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Tightened norms for credit rating agencies, Subhash Chandra selling the stake in Zee Entertainment, and more

Tata Steel consolidated net profits for the second quarter jumped three-fold to Rs.3116 crore. Its EBITDA per tonne at Rs.19,000 was the highest level in 6 years. The company’s sales for the quarter were up by 34% at Rs.42,946 crore, largely driven up by the consolidation of Bhushan Steel into its operations. As a matter of strategy, Tata Steel plans to focus more on the domestic market than on foreign markets to maximize sales and margins. The company has net debt of $15 billion and plans to reduce the debt by $1 billion in the next 1 year on the back of robust cash flows.

JSPL turned around to post a profit of Rs.383 crore in the latest quarter compared to a loss of Rs.255 crore in the corresponding period last year. The company reported an 87% jump in sales and an 85% jump in EBITDA for the latest quarter on a YOY basis. The Angul plant of JSPL has ramped up its production to levels of 9000 tonnes per day. Most steel companies have had a good year on the back of a very favourable government policy with respect to tariffs and also due to the rising domestic demand for steel. Steel demand in India is likely to grow three-fold by 2030.

 

CRAs must analyse all credit relevant variables in real-time.

SEBI, in its latest board meeting, has tightened the norms of credit rating agencies. This was triggered by the IL&FS fiasco wherein the rating agencies had maintained AAA rating for its debt and then suddenly downgraded it by several notches to Junk in one go. This created a virtual run in the market putting NBFCs into deep liquidity crunch. Apart from enhanced disclosures, CRAs will be required to analyze all credit relevant variables on a real time basis. CRAs must also disclose if any rating is factoring in support from the parent or from the government. A lot more explanation will be needed for sharp shifts.

Sun Pharma swung into a surprise loss for the second quarter. This was however an outcome of a one- time charges pertaining to an anti-trust litigation settlement. There was a huge write-off of Rs.1214 crore that Sun Pharma took in this quarter relating to sleep disorder drug, Modafinil. If that impact was removed, then the profits may have been marginally up compared to the corresponding quarter last year. Total revenues from operations were up by 4.3% at Rs.6938 crore. Interestingly, US sales revenues, which account for more than1/3rd of total revenues also showed 11% growth this quarter.

 

Tata Group in discussion with Jet Airways

Tata Group is currently conducting a due diligence of the books of Jet Airways for a likely stake in the beleaguered airline. The airline again posted a net loss in excess of Rs.1100 crore in the latest quarter due to a combination of higher ATF prices and weak profits margins due to competitive pricing pressure. If the deal goes through then it will be the Tata group’s foray into the aviation business after their Air Asia and Vistaara airline businesses. Vistaara was launched jointly by the Tata Group and Singapore Airlines. Jet Airways has been delaying pilot salaries for some time and that cash crunch is likely to get resolved once the Tatas come on board. Jet Airways has been making losses in 9 out of the last 11 fiscal years and the airline may need to fully sell out before it’s too late.

In a rather surprising move, Subhash Chandra and his family members may sell half their stake in Zee Entertainment, a business that Chandra virtually founded in India. The idea is to divest up to 50% of their stake to a global strategic partner so as to focus and emerge as a Global Media-Tech Player. Goldman Sachs will be the investment banker for the deal while Lion Tree of Europe will be the strategic international advisor. More than half of the promoter stake is currently pledged and this is indicative of the cash crunch that the business is currently going through. FPIs hold 41% in the company.

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