Banks recover Rs 40,400 crore from defaulters: RBI report

The various channels through which lenders recovered their bad loans include the Insolvency and Bankruptcy Code (IBC), SARFAESI Act, debt recovery tribunals (DRTs) and Lok Adalats.

Banks have seen a significant improvement in recovery of stressed assets helped by the Insolvency and Bankruptcy Code (IBC) and amendments in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, during FY18, according to the RBI data.

In the fiscal ended March 2018, banks recovered Rs 40,400 crore worth of bad loans as against Rs 38,500 crore recovered in FY17.

The various channels through which lenders recovered their bad loans include the Insolvency and Bankruptcy Code (IBC), SARFAESI Act, debt recovery tribunals (DRTs) and Lok Adalats.

While banks recovered Rs 4,900 crore of bad loans through the IBC, the amount recovered through SARFAESI was Rs 26,500 crore in FY18, the RBI said in its annual report on Trends and Progress of Banking in 2017-18, released to over the weekend. "Apart from vigorous efforts by banks for speedier recovery, amending the SARFAESI Act to bring in a provision of three months' imprisonment in case the borrower does not provide asset details and for the lender to get possession of the mortgaged property within 30 days, may have contributed to better recovery," the report highlighted.

During the year, recovery through Lok Adalats and DRTs declined alongside the number of cases referred, partly indicative of the growing clout of the IBC mechanism for resolution of stressed assets, the monetary authority noted.

The average recovery through IBC is greater than other mechanisms (SARFAESI, DRTs and Lok Adalats) and is also improving gradually, pointing to the need and efficiency of such a channel, the report said.

"Strengthening the infrastructure of the insolvency resolution process, including the proposed increase in the number of benches of the National Company Law Tribunals (NCLTs), should help reduce the overall time currently being taken for resolution under the IBC," the RBI said.

Besides recovery through various resolution mechanisms, banks are also cleaning up theirs balance sheets through sale of doubtful/ loss assets to assets reconstruction companies (ARCs) and other banks/NBFCs/financial institutions by taking haircuts, the report said.

During 2017-18, the acquisition cost of ARCs as a proportion to the book value of assets, has gone up, indicating better realisations by banks on sale of stressed assets.

While private sector banks have been most aggressive on asset sales, state-run lenders lagged, mainly owing to large haircuts and various management issues, the report said.

Source: https://www .moneycontrol.com/news/business/banks-recover-rs-40400-crore-from-defaulters-rbi-report-3337351.html

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Shanthi Gears: Buyback to drive earnings and improve capital efficiency

Shanthi Gears, a leading supplier of industrial gears, is going through a difficult period as a result of low demand.

For a company, sitting on idle cash could be detrimental to shareholders' wealth. One alternative could be buyback of shares, if it's attractively priced.

A similar logic applies to Shanthi Gears' buyback announcement. Industrial gears, which find wide applications in almost all manufacturing activities, are in low demand as a result of the subdued capex cycle. A company such as Shanthi Gears, a leading supplier of industrial gears, is going through a difficult period as a result of low demand. Consequently, its stock has corrected by around 25 percent from its high in January 2018.

Rectifying capital allocation

At the same time, Shanthi Gears is sitting on cash and investments of close to Rs 150 crore, almost 46 percent of its net worth of Rs 335 crore. This depresses its overall return ratios. In the last fiscal, the company generated 11 percent return on capital despite having an extremely efficient business with a fixed asset to turnover ratio standing at 2.37 times and generating strong 22 percent operating margins.

In these circumstances, a buyback could prove to be a shot in the arm for the company. Shanthi Gears intends to buy back close to 50 lakh shares at Rs 140 a share costing it about Rs 70 crore. Moreover, because of the reduction in equity capital, close to 21 percent of its networth, its return on equity would improve. Besides, buying back shares at a time when earnings are depressed because of the external demand environment would mean a higher share of future earnings for existing shareholders when the earnings cycle recovers.

Over the last three years the company has delivered 11 percent compounded annual growth in sales. However, growth is likely to be higher in future as a result of the expected pick up in the private capex cycle and recovery in the manufacturing sector.

In the near term, the share buyback would also mean higher earnings per share as a result of reduction in equity capital in the current fiscal. Our calculations suggest that a 6 per cent reduction in share capital as a result of the buyback could boost estimated earnings per share for FY19 by 5 percent.

Source: https://www .moneycontrol.com/news/business/moneycontrol-research/shanthi-gears-buyback-to-drive-earnings-and-improve-capital-efficiency-3334271.html

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Bodal Chemicals benefits from favourable demand-supply dynamics

We remain positive on the traction towards vertical integration and capacity expansion.

Dyes and dyes intermediates major Bodal Chemicals posted a recovery in topline growth, in the quarter under review, aided by better realisations, volume and exports.

Bodal Chemicals: Q2 update – Margin expansion

Bodal Chemicals’ reported a 43 percent YoY sales growth in Q2FY19 driven by increase in volume, improved realizations, higher exports and better product mix. Dyestuff volume increased by 54 percent YoY on account of higher contribution from the new capacity commissioned last fiscal (12000 tonne in March’18). Blended capacity utilisation of dyestuff facility is now about 72 percent. Further, dyes intermediates volume increased as well by 12 percent (21 percent in Q1 FY19). Export sales (47 percent of sales), with 179 percent increase YoY, has been another strong lever for the company.

Raw material prices have remained elevated though management updates that most of the input prices have stabilized, particularly that of caustic soda and PNCB (Para-nitro chloro benzene).  Standalone operating profit, adjusting for forex, has improved by 250 bps YoY on account of both moderation in inputs and higher realizations.

Allied businesses on an improving track

The company expects improved performance for Trion Chemicals JV wherein operations started towards the end of Q1 FY19. Some of the raw material prices have softened and company expects business to break even by the end of fiscal year. In case of SPS Processors, subsidiary has witnessed considerable improvement in topline (2.3 times QoQ) and bottomline (1.8 times QoQ) on account of better realisations for dye intermediates.

However, thionyl chloride project completion has got delayed to Q4 FY19.

Acceleration in dyestuff share of sales

Product mix is improving. Dyestuff sales contribution has improved from 29 percent of sales to 35 percent of sales in Q2 FY19. Ramp up in utilization of new capacity is noteworthy, which is about ~60 percent in the second quarter after commissioning. Further dyestuff share is expected to improve, even more, as management has decided to increase dyestuff capacity by 6000 tonne by Q1 FY20 (estimated cost: Rs 26 crore). It is noteworthy that this expansion is ahead of the original schedule and would put the total dyestuff capacity to 35000 tonne after expansion.

In the near term, softening of product prices post quick surge in Q1FY19 can moderate revenue momentum. However, overall we remain positive on the traction towards vertical integration and capacity expansion. Also reiterate that ongoing environmental restrictions in both China and India is helpful is keeping a favourable supply-demand dynamics for the integrated players like Bodal Chemicals (7.9x FY20e).

Source: https://www .moneycontrol.com/news/business/moneycontrol-research/bodal-chemicals-benefits-from-favourable-demand-supply-dynamics-3097751.html

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Max India’s decision to check out of healthcare shines spotlight on regulatory risks

The owner’s decision to exit seems to be a mixture of personal and business reasons. But the regulatory risks in the business have played a bigger role in the decision, for certain.

Max India’s decision to exit the healthcare business flies in the face of conventional thinking that India’s private healthcare business is one with immense potential. The reality appears to be somewhat different.

A trend of consolidation has taken root in the sector, with institutional money funding entrepreneurial ambitions. While IHH Healthcare eventually got hold of Fortis Healthcare, let’s not forget that the TPG-Manipal Health combine was also interested.

They will continue to be on the lookout for targets. IHH Healthcare’s acquisition itself signals tougher competition, as the parent company has deep pockets and expertise in running hospitals.

Then there are the regulatory risks that Max faces. In its FY2018 annual report, it lists them out. It has cited mandatory cashless treatment of road accident cases that will be reimbursed at government-determined rates.

Then there’s the well-known issue of price capping of coronary stents and knee implants. Margins on syringes were capped after intervention by the National Pharmaceutical Pricing Authority. The guidelines for treating patients belonging to the economically weaker sections were also made more stringent. These affected its performance in FY18, and its revenue and Ebitda both declined.

The dust on many of these issues has settled down. But the fear that more regulatory risks may be waiting has not gone away. The industry feels threatened that the measures which were acceptable till some years ago are now being seen as extortionist. That may change the way the promoter, the majority shareholder in the business, perceives the business risk.

In fact, the September quarter results had shown Max Healthcare’s performance improve with its Ebitda margin recovering sequentially. In its conference call post-results, the company management had talked about a 5-7 year investment plan that would see its number of beds double to 5,000 in number. It said that the long-term trajectory was intact.

So, what changed their mind then? The group chairman Analjit Singh’s interviews to Mint and Business Standard have some answers. He talks about how the business has changed in two years (in September 2016 he had told Mint that this was a focus business for them with huge growth opportunities).

The concentration in the National Capital Region had become a risk for them. He talks about a 10-year timeframe in which to invest and scale up this business to make it viable. It appears that he did not have the appetite to invest that kind of capital and devote that kind of time to the business. And, he does not seem to have had anyone else he could depend on to do it too.

The owner’s decision to exit seems to be a mixture of personal and business reasons. But the regulatory risks in the business have played a bigger role in the decision, for certain. After acquiring Max Healthcare, Radiant Life Care and KKR will now attempt to prove that their business model can work despite the existing risks in the business and new ones that may be lying in wait.

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Adjusting to Brexit may not be tough for India Inc

The main focus of a large number of Indian companies investing in the UK has been primarily the British market. Still, some of them have been using Britain as a gateway to Europe. A few may need to relocate their businesses.

With United Kingdom Prime Minister Theresa May’s decision to delay vote on Brexit deal in the British Parliament, the issue has become messier. She has survived a confidence vote within her own Conservative Party. However, with 117 MPs voting against her leadership it’s clear it is not going to be easy to get approval for any Brexit deal in Parliament

Under present circumstances, nobody can possibly predict what is going to happen in coming months. Still, there are three plausible scenarios. First, after a few more dramatic happenings and couple of meetings with European Union (EU) leaders, the existing deal is agreed upon with a few modifications or clarifications. Second, things go absolutely wrong and we have an accidental hard Brexit on March 29, 2019. Third, there is no Brexit at all, either due to second referendum or parliamentary vote revoking Article 50 of the Lisbon Treaty.

Except for the hard Brexit scenario, Indian companies operating in the EU and the UK will not face any major difference, at least for the next couple of years. In any case, both the UK and the EU would like to avoid ‘no deal scenario’ at any cost. They know that this is going to harm both of them very seriously.

Although both the EU and the UK have now started preparing even for a no deal scenario, chances of that happening is still relatively low. Businesses in Europe are more or less ready to adjust with the existing deal. It gives them enough time to prepare for new realities.

The present deal is the least bad scenario for the UK. We also must remember that this is the only deal on the table. Except for a few possible modifications, no other deal is going to be negotiated in the remaining few months.

The main sticky point is so-called backstop, which practically means the UK will remain tied to significant EU rules till the time it is able to find a solution to avoid a hard border between Northern Ireland and the Republic of Ireland. The opposition comes from the fact that while agreeing to this solution, the UK will continue to follow EU regulations even after it exits the community. Although the transition period is scheduled to end in December 2020, it could extend further.

In a way, this arrangement also guarantees that companies will continue to do business in Europe without any serious disruptions, till the time a new trade agreement is agreed upon between the UK and the EU. In the given situation, this is maximum the UK can expect from the EU. Precisely for this reason, May asserted earlier “there is no deal that comes without a backstop, and without a backstop there is no deal”.

For Indian companies operating from the UK, the hard Brexit scenario will create many challenges. Specific sectors, which are going to be affected, include automobiles, auto components, pharmaceuticals, gems and jewellery, education and IT enabled services (ITES). They will have no time to adjust to new realities. Indian investment in the UK may see a declining trend in the next few years. The main focus of a large number of Indian companies investing in the UK has been primarily the British market. Still, some of them have been using Britain as a gateway to Europe. A few may need to relocate their businesses.

In case of a no deal scenario, negotiations on India-EU trade and investment agreement may re-start. The Brexit uncertainty has been one of the reasons responsible for the delay in re-starting negotiations. India, however, will have to revisit some of its earlier assessments. To offset negative impacts of hard Brexit, both the UK and India may also start formal negotiations for a bilateral trade and investment agreement.

Earlier it was thought with Britain’s exit, it might be easier for India to negotiate on Mode 4 services with the EU. However, with the refugee and migration crisis in Europe, it is not going to be easy with either of them.

Overall, Brexit is going to create some complications. Most probably, however, Indian companies and policy makers will have enough time to understand its implications and prepare for possible changes. The less likely event of hard Brexit could be shocking — possibly this will not happen.

Source: https://www .moneycontrol.com/news/politics/opinion-adjusting-to-brexit-may-not-be-tough-for-india-inc-3319851.html 

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Oil plunges 6% as economic slowdown fears grip market

U.S. crude futures settled at $42.53 a barrel, down $3.06 or 6.7 percent in the session. Brent crude futures settled down $3.35, or 6.2 percent at $50.47 a barrel. The market settled early ahead of the Christmas holiday.

Oil prices plunged more than 6 percent to the lowest in more than a year on Monday, pulling back sharply late in the session as fears of an economic slowdown rattled the market.

U.S. crude futures and global benchmark Brent fell to the lowest since 2017 during the session, putting both benchmarks on track to lose about 40 percent in the quarter.

"What's happening in the stockmarket is raising fears that the economy is grinding to a halt and thereby will basically kill any future oil demand," said Phil Flynn, an analyst at Price Futures Group in Chicago. "They're pricing in a slowdown in the economy if not a recession, with this drop."

The price decline during the quarter is likely to cause producers to throttle back on their output, he said.

U.S. crude futures have hit the lowest since June 22, 2017, as jitters have grown about the impact of an escalating U.S.-China trade dispute on global growth and crude demand. Brent crude is at its lowest since Aug. 17, 2017.

Markets across asset classes have come under pressure as a U.S. government shutdown intensified growth concerns. Investors have flocked to safe-haven assets such as gold and government debt at the expense of crude oil and stocks.

A gauge of stocks worldwide hurtled towards an eighth straight decline on Monday as investors ignored the U.S. Treasury secretary's actions to reinforce confidence in the economy and U.S. President Donald Trump criticized the Federal Reserve as "the only problem our economy has."

The U.S. Senate has been unable to break an impasse over Trump's demand for more funds for a wall on the border with Mexico, and a senior official said the shutdown could continue until Jan. 3.

U.S. crude futures settled at $42.53 a barrel, down $3.06 or 6.7 percent in the session. Brent crude futures settled down $3.35, or 6.2 percent at $50.47 a barrel. The market settled early ahead of the Christmas holiday.

Brent fell 11 percent last week and hit its lowest since September 2017, while U.S. futures slid to their lowest since July 2017, bringing the decline in the two contracts to 35 percent for the quarter.

The macroeconomic picture and its impact on oil demand continue to pressure prices. Global equities have fallen nearly 9.5 percent so far in December, their biggest one-month slide since September 2011, when the euro zone debt crisis was unfolding.

The U.S.-China trade dispute and the prospect of a rapid rise in U.S. interest rates have brought global stocks down from this year's record highs and ignited concern that oil demand will be insufficient to soak up any excess supply.

The Organization of the Petroleum Exporting Countries and allies led by Russia agreed this month to cut oil production by 1.2 million barrels per day from January.

Should that fail to balance the market, OPEC and its allies will hold an extraordinary meeting, United Arab Emirates Energy Minister Suhail al-Mazrouei said on Sunday.

"Oil ministers are already taking to the airwaves with a 'price stability at all cost' mantra," said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

Source: https://www .moneycontrol.com/news/business/markets/oil-plunges-6-as-economic-slowdown-fears-grip-market-332339If you want more information regarding the Market News & many other tips like Intraday Tips, MCX Normal Calls, Bullion Market Tips, Share Market Services, NSE & BSE Market Tips, Free MCX Market Tips , MCX Premium Tips, Bullion Energy Tips, commodity market tips.

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GST rate cuts try to be pragmatic, populist and helpful to some industries

The rate cuts are likely to fall short of the Street’s expectations, as rates on goods such as cement and some auto parts that were in the highest 28 percent slab were not reduced.

The GST Council has decided to cut tax rates on a number of goods and a few services. While the notional revenue loss has been pegged at Rs 5500 crore, the government will hope that better compliance and consumption growth can compensate for lower rates.

The rate cuts are likely to fall short of the Street’s expectations, as rates on goods such as cement and some auto parts that were in the highest 28 percent slab were not reduced.

There was political messaging that was visible in the rate cuts. Taxes on walking sticks were cut from 12 percent to 5 percent, a nod to senior citizens who form an important vote bank. Similarly, the rate differential in movie tickets above Rs 100 and below that was maintained. Also, taxes for televisions were lowered but only for screens up to 32inches. With elections around the corner, the government will be keen to reiterate that it’s on the side of the common man.

Let’s look at some of the main rate cuts

The multiplex industry will be happy with the reduction in GST rates, from 28 percent to 18 percent on tickets above Rs 100 and from 18 percent to 12 percent on tickets below Rs 100. Since most tickets in metro locations are above Rs 100, the reduction will benefit them. The rate reduction from 28 percent has been a long-standing demand of multiplex operators. They will eventually benefit from lower taxes, although initially they may have to lower ticket prices to pass on benefits to consumers. Listed companies such as PVRand Inox Leisure should benefit.

In auto components, those falling in one category HS Code 8483, comprising transmission shafts, gears and gearboxes have also seen rates decline from 28 percent to 18 percent. This will benefit companies although the net benefit depends on how much input tax credit is being availed.

The government has also clarified on the taxation on supply of renewable energy plants, including solar power plants. While the devices and parts used to make these plants were taxed at 5 percent GST, since these plants may be set up as part of a comprehensive contract, disputes arise on the levy of tax. Thus, the tax could be 5 percent or 18 percent leading to confusion. Now, where there is an engineering services contract to set up a renewable energy plant, 70 percent of the gross value will be treated as goods with a 5 percent tax and the rest will be treated as services. This will lead to a more certain tax regime for such projects.

Although the breadth of cuts may have disappointed some, the government could introduce one more round of tax cuts when the interim budget is presented.

Among the decisions of the GST Council, the rate cuts may have got all the attention, but the setting up of a 7-member group of ministers merits equal attention. GST revenues have been falling short of original estimates, especially in some states, and this GoM has been tasked with finding out why. While the process may take time, it could set the stage for some structural changes to the GST superstructure.

It is this shortfall in revenue that is staying the government’s hand from taking up a bolder rationalisation of tax rates.

Source: https://www .moneycontrol.com/news/business/economy/quick-take-gst-rate-cuts-try-to-be-pragmatic-populist-and-helpful-to-some-industries-3319991.html 

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GST Council to meet on Saturday amid rate cut talk, but some states not fully on board

The Council will also likely discuss a proposal to lower the cess on plug-in hybrid cars to bring down effective tax incidence for such vehicles from 43 percent

The Goods and Services Tax (GST) Council will meet on December 22 amid heightened expectations that the panel will cut rates on several items, although some states want the move’s impact on revenues to be fleshed out in greater detail before levies are lowered.

A discussion on the revenue position of the Centre and states, easing refund-related rules for exporters, is also likely to be on the agenda.

The Council, headed by finance minister Arun Jaitey is the highest decision making body of the new indirect tax system that came into effect from July 1, 2017.

It is also expected to take up the issue of transferring ownership of the IT backbone GST Network in a government owned company, a proposal that was approved by the Cabinet in September, sources said.

In addition, there could be discussions on reducing cess on plug-in hybrid cars, which currently falls in the 28 percent tax slab. However, the overall tax incidence for the green vehicle is 43 percent right now.

It is learnt that the road ministry has proposed bringing down the tax liability to 35 percent.

Rate cuts have always been a contentious issue as the Centre and states have to come to a consensus. In that light, the meeting assumes all the more significance, coming as it does after the recent elections in five states that saw the Congress wresting power in all the three Bharatiya Janata Party (BJP)-ruled states.

Days ahead of the meeting, Prime Minister Narendra Modi said the government wants to ensure that ‘99 percent things’ attract GST at 18 percent or lower rate.

“Today, the GST system has been established to a large extent and we are working towards a position where 99 per cent things will attract the sub-18 percent GST slab,” Modi said, while also hinting that the highest  tax slab will be restricted to luxury and sin goods.

A range of goods from air conditioners to dishwashers, from television sets to digital cameras could become cheaper,  if the Council expected to slashes rates to 18 percent on all products in the 28 percent slab, except demerit goods, cement and automobiles.

This could effectively set 18 percent as the highest GST tax slab, except only two broad categories of goods and services.

Over 1,200 goods and services fall into four broad tax slabs- 5, 12, 18 and 28 percent. Currently, there are close to 40 goods and services in the 28 percent slab, which comprises demerit and luxury goods, among other items.

The move comes barely four months ahead of the crucial Lok Sabha elections in April-May, 2019. The cut in rates, however, could affect GST revenues, given that the collections are still short of the budgeted target.

The last major round of rate cut happened in July when the Council decided to cut tax on 80 items. The government, then, had to forego revenue worth of Rs 10,000 crore-Rs 11,000 crore annually.

Source: https://www .moneycontrol.com/news/business/economy/gst-council-to-meet-on-saturday-amid-rate-cut-talk-but-some-states-not-fully-on-board-3316281.html

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Weekly Tactical Pick | Improving operating parameters to drive higher earnings

At the current market price of Rs 149 a share, NTPC is trading at 1.1 times its price to book value of FY19 estimates, which very attractive

The Central Electricity Regulatory Commission (CERC) recently released draft norms for the power sector reducing the plant availability factor (PAF) threshold to 83 percent as against 85 percent earlier. Additionally, the draft also says that the plant shut down for the maintenance would not be included for the purpose of calculation of the PAF, which typically reduce the PAF by about 6-7 percent. Relaxation in the PAF would mean the companies would be able to avail incentives that are offered in terms of higher return on equity (RoE) on the regulated equity. Regulated equity is the net worth that is deployed in the operational power generation projects, which avail fixed RoE.

Key beneficiary

This brings good news for NTPC that is sitting on regulated equity close to Rs 51,000 crore. Moreover, the company and shareholders get huge big relief as the regulator kept the RoE unchanged. This was a big overhang for its stock as investors were fearing that in the falling interest rate scenario the regulator would cut the RoE offered on the regulated equity. While this would improve the operational efficiencies and return ratios, NTPC should also benefit because of the improving earnings visibility. It has expressed its intention to buy a few power plant thus utilising its cash in the books. This is in addition to its plans to add another 20000 MW of capacity in the long run including 5000 MW each in the year 2019 and 2020.

Attractive valuations

Among utilities, NTPC is the most stable company having extensive experience and strong balance sheet. Moreover, at the current market price of Rs 149 a share, it is trading at 1.1 times its price to book value of FY19 estimates, which very attractive.  The stock offers a close to 4 percent dividend yield. Out of 28 analysts (based on consensus) tracking the stock 26 of them have a buy and outperformer rating on the stock with an average target price of Rs 191 a share, which is about 28 per cent higher compared to its current market price.

Source: https://www .moneycontrol.com/news/business/moneycontrol-research/weekly-tactical-pick-improving-operating-parameters-to-drive-higher-earnings-valuations-for-ntpc-3314221.html  

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