to continue” vs “In a challenging business environment, we delivered strong overall performance” just a quarter ago. Hence, the key expectation from the FMCG sector, in this quarter, is sustained recovery and positive management commentary.

As for the numbers, the sector, as a whole, is likely to see mid-single digit volume growth in the upcoming quarter. Additional GST rate cuts in November 2017 led to price cuts across products that may further increase off-take and aid volume growth. Post demonetisation and GST drubbing, the distribution channels seem to have recovered, especially wholesale & army canteen stores.

The industry seems to have sized up the scale & limitations of its fiercest competitor in recent times, Patanjali. That’s visible in HUL, GCPL & Dabur’s improvement performance in the areas they were most affected.

All eyes are on the margins for the FMCG sector this quarter. There may be some divergence between food and home and personal care companies.

For companies like Dabur, Emami, Marico and Britannia, who do have small exposure to the Middle-East and North African (MENA) region, the Street expects some improvement in reported results from the international business given a favorable base.

However, the big question that begets answering is, what price are investors paying for this increased optimism? At 45X FY19E, the sector does trade at elevated valuations, but if these companies meet the Street’s expectations with a hope for some more in the future, there’s no reason for investors to worry about the top dollar they’re paying for growth, opportunity and quality of management.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Allegations against ICICI Bank pose reputational risk, says Fitch

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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An investigation into allegations that ICICI Bank extended a loan with a potential conflict of interest raises questions over the bank’s governance and creates reputational risks, credit rating agency Fitch Ratings said.

Fitch will closely monitor developments, and would take appropriate rating action if risks to the banks’ reputation and financial profile were to rise considerably, it said in a statement.

The allegation relates to a $500 million loan to Videocon Group, whose controlling shareholder co-founded a separate company with the spouse of ICICI’s CEO Chanda Kochhar.

A significant portion of the loan has since become non-performing.

The ICICI Bank’s board has denied any wrongdoing, highlighting that the loan was underwritten in accordance with the bank’s credit standards and was extended as part of a consortium involving over 20 banks.

The bank has stressed that it has not given any credit to the borrower group outside of the consortium.

“Nevertheless, the presence of the bank’s CEO on this credit committee – and the bank’s reluctance to support an independent probe – have, in our opinion, created doubts over the strength of its corporate governance practices,” Fitch said.

Fitch believes corporate governance at private banks, like ICICI, is generally stronger than at state-owned banks due to better-qualified board members and more professional management.

“Moreover, compensation structures at private banks are more performance-oriented, while a large and diversified investor base encourages greater management accountability. These assumptions could come under question if the investigations expose misconduct at ICICI,” Fitch said.

The credit rating agency said, the investigation could also undermine investor confidence in the bank, with potential implications for funding costs and liquidity in an extreme scenario, although its status as a systemically important bank implies it will benefit from some form of state support.

“Meanwhile, there is a potential risk of financial penalties, as well as legal action, if the investigation comes up with findings against the bank.”

Fitch said, ICICI Bank’s rating is underpinned by relatively strong capitalisation and profitability.

“Core capitalisation was 14.2% in December 2017, among the highest in the sector. Losses on the loan in question would be unlikely to significantly undermine ICICI’s financial profile – in particular, its core capitalisation would remain strong even if the loan were completely written off,” it added.

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China says won’t interfere in Nirav Modi’s arrest

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China hinted it won’t push for fugitive Indian jeweller Nirav Modi’s arrest, who is suspected to be in Hong Kong, saying the Chinese autonomous region has its own set of judicial rules and India can deal with the authorities directly.

India has reportedly asked Hong Kong to arrest the main accused in the $2billion fraud bank fraud who is believed to be in Chinese territory, a former British colony which enjoys a high degree of autonomy.

“According to the one country two system and basic laws of the Hong Kong Special Administrative Region (SAR) and the assistance and authorization of the central government, the Hong Kong SAR can make a proper arrangement on judicial mutual assistance with other countries,” Chinese Foreign Ministry spokesperson Geng Shuang said.

“If India has made a relevant request to the Hong Kong SAR (Special Administrative Region), we leave the matter to the Hong Kong SAR and hope that it will follow the basic laws and relevant judicial system agreement with India to deal with the relevant issue,” Geng said.

Hong Kong has its own independent system where China has its say only in defence and external affairs. While India has an extradition treaty with Hong Kong, there is no such agreement with China.

Modi, a regular on the lists of rich and famous Indians since 2013, along with his group companies — Diamond R US, Stellar Diamond and Solar Exports, and an uncle and business partner and others have been named in the huge scam, admitted by the PNB in February and leading to a massive upheaval in the country’s banking system.

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Supreme Court to decide maintainability of plea for court-monitored probe into PNB scam

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Supreme Court said it will decide whether the PIL seeking a court-monitored probe into the over Rs 11,000 crore Punjab National Bank fraud case is maintainable or not.

A bench of Chief Justice Dipak Misra and Justices A M Khanwilkar and D Y Chandrachud was told by the Centre that agencies like the Central Bureau of Investigation (CBI), Enforcement Directorate (ED), the Income Tax department and the Serious Fraud Investigation Office (SFIO) are independently probing the PNB scam.

Attorney General K K Venugopal sought dismissal of the PIL seeking a court-monitored probe into the alleged scam saying multiple agencies are already probing the matter.

The AG was opposing a plea filed by lawyer Vineet Dhanda, who has sought an independent probe in the PNB case and a direction to the government to get diamond merchant Nirav Modi deported.

The Central Bureau of Investigation (CBI) has already registered two FIRs — one on January 31 and another in February — against billionaire Nirav Modi, his relative Mehul Choksi of Gitanjali Gems and others for allegedly defrauding the bank of about Rs 11,400 crore.

The PIL has made PNB, the Reserve Bank of India and the ministries of finance and law and justice parties. It has sought a direction for initiation of deportation proceedings against Nirav Modi and others allegedly involved in the banking fraud, preferably within two months.

It has also asked for a special investigation team (SIT) to probe the case, allegedly involving Nirav Modi and Choksi, and a probe into the role of the top management of PNB.

The plea has sought a direction to the finance ministry to frame guidelines on the grant and disbursal of loans involving big amounts, besides ensuring safety and recovery of such loans.

It has also sought the setting up of a body of experts to deal with cases of bad banking debts in the country.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Housing and rural growth doing well, says L&T Finance

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Reserve Bank of India (RBI) on Monday  hiked the foreign portfolio investor (FPI) limit in government securities (Gsec).

Dinanath Dubhashi, MD & CEO of L&T Finance Holdings talks about the FPI limit on bonds.

Excerpts:

There were two threats to the non-banking financial company (NBFC) business last year, after a heady run public sector undertaking (PSUs) are back in competition and bond yields have gone up. Both have gone away. Is life looking very much like 2017 for you?

Both the things that you mentioned are definitely positive for NBFCs. But business models are made to last much more than these small things. Let me talk about interest rates specifically, especially the policy and few days preceding the policy.

One, the state government borrowings definitely coming much lower, to some extent, negated by a much higher state government borrowing figure but a much lower inflation expectation by RBI supported by the lower inflation prints. As you rightly said, bond yields have corrected significantly. Definitely the borrowing cost of NBFCs is much lower than what it was four-five months back but on the whole, to continue at least in Q1, FY19 funds will be costlier than FY18; no doubt about that. In this case, it really depends on each NBFC, how strong it is, how it manages its Asset Liability Management (ALM), how it manages its balance between variable and fixed and balance between bank borrowings and market borrowings. So it is going to separate the men from the boys.

You are saying that FY19 overall cost of money is going to be higher than last year. How much?

That would be anybody’s guess. Bond yields are off by at least 60 bps from its  high in October, but they are still 20-30 bps above what they were a year back, also NBFC spreads had come down drastically. We believe that even if bond yields remain at this level there would be a chance of corporate spreads and, especially NBFC spreads, these spreads to harden a bit from here. Once again, there are different kind of NBFCs, the better rates ones; AAA or AA+ will definitely fare much better than the others.

Q: Give us some indicative numbers. It is difficult to come to any conclusion on your loan growth for instance because all this year you were battling a low base so numbers looked very big with 80% and 30% year-on-year. What is a normalised assets under management (AUM) growth for FY19? Tell us about NBFC and more on L&T Finance.

For L&T Finance, loan growth was around 25% last year, the base was not that low. Now we have reached close to 85,000 crore. I do not think we can call it low. Of course, it is low compared to the leading banks but as NBFCs go, it is pretty high. Let us see on the asset side how situations are. Our wholesale book anyway, we are controlling it, we are not letting the book grow too much by using selldown, but housing and rural growth are actually doing pretty well. Lots of positives, good rainfall, good expectation of next rainfall, both private as well as government agencies have given good forecast. The speed of sowing has progressed extremely well. One small negative is that the ‘mandi’ prices are below minimum support price (MSP) right now, but most state governments have taken very quick corrective actions on this and also investing a lot in rural areas through road construction, through Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), much higher investments and then the proof of the pudding is in eating it.

So excellent growth in tractor market, 18%, 15% growth in two-wheeler market and most importantly our collections following are extremely good trends as we have completed the year. So I won’t be able to give any number right now – that would not be correct, but things have gone pretty well and that indicates good growth definitely.

A word on the housing side of your business, which is, of course, smaller than some of the other segments. Is that going to be a bigger focus area going forward? How do you expect the AUM pie to shape up?

Just a year back wholesale was 62%. We have brought it down to almost 56% now and it will further come down. I have been indicating that by the end of next year it should be around 50%. As far as rural and housing, they were about 20% and 25% approximately. This will go up by about 2-3 percentage points each in the portfolio, which sort of indicates a more retailisation of the company and a portfolio. So specifically about housing yes, especially in retail housing is relatively less compared to how strong we are in rural, but we are gaining scale and we are very positive about the growth next year.

Can you give a ballpark number – margins will continue to be around 7% and NPAs, can they significantly fall from 5.5?

We measure margins plus fees, which is 7% and even talking about overall margins and with the interest rate increase, this is what I have been advocating that one way of NBFCs to fight these cycles is have a good fee income and margin plus fees We are quite confident that maintaining at around 7%. NPAs, I cannot say more but definitely should trend down, especially in the rural sector.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

CNBC-TV18 celebrates corporate India’s best at IBLA 2018

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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CNBC-TV18 honoured the achievers, outstanding leaders and visionaries of corporate India at its annual ‘India Business Leader Awards’ (IBLA), held in New Delhi on Friday.

The business leaders who have contributed their expertise to bring about an equitable economic growth and have excelled in building profitable, sustainable and socially conscious businesses were felicitated at the event.

The awards were presented by law and justice minister Ravi Shankar Prasad, petroleum and natural gas minister Dharmendra Pradhan and finance secretary Hasmukh Adhia.

Here is the list of winners:

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Expect to continue with 30-35% loan growth; NIMs to improve, says RBL Bank

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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RBL Bank has bagged the award for the most promising company of the year at CNBC-TV18’s India Business Leader Awards (IBLA) held in New Delhi on Friday.

Vishwavir Ahuja, Managing Director & CEO, RBL Bank, in an interview said the performance trajectory of the bank has been consistent over the last seven years. “We are growing handsomely and taking full advantage of the opportunities that exist in the landscape,” he said.

Surabhi: If we start with the view of the business, obviously the market is very excited, investors are very excited about the kind of growth prospects you can exhibit this year, do share some trends?

The performance trajectory of the bank has been very consistent over the last seven years. As I mentioned the other day,  while we are a 75 year old bank but we are seven years young and growing handsomely, taking full advantage of the opportunities that exist in the landscape. So we are very confident in terms of our current and future prospects and we just hope to continue to deliver good results going forward.

Latha: What is the overall strategy, whom do you lend to? Are you largely looking at yourself in FY19 and FY20 as a corporate bank because the space has been vacated, are you going to fight the retail space when there is a lot of competition?

The corporate space is a space where we have built a very credible business proposition over the last few years. We have a tremendous team and the tremendous traction in that space. Currently, the so-called the wholesale blending space comprises just under 60% of our loan book and that is growing quite handsomely.

Today, we find ourselves well positioned amongst the top four-five banks in that corporate space, which are getting higher opportunity in terms of the market. So obviously, that is an area where we think we will gain market share even as we go forward and we will continue to strengthen.

Having said that, our retail engines are also very strong and even though we were a little late in the retail game, we started our retail lending activities around 2014 but in these last three-four years, they have grown extremely well in a sense may even grow faster than the corporate side. Even though both will have very healthy growth but our retail business is now again in a good space. So we are very confident that we will straddle both the engines and we will do well in both.

Surabhi: Just to take that point forward, on the corporate side since that is the bulk of the business right now, where do you envisage maximum demand coming in from and if you could put some sort of a range, some sort of a numerical figure to that? That is for the whole year I am asking – credit growth?

You must appreciate that we are talking at a time when we are in the silent period and our results are just going to be announced in a few days but if you see our growth trajectory over the last few years, we have grown handsomely and as we also guided that between 30% and 35% is our so called growth trajectory, which we have constantly adhered to and sometimes we do a little better than that but certainly we have been operating within that range or better. So again, I can only say that nothing changes from that point of view and we just hope to get better market share as we go forward and that might help the numbers overall.

Latha: How will the sources of funding change? It is still a lower low cost deposit ratio compared to other private sector banks or compared to the larger private sector banks. Do you see that increasing deposit base?

Five years ago, we were operating at a single digit CASA ratio. Today, we are close to 24% and on a multiple times larger balance sheet. We have received considerable traction in our deposit mobilisation programme. At the same time, the proportion of granularity and retail contribution to that has also been growing. So, again I would say that, that particular momentum is also doing well on the deposit side and we are very confident that we will continue to improve our CASA ratio and the granularity of our deposit base as we go forward.

If you look beneath our business model, we have a multi-distribution strategy where we use multiple channels of distribution. While there are sort of our urban centric branches across now 19-20 states in the country, we also work with other partners, the corporate VC partners and others, and through that, we have anything between 700 to 800 other distribution points. These are physical points and I am not talking about the other non-physical channels of distribution. So all of that is kicking in right now and the entire model is reaching favourable economies of scale.

Surabhi: As you keep focusing on granular deposit mobilisation, as you said improving that CASA number, and also off late the bond market has been kind with respect to yields, what should we expect on the margin front? I think, last quarter margins were around 3.8-3.9% – I know, you cannot give numbers, but maybe a guidance on how margins will look this year?

All I can say is margins will improve.

Latha: Rs 500 is a damn good price for the stock. Even then at historical times it is close to 4.5 times, this is a great time as any to buy someone with your shares, isn’t it, what a great currency you have and you keep getting mentioned everywhere, what should we hear inorganically, FY19 is the year?

I would actually think otherwise. Honestly, we are so focused on our organic strategies, and we see so much opportunity in that space. I do recognise that our name sort of gets taken here and there, but honestly speaking, when you look at the way we look at the opportunities space, we are very excited about our organic growth momentum.

Honestly with the developments that have happened in the banking industry in the last few months, we are actually more excited of the organic growth prospects at this point in time. There is so much if I may say opportunity sitting there, which we should be focused on that even if there was some inorganic opportunities, I think we are going to push them back for the time being.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

IFR to protect Indian banks from rising bond yields, says Moody’s

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The creation of an investment fluctuation reserve (IFR) by the Reserve Bank of India (RBI) will be credit positive for Indian banks, Moody’s said on Monday in a client note, adding that it will help protect them from  increases in bond yields and shield the banks from the negative effect on profitability.

The Union government’s 10-year bond yield over the past six months was at 7.41% on March 31, 2018 from 6.95% on September 30, 2017. The central bank created the IFR after witnessing a rise in the bond yield which resulted in mark-to-market losses for India banks with a significant holdings of government securities.

The IFR will constitute at least 2% of the banks combined held-for-trading and available-for-sale investment portfolios and will be eligible for inclusion in banks’ Tier 2 capital, the brokerage said.

“Under the new guidelines, banks over the next three fiscal years will be required to set aside for the IFR either profits from the sale of investments made during the year or their net profit less mandatory appropriations until the reserve equals at least 2% of their held-for-trading and available-for-sale portfolios,” Moody’s explained.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

No board meeting planned this week, says ICICI Bank

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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ICICI Bank on Monday denied the claims of reports which said that the bank directors were planning to meet this week to discuss the future of CEO and MD Chanda Kochhar in the company.

“ICICI Bank would like to reiterate that there is no board meeting planned this week. The Bank has already made clear its stance on the ongoing matter in a statement issued on March 28, 2018″, said an ICICI spokesperson.

An informal meeting consisting of independent and nominee directors was likely to be conducted this week, as the events have been affecting staff morale and confidence of the investors, reported The Economic Times on Monday.

Kochhar is caught in a controversy after CBI launched a preliminary enquiry into the alleged deal between her husband Deepak Kochar and Videocon Group chairman Venugopal Dhoot.

The preliminary enquiry will focus on the accuracy of alleged reports that Dhoot lent Rs 64 crore to a company handled by Deepak Kochhar and other relatives, after Videocon borrowed Rs 3,250 crore from ICICI in 2012.

ICICI Bank was part of a consortium of 20 lenders that sanctioned loans to Videocon Group, totaling Rs. 40,000 crore.

However, ICICI chairman MK Sharma had denied any wrongdoing on the bank’s part in connection with the loan worth Rs 3,250 crore to the home  appliance maker.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow