Tuesday, December 30, 2014

INFLATION MANAGEMENT VS RBI MONETARY POLICY VS GROWTH MANAGEMENT Need of the Hour- to Reduce Rates significantly



INFLATION MANAGEMENT

VS

RBI MONETARY POLICY

VS

GROWTH MANAGEMENT



Arun Jaitley had said something about Inflation, Growth and Monetary policy; but the Indian Media  felt that he specifically wanted RBI to reduce rates. Arun Jaitley has stated now that he never referred to RBI or its Governor.

When P.Chidambaram was the FM, he too, I remember, had suggested for Reduction in lending Rates to promote Growth. Now, Jaitley has also articulated the same need  but nobody wants to criticize the RBI for its Monetary Policy, which is primarily the instrument through which RBI has raised rates to the current High levels.

But, I don’t see any reason why RBI or its Governor must be treated like Judges who should not be criticized for their Policies.  The  very evolution of economic policies and prescriptions depends on keen watching of such policies in real world and learning the lessons therefrom. Therefore, any fair criticism and any honest suggestion from any quarter to either the Government or the RBI is essential. Non-criticism of any Policy leads to its eventual decay of the theory behind the policy and that is what is what is happening to Monetary Policies across the world. Monetary Policy is fast becoming like religious beliefs - Unquestionable!! Scientific spirit with which Keynes and others propounded their theories warrants that the scientific spirit of questioning is kept alive so that economics remains a science and art and does not degenerate into a Blind Belief system.

When John Meynard Keynes propounded his theories on various economic options including Monetary Policy, I think, one of his basic assumptions was  that there exists full employment or near full employment of resources. When production exceeds demand, prices fall ; when demand exceeds production, prices rise. If we depress demand, then, prices will fall and production adjusts to demand. 

To depress demand, money supply on the demand side of the market must be depressed – and one instrument for doing so is the Interest Rates. This, in theory looks impressive. But the catch is – which demand, which production, which rates and which Inflation? These must exist in a related circle. Else, the policy prescriptions are not only not valid but will work like - shooting the visitors instead of the targets. Food Inflation cannot be tackled by increasing Interest Rates for steel production! Or for the Auto sector.

If Inflation is in food articles, it only means that (i) food production is not adequate or equal to demand or (ii) production costs and market mechanics are such that  there is no way to reduce food prices. The same thing holds good for inflation in any other sector.

Today, food consumption in India is a very, very small fraction of the food consumption in advanced countries like USA. There is HUGE MALNUTRITION among females and among males too. There is need to place more food into the hands of India’s poor and undernourished. MNREGA and other schemes are precisely for that, though, their implementation has been woefully suspect and ridden with corrupt practices. And, they did not have a strong productivity element attached to them. 

That said, India most certainly needs to achieve 2 things urgently (i) It must feed its population well (ii) it must make its population work hard. Neither of these is happening right now.

Which means, food production (and fair distribution) must go up significantly and immediately. Which, in turn, means, it should also become cheaper. Which also means, credit for food production processes at all stages must be available at cheap rates. 

But, with Repo rates at over 8%, how can this happen?

When Repo rates were going up every two months once, like anyone else who studied Economics, I also felt that Food prices and manufactured articles prices are going to come down. It didn’t happen. It’s very opposite was happening all the time. As repo rates went up, prices also went up, every time. Instead of an inverse relation between the two, I was observing  a DIRECT RELATIONSHIP  between the two. After 2 years of prices  and Rates chasing each other, I strongly felt, there was some factor that made this economic theory wrong, or inapplicable, or, some factor was obstructing the rates from influencing prices inversely.

In Indian context, High Rates, in my opinion, can never bring down prices, be it food prices or prices of manufactured articles. On the other hand, what has happened so far is – cheap Chinese and other foreign articles have driven out our all Indian manufactured articles from INDIAN MARKET itself. High Rates alone may not be the single factor which did it. But, in my view, it is definitely ONE FACTOR, which did it. 

The other factors are – bad production practices, low skills, bad marketing practices and the largely prevalent  stupidity in many of us that anything FOREIGN is better than anything Indian. India did not build enough Nationalism at least – to “Buy Indian”, even if it is a little costlier, since, overall, for the country, and for the Individual, this is the only thing that assures employment for all of us, for Indian materials and for Indian production and therefore, ultimately cheaper

Indian Interest rates, are not helping Indian Production to be competitive - in a globalized environment. We must not forget that Indian Interest Rates cannot impact Chinese production which is swarming the Indian market. Our Rates depress our market and our production - not Chinese production. To that extent, Monetary Policy theory also needs adjustment in Globalised environment.

Indian Rates, in any case, are not contributing to improving the Indian employment. Indian Rates do not tend to make prices cheaper but tend to make them costlier – costlier than, for instance, Chinese products, which are swarming the Indian markets. If Interest Rates are close to zero in China and over 8% in India - India can't fight China even within India. Real Interest Rates, as we know, are even much higher than this in India.

I am not one to seek reduction in interest rates because Inflation has come down. I am one who feels Interest Rates must come down to international levels quickly so that Indian production becomes cheaper and possible.  High Interest Rates, in my view, can never bring down either food Inflation or Inflation in Manufactured articles.   

The one strong reason for this is , there is Huge unemployment of all resources in India – especially labour. There is acute lack of consumption and India must not depress it any further. We must promote  consumption of more food, more steel, more cement, more of almost everything. With so much of unemployment and under-consumption, High Interest rates can only work to raise prices and make all articles out of bounds for ordinary consumer.

Now, price Index has fallen. Question is, has it fallen due to RBI’s rate policy? All of us know that many international factors reduced prices of oil etc. Government policies reduced prices of some articles within India. Now, waiting to see if Oil prices hold at current low prices and then to act on Interest Rates in India does not seem to be LOGICAL AT ALL. Ditto for other article prices. They too did not fall due to High Interest Rate Policy. 

I don’t think any of these prices will go up, if RBI reduces interest Rates. The only thing that will happen is, cost of capital will come down and more and more Indian industries can become more profitable and less loss-making. This will encourage Indian production and possibly, it may become more competitive than Chinese, at least within India. India can’t have its steel making Industries, auto Industries, Infrastructure industries and possibly its food Industry struggling as at present to make the two ends meet.

That said, I can say  that RBI is Hundred percent right in theory - to enhance rates when prices go up. That has been the theory and therefore, RBI is right in that. But, that theory itself does not hold good, when so much of unemployment and under-consumption is staring India. That is the point I am making.

If production goes up, prices will automatically come down. Production will go up, if cost of capital comes down. We must (i) at least match Chinese prices and quality within India and (ii) then, aim to beat Chinese prices and quality in China.

Government of India and RBI both must be aiming for this. Right or wrong? Modi's MAKE IN INDIA may yet succeed, since the FDI which comes in may not look for bank Credit from Indian Banks, but, may seek it from Foreign banks at much lower rates. But, is this Good for Indian banking system?

I must clarify, like Arun Jaitley, that I am not for criticizing Raghuram Rajan or RBI or Government. I am only saying – RBI and Government both must enable India to produce more , better and at cheaper prices. For me, much higher consumption and much higher production by Indians is the need of the Hour. 

RBI and Government must look at the Huge Pain that the Poor and undernourished and underemployed in India are going through and do WHATEVER IT TAKES  to alleviate that. One measure RBI can take is – reduce Interest Rates drastically. In my view, prices will move neither up or down because of this measure, because these is unrelated ( in a scenario of Huge unemployment and under-consumption). Waiting for oil prices or any other prices to stabilize for this purpose, I think, is unreasonable.

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Thursday, November 27, 2014

RATE CUT ENIGMA - WHAT WILL RBI DO THIS TIME? - IS THERE REALLY AN INVERSE RELATION BETWEEN INFLATION & RATES?



RATE CUT ENIGMA

Will there be a Rate Cut or will there not be? Will RBI respond positively this time to everyone’s wish?

This has been an Enigma for quite some time now. When rates were going up in last 3 years, there were no doubts in anybody’s mind. Inflation was going up. Therefore, rates must go up. This was and is an implicit assumption in everybody’s mind. These two are linked indelibly, inevitably – because the Economics Theory says so. When Inflation goes up, Rates must go up. But, if rates go up, will Inflation come down? Really? Did it ever happen? Have any of us seen this happening?

Well. I haven’t seen this happening. In fact, as rates went up, Inflation also went up further. Again, rates were pushed up further. Again, Inflation went up further. Again, Rates were pushed up further. This went on for almost 3-4 years in recent past. I haven’t witnessed even once, the inflation responding to Rates.

Yes. Inflation was seasonally coming down – when vegetable supplies increased. When crops cultivation went up. But, never did the Inflation respond to Rates.  

If at all there seemed to be some correlation between the two, Inflation always went up when Rates went up. It was a DIRECT RELATIONSHIP, not an inverse relationship. Why was this so – when economic theory says otherwise?

I was always wondering what on earth was happening because of the tussle between Rates and Inflation?

I strongly felt, that there was probably – probably, but not definitely -  a direct relationship between the two factors but definitely not an inverse relationship. If there was an inverse relationship, Inflation should have come down at some point when the Rates finally touched the ceiling. Ceiling, I say, because, at present levels, our Indian Rates seem to be at world No.1 Position. Is there any other developed or developing country, which has this High level of rates? I don’t think so.

If lending Rates are so High, they must definitely be High for fertilizer companies, seed suppliers,  Pest control suppliers, equipment suppliers, for Farmers, for Farm labourers and everybody down the line in agriculture, food and food related Industries. So, all input prices must be going up in the agriculture and food related activities. 

So, will food prices go up or down? They must go up. That, to me, seems absolute Logic! So, how will food Inflation come down when rates go up? No way, Unless 3 things happen due to extraneous factors.

(i)                Monsoons must be timely and sufficient; neither more nor less; nor untimely.
(ii)               The cultivated Acreage must go up significantly.
(iii)             Better food production techniques must be adopted.

Due to all these 3 factors, if Food production goes up significantly, and food supplies in the Market move closer to demand or move beyond that.

Food prices never went down until and unless these three things happened. They went up always, unmindful of what RBI was doing with its Rates. Like now, when Kerala is culling down all its chicken stock due to fears of Bird flu etc. Prices of chicken may go up , prices of eggs may go up , but demand for chicken may come down due to fears of Bird flu, but these are external factors to Rate Cuts. So, whatever RBI might or might not do with rates, it will have no impact on chicken and Egg prices.

If we look at Non-food Inflation, we all know that manufacturing has been coming down. Production is down. Capital assets building has slowed down very badly. Capital asset suppliers are experiencing slow down. We don't see any Primary market issues at all. 

Therefore, even future production capabilities are becoming suspect. Therefore, prices of non-food articles can only go up, if demand persists. Rate cut has no great influence on demand for products. It has deep influence only on production. But, production is getting depressed due to steep rates.

If Production is Higher, economies of scale will bring down prices of products. That is not happening because of higher lending rates. All that seems to be happening is – Cheap Chinese products are dominating all Indian markets, wiping out Indian production and Indian producers. Chinese lending Rates are LOW and Chinese are cutting the rates even further. So, their product prices are quite low and comparatively, Indian products are costlier. So Indian products are disappearing even from Indian Markets, leave alone getting exported.

I am not saying that lending rates are the only major criterion deciding final prices. Other prices such as labour wages and other input costs are also factors. But, Lending rates are one major enabling factor. In India, the lending Rates are very High.

Therefore, I strongly feel, our lending rates must come down to the levels of the Chinese. In my view, Inflation will not respond to it by going up. But, Growth will respond to it by going up. If RBI brings down rates – not by 0.25% but even by 2% - it will be healthy for both Inflation and for growth.

Will RBI oblige this time around? This is the million Dollar Question. In any case, I strongly feel that, there should be serious discussion on this Rates Vs Inflation Enigma. There should be fresh thinking on the subject. India can't afford to Grow at the current abysmal Rate, when the Potential to Grow is Huge.


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Tuesday, November 11, 2014

AJANTA PHARMA LTD - QUARTERLY RESULTS - Q2 FY 2015 (SEP-2014) - Revenue up 21% YoY; Net Profit Up 43% YoY




AJANTA PHARMA LTD

MANNALAL AGARWAL, CHAIRMAN

QUARTERLY RESULTS
Q2 FY 2015 (SEP-2014)

Highlights of Q2 FY '1 5 vis-a-vis Q2 FY '14
standalone financial performance

Ø Revenue from operations grew 21% at Rs. 337 Cr against Rs. 280 cr.
Ø EBITDA growth of 32% at Rs. 111 cr. against Rs. 84 cr.
Ø EBITDA at 33% of revenue.
Ø Profit before Tax at Rs. 113 cr. against Rs.79 cr., a growth of 43%.
Ø Profit after Tax grew 41% at Rs.79 cr. against Rs. 56 cr.
Ø PAT at 23% of revenue.
Ø Exports contributed 64% of the revenue for the quarter

RESULTS TABLE:

Ajanta Pharma
30-09-14
30-06-14
Dif% QoQ
31-03-14
31-12-13
30-09-13
Dif% YoY
Net Sales
33118.4
28079
17.95
30114
29259
27075
22.32
Total Expenditure
23874.62
20983
13.78
21539
21312
20466
16.66
Profit  before Interest, Dep. & Taxes
9243.78
7096
30.27
8575
7947
6609
39.87
Net Profit
7862.77
5872
33.9
7009
6242
5581
40.88
Diluted EPS
22.33
16.68
33.87
19.91
17.72
15.86
40.79
Total Income
33728.75
28749
17.32
31105
30085
27983
20.53
Changes in inventories
-1966.43
1248
-257.57
-3157
-469
2726
-172.14
Cost of materials
10342.4
5782
78.87
10586
8602
5716
80.94
stock-in-trade
1288.46
1001
28.72
1443
1014
851
51.41
Employee benefits
4450.44
4284
3.89
3767
3838
3735
19.16
Depreciation
1219.51
1204
1.29
1489
949
899
35.65
Other expenses
8540.24
7464
14.42
7411
7378
6539
30.6
Total expenses
23874.62
20983
13.78
21539
21312
20466
16.66
Profit before tax
11308.56
8493
33.15
9650
8958
7926
42.68
Tax Expenses
3445.79
2621
31.47
2641
2716
2345
46.94
Net Profit
7862.77
5872
33.9
7009
6242
5581
40.88
Face Value of Share (in )
5
5
0
5
5
5
0
Paid-up Equity
1767.63
1768
-0.02
1767
1767
1767
0.04
Reserves
51867.06
0

0
0
0

Basic EPS
22.35
16.7
33.83
19.94
17.75
15.88
40.74
Diluted EPS
22.33
16.68
33.87
19.91
17.72
15.86
40.79
Public holding (%)
26.17
26.45
-1.06
26.4
26.4
26.4
-0.87


Highlights 
 H1 FY'15 vis-a-vis H1 FY'!4

Ø Revenue from operations grew 25% at Rs. 625 cr. against Rs. 498 cr..
Ø EBITDA growth of 49% at Rs. 200 cr. against Rs. 135 cr.
Ø EBITDA at 32% of revenue
Ø Profit before Tax at Rs. 198 cr. against Rs. 127 cr., a growth of 56%.
Ø Profit after Tax grew 55% at Rs. 137 Cr against Rs. 88 cr.
Ø PAT at 22% of revenue.
Ø Exports contributed 61% of the total operating income for the half year

Commenting on the results, Mr.Yogesh Agrawal, Managing Director said "We are pleased to add yet another strong quarter in the current financial year. Our business performance remained aligned to our plans in all the markets that we operate in. Our consistent focus on High Quality business and improvement in efficiencies has led to higher margins. We are continuously making the required investments in infrastructure manufacturing facilities and R&D, anticipating tomorrow's requirements.”
 
YOGESH AGARWAL,MD

India Business : Accelerated Growth

For the 2nd quarter, overall India Business was Rs.115 cr., up 19% over Q2 last year. Out of this, Indian Pharmaceutical business was Rs.103 cr. posting healthy growth of 11%. Institution sales was Rs. 12 cr posting de-growth of 36% over previous year quarter. During the quarter, 6 new products were were launched, out-of-which 3 were first to market.

For the first half, sales was Rs. 234 cr., up by 21% over same period last year. Out of this, lndian Pharmaceutical Market (lPM) business was R.s. 211 cr. posting healthy growth of 34% as against the industry growth of 11%. Institution sales was Rs.23 cr., posting de-growth of 36% over previous year 1st  half. In the three major therapeutic segments where we operate, we have posted robust growth of 26% in Dermatology, 44% in Cardiology and 30% in Opthalmology (lMS MAT Sep '14)

Emerging Markets : Gaining Grounds

Emerging markets grew 24% during the quarter, with sales of Rs.216 cr. Africa contributed Rs.112 cr (growth of 22%), Asia Rs.101 cr. (growth of 32%) and Latin Rs.3 cr (de-growth of 47%).  During the quarter, company launched 12 new products in emerging markets.

In the first half, emerging markets grew 28% with sale of Rs.376 cr. Africa contributed Rs.204 cr. (growth of 30%, Asia Rs.166 cr. (growth of 30%) Latin America Rs.6 cr (de-growth of 30%).

Company continues to strengthen its brand presence in various emerging markets it operates in. Company has a pipeline of about 1700 products under registration paving the way for sustained growth in these markets.

Regulated Markets

company's re-launch of its first product gained momentum during the quarter. Company has 23 ANDAs under review with US FDA.

R&D

R&D expenses for the quarter were Rs.19 cr. (Rs.13 cr), while for the first Half, it were Rs.30 cr.(Rs.74 cr.). Ajanta continues to invest in its R&D infrastructure on continuous basis to meet the business requirements.

About Aianta Pharma

Ajanta Pharma – a specialty pharmaceutical formulation company has a well-established Branded generic business in India And emerging markets.

It has leading brands in therapeutic segments of ophthalmology, Dermatology, Cardiology and pain management in India.

In Emerging markets, company has customized product basket with wider therapeutics presence. Many Of company's products are first in  the market place and are leading in their sub therapeutic segments.
The company is now building a portfolio of ANDAs for the regulated markets of USA and has has recently entered this market with its maiden product.

Company's state of the art R&D centre for formulation development is located at Mumbai, having a team of 350+ people.

Company has world class manufacturing facilities – 4 located in India and 1 in Mauritius. One in India is approved by USFDA, UKMHRA, pre-qualification from WHO,  apart from having approval from FDAas of many other countries. Company is setting up two more manufacturing facilities in India , one for regulated markets and another for domestic / emerging markets.

For last 5 years, company has posted healthy performance with its consolidated revenue showing a CAGR of 31% and net profit of
62%.

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