Persistent buying aids indices

Mon, 18 Jan 11:30 am

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After witnessing a weak start, the Indian stock markets managed to break into the positive during the previous two hours of trade. The markets moved northwards on account of buying activity being witnessed across banking, capital goods and auto stocks. However, realty, oil & gas and metal stocks are unable to garner investors' favor.

The BSE Sensex and NSE Nifty are trading in the positive, up by 90 points and 20 points respectively. Midcap and small cap stocks are also trading in the positive, up by 0.5% and 0.9% respectively. The rupee is trading at 45.69 to the dollar.

According to a leading business daily, Indian renewable energy major Suzlon, is aiming to clean up its balance sheet by getting its Rs 86.5 bn loan restructured. The debt-laden company is in talks with its lenders like SBI, BoB, IDBI etc so as to convert its existing rupee loans into long-term maturity loans. If the banks approve this proposal, the company will see a significant reduction in cash outflow in the medium term. Its interest cost will decline and overall annual cash savings of around Rs 10 bn can be expected. It may be noted that the company is serving a debt of Rs 105 bn which requires an interest charge of Rs 11 bn annually.

The company has recently repaid US$ 780 m debt on back of the proceeds it generated from the 35% stake sell in its Belgium subsidiary, Hansen Transmission and a new five-year loan of US$ 465 m from SBI. The company has hinted that it is planning to sell its remaining 26% stake in Hansen Transmissions in order to raise more funds. After the restructuring the company plans to focus more on its German subsidiary, REpower where the company owns 90%. REpower wins the maximum overseas orders for Suzlon. The company even aims to acquire the balance 10% stake in this German subsidiary. We believe that the company which is seeing a pickup in demand in its key markets of the US and Europe, needs to do something very soon in order to strengthen its balance sheet, if it plans to remain in this competitive business.

Balaji Telefilms announced its 3QFY10 results last week. The woes continued for the company as it saw a topline decline of 22% YoY on account of a fall in both hours of programming and average realisations per hour. The operating profit margins turned negative despite reduction in expenses and the share of other income declined by 30%. The company's profit before tax plummeted by 95% YoY during 3QFY10 due to a decline in the topline and erosion in operating margins. The company's profit after tax nosedived by around 220% YoY. We believe that the company's stronghold on the soap category has been eroded by the successful entry of several content providers.

The niche that Balaji enjoyed on Star has also ended. The company's foray into new genres and broadcasters has also not been able to generate the traction it had in its early years, when it came out with several soaps one after the other. In fact, it had to pull out several soaps even in 3QFY10. As such there is very little visibility on the earnings front for the company. The spate of write-offs in debtors, fixed assets and investments and legal troubles tell the tale of hard times the company has fallen into.