Falling Rupee and how it affects you?

Rupee fell for eighth day consecutively on Wednesday to finish at 52.36 against USD. So there's been hype in the market on falling Rupee against USD. We can't blame anybody for this. This is a massive outcome of various things like Eurozone crisis, instability in global equity markets, etc. Investors are looking for safe investment horizons like government bonds that could shield them against any financial vulnerability.

India's central bank, RBI, is closely watching the situation is expected to issue rupee denominated corporate bonds to overseas investors to boost the ailing rupee. Also it plans to buy around Rs. 100 billion worth government bonds to ease the pain on Rupee. The Rupee has lost around 8% against USD since April.

Though the US economy is in a bad condition, factors like Europe's failure to bail-out the countries which are in financial trouble, make the investors' confidence to ruin on Euro. All these factors pushing up the USD value against many currencies (good or bad, it's USD getting the hit!). So one could expect the Rupee to gain in Q1 2012 as the European economy is expected to get some sort of bail-outs from the governments. Once the global confidence among investors roll back, then we could say that Rupee might be back on track against USD (in the range of 45-47).

Decrease in value of the Rupee is good for the people who are working abroad and sends money to their families here. Also, the imports get dearer. There might be increase in price of goods like mobile phones, laptops, TVs, etc in coming months as the import prices would be higher. Energy companies (like oil importers) would also bear the brunt by paying more on importing oil (no surprises if the fuel prices go up!). Exports would be less valuable now and companies that export goods to abroad could expect their top line revenues to come down. Many Indian IT companies that weren't prepared for this free fall of rupee would certainly face the heat in this quarter.

Will Kingfisher Airlines survive?

Everybody is talking about the financial position of Kingfisher Airlines, the second largest carrier in India with a market share of around 20%. Speaking only based on the financial numbers, yes, Kingfisher is in a dire situation. But before arriving at any conclusion, let's review about its recent quarterly results (three months ended Sep 30, 2011).

1. Revenues decreased by 19% Q-o-Q, may be an overall effect in the industry
2. Fuel expenses went up to a new level of 53% of revenues
3. Employee costs also went up by 5% Q-o-Q, constituting around 12% of revenues
4. Both Fuel and Employee expenses accounted for 65% of total revenues in this quarter, should really be a concern for Kingfisher
5. Cash at bank was about $44M at the end of the quarter, around more than 21% of short term loans payable within a year (as of March 31, 2011)
6. Total secured and unsecured loans as of March 31 ~ $1.4 billion
7. Kingfisher announced in its earnings call that it may require only around $100-$150M to meet short term needs (working capital)
8. There are some flip side as well -

- passenger load factor was down to 77%, compared to 82% in the same period last year
- reported a EBITDAR loss of around $25M, since two years
- reported a net loss of around $94M

Interesting to note is that around 75% of revenues were from domestic operations. So, increase in fuel costs in India would obviously have its impact on the margins of Kingfisher. Jet fuel costs are surcharged at a higher rate than many other countries, it's around 50-60%, which made the airliners to shed more money on fuels in India. This was the biggest cause for this financial mess at Kingfisher, followed by the increasing staff costs.

Fuel expenses were 'higher' in the previous quarter (Q1 2012), which Kingfisher was able to overcome due to its increase in revenues in that quarter. There were factors that made Kingfisher hard times this quarter - increasing fuel costs, employee costs and decreasing value of rupee against dollar.

Though the company is making all measures to cut costs like shutting operations in few loss making routes, Kingfisher has no other option.

All the company needs is an infusion of around $100-150M to save its day-to-day operations running. I think it can made it easily by various measures like selling more equities or converting debts to equities to sell stakes to the creditors, etc. Also the talks have already been through with various banks in India.

All the airliners in India are running in losses and this mounting debt may not be a 'significant' problem for Kingfisher and I hope the company would come up from the crisis and this would be a lesson for all the operators in India to tackle their working capital efficiently in order to maintain day-to-day business operations without any financial hitches.

Gold Vs Sensex

This is one of the most sought after season for aggressive short term investors. Investors are trying to buy as much of gold,, which is soaring for the record heights recently to nearly $1100 an ounce.

Investors are now trying to make very short term profits from stock markets and trying to reinvest in high returns commodities such as gold.

Hence today's 500 points up in the Sensex doesn't mean that positive factor is back in the market. Investors who are really interested in long term investments (1-2 years) should enter the market now. But this is not a good time for entering for real aggressive short term investors!

Sensex will stay in the range of 16000-17000 till Q1 2010. Higher volatility may affect the market sentiments in short term (say 3-6 months).

Bharti Airtel - Buy

Bharti Airtel recently announced its Q2 results with good numbers, but not upto the expectation.

Revenues increased by 9% to Rs.98.45 billion Y-o-Y and net profit up by 15% to Rs.23.7 billion Y-o-Y. Net margin was at 24%, relatively higher than a year before.

Here are some positive notes:

1. Customer based increased to more than 110 million as on Sep'09. This is up by 42% from last year same period.
2. Net debt came down to Rs.42 billion, lowest in last five consecutive quarters
3. Return on equity (RoE) is consistently above 30% for the past five quarters (though it was down from 36% in Sep'08)
4. Net debt-to-EBITDA was at 0.26, lowest in last five consecutive quarters. This is due to the decrease in net debt.
5. Interest coverage at 56, highest in last five quarters

Here are some concerns:

1. Average revenue per user (ARPU) came down to Rs.252, from Rs.331 in Sep'08.
2. Market share in mobile services fell to 23.5% from 24.6% a year earlier.
3. Operating expenses increase over last five quarters (though slightly less than previous quarter)
4. Return on capital employed (RoCE) was at 26%, compared to 36% in Sep'08.
5. Capital productivity (annualized revenue/capex) was down at 64% from 73% during last Sep'08.


Share price is at Rs.292, approaching its 52 weeks low, Rs.290. The stock touched Rs.495 (its 52 weeks high) and hence the stock is currently trading at deep discount. Moreover the trading volume is at around 6.5 million.

Considering its positive fundamentals and free-falling stock price, Bharti Airtel is a 'GOOD' pick now. Investors considering long term investments with 1-2 years investment horizon, can make a call now.

US Stocks stumble

US stock market witnessed another day of bolt as the markets crashed due to the disappointing numbers on consumer spending. US Commerce department released the consumer spending data for Sep'09, showing a decline of 0.5%, first time in five months.

Dow fell by more than 1.5% to 9800 (down by 160 points). S&P 500 also came down by 2% to 1044.

However this fall in US markets may not have greater impact on Indian market on Monday. Sensex is moving based on the selling pressure by the investors who have invested in emerging markets. Moreover the market fell by more than 1% on Oct 30, a day after US markets bounced back (official data showed that US is recovering from recession). However Sensex is expected to be highly volatile in coming week as global markets are tumbling.

Sensex continues to fall...!

Sensex fell for consecutive fourth day to end below 16,000. The market closed lower by more than 1% to end at 15896 on Oct 30. This is led by telecom and oil sector companies.

Bharti Airel announced its Q2 results on Oct 30 in a positive note. But did not match the market expectation. The stock down by more than 6% to end at Rs.292. Airtel's lowest in a year was Rs.290. This shows that the stock is moving towards to break its lowest support next week.

Long term investors who can hold their investments for 1-2 years, can now consider investing in Bharti Airtel.

Sensex is expected to be in the range of 16000-17000 in coming weeks.

Bharti Airtel profit up, but lower than expected

Bharti Airtel, India's largest telecom service provider, has announced that its net profit was up by 13.4% Y-o-Y, during the quarter ended Sep 30, 2009. Net profit was at Rs. 23.21 billion ($497 m).

Revenues increased by more than 9% to Rs.98.45 billion.

However these numbers are lower than many expected.

The Indian telecom market is now entering into a new phase, 3G and 2G. Many new foreign operators are entering into the market and announcing various pricing schemes to customers, making Indian companies to react as well. This pricing pressure may have an impact on operating results of telecom companies in next quarter, or even next year also.

Consolidation is the better way to handle the current situation in Indian telecom market. Many 2G licensed telecom companies are selling stakes in their companies to foreign entities, making the competition even bigger. Indian companies may consider in acquiring these smaller telecom companies who have granted licenses.