India Earnings (Retail Lifestyle) – Earnings Surprise: ITC reports INR 71 B revenues but static EBITDA

Sunfeast 10K - Thrill
Sunfeast 10K – Thrill (Photo credit: Tamal)

The growing strengths of ITC again aided by a price hike in tobacco products in this quarter, gave cause to investors and market makers inthe stock to push northto unheralded levels a sthe rally from infracos receded almost as expected after the bid to 5650 bbecame stronger in the afternoon trades this Friday.

ITC toplines ( excluding Excise) finally seemed to gro respectably after getting flatlined for a few quarters around the $1 B mark with a $1.2 B mark at INR 71 B helping PAT grow another fifth, breaking the jinxed 2-3 quarters for India Inc as well which have almost straitjacketed India Inc to GDP growth and IIP growth levels and consisstent downgrades on earnings.

While the retail lifestyle consumption growth still did not herald the breaking of the “Limited Feature” score of $1B in Consumer Brand Valuations that seem to cripple most Discretionary and Non discretionary branding

Dabur
Dabur (Photo credit: Wikipedia)

stores, the significant growth provides hope to those entering India as investors in the Consumption story that indeed Multi billion brands are possible to be built despite the experiences of HUL, P&G, Dabur, Marico, Britannia and now even McDonalds and Pizza Hut in India’s prolific competitive spaces filled ith 85% unbranded/commodity plays or the hitherto Mom & Pop space that seems to hit these brands like airbags deploying early on crossing a specific speed

Marico
Marico (Photo credit: Wikipedia)

Bajaj Finserv growth and the resurgence of Insuranc e and NBFC consumer loans stories also underrite the same hopes with Bajaj FinServ posting a INR 10 B income and INR 2.2 B PAT

ITC Net Sales were INR67 B a linked/sequential quarter ago in June and seem to have grown more than 6% sequentially as well. Slower increases in COGS and Trading goods purchases coupled with good cycling of current inventories have been growing ITC margins

Sunfeast World 10k 2010 Logo
Sunfeast World 10k 2010 Logo (Photo credit: Abhijith B.Rao)

in the last two quarters and the same seemed to have stood ITC in good stead as will be cleared on detailed segment results being avalable on the earnings call/ review

 

 

A reality check that augurs well for those willing to stop and take a breather | Earnings Insight

Earnings Mid Terms crash on All nighters..in India and US

Mid Cap IT and Infy looking for avenging the transfromation space with Indian business providers were again usurped by larger BPO deals and a good showing from unhedged HCL Technologies and one hopes also TCS leaving one critical movement in currency which is good for the larger economy as the ones hanging for dear life.

Similarly consumer plays like Coke paid 11% in Currency headwinds against a  strengthening dollar in the first two months of the quarter as global corporations report the halting recovery in the US. Intel is down and the world as we know it unchanged thrashing ahead for those not playing in such currency movements , not necessarily wanting to be shackled with Nationalist interest. However even as IBM looks at an inevitable yet steeper falling hardware sales and the ones that missed the housing recovery at Citi look at a continuing salvage operation, the world has moved on whether it desired to or not. The gap between the peers that have performed in this quarter and the rest is likely to keep growing and one must recognise those that have failed in this perfectly competitive quarter as having strategically misaligned themselves and needing a relook at their global and domestic business strategy. Globally this will soon include BofA by today evening when they report before US markets open but the winners may not necessarily include McDonalds’ , Starbucks and the resurgent Wells Fargo. What has probably happened is that those running with a perfectly operational strategy and anticipated free fall in this quarter have been singled out by us and we stand by our observation as we see the various forces of human endeavour trying to come out of the ever elongating crisis and note that no one has caught the envisioning of this new normal whether those still prognosticating a recession or those just hoping to ride on more growth allowances to make a comeback.

The changes at macroeconomic level mean that older ties between economies in critical businesses including banking and auto have probably been running on the saame tenets as the nineties yet and that they have changed only no as have been expected since 2008/9. Investors thus would have more hiccups ahead and would likely need to pull back from equities and reassess the situation and a second round of deleveraging will now likely hit global economies only later as European banks re-enter the arena.

However, this article does not have the answers we need to ‘move on” productively, except that even without regulators’ forcing it banks and global companies would do well to be more careful and are likely to be weaker to future economic crises or as observers noted, black swans could be a more often occurring event in the coming days. The growth of consumption as variously noted by Intel, Fedex, Starbucks, McDonalds’, Coke ( incl New York’s ban on supersized drinks) GM, Facebook, Dominos and Pizza Hut is not the same as it was a decade ago into which you added a health fad and a mobile. The Euro will survive but European corporates are still not ready to come out with performances worthy of a standing ovation including growing Healthcare plays like Roche, Novo Nordisk and US based Sanofi and JNJ

The going is going to be tough and the tough better get going!

Where’s everything headed, then?

We as india writers have pushed out everything with insight in the last three four years, short of  the unworthy Indian infrastructure which could not attract even $100 bln in Gross investments yet with two debt funds of $3 bln each and some older established PEs like Macquarie and 3i and the Govt of India grants of INR 750 bln. Short because Indian Infrastructure sector with all the public enterprises involved is very short on the details and as it works without meaningful graft like the Telecoms, the Roads, Power, Aviation and Ports infrastructure continue to work with construction companies like our FMCG sector works with $500 mln brands from HUL, P&G and ITC and we are the wrong ones because we criticise something as if it was the end of the road for the sectors in each case and nothing else going to happen because it is not.

At least that is also what the Dy Governor of the RBI, Subir Gokarn seems to feel if we read into his new timetable to plan out Capital Convertibility for India. FDI in India has always been able to attract the bigger dollars irrespective of investors’ fascination with issues like the retroactive introduction of taxability of transactions and the impossibility of investing more than tokens of currency in our banking sector with restrictions of M&A or the recent failure of FDI in multi brand retail/ defence, healthcare and aviation.

The true problem comes in India’s cultural intractability compared to China or Signapore or others total rolling out of the Carpet for the bbigger dollar including the State sponsorship of the project, and not an immobilised set of half dozen land reform and Tax reform bills, and the Private state and comsumer acceptance of that way of life that the investment unwittingly imports itself with. Being open to cultural transfusion, this is a real anachronism always heaped on  the middling old politicians who could not run coalitions but it runs deeper as the next few generations will find out.

Probably what we need to bring in each sector is like the perfect storm, at least two representative investor in each such sector, like probably Yum with KFC and Pizza Hut and Tata Global – Starbucks and or Dominos with the Bhartiyas where there are unlikely to be any hiccups with all three biting the bullet and all government departments, consumers and politicians able to sell and compare. I would even aver that the 2g  experiment is still very much a success for the FDI story right now. A similar base exists in Banking where the world’s Top Banks are increasingly looking to Asia and India in particular to roll out bigger base staff or the magic wands that the local and global Harry Potters need to win the magical sorcerers over at state and center.

Whether it is International Quality standards for Highways or structured products in Banking, Indians more than other s are Comparison shoppers who like to think their Point-Of-View is appreciated and part and parcel of the product/standard unlike others who let FDI build a parallel Eco system, much like empty highways and cities outside Bejing while the Eastern corridor esp  around Beijing keeps cars stuck in Traffic queues that take three days to move from end to end, or even more

The simplification stated in that, is to be taken with the usual detailed quid pro quos and the details of a contract like bringing the capabilities to service rural consumers becoming a new reality for banks, auto and credit card and durables/discretionary sector plays from Pizza to That larger personal loan than the $500 on my Kissan Credit Card.

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