RBI Policy Review

Highlights of Reserve Bank of India's review of Macroeconomic
and Monetary Developments during Apr-Jun, released today:
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BUSINESS OUTLOOK SURVEYS
* Survey cuts FY13 GDP growth forecast to 6.5% vs 7.2%
* Survey cuts FY13 industry growth forecast to 4% vs 6%
* Survey cuts FY13 services growth forecast to 8.0% vs 8.8%
* Survey keeps FY13 farm growth unchanged at 3.0%
* Survey ups FY13 avg WPI inflation to 7.3% vs 6.9%
* Survey revises FY13 exchange rate to 53 rupees/$1 vs 48/$1
* Survey cuts FY13 import growth to 8.3% vs 15.0%
* Survey cuts FY12 export growth to 12.0% vs 13.2%
* Surveys suggest business, consumer confidence low
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MONETARY POLICY
* Monetary policy space needs to be created via fiscal steps
* Lack of fiscal correction limits room for monetary easing
* Persistent inflation, weak growth a major policy challenge
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LIQUIDITY
* Monetary, liquidity conditions have eased in FY13
* Liquidity conditions eased on policy actions
* Weak deposit growth can adversely affect liquidity
* Loan growth picked up; in line with FY13 indicative aim
* Flow of resources from non-bank sources also good
* Need to monitor liquidity, monetary conditions ahead
* Reserve money expansion improves in Apr-Jun
* Broad money growth deceleration arrested Apr-Jun
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FINANCIAL MARKETS
* Currency, equity markets remained under pressure
* Rupee depreciated 10% Apr-Jun; seeing some recovery in Jul
* Equity markets remained rangebound
* Money market rates, gilt yields reflect improved liquidity
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INFLATION
* Inflation risks remain significant
* Inflation moderation limited by several offsetting factors
* Near-term inflation outlook marked by several upside risks
* WPI, retail inflation show continued supply side pressure
* Supply side pressures may not be mitigated in near term
* Rupee fall limits benefit of easing crude oil, metal prices
* Suppressed inflation may show up in coal, electricity, fuel
* Despite easing core inflation, upside risks significant
* Seeing slack in econ but inflation remains persistent
* Inflation turned sticky after falling in Jan-Mar
* Price pressure remains with high suppressed inflation
* Suppressed inflation in domestic energy prices
* Rupee fall has offset gains from weak global commodity prices
* Inflation pressures persist despite weak growth momentum
* Headline inflation persists above 7%
* Consumer price inflation remains in double-digits
* Food, energy prices contributing to inflationary pressures
* Core inflationary pressures are currently muted
* Continued rise in real wages may spill over to core inflation
* Inflation risk stays high due to suppressed inflation
* Inflation risk stays high due to deficit monsoon
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GROWTH
* FY13 growth prospects weak on global, domestic factors
* India's growth decelerated faster than envisaged
* Some slowdown in growth was inevitable
* Growth sacrifice was needed to fight high inflation
* Lack of fast response to structural bottleneck added slowdown
* Structural factors impeding growth still need to be addressed
* Manufacturing sluggish due to rising input cost, low demand
* FY13 growth outlook may be lower than expected
* Growth recovery appears possible if policy correctives taken
* Despite slowdown, sharp dip in growth can be averted
* Policy space needs to be created via supply-side measures
* Must try to support revival in non-inflationary manner
* Growth in Apr-Jun likely to have stayed low
* Slowdown primarily driven by weak investment
* Seeing signs of consumption slowdown too
* Economic activity likely to have been weak Apr-Jun
* FY13 growth likely to remain below potential
* Newer risks to domestic growth emerging
* Below normal monsoon so far a new risk to growth
* Svcs sector slowing in line with industrial growth
* Aggregate demand slowed further in Jan-Mar
* Private consumption moderated in Jan-Mar
* Investment slowdown extended into Jan-Mar
* Econ may be susceptible to external shocks unless FDI rises
* Must address policy stasis fears to boost consumer confidence
* Expenditure side of GDP showing weak demand
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MONSOON
* Some uncertainty from temporal, spatial deficiency in monsoon
* RBI production weighted rainfall index down 24% from normal now
* Monsoon impact will emerge more clearly in coming wks
* Monsoon risks to overall growth may be limited
* Monsoon risk impacts the poor via inflation, income
* Monsoon risk has fiscal implication via govt schemes
* Monsoon progress so far unsatisfactory
* Adverse monsoon may up food inflation in short term
* Financial stress may stay on weak earnings
* FY13 growth risk up on weak global trade, local supply issues
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FISCAL SITUATION
* Fiscal, monetary space to stimulate econ remains limited
* Monetary space limited on large fiscal gap, high inflation
* FY13 fiscal gap target is "at risk of being breached"
* See FY13 fiscal gap at risk due to high subsidy, low receipts
* Need to create fiscal space by curtailing subsidies
* Need to create fiscal space by boosting govt capital expenses
* Govt capital expenditure must rise to give boost to econ
* State finances budgeted to improve further FY13
* Need to create fiscal space, spur investment to revive growth
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EXTERNAL FACTORS
* Current account deficit risks remain significant in FY13
* Weak oil prices may give relief to balance of payments
* Fall in gold imports may give relief to balance of payments
* Slowing global growth to keep export of goods, services low
* Services export, net of imports, down significantly Apr-Jun
* Sustainable level of current acct gap down to 2.5% of GDP
* Financing big current acct gap to be difficult as flows weak
* External debt is likely to rise
* External vulnerability indicators may deteriorate
* Global factors continue to weigh on India's exports
* Upside risks to trade deficit persist
* Weak global IT spend may hit India software exports
* Capital flows may stay volatile due to global uncertainties
* Jan-Mar rupee gains dissipated in Apr-Jun
* Increasing external debt is a concern
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GLOBAL ECONOMY
* Global growth turning weaker than anticipated
* Weak global growth impacting global trade
* Slow growth in advanced economies may drag India growth a lot
* If global growth loses steam, it may impact India's recovery
* Global growth prospects have worsened in Apr-Jun
* Global growth prospects down with weakness in emerging nations
* Debt issues, EU problems keeping advanced nations growth low
* LIBOR fixing case has added to global uncertainty
* Monetary easing globally ups emerging nation' inflation risk
* Inflation likely to stay subdued in advanced economies

Greenply Industries

Greenply Industries is the market leader in the interior infrastructure sector and is engaged in manufacturing plywood, laminates, decorative veneers, particle boards and allied products. It even markets the most comprehensive portfolio of residential and commercial floor products. 

The company accounts for almost 25% of the organized plywood and 15% of the organized laminate market in India. Its brands like ‘Greenply’ & ‘Green Club’ in the plywood segment and ‘Greenlam’ & ‘Green Decowood’ in the laminate segment are the leading brands. ‘Greenlam’, the flagship decorative laminate brand is exported to over 65 countries.

It has the largest pan-India marketing network with 38 branch offices and over 15,000 distributors, dealers, sub-dealers and retailers across 17 states covering 300 cities.

It is the only integrated manufacturer in India with manufacturing units spread across six states Nagaland, West Bengal, Uttarakhand, Rajasthan, Himachal Pradesh and Gujarat. 

Importantly, the company has of late forayed into the lucrative, high-growth MDF market with the largest MDF plant of 180,000 capacity. MDF holds tremendous potential for the future as presently the Indian industry comprises 80:20 of plywood: MDF but the reverse holds true globally. China alone consumes about 10mn–11mn m3/year of MDF vs. 0.6 mn m3/year in India. Incidentally, even out of the present MDF consumption in India, 80% is being met through imports, which the company can easily substitute. 

On the other hand, it is also looking to expand its overseas presence. It has opened representative offices in Singapore and Dubai and has even formed a subsidiary in USA to explore new market opportunities for laminates in North America.

For FY12, its sales increased by 25% to Rs.1644 crore whereas PAT more than doubled to Rs.53 crore on a standalone basis posting an EPS of Rs.22 on its current equity of Rs.12.10 crore having a face value of Rs.5 per share. On a consolidated basis, it is doing slightly better with a PAT of Rs.57 crore.

Opto Circuit: Niche Healthcare Player is a good long term bet….

Opto Circuit: Niche Healthcare Player is a good long term bet….

Opto Circuit (India) Limited (OCIL) is $4.8 billion leading medical equipment manufacturing player making sensors and patient monitors.

Some of the products manufactured by company:

1)   Pulse Oximeters

2)   Vital signs monitors

3)   Respiratory and Anaesthetic care

4)   ECG system

5)   Stress Test system

6)   Bare Metal stents

and many more…..

The company is OEM (Original Equipment Manufacturer) for players like Philips, Tyco- Nellcor, Epic medical equipments etc.

The company has 168 patents.

Strengths:

Agile Operation and management: Lower cost base and attractive pricing strategy and Crticare acquisition has further enabled it to diversify into gas monitoring system and strengthen its position in USA

Diversified Business Model: Not only provides equipments but also provides specialized education and training services.

Strong Subsidiaries and Strategic acquisitions: OCIL has 14 subsidiaries and serves the markets like USA, Europe and also had good presence in BRICS Nations.

Concerns:

Operational Risk: Having many subsidiaries can become drawback when of the subsidiary company doesn’t perform.

Corporate Restructuring: Internal mergers may create interim transitional issues. All the subsidiaries have been transferred to Opto Eurocore Healthcare Ltd and Opto Cardiac Care Limited.

Groth Plans: May go for IPO of Opto Eurocore Healthcare Ltd to raise up Rs 1000 crore.

Rising Debt: Debt of Rs 1084 crore as on Sept 30, 2011.

Goodwill:  Goodwill of Rs 629 crore on balance sheet is a concern. It represents 27% of asset side. This intangible asset has the threat of written off and it may affect financial of company.

Financials:

Net Sales has increased by 6 times in last five years (from Rs 246 crore in 2007 to Rs 1586 crore in 2011)

Profit after Tax (PAT) has increased by 5 times in last five years (from Rs 73 crore in 2007 to 369 crore in 2011)

Debt to Equity ratio has increased by 2 times in last five years (from 0.30 in 2007 to 0.65 in 2011)

Free Cash flow has increased by 3 times in last five years (from Rs 148 crore in 2007 to Rs 525 crore in 2011)

Book Value of the stock has increased by 5 times in last five years (from Rs 13.5 in 2007 to Rs 73 in 2011)

Adjusted EPS has increased by 4 times in last five years (from 4.7 in 2007 to19.7 in 2011)

ROA -20.67%, ROCE- 23.97%, ROE- 31.03% as on 2011

Valuations:

PE ratio: 11.3

PEG ratio: 0.24

Dividend Yield: 1.8%

What’s the X-factor?

Bonus History:

Year	Bonus ratio
2012	3:10
2008	7:10
2007	1:02
2006	1:01
2005	5:10
2004	3:10
2003	1:10
2003	2:10
2000	18:10

Dividend History:

Year	Dividend (in %-FV-Rs 10)
2011	45
2010	40
2009	40
2008	50
2007	50
2006	40
2005	35
2004	30
2003	30
2002	30
2001	30

FIIs Holding:

FIIs have increased their holding over the years. At present they hold 37.33% in the company.

Austin Engineering A Good Long Term Bet !!!

I here by attaching a good fundamental company which might be useful for the investors to invest for long term !!!!

Is US the next Greece? Watch out for a dollar debacle

In what could only be described as a move “from the frying pan to the fire”, one of the consequences of the European crisis has been the increased demand for the Greenback. We have witnessed the dollar index strengthening to 82-plus, with a corresponding decline in commodities like gold and oil.

Most currencies also declined in this period—the Aussie and Canadian dollars declined from 1.1-plus levels to parity or less and we have had similar percentage declines with other currencies as well. To that extent, the decline in the exchange rates of the INR (Indian rupee) vis-à-vis the USD was not entirely based on fundamentals and we should witness a return to sub-50 levels over the course of this year.Reuters

Not that I have great faith in the Indian economic team and their ability to understand the nature of reforms that are required to move us forward, let alone implement them. Just that the US policies are much worse—both on the fiscal as well as the monetary front — and in a relative sense, we are indeed better off.

That said, lest the readers or the policymakers conclude that the current account deficit (CAD) would improve because of the strengthening rupee, I would have to point out that commodities (in particular gold and oil) would strengthen far more in percentage terms than the rupee.

On a fundamental basis, the US economy is probably in a much worse situation than evenGreece, let alone the eurozone. Readers must remember that the US government uses cash-accounting to report its fiscal deficit at $1.3 trillion. Using GAAP accounting, which is a far more indicative and reliable measure than cash-based accounting, the deficit is well in excess of $5 trillion (Source: shadowstats.com) and growing.

So we are looking at a deficit-to-GDP ratio that is well in excess of 30 percent as compared to the eurozone deficit of 7 percent.

Looking at the debt and the net present value (NPVs) of unfunded liabilities of the US, the situation gets much worse. According to even the GAO (Government Accountability Office) statistics, we are looking at a Federal debt of about $80 trillion and, using more realistic assumptions about growth and inflation, other estimates of this debt, such as the one by Prof Laurence Kotlikoff, total well in excess of $200 trillion (putting the debt-to-GDP ratio at a mind-boggling 1,200 percenr or more). Even at the lower end of these estimates, these numbers are just way outside the realm of anything that can be realistically serviced.

The only question is what would be the mechanism of default on these obligations. The US Fed has made is abundantly clear that inflation would the chosen route. After all, the epithet of “helicopter Ben” (Fed chief Ben Bernanke) is not without reason.

But let’s leave the above arguments aside for the moment. The current US national debt is about $15.8 trillion and even at historically normal 5-6 percent interest rates, the outgo in interest payments alone would total about $1 trillion and we would be looking at a Greek-style implosion in the US economy.

Or, in other words, the zero percent interest rates maintained by the US Fed is the ventilator support that is keeping this zombie economy afloat. The US Fed has been able to indulge in this rather reckless extravaganza of zero percent interest rates due to a scenario of not overtly exploding consumer prices. But how long can these increases in base money growth continue without triggering an exploding consumer price scenario? And if all the deficits are true, where are the bond vigilantes?  I might as well reply with “Who is John Galt?”.

The Twist in the Tale

So what exactly is the US Fed trying to achieve by Operation Twist “OT”?. Ostensibly, this was a way for businesses and mortgages to finance their long-term plans at low rate  but given the historically low rates prevailing pre-OT, nobody should be under any illusion that a marginal decline is going to significantly alter private investment plans. As usual, we have to look at the effects on various participants to find out the real reasons beyond the explicitly stated ones.

As the treasury is the largest issuer of long-term debt that is being snapped up by the US Fed, the OT can be rightfully seen as a pre-crisis bailout of the Treasury by the US Fed. But how long can this swapping be done? At some point, the Fed will run out of short-term securities to indulge in OT. And despite the swapping over the last one-year, an estimated 70 percent of the $15 trillion debt held by the treasury is short-term in nature.

Given that the Fed has about $500 billion of short-term treasury securities remaining that would mature in less than five years and the treasury holds debt of nearly 20 times that size in short-term debt, it does not take much to conclude that OT cannot continue in its present form for an extended period of time.

Thus, when interest rates climb, as they eventually will, the treasury would stand exposed. That’s when the Fed would be forced to monetise all the debt in the act of buying treasury securities. Bonds, especially the long-term ones, today represent a triple-threat as an investment class – a declining value due to higher interest rates; lower unit purchasing power due to currency debasement; and ofcourse, the explicit default that is inevitable given the size of the debt.

When this bond bubble will exactly burst is anybody’s call, but one would have to be really polyannish to make a case for status quo beyond 2013-14.

Elecon Engineering

 ELECON ENGINEERING

OVERVIEW

Elecon Engineering is engaged in delivering power transmission solutions and material handling equipment. The company caters to the needs of various sectors like steel, fertilizers, cement, coal, lignite, iron ore mines, power station and port mechanization in India.

INVESTMENT RATIONALE

· The company is in planning for CAPEX of Rs 45-50 Cr in FY 13 and has completed CAPEX of Rs 87 Cr during FY12 out of total budget of Rs 111 Cr. While remaining CAPEX of 24 Cr will be completed as routine CAPEX. Higher CAPEX will benefit the company in coming periods.

· The company is planning to raise funds  to repay high cost debt, to provide for capex requirement for the next 2-3 years and to make available funds for any good opportunity of acquisition. The company is also planning for acquisitions.

· After continuously declining for past 3 quarters, Elecon’s order book increased to Rs1520 Cr (May’12) with order book cover at 1.2X FY12 revenues .

·  This was on the back of strong orders worth Rs550 Cr secured in Apr-May’12 period and after low order inflows in Jul-Dec’12 period.

SECTOR OUTLOOK

The Planning Commission has projected that investment in infrastructure would almost double at US$ 1,025 billion in the Twelfth Five Year Plan (2012-17), compared to US$ 514 billion in the Eleventh Plan. Of the US$ 1,025 billion, 50 per cent is expected to come from the private sector, whose investment has been 36 per cent in the Eleventh Plan.  The government is also making  fast execution of Eastern and Western corridor which costs almost Rs 90000 Cr which will create a great opportunity for infrastructure companies.