RBI MPC special meeting concluded on Thursday without much fire or fervour as the RBI MPC got together to draft a response to the government on why they had failed to check inflation. The special meeting had been necessitated after the inflation breached the upper end of the band for 3 quarters in succession. The contents of the report are classified but most likely the reasons would have been global factors, being sympathetic to growth forces etc. The impact of free food program is not factored into inflation numbers.
Just a day after the Fed raised rates by 75 bps for the fourth time in succession, Bank of England raised interest rates by 75 bps, the most since 1989. Britain is already facing a prolonged recession and a spike in borrowing costs. With the hike, the benchmark rates of the Bank of England stands at 3%. UK inflation is expected to hit a 40-year high of 11% this quarter while the economy may contract by up to 2.9% in the next 2 years. Unemployment is set to rise from 3.5% to 6.4%. For Sunak, inflation is priority number one.
Net profits for Q2FY23 for Hero MotoCorp fell by 8.63% yoy to Rs682.28 crore due to a spike in input costs and weakening rural demand. Revenues showed single digit growth at Rs9,252 crore for the quarter. During the second quarter, Hero Moto had invested Rs262 crore to buy electric two-wheeler maker, Ather Energy and currently owns 35% stake. The management expects things to improve as the commodity prices cool off and the rate hike cycle also peaks. Two-wheelers are very sensitive to increase in rates.
A survey of analysts has found that for the Q2FY23 quarter, net sales for a sample of over 400 companies may have shown sales growth of 30% but EBITDA growth was just about 8.3%. In fact, there is a 15% spike in interest costs and that has resulted in the net profits growing by just 1.1% in the quarter. However, if banks and financials were excluded then net profits were lower by 24%. Overall, banks and IT companies reported strong earnings while metals, cement and other commodity dependent sectors have lagged.
Adani Wilmar, the FMCG franchise of Adani group, reported 73% lower profits to Rs48.8 crore for Q2FY23 amidst tepid rural demand and rising cost-push inflation. Adani Wilmar, is a JV between Adani Group and Wilmar of Singapore. Most of the pressure came from their mainstay edible oil. This has been the case this quarter for companies like Colgate and Nestle also where pressure was visible due to a combination of weak rural sales and high input costs. Rural India is clearly opting for cheaper unbranded alternatives.
Two leading private equity investors, Blackstone and Advent International, are in talks with the promoters of Suven Pharmaceuticals to buy a controlling stake. They are pursuing separate bids. The process has been on for some time and Blackstone and Advent have been apparently shortlisted for the final round. The promoters of Suven are looking to sell 50% of their stake. Suven Pharma currently has a market cap of Rs6,378 crore. It will also trigger an open offer. Suven Life, in 2020, demerged CMO into Suven Pharma.
Two private equity giants (KKR and Temasek of Singapore), along with Max Healthcare, are competing to acquire the Hyderabad based Care Hospitals in a $1 billion deal. Care Hospitals is currently backed by TPG. In addition, Blackstone and CVC Partners are also in the final shortlist for the bid. Care Hospitals, which was founded in 1997, runs 17 centres across 6 Indian states. For FY22, Care Hospitals had posted revenues of $211 million and EBITDA of $47 million. Incidentally, TPG also has a 18.13% stake in Manipal Hospitals.
The PMI (purchase manager index) for the services sector for October 2022 was higher at 55.1%. For PMI, 50 is the cut-off to decide whether the sector is expanding or contracting. This reflects service sector expansion with positive momentum. Most service providers have raised rates but still did not have any trouble securing new work orders. Even payroll numbers have risen along with demand growth for the services. Incidentally, services sector has been a key contributor to inflation in last few months in India.