Profit booking takes toll

Wed, 28 Jul 01:30 pm

   Previous Close   

   Pre-Open   

   09:30 am   

   11:30 am   

   Closing   

The Indian indices plunged into the negative zone after remaining flat in the previous session. Profit booking in heavy weights during the last two hours of trade dragged the Sensex lower. Currently, stocks forming part of the auto and power spaces are leading the pack of gainers. Stocks from the oil & gas and realty space are trading weak. The overall market sentiments are still mixed as the decline to advances ratio is poised at 1.0 to 1 on the overall BSE.

The BSE-Sensex is trading lower by around 80 points (down 0.3%), while the NSE-Nifty is down by about 23 points (down 0.3%). Some buying interest is being witnessed amongst the small cap stocks as the BSE-Midcap index is up 0.2%, while the BSE-Midcap index is trading flat with a negative bias. The rupee is trading at 46.61 to the US dollar.

Oil and gas stocks are trading mixed with Aban Offshore and BPCL leading the gains. Reliance Industries and GAIL were the biggest losers. Reliance Industries declared its 1QFY11 results. The company's sales increased 87% YoY during 1QFY11. This was led by a 107% growth in the company's refining business. Revenues from the petrochemical and exploration businesses grew by 19% YoY and 150% YoY respectively. Operating margins declined by 4.5% YoY to 16%. This was largely on account of higher raw material costs (as a percentage of sales. The company's gross refining margins stood at US$ 7.3 per barrel during the quarter, as compared to US$ 6.8 per barrel in 1QFY10. Profits grew by 32% YoY during the quarter on the back of topline growth despite lower margins and higher depreciation and interest cost.

In an interview with a leading business daily, the senior management of biscuit major Britannia Industries shared its views on the many aspects of the industry presently. It also spoke about the challenges the company is facing at the moment and its plans for the future. Over the past few years, Britannia has been able to grow its revenues at a strong pace. However, the same cannot be said about its profits, which have been quite volatile. The key reason for the same is higher raw material costs, which the company has not been able to pass on to its customers on the back of increasing competition. However, this has been the case for the industry as a whole. As per the company, its operating performance is much stronger than its largest competitor (Parle), and it continues to grow not only at a strong pace but also profitably. Another topic of discussion was market share – As per recent Nielson report Parle had become the largest player in the biscuit market. However, Britannia's management does not believe so. As per the management, Parle has taken over Britannia as the largest player, but only in the glucose segment. However the glucose category has shrunk from 34-35% to about 29% of the overall biscuit market. As for the balance 70% of the market, the company believes that it is the largest player.    

Regarding measures to control costs, while much cannot be done by the company to lower raw material costs, it is continuing with reducing inefficiencies. Over the past four years, the company has managed to reduce costs to the tune of Rs 1.8 bn. In addition, the discussion also included the increasing competition with global food major Kraft planning an entry into the Indian markets. The management is in fact, ‘delighted' as they could bring a certain amount of rationality into the market as well as help in expanding the overall market size.