Sensex closes below 31K
The Sensex declined 216.60 points to settle at 30921.61 while the Nifty closed at 9520.90 falling 54.05 points for the week ending Friday, 30 June 2017.
Last week, PM NarendraModi stated that the roll-out of the GST from 1 July 2017, will be historic and the world will witness how political parties of different ideological hues came together to usher in this major reform. He also strongly favoured making the country self-reliant in the defence and technology sectors. GST, being the biggest tax reform since Independence, will re-shape India’s business landscape by making the country an easier place to do business in and would bring down barriers between states. It was launched at a grand function in the Central Hall of Parliament on the midnight of 30 June 2017.
GST over the medium-to-long-term is expected to lead to higher revenues for the Centre and the states while boosting the size of the economy having a positive impact on the GDP. It would unify the $2 trillion Indian economy and 1.3 billion people into a single market. According to CII President, ShobanaKamineni, the landmark GST is India’s new tryst with destiny which will unite all the states of the country once again.
“In India, we are going through historic times and a new tryst with destiny which will unite all the states of the country once again. The GST, in its best form, has the potential to increase growth substantially once all the uncertainty peels away”, she said.
On the global front, the conference held in UK titled ‘UK-India Economic Relations: Beyond Brexit’ was intended as a stock-take of the bilateral relationship. Y K Sinha, India’s High Commissioner to the UK, described Britain’s exit from the 28-nation bloc European Union (EU) as a challenge and an opportunity for the ties. “The historical and multifaceted relationship between the two countries will continue to strengthen even after Brexit. In this regard, the two countries have already set up a Joint Working Group on trade to further promote the bilateral economic partnership”, he added.
Sinha said that the areas of cooperation between the two countries are digital economy, smart cities, education, financial and professional services, healthcare and pharmaceuticals, infrastructure, manufacturing, defence and security, startups, tourism and hospitality.
The event also marked the launch of a new report, ‘India in the UK: India’s Business Footprint in the UK’ celebrating the success stories of Indian companies based in Britain.
CII director-general Chandrajit Banerjee said that a CII-KPMG survey of Indian companies in the UK shows that 50% of the companies believe Brexit could have positive or no implications for their UK operations. “The other half has a moderate level of concern regarding access to single market and global talent. Most companies have deliberated on their post-Brexit strategy but are not considering major alterations as yet. This augurs well for the continued strong involvement of Indian companies in the UK economy”, Banerjee added.
On the macro-economic data, India’s fiscal deficit touched Rs.3.73 lakh crore during the April-May period or 68.3% of the budgeted target for FY17. The fiscal deficit was 42.9% of the full-year target during the same period a year ago. Net tax receipts in the first two months of FY18 were Rs.67670 crore.
India aims to bring down its federal fiscal deficit to 3.2% of GDP in FY18 compared to 3.5% in FY17. The Indian stock markets remained closed on Monday, 26 June 2017, on account of Id-Ul-Fitr (Ramzan Id). Key index closed lower on Tuesday, 27 June 2017, on global cues. The Sensex was down by 179.96 points (-0.58%) to settle at 30958.25.
Key index fell on Wednesday, 28 June 2017, on modest selling of equities. The Sensex was down by 123.93 points (0.40%) to close at 30834.32.
Key index was up on Thursday, 29 June 2017, on fresh buying. The Sensex climbed 23.20 points (+0.08%) to close at 30857.52.
Key index gained on Friday, 30 June 2017. The Sensex was up 64.09 points (+0.21%) to settle at 30921.61. National and global macro-economic figures will surely dictate global markets movements and influence investor sentiment in the near future.
The GST implementation will be closely watched by the investors. All the States and Union Territories (having assemblies), except Jammu & Kashmir, have approved the State Goods and Services Tax (SGST) Act. The government expects GST to revolutionise India’s taxation system and is being marketed as ‘one nation one tax’. On the night of Friday, 30 June 2017, a special function was held in the Central Hall of Parliament House with a number of programs to witness the change in tax structure and implementation of GST across the country. The monsoon session of Parliament will commence on 17 July 2017, the day the voting for the presidential election will take place. The Cabinet Committee on Parliamentary Affairs (CCPA) has recommended holding the session from 17 July11 August 2017, according to sources in the committee.
Coimbatore, Tamil Nadu and setting up a project to manufacture value-added pressed and fine blanked metal components, which became operational in 1995 and 1996 respectively. In September 1995, it was ISO 9002 certified by RWTUV, Germany. In 2000, it acquired manufacturing facilities in the cold forming sections and products of Tube Investments of India Ltd at Tarapur and Chennai.
Since more than 50% of its net worth was eroded in June 2001, PIL became a sick industrial unit. However, it managed to improve its fundamentals and was out from the BIFR net very soon. Diversifying its product mix, the Company continued to increase the proportion of value-added products like cold formed metal profiles, engineering components and road safety systems.
PIL manufactures cold-rolled coils (CRCs) of narrow width up to 700 mm, which are supplied to the automobile and the white goods industries. In the automobile sector, its clients include Jay Bharat Maruti and Mahindra & Mahindra while in the white goods sector, it supplies CRCs to Godrej, Kelvinator and Voltas. The automobile sector accounts for 50% of its total sales. Its revenue segments include railways, solar, steel, automobile and the environment. PIL establish its first manufacturing plant at Isnapur near Hyderabad with an installed capacity of 30,000 TPA to manufacture Cold Rolled Steel Strips (CRSS). It turned into a profitable organization in the very first year of operations. In 1997, it enhanced the plant’s capacity to 50,000 TPA.
Post liberalization, PIL embarked on a series of strategic acquisitions and expansion plans like the acquisition of Nagarjuna Steel Ltd, Press Metal and assets of Wayne Burt Petrochemicals, erstwhile Bailey Hydro, for venturing into the Hydraulic Cylinders segment. It also established a new manufacturing facility at Chennai and set up an assembly unit at Hosur, near Bangalore, to meet the requirements of auto components.
PIL’s listed subsidiary, Pennar Engineered Building Systems (PEBS), is engaged in the design, manufacture, supply and installation of pre-engineered steel buildings and building components. PEBS is the second largest business vertical of the Company and also the most profitable one. Its factory was the first in India to receive a gold rating from the Indian Green Building Council. Its revenues and margins have grown consistently since 2010 with sales of Rs.491.2 crore in FY17. It has started operations from a leased plant in Vadodara and intends to complete its own plant in the current financial year. With an ever growing order book and new growth verticals of high rise buildings and engineering services, PEBS is well-placed to continue on the path of high growth. PennarEnviro (PEL) is another subsidiary of PIL engaged in the Water and Environment Infrastructure business to provide turnkey solutions viz. Water Treatment Plants (WTPs), Sewage Treatment Plants (STPs), Effluent Treatment Plants (ETPs), Effluent Recycling Plants (ERPs), Zero Liquid Discharge Plants (ZLDPs), etc. PIL is a pioneer in the field of additives and supplying specific premium high technology additives. PEL has built strong core capabilities in instrumentation and civil design. It posted sales of Rs.101 crore in FY17 and is the fastest-growing vertical of the Company.
Currently, PIL operates in a diverse range of sectors including general engineering, solar energy, railways, building construction, water treatment, automotive and speciality additives. It has a strong presence in engineering, infrastructure and capital goods segments. While this diversification does afford it a level of protection from general market downturns, some of its verticals such as industrial components did struggle to grow revenue and scalability. Seeing the bright prospects in the solar business, PIL had initially invested Rs.2.9 lakh and acquired 29,411 shares in Pennar Renewables in October 2015. Pursuant to the investment, Pennar Renewables became a subsidiary of PIL. During FY17, it further invested Rs.49.5 crore for 49.8 lakh shares in Pennar Renewables. For FY17, PIL’s net profit rose 6% to Rs.46.7 crore on 18% higher sales of Rs.1549 crore fetching an EPS of Rs.3.9 and a dividend of 10% was declared. During Q4FY17, its net profit rose 11% to Rs.18 crore on 32% higher sales of Rs.465 crore fetching an EPS of Rs.1.5. The decline in steel and commodity prices during the year resulted in a decline in selling prices across most of its product categories. However, margins improved in almost all its business verticals due to the combination of a higher percentage of higher margin orders and better spreads. With an equity capital of Rs.60.2 crore and reserves of Rs.472.2 crore, PIL’s share book value works out to Rs.88. With total debts of Rs.417 crore, cash, loans given and current assets etc. of Rs.301 crore, its net debt works out to Rs.116 crore and net DER 0.21:1. PIL holds 54% or 1.85 crore shares in the equity capital of Rs.34.3 crore of its subsidiary – PEBS, the market value of which is currently ~Rs.249 crore. The promoters hold 36.4% in the equity capital, FIIs hold 13.4%, DIs hold 12.6% and PCBs hold 4.1%, which leaves 33.5% stake with the investing public.
The Indian infrastructure and capital goods sectors have been capturing growth of late. PIL is focused on capital and management on growing in high-margin verticals. Railways, solar, pre-engineered buildings and environment businesses reported high growth in terms of revenues and profitability.
With growing orders from the Integral Coach Factory and
RCF propelled revenue growth in the railways segment. PIL expects this growth to be a part of a multi-year trend allowing its railway revenues to grow, fuelled by an increasing off-take of railway coaches and wagon components. While the wagon components vertical is more volatile, PIL sees more enquiries and steady order book growth. It continues to invest in scaling its manufacturing capacities and upgrade its technology platform by procuring laser fibres stretch-forming and specialised infrastructure for the manufacture of coach roof assemblies.
PIL’s solar and railways business verticals together achieved 50.5% growth to reach Rs.293.4 crore in sales. The solar module mounting system (MMS) vertical is split between PIL and PEBS. While PIL manufactures multi-modular structural components, PEBS provides turnkey design, supply and erection of MMS systems including civil and DC works.
The solar revolution in India which started with the National
Solar Mission currently exhibits high growth rates with the state solar policies driving a rapid expansion in the demand for the installation of solar photovoltaic plants. This has created a large market opportunity and accordingly solar revenues of the Company scaled during FY17.
The revival in the overall capex cycle will boost PIL’s revenues and profitability. The Company continues to evolve into a stronger engineering company. The robust India outlook, growth of manufacturing and automobile industry, the Ministry of Railways’ focus on a massive $140 bn investment plan give strong revenue visibility going forward. PIL is expected to notch an EPS of Rs.5.2 in FY18 and Rs.6.8 in FY19. At the CMP of Rs.52.20, the stock trades at a forward P/E of just 10.03x on FY18E and 7.67x on FY19E earnings respectively. The stock has the potential to appreciate by over 41.76% to Rs.74 in the medium-to-long-term. The stock’s 52-week high/low is Rs.58/39.50.