26th, April-2009
The rest of the nation may be getting back to basics, but on Wall Street, paychecks still come with a golden promise.
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A Survivor of the Financial Crisis: Pay Levels at Investment BanksGraphic
A Survivor of the Financial Crisis: Pay Levels at Investment Banks
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Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits.
Even as the industry’s compensation has been put in the spotlight for being so high at a time when many banks have received taxpayer help, six of the biggest banks set aside over $36 billion in the first quarter to pay their employees, according to a review of financial statements.
If that pace continues all year, the money set aside for compensation suggests that workers at many banks will see their pay — much of it in bonuses — recover from the lows of last year.
“I just haven’t seen huge changes in the way people are talking about compensation,” said Sandy Gross, managing partner of Pinetum Partners, a financial recruiting firm. “Wall Street is being realistic. You have to retain your human capital.”
Brad Hintz, an analyst at Sanford C. Bernstein, was more critical. “Like everything on Wall Street, they’re starting to sin again,” he said. “As you see a recovery, you’ll see everybody’s compensation beginning to rise.”
In total, the banks are not necessarily spending more on compensation, because their work forces have shrunk sharply in the last 18 months. Still, the average pay for those who remain — rank-and-file workers whose earnings are not affected by government-imposed limits — appears to be rebounding.
Of the large banks receiving federal help, Goldman Sachs stands out for setting aside the most per person for compensation. The bank, which nearly halved its compensation last year, set aside $4.7 billion for worker pay in the quarter. If that level continues all year, it would add up to average pay of $569,220 per worker — almost as much as the pay in 2007, a record year.
“We need to be able to pay our people,” said Lucas van Praag, a spokesman for Goldman, adding that the rest of the year might not prove as profitable, and so the first-quarter reserves might simply be “sensible husbandry.”
Indeed, last year, when Goldman lost money in the fourth quarter, it did not pay out some of the compensation it had set aside when earnings were stronger.
At other banks, pay scales tilt in favor of particular units. JPMorgan Chase, for example, is setting aside what would total $138,234 on average for workers. But in the bank’s trading and investment banking unit, if revenue stays at first-quarter levels, workers are on track to earn an average of $509,524 over the year. That figure was $345,147 in 2006.
To try to blunt criticism of high pay, some banks have introduced reforms to take back bonuses from individual workers whose bets later lose money. Moreover, executives say that for many well-paid bankers, a good portion of their bonus compensation is in stock, whose value can decline if the performance of the bank lags.
Representatives of several of the largest banks said much of their compensation budget covered expenses other than bonuses, like salaries, health care, pension plans and severance.
Still, the compensation expense is the only publicly disclosed figure related to pay at the banks, and it is the best figure for calculating pay per worker.
This expense includes money for year-end bonuses. For high earners, bonuses can account for three-quarters of pay.
Compensation is among the most cited causes of the financial crisis because bonuses were often tied to short-term gains, even if those gains disappeared later on. Still, as profits return, banks do not appear to be changing the absolute level of worker pay — or the share of revenue dedicated to compensation.
Historically, investment banks have paid workers about 50 cents for every dollar of revenue. The average is lower at commercial banks like JPMorgan Chase and Bank of America, because they employ more people in retail branches where pay is lower.
But every dollar paid to workers is a dollar that cannot be used to expand the business or increase lending. Some of that revenue, too, could be used by bailed-out banks to pay back taxpayers.
Wall Street, of course, has a long history of high wages. Not all that long ago, most investment banks were private partnerships, and the workers were also typically the owners. Even when those firms began listing their shares on public stock exchanges, a standard was set in which half of their revenue was paid out to workers.
Saturday, April 25, 2009
GDP Probably Shrank as Companies Cut Back: U.S. Economy Preview
April 26 (Bloomberg) -- The U.S. economy probably plunged again in the first quarter, reflecting a drop in inventories that may set the stage for a return to growth later this year.
Gross domestic product shrank at a 4.7 percent annual pace after contracting at a 6.3 percent rate in the last three months of 2008, according to the median estimate of economists surveyed by Bloomberg News ahead of a Commerce Department report April 29. Figures from the Institute for Supply Management on May 1 may show manufacturing shrank at a slower pace this month.
The Commerce report, coming on the second day of the Federal Reserve’s two-day meeting, may show consumer spending climbed, halting its biggest slide in almost two decades. Since their March meeting, Fed policy makers have started buying long- term government bonds and launched a program to revive lending in a bid to keep consumers from retrenching again.
“The more forward-looking you are, the better the world looks,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York. “Almost half of the drop in GDP is due to a collapse in inventories, and once they fall far enough, production has to rise back up to meet sales.”
Data in recent weeks, including signs of stability in home sales, residential construction and demand for business equipment, signal the world’s largest economy may contract at a slower pace this quarter. Finance chiefs from the Group of Seven nations last week predicted a “weak” economic recovery will start to take hold in coming months as evidence mounts that the worst of the recession is over.
Manufacturing
Manufacturing, as well as housing, may be descending at a slower pace. The Institute for Supply Management’s factory index may rise to 38.3 for April from 36.3 the prior month, according to economists surveyed. While a reading less than 50 still signals contraction, the improvement would be the fourth in a row.
Factory orders, due from Commerce on May 1, probably fell 0.6 percent in March, after a 1.8 percent gain the prior month, according to the survey median.
Companies including General Motors Corp. have been slashing output to curb inventory as demand at home and abroad dropped. The International Monetary Fund last week said the world economy would shrink 1.3 percent this year, its worst performance World War II.
General Motors and Chrysler LLC are threatened with bankruptcy as sales have plummeted since credit markets seized up last year. GM will idle 15 North American assembly plants for at least a week from mid-May through July, a person familiar with the plans said last week.
Ford Outlook
Ford Motor Co., working to avoid a federal bailout, last week posted a first-quarter loss that beat analysts’ estimates.
“We’re not quite sure where the bottom is,” Ford’s Chief Executive Officer Alan Mulally said in an April 24 Bloomberg Television interview. “But we believe with the stabilization of the banks, freeing up the credit, and the stimulus packages we have, both monetary and fiscal, that we’re going to see an uptick in the third and fourth quarter.”
Declines in business investment joined falling inventories in dragging down the GDP last quarter, economists said. The drop in stockpiles may be the biggest since quarterly records began in 1990, according to a forecast by economists at Barclays Capital.
The gain in consumer spending and a smaller trade deficit as imports plunged prevented the economy from shrinking even more, according to Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado.
A report from Commerce on April 30 may show personal spending fell 0.1 percent in March after a 0.2 percent gain the prior month, according to the survey median. Personal income probably fell 0.2 percent for a second month, reflecting the weakening job market.
Economists projected measures of consumer confidence, from Reuters/University of Michigan on May 1 and from the New York- based Conference Board on April 28, probably improved in April.
Finally, the S&P/Case Shiller index of home prices in the 20 metropolitan areas, also due April 28, may show property values are also dropping at a slower pace.
Gross domestic product shrank at a 4.7 percent annual pace after contracting at a 6.3 percent rate in the last three months of 2008, according to the median estimate of economists surveyed by Bloomberg News ahead of a Commerce Department report April 29. Figures from the Institute for Supply Management on May 1 may show manufacturing shrank at a slower pace this month.
The Commerce report, coming on the second day of the Federal Reserve’s two-day meeting, may show consumer spending climbed, halting its biggest slide in almost two decades. Since their March meeting, Fed policy makers have started buying long- term government bonds and launched a program to revive lending in a bid to keep consumers from retrenching again.
“The more forward-looking you are, the better the world looks,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York. “Almost half of the drop in GDP is due to a collapse in inventories, and once they fall far enough, production has to rise back up to meet sales.”
Data in recent weeks, including signs of stability in home sales, residential construction and demand for business equipment, signal the world’s largest economy may contract at a slower pace this quarter. Finance chiefs from the Group of Seven nations last week predicted a “weak” economic recovery will start to take hold in coming months as evidence mounts that the worst of the recession is over.
Manufacturing
Manufacturing, as well as housing, may be descending at a slower pace. The Institute for Supply Management’s factory index may rise to 38.3 for April from 36.3 the prior month, according to economists surveyed. While a reading less than 50 still signals contraction, the improvement would be the fourth in a row.
Factory orders, due from Commerce on May 1, probably fell 0.6 percent in March, after a 1.8 percent gain the prior month, according to the survey median.
Companies including General Motors Corp. have been slashing output to curb inventory as demand at home and abroad dropped. The International Monetary Fund last week said the world economy would shrink 1.3 percent this year, its worst performance World War II.
General Motors and Chrysler LLC are threatened with bankruptcy as sales have plummeted since credit markets seized up last year. GM will idle 15 North American assembly plants for at least a week from mid-May through July, a person familiar with the plans said last week.
Ford Outlook
Ford Motor Co., working to avoid a federal bailout, last week posted a first-quarter loss that beat analysts’ estimates.
“We’re not quite sure where the bottom is,” Ford’s Chief Executive Officer Alan Mulally said in an April 24 Bloomberg Television interview. “But we believe with the stabilization of the banks, freeing up the credit, and the stimulus packages we have, both monetary and fiscal, that we’re going to see an uptick in the third and fourth quarter.”
Declines in business investment joined falling inventories in dragging down the GDP last quarter, economists said. The drop in stockpiles may be the biggest since quarterly records began in 1990, according to a forecast by economists at Barclays Capital.
The gain in consumer spending and a smaller trade deficit as imports plunged prevented the economy from shrinking even more, according to Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado.
A report from Commerce on April 30 may show personal spending fell 0.1 percent in March after a 0.2 percent gain the prior month, according to the survey median. Personal income probably fell 0.2 percent for a second month, reflecting the weakening job market.
Economists projected measures of consumer confidence, from Reuters/University of Michigan on May 1 and from the New York- based Conference Board on April 28, probably improved in April.
Finally, the S&P/Case Shiller index of home prices in the 20 metropolitan areas, also due April 28, may show property values are also dropping at a slower pace.
Friday, April 24, 2009
CUT TO FIT Banks reduce credit card limits ICICI Withdraws Cash Facility In Some Cases As Creditworthiness Shrinks
New Delhi: S Sinha, an ICICI Bank customer, was shocked on Friday when he received an SMS from the bank that said, “Dear customer, effective April 23, 2009, the cash limit on your ICICI Bank Credit Card No XXXX has been reduced to Rs 0 and the total credit limit to Rs 19,000.’’
His earlier cash limit was Rs 19,000 and the credit limit was Rs 60,000. The bank has tweaked his credit limit despite the fact that this customer never defaulted on payments. On Friday, several ICICI Bank customers received similar messages.
In fact, most private and foreign banks have lowered credit limits, including that of cash, on cards as they fear the economic slowdown is affecting incomes of cardholders, following salary cuts and layoffs by many companies.
Lenders like HDFC Bank, Axis Bank, Citibank, Deutsche Bank, Standard Chartered Bank and HSBC Bank too have reduced their customers’ credit limits.
ICICI Bank ED V Vaidyanathan said cash limits have been tweaked on the basis of creditworthiness of cardholders. “In many cases the limits have been enhanced for customers having good repayment records,’’ he added.
A senior official of a foreign bank said that due to global liquidity crunch, they were forced to cut exposure to credit given to card, where default rate is as high as 15% against below 5% in the normal banking business.
Banks can access information on all cardholders from the Credit Information Bureau of India (CIBIL). In an attempt to contain default rates, banks are keeping a close watch on creditworthiness of customers in the light of total credit taken on various cards and changing the limits accordingly.
At present, there are 25 million credit card holders in India. The total outstanding on the credit card, according to one estimate, is around Rs 25,000 crore. A banker said that default rate on card business is not alarmingly high in India as in the US, where total outstanding of card business is around $2 trillion.
‘Banks are special’
Banks are special within a financial system and failure of one bank can have a strong contagion on other banks with no respect for international boundaries, said RBI deputy governor Rakesh Mohan, according to an agency report.
“A failure of one bank can have a strong contagion on the rest of the banks, even if they are healthy,’’ Mohan said. The banker said the global crisis has again shown that markets can fail and such market failures have huge costs. The financial system is prone to excesses, given the high leverage of banks and other financial institutions, he said.
“In this age of globalisation, as the current crisis has revealed, the lack of confidence in banks in one country can also have a contagion on banks in the rest of the world,’’ he said, adding the crisis has again shown that markets can fail.
His earlier cash limit was Rs 19,000 and the credit limit was Rs 60,000. The bank has tweaked his credit limit despite the fact that this customer never defaulted on payments. On Friday, several ICICI Bank customers received similar messages.
In fact, most private and foreign banks have lowered credit limits, including that of cash, on cards as they fear the economic slowdown is affecting incomes of cardholders, following salary cuts and layoffs by many companies.
Lenders like HDFC Bank, Axis Bank, Citibank, Deutsche Bank, Standard Chartered Bank and HSBC Bank too have reduced their customers’ credit limits.
ICICI Bank ED V Vaidyanathan said cash limits have been tweaked on the basis of creditworthiness of cardholders. “In many cases the limits have been enhanced for customers having good repayment records,’’ he added.
A senior official of a foreign bank said that due to global liquidity crunch, they were forced to cut exposure to credit given to card, where default rate is as high as 15% against below 5% in the normal banking business.
Banks can access information on all cardholders from the Credit Information Bureau of India (CIBIL). In an attempt to contain default rates, banks are keeping a close watch on creditworthiness of customers in the light of total credit taken on various cards and changing the limits accordingly.
At present, there are 25 million credit card holders in India. The total outstanding on the credit card, according to one estimate, is around Rs 25,000 crore. A banker said that default rate on card business is not alarmingly high in India as in the US, where total outstanding of card business is around $2 trillion.
‘Banks are special’
Banks are special within a financial system and failure of one bank can have a strong contagion on other banks with no respect for international boundaries, said RBI deputy governor Rakesh Mohan, according to an agency report.
“A failure of one bank can have a strong contagion on the rest of the banks, even if they are healthy,’’ Mohan said. The banker said the global crisis has again shown that markets can fail and such market failures have huge costs. The financial system is prone to excesses, given the high leverage of banks and other financial institutions, he said.
“In this age of globalisation, as the current crisis has revealed, the lack of confidence in banks in one country can also have a contagion on banks in the rest of the world,’’ he said, adding the crisis has again shown that markets can fail.
Infy, Wipro, Reliance 1st to get CISF cover
New Delhi: The Reliance refinery at Jamnagar in Gujarat, IT giants Infosys and Wipro and Electronic City, a software complex in Bangalore, are among the first which will get CISF cover. These were in the list of 47 private establishments which had applied for paramilitary cover.
After processing all the requests, the home ministry has finally given its go ahead for these four establishments which come under the high-risk category in the wake of security audit done by the CISF and other security and intelligence agencies.
Home ministry sources said though other companies would also get similar security cover in due course, priority has been given to these four by taking into account various
aspects, including the threat perceptions. The next lot will cover ports and power sector.
The decision was taken in the wake of amendments in the CISF Act which allows the paramilitary force to provide security to private companies and cooperative societies on cost reimbursement basis. Earlier, only public sector undertakings (PSUs) were eligible for such security cover.
The necessary amendments in the Act were brought in the wake of the 26/11 Mumbai terror attack when the government felt the need to include private companies within the ambit of CISF security considering intelligence inputs which suggested major threats to vital private establishments.
The Taj and Oberoi hotels in Mumbai, which witnessed the attacks on 26/11, have also requested for CISF cover. “A decision is, however, awaited in these cases,” said an official.
Security and intel agencies have placed these establishments in the high-risk category after 26/11
After processing all the requests, the home ministry has finally given its go ahead for these four establishments which come under the high-risk category in the wake of security audit done by the CISF and other security and intelligence agencies.
Home ministry sources said though other companies would also get similar security cover in due course, priority has been given to these four by taking into account various
aspects, including the threat perceptions. The next lot will cover ports and power sector.
The decision was taken in the wake of amendments in the CISF Act which allows the paramilitary force to provide security to private companies and cooperative societies on cost reimbursement basis. Earlier, only public sector undertakings (PSUs) were eligible for such security cover.
The necessary amendments in the Act were brought in the wake of the 26/11 Mumbai terror attack when the government felt the need to include private companies within the ambit of CISF security considering intelligence inputs which suggested major threats to vital private establishments.
The Taj and Oberoi hotels in Mumbai, which witnessed the attacks on 26/11, have also requested for CISF cover. “A decision is, however, awaited in these cases,” said an official.
Security and intel agencies have placed these establishments in the high-risk category after 26/11
NETA’s NATTER
Relaxed after casting his vote in Guwahati, PM Manmohan Singh was in a mood to talk. Making a departure from his serious, taciturn image, he talked politics and charted out the course of action for his government if it gets a second term. Singh spoke to Bhaskar Roy on issues which have figured high on the poll landscape. Excerpts:
What is your action plan for reviving the economy?
The three stimulus packages announced by my government were intended to take the economy out of the morass. We have already outlined our objective and there is considerable scope to refuel the packages. We made a commitment in our (Congress election) manifesto that within 100 days (of returning to power), we will come out with a programme to strengthen the packages. There is scope to change the atmosphere and improve the investment climate. I have been talking to RBI and there will be an effective programme.
Will the economy be back on the high growth path soon?
The aim is to take the economy to a stage where 9-10% growth is possible. I am not setting too high a target. Only a Congress government can do such things. Yashwant Sinha — when he was finance minister in the Chandra Shekhar government — sent the country’s gold abroad. When we came back to power, we brought the gold back.
Are steps taken by your government to counter terrorism enough? What more will you do to tackle the problem?
Terrorism is an international problem. Our neighbourhood is characterised by a great degree of instability. Terrorists find a congenial atmosphere in that air of instability, and also in the neighbour’s strategy. Terrorism also has several inter-state aspects. We cannot say there are no links between terrorists outside and terrorists within the country. We have to strengthen our security forces and intelligence set-up. The police forces need to be modernised. They have to be given the best weapons. But ultimately it is community policing — that’s the best answer. There is need for a more intensified collaboration between the Centre and the states.
There is a lot of noise about a massive amount of black money stashed away abroad.
Let me say that black money has to be brought back through a well-coordinated programme. But if you are advertising before taking any step, it gives black marketeers an opportunity to stash away, re-arrange their portfolios in a manner that it will make it difficult to unearth black money. I am not denying the existence of such black money abroad. How much in Swiss banks, how much in tax havens, its magnitude — no one knows about it. We will take definite steps within 100 days (of the new government) to recover this black money. We argued within a group of friendly countries to
find a way out. As far as the government of India is concerned, we talked to some other countries for absolute transparency within the banking system, for an international agreement to share information between tax authorities. We will follow it up, for us it is a priority to find out if portfolios have been maintained by dubious players.
Job losses are hitting a large section of people. Do you have plans to tackle the problem?
Once the government comes back to power we will put in place an integrated, well-thought out plan to deal with the problem. As of now, the problem of job losses is confined to the textile and diamond industries. Other areas of the economy have not been affected. Our stimulus package essentially takes care of it. This will set in motion a process of revival.
What is your action plan for reviving the economy?
The three stimulus packages announced by my government were intended to take the economy out of the morass. We have already outlined our objective and there is considerable scope to refuel the packages. We made a commitment in our (Congress election) manifesto that within 100 days (of returning to power), we will come out with a programme to strengthen the packages. There is scope to change the atmosphere and improve the investment climate. I have been talking to RBI and there will be an effective programme.
Will the economy be back on the high growth path soon?
The aim is to take the economy to a stage where 9-10% growth is possible. I am not setting too high a target. Only a Congress government can do such things. Yashwant Sinha — when he was finance minister in the Chandra Shekhar government — sent the country’s gold abroad. When we came back to power, we brought the gold back.
Are steps taken by your government to counter terrorism enough? What more will you do to tackle the problem?
Terrorism is an international problem. Our neighbourhood is characterised by a great degree of instability. Terrorists find a congenial atmosphere in that air of instability, and also in the neighbour’s strategy. Terrorism also has several inter-state aspects. We cannot say there are no links between terrorists outside and terrorists within the country. We have to strengthen our security forces and intelligence set-up. The police forces need to be modernised. They have to be given the best weapons. But ultimately it is community policing — that’s the best answer. There is need for a more intensified collaboration between the Centre and the states.
There is a lot of noise about a massive amount of black money stashed away abroad.
Let me say that black money has to be brought back through a well-coordinated programme. But if you are advertising before taking any step, it gives black marketeers an opportunity to stash away, re-arrange their portfolios in a manner that it will make it difficult to unearth black money. I am not denying the existence of such black money abroad. How much in Swiss banks, how much in tax havens, its magnitude — no one knows about it. We will take definite steps within 100 days (of the new government) to recover this black money. We argued within a group of friendly countries to
find a way out. As far as the government of India is concerned, we talked to some other countries for absolute transparency within the banking system, for an international agreement to share information between tax authorities. We will follow it up, for us it is a priority to find out if portfolios have been maintained by dubious players.
Job losses are hitting a large section of people. Do you have plans to tackle the problem?
Once the government comes back to power we will put in place an integrated, well-thought out plan to deal with the problem. As of now, the problem of job losses is confined to the textile and diamond industries. Other areas of the economy have not been affected. Our stimulus package essentially takes care of it. This will set in motion a process of revival.
BULLS ARE BACK Sensex hits 6-mth high, gains 194 pts
Mumbai: The sensex gained further on Friday, ending 194 points higher at 11,329—its highest closing in six months. The day’s gains also ensured the seventh week of gains for the index as investors got richer by Rs 54,000 crore with BSE’s market capitalisation now at almost Rs 36 lakh crore.
The day’s rally piggybacked on strong FII-buying, with a provisional net buying figure of Rs 577 crore. Domestic funds had net buying of Rs 15 crore. The day’s rise was led by banking stocks, along with those from sectors like consumer durables, capital goods and technology.
Institutional dealers said that although fundamentals of the economy had not changed much, it is the liquidity—availability of funds—with institutions that is driving the current rally. So on the flip side, they warn that if for any reason the liquidity flow reverses, the market could go for a speedy slide.
Market players said that with the index closing near the day’s high and US market in early trading showing good gains, Monday’s session could witness some more rise from the current levels. Next week’s trading will be truncated with trading on Thursday closed for the Lok Sabha elections in Mumbai and closed on Friday for Maharashtra Day. In the shortened week, the index could further its gains to the eighth consecutive week, market players said.
Market players also said that in case the election result throws up a more fractured mandate with a large number of political parties and no clear mandate, the economic slowdown could worsen and bring the market down. The results for the ensuing election is set to be announced in less than four weeks from now. Till the poll results are out, brokers advise caution to investors.
On Friday, among sensex stocks, M&M ended 7% higher at 474, Jaiprakash Associates closed 6.1% higher at Rs 126, while Grasim gained 5.7% to Rs 1,802. Among losers were Ranbaxy Labs, which announced its largest quarterly loss of Rs 778 crore, ended 2.4% off at Rs 176 and HUL lost less than 1% to end at Rs 238. On BSE, there were 1,536 advances, compared to 970 laggards.
The day’s rally piggybacked on strong FII-buying, with a provisional net buying figure of Rs 577 crore. Domestic funds had net buying of Rs 15 crore. The day’s rise was led by banking stocks, along with those from sectors like consumer durables, capital goods and technology.
Institutional dealers said that although fundamentals of the economy had not changed much, it is the liquidity—availability of funds—with institutions that is driving the current rally. So on the flip side, they warn that if for any reason the liquidity flow reverses, the market could go for a speedy slide.
Market players said that with the index closing near the day’s high and US market in early trading showing good gains, Monday’s session could witness some more rise from the current levels. Next week’s trading will be truncated with trading on Thursday closed for the Lok Sabha elections in Mumbai and closed on Friday for Maharashtra Day. In the shortened week, the index could further its gains to the eighth consecutive week, market players said.
Market players also said that in case the election result throws up a more fractured mandate with a large number of political parties and no clear mandate, the economic slowdown could worsen and bring the market down. The results for the ensuing election is set to be announced in less than four weeks from now. Till the poll results are out, brokers advise caution to investors.
On Friday, among sensex stocks, M&M ended 7% higher at 474, Jaiprakash Associates closed 6.1% higher at Rs 126, while Grasim gained 5.7% to Rs 1,802. Among losers were Ranbaxy Labs, which announced its largest quarterly loss of Rs 778 crore, ended 2.4% off at Rs 176 and HUL lost less than 1% to end at Rs 238. On BSE, there were 1,536 advances, compared to 970 laggards.
Maruti Q4 net down 18% on forex, high input costs
New Delhi: Higher raw material costs and forex loss outweighed an increase in car sales for Maruti Suzuki, which witnessed an 18% fall in fourth quarter (January-March, 2008-09) net profit to Rs 243 crore against Rs 299 crore in the corresponding period of the previous financial year.
In Q4, total vehicle sales increased 17%. “The cumulative impact of the adverse forex exchange movement—both direct and via vendor imports— impacted our profit,” Shinzo Nakanishi, Maruti MD and CEO, said. Maruti made a provision of Rs 121 crore in Q4 for mark-to-market loss on dollarrupee derivatives, CFO Ajay Seth said, adding that the company has hedged one-third of its total foreign currency exposure as on March 31.
Raw material costs also grew substantially for the company at Rs 4,738 crore against Rs 3,694 crore in the fourth quarter of fiscal 2007-08, the company said, adding that prices have since softened and are likely to reflect positively in the first quarter of 2009-10.
Net sales for Maruti grew to Rs 6,308 crore, from Rs 4,763 crore in Q4 of 2007-08, registering a growth of 32%. The company’s net profit remained subdued for the full year as well (2008-09) which fell near 30% at Rs 1,219 crore against Rs 1,731 crore in 2007-08. However, Maruti’s net sales in the period rose 14% to Rs 20,358 crore against Rs 17,860 crore, led by models like the Swift and the Dzire. Total vehicle sales for the company in 2008-09 rose 3.5% at 7,92,167 units from 7,64,842 in 2007-08.
“Despite the revival in the fourth quarter of the last fiscal, future still looks uncertain. Experts have presented different growth projections. We foresee 2009-10 to be another volatile and difficult year,” Nakanishi said. Maruti has also started sale of A-Star compact to Nissan as part of contract manufacturing, he said. “We have shipped 2,000 units. Full year sale to them is expected at 30,000 units,”
WHAT WENT WRONG? Maruti MD and CEO Shinzo Nakanishi
In Q4, total vehicle sales increased 17%. “The cumulative impact of the adverse forex exchange movement—both direct and via vendor imports— impacted our profit,” Shinzo Nakanishi, Maruti MD and CEO, said. Maruti made a provision of Rs 121 crore in Q4 for mark-to-market loss on dollarrupee derivatives, CFO Ajay Seth said, adding that the company has hedged one-third of its total foreign currency exposure as on March 31.
Raw material costs also grew substantially for the company at Rs 4,738 crore against Rs 3,694 crore in the fourth quarter of fiscal 2007-08, the company said, adding that prices have since softened and are likely to reflect positively in the first quarter of 2009-10.
Net sales for Maruti grew to Rs 6,308 crore, from Rs 4,763 crore in Q4 of 2007-08, registering a growth of 32%. The company’s net profit remained subdued for the full year as well (2008-09) which fell near 30% at Rs 1,219 crore against Rs 1,731 crore in 2007-08. However, Maruti’s net sales in the period rose 14% to Rs 20,358 crore against Rs 17,860 crore, led by models like the Swift and the Dzire. Total vehicle sales for the company in 2008-09 rose 3.5% at 7,92,167 units from 7,64,842 in 2007-08.
“Despite the revival in the fourth quarter of the last fiscal, future still looks uncertain. Experts have presented different growth projections. We foresee 2009-10 to be another volatile and difficult year,” Nakanishi said. Maruti has also started sale of A-Star compact to Nissan as part of contract manufacturing, he said. “We have shipped 2,000 units. Full year sale to them is expected at 30,000 units,”
WHAT WENT WRONG? Maruti MD and CEO Shinzo Nakanishi
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