Realty leads the rally

Tue, 20 Apr 11:30 am

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Investors seem to be making the most of the correction witnessed in yesterday's trade as stocks across sectors have found favour since the start of the session today. Select stocks in IT sector, however, are eliciting very little interest. Stocks in realty and banking space are seeing the maximum buying interest.

BSE-Sensex is trading higher by 130 points while NSE-Nifty is trading 44.8 points above the dotted line. BSE-Midcap Index is up by 1.9% while the BSE-Smallcap index is trading 1.6% above yesterday's closing. The rupee is trading at 44.54 to the US dollar

As per a leading financial daily, Tata Steel is close to aborting its plan to sell the Teesside unit of Corus. This is due to the difficulty in finding buyers. Prices of iron ore and coal, for which contracts are typically fixed in April have surged by 60-90% on the back of sharp demand revival in China and India. This has inflated costs for companies that buy iron ore and coal to make steel. However, the Teesside unit makes intermediate steel products. The demand for which is still to pick up. This coupled with increase in raw material costs has made the unit unattractive for buyers.

It may be recalled, the 3 m tonne Teesside unit has been temporarily closed since January. The recession in UK and the walking away of a customer who had contracted to buy 80% of the units' production forced the closure, putting 1,600 workers out of work. This led to union labor problems for Tata Steel and the company has been looking for buyers since. Tough times for Corus are not yet over as the steel demand in Europe is still weak. Furthermore, inability to service the debt covenant, expected to resume from the 4th quarter can result in prepayment of debt or increase in interest costs, further hurting the company.

Hero Honda Motors released its 4QFY10 and FY10 results. The company had one of the best quarters in its history posting a net profit of Rs 5.9 bn, a growth of 49% YoY. The sales for the quarter registered a 20% YoY jump with volume sales of 1,186,536 units, the highest for any quarter. The growth in the quarter is due good demand and advance buying in anticipation of increase in excise duty in the budget. For the year, the net profit surged by 74% YoY while sales grew by 28% YoY. This performance was aided by 23.6% YoY increase in unit sales during the year. Hero Honda's operating (EBITDA) margin improved by 3.3% to 17.4% as a result of higher production from units in excise duty and tax exempt zones.

Going forward, the company hopes to maintain the growth momentum albeit at a slower pace due to the base effect and the partial role back of the stimulus. In FY11, the company expects to grow in line with industry and sell 5 m units. The company plans to incur a capex of Rs 3-3.5 bn for FY11 to increase capacity and upgrade its plants. The company plans to increase its production capacity from 5.4 m units to 5.7 m units during the year to cater to increase in demand.