Auto stocks lead the losses

Tue, 1 Feb 09:30 am

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Asian markets have started the day on an upbeat note. Benchmark indices in Indonesia (up 1.0%), Korea (up 0.6%) and China (up 0.2%) are the biggest gainers. Indian markets have opened the day on a weak note. Stocks in the auto and IT sectors are the main losers.

The BSE-Sensex is trading lower by around 27 points (0.2%), while the NSE-Nifty is down by around 14 points (0.3%). However, mid and small cap stocks are trading in the positive, with the BSE Midcap and BSE Small cap indices up by about 0.2% and 0.5% respectively. The rupee is trading at 45.92 to the US dollar.

Auto stocks have opened the day in the red. Tata Motors, Ashok Leyland and Maruti Suzuki are the leading losers. Auto major Mahindra & Mahindra (M&M) has decided to speed up the process of integrating Korea based Ssangyong Motors with itself. The company has just received the approval of the creditors for buying out a 70% stake in the latter. The committee would be meeting up with the Korean management to work out people as well as business related issues. The integration process would begin with a clear cut communication of the future growth strategies of the integrated group. For this, M&M has hired a global consultant to ensure that the communication process goes smoothly. The Korean company has had labor problems and issues in the past. As a result M&M would need to draw out clear cut strategies to deal with them. M&M has decided to continue with the Korean management, but plans to shift five to six of M&M’s executives to the Korean company. The acquisition of Ssangyong will help M&M build its global footprint as the former exports to markets like Russia, China as well as the Middle East. Stock of M&M is trading in the red.

Cement stocks are witnessing selling pressure. Stocks of Shree Cement, ACC and Madras Cement are all trading in the red. However, Ultra Tech Cement and Ambuja Cement are witnessing buying interest. UltraTech Cement has announced its 3QFY11 results. The company has reported an increase of 1% YoY in sales and a decline of 36% YoY in net profits. This was mainly on account of the prolonged monsoon, non-availability of resources, lower realty and infrastructure spending and de-growth in the markets of South India where the company has a significant presence. Operating profit margin dropped 7% YoY to 20.7% from 27.7% in 3QFY10. Further, higher interest expense saw the bottomline declining by 36.1% YoY. The net profit margin dipped to 8.6% from 13.6% in the corresponding quarter last year.

The company has chalked out a capex plan of Rs 100 bn over the next 3 years to set up an additional 9.2 mtpa cement capacity. This will be operational from early FY14.