Category Archives: Analysis

Zuari further raises stake in Nagarjuna, Texmaco

Fertiliser manufacturer Zuari Industries (ZIL) today said that it has further increased its stake in Nagarjuna Fertilisers and Chemicals (NFCL) and Texmaco through open market transactions.

While ZIL increased its share in NFCL to 6.79%, the company’s stake in Texmaco rose to 5.01%.

ZIL till June 20, held 2,85,25,314 shares or 6.66% in NFCL, while its stake in Texmaco in the same period stood at 4.95% or 63,04,401 shares.

The company in a filing to the Bombay Stock Exchange (BSE) said that it has acquired 4,75,716 shares or 0.11% stake and 1,00,000 shares or 0.02% stake in NFCL on June 21 and June 22 respectively, through the open market.

After the acquisition, the total shares of NFCL with ZIL stands at 2,91,01,030, the filing added.

In a separate filing to BSE, ZIL said that it has further increased its stake in Texmaco to 5.01% after it acquired 62,662 shares or 0.05% stake and 13,889 shares or 0.01% stake through the open market on June 21 and June 22, respectively.

The total shares of Texmaco with ZIL, after the acquisition stand at 63,80,952, it added.

Earlier, ZIL had on June 17 and June 20 had bought 0.09% and 0.23% stake, respectively, in the Andhra Pradesh based company, NFCL.

Likewise, on June 20, it had bought 0.22% stake in Texmaco. Both the company’s are part of the newly launched Adventz group that is led by Saroj Poddar.

In March this year, ZIL’s Managing Director Suresh Krishnan had said that the Adventz group has planned a total capital outlay of $2 billion (around Rs 10,000 crore) in the next four years for business expansion.

Of the total investment planned, a majority of funds will be utilised for setting up a new fertiliser plant in Karnataka and for acquiring assets in the fertiliser business, he had said.

ZIL manufactures urea and complex fertilisers and has forayed into cement, hybrid seeds, engineering consultancy, financial services and oil tanking through subsidiaries and joint ventures.

Shares of the company today closed at Rs 634.25 apiece, down 0.38% from its previous close on the BSE.

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U.S. consumers still struggle, companies say

NEW YORK (Reuters) – Life is not getting easier for the American consumer, according to three big companies whose wares range from fast food to consumer goods to credit cards.

Despite government data on Wednesday showing that parts of the economy are stabilizing, Capital One, Wal-Mart and Burger King indicated that consumers are still buckling under the weight of the recession.

Capital One Financial Corp, a leading issuer of MasterCard and Visa credit cards, said U.S. credit card defaults rose in March as unemployment soared. On a brighter note, American Express Co, saw defaults rise only slightly, a sign that higher-end cardholders can pay their bills. But Burger King Holdings Inc saw a surprise drop in customer visits to its hamburger restaurants in March. And the head of Wal-Mart Stores Inc, the world’s biggest retailer, said he does not anticipate a quick end to the recession as consumers face mounting job losses.

“There’s still a lot of stress,” Wal-Mart CEO Mike Duke said on a taped interview on NBC’s

“Today Show.”

“It’s not a ‘V’ recession, where we’re just going to bounce out and come back,” he said.

The latest comments come a day after a government report showed that sales at U.S. retailers unexpectedly fell 1.1 percent last month. On Wednesday, the Labor Department said U.S. consumer prices posted a surprise drop in March, recording their first 12-month decline in nearly 54 years.

However, the Federal Reserve said economic activity in some parts of the economy appeared to be stabilizing, and other data showed a decline in factory activity in New York state eased this month and that national homebuilder sentiment jumped, suggesting the economy’s steep descent may be slowing.

But consumers, whose spending accounts for two-thirds of U.S. economic activity, are keeping a tight grip on their wallets as rising unemployment shakes their confidence.

Duke said that by month’s end, just before traditional paydays, customers are left with only a few dollars to spend. To compensate, he said shoppers are buying bigger boxes of diapers at the beginning of the month, when they get paid, but buying smaller boxes when cash is tight later in the month.

He said clothes for infants and children are selling better than adult apparel, as parents forsake the latest styles to keep their growing children clothed. Shoppers are also buying more vitamins, hoping to keep themselves healthy and avoid having to miss a day at work. The downturn will lead to a “sustained change” in the way that families live, he said.

CHARGE-OFF RATES RISE, FEWER FREQUENT BURGER KING

Capital One said the annualized net charge-off rate for U.S. credit cards — debts the company believes it will never collect — rose to 9.33 percent in March from 8.06 percent in February. The rate for loans delinquent at least 30 days dipped slightly, to 5.08 percent from 5.1 percent.

At American Express, the net charge-off rate rose to 8.8 percent from 8.6 percent and the rate for loans at least 30 days delinquent fell to 5.1 percent from 5.3 percent.

Capital One, due to report its first-quarter results next week, forecast more credit losses this year as debt-burdened American consumers struggle with unemployment, which hit a 25-year high in March. Capital One shares closed up 1.5 percent while American Express jumped 12 percent.

The latest Blue Chip Economic Indicators survey of private economists, released last week, showed that 86 percent of economists surveyed thought the recession would end in the second half of this year.

Much of the anticipated turnaround in the U.S. economy, now in its 16th month of recession, would be driven by some improvement in consumer spending, housing, business inventories and exports. Yet above-trend growth was not expected until the second half of 2010.

“We … remain concerned that further gains in unemployment and housing market pressures will delay a consumer recovery until 2010 at the earliest,” Andrew Wessel and Daniel Kim, analysts at JPMorgan, wrote in a report.

Burger King, best known for its Whopper hamburgers, said it faced an “unanticipated traffic slowdown” in March across most company-owned restaurants, which hurt its quarterly margins.

Stifel Nicolaus analyst Steve West said Burger King has no company-owned eateries west of the Mississippi River and the U.S. traffic declines were likely due to weakness in the Southeast or mid-Atlantic regions.

So far in April, the hamburger chain said same-store sales have improved, due in part to efforts to attract diners in Germany and Mexico. Its shares dropped almost 18 percent, while competitor McDonald’s Corp closed down 1.6 percent.

© Thomson Reuters 2009 All rights reserved

Brokers eye MNC stocks with delisting potential

Analysts Feel MNC Parents Face No Compulsion To Raise Money From India

 

LISTED Indian arms of MNCs may not be the best bets in a raging bull market. But in troubled times, these stocks may not just be safe havens in terms of relative outperformance, but could be the best bets from an absolute return point of view. “Investing in MNC stocks (Indian arms of the MNCs) quoting near multi-year lows, and which look like potential delisting candidates makes sense,” said the head of a domestic financial services firm. Companies that fit into this category include that of Honda Siel, Blue Dart, Esab, Ingersoll Rand, Bayer CropScience, Merck, Abbott India, etc.

Equity analysts believe MNC parents of these companies see no compelling reason to raise capital from India. “Also, they have easy capital available outside India. A weak market will provide them an opportunity to increase their stake at a much cheaper rate, although their offer price will be at a substantial premium to current market price,” said an analyst tracking MNC companies.


Brokers maintain that this strategy will yield good returns from a 12-18 month timeframe, even if the delisting does not materialise. This is because majority of these firms are fundamentally sound. “Most MNCs are debt-free companies and are cash rich. In many cases, they have cash on book of almost 60-80% of its market cap. Almost all have a strong business model and good financials. Additionally, prices of all these stocks are ruling at near their lows, thereby reducing downward risk,” said the head of research of a broking firm. Some of the aforementioned companies have at some time or the other, sought to delist or have come out with an open offer for increasing the promoter’s stake.


In case of Esab India, the 55.56% subsidiary of Charter, UK, the parent made an open offer at Rs 505 for an additional 20% stake but got a response for only 15%. With Ingersoll Rand, the 74% subsidiary of Ingersoll Rand-USA, the exit price offered by the parent did not enthuse shareholders while in the case of Blue Dart — the 81.03% subsidiary of DHL group — the price of Rs 900 arrived through the reverse book building process price was not acceptable to DHL.


Bayer Crop Science, or BCSL, the 71% subsidiary of Bayer Ag, Germany and Honda Siel, a 67% subsidiary of Honda Motor Corporation (HMC) have not come out with open offers in the past. Yet market watchers believe that once these companies sell off their properties in Thane and Rudrapur, respectively, offers for delisting are likely.

Market watchers estimate that 50-60 companies are likely to delist over the next one year. “The global scenario being what it is, many parent companies are for the time being, not focused on their Indian subsidiaries. But the situation could reverse once the overall sentiment improves. These stocks, which are currently available at throwaway prices, could see their valuations soar then,” said a BSE broker.