Consumer durables hold up markets

Wed, 14 Jul 01:30 pm

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Indian indices lost some of their opening gains to profit booking in heavy weights during the last two hours of trade. Stocks from consumer durable and banking space are trading firm while stocks from the auto and IT space are trading weak.

The BSE-Sensex is up by 55 points while NSE-Nifty is trading 26 points above the dotted line. BSE-Midcap index is up by 0.2% while BSE-Smallcap index is trading 0.4% above yesterday's closing. The rupee is trading at 46.67 to the US dollar.

Hotel stocks are trading down led by Oriental Hotels and Indian Hotels. Hotel Leelaventure declared its 1QFY11 results. The company's top line has grown by a robust 25% YoY. This was on the back of increase in occupancy as foreign traffic improved on economic recovery. Operating (EBITDA) margins for the company improved by 7.5% to stand at 30%. This was a result of lower operating costs as a percentage of sales. Net profit grew by 789% YoY aided by higher operating profit and lower interest costs.

A leading financial daily has reported that the company plans to issue 10 m shares to its promoters on a preferential basis. This would be at a price of Rs. 48.5 per share. After this allotment, the promoter's holding would increase from 53.37% to 54.57%. The promoters have been recently buying shares from the open market to consolidate their control over the company. This is due to concerns of a hostile takeover by ITC. ITC has acquired 10.02% stake in Hotel Leelaventure through creeping acquisition. Furthermore, the promoters are concerned that promoter holding could fall to 46% if FCCB worth US$ 66 m are converted in April 2012. The company also has FCCB worth Euro 39.20 m coming up for maturity in September this year. The company is planning to buy back this tranche. However, a buy back is likely to put pressure on the company's earnings.

Healthcare stocks are currently trading firm led by Cadila Healthcare and Glaxosmithkline Pharma. Pharmaceutical MNCs in India have not really been in favour of the Drug Controller General of India wanting to keep the prices of medicines low. The reasoning for the same is to increase affordability. However at the same time, the MNCs have been arguing that the awareness and overall reach is poor in the country, especially in the rural areas. There are certain MNCs that have been trying to spread awareness through certain initiatives. For example, Novartis India initiated a rural project named 'Arogya Parivar'. This initiative is aimed at spreading awareness of drugs among villages relating to prevention and treatments. It also refers patients to doctors as well as brief physicians about the programmes and the various treatments. More importantly, it also aims at making products available at pharmacies. A leading business daily has reported that the company is upbeat about this initiative. Started off in 2008 covering three districts, this initiative is now covered across 202 districts. As per the management, it is now present across 300,000 villages. The company is aiming at doubling this number over the next few years. Plus, the company has mentioned that it has now become profitable. While the numbers for the investments and revenues from this initiative is not known, this is definitely a step in the right direction by the company.