Oil & gas stocks boost markets

Tue, 25 Jan 11:30 am

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Indian indices continued to make inroads into the positive territory on the back of buying interest in heavy weights over the previous two hours of trade. Stocks from the oil & gas and capital goods space are trading firm, while stocks from the banking space are trading weak.

The BSE-Sensex is up by 103 points, while NSE-Nifty is trading 31 points above the dotted line. BSE Midcap is up by 0.3%, while BSE Small cap index is trading 0.4% above yesterday's closing. The rupee is trading at 45.46 to the US dollar.

Hotel stocks are trading mixed with Oriental Hotels and EIH Limited trading firm, while Country Club and Indian Hotels are trading weak. EIH Limited released its 3QFY11 results. The company's top line grew by a robust 26.5% YoY during the quarter. This performance came on the back of strong tourist demand and the reopening of The Oberoi property in Mumbai. Operating margins increased by 2% to stand at 34.7% during the quarter. This was the result of lower cost of goods sold, fall in power and fuel charges and decrease in other expenditure partly offset by increase in staff costs (all as a percentage of sales). The reason for increase in staff costs was that sales at the company's Bandra-Kurla property is still to ramp up resulting in higher fixed costs compared to sales. EIH's bottom line grew by 27.7% YoY during the quarter. This was a result of higher operating income partly offset by higher interest and depreciation costs incurred. Depreciation costs were higher as the company's Bandra-Kurla property became operational. Since this property is new it will take some time to reach its full potential in sales.

Auto stocks are trading mixed with Ashok Leyland and Escorts leading the gains. However, TVS Motors is trading weak. Ashok Leyland expects the sales of its commercial vehicles to grow by 18% in FY12 on account of new product launches and overall industry growth. It may be noted that the company has a target to achieve 95,000 units in FY11 itself and it has managed to sell 64,000 units till date. Thus, achieving the balance target for FY11 appears to be challenging considering the high interest rate environment. Nonetheless, it may be noted that the company has entered into a JV with Nissan to manufacture LCVs and also has plans to launch U-truck platform on a pan-India basis by next year. This should enable strong growth in volumes. However, increase in raw material prices continues to be a cause for concern. The company has already undertaken a price increase to the extent of 12% in the current year so as to evade margin pressures. However, the company has to ensure that the price rise is calibrated so as to maintain a balance between margins and volumes.