Traction for TVS Motors

The firm's July sales have triggered a sharp rise in the stock

The TVS Motors stock has jumped 20 per cent this month. Its June quarter results were announced on July 28, but they weren't too exciting.

Sales had fallen 7.8 per cent and net profit had declined by an even higher rate of 15.3 per cent. The real trigger for the increase in TVS's stock price was the monthly sales figures for July announced on August 2.

TVS's motorcycles sales fell 7.5 per cent year-on-year in July, much worse than Hero Honda and Bajaj Auto, who reported a 32 per cent and 44 per cent growth in motorcycles sales, respectively. But what's important is that the rate of decline was lower than the 22.7 per cent fall in the June quarter.

In fact, on a month-on-month basis, motorcycle sales grew 10 per cent. What's more, sales in other segments such as scooterettes and mopeds increased by 17 per cent. As a result, total two-wheeler sales rose 2.7 per cent on a year-on-year basis in July.

It's expected that motorcycle sales would now pick up at a fast rate and make up for the 19 per cent fall in sales in the April-July period.

The company is expected to launch its new 4-stroke entry-level motorcycle next month, and this should help sales growth, especially since it's the decline in the 2-stroke entry-level segment that's been hitting overall sales.

Also, the 4-stroke entry-level motorcycle would complete the company's product offerings across the different categories in the motorcycle segment.

This, coupled with price hikes for the Centra, could even result in an improvement in operating margin for the whole year. But at a valuation of close to 11 times FY05 earnings, which is slightly higher than even Hero Honda and Bajaj Auto, the upside from current levels should not be much.

Hindalco

Hindalco's profits in the June quarter were below expectations, with net profit growing merely 1.2 per cent to Rs 195.3 crore.

While the aluminium division has performed better due to increased production levels and better price realisations but profit growth was constrained by its copper business, where the company had to contend with pricing pressures due to import duties being reduced by 10 per cent over the last 6 months.

However, overall operating profit of the company grew by 12.3 per cent to Rs 373 crore in the last quarter, thanks to the cost control measures implemented by the company.

Segment profits of the aluminium division rose 28 per cent to Rs 260 crore in the last quarter. The upturn in the industrial sector is expected to ensure buoyant demand continues for Hindalco's portfolio of aluminium products.

Even the copper division, which saw segment profits drop 42 per cent in the last quarter, is expected to perform better in the near future.

Analysts point out that copper prices are expected to recover sharply as several smelters especially those in the Southern hemisphere are likely to close in the next 3-6 months, due to uneconomic size of operations. Hence, Hindalco's strategy of doubling its smelter capacity at Dahej appears logical.

Decoupling from Asian markets?

Is it possible that the much-awaited decoupling of the Indian market from other emerging markets is finally happening? The sharp rise in the MSCI Index for India in the quarter to August 4, taken together with the continuing net FII inflows, at a time when there's been a substantial outflow from emerging market funds, certainly suggest that possibility.

What's more, news about institutions such as CalPERS and Temasek scouting for investments in the Indian market also adds to that perception.

The surprising fact is that despite high international oil prices, the delayed monsoon rains, the floods in large parts of the country, inflation and the impending hike in interest rates, the Indian stock market has been among the best performing in the world in recent weeks.

The table shows that, in terms of the MSCI indices, India has handsomely beaten the world index both for the month to August 4, and for the quarter to that date.

Emerging markets as a whole have outperformed the World Index both in the month to August 4 and in the quarter, a significant rebound from the wave of selling seen earlier in the year.

However, that performance was due mainly to Eastern Europe and Latin America doing much better. The Emerging Markets Asia index was down 1.067 per cent on the month and 4.367 per cent on the quarter.

However, the Indian market has done much better, with the MSCI index for the country down by a mere 0.222 per cent in the month to August 4, while for the quarter the index was up 7.386 per cent.

That quarterly jump makes it the best performing of the MSCI Asian emerging market indices, with Indonesia coming in a distant second with a rise of 3.737 per cent.

With contributions from Mobis Philipose and Amriteshwar Mathur