18th January 2015

Sector Updates 12th January – 18th January

Finnacle Investments

18th January 2015

18th January 2015

IT Sector Update

(Sector Analysis: Bharat Dasaka, Melvin Matthew, Arpita Verma)

Wipro delivers better than expected numbers in the 3rd Quarter:

Wipro, India’s third largest information technology services company, surprised the

Street by delivering better than expected numbers, on the back of demand from

customers in health care, life sciences and retail sectors.

It reported a net profit of Rs 2,192 crore for the financial year’s third quarter ended

December 31, 2014, up nine per cent over a year and five per cent sequentially.

Revenue at Rs 11,992 crore grew six per cent year-on-year and 2.7 % sequentially.

In the Infotech services business, excluding products, Wipro managed to inch closer to

the upper end of its earlier forecast in constant currency terms, posting 3.7% growth at

$1,836.2 million.

Growth was driven by the healthcare and life sciences business, which grew 6.1% over

the previous quarter, followed by retail, consumer goods and transportation at 2.7%. The

financial solutions segment continued to show sluggish growth in constant currency

terms, dragged down by insurance.

Wipro again provided a wide range as the growth outlook for the next quarter. For the

quarter ending March 31, Wipro expects its infotech services revenue to be in the range

of $1,814-1,850, growing 1.03-3.04 % over the previous years. This is primarily due to

external factors, including currency fluctuation and the fall in oil prices.

TCS overtakes RIL in Quarterly profits:

Tata Consultancy Services (TCS) has overtaken Reliance Industries Ltd (RIL) to become

the country's most profitable private company on a quarterly basis, the first time.

RIL has been topping the profitability charts since 1992-93, when it went past Tata

Steel in the rankings.

Analysts expect TCS to maintain its lead over RIL, given the subdued global outlook for

commodities and the oil & gas sector.

But, the IT services sector is expected to report steady revenue and profit growth due to

a rebound in growth in the US and favourable currency movements.

18th January 2015

Telecom Sector Update

(Sector Analysis: Bharat Dasaka, Melvin Matthew, Arpita Verma)

Concern over the Cabinet’s decision to raise the reserve price for 900 MHz

spectrum:

Industry chamber Assocham criticised the Cabinet's decision to peg the reserve price for 900

MHz spectrum above the telecom regulator's recommendation, saying it will not only impact

consumers but also affect the government's 'Digital India' initiative

The reserve prices for the proposed auction of spectrum in the 900 MHz band in 18 service

areas was increased by the Cabinet by 32.5% over the reserve prices recommended by the

Telecom Regulatory Authority of India (TRAI)

Assocham also raised concerns over the quantum and pricing of the 2,100 MHz band being

put up for sale. The department of telecom is considering putting up only 5 MHz of 2,100 MHz

spectrum for auction, that too in 17 circles only.

Releasing only 5 MHz of spectrum instead of the available 20 MHz will lead to artificial

scarcity, which in turn will push up prices and force operators to shell out more for bidding in

order to sustain their businesses.

India’s top four Telecom Operators, likely to collectively bid for spectrum:

Airtel, Idea, RComm & Vodafone may collectively bid Rs 74,000 crore for spectrum as these

companies are expected to prioritise 900 MHz airwave renewals over boosting their 3G

spectrum holdings.

The operators are likely to factor in existing debt, incremental capex needs for data business

and fallback cash reserves to acquire super-efficient 4G airwaves in the 700 MHz band in the

near future

Bharti Airtel will have enough headroom to add data spectrum in key markets where it has no

3G coverage (like Madhya Pradesh, Maharashtra and Gujarat) and/or add data capacity in

Delhi ,unlike Idea, which will have little headroom to add incremental 3G spectrum as it faces

900 MHz airwave renewals in nine circles, accounting for 73% of its revenues

18th January 2015

Tata Sons to buy the Japanese telecom firm NTT DoCoMo Inc's stake in their Indian

venture:

The Reserve Bank of India has allowed conglomerate Tata Sons to buy Japanese telecom

firm NTT DoCoMo Inc's stake in their struggling Indian venture, paving the way for the

completion of the long-delayed USD 1.1 billion deal.

The RBI approval, is part of the government's bid to simplify and scrap some of the more

obscure rules that have curbed foreign investment. A rule change brought in last year

prevented foreign investors from selling stakes in Indian firms at a pre-determined price.

Under the original deal signed in 2009, when DoCoMo invested USD 2.2 billion in the

mobile carrier, in the event of an exit it would get the higher of either half the original

investment or a fair value.

Since Tata Sons had been unable to find a buyer for the DoCoMo stake, it sought the

regulator's approval to purchase the stake itself at Rs.58.045 per share - half the price

DoCoMo had paid in 2009.

Sources:

http://www.moneycontrol.com/news/

http://economictimes.indiatimes.com/

http://www.business-standard.com/article/companies/

18th January 2015

Pharma Sector Update

(Sector Analysis: Kanika Singh, Neha Kumar, Ravi Karanam)

India refuses to patent Gilead's blockbuster drug Sofosbuvir used for

treatment of Hepatitis C The Indian Patent Controller rejected Gilead's patent application for the oral drug Sofosbuvir,

which is used for treatment of Hepatitis C stating that the molecules and compounds of the

drug were already known. The drug is already under a worldwide debate due to its high price

- US $84000 for a treatment course or $1,000 per pill in the US while some studies have

shown that the drug could be produced for a mere $101 for a three-month course or roughly

$1 per pill. The drug has been known to be very effective in the treatment of Hepatitis C and

this decision by the Indian Patent Controller has opened vast opportunities for Indian pharma

companies producing generic drugs to ramp up production to levels needed to treat 185

million people infected with Hepatitis C worldwide.

Novartis AG and GlaxoSmithKline set to create a global healthcare joint

venture As a part of the global healthcare joint venture, the board of directors of Novartis AG

approved the transfer of its OTC division to GlaxoSmithKline Consumer Private Limited (GSK

CPL, an affiliate of GSK). The board of directors took into account the prospects of the

company's OTC business in India following the divestment of Novartis AG's global OTC

business, the valuation for the transfer of the OTC division and the enhanced ability of the

management and the employees to focus on and drive forward the growth of the company's

retained businesses.

High Court orders Cipla to stop the sale of its respiratory drug Indacaterol, a

generic version of Novartis' Onbrez The Delhi High Court has passed an order restraining Cipla from selling its generic version of

Novartis' respiratory drug Onbrez in the domestic market. Cipla had launched the generic

version of the drug late in 2014 at Rs.130 per 10 pills, which is one-fifth the price Norvatis'

Onbrez, sold at Rs. 677 per 10 pills. Following this, Novartis had filed a patent infringement

litigation which resulted in their favour. Cipla had said that inspite of having the patent since

2008, the company was importing only negligible quantities - making it available to only 8,000

patients over a period of 2 years, while there are 1.5 crore patients suffering from lung and

respiratory diseases in India - leading to shortage in the market. The High Court has asked

Cipla to apply for a compulsory license within two weeks and that the decision on the license

should be taken within six months.

References:

http://www.pharmabiz.com/NewsDetails.aspx?aid=86142&sid=2

http://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/high-court-

stops-ciplas-generic-drug-sales/articleshow/45832530.cms

http://www.pharmabiz.com/NewsDetails.aspx?aid=86178&sid=2

18th January 2015

Power Sector Update

(Sector Analysis: Anshu Mishra and Ankit Bacchuka)

Legal challenge against Adani’s Carmichael mine in Australia Adani Enterprises Ltd $7 billion Carmichael coal mine project in the Galilee Basin is facing

legal challenge by An Australian environmental group. It is seen as a key issue in election

campaign in Queensland state by Premier Campbell Newman.

Govt asks coal block bidders to fix dates for site visit Moving ahead with the process of auction of mines, the government has invited bidders to

come up with dates to visit the coal blocks besides inspecting land documents of the mines.

The invite notice to the bidders by the coal ministry is for the 23 producing coal blocks to be

auctioned next month. For site visit, the government has kept five days (16, 19, 20, 21 and 22

January), while for inspection of land documentation document, the ministry has fixed four

days (16, 19, 20 and 21 January).

CLP Holdings Ltd to invest $2 billion in India CLP Holdings Ltd, Hong Kong’s biggest electricity provider will invest around $2 billion to

boost its power production capacity in India by 2,000 megawatts (MW), resolving to put

additional resources in the country some two years after threatening to exit it because of

erratic fuel supplies to its plants.

SunEdison, Adani in a agreement to build $4 billion Gujarat solar facility Adani Enterprises Ltd, the flagship company of the $9.4 billion Adani Group, on Sunday

signed an agreement with US-based SunEdison Inc. to set up a joint venture that will build a

solar photovoltaic manufacturing facility in Gujarat with an investment of around $4 billion.

Suzlon plans Rs24,000 cr investment in Gujarat Debt-laden wind turbine maker Suzlon Energy Ltd on Saturday announced its plans to invest

Rs.24,000 crore over the next five years on energy projects to generate 3,000 MW in Gujarat

and said the company’s rupee debt will be halved at Rs.4,000 crore by the end of the current

fiscal. The company’s rupee debt stands at Rs.8,000 crore and it will be reducing it by 50% by

the end of this fiscal as told by Tulsi Tanti.

References-

http://www.livemint.com/Industry/vKS4RztwjBF7T4ODQ2H0mI/Suzlon-plans-Rs24000-cr-investment-in-

Gujarat-says-Tulsi-T.html?utm_source=copy

http://www.livemint.com/Industry/hBLp1etYY06mPlRiZ5ElwM/SunEdison-Adani-to-build-4-bn-Gujarat-

solar-facility.html?utm_source=copy

http://www.livemint.com/Industry/7m1MtDTCBvGZVU40IauqJO/CLP-to-invest-2-bn-to-boost-India-

capacity.html?utm_source=copy

http://www.livemint.com/Politics/DOXon5Zu6DKALCGmIA7wYK/Legal-challenge-against-Adanis-

Carmichael-mine-in-Australia.html?utm_source=copy

18th January 2015

Oil and Gas Sector Updates

(Sector Analysts: Ashwin Jain, Mili, Piyush Sethi)

Weekly stock price performance:

Stock Stock Price (in INR) As on 16th Jan

% Gain/Loss

Oil Drilling and Exploration ONGC 347.10 -1.11 GAIL 424.95 -2.38

CAIRN India 231.85 -4.59 Oil India 527.00 -6.76

Petronet LNG 197.6 -7.62

Refineries

RIL 869.70 +1.09

IOC 336.50 -1.52 BPCL 659.30 -2.95 HPCL 572.15 -2.88

Government seeks double of existing profit share from small and medium oil & gas blocks In order to renew the contracts of the companies operating small and medium gas fields, they

will have to give double the existing share of their profits to the government and also they

would have to withdraw arbitration. Reason behind this higher share of profit is that since 20-

25 years the companies have recovered their expenditures and made profits. So, now the

governments have the right to ask for its part profit share with small fields sharing half of its

profits and medium fields 60% of its profits. The final decision on this matter is yet to be taken

by the Cabinet. And if any contractor is not willing to accept the new terms, then field would

be re-assigned to state-run ONGC or Oil India.

Drop in the crude oil by 60% since Jan 2014 Oil prices have fallen down to its lowest level of five and a half years. This drop has been due

to increase in the production of US shale oil and decrease in demand by Europe and Asia. As

per the Goldman Sachs, WTI will be trading at $41 a barrel and Brent at $42 in three months

and they also believe prices will stay lower for longer. In order to re-balance the global market

the investment in shale has to be curtailed. Societe General has reduced their average WTI

price to $51a barrel for this year and Brent will average around $55 a barrel. With the supply

staying at its own place and the demand going weak, the oil prices will keep going down.

References:

http://www.business-standard.com/article/international/goldman-socgen-cut-oil-price-outlook-115011300019_1.html

http://www.business-standard.com/article/markets/oil-price-dips-as-uae-defends-holding-output-115011301454_1.html

http://etintelligence.com/etig_root/sections/Sectors/OilGas/news/2015/JAN/Sec-Oil-Gas1-150115.pdf

18th January 2015

FMCG Sector Update

(Sector Analysts: Amrit Pal Singh)

Current market price of key companies

STOCK CMP(in INR)

ITC 360.10

Dabur 251.40

Marico 350.25

Colgate 1959.10

Nestle 6985.20

HUL 941.05

2015 may be a year of deal making for FMCG sector

The year 2015 could see a steady increase in outbound deals in the fast-moving consumer

goods (FMCG) space, given that most top companies in the sector are sitting on huge cash

reserves.

Deals already seem to have started flowing, with Godrej Consumer Products acquiring South

Africa’s Frika Hair for estimated Rs 75-80 crore earlier this week. The total reserves of Godrej

Consumer Products, which has, over a decade,

acquired 13 assets, eight of those between 2010

and 2012, have seen a four-fold jump — to Rs

2,990.32 crore in 2013-14 from Rs 796.65 crore

in 2009-10.

Dabur India has seen its total reserves swell by

close to three times — from Rs 662 crore in

2009-10 to Rs 1,727.96 crore in 2013-

14. Marico’s total reserves jumped to about four

times between 2009-10 and 2013-14 — from Rs

510.73 crore to Rs 1,908.85 crore.

FMCG shares on a roll; HUL, Marico, Nestle hit record high

Shares of fast moving consumer goods (FMCG) companies are on a roll with most of the

frontline companies such as Hindustan Unilever, Marico and Nestle India are trading at their

respective lifetime highs on the BSE. Hindustan Unilever (HUL) up 2.5% at Rs 907, after

hitting a fresh record high of Rs 914 on BSE in early morning trade. The stock surged 20% in

past eight trading days after seven brokerages, including Deutsche Bank, Credit Suisse and

JPMorgan, have upgraded the stock ahead of its third quarter results announcement on

January 19.

Nestle India (up 2.4% at Rs 6,865), Gillette India (up 2.4% at Rs 3,491), Dabur India (2% at

Rs 240), Britannia Industries (1.4% at Rs 1,970), Godrej Consumer Products (1% at Rs

18th January 2015 1,088) and Colgate-Palmolive (up 1% at Rs 1,952) are among the others from FMCG pack

trading higher between 1-2% on BSE.

The raw material basket in terms of critical commodities like crude oil (-54%), LLP (-27%

YoY), crude palm oil or CPO (-4% YoY), titanium dioxide (-4% YoY) and tea (just 3% up YoY)

saw significant correction during the quarter and we believe that most of the companies will

benefit from the same, said analyst in a result preview.

References

http://www.business-standard.com/article/markets/fmcg-shares-on-a-roll-hul-marico-nestle-hit-

record-high-115011400204_1.html

http://www.business-standard.com/article/companies/2015-touted-to-be-the-year-of-deal-making-

for-fmcg-sector-115010900356_1.html

18th January 2015

Banking and Financial Services Sector Update

(Sector Analysts: Jyoti Gupta, Ankita Kumar, Akshat Kulshrestha)

Maharashtra government is planning to convert Mahangenco’s debt into equity

Maharashtra government is planning to convert the debt of Mahagenco company to equity.

This step is being taken to help to tide over cost of debt servicing by the state utilities

companies, like in this case, Mahagenco company.

Chief Minister Devendra Fadnavis said, "We are trying to rationalise the system to reduce the

cost of generation and to increase efficiency. State generation utility Mahagenco is sitting on

large debt because of which the cost cannot come down and so the tariffs. We are

considering various options to reduce the interest burden on them, one is by swapping the

debt to equity."

India to become insurance hub JLT Independent Insurance Brokers are planning to make India the insurance hub for SAARC countries. JLT will focus on those sectors where it has distinctive level of knowledge and expertise to act as an intermediary insurers and reinsurers. JLT Independent aims to introduce a scientific approach with proprietary tools and softwares for crisis management and reinsurance consultancy.