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7/27/2019 Accounts Project 1

1/13

PUNJAB NATIONAL BANK NPAs a Worry, May Rise

Further

Punjab National Bank reported a 2.4% growth in net profit in the June quarter. While

this may appear decent in a difficult quarter, whats surprising was the significant

deterioration in asset quality which was reflected in the 5% fall in the PNB stock.

The state-run lenders net non-performing assets (NNPAs) rose to 2.98% from 1.68%

a year ago and 2.35% a quarter ago. While this is one of the highest in the industry,

this may go up due to lower provisions. The bank made a provision of . 1,698 crore,

which is 1% lower than its provisions in the previous quarter. As a result, its provisioncoverage ratio fell to 54.7% from 58.8% in the previous quarter. Besides,

restructured assets grew 6% QoQ in Q1. With a high exposure to stressed sectors

such as infrastructure and power and given the slowdown and liquidity squeeze, this

could rise further in the next few quarters. Restructured assets and NNPAs together

account for 14% of the banks total assets. On the business growth front, there were

hardly any surprises this quarter. PNBs loan book grew 3.6% against the industry

average of 14%. Deposits grew just 3% in the quarter. A positive was the rise in

deposits by 15% YoY during the quarter. The impact of recent measures by the RBI tocurtail rupee depreciation will be less severe for the bank. The proportion of CASA to

total deposits now stands at 40% against 36% a year ago. A lower percentage of bulk

deposits will raise the cost of deposits marginally. PNBs income from treasury

operations grew three-fold because of a fall in g-sec yields during the quarter.

Although, this may not be sustainable in the coming quarters, its impact on overall

operating profit may not be significant. Income from treasury operation accounted

for 10% of operating profits of the bank during this quarter. At the current market

price, the PNB stock is trading at a price-to-book value of 0.7, while its peers SBI andBank of Baroda are trading at 1.3 and 0.8, respectively. The PNB stock is languishing

due to higher slippages compared to other banks such as SBI and BoB. Considering

that PNB has a better return on assets compared to SBI and BoB, its valuation may

catch up in case of moderation in slippages.


2/13

HCL Tech Follows TCS & Infy, Beats Street with 11% QoQ Rise in

Profit

HCL Technologies beat expectations with strong growth in sales and profit during thefourth quarter ended June and announced the induction of Roshni, the daughter of

founder Shiv Nadar, 68, as a non-executive director.

The 3.1% sequential growth in sales and an 11% boost to the bottom line reported

by the Noida-based company bolstered the positive mood created by the better-

than-expected performance by larger peers Infosys and Tata Consultancy Services as

well as the robust sales growth forecast by Wipro. We had a great quarter and fiscal

year on pretty much all counts starting from revenue, margin, net income and cash

flow, said Anant Gupta, who took over as chief executive from Vineet Nayar at thebeginning of this year. Both Americas and Europe led the growth with most services

line witnessing growth led by infrastructure.

Indias fourth-largest IT services company reported revenue of $1.2 billion (. 6,944

crore) while net profit was $214 million (. 1,210 crore). HCL has won a significant

number of contracts in the so-called rebid market as first-generation outsourcing

contracts signed in early 2000s come up for renewal. About Roshni, 31, joining the

board, Gupta described it as a very normal activity. The promoters own about 60%

of HCL Technologies, whose market value is more than . 63,000 crore.Roshni is also an executive director and chief executive officer of HCL Corporation,

the holding company of HCL Technologies and HCL Infosystems, which together have

revenue in excess of $6 billion (. 36,000 crore).

Expectedly, the growth driver for the company was IT infrastructure management

services, which expanded by 8.6% from the previous quarter. HCL has traditionally

had a strong presence the infrastructure management market, which contributes

nearly one-third ofthe companys $4.7 billion revenue.

The results are because of their performance in the infrastructure management

space. They won some $1 billion of deals, with main contributions from

infrastructure management,

which will power growth in the near term. I do not expect any slowdown in the next

year, said equity analyst Hardik Shah of Mumbaibased brokerage KRChoksey.

The Indian IT sector, which has seen tepid growth since the global financial crisis, has


3/13

given out more positive signs in the June quarter. Infosys reported sequential

revenue growth of 2.7%, beating analyst estimates of around 1.5% growth while TCS

saw its sales expanding 4.1%.

HCLs business process outsourcing arm, which has been making losses for several

quarters, turned profitable during the June quarter, growing at a healthy 3.9%. The

bottom line for the year on the whole was $10.1 million on a turnover of $53 million,

compared to losses last year. HCL BPO has been intentionally moving away from low-

margin, voice-based contracts, said Rahul Singh, president of HCLs financial services

vertical and business services division. Amid healthy growth and higher employee

utilisation, the company saw its staff churn rates inching up from 14% a year ago to

14.9% now. HCL, which has about 85,500 employees, said it would give an 8% salary

hike for offshore employees and 3% for the onsite employees. The utilisation rate is

over 80%, but that rate may not be sustainable, said Shah of KRChoksey. And withthe rebid market being so competitive I do not think their margin levels are

sustainable.


4/13

MANAGEMENT PANEL TO DRIVE EFFORTS TO DERIVE

SYNERGIES

Top Team to Help Ambuja, ACC Integrate Key Functions

Swiss cement giant Holcim will create a new corporate structure to integrate key

functions of Ambuja Cements and its subsidiary ACC close on the heels of

restructuring the ownership composition of its two Indian arms.

The new management panel, which will initially drive joint efforts to derive synergies

in the areas of supply chain management and shared services such as human

resources and finance, will come into force from next month. Ambuja Cements MD

Onne van der Weijde will head the panel which will comprise managing director of

ACC Kuldip Kaura and Ambuja Cements CEO Ajay Kapur. Senior executive Samuel

Poletti will come on board as the integration manager, spearheading plans to bring

operations of two companies closer.

The members of the existing executive committees of the two companies including

functioning directors, chief financial officers (CFOs), zonal heads, procurement,

commercial, logistics and capex programme heads will also be key members.

Interestingly, Weijde, also a former ACC CFO, will be in charge of all the key functions

under this new corporate architecture. The respective board of directors will remain

intact as they are. The mandate of the committee is to align both companies

through the existing management to unlock synergy benefits and implement best

practices. Committee will take up direct responsibilities for the area of supply chain

optimisation and shared services which is expected to deliver . 900 crore benefits. It

is not time-bound, an Ambuja Cements spokesperson told ET.

The joint strategies will kick off with the swap of clinker and cement in different parts

of the country. For starters, two ACC plants will supply clinker to two Ambuja units

and two Ambuja plants will supply to four ACC units. Similarly, 13 Ambuja plants will

supply cement to parts of 21 states for ACC while 10 ACC plants will supply to parts

of 16 states for Ambuja.

Freight and logistics costs are significant expenses for any cement player. So, by

bringing the two together, Holcim can complement the geographical footprint and


5/13

reduce 25% of logistics costs, said a Mumbai-based cement sector analyst from a

leading foreign brokerage.

While Ambuja and ACC have been operating as independent entities, Holcim had

earlier initiated efforts to consolidate the procurement of raw material under one

roof, leading to cost savings to the tune of . 12,000 crore. But experts believe that

joint operations are possible only through cultural integration.

Coming together of two organisations is about the unison of cultures. It is only

clinical and a folly to believe that merely because two organisations service a

common client base or have a similar value chain, they can successfully integrate.

The synergy for which organisations integrate can be realised only if the

enabling environment and the cultures of different elements are integrated through

planned migration initiatives, said Adil Malia, head, HR, Essar Group.

Holcim, the worlds fourth-largest cement maker, recently announced a complexreorganisation of its ownership structure in its two Indian arms which will see

Ambuja Cements becoming its flagship company. ACC, another large Indian cement

company controlled by Holcim, will become majority-owned by Ambuja. Through a

string of intra-group transactions involving both cash and stock swaps, Holcim will

eventually hike its stake in Ambuja to 61.3% from the current 50.01% and Ambuja in

turn will buy Holcims 50.1% stake in ACC. Currently, Holcim owns a little over 50% in

both ACC and Ambuja. Together, they account for almost 20% of Holcims global

EBIDTA. Company watchers feel this reorganisation also dovetails with an ongoingglobal programme initiated in May 2012 called Holcim Leadership Journey which

aims to battle the slowdown in EU by achieving organic growth, reduce costs and

improve top line across Holcims global empire.

However, the exercise has been severely criticised by analysts and market watchers

who believe this goes against Ambujas minority shareholder interests. The

management insists that aligning management and ownership structures at both

ACC and Ambuja is a win-win for all as it will streamline operations further and see

significant cost-savings.


6/13

Cong Births A New State to Reduce Election Pangs

Telangana to have 10 districts, including capital Hyderabadthat it will share with Andhra Pradesh for 10 years

Congress has conceded the long-pending demand for carving a separate state of

Telangana out of Andhra Pradesh despite sharp dissensions among its local leaders, a

move seemingly calculated to reap electoral dividends for the party in the next

general elections. The Congress Working Committee on Tuesday endorsed thedemand, granting statehood to Telangana, which will have 10 districts, including

capital Hyderabad that it will share with Andhra Pradesh for the first decade and get

to claim as its own thereafter. Congress, however, gave up under pressure from local

leaders the proposal of cleanly bifurcating Andhra and merging two districts of

Rayalaseema region, Anantapur and Kurnool with the new state. It is resolved to

request the central government to take steps in accordance with the Constitution to

form a separate state of Telangana-within a definite timeframe, CWC said.

Electoral Considerations

This was stated in a resolution after the partys allies approved the decision at a

coordination committee of the Congress-led ruling coalition.

While the decision evoked cheers in Telangana, the United Andhra Pradesh Joint

Action Committee called for a bandh in the Rayalaseema and Andhra regions on

Wednesday. Although Congress leaders insisted that the decision had little to do

with political considerations, electoral compulsions appeared to be clearly weighing

on their minds, especially since the party has lost considerable ground in the state

that made a handsome contribution to propelling it to power at the Centre in both

the 2004 and 2009 Lok Sabha polls.

Political expediency cannot be a reason for such a far-reaching decision, Digvijaya

Singh, the partys general secretary in charge of Andhra Pradesh, said. At the same

time, he expressed hope that K Chandrasekhara Raos Telangana Rashtra Samithi

(TRS) would merge with Congress. As far as TRS is concerned, KCR has repeatedly


7/13

given statements that his party would merge with Congress after Telangana is

granted statehood. We shall await a reaction from TRS. We will be favourably

inclined to discuss this issue with them, Singh said. The actual formation of the

proposed state, Indias 29th, will take about four-five months, Singh said.

The main opposition, BJP, which had promised formation of Telangana if it came to

power at the Centre, demanded that the government bring the bill in Parliaments

monsoon session, which will begin on August 5. We dont want Congress to only

make an announcement. It should also bring a bill in Parliament in the monsoon

session, Javadekar said, adding the bill will be passed by both Houses.


8/13

PAYMENT CRISIS AT NSEL


9/13

Have to Find Solutions for CAD: Subbarao

In what could be his last monetary policy, RBI governor D Subbarao has

maintained status quo on rates after tightening liquidity a fortnight before

the policy. Defending his policy action, Subbarao says that his measures willbe rolled back once the rupee stabilises which will create room for more

monetary easing.

What is the rationale for liquidity tightening to defend rupee?

We determined that the vulnerability of the rupee is hurtful for the economy for a

number of reasons. First, if the exchange rate overshoots it may not come back to

the original level. Second, rapid volatility in the exchange rate could affect the

balance sheet of banks, corporates and even households. Forex intervention is astandard tool for defending against volatility. As much as we resorted to this

instrument, we were conscious that whatever we did should not fuel speculation or

help speculators.

When will you roll back?

The roll-back of the measures would be data-dependent. Some of the indicators we

would look at are the bid-ask spread, the intra-day volatility in exchange rate,

forward contracts, importers assessment of volatility in the exchange rate, open

interest positions in the currency futures market and a number of indicators to

determine if volatility in exchange rate is contained. We would also make an

assessment of the global markets and see how vulnerable they remain to

announcements. We are as anxious as everybody to roll it back but to be locked into

a timeframe is both infeasible and not advisable.

Are you in favour of the government issuing sovereign bonds?We have reservations about that. There are costs. It will compromise our financial

stability. There is a lot of value to be attached to governments borrowing in the

domestic market. We have learnt that lesson. Emerging economies are not as unsafe

as they would have been because the borrowing has been domestic. Will we really

get a lower rate because it is a sovereign issue? It is not clear.


10/13

Would interest rates be slashed to support growth?

Rates will come down in future but not until such time as volatility in the exchange

rate is contained.

Is RBI more in favour of using exchange rate management tools to manage

economy than increase interest rates?

No. I dont think that inference would be appropriate. We would use all economic

variables both interest rate and exchange rate for macroeconomic stability,

growth, macroeconomic management and external sector management. We have to

find structural solutions for current account deficit. RBI is interested in long-term

plans of financing the current account deficit.


11/13

Sen v Bhagwati / Cong v BJP

Both economists and both political parties agree on development and disagree only in

degree

The Indian media specialises in infotainment. An entertaining spin converts boring

information into heated discussion. Some journalists have equated the Amartya Sen-

vs-Jagdish Bhagwati debate with the Congress-versus-BJP debate in the coming

general election.

Rubbish! Sen does not embody the Congress, nor Bhagwati the BJP. Both the

Congress and BJP borrow ideas from both. The boring truth is that differences

between Sen and Bhagwati are much exaggerated, as also between the Congress andBJP.

Four-Way Crossroad

Narendra Modi and Bhagwati focus more on growth than distribution. Sonia and Sen

focus more on distribution than growth. Yet, all four clearly favour both growth and

distribution. The differences are on how to optimise the mix. These differences are

debated with great heat. But the big picture remains that Sen, Bhagwati, Congress

and the BJP all believe in both growth and distribution. More to the point, the

differences between Sen and Bhagwati are not the differences between the

Congress and BJP.

Frenemies for Coopetition

Both favour schemes and projects while in office, and then oppose the same when in

Opposition. The BJP favoured FDI in insurance and pension funds when in power, but

opposed these when in Opposition. The BJP initiated the move for a goods andservices tax, but now has many reservations being in the Opposition. The BJP is

supposed to be more relaxed on labour laws (notably in Gujarat), yet contract labour

use has risen hugely under the UPA, including in Congress-ruled states like Haryana.

Even on secularism, lets not exaggerate Congress-BJP differences. The Congress

lambasts Modi for the 2002 Gujarat riots. Yet, in the 2012 Gujarat elections,


12/13

Congress chose Shankersinh Vaghela, a defector from the BJP, to head its campaign.

Vaghela had led the Ram Janmabhoomi movement in Gujarat, and left the BJP only

because it did not make him chief minister. By choosing Vaghela as its Gujarat leader,

the Congress adopted soft Hindutva.

What does this imply? It means that being for the Congress or for the BJP does not

mean much in terms of economics and means only a little more in terms of

secularism.

Sens objection to Modi has nothing to do with economic policy. True, Sen is critical

of some aspects of Gujarats development, such as relatively slow progress in social

development. But Sens overwhelming objection to Modi is that he is a divisive figure

in a nation needing harmony.

Columnist Mihir Sharma has succinctly summed up Modis limitations as a reformer.

Like the rest of his party, Modi has objected to FDI in retail. He has decried theincrease in diesel prices that is essential for fiscal stability. He has opposed the cap

on cooking gas cylinders, and announced a partial write-off of rural electricity bills.

He has objected to the proposed GST. He talks of minimal government, but says this

does not mean small government.

Modi has not attacked the provisions of the Food Security Bill or MNREGA, as

Bhagwati has done. So, while Modi is a good manager and reformer, he is also a

calculating populist, which Bhagwati is not.

Some say the Congress has taken the idea of entitlements on food andemployment from Sen. Maybe, but Congress has also taken the idea of Aadhaar and

cash transfers from Bhagwati. Some BJP governments have experimented with cash

transfers, others boast of success in distribution of cheap grain. Sen praises BJP chief

minister Raman Singh of Chhattisgarh in this respect.

The rather boring conclusion: there is much ado about rather little. There are

differences between Sen and Bhagwati, and between Congress and BJP. Both are

exaggerated. Sen is not Congress, and Bhagwati is not BJP. And the differences

between Sen and Bhagwati are not the differences between Congress and the BJP.


13/13

New Companies Bill to make doing businesseasier: Sachin Pilot

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