Sensex ends above 17000; RIL, BHEL, M&M lead

MUMBAI: Indian markets ended on a positive note taking cues from positive global peers and roboust economic data back home. India’s Index of Industrial Production grew at 17.6% in April against 13.5% a month ago.

The upmove was led by oil&gas and index major Reliance Industries. The company made oil discovery in Cambay Basin and there are reports of it entering telecom sector by acquiring Infotel Broadband.

Bombay Stock Exchange’s Sensex ended at 17042.28, up 120.20 points or 0.71 per cent. The 30-share index hit a low of 16994.07 and high of 17131.56.

National Stock Exchange’s Nifty closed at 5114.20, up 35.60 points or 0.70 per cent. The index touched a high of 5139.05 and low of 5078.75.

BSE Midcap Index was up 0.18 per cent and BSE Smallcap Index moved 0.36 per cent higher.

Amongst the sectoral indices, BSE Oil&gas Index was up 1.46 per cent, BSE Bankex advanced 0.98 per cent and BSE Capital Goods Index advanced 0.87 per cent. BSE Realty Index inched 0.64 per cent lower.

Reliance (3.03%), BHEL (2.66%), M&M (2.11%), ICICI Bank (1.94%) and Jindal Steel (1.82%) were amongst the top Sensex gainers.

Bharti Airtel (-3.75%), Sterlite Industries (-1.04%), ACC (-0.98%), Reliance Infra (-0.90%) and Reliance Communications (-0.89%) were under pressure.

Market breadth was positive on the BSE with 1530 advances and 1305 declines.

ET

RIL entry may trigger a tariff war in broadband

The fierce bidding in the broadband wireless auction that ended on Friday is not likely to trigger further value destruction in the already troubled domestic telecom sector. However, the entry of Reliance Industries (RIL) in the broadband telephony may give rise to a tariff war in this highly lucrative segment of the domestic telecom sector.

The impact of immediate cash outflow post-bidding will be limited since big listed players have either opted out of the process or participated only in a few circles. Bharti Airtel, the country’s largest telecom player, has won licences in four circles for a total of Rs 3,314 crore. Its peers Reliance Communications (RCOM) and Idea Cellular decided to give it a pass.

For Bharti, the cash outflow due to broadband is just over 8% of the total investment of Rs 58,000 crore made by the company in 3G licences and in acquiring Kuwait-based Zain Group’s African telecom operations. Some analysts feel that such a small proportion of outflow can be accommodated into the other two bigger payments without extensively stretching the balance sheet.

For both RCOM and Idea, the balance sheets would have no effect of the broadband bids. Given this, net debt — long-term debt minus cash equivalents — as a percentage of operating profit before depreciation (EBITDA) works out to over 3.5 for each of the three players. This means the top-rung of the telecom sector may have to shoulder a similar debt burden.

However, Bharti’s leverage, measured in terms of debt-equity ratio, will shoot up to 1.6 compared with that of one for the other two. Analysts think that this would come down to healthier levels in future once it turns around Zain’s African operations.

Another factor to watch out for is the impact of Reliance Industries’ entry into the broadband fray. Analysts at Networth Stock Broking feel that this would most likely trigger a tariff war in the enterprise segment pulling down the operating margins from existing level of 40-45% for the segment. However, the impact on the overall consolidated margins would not be significant as telcos earn a substantially lower portion of revenue from this segment. In that, RCOM would see lesser impact since its enterprise revenue and operating profit contribute just over 15% to its total revenue.

Bharti, which earns 20% of its revenue and 25% of operating profit from enterprise services, would face a higher exposure to the risk of lower margins. But the pure play broadband players such as Tulip Telecom, and Tata Communications may see an erosion in margins in case of a tariff war. Also, according to Prakash Diwan who heads institutional business at Networth Stock Broking, smaller players like Tulip Telecom may benefit by outsourcing their expertise in this business to the new entrants.

The effect of a possible price war in the wireless broadband will also be felt by players such as You Broadband and Cable, which currently provide wired broadband services. You’s CEO EVS Chakravarthy anticipates a pressure on pricing, as broadband prices will be dragged down by competition. “While pricing will be under pressure, I think, the overall market size will expand. Also, higher competition will bring in higher efficiencies at the market place.” He believes that this will lead to improved customer experience.

Experts also foresee emerging opportunities in the field of WiMAX solutions. “Once the operators start rolling out broadband services, companies that now provide WiMAX-based solutions would come into limelight,” says Mr Diwan.

WiMAX holds promise especially for rural internet connectivity, given its ease of installation of last-mile connectivity. “The ongoing programme of unique ID cards for citizens means that database of people in every nook and corner of the country needs to be transferred to the common repository. WiMAX may go a long way in enabling this connectivity,” says Mr Diwan. He thinks companies including Sasken and Zylog that have worked in the past on various broadband technologies may stand to gain.

ET

Volvo to make India hub for engines

NEW DELHI: Swedish commercial vehicle giant Volvo on Friday said it will make India a hub for medium-duty engines for which the company will make new investments in its local joint venture with Eicher. VE Commercial Vehicles (VECV), the joint venture between Eicher and Volvo, will see investments of Rs 288 crore to boost engine capacity at its Pithampur plant in Madhya Pradesh by 85000 engines a year. The current capacity at the plant is 40000 engines.

"This investment by VECV in its Pithampur plant gives the Volvo group a complete facility in India for manufacturing and assembling the new medium-duty engine which will be introduced in the Volvo groups trucks and buses worldwide over the next few years. Additionally, these engines will also be used for Eicher's range of heavy-duty commercial vehicles," Par Ostberg, president (trucks Asia) for Volvo group and chairman of VECV, said.

VECV MD & CEO Siddhartha Lal said the decision will catapult the company into one of the largest commercial vehicle engine manufacturers in India and will give it the capability well beyond any of its competitors.

"The new capacity will come onstream in the second half of 2012, initially to serve Volvo group's and Eicher's local requirements and later for exports," Lal said.

Lal said the fresh investments would be over and above the Rs 500 crore investment that VECV had announced in January to expand production capacity and develop new engine technology over the next three years.

The plant will do the final assembly of 55000 Euro 3 and Euro 4 engines from 2012 and will start shipping a year later 30000 base engines to Volvo's plant in France for final assembly of Euro 5 and Euro 6 engines. "Indian market is extremely important and in a few years will become one of the most important countries in terms of turnover and profitablity for us," Ostberg added.

TOI

Industry grows 17.6% in April

NEW DELHI: India's factory output bettered expectations to expand at 17.6% in April, marking a near 20-year high achieved on the back of copious domestic consumer demand, a revival in exports and higher infrastructure spending but also got boosted by a low base effect. While the best show by the manufacturing sector since December 2009 raised hopes of an 8.5% GDP growth rate in the ongoing fiscal, it also reinforced expectations of a further rate hike by the RBI next month.

The April figure is almost equal to the 20-year-high of 17.7% posted in December 2009. Manufacturing, which accounts for around 80% of the IIP (index of industrial production), expanded by 19.4% in April. Capital goods showed a growth of 72.8% and consumer durables by 37%. The expansion follows an annual 8.6% expansion in the economy in the quarter through March. But finance minister Pranab Mukherjee said he had expected the industry to do even better in April. "Of course, my appetite is infinite. I would have been happier if it was 20%," he told reporters.

Analysts said the strong industrial showing in April coupled with a normal monsoon would put the economy on an 8.5% growth trajectory in 2010-11. "The industrial growth can be equal to the growth rate last year and, therefore, taking that into account and if agriculture performs reasonably well during the year, one should hope to get a growth rate close to 8.5%," prime minister's Economic Advisory Council chairman C Rangarajan said.

The double-digit growth strengthened the case for stimulus rollback but Planning Commission deputy chairman Montek Singh Ahluwalia said the pace of monetary policy normalisation need not be quickened. This essentially reflects worries over Eurozone debt crisis and the health of the global economic recovery as well as concerns expressed by most other central banks in Asia.

India Inc too cautioned that the growth trend may moderate from June onwards since part of the industrial expansion could be attributed to a low base in April last year. Ficci secretary-general Amit Mitra said, "This trend of very high growth might moderate from June onwards because of the base effect." The low base is evident from the fact that capital goods had contracted by 5.9% in April 2009, even as consumer durables had risen by 17.6%.

Besides manufacturing, mining expanded by 11.4% in April against 3.4% a year ago. On the broad sectoral storyboard, electricity was a weak link as generation rose by 6% in April, lower than 6.7% a year ago. The robust economic growth is, however, also raising the prospects of capacity constraints that are seen aggravating price pressures.

TOI