| Earlier this year, the company had entered into a joint venture with Renault to manufacture a low-cost sedan. The JV strategy is interesting, since competitors have gone ahead with new projects on their own. |
| Tata Motors, for instance, has 100 per cent ownership in its passenger car business although it had to resort to technological help from foreign companies. |
| M&M itself adopted that model when it developed the Scorpio, which is quite a successful model for the company. It's surprising, therefore, that M&M is taking the JV route to enter the passenger car and trucks business. |
| To be fair to the company, it has already had a JV for its LCV operations, with Nissan Allwyn Limited back in the late 1980s. |
| Further, what's striking about this JV is that it would mark the company's entry into the entire gamut of commercial vehicles. Currently, Mahindra sells only 8,800 or so light commercial vehicles a year. |
| The JV is an attempt to increase M&M's market share in the CV segment. Also, when the JVs with Renault and International will be operational, M&M will be present across almost all auto segments - farm equipment, utility vehicles, passenger cars, commercial vehicles and auto components. |
| Analysts are unclear about M&M's strategy, which is the reason the M&M stocks was flat at around Rs 550, despite the twin announcement of the JV and a 1:1 bonus. |
| One positive about taking the JV route is that it does not involve much investment. Analysts say that M&M's LCV business, which will be transferred to the JV, already has a turnover of around Rs 250 crore, which means that M&M's financial contribution in the JV will not be much, since the total project cost is Rs 400 crore. |
| Rupee overvaluation |
| The return of dollar strength against the major currencies will correct what exporters and forex dealers have long pointed out "" the overvaluation of the rupee in terms of the RBI's real effective exchange rate (REER). |
| Forex dealers say that this overvaluation had reached around 7 per cent prior to the recent bout of depreciation. |
| However, the perception of overvaluation may not be entirely correct, says Ajit Ranade, Chief Economist for the AV Birla group. Ranade points out that the REER as computed by the Reserve Bank does not take Indo-Chinese trade into account, the volume of which has been growing rapidly. |
| Indo-Chinese trade is currently around $10 billion, compared to $19 billion worth of Indo-US trade and China has already become India's second-largest trading partner, after the US. |
| Further, it's well-known that the REER data also leave out services. With software exports totalling almost $17 billion and another $5 billion in IteS exports, that leaves a big gap that's not reflected in the REER. |
| Ranade says that since most of these exports are dollar-denominated, and since the Chinese yuan is also linked to the dollar, the impact of these twin omissions from the REER is that a currency such as the Euro has a greater weight, and the dollar a lower weight, than warranted by the actual trade data. |
| When the Euro was rising and the dollar falling, the result was an apparent overvaluation of the rupee in REER terms. |
| It's likely that the RBI is well aware of this effect, which is why it hasn't been overly aggressive in correcting the perceived overvaluation. There's no question, however, that the sooner the REER data reflect reality, the more efficacious will policy interventions be. |
| NTPC |
| NTPC has reported a 59.6 per cent growth in its profit before tax to Rs 241.02 crore in the March quarter, although net sales grew only 22.86 per cent and other income shrinking 38.1 per cent. |
| Power generated was up about 37 per cent to 48.1 billion units thanks to the 1000 Mw recently added to its capacity. |
| However, average realisations fell 10.4 per cent to Rs 1.34 per unit , largely due to a reduction in return on equity (ROE) from 16 to 14 per cent. That reduced topline growth. |
| As expected, fuel cost increased 13.76 per cent to Rs 3954.6 crore in the last quarter, but as a percentage of net sales it declined 492 basis points to 61.53 per cent. |
| That's because of liquid fuel increasingly replacing coal in the fuel mix. Also the cost of rebate under the one time settlement scheme with state electricity boards has declined substantially last quarter. |
| As a result, the operating profit has grown 457 per cent to Rs 1790.4 crore in the March quarter and the operating profit margin expanded to 27.85 per cent. |
| The stock however, fell 2.35 per cent as the market had already factored in the improved performance of the company. |
| Going forward, the company is currently implementing projects to expand capacity by about 9470 Mw. However, in the short term, the profit driver will probably be the company's ability to operate at a higher PLF. |
| With contributions from Mobis Philipose and Amriteshwar Mathur |
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