China winter cuts—steel markets to tighten further. The winter curtailments in China’s main steel producing regions will tighten supply—industry utilization is already >80% post supply-side reforms. The capacity utilization for unaffected capacities can increase to 95% due to supply tightness. As a consequence, (1) China’s steel prices
Sharp decline in margins on auto fuels; lack of increase in dealer price of LPG/kerosene - Kotak Sec
Not there yet. The recent correction in OMCs led by weakness in marketing margins has not made the valuations compelling enough for us to revisit our negative thesis on these stocks. We continue to see downside risks to consensus estimates for OMCs, given our concerns on Street’s generous assumptions for the marketing segment. We remain cautious on (1) int
* Steel spread narrowed further by 12%mom due to weak steel prices (-4%mom) and higher raw material cost: 62% grade iron ore price rose by 18%mom due to high demand from China, while, coking coal prices rose by 22%mom due to concern over delayed deliveries.
* In Non-ferrous space, except Lead which rose by 2% mom, all other metals fell considerably. Aluminium decline by 6.5%mom follow
Cost-push. All-India cement prices increased by `4/bag mom in December 2017 led by increases in the North (+`16/bag mom) as companies attempt to offset cost increase post pet-coke usage ban in three states. Prices in other regions remained largely subdued—South and East prices were flat while West saw a marginal decline. The demand environment remains weak
After experiencing a marginal decline across the spectrum of automotive segments in October 2017, mainly due to stock corrections on account of the ongoing festive season, the industry seems to be finding its feet again and coming back on track. As monthly results of automotive companies flow in, most of the vehicle segments have bucked the earlier trend and shown double-digit growth. Commercia
Moderate Rebound in Demand: Prices Remain Soft
Though there has been a rebound in demand in Nov’17 after festivities, demand scenario has not yet picked up as per expectations. While persistent sand issues (though appear to have eased out in select pockets) and absence of demand revival from real estate markets continued to remain major headwinds
CESC wins 100MW in BEST’s PPA, Tata Power at loss
CESC’s generation portfolio fully secured with PPAs According to media reports (Mumbai Mirror, dated 1st December 2017), the L1 bidders in the 750MW five-year PPA bid by BEST DISCOM (Mumbai) were (a) CESC’s Dhariwal and Adani Power for the base-load PPA of 300MW, (b) Maharashtra DISCOM
* Following a robust festive season, investors were skeptical of growth momentum sustaining in the domestic market. However, the volume performance for the month of November 2017 was significantly better than estimates.
* For t
Gas gains from GST. We see gas sector stocks as key beneficiaries on possible inclusion of gas under GST in the near term, which will enhance competitiveness of LNG against alternate fuels. We recommend playing it through GAIL (BUY), which will also benefit from removal of stranded taxes for petchem/LPG segment and PLNG (ADD) from improved visibility on LNG dema
Next phase of growth: Shift from feature to smartphone
Capex shifting towards backhaul; competition shifting towards quality We hosted an ex senior official of TRAI. Our key takeaways:
* DOT approval is the only hurdle left for the Idea-Vodafone merger. TRAI’s recent recommendation to relax the spectru
Strong wholesales on low base of previous year
Rural sentiment remains positive, new products drive sales
Our channel checks indicate healthy retail growth in PVs, and mixed demand in 2Ws and CVs. Retail demand has dampened after remaining healthy in the festive season. Untimely rain in key markets like Maha
* Within striking distance of the all closing weekly HIGH of 3266.40 registered in week ended 21.4.2017.
* In process formation of “INVERTED Head & Shoulder (H&S)” pattern with a neckline cross above 3281.
* The above formation collated wi
Midcap IT—a good theme but with punchy valuations. Mid-tier companies have outperformed tier-1 ITs on revenue growth. Key drivers are—(1) ability to attract senior management talent, (2) improved delivery capabilities and maturity to structure complex contracts, (3) digital and automation have opened doors, allowing mid-tiers to compete against large
Retails momentum mixed for 2W, CV; PV healthy Healthy
wedding season demand partially negated by untimely rain
* Our interaction with the leading automotive channel partners in India indicates ebbing retail sales momentum, particularly in 2Ws, due to the impact of untimely rain in key markets.
Jio’s network cost advantage and its implications. (1) Running a single-technology network, (2) smart mix of owned and leased towers, and (3) lower-than-‘market’ tower rental deals on a good proportion of sites yield a network opex advantage for Jio that incumbents would need to bridge; sooner the better. Two key implications – (1) exposu
Iron ore and coking coal prices increase ~8% WoW
* Indian steel: Long product (TMT Mumbai) prices were up ~1% WoW. Sponge iron prices were up ~3% WoW, while domestic scrap prices were marginally higher. Pellet prices were marginally higher. Domestic iron ore prices were unchanged. Domestic HRC prices were down ~1% WoW, bu
Green corridors, BS-VI, and new cities to drive growth
* The first wave of volume growth came in when the government granted top priority to city gas distribution companies (CGDs) for allocation of cheaper domestic gas in 2014. The second wave came with increased emphasis on cutting
TRAI 2QFY18 revenue report – Jio’s AGR share at 13.9%. TRAI’s 2QFY18 report forms the first full-quarter revenue print for Jio and provides color on the initial revenue market share (RMS) reset in the industry. AGR market share (AGRMS) for Bharti, Vodafone and Idea stood at 28.8%, 20.5% and 17.3%, respectively with Jio surpassing at least one o
Aluminum—modest impact of China’s winter cuts.
The lower-than-expected winter cuts by Chinese smelters will ease the supply tightness expected in 4QCY17 & 1QCY18. Despite disappointment on immediate closures, we believe aluminum market fundamentals are set to improve led by (1) supply tightness building outside China, and (2) restricted
Seven things we learned at a conference on power distribution
We attended a conference on the power distribution sector organized by ‘Powerline’ on November 15-16, 2017. Our key takeaways:
1. Dr Arun Kumar Verma, Joint Secretary, Ministry of Power highlighted increasing focus on strengthening distr
MSME lending – Challenging outlook
LAP losing its sheen; some dilution in underwriting standards
NBFCs gaining market share rapidly
Against overall system-wide credit growth of ~9% in the past 5 years, the MSME lending book of banks and NBFCs grew at 13% CAGR
* Revenue Market Share (RMS) is not comparable on like-to-like basis due to inclusion of Reliance Jio revenue from Q2FY18. Jio numbers for Q2FY18 also include some portion of Q1FY18 revenue (as stated in Q2FY18 results), which hinders an objective comparison.
* Consolidated Adjusted Gross Revenue (AGR) for the industry increased by 4.2% qoq (-18% yoy) to Rs308bn, driven by Jio’s
* Bajaj Energy Ltd had filed a petition for an interim relief with Uttar Pradesh Electricity Regulatory Commission (UPERC) after its 450MW plant (90x5) was shut due to the termination of Power Purchase Agreement (PPA) by the Uttar Pradesh Power Corporation Ltd (UPPCL).
* On 18th July’17, UPPCL had terminated PPA with Bajaj Energy citing high variable cost. UPPCL was procuring po
Roads: Rally more credible this time; may have just begun. We see enablers for a sustained uptick in roads ordering that were missing in the euphoric times of FY2015. EPC plays may then be best valued in terms of business levels limited only by the scale-up possible in capital employed, considering (1) visibility of stable medium-term business opportunities and
* Indian Major Ports handled 56.5MT of cargo in October 2017, up 3.4% yoy (+7.8% mom). The major growth drivers were POL (+5% yoy), Coal (+5% yoy) and Containers (+5% yoy) while Iron Ore (-7% yoy) witnessed a decline in October 2017
* Kandla (+8.5% yoy), Kolkata (+15% yoy) and Paradip (+8% yoy) witnessed healthy growth in volume, whereas volume at VOC (-13% yoy) and Mormugao (-11% yoy