Tata Motors Profit Trails Estimates as India Sales Slump

By Siddharth Philip - May 29, 2014

Tata Motors Ltd. (TTMT), India’s biggest automaker, posted profit that missed analyst estimates as a wider loss at the local business eroded gains from its Jaguar Land Rover unit.
Net income declined to 39.2 billion rupees ($664 million) in the fiscal fourth quarter ended March 31, the Mumbai-based company said yesterday. That lagged behind the 46.1 billion-rupee median of 30 analyst estimates compiled by Bloomberg. Jaguar Land Rover profit increased to 449 million pounds ($750 million) from 377 million pounds, it said.
The luxury unit is helping buoy the company, which is struggling to revive profitability at its Indian business. Domestic deliveries of cars, trucks and buses declined 36 percent in the quarter, while sales gained 8 percent at Jaguar Land Rover, spurred by demand in China.
“I’m not expecting any miracles from the domestic business of Tata Motors,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd., said before the earnings announcement. “The domestic business has slipped a lot and will continue to underperform for the next one or two quarters.”
The loss at the standalone level widened to 8.17 billion rupees from 3.12 billion rupees a year earlier.
Tata Motors fell 1 percent to 424.30 rupees at the close in Mumbai trading, before the earnings were announced. The stock has climbed 13 percent this year, compared with a 14 percent advance for the benchmark S&P BSE Sensex Index.
The company’s ADRs (TTM) fell 1.5 percent to $38.15 at 1:50 p.m. in New York trading, after the release of the results.

Vehicle Sales

Sales at Jaguar Land Rover, the automaker’s main profit contributor, climbed 16 percent to 434,311 vehicles in the 12 months ended March.
Annual deliveries of trucks, cars and buses at the parent, including exports, fell 30 percent, according to the company.
Jaguar Land Rover began test production in China yesterday, Chief Executive Officer Ralf Speth said in Mumbai yesterday. The luxury carmaker plans to start making cars in the country by the end of this year to avoid the nation’s 25 percent import tariff.
Local production will help the carmaker reduce prices by about 15 percent, Bob Grace, the company’s China president said last month. The plant will have an initial annual output capacity of 130,000 vehicles, he said.
The automaker is also building a mid-size sports sedan called the XE that will go on sale in 2015. The Jaguar XE will compete against Bayerische Motoren Werke AG’s 3 series and Daimler AG’s Mercedes-Benz C Class cars. The model will be the first Jaguar to be built on an all-aluminum platform, the company said in a statement in March.

XE Model

The XE model will feature four cylinder, 2 liter gasoline and diesel engines built at the company’s new engine factory, the company said at the time.
“While the local business is still weak, Jaguar Land Rover is doing very well, especially on the Jaguar side,” said Juergen Maier, a fund manager in Vienna at Raiffeisen Capital Management, which oversees about $1.1 billion in emerging-market assets. “China and Europe are still looking good and with new models coming in at the end of the year, Jaguar Land Rover should continue to do well. The local business will still take some time to stabilize.”
To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net Subramaniam Sharma, Dick Schumacher

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Amway India Unit CEO Remanded on Consumer-Protection Law Charges

By Adi Narayan and Sharang Limaye - May 28, 2014

Amway Corp.’s Indian unit chief executive William Pinckney had a bail application rejected after he was arrested for the second time in a year on charges of violating laws protecting consumers from investment fraud and ponzi schemes.
Pinckney was remanded into police custody by the Kurnool district court in India’s southern Andhra Pradesh state, Raghurami Reddy, the Kurnool superintendent of police, said in a text message yesterday. The remand will start today and run until June 2. Pinckney was arrested on May 26 in Gurgaon near New Delhi.
Amway, which delivers goods directly to consumers without going through a retailer, had combined sales in India of about 21.9 billion rupees ($371 million) in 2012, according to the company’s website. Pinckney also faces charges of cheating and extortion, Reddy said.
The allegations are “frivolous and give a misleading impression” about Amway’s business, the Ada, Michigan-based direct seller of vitamins, air purifiers and cosmetics said in an e-mail May 27.
Pinckney’s detention comes a year after he was arrested in neighboring Kerala state on similar charges.
The complaint against Pinckney is “more detailed and elaborate” compared with the case last year, Chavi Hemanth, secretary general of the Indian Direct Selling Association, said by phone.

Law

The latest arrest is the result of a consumer complaint and could have been “easily addressed as a consumer redressal since there was no criminality involved,” the Federation of Indian Chambers of Commerce and Industry, said in an e-mailed statement dated May 27.
The government needs to clarify the law to “facilitate a clear distinction between fly-by-night operators and legitimate business runners,” it said.
Officials from three companies including Amway were arrested in Kerala state on similar charges last year, Hemanth said.
Amway began operations in India 18 years ago and has invested $100 million in a manufacturing plant in the country, the company said in its statement.
Amway rival Nu Skin Enterprises Inc. (NUS), a seller of skin-care products, plunged in New York trading earlier this year after China’s government announced an investigation of the company. The probe announcement followed a report in the Communist Party’s official People’s Daily newspaper saying that the maker of skin-care and nutritional products was operating a “suspected illegal pyramid scheme.”
To contact the reporters on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net; Sharang Limaye in Hyderabad at slimaye@bloomberg.net
To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net Dick Schumacher

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RBI Growing $315 Billion Reserves Floods India With Cash

By Shikhar Balwani - May 27, 2014

India’s move to rein in rupee gains and rebuild foreign-exchange reserves is flooding the financial system with cash, driving bank funding costs to a 10-month low.
The three-month interbank lending rate fell 87 basis points this quarter to 8.90 percent on May 26, exchange data show. A similar gauge in China is at 5.02 percent. The currency stockpile jumped $40 billion from a three-year low in September to $315 billion, and Nomura Holdings Inc. estimates the central bank’s dollar purchases pumped about 800 billion rupees ($13.6 billion) into markets in the four months through April.
Reserve Bank of India Governor Raghuram Rajan is boosting reserves as U.S. stimulus cuts threaten to spur fund outflows from emerging markets. Falling funding costs may help new Prime Minister Narendra Modi revive growth in Asia’s third-largest economy from close to a decade-low and improve public finances.
“The central bank’s dollar buying should be an important source of liquidity creation in the banking system from here on, exerting downward pressure on swap rates and bond yields,” Vivek Rajpal, a Singapore-based rates strategist at Nomura Holdings, said in an e-mail interview yesterday.
The three-month interbank rate has retreated 266 basis points, or 2.66 percentage points, from a five-year high of 11.59 percent reached in September, when the RBI had tightened cash supply to arrest a rupee plunge. The currency, which fell to a record 68.845 per dollar in August, has since rebounded 17 percent, touching an 11-month high of 58.3350 on May 23 after national elections delivered the clearest verdict in 30 years.

Capital Inflows

Increased confidence in the rupee has attracted $14.6 billion of inflows into local stocks and bonds this year, allowing the central bank to step up dollar purchases and lift reserves above $300 billion for the first time since 2011. As cash supply increased, lenders’ overnight borrowings from the RBI to meet shortages declined to an average of 89 billion rupees so far in May from 123 billion rupees in April.
“Intervention is significant to the extent that you don’t have any funding concerns and there’s no liquidity premium being built at the short-end of the yield curve,” Rajeev Radhakrishnan, head of fixed income in Mumbai at SBI Funds Management Pvt., which manages about 663 billion rupees, said in a May 26 phone interview. “The central bank’s thrust would be to ensure that the overnight rate remains closer to the 8 percent repo rate. That would keep the short-end rates lower.”

Falling Yields

The overnight interbank borrowing rate has dropped to 7.95 percent yesterday from 11 percent at the end of the last quarter, according to data compiled by Bloomberg.
Increased cash supply has bolstered demand for government bonds, driving the yield on the benchmark 8.83 percent notes due 2023 to a four-month low of 8.64 percent last week. The rate was little changed at 8.67 percent yesterday, while the rupee weakened 0.6 percent to 59.0425 per dollar. Holdings of sovereign bonds at local banks rose 3.5 percent in 2014 to 22.9 trillion rupees as of May 2, the latest RBI data show.
The drop in the government’s borrowing costs would help its efforts to cut the budget deficit. The shortfall likely narrowed to 4.6 percent of gross domestic product in the year ended March 31 from 4.9 percent in the prior 12 months, former Finance Minister Palaniappan Chidambaram estimated in February. He forecast the gap for the current period at 4.1 percent.
Arun Jaitley, who took charge at the finance ministry yesterday as part of the Modi government, told reporters in New Delhi that his priorities include restoring economic growth, containing inflation and fiscal consolidation.

‘Restore Confidence’

Bond risk in India is falling. Credit-default swaps insuring the notes of State Bank of India, a proxy for the sovereign, against non-payment for five years fell 64 basis points this month to a one-year low of 188, according to data provider CMA.
Sustained currency-market intervention by the RBI may end cash shortages at banks, prompting lenders to halt overnight borrowings from the central bank, according to Barclays Plc.
“Net dollar purchases by the RBI could move banking-system liquidity from deficit into surplus,” Barclays analysts Rohit Arora and James Lee wrote in a note dated May 21. Lower funding costs “should restore confidence in the fixed-income markets,” they wrote.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; James Regan at jregan19@bloomberg.net Anil Varma

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Billionaire Uday Kotak Ordered to Cut Stake in His Bank to 40%

By Anto Antony - May 27, 2014

Billionaire Uday Suresh Kotak was ordered by India’s central bank to reduce his stake in Kotak Mahindra (KMB) Bank Ltd. to 40 percent by the end of September from his current holding of 43.58 percent.
Kotak, 55, will then have until the end of 2016 to cut his ownership in the Mumbai-based lender that he founded in 2003 to 30 percent, the company said in an exchange filing today.
Kotak Mahindra shares fell 0.6 percent to 855.670 rupees as of 9:25 a.m. in Mumbai, while the 12-company Bankex Index lost 0.9 percent. The stock climbed 18 percent this year, valuing Kotak’s current stake at about 287 billion rupees ($4.9 billion).
To contact the reporter on this story: Anto Antony in Mumbai at aantony1@bloomberg.net
To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net Darren Boey, Russell Ward

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Sun Pharma Climbs After Court Removes Stay on Ranbaxy Buy

By Ketaki Gokhale - May 25, 2014

Sun Pharmaceutical Industries Ltd. (SUNP) gained the most in a month as an Indian court removed the stay on its $3.2 billion purchase of Ranbaxy Laboratories Ltd. (RBXY) after putting it on hold to study a petition alleging insider trading.
Sun shares climbed as much as 3.9 percent, headed for the biggest gain since April 9, to 607.25 rupees before trading at 599 rupees at 9:19 a.m Mumbai time. Ranbaxy gained as much as 4.5 percent.
The Andhra Pradesh High Court disposed of the stay because India’s capital market regulator is investigating the insider trading allegations, Vivek Reddy, the lawyer for the petitioners, said on May 24. The court in April admitted a writ petition filed by a group of investors seeking a probe by the Securities and Exchange Board of India into any insider trading in Ranbaxy shares before the deal was announced.
The court at that time ordered an “interim status quo” on the deal, according to a copy of the order obtained by Bloomberg News. Ranbaxy shares surged 24 percent in the three trading days before the deal was announced and the stock’s daily average trading volume in that period jumped, according to data compiled by Bloomberg.
India’s biggest broker group in April said it would ask regulators to probe the trades that occurred before the deal was made public. A two-judge Supreme Court panel on May 21 observed that the Andhra Pradesh High Court doesn’t have jurisdiction to hear the case and asked the lower court to decide on it in two days.

Emerging Markets

In the deal announced on April 7, the companies said Ranbaxy investors will get 0.8 share in Sun for every one of their shares. Ranbaxy is a unit of Japan’s Daiichi Sankyo Co., which owns 63.5 percent of the Indian generics maker.
Dilip Shanghvi started Sun Pharma in 1983, selling drugs to treat psychiatric illnesses and the company now has brands in areas including psychiatry, neurology, cardiology and nephrology.
Buying Ranbaxy will help Sun Pharma grow in markets such as Russia, Romania, South Africa, Brazil and Malaysia, according to an investor presentation. The company in its annual report has said its “focus markets for the future” would include Latin America, Russia, China and South Africa. Four of Ranbaxy’s plants in India are banned from exporting to the U.S.
The deal will be completed by around the end of December, after regulatory approvals and shareholder meetings, according to an April 11 statement from Daiichi.
To contact the reporters on this story: Sharang Limaye in Hyderabad at slimaye@bloomberg.net; Debjit Chakraborty in New Delhi at dchakrabor10@bloomberg.net
To contact the editors responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net Sam Nagarajan

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Jain Irrigation Climbs 11% to Highest Since 2011 on Export Sales

By Randall Hackley - May 23, 2014

Jain Irrigation Systems Ltd. (JI), India’s largest irrigation-equipment maker, climbed to a 2 1/2-year high as export sales increased 46 percent and the company forecast a stronger second half of the year.
The shares rose today to 122.80 rupees, the highest since November 2011. Jain’s stock has surged 69 percent this year in India trading compared with an 8.7 percent gain by the 19-member Bloomberg World Water Index.
While the Jalgaon-based company reported an 87 percent drop in net profit for the year ended March on “significant” foreign exchange losses from a depreciating rupee, sales increased 18 percent. Exports grew 37 percent in the quarter.
“With the new government’s agenda of promotion of micro-irrigation and food-processing industries, growth shall accelerate,” the company said yesterday in a statement of two areas that account for 57 percent of Jain’s 2014 sales.
The developing El Nino weather system “may impact our business. We will know more about it in the next few weeks,” Jain also said. “We feel drip irrigation is the only effective solution for millions of small farmers against climate change.”
To contact the reporter on this story: Randall Hackley in London at rhackley@bloomberg.net
To contact the editor responsible for this story: Randall Hackley at rhackley@bloomberg.net

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Indian Bonds Set for Biggest Weekly Gain Since November on Cash

By Shikhar Balwani - May 23, 2014

Indian bonds due 2023 headed for the biggest weekly gain since November on speculation rising cash in the banking system will spur investment in debt.
The notes advanced for a fourth day today after JPMorgan Asset Management and DSP BlackRock Investment Managers Pvt. predicted a further rally, betting the nation’s new government will boost efforts to curb inflation. Lenders’ overnight borrowings from the central bank to meet cash shortages fell to an average of 87 billion rupees ($1.5 billion) this month, from 123 billion rupees in April, signaling increased fund supply.
The yield on the 8.83 percent debt due November 2023 slumped 15 basis points, or 0.15 percentage point, this week and three basis points today to 8.68 percent as of 9:55 a.m. in Mumbai, prices from the Reserve Bank of India’s trading system show. That’s the biggest weekly drop for benchmark 10-year rates since November.
“Liquidity has been supportive,” said K. Ramanathan, chief investment officer in Mumbai at ING Investment Management Pvt. “There’s a lot of hope and expectation in the market that the new government will join efforts by the central bank to tackle inflation.”
India’s overnight interbank borrowing rate has slid to 7.1 percent from 9 percent at the end of last month. The RBI’s repurchase rate is at 8 percent currently.
JPMorgan Asset sees the 10-year sovereign yield falling to as low as 8.25 percent by year-end, while DSP BlackRock predicts a drop to as low as 8.40 percent.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, declined 14 basis points this week to 8.39 percent, heading for the biggest five-day drop since November, data compiled by Bloomberg show. They fell four basis points today.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Anil Varma, Simon Harvey

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