QPAC OND 200607

1
QPAC (OND 2006-07)

• Quarterly Performance Analysis of Indian
  Industries Companies

2
Agenda

• Performance snapshot
• Research Methodology
• Macroeconomic indicators
• Movement of 25 key industries of Indian economy
• Good performers in each industry
• Cygnus estimates for 2006-07
• Risk Factors to watch
• Discussion

3
Performance Snapshot

• Performance during Oct-Dec 2006
• Sales growth was recorded at 27
• EBITDA grew by 48
• PAT growth was at 75
• Revenue driven Performance
• Both Price and volume grew
• Operational cost rose
• Raw material
• Staff cost
• Infrastructure cost (Lease rentals, power etc)
• Capital investment and liquidity position
  indicate higher
• Depreciation
• Interest cost
• Slow down of US economy would mean slower export
  growth in certain sectors in 2007-08

4
Research Methodology

• Industry - A broader business segment in which
  companies operate with similar products
  services
• Coverage of 25 industries across manf. and
  services
• Growth rates in OND06 has been compared with
  growth rate in OND05
• Trends across the value chain (Volume and price)
• Demand
• Supply
• Cygnus Composite Index factoring Sales growth and
  PAT growth

5
Research Methodology

• Company projections are based on
• Understanding business model of the company
• Recent quarterly results, annual reports,
  analysis of growth rate of last 8 quarters
• Industry and economy trends and inter-linkages
  with the co.
• Chairmans statement and MDA
• Recent strategies taken in terms of
• Product launches
• Capacity addition

6
Macroeconomic performance

• Strong fundamentals during H1 2006-07
• GDP grew at a rate of 9.1
• Manufacturing grew by 11.5
• Services sector registered a growth rate of 10.6
• Agriculture, failed to keep pace grew at dismal
  2.6
• Projected to grow at sustainable rate of 9

7
Overall Industry Performance OND 06
8
Manufacturing Sector
9
Manufacturing Pecking order
10
Manufacturing Industries Ranked on Cygnus
Composite Index
11
Drivers of manufacturing industry
12
Performance of other industries
13
Highlights of Cement industry

• ? Sales-54, PAT - 248, EBITDA-171
• Demand growth rate has slowed down to 9.4 in
  OND06 from 10.8 in OND05
• Retail cement price increased, maximum growth
  came from eastern region

14
Highlights of Cement (..contd)

• Key influencers
• Supply constraint - capacity utilisation at 98
• Increase in cost of freight 41
• Duty reduction from 12.5 to nil did not result
  in cement imports
• Capacity addition of over 50 MT by 2008-09 may
  ease cement prices
• Cygnus projections for annual growth
• Sales 91, PAT 71

15
Highlights of Pharma

• ? Sales27, EBITDA-89, PAT-97
• Formulations and API driving sales
• Exports amounted to an increase of 22.
• RD investment up by 17.9

16
Highlights of Pharma (...contd)

• Key influencers
• Raw materials cost increased by 18 and staff
  cost increased by 28
• API market in regulated markets is increasing at
  8
• Producers in EU are under pressure from Govt. to
  reduce cost
• Competition from China a threat (both India
  China are seeing a growth of 17-19 in API sales)
• Cygnus estimates for
• annual growth
• Sales 23, PAT 74

17
Engineering Highlights

• ? Sales 37, EBITDA 43, PAT 55

• Exports grew by 40 (estimated)
• Machinery and instruments exports increased by 39

18
Engineering Highlights (...contd.)

• Consumption of raw material increased by 47
• Order book position
• ABB up by 53
• Thermax up by 142
• Siemens 23 rise in new order position

19
Engineering Highlights (...contd.)

• Key influencers
• Increase in demand from mining, power and
  manufacturing sector
• Order book position surged with demand from iron
  steel, cement, refining and power
• Electrical equipments segment will further grow
  with rising FDI in this segment
• Cygnus estimates for annual growth (2006-07)
• ? Sales 53 , PAT 72

20
Automobile Highlights

• ? Sales 25, EBITDA 14
• PAT 20
• Exports increased by 29
• Commercial vehicles segment grew by 50,
• Passenger car posted a growth of 27
• Two-wheeler segment grew by 17

21
Automobile Highlights (...contd.)

• For two wheelers
• Increase in Raw materials prices dipped OPM by
  250-300 bps
• Four wheelers
• Raw material (Metal) cost under control due to
  year long supply contract

22
Automobile Highlights (...contd.)

• Key influencers
• Two wheeler manufacturers faced pressure as rise
  in commodity prices couldnt be passed to buyers
• Concern on rising rubber prices which increased
  from Rs.85 per kg to Rs.100 per kg during OND
  2006.
• Small car segment to witness more competition
  with entry of GM, FORD.
• Cygnus estimates for annual growth (2006-07)
• ? Sales 21 , PAT 31

23
Auto-components Highlights

• ? Sales 26, EBITDA 22 PAT 19
• Exports increase by 20
• OPM falls under increasing raw material costs,
  specially base metals
• Forgings recorded faster growth of 22
• Huge demand of crank shaft, axels, clutches
  steering from domestic automobile industry

24
Auto-components Highlights(...contd.)

• Small players are better performers with sales
  growth 15-85, compared to 15-35 of big players.
  
• Operating margins in batteries and steering
  adversely affected because of rising metal prices
  

25
Auto-components Highlights (...contd.)

• Key Influencers
• Raw Material cost has gone up by 300bps, led to
  OPM fall
• Domestic consumption growing more briskly than
  exports
• Cygnus estimates for annual growth(2006-07)
• Sales 55, PAT 35

26
Other significant developments

• Textile has recorded higher net profit of 54
• FMCG has been seeing revival, with sales growth
  of 17. Personal care segment showing maximum
  growth of around 10
• Consumer durables, too, is witnessing revival
  with sales growth of 21
• Chemicals witnessed a meager sales growth of 5
• Specialty chemicals showed poor performance
• Fall in OPM by 100 bps due to material cost rise
  (23) and staff cost rise (10)

27
Services Sector
28
Services Pecking Order
29
Ranking of service industries on Cygnus Composite
Index
30
Drivers of Services industry
31
Performance of other sectors
32
Telecom Highlights

• Wireless base increased (15.4)
• Wire line base declined
• (-0.3)
• Subscriber base for CDMA category up by 10.3
• Contribution of metros in increasing subscriber
  base coming to halt
• AP added maximum number of subscribers (3.9m)

33
Telecom Highlights (contd.)

• Telecom service providers
• license and access fees increasing (Constituting
  28)
• Spending on brand promotion goes up from 5 to
  10 of total cost
• Telecom equipment manufacturers
• Increase of 75 in Interest and financial charges
  mainly because of new investments

34
Telecom Highlights (contd.)

• Key influencers
• Operating profit and OPM improved due to higher
  consumer base and reduced network charges
• ARPU for the industry fallen by 22
• subscriber base reaching saturation in metros
• Further growth comes from small town and rural
  areas but increases license and access fees

35
Media Highlights

• Advertising market grew by 23.5 in 2006
• Fastest growing segments in ad revenue was
  radio(58).
• Internet (52), Press (24)and TV (22)

36
Media Highlights (contd.)

• Growth in film exhibition segment due to festive
  season, coupled with opening of new multiplexes
• Adlabs sales increased by 194
• Fall in newsprint cost boost operational profit
  of print companies

37
Retail Highlights

• ? Sales 48, EBITDA 108, PAT 133
• Clothing footwear fastest growing segment,
  followed by food grocery
• Small towns are growing faster. Of 700 new malls
  coming up 40 are in small towns
• Players aggressive in acquiring real estate

38
Retail Highlights (contd)

• Stock in trade has increased indicating an higher
  level of inventory for the industry
• Staff cost has increased by 32
• Rental cost to experience steep hike

39
Retail Highlights (contd.)

• Key influencers
• Organised retailing growing in small-town at
  50-60 compared to 35-40 of metros
• Aggressive expansion plans of Reliance, Tata,
  Pantaloons, Birlas to put pressure
• FDI in retail with JVs to further intensify
  competition (ex- Wal-Mart-Bharti)
• Most companies are undercapitalized,
• Maximum investment being made in front end than
  back end, No drivers for growth of future
  investment.
• Cygnus estimates for annual growth
• ? Sales 65, PAT 45

40
IT Highlights

• ? Sales 43 EBITDA 40, PAT 37
• BFSI, Telecom and hi-tech sectors accounted for
  60 of the total revenue
• 250 new clients added
• Top client contribution
• TCS up to 5.7 from 3.7
• Infosys up to 6.9 from 4.5
• Satyam dipped to 6.32 from 9.39.
• Staff cost in ITSS ITES increased by 70

41
IT Highlights (contd)

• Key influencers
• Hardening rupee putting pressure on overall
  earnings
• IT budgets of Indian and global companies to
  increase by around 16.2 and 3.2 respectively
• Rising employee cost and discontinuation of tax
  holiday practices to adversely affect bottom
  line.
• Outsourcing to further increase as global
  customers look out to cut further costs
• Cygnus estimates for annual growth (2006-07)
• ITSS ? Sales 46 , PAT 50
• ITES ? Sales 30 , PAT 52

42
Construction Highlights

• Growth in infrastructure industries increased by
  8.3 compared to 5.5 during the same period of
  2005.
• Besides, housing, retail industry is also
  affecting growth of real estate sector.

43
Construction Highlights (contd.)

• Like other services, staff cost is moving up.
  Retention of employees remains the challenge.

44
Construction Highlights (contd)

• Key influencers
• Infrastructure sectors grew following govt.s
  thrust.
• Modernisation and construction of airports in
  metros and 35 non-metros to fuel growth.
• Housing growth may slow down with tightening of
  retail credit.
• Cygnus estimates for annual growth (2006-07)
• ? Sales 20, PAT 159

45
Other significant developments

• Hotel and tourism
• Sales PAT growth in grew by 22.5 50 resp
• Occupancy rates of hotels increasing by 13.
• Number of foreign tourists increased by 13
• domestic travelers booked a growth of 15 on low
  cost carriers
• Healthcare
• Sales growth in increased by 23,
• Accelerating growth from diagnostics sector
• 70 of treatment decisions are based on lab
  results

46
Other significant developments (.. contd)

• Insurance services
• Share of premium collected by LIC and private
  players grew by 164 and 96 resp.
• Individual single premium policy group witnessed
  maximum growth of 166.
• Shipping
• Companies had a dip in net profit
• Inventories were built up during previous quarter
  in anticipation of hurricane season
• Unusual warm weather combined with
• OPEC production costs resulted in sluggish
  imports, impacting trade.

47
Cygnus estimates for 2006-07
48
Overall estimates for 2006-07
49
Cygnus estimates for 2006-07 (Manufacturing)
50
Cygnus estimates for 2006-07 (Manufacturing)
(contd..)
51
Cygnus estimates for 2006-07 (Services)
52
Risk Factors to watch

• Slowing down US economy
• Volatility in commodities market
• Rising interest and capital cost
• Frenzied investment may lead to over supply
• High attrition and staff cost
• Availability of skilled employee
• Environmental issues
• Inadequate investment and growth in Agri

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Thank You
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Discussions