Short takes: SBI: Loans grow, profits shrink bl-premium-article-image

BL RESEARCH BUREAU Updated - November 16, 2013 at 08:35 PM.

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The State Bank of India’s profits declined 35 per cent to Rs 2,375 crore for the September quarter compared to a year ago. The company’s loan growth was 19 per cent, a tad higher than large private sector players. While high-yielding and secured retail loans led the growth for private banks, it was the large- and mid-corporate segments (36 per cent and 28 per cent respectively) that drove up SBI’s loan book.

But, a significant portion of the company’s new loans flowed into stressed sectors such as infrastructure (27 per cent growth) and iron and steel (29 per cent growth). Also, a large portion of SBI’s loan delinquencies this quarter came from the SME, mid-corporate and agricultural segments. The gross non-performing assets as a proportion of loans are high in these segments — 10.2 per cent, 9.1 per cent and 11 per cent respectively.

SBI reported a 39 per cent decline in bad loans added for the quarter. But non-performing assets still account for a fourth of the total restructured book. The new restructured loans have doubled, indicative of higher risk on the restructured assets. The return on equity dipped to 12 per cent in the first half of 2013-14 compared with 18 per cent for the same period last year.

Tata Steel: Europe lends strength

Tata Steel surprised the market by posting a consolidated profit of Rs 917 crore for the quarter compared with a loss of Rs 364 crore a year back.. This was helped by healthy performance in Europe and India which account for over 85 per cent of Tata Steel’s operating profits.

Higher sales of flat steel products, including value-added products, to the automobile sector, helped Tata Steel India’s growth. In Europe, a ramp up in production (up 16 per cent year-on-year) with the blast furnace at Port Talbot fully functional and stable raw material prices aided margins.

Demand in the Indian market is expected to be somewhat better in the seasonally stronger second half of the fiscal. There are signs of growth across key demand segments in Europe, but given the global excess steel supply position, prices are likely to remain under pressure. Also, in continuation of its restructuring in Europe, the company will cut about 500 jobs at its plants in the UK.

Sun Pharma: A boost from Taro

The 51 per cent jump in Sun Pharma’s profit was largely driven by stellar performance in the US by its subsidiary, Taro Pharma, and a weak rupee.

Even as profits grew by a healthy measure, operating margins were lower compared to a year ago due to an unfavourable product mix. Lower contribution from high-margin products such as anti-cancer brand Lipodox added to the margin pressure. Despite Sun increasing its selling price, moderation in demand negated the benefit from higher realisation.

However, Lipodox may continue to help Sun’s revenue as the company will be the sole producer of this product after Janssen Pharma exits completely by end 2013. With over 130 products pending approval, product launches coupled with contribution from its subsidiaries — Taro Pharma, URL Pharma and DUSA — will hold Sun’s US business in good stead.

Despite the weakness in the Indian pharma market due to the ongoing strike by drug distributors and the new pricing policy, Sun bucked the industry trend to post a healthy 17 per cent growth. Growth was aided by strong brand recall in chronic therapies — neurology, psychiatry and cardiology.

After clocking 44 per cent revenue growth in the first half, Sun’s management has revised the revenue guidance from between 18 and 20 per cent indicated during the beginning of the fiscal to 25 per cent (excluding forex impact). Though the guidance appears conservative, the company has managed to consistently beat estimates.

Published on November 16, 2013 15:05