Midnight News Update – Nov 03rd 2017
Vedanta put up another quarter of sterling performance as its metals business performed extremely well. There was positive growth in EBITDA in the zinc and the copper business while the oil business showed negative EBITDA growth. While Vedanta too has problems with rising costs, the rising prices of metals in the market has been the big boost. China’s growth appears to have stepped up and Europe is seeing a revival of GDP growth back to the 2.5%. Both these factors have propelled demand for metals. Nearly 80% of the rise in profits came from better realizations in the price of metals.
For the quarter ended September 2017, Bharat Electronics reported 46% growth in revenues and a 19% growth in profits. The performance in the September quarter is boosted largely by the execution of large project orders. Its current order book is being largely driven by the Integrated Air Command & Control Systems (IACCS), weapon locating radars and the Akash missile programs. The order backlog of the company stands at nearly 4.8 times its annual revenues and that assures the company quality of growth in the quarters to come. BEL is one of the big beneficiaries of the defence in-sourcing program.
It now almost appears to be certain that Jerome Powell will assume the Fed Chair when Janet Yellen demits the post in February 2018. With Trump throwing his weight behind Powell, it is a matter of time before the appointment is officially cleared. The global markets are likely to react positive to this announcement. Powell is known to be leaning more towards a dovish monetary policy and is likely to combine monetary support to fiscal measures undertaken by the government in the form of higher public expenditure and lower taxes. Dovishness will reduce the risk of global monetary divergence.
The Bank of England took the initiative to hike rates by 25 basis points for the first time in 10 years. After 10 years of near zero interest rates, this rate hike takes the interest rate level in the UK to 0.50%. Looking at the positive cues coming from the employment and the GDP growth front, the Bank of England really did not have much of a choice. However, the BOE has also indicated that there may not be any further increases in the foreseeable future. The BOE decision will also be driven by BREXIT considerations and how the new Fed Chairperson approaches the rates subject.
Oil experts are increasingly veering around to the view that the days of cheap oil may be over for now. Apart from the supply restrictions initiated by the OPEC and Russia, there has also been a slowdown in accumulation of oil inventories and a genuine spurt in oil demand. With the US planning to announce a major fiscal stimulus in the form of tax cuts and public spending, the demand for oil is likely to spike further leading to higher oil prices. In fact, the OECD oil inventory is now back to the average inventory that was maintained by these countries between 2012 and 2016. In the short term, the price of oil is impacted more by demand than by supply factors. That is why the combination of Jerome Powell as Fed chair and a fiscal stimulus could actually lead to hardening of oil prices even further from these levels.
Glenmark reported a 4.25% increase in quarterly net profits to Rs.214 crore, but this was much better than the street estimates. Glenmark saw good traction from its European business at a time when the US business is creating growth trouble for most of the Indian pharma companies. Revenues fell slightly short of the Bloomberg estimates. The big boost for the company came from the fact that the operating margins were up by 300 bps at 17.2%. This is likely to have a positive impact on valuations. While India and US business grew by around 5%, Europe was up by 48% giving most of the alpha.
