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Banking and Financial Services Sector Update

(Sector Analysts: J yoti Gupta, Akshat Kulshreshtra, Ankita Kumar)

Last week the banking sector didnt perform very well, stocks for Yes bank and Canara bank saw a sharp decline in
prices. Only few banks like HDFC, Andhra bank, Allahabad bank and Union bank saw a surge in their prices. Most of the
banks saw a variation in their prices within a range of +0.5% to -0.5%. (Source: NDTV Profit)
The size of the banking assets in India was US$1.8 trillion in FY 13. The recent increase in Nonperforming assets to
4.1% in FY14 has raised alarms and deteriorated the loan asset quality of the banking sector and the effect of
which is visible in market prices.
Blackrock sold 39 Lakh Yes bank shares for Rs.231.27Cr. They were offloaded at an average price of Rs 586.84 a piece.
The private sector lender would be excluded from standard and mid-cap indices of the Morgan Stanley Capital
International (MSCI), from tomorrow. MSCI is a leading provider of benchmark indices globally.
Snowman Logistics Ltd, a cold chain unit of Gateway Distriparks Ltd, has made a blockbuster debut listing on
the bourses at Rs 76 a share, 61 per cent premium to the issue price of Rs 47, and ended the first day at Rs 78.46
a share, up 67.5 per cent. The public issue had seen bids worth almost 60 times or recorded around 59 times
oversubscription. It is backed by Norwest Venture Partners, which is now sitting on twice the unrealized gains on its one-
year-old investment; IFC, which had part exited early this year and is now sitting on a multi-bagger; and Faering Capital,
which came in as an anchor investor and has also seen its value of holdings rocket with the bumper list.
RBI has eased norms for the issuance of equity shares under FDI. This will allow companies to issue equity shares to
residents outside India subjected to certain conditions.
RBI has warned banks against duplicate accounts under the Jan dhan yojna, a financial inclusion scheme. A single
individual may open multiple accounts with different banks in lure of 1 Lakh insurance cover. Another threat which they
have warned is that of Smurfing where in the hawala operators would split the whole amount into several small units
beyond the threshold using several bank accounts and send money overseas.
State-run lender UCO Bank is examining ways to declare Kingfisher Airlines (KFA) a wilful defaulter. UCO Bank is
one of the 17 lenders to now grounded Kingfisher Airlines. The airline had borrowed around Rs 6,500 crore from the
consortium of lenders, led by the State Bank of India. UCO Banks loan exposure to KFA is estimated at over Rs 300
crore. United Bank of India (UBI) has already declared Kingfisher Airlines a wilful defaulter, while SBI has served it with a
show cause notice seeking explanation as to why it should not be named a wilful defaulter.

Source links:

FMCG Sector Update
(Sector Analysts: Amrit Pal Singh, Kirti Chablani and Rahul Bansal)
Stock price performance of key companies:
Stock Price(High)
Jan 2014
Stock Price(High)
Aug 2014
Market Capital
(2013) (in crores)
ITC India Ltd 332.30 361.45 256,769
HUL 584.40 746.35 127,144
Nestle India 5447.00 6075.00 49,768
Godrej Consumer Products Limited 863.10 1000.00 28,107
Dabur India Ltd 175.25 235.10 27,261

Key M&A's happening in the sector:
Everstone and HUL in talks to jointly run Modern Foods:
India's largest soaps and detergent maker Hindustan Unilever has begun talks with private equity fund Everstone Capital
for a possible equity joint venture for its Modern Foods division which makes bread and rusks under the Modern brand,
three people involved with the plan said.
The move by the private equity fund, which jointly owns the India franchise of the American Hamburger restaurant chain
Burger King, is to drive synergy from Modern Foods for the quick-service restaurant chain.
Lower raw material costs will impact earnings for FMCG companies:
The CNX FMXG index is up by 9% in the last 3 months. Analysts predict increased demand in rural markets and the
drop in input prices such as agricultural commodities and oil derivatives will help boost earnings
Future Group announces entry into FMCG sector:
The group will be setting up a chain of food processing parks, in an indication of potential shift from core business of
retailing.Kishore Biyani expects revenues of over 20,000 crores in the coming years.His first food processing park spread
across 110 acre at Tumkur in Karnataka is ready for operations and will be inaugurated by Prime Minister Narendra
Modi on September 24. The second one in Kolkata is in the works and will cater to the eastern region.
Sales and Marketing hirings on a high in the FMCG industry:
The majority of hiring activity within sales and marketing is currently occurring in FMCG, retail and healthcare and life
sciences sectors, according to the latest Michael Page Salary & Employment Forecast for India
The report shows that though the majority of hiring activity is occurring in Delhi, NCR and Mumbai as most company
headquarters are based there, organisations are looking to expand into markets outside of the major cities.
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Metals & Mining and Real estate Sector Update
(Sector Analysts: Arihanth J ain, Manish Rathore and Priyanka Mohanty)
Metals & Mining:
The sector has been through a roller coaster ride in the last few months, with the policy front being hostile not the pro-
development GoI, but the Judiciary body. The Karnataka HC earlier scrapped Iron Ore Mines in Karnataka, Goa
which are the largest supplier of Ore, India being the 3
largest Exporter of Ore has now turned into 0.3mmt importer
which is expected to grow to 5mmt in the next 3 years. Recently the SC has scrapped 218 coal block allocations
since 1993 as illegal and arbitrary, this led to a lot of uncertainty for the companies exposed like Hindalco, Sesa
Sterlite, JSW Steel have bled on the markets. This has not only effected the Steel companies but the Thermal Power
Plants across the nation are left only with 1 week of coal and Coal India Limited is nowhere near meeting the demand.
The S&P BSE Metals rose by 34.2% in the last 6 months during the same time the S&P Sensex rose by 24.02%
Mergers & Acquisitions front:
JSW Steel has sent a Final binding bid to the Italian governments approval for the buyout of Lucchini, to
foray into the European markets. The deal is estimated to be around $100 million.
The troubled Welspun Enterprises is selling its Steel business to JSW Steel for Rs.1024 crores, it is waiting for the
approval from the CCI.
Arcelormittal has scrapped the Odisha power plant project worth $12 billion and has surrendered 2 coal blocks
allocated for the project.
Singareni Colleries Limited has received cabinet approval to invest Rs.846 crores in Adriyala Coal Mine project
Policy Front:
The government is preparing to introduce a bill to amend mining rules in the next session of Parliament. Union Minister for
Steel and Mines Narendra Singh Tomar said that in order to bring in transparency, simplification and development wthout
intervention from courts and commissions.
Ex-McKinsey India Chief Adil Zainulbhai is appointed as head of Quality Council of India. The agency is an autonomous
body charged with becoming one of the worlds top quality facilitation, accreditation and surveillance organisations. He is
appointed as part of Modi's plan to assist manufacturing sector.
Sector Developments:
New Ultra Mega Power Plants will get license only if they have coal linkages abroad, the domestic coal is only here to
last a few decades and currently 40 power plants are reporting critical stocks of coal.
The 190 private allottees of coal blocks havent started work except few, rebuffed by this the Minister of Coal has said
they might consider cancelling the private sector allotments.
The Karnataka state government has issued a blanket ban on exports of Iron ore, which is hurting the mining
companies because out of the 240 million tonnes of only one third is domestically utilised effectively and rest has to
be stored.

Real Estate
The Real Estate sector has seen a sluggish growth post-recession, with a lot of uncertainties ranging from the policy front
to the prices of houses. The humongous inventory and the work-in-progress in the sector is unprecedented. The rising
Land Acquisition cost after the Land Acquisition Bill, 2014 the brainchild of UPA-II which although promises to protect the
land owners interests with the retrospective effect makes no sense for the Real Estate Development on those overpriced
Pro-Development GoI has promised a regime where infrastructure will thrive and the incentives given in the Union Budget
of increased Interest exemption of 1.5L to 2.5L may increase the demand, REIT if goes as planned will provide the sector
with the working capital to the cash crunch Real Estate companies. The S&P BSE Realty has outperformed with 32.4%
increase in the last 6 months
Capital markets:
Parsvanath Developers is issuing Rs.1000 crores debentures increasing its debt-to-equity to 0.97 from 0.54 which
is well within the benchmark levels.
Policy Front:
SEBI executive director Ananth Barua stated that SEBI will notify on REIT norms. These norms are created to
attract more investments both from foreign and domestic fronts.
The revised Real estate bill to standardise the sector is set to come up in parliament this winter session. The bill will open
doors for investment from both foreign and domestic fronts.
REIT is the Real Estate Investment Trust which acts like a mutual fund where individual investors will invest and that
money will be used by the real estate developers tom meet with their liquidity issues.
Sector Developments:
DLF has got a nod from shareholders to raise Rs.5000cr through Non-convertible debenture .Another special
resolution to reduce the borrowing power of board of directors to Rs. 30,000 crore was passed.
HC scraps Haryana deal of DLF 350 acres of prime land. Punjab and Haryana HC scrapped an auction in which DLF
had won 350 acres of land in Gurgaon.
In Q2 of FY15 the demand for the commercial real estate across the country has grown and the million sqft deals are back
which disappeared post 2008, Deloitte has signed a 1.2 million sqft commercial space in Hyderabad, and similar deals in
Bangalore, Mumbai has created a buzz in the Sector, maybe these are the signs of the Acche Din

Pharma Sector Update
(Sector Analysts: Kanika Singh, Neha Kumar and Ravi Karanam)
Lupin to sign $1.5 billion deal with Merck Serono:
Lupin has forged an alliance with Merck Serono to out-licence select drugs, which will be marketed by Merck
Serono in the key emerging markets. Under the agreement, Lupin will manufacture and supply 20 key products, mainly
belonging to the anti-diabetic and cardiac segments, to Merck Serono. Merck Serono will use its strong distribution
network to market these products. Lupin will be entitled to an upfront and milestone-based licensing fee for the supply of
these drugs. The first drug under the alliance is likely to hit the market in 2016. This alliance will help Lupin to gain
significantly, however the ramp-up will be gradual and it will take two to three years to materially tap the potential of this
Pharma exports to cross Rs.1 lakh crore mark:
With US Food and Drug Administration approving 584 centres across India for exports, the pharmaceutical export is
expected to cross `1 Lakh Crore mark this fiscal, from `90,000 Crore last fiscal (March 2014). The majority export
revenues are expected to come from formulations as companies have shifted their focus from bulk drug exports to
formulation export. In fiscal 2013-14, which recorded a high growth of 15% for pharma sector, the formulation
exports accounted for 71% of total exports of which 55% were to the regulated markets. The new approvals and
various foreign alliances will open up new markets for the Indian pharmaceutical companies.
NPPA orders drug manufacturers to register for online databases:
National drug pricing regulator (NPPA) has ordered all pharmaceutical firms to register themselves under the Integrated
Pharmaceutical Database Management System (IPDMS), for online filing of returns to help monitoring, fixing and revision
of drug prices.

According to NPPA, a reliable database is a necessary pre-requisite for price fixation and price revision for not only
scheduled drugs but also new drugs. This move will make it mandatory for companies to disclose full and correct
information in a timely fashion in pre-described intervals.
Price cuts for 43 drugs by NPPA to hit pharma firms:
The drug pricing regulator, National Pharma Pricing Authority (NPPA), capped prices of 43 formulations, including
antibiotics Ciprofloxacin, and diabetes drug Metformin, earlier this week. According to research agencies, the part of the
domestic drug market which has been brought under price control is pegged at around `450 Crore and the estimated
shrink will be by 39% or `179 Crore. Companies facing hits by the new price cuts are Ranbaxy which would take a
`55 Crore hit, Cipla which would face a loss of about `46 Crore and other companies with a smaller share of loss
are Cadila Healthcare, Pfizer, Lupin, Torrent. The NPPA included these drugs under their National List of Essential
Medicines (NLEM), stating this as an action under extraordinary circumstance necessary for public interest. Industry
bodies representing drug makers have challenged the decision in the high court of Delhi and Bombay claiming inter-brand
price differences cannot be considered as extraordinary. The NPPA seems to focus on a value-based assessment" that
would look at the burden of disease and wider social benefit while fixing the price of new drugs.
Sunpharma lands in trouble - its US subsidiary Taro to recall drug:
Sun Pharma's recall worries continue with its American subsidiary Taro recalling its leading blood clot drug Warfarin from
the market after the USFDA found that the product did not meet its quality norms. Sun shares slumped nearly 5 per cent
early on Thursday after overnight reports of surprise inspection by the USFDA at its plant in Halol, Gujarat. Warfarin is a
significant drug for Taro which contributes onethird to Sun's revenue of `3,927 Crore and 4.5 per cent to Taro's sales of
$130 million.
Sun Pharma's recalls have increased ever since the drug maker received a warning letter from the USFDA in May
this year for its Karkhadi plant in Gujarat. The letter came one month after Sun announced the acquisition of Ranbaxy
from Japanese drug maker Daiichi Sankyo for $3.2 billion. However, since the deal was announced, Sun has been
battling controversies right from insider trading accusations from activist investors to answering the Competition
Commission of India which has to clear the deal.
China Fines Glaxo $489 Million, Ending year long Bribery Probe:
The Chinese State Court has fined UK Pharma firm GlaxoSmithKline an amount of $490 million on accounts of
bribery charges. GSK was found guilty for paying bribes to doctors to use its drugs. It has also sentenced Mark Reilly,
formerly Glaxos top executive in the country, to three years in prison with a four-year reprieve. The fine is relatively
manageable for the company whose market value is $113 billion but the blow comes due to the damaged reputation.
Surprisingly the company shares were little higher when the news broke out in China due to the pharma market taking
penalty in its stride. There are speculations on how the Glaxo case underlines the dangers for multinationals as they
continue to do business in a country where corruption has been widespread and where the legal and regulatory system
has shown a greater willingness to prosecute foreign companies.

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Power Sector Update
(Sector Analysts: Bhaskar J oshi, Anshu Mishra and Ankit Bacchuka)
New happenings in the sector:
Stringent compliance of RPOs: Enforcement of the mandate for utilities to buy clean energy called renewable
purchase obligations are being looked at by the government as a tool to ensure that unconventional energy becomes an
integral and substantial mix of overall segment. The government is also looking at if it can apply these obligations on
companies which are generators of power. Taking the lead NTPC has already decided to do 3000 MW and will float
tenders next month. The government is looking at how other countries exploit the unconventional energy segment. For
instance Germany, particularly, has been successful with rooftop, solar generation. Also, efficient methods like net
metering and allowing rooftop solar to be given back to the grid whenever they don't require it for home consumption.
Estimates released by industry bodies:
As per the latest data collected from Central Electricity Authority (CEA)released this week, 53 thermal plants in the
country have less than seven days of coal stocks at their disposal out of which 30 stations have only four days of fuel
available to them. This is worse in comparison to last month when less than a week's stock stood at 48, of which 24 had
less than four days of coal, CEA data said.
Issues related to land acquisition; environment and forest clearances and bottlenecks in coal transportation through
railways affect fuel stocks at thermal power stations. In addition to this, the festive season in the eastern part of the
country is mainly a lean period, when companies such as ECL, BCCL, and CCL are short staffed.
In other news related to renewable energy sector in India, an investment of $100-billion will take place in the next five
years and the country could become a world leader in the sector. With massive investment, and enforcement of the
mandate for utilities to buy clean energy, called renewable purchase obligation (RPO), the government is keen on making
electricity from clean sources a substantial part of the country's energy mix in five years. Power, coal and renewable
energy minister, Piyush Goyal, also estimated that 1 lakh megawatts of solar energy can be added in the next five years.
Other Important News:
The Odisha state government will demand an assistance of Rs 800 crore from the Centre under the Restructured
Accelerated Power Development and Reform Programme (R-APDRP). The demand is to assist 3 power distribution
companies controlled by reliance infra Nesco, Wesco, southco which has incurred losses of RS 514 cr in 2013-2014. The
state government has launched the capital expenditure (Capex) scheme with an outlay of Rs 2,400 crore, out of which the
state govt would provide 1200 CR (it has sought assistance from central govt under R-APDRP) and rest 1200 the discoms
would mobilize by way of counterpart funding.
Govt. targets to double the solar mission capacity: The govt is set to double the target of phase 2 batch 2 of
Jawaharlal Nehru national solar mission bidding to 3000 MW. The solar power generated will be bundled with the
unallocated thermal power in 2:1 ratio, which will help in bringing down the cost to 4-4.5 per unit.The project will take
place in 3 phases and single destination at a time, it would be rolled out with Andra Pradesh. The JNNSM target 10000
MW till 2017.
KPMGs report on coal rationalization likely this week: As part of the government's plan to modernise old power plants
of about 32,000 MW capacity, coal linkages to these plants will be rationalised. The government has also allowed
automatic transfer of linkages from old and inefficient plants to ultra-modern supercritical plants in order to maximise
power generation from the same amount of coal. Coal linkage rationalisation is aimed to link power plants to the nearest
Already the coal and power ministry allowed Gujarat government to swap the quantity of coal it receives from coal mines
in Chhattisgarh for its plants with NTPC's imported coal as state-run NTPC imports coal through Gujarat ports for its
thermal plants in Chhattisgarh. The agenda at hand is to ensure that our country has 24/7 power supply for which many
supply chain issues need to be overcome, rationalizing of coal supply being one of them.
Capacity related hurdles in Reliance Jaypee deal: A committee consisting the Central Electricity Authority (CEA)and
the Central Water Commission have submitted a report saying the Jaypee Group increased the capacity of the Karcham
Wangtoo project in Himachal Pradesh to 1,200 MW from the approved 1,000 MW by setting up four units of 300 MW each
instead of 250 MW each. The viability of the project may be jeopardised if the CEA revokes the techno-commercial
clearance for the entire project or restricts operations to the approved level.The deal between the two firms currently
valued at 12000 crores could be revalued as valuation of the deal depends on the capacity of the projects and tariffs.
During the approval process, Jaypee had submitted that even though there was potential to set up a 1,750 MW project, it
would restrict the capacity to 1,000 MW due to tunneling problems in the Himalaya. Violation of this could jeopardize the
deal entirely.
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Oil and Gas Sector Update
(Sector Analysts: Ashwin J ain, Mili Handa and Piyush Sethi)
OIL SPILL: Whats in for India?
During 2010-2013 period, the oil and gas exports were slow, the oil prices and import bills pressure were high resulted in
unsustainable levels of fiscal and current account deficit which further made the economic cycle more vicious. So now
with the decline in oil prices (to below US$100 per barrel) along with coal and gold prices it is expected that Indian
economy will have multi-layered benefits.
With falling oil prices the burden of subsidies is expected to decline. With declining oil prices and subsidy
burden, analysts are seen to prefer upstream companies like ONGC and Oil India Ltd; also because of their better
balance sheets, ROEs and their relatively attractive valuations.
According to Deutsche Bank Markets Research, "If global oil prices sustain at current levels, we estimate oil subsidies to
fall 44 per cent year-on-year in FY15 the sharpest drop in any one year since FY10 to $13 billion and by a further 42
per cent in FY16 to $9.6 billion." Due to this fall, it is expected that ONGC and OIL will gain too as they fund about 40%
of the subsidies.
Softer crude oil prices might save around Rs. 8000 crore this year towards towards fuel subsidy. It will also enjoy
the benefit of a stronger rupee and decrease in diesel under-recovery.
Raghuram Rajan has asked the government to take advantage of the lower international crude prices by eliminating the
diesel subsidies as soon as possible. Since January,2013,the government has been increasing the price of diesel by
It seems that the sharp dip in oil prices will be beneficial for Oil Marketing Companies and Automobile companies. It will
also provide an impetus in terms of demand for entry-level cars. For example, Maruti having 74% share, will be the key
beneficiary of a recovery in entry level cars.
Other oil market highlights:
As per Raghuram Rajan, lower oil prices might be a temporary phenomenon resulting from geopolitical risks. As per the
OPEC (Organization of Petroleum Exporting Countries) chief the current decline is seasonal and expects crude prices to
rebound by the end of the year. If crude prices remain suppressed for a prolonged period, it will lower household inflation
Pricing of gas: Government has deferred until September 30
the implementation of the pricing formula as
recommended by the Rangarajan Committee. Government has been asked not to further increase the price of gas
produced by RIL from KG basin. As with every dollar increase in gas price urea production cost will increase by Rs
1,370 per tonne, electricity tariff by 45 paise per unit, compressed natural gas prices by Rs 2.8 per kg and piped
natural gas rates by Rs 1.8 per standard cubic metre.
Chandikhole Reserve: As per Union minister for Petroleum & Natural Gas Dharmendra Pradhan, the petroleum reserve
that will come up at Chandikhole will have a storage capacity of 3.7 million tonnes and will help meet the countrys fuel
need in time of crisis.
Global effect: Brent crude oil price also faced a 24 month low of $96.21 per barrel in China. According to international
energy agency, China will account for 11% of the demand this year whereas for US its 21%. International Energy Agency
has cut global oil consumption estimates from 1.3 mmbpd in January 2014 to 0.9 mmbpd currently indicating a declining
world demand for oil. Key oil demand forecasting agencies have turned bearish and reduced global demand growth from
earlier estimations. This significant drop in crude oil prices was not caused by weak fundamentals alone; much of it is due
to stimulus trading by speculators, which sent prices to new highs three months ago.

Source Links:
Business Standard newspapers from 13
to 19
Sept, 2014.

Telecom and IT Sector Update:
(Sector Analysts: Bharat Dasaka, Melvin Matthew and Arpita Verma)
Whats in Store for Infosys?
After Vishal Sikka took over the reigns as CEO and MD of Infosys on July 12
this year, the stock market sentiment only
seems to improve positively. With detailed Employee level surveys and alumnus engagement, Vishal Sikka is not leaving
any stone unturned to re-established Infosys to its previous glory.
Infosys has now partnered with Huawei Technologies Limited, a Chinese multinational networking
and telecommunications equipment and services company, to offer Big Data solutions to its customers. Infosys wants to
leverage Huaweis hardware infrastructure to develop IT solutions and modernize operations in cloud platform. Both the
companys stock are responding positively to this change. Huaweis Stock rose almost 6% following the strategic
partnership news outbreak.
Infosys, expanding engagements with Microsoft, also plans to extend its offers to a broad range of predict analytics tools
by using Microsoft Azure Machine Learning. Also Infosys plans to establish a centre of excellence in coordination with
Hitachi Data Systems to co create pay per use solutions such as private cloud offerings. These offerings are targeted to
substantially reduce the capital expenditure on cloud infrastructure.
Looks like Infosys is all gearing up to a positive come back. It may be the right to invest!!
Bharti Airtel in Bad Waters??
On September 9
,2014 when Bharti Airtel Sold 3500 telecom towers to Eaton Towers which would have generated
somewhere around (Rs 1,400 crore and Rs 3,500 crore. Official Deal amount not disclosed), the market responded
positively. The Deal was a part of debt reduction process as in the recent April-June quarter, its net loss for the African
business was $137 million, compared to $52 mn in the corresponding period last year.
On September 19
, Department of Telecom raised objections to the structure of Airtel-Loop Deal which anticipates a loss
to the government exchequer, while violating the mobile number portability (MNP) rules. This transaction, if completed,
would take Bharti Airtel's subscriber number to 7 million in the Mumbai circle, making it the No. 1 carrier in India's financial
Though the market sentiment seems to be positive at this moment, Traders Be aware!!
Some Key Investments:
Aircel, in a move to expand its retail footprint in India, plans to set up 200 more XPRESS stores in the country,
thereby taking the total number of these franchisee-owned, franchisee-operated model XPRESS stores to 500 by the
middle of 2015
Tata Communications has entered into strategic partnerships with NEXTDC in Australia, Interxion in Germany and
Austria, and Pacific Link Telecom in Malaysia. These partnerships will help the company to scale up data
centre footprints in newer geographies
Wipro has bagged a US$1.2 billion outsourcing deal from Canadian utilities major ATCO. As part of the deal, Wipro
will take over the IT subsidiary of ATCO, ATCO I-Tek, in an all-cash deal worth US$195 million
L&T Technology Services has bought 74 per cent equity stake in Thales Software India Pvt Ltd, to strengthen its
avionics business. This collaboration will enhance L&T's expertise in high-end avionics software
The COAI data also suggests that telecom provider Bharti Airtel provided the most number of customers in the month
of April, about 990,000 new subscribers followed by Vodafone and Idea Cellular.
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