Yes Bank : Spike in provisions

The credit market may be tough, but it's hard to understand the high provisions.

Yes Bank's provisions and contingencies, at Rs 22.8 crore for the March 2008 quarter, are more than the total provisioning made by the bank in the first nine months of the current year of Rs 20.8 crore.

According to the management, about Rs 17 crore has been kept aside for "general credit provisions" as a prudential measure, though why such a relatively large amount has been provided, is not clear.

Moreover the management says it cannot share the extent of the bank's mark-to-market provisions on account of forex derivatives products, purchased by its clients.

It has, however, said that 70 per cent of the exposure has been made to large corporates, with the remaining 30 per cent relating to "emerging corporates".

The bank says it has no exposure to the small and medium (SME) sector. The stock rose 4.6 per cent on Wednesday, to Rs 170, possibly because the management declared that it had no delinquencies on account of forex derivatives.

Meanwhile, the bank's performance in the March quarter has been good with the net interest margin up slightly at 3.06 per cent from 2.9 per cent in the December 2007 quarter.

One reason for this is the unchanged cost of funds at 8.2 per cent compared with the December 2007 quarter possibly because of a higher number of current and savings accounts.

In fact, about 35 per cent of the bank's FY08's pre provisioning profits (ppp) of Rs 350 crore,have been earned in the March quarter.

However, net non-performing loans were up at 0.09 per cent as of March 2008; at the end of the December quarter they were nil.

Looking ahead, analysts are concerned that fee income, especially from lower sales of fresh derivatives and sluggish capital markets, may slow down. Yes Bank's profit after tax for FY08 is Rs 200 crore.

JSW Steel : Bracing for lower margins

The JSW Steel management says that despite imposing a surcharge of Rs 5000 per tonne on hot rolled (HR) coils, on the domestic price of around Rs 33,000 a tonne, the firm will not be able to fully offset higher input costs.

It thus anticipates some pressure on the company's operating margins for the current year. HR coils are used to make machinery ,equipment and transmission towers and account for nearly 50 per cent of JSW's net turnover, which stood at Rs 7,230 crore in the first nine months of FY 08.

The firm sold 21.4 lakh tonnes of steel during this period, but operating profit margin slipped by 70 basis points y-o-y to 31.8 per cent while the net profit stood at 1267 crore.

Last week, JSW Steel had been hit by the industry's decision to cut prices of high- margin long products-- -used by the construction industry---by Rs 2,000 per tonne.

For roofing material, like galvanised corrugated sheets, prices were dropped by Rs 500 to Rs 1,000 a tonne. Spot iron ore prices have jumped nearly 50 per cent over the past six to eight months and are currently ruling at levels of $ 180 per tonne.

JSW currently meets only about 30 per cent of its iron ore requirements from captive sources. Spot coking coal prices have more than doubled to over $300 per tonne ,over the last three to four months, and are close to life time highs.

The JSW stock fell 1.7 per cent to Rs 726 on Wednesday and since the beginning of this calendar year has crashed 45 per cent. Given the margin pressures, the stock could remain an under "� performer as analysts may downgrade their earnings estimates for FY09 also.

At Rs 726, the stock trades at about 5.8 times estimated FY 09 earnings. At Rs 679, Tata Steel trades at five times estimated FY 09 earnings, while SAIL at Rs 157, gets a discounting of about eight times estimated forward earnings.