Current Economic Statistics and Review For the Week 
Ended January 22, 2005 (4^th Weekly Report of 2005)

  I

Highlights of  Current Economic Scene

Infrastructure

Due to soaring crude prices, Brazil passed a Bill to compulsorily blend 2 per cent bio-diesel made from castor oil and soya oil into diesel. Brazil also planned to set- up new plants to promote and produce more bio-diesel as 5 per cent of bio-diesel required 2.2 million tonnes of edible oil. Similarly, Turkey used 25,000 tonnes of palm oil a year to blend with oil. 

Tata Steel planned to increase its steel- making capacity from the present 4 million tonnes per annum (mtpa) to 15 mtpa by 2010 towards global integration of steel industry by reducing steel tariffs and integrating capital market.

The Switzerland- based Holcim invested $ 800 million (approximately Rs.3,520 crore) in a deal with the Associated Cement Companies (ACC) which permitted a stake of 50.01 per cent and as a consequence, control over it.

Maharashtra State Electricity Board (MSEB) planned to invest Rs.150 crore in viable renewable energy projects.

Corporate Sector
Company results
Cement, steel, information technology (IT) and automobile companies have done well in the third quarter of 2004-05, propelling the aggregate net profit of 91 companies, which have declared results so far, to a robust 67 per cent. These 91 companies reported sales growth of 24 per cent in the third quarter of 2004-05 over the corresponding period of the previous year. Operating profit margins increased by 300 basis points between December 2003 and December 2004, contributed by a 60 per cent rise in other income and a 15 per cent decline in interest costs. 

India Inc is poised to record an all-round better performance during January-March of 2005 compared with the corresponding period of the previous year, according to Dun & Bradstreet’s Business Optimism Index for the country. The survey also shows that business confidence has risen compared with the last year. The index also showed that all the six optimism indices, namely volume of sales, net profits, selling prices, new orders, inventory levels and employees, have increased over the previous year. 

Reliance Industries Ltd, India’s largest private company announced an over 52 per cent increase in its net profit to Rs 2,091 crore for the third quarter of 2004-05 as compared with Rs 1,374 crore in the corresponding quarter of the previous year. 

ITC Ltd reported a 17.9 per cent rise in post-tax profit for the third quarter of 2004-05 at Rs 448.94 crore on the back of a 10 per cent rise in net sales for the quarter at Rs 1,795 crore. 

Wipro Limited’s net profit for the third quarter of 2004-05 increased 56 per cent to Rs 427 crore as compared to the corresponding quarter of the previous year. 

Bharat Forge reported a net profit growth of 25.5 per cent in the third quarter of 2004-05, lower than 29.1 per cent growth in the first half of the financial year 2004-05. 
Jindal Stainless has reported a net profit of Rs 66 crore for the third quarter of 2004-05, recording a growth of 40 per cent over the third quarter of the previous financial year. 

Net profit at Videsh Sanchar Nigam Ltd (VSNL), the international long distance and internet service provider, dropped by 21.33 per cent at Rs 142.3 crore for the third quarter 2004-05 compared with Rs 180.9 crore in the corresponding quarter of the previous year. 

Castrol India’s net profit declined by around 7 per cent to Rs 127.46 crore for the third quarter of 2004-05 compared with Rs 137.38 crore in the corresponding quarter of the previous year. 

Ranbaxy Laboratories reported a 24.3 per cent decline in its profit before exceptionals and tax in the third quarter of 2004-05, despite a 28.2 per cent increase in sales. 

Cipla has posted a 66.84 per cent increase in net profit to Rs 125.67 crore for the third quarter of 2004-05 compared with Rs 75.32 crore in the corresponding quarter of the previous year. 

Tata Chemicals posted a 63 per cent increase in net profit to Rs 96.5 crore for the third quarter of 2004-05 against Rs 59.15 crore in the corresponding quarter of the previous year. 

Bajaj Auto posted a marginal 0.85 per cent rise in its net profit at Rs 182.66 crore for the third quarter of 2004-05 against Rs 181.11 crore in the corresponding quarter of the previous year. 

Tata Iron and Steel Company’s net profit for the third quarter zoomed by 99 per cent to Rs 890.51 crore for the third quarter of 2004-05 compared with Rs 447.17 crore recorded in the corresponding quarter of the previous year. 

Satyam Computer Services Limited reported a 19.82 per cent increase in its net profit for the third quarter of 2004-05 at Rs 174.78 crore as compared to Rs 145.86 crore in the corresponding quarter of the previous year. 

The Associated Cement Companies recorded a 138 per cent increase in its net profit from Rs 22.32 crore in the third quarter of 2004-05 to Rs 53.08 crore in the corresponding quarter of the previous year. 

Indian Petrochemicals Corporation Ltd (IPCL) recorded a 133 per cent increase in its net profit to Rs 189 crore for the third quarter of 2004-05 compared with Rs 81 crore in the corresponding quarter of the previous year. 

Gujarat Ambuja Cements posted a 50.4 per cent increase in its net profit to Rs 89.55 crore for the third quarter of 2004-05 against Rs 59.54 crore in the corresponding quarter of the previous year. 

Tata Power Company posted a 25.6 per cent decline in its net profit at Rs 137.27 crore in the third quarter of 2004-05 compared with Rs 184.49 crore for the corresponding quarter of the previous year. 

Nicholas Piramal posted a net profit of Rs 78.92 crore for the third quarter of 2004-05 up 118 per cent compared with Rs 36.17 crore in the corresponding quarter of the previous year. 

Sun Pharmaceutical Industries reported a 14.6 per cent rise in its profit after tax for the third quarter of 2004-05 at Rs 80.72 crore compared with Rs 70.46 crore for the corresponding quarter of the previous year. 

Company issues
Fresh evidence has come to light that Reliance Industries Ltd (RIL) will have to wait to get Rs 8,100 crore it had invested in Reliance Infocomm by way of preference shares till other lenders to Reliance Infocomm are repaid. 

Private companies shortlisted for developing six stretches in the third phase of the national highway programme are finding their cost calculations going awry because of a steep increase in the prices of steel and cement. Despite the bidding process being completed in April 2004, contracts are yet to be awarded to these companies. 

The specified undertaking of the Unit Trust of India (SUUTI) or UTI-I will be returning close to Rs 3,000 crore to the government in the next two months. UTI-I had received this amount as part of a bailout package from the Union government. 

The Securities and Exchange Board of India (Sebi) informed the Supreme Court that it had given conditional consent to the settlement between the Vijay Mallya-owned UB group and the Chhabria group regarding the ownership of liquor company Herbertsons Ltd. 

Four years after the Khaitan-Magor split, the last of the crossholdings between the two families has been untangled with the Khaitan family buying out Philip Magor’s 27 per cent holding in Williamson Magor & Co, the holding company of the Brij Mohan Khaitan group.

Foreign Institutional Investors (FIIs) have increased their collective stake in the flagship company Reliance Industries from 22.85 per cent as on September 30, 2004 to 22.97 per cent at the end of December 2004.

Mergers & Acquisition
Bharat Petroleum Corporation has decided to merge its subsidiary Kochi Refineries Ltd with itself in the ratio of 1:2.25. 

New ventures
Hutchison International Ports Holdings, a wholly owned subsidiary of the Hong Kong based Hutchison Whampoa, is looking at entering the Indian port sector following the government’s decision to allow 100 per cent FDI. 

The Illinois, US-based $ 20 billion Deere & Co, which manufactures agricultural, construction, consumer and forestry equipment, is setting up a $ 15 million outsourcing unit in Pune. 

Hindustan Petroleum Corporation Ltd, has planned to start construction of a 9 million tonne per annum capacity refinery in Bhatinda in Punjab. 

French building materials giant Lafarge increased its stake in cement activities in India, South Korea and Japan by investing $ 141 million.

Balrampur Chini Mills has decided to invest in a greenfield sugar plant in Uttar Pradesh at an estimated cost of Rs 200 crore. 

The Chennai-based TVS Motor Company is setting up a plant in the Uttaranchal state. This will be TVS Motors’ third plant. Its two existing production facilities are located at Mysore and Hosur in Karnataka. 


According to the External Affairs Minister, India was making diplomatic initiatives to secure oil and gas from Persian Gulf, Russia and Africa. Negotiations were on to significantly expand India’s investment in Russia’s energy sector. 

Shell India will go in for flexible natural gas supply contracts, including short term and spot purchases, for its 5 million tonne liquefied natural gas terminal at Hazira in Gujarat. The company may also opt for shipping gas by third party vessels. 

After acquiring a cold-rolling mill in Indonesia last year for $ 30 million, the Ratan Jindal controlled Jindal Stainless Ltd is rolling capacity in Taiwan, Vietnam and Thailand. 

The Gujarat State Petroleum Corporation Ltd (GSPCL) would start online gas trading for the first time in the country in March. 
Jet Airways, the country’s largest private sector airline, has designed an ambitious Rs 180 crore investment plan. 
Reliance Infocomm has planned to raise Rs 3,750 crore in fresh capital by March 2005, according to documents the company filed with its bankers regarding a $ 250 million syndicated loan the company raised in 2003-04. 

Disinvestment
Riding the upturn in the steel cycle, the Steel Authority of India has put the disinvestment of three of its units viz., Salem Stainless Steel Plant, Alloy Steel Plant in Durgapur and Visvesvaraya Iron and Steel Plant in Bhadravati-on the backburner. 

Petrochemcials
Power Finance Corporation (PFC) is likely to refinance Petronet LNG’s outstanding high-cost borrowings. The two companies are in discussions to determine the interest rate and quantum of debt. 

Labour
According to NSSO (National Sample Survey Organsiation), the growth rate of employment has declined from 2.7 per cent per annum during 1983-94 to 1.07 per cent per annum during 1993-2000 as against the growth of GDP which increased from 5.2 per cent to 6.7 per cent during the comparable period. The aggregate employment in private sector large industries has increased by an annual compound rate of 0.9 per cent between 1993-94 and 2001-02, when the public sector employment declined by 0.4 per cent. The share of private sector in the total employment in the country’s organised sector has augmented from 25.6 per cent to 27.6 per cent during the same period. The public sectors’ share has declined from 71 per cent in 1993-94 to 69 per cent in 2001-02. Although the larger share of employment in the private sector was accounted for by service industry including finance, real estate and insurance, the manufacturing industry too has witnessed an annual compounded growth by 0.6 per cent raising it’s share in total employment from 16.9 per cent to 17.9 per cent. In contrast, the share of employment in the public sector manufacturing industry has fallen by 3.5 per cent annually during this period. 

Inflation
The annual WPI-based inflation fell to a 31-week low to 5.6 per cent for the week ended January 8, 2005 from 5.78 per cent recorded during the previous week, mainly due to a fall in food articles. Inflation was higher at 6.63 per cent a year ago. Inflation fell for the sixth consecutive week since November following a series duty cuts on petroleum, polymers and steel products by the government while the RBI sucked off excess liquidity through repo rate last year. Wholesale price index (WPI) stood unchanged at previous weeks’ level at 188.6 points but was higher than 178.6 points a year ago. The primary articles group index dipped by 0.1 per cent to 185.9 points as food articles turned low-priced, while non-food articles went up by 0.3 per cent. The fuel, power, light and lubricants group index was up by 0.2 per cent to 288.1 points due to a hike in electricity prices by 1 per cent. Manufactured products group index rose by 0.1 per cent to 167.4 points. The government also revised WPI figure upwards to 190.6 during the week ended November 13, 2004, while correcting the inflation to 7.68 per cent as against the provisional figure of 7.34 per cent. 

Banking
ICICI Bank has reported a growth of 17.62 per cent in its net profit in the third quarter of the current fiscal at Rs.517.68 crore as against Rs.440.10 crore in October – December 2003. The total income for the reporting quarter rose to Rs.3269.09 crore as against Rs.3032.94 crore in the corresponding quarter last year. The credit card base of the bank stood at 30 lakh at the end of December 2004. The bank’s board has approved a proposal to set up offices in Indonesia, Malaysia, Thailand and Kenya, subject to regulatory approvals. 

Net profit of Corporation Bank in the third quarter ending December 2004 has increased by 43 per cent to Rs.161.69 crore as against Rs.113.28 crore recorded in the corresponding quarter of 2003. Net non-performing assets (NPA), which was 1.69 per cent has come down by 20 basis points to 1.49 per cent. 

Asset Reconstruction Company (India) Ltd. (Acril) has acquired 203 non-performing assets (NPA) accounts, aggregating Rs.11256 crore from 21 banks and financial institutions, and issued security receipts amounting to Rs.2507 crore, since its inception in August 2003. A break up of the industry-wise distribution of assets acquired by Acril shows that the maximum security receipts (SRs), aggregating Rs.680 crore, have been issued against NPAs in the cotton textile sector. The cotton textile sector is followed by iron and steel (Rs.280 crore); woollen textiles (Rs.155 crore); packaging (Rs.139.2 crore); chemicals (Rs.122.3 crore); cement (Rs.118.7 crore); aluminum (Rs.109.3 crore); construction (Rs.89.8 crore); consumer products (Rs.81.6 crore); paper (Rs.77.2 crore); cable (Rs.76.3 crore); engineering (Rs.69.6 crore); food (Rs.53.2 crore); hotel (Rs.28.9 crore) and others (Rs.277.2 crore). 

The swap ratio for the merger of IDBI and IDBI Bank has been pegged at 100:142 (100 shares of IDBI for 142 shares of IDBI Bank). 

Banks are finding the refinance provided by the National Bank for Agriculture and Rural Development (Nabard) in lieu of loans extended by them to the agriculture sector, an attractive proposition in view of hardening interest rates. This is underscored by the fact that Nabard has reported a whopping 120 per cent jump in refinancing disbursements to banks at Rs.5891.80 crore in the April-December 2004 period as against Rs.2674.76 crore in the corresponding period last year. The quantum of demand for refinance from banks can be gauged from the fact that NABARD has disbursed 69 per cent of its total disbursement target of Rs.8500 crore in the first 9 months of the current financial year. Nabard offers refinance to banks at 5.5 per cent per annum. Last year, demand for refinance was low due to ample liquidity in the banking system. 

The task force on revival of co-operative credit institutions, in its final report, has called for radical changes in the way co-operative credit societies are constituted, managed and regulated. Also it suggested that the Reserve Bank of India (RBI) should exercise its regulatory powers under the Banking Regulation (BR) Act directly. Apart from this, it has also called for change in co-operative credit structure. As per the report, it has been argued that the state governments needed to make legislative amendments to enable RBI to exercise its regulatory powers under BR Act directly and not through the registrar of co-operative societies (RCS), if the co-operatives were to be regulated effectively. The task force has recommended that the state governments should enter into an appropriate memorandum of understanding, agreeing to desist from interfering directly or indirectly in the management of the finances of these banks. According to the report, a radical change is necessary in the way co-operative credit societies are constituted, managed and regulated at present. Expressing its dissatisfaction, the task force has pointed out that the state governments have shown little inclination towards reforms. As per the suggestion of the task force it is essential that all users – depositors and borrowers be made full members with equal voting rights to strengthen the mechanism of internal supervision and enforcement of credit discipline. 

UTI Bank board has approved the proposal to raise capital aggregating $200 – 250 million through a global depository receipts (GDR) issue. The bank’s GDR issue is likely to hit the market in March. The fresh capital will be used to boost the capital adequacy ratio and meet the requirements of the stringent Basel-II norms. 

Information Technology
IT services major iGATE Global Solutions has announced plans to hire 1000 professionals this year in a bid to expand its integrated technology and operations capacity. The expansion will take the company’s headcount in Noida and Chennai to 850 and 1700 respectively. iGATE is present in 12 countries and maintains development centres in the US, the UK, Canada, China, Malaysia and India. 

Nasdaq-listed Saba Software has expanded its presence in India with the opening of its second development centre. The company has been present in Mumbai since 1999 and has now opened its Pune development centre. 

Telecom
Tata Teleservices Limited has launched its services in Uttar Pradesh and Uttaranchal with the commitment of an investment of Rs.525 crores in the first phase and a total of about Rs.1000 crore in the next 4 years. The coverage would reach up to 44 towns in two states by March end of the current fiscal. 

Public Finance
The government unveiled a white paper on the value added tax (VAT) setting the ground rules for the new tax regime. Some important pointers to the white paper are:
- VAT will cover 550 items.
- Traders below the Rs 5 lakh turnover will be outside the purview of VAT. 
- All registered traders will be given 11 digit Tax Identification Number before March 31. 
- VAT payable will be equal to difference between input and output tax. 

States will have the option to exempt rice and other foodgrains from the value added tax (VAT) in the first year of the new regime, which would be subject to review later. The empowered committee of the state finance ministers has decided to either exempt specific foodgrains from VAT or levy the merit good rate of 4 per cent considering their socially sensitive nature. In addition, the committee has also given tea growing states the freedom to impose 4 per cent VAT on tea instead of the general rate of 12.5 per cent in the first year of VAT. In addition to this, exporters will get full refund on VAT within three months from the date on which they pay the new levy. In line with the policy of not taxing exports, units located in special economic zones (SEZs) and export oriented units (EOUs), will be exempted from VAT. In case exemption is not possible, refund will be provided within 3 months.

The Supreme Court in a recent ruling has said that states cannot impose luxury tax on goods. The luxury tax can, however, be levied if the goods are linked to services. Several states including West Bengal, Karnataka and Maharashtra imposed a luxury tax on cigarettes and gutkha. The total collections from this tax is estimated at about Rs 2500 crore.

The finance minister is likely to halve the basic customs duty on synthetic fibre intermediates- PTA, MEG, DMT and caprolactum- to 10 per cent and reduce it on fibres PFY, POY, NFY and PSF-to 10 per cent from 20 per cent. The basic customs duty on butane, heptane and octane were also likely to see a reduction from 15 per cent to 10 per cent. Excise duty on PFY, POY is likely to see a reduction from 24 per cent to 8 per cent, while that on PSF and NFY may see a cut from 16 per cent.

The finance minister has said that an anomaly exists in the petro-product duty structure as taxes and subsidies coexisted on the same products. LPG and kerosene continue to attract customs, excise and sales tax levies despite huge subsidies on these products. The finance minister has further stated that the government will go in for restructuring of duties to make domestic oil companies globally competitive. The finance minister has further suggested that there should be fuel neutral taxes for the sector along with transparent pricing of subsidies.

Stamp Duty rates on property transactions may be cut to 4-6 per cent across states to curb generation of black money. The government is set to consider a proposal to compensate states on revenue losses if they agree to lower stamp duty rates within the proposed band.
Finance Minister ruled out changes in tax laws for micro-finance institutions (MFIs) and allowing foreign equity in the sector, but kept options open for a separate fund for them. To a demand for setting up a separate regulator for MFIs, he said that one should move cautiously as India was already over regulated’’

According to the Food Corporation of India, the food subsidy bill will be less by Rs 1000 crore in the current fiscal year. The budgeted estimate was Rs 25,800 crore. This is mainly due to the reduction in inventory of Food Corporation of India. The carrying costs was reduced to Rs 19,662 crore in 2004-05 from Rs 21,570 crore in the previous year. FCI currently holds a stock of 21.927 million tonne as against the average buffer norm of 16.65 million tonnes. Though the increase in procurement prices of wheat and paddy and the increase in prices for procurement of wheat and paddy will inflate the procurement costs, the marked reduction in carrying costs will reduce the total subsidy bill.

The Planning Commission has objected to the finance ministry’s decision of not allowing the central ministries to spend more than one-third of the approved Plan outlay in the last quarter of the fiscal year. The move, which was aimed at punishing ministries for not spreading out their expenditure evenly throughout the year has been met with objections from the Planning Commission in a letter to the finance ministry stating that ministries witness several constraints in utilising the approved amount in the beginning of the fiscal.

State governments may be asked to prepay some of their loans taken from the public sector especially LIC, by taking partial funding support from the Centre. While the Centre had floated the scheme of pre payment last year, none of the states have taken advantage of the facility so far. States claim they have no funds to undertake the debt swap, which was expected to run parallel with the scheme to liquidate loans taken from the centre. 

The rising revenue deficit has worsened the fiscal deficit position of 14 states. Orissa and Bihar have been the two worst performers over a five-year period from 1997-98 to 2001-02. According to a recent study, the gross fiscal deficit -state domestic product ratio (GFD/SDP) rose from 4.1 per cent during 1997-98 to 6.19 per cent during 2001-02 (revised estimates). Of the 14 states studied, nine states have shown the ratio above 5 per cent. 

As per the recommendations by the Twelfth Finance Commission (TFC), the total outgo to the states is expected to be around Rs 30,000 crore a year. This will include the benefits states will get due to higher devolution, significantly higher non-Plan grants, a reduction in interest rates on outstanding debts to 7 per cent and an extension of the repayment period to 20 years. The commission’s recommendations will be in effect for the next five years (2005-10).

Capital Market
Primary Market:
The Mumbai-based Shringar Cinemas plans to float 81.5 lakh shares at face value of Rs. 10 each at a price to be determined through 100 per cent book-built route.

Reliance Infocomm plans to raise Rs. 3,750 crore in fresh capital by March 2005; this capital raising exercise can take the form of preference shares, equity or equity-like instruments such as convertible bonds.

Jet Airway’s proposed IPO offer of 17,266,801 equity shares of Rs. 10 each for cash at a price to be discovered through a book-building process has been studied in details by Sebi.

Secondary Market:
A fall in the inflation rate and the merger of IDBI with the IDBI Bank on the last trading day of the week did not boost the market sentiments much. The BSE sensex gained 9.92 points to settle at 6,183.24, amid high volatility due to lack of fresh triggers. The selling spree by the FIIs continued as the net outflow of the FIIs stood at Rs. 226.1 crore compared to Rs. 189.1 crore in the previous week. 

The S & P CNX Nifty registered a decline of just 0.30 per cent during the week to close at 1,925.30 level, while, the NSE 500 witnessed a fall of 0.46 per cent. 

The average total combined turnover on the BSE and NSE dipped at Rs. 6,758.83 crore as compared to Rs. 7,404.82 crore in the previous week. 

Derivatives:
The NSE F & O segment witnessed a high trading interest and FIIs were among the major contributors to the volatile movement. The open interest declined for most part of the counters and the outstanding position in the Nifty futures remained flat during the week. 

In the Nifty options trading volumes were decent and positions were built up at 1,950 and 2,000 levels for Nifty calls and 1,900. 1,950 and 2,000 levels for put. The put-call ratio for outstanding positions remained range-bound at 0.86 and 0.89 during the week.

Government securities market
Primary Market:
The RBI has announced the auction of 91-day T-bills for a notified amount of Rs. 2,000 crore, of which Rs. 1,500 crore will be auctioned under the market stabilization scheme and Rs. 500 crore under regular auction calendar.

Secondary Market:
The market sentiments continued to remain weak amid appreciating dollar and high global crude oil prices. The call money rates moved in the range of 4.50 per cent to 4.80 per cent. Comfortable liquidity saw an increase in the volume of the RBI’s reverse repo auctions, an average amount of Rs. 19,352 crore remained parked under reverse repo auction during the week ended January 20, with Rs. 15,355 crore remaining outstanding as the end of the week.

The SGL traded volumes remained in the range of Rs. 2,000-2,500 crore during the week. The yields continued to firm up, despite a decline in inflation at 5.6 per cent for the week ended January 8. In a five- day week of trading cycle, the yield on 7.38 per cent 2015 ended the week at 6.74 per cent as against the previous week’s close of 6.69 per cent. 

Bond Market:
In a subdued market, the triple-A rated five-year benchmark yield rose to 7.05 per cent, while its spread over comparable government bond eased by eight basis points to five per cent.

Allahabad Bank is likely to raise Rs. 700 crore through its second trench of public offering.

UCO Bank is to raise Rs. 250 crore Tier-II capital, including greenshoe option of Rs. 50 crore, through its private placement of unsecured, redeemable, non-convertible, subordinate bonds (Series V). 

Foreign Exchange Market:
The decline in Asian currencies and the renewed rise in the crude oil prices weighed on the rupee, which rose to two-week highs of 43.67 against dollar. The foreign exchange reserve rose by $266 million to $129.4 billion in the week ending January 14, after a drop over $2 billion a week earlier. The forex reserve was led by a rise in the foreign currency assets and the reserve trenche position (RTP) with the IMF. Foreign currency assets rose by $252 million to $123,374 billion led by a revaluation of international currencies.

Commodity Market:
The Multi-Commodity Exchange (MCX) has launched futures trading in jeera (cumin seeds) from January 17.The contract size has been kept at two tonne, with quotation of price per kg and a tick size of ten paise. Each contract would be of three months, expiring on 15th of every month. The maximum order size is 50 tonne.

The National Commodity and Derivatives Exchange Ltd. (NCDEX) launched futures trading in cocoon and raw silk.

Credit Rating:
Crisil has upgraded the credit rating of Essel Mining & Industries Limited (EMIL) Rs. 25 crore for bond programme to AA/stable from AA-/stable, the upgradation reflects EMIL’s increased scale of operations with successful commissioning of Apahatu and Kasia mines.

Icra has assigned an LAAA rating to the State Bank of Mysore’s Rs. 1.75 billion tier-II bond programmme. It had recently upgraded the rating assigned to State Bank of Mysore’s Rs. 60 crore Tier-II bonds programme to LAAA from LAA-.

In another exercise, Icra has withdrawn the LBBB rating assigned to East Coast Construction & Industries’s Rs. 5 crore long-term redeemable preference shares programme as the company has not issued the rated instrument. It has also reaffirmed the LA+(so) rating assigned to the Rs.1,600 crore bonds of Karnataka Neeravari Nigam.

Care has retained the Care A rating assigned to Lakshmi Vilas Bank’s Rs, 50 crore Tier-II subordinated bond issue; the rating factors in the long standing operations of the bank, higher share of low-cost deposits, significant market presence in the rural and semi-urban market.

Theme of the week:

Boom in Auto Sales

1. At the beginning of 2004, several industry insiders had predicted that the growth in sales of vehicles would slowdown as 2003 had been a bountiful year. But, as shown by experience, the market did not show any signs of slowdown. Car companies on their part kept the excitement buzzing with a record 35 launches, including new models, variants and special editions. Despite rising international steel prices, some companies like market leaders, Maruti Udyog and Ford, reduced the prices of some of their models. Special festival discounts by Hyundai ( for three days) and Maruti Udyog ( for a week ) in November fetched the two companies around 27,000 booking each. Besides, the year saw the advent of cross-over vehicles on Indian roads. The Indigo Marina, Ford Fusion and Hyundai Getz were launched keeping in mind the gross demand for cross-over or fully loaded vehicles at reasonable price bands.

2. Thanks to buoyant demand, companies like Nissan, Audi, BMW and Porsche decided to make their vehicles available in the country through dealers. Incidentally, Suzuki Motor has announced a massive Rs. 6,000 crore investment in a diesel engine plant as well as a new assembly line in Haryana. Tata Motors, too, got into expansion mode. Its annual capacity will expand to 2,25,000 units by March 2005 from 1,50,000 per annum at present. What is significant to note is that towards the end of the year, Hyundai caused the biggest upset in the automobile market when its Santro displaced the Maruti 800 as the country’s largest selling car in November.

3. Low interest rates and higher income shrugged off rise in import costs, helping car makers to drive to the elite club of nations by selling one million cars. Surging sales forced almost all the major car makers to augment capacity. A host of factors such as rising farm income, a slew of new model launches, easier availability of finance and lower interest rates has helped the car industry in 2004. India’s 25 per cent growth in passenger vehicles in 2004 put it right on top of auto growth heap. Outstripping China’s estimated 15 per cent growth, India’s 10,44,597 units tally makes it the fastest growing volume market. Among the small car players, Hyundai Getz is a new entrant in 2004. The small car sales at 6.02 lakh units are up 20 per cent in 2004 constituting 58 per cent of car market. The Alto gained market share from 8.4 per cent in 2003 to 18.6 per cent in 2004, while Wagon ® is up from 8.6 per cent to 12 per cent in 2004. The Tata’s Indica which sells diesel model managed to raise its share from 15.5 per cent to 16.3 per cent in 2004. Meanwhile, the Maruti 800 cc has lost market share from 34 per cent to 22 per cent in 2004, while Zen has fallen from 12.4 per cent to 11.3 per cent at the same time. The Hyundai Santro’s market share is down from 18.6 per cent to 17.4 per cent, while Palio is down from 2 per cent to 0.9 per cent in 2004.

4. Turning to passenger cars in general, as per the data presented by Society of Indian Automobile Manufactures (SIAM) , in the three quarters ending December 2004, sale stood at 5,90,610 units, recording a growth of 22 per cent over the level of 4,84,019 units sold in the corresponding priod a year earlier. A notable feature is that while the share of Honda Siel cars has more than doubled from 12,365 units to 25,546 units, Tata Motor’s share rose from 76,217 units for the first time to 1,02,524 units, a growth of 34.5 per cent. What is more, Tata Motors managed to sell more passenger vehicles than Hyundai Motors. Similarly, sale of utility vehicles has moved up to 1,25,800 units in these three quarters recording a rise of 25 per cent from 1,00,636 units during the same period a year earlier. Nearly half of it was accounted for by Mahindra & Mahindra with sale of 56,369 units. Significantly, General Motors has shown a sharp rise in its share from 126 units to 8482 units.

5. Sale of utility vehicles which make up just about 17 per cent of Indian passengers vehicles also jumped 40.7 per cent in December promoted by attractive price offer by market leader Mahindra & Mahindra on its Scorpion model and strong sales of Tavera utility vehicle from General Motors. What is surprising to note is that despite Qualis being best-seller in the utility vehicle category, the company has decided to withdraw its product as the Japanese producer believes in giving its customers the product of latest and best technology. Qualis recorded its highest ever monthly sale of 4000 units in December. Toyota entered with Qualis in 2000 and managed to capture a 35 per cent of market share in the very first year. The Japanese giant has already stopped its production last month and has asked dealers to clear all inventory to make way for the launch of an all new multi-utility vehicle Innova in February 2005. The Innova to be powered by a 2 litre petrol and 2.5 litre diesel engine is estimated to be priced in the range of Rs. 7-9 lakh.

6. According to SIAM, in the nine months of fiscal ending December 2004 the commercial vehicles registered an even higher growth as sales moved up 25.51 per cent to 2,23,303 units against 1,77,910 units in the same period last fiscal. A total of 1,38,2000 units at a growth of 26.32 per cent were sold in the medium and heavy commercial segment led by good demand for Tata Motors, Ashok Leyland and Eicher Motors. Light commercial vehicles saw a 24.33 per cent growth so far this fiscal on sale of 85,103 units against sales in the first nine months of the previous fiscal of 68,502 units and the bulk of the growth has been contributed by the goods carriers where sales moved up 28.68 per cent to cross 70,000 units. 

7. The two wheeler industry crossed the six-million mark in the calendar year January-December 2004. The performance of the motorcycle segment has been impressive registering a growth of 19.5 per cent during the calendar year 2004, while the cumulative growth for April-December 2004 has slightly below the annual rate. India’s motorcycle sales have boomed in the past 10 years, induced by rising incomes, the launch of jazzy new models, falling prices, poor public transport and a shift in tax payers preferences to bikes from scooters. In December, sale of motorcycles jumped 51.62 per cent to 4,59,458 units boosted mainly by the success of two new models launched by Bajaj Auto. Bajaj sales leaped 109 per cent to 1,37,713 units in December well ahead of market leader Hero Honda ’s 44.7 per cent sales rise and 19.6 per cent reported by the third ranked TVS Motors. The strong growth in December has helped the motorcycle industry to clock 28.04 per cent sales growth in October-December quarter, its fastest quarterly rate in two years.

8. The performance of automobiles has been impressive not only within the country but also in terms of exports. Vehicle exports continued to show positive trend with an overall growth of 32.8 per cent in April-December 2004 at 4,53,591 units against 3,41,626 units in the same period last financial year. While passenger cars experienced a 40 per cent growth at 1,21,478 units as against 86,744 units in April-December 2003, commercial vehicles exports were up 75 per cent at 19,931 units as against 11,383 units. Two wheeler exports so far this fiscal jumped by 37.21 per cent to 2,56,765 units and three wheelers were the only segment to show a decline in exports by 3.57 per cent to 51,535 units against 53,443 units in April-December 2003.

9. It now appears certain that Indian manufacturers are set to increase their car prices by 5 to 8 per cent from April 1, 2005 onwards after tough emission norms called Bharat 3 comes into effect from the same day in 11 cities. While market leader Maruti Udyog was the first to announce the Rs. 15,000 hike, other car makers like Hyundai and Tata Motors were also planning a similar hike. A Tata Motor official said that car price hike is inevitable considering the rise in input costs as well as upgradation of technology to meet the new emission norm. Other car makers like Fiat and General Motors say that they will follow the industry trend. Bharat 3 models are remodified engines to reduce emission levels along the lines of Euro 3 norms. Already, car makers have come under pressure from higher prices of raw materials such as steel, aluminium and rubber, while marketing and sales promotion expense are also showing a rise. The car makers are also expanding capacities to meet the rising cost of investment which is also adding to the overall costs.

10. Industry watchers expect new car launches to contribute around 15 per cent of total sales in 2005 against 10 per cent in 2004. The sustained excitement created by new launches by both domestic and multinational companies has kept up the pace of sales in car market. Analysts say that product life cycle has reduced as a result of which a face lift or a variant is needed every six months. Indian automobiles manufacturers are estimated to sell over a million passenger vehicles in the domestic market this fiscal. Industry estimates say that sales for last year would have touched 1.03 million units from 8.04 lakh units in 2003. Out of 22 per cent growth in car sales during April-December 2004, 9-10 per cent was accounted for by new cars or relaunches of existing models. Some of the relaunches include Fiat-Petro, Maruti-Esteem and Honda-Accord, while the new launches include General Motor’s Optra, Toyota’s Corrolla, Honda’s City, Ford’s Fusion, Hyundai’s Elantra and Getz.

11. The outlook for 2004-05 is promising and it is expected that the current growth rates of GDP and industrial output will be sustainable which would ensure robust growth in the automotive sectors. Car sales have been on the upswing all through the current fiscal, maintaining double digit growth month after month. The country in fact witnessed one of the highest festive season car purchases last November with Maruti and Hyundai – two of the largest car makers in India – booking orders that on their part kept the excitement on with product upgrades, new launches and even limited price cuts. However, there are already signs that banks would raise interest rates on vehicle loans in 2005 and as a result the cost of new car would also look up.

*These statistics and the accompanying review are a product arising from the work undertaken under the joint ICICI research centre.org-EPWRF Data Base Project.

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