So, without diluting too much of its equity and not putting out any cash on the counter, Godrej Industries will have access to a new business-the manufacture and distribution of confectionery, snacks and beverages. The chocolate market in India is small at around Rs 1,500 crore but the opportunity could be large since the penetration is low. The market has been growing at around 12 per cent a year, but as communications, road network and cold storage facilities improve, companies can penetrate the interiors of the country far better than they can today. The major players Cadbury and Nestle have around 60 per cent and 20 per cent of the market respectively. With the help of Godrej's distribution, Hershey should be able to able to get a decent market share in a country where consumerism is on the increase. With just a 44 per cent stake, the accounts of the new joint venture may not be consolidated with those of Godrej Industries. |
However, the enterprise value of the new entity should go up somewhat from the current EV of around Rs 600 crore estimated for Godrej Beverages. As of now, Godrej Beverages contributes less than Rs 10 per share of the estimated per share EV of Godrej Industries of around Rs 200. |
The formation of the joint venture with Hershey is unlikely to make too much of difference for some time to come but may chip in after a few years when the business achieves scale. |
At its current price of Rs 149, Godrej Industries trades below its estimated per share EV of Rs 200. |
Banks: Tumbling valuations |
The recent correction in bank stocks, after the surprise hike in repo rate and CRR, has resulted in tumbling valuations""the estimated price-book multiple for FY08 in case of many public sector banks has come down from around one to 0.8-0.9. |
In Q3 FY07, there was some reason to cheer as net interest margins were on an uptick. Advances have been growing at over 30 per cent for the past two years. With this hike, there will be pressure on banks to protect margins. |
While some banks such as ICICI Bank, UTI Bank, HDFC and HDFC Bank have already raised lending rates, others are also expected to follow suit. Analysts estimate the impact of the RBI measures at 3-4 basis points if the costs are not passed on to the borrower. Ultimately, the earnings impact will not be much once banks hike PLRs. |
On the cost front, deposit rates have been rising as banks clamour for more funds. Hence, banks such as HDFC Bank, PNB and SBI, which have a higher proportion of low cost deposits (current and savings accounts) will not be impacted as much. |
Going forward, analysts expect RBI to go slow in hiking interest rates""inflation is expected to come below 6 per cent from May 2007 as the base effect will kick in. |
However, there may be concerns on the advances front as the growth rate will come down, especially in the retail mortgage segment. Analysts are maintaining their profit growth forecast for FY08. At current valuations, there may be pickings in the sector with a medium-term perspective. |
Maruti Udyog: Driving along |
The March 2007 numbers have to be seen in the context of the higher base a year ago. In March 2006, Maruti had cut car prices after the reduction in excise on small cars in the Budget, which had led to 20-per cent plus y-o-y growth in sales that month. Analysts say that Maruti's 6.5 per cent y-o-y growth in passenger cars last month is more than the 3-4 per cent growth that they had expected. Also, exports saw a sharp spurt of 251 per cent in March 2007. Volume growth is strong in Alto, and Zen Estilo and the Swift diesel variant are doing well. However, growth in car sales is expected to drop from 26 per cent in FY07 to 14 per cent in FY08. |
The rising interest rate scenario aside, Maruti's growth engine - the A2 segment, which grew over 31 per cent in FY07 is plagued by margin pressures due to competition. |
The launch of the new A3 segment car SX4 this quarter will also be watched closely as Maruti's sales from this high-margin segment declined 7.5 per cent in FY07. The Maruti stock has declined 22 per cent in the past three months and trades at 12.5 times FY08 earnings. |
With contributions from Shobhana Subramanian and Venkatesh Rangan |