Investors with a long-term perspective may use attractive valuations and buy the stock of Amara Raja Batteries . At Rs 90.6, the stock trades at 8.9 times the trailing four quarter earnings, at a discount to competitor, Exide Industries, that trades at a trailing earnings price-multiple of 19.1 times. We had given a buy recommendation at Rs 100 in October 2008.
Since then, even with the automotive component sector facing a severe downturn on the back of reduced demand from automakers, ARB has made up through its industrial division and the battery replacement market. Capacity expansion plans, its entry into new segments and research efforts strengthen the potential of this stock.
Replacement demand makes for the bulk of ARB’s automotive revenues for ARB, constituting 61 per cent of sales with a 29 per cent market share in the automotive aftermarket sales. Ignoring the tame sales last year, vehicle sales have been robust in the years prior — year-on-year growth in passenger cars between 2006-07 and 2007-08 was 21.7 and 13.3 per cent respectively. Commercial vehicle sales grew 31.3 and 4.9 per cent in the same period. ARB supplies to both these segments, and replacement demand will, therefore, be a key factor boosting sales, since most batteries have maximum a four-year life span, and will necessarily have to be replaced.
Serving this demand is further helped by ARB’s extensive retail network — the company has over 18,000 retail outlets besides franchised distributors and Amaron Pitstops — its exclusive brand stores in urban areas. Rural markets have been tapped through PowerZone, which number more than 500 stores. The retail reach, coupled with brand building efforts will help stimulate sales.
Within the industrial segment, ARB supplies batteries for telecom infrastructure, UPS systems, railways, and has started supplying to the IT and banking segments. About 70 per cent of revenues in the industrial division stem from the telecom sector, and infrastructure investment in this sector will boost demand.
ARB addresses the OEM requirements of a vast number of automakers such as Honda, Ford, Fiat, Ashok Leyland, General Motors and others, catering to the passenger and commercial vehicles. This sector constitutes 25 per cent of revenues, and the company has attempted to combat the slowdown by reaching a wider section of automakers, entering the two-wheeler segment with its Amaron Pro-Bike and launching batteries with extended warranties and new ranges of batteries.
Exports account for 11 per cent of the automotive segment and the company, therefore is sheltered to an extent from the global auto slowdown though foreign exchange losses are still a concern.
An investment of Rs 96 crore will be made in manufacturing capacity expansion, ramping up production capacity from 1.2 million units to 1.8 for its VRLA battery and from 1.9 million units to 2.5 million units for its motorcycle batteries.
Sales have grown at a CAGR of 50 per cent, while profits posted a 50 per cent CAGR for the years between 2006 and 2009. Global lead prices were on the downswing between September and March 2009 hitting a low of $845 per tonne in December. Per tonne price of lead averaged $1,858 in September, dropping to $1,244 by end-March. The effect of this showed up in margins, with an improvement of 55 basis points to 11.3 per cent at the operating level in the March 2009 quarter over the March 08 quarter.
However, higher depreciation brought net margins down to 8.6 per cent, a slight drop from 8.9 per cent in the same quarter in 2008. Leverage is on the low side at 0.8 times equity, and interest payouts have remained steady at 1 per cent of sales turnover.
Thursday, June 18, 2009
CRISIL: Buy
Fresh investments can be considered in Credit Rating Information Services of India (CRISIL) stock. CRISIL is the largest credit rating agency in India also engaged in research and advisory services.
The credit rating business offers huge growth potential in India as the corporate debt and fixed income market in India is still in a nascent stage. While demand for rating services (especially bank loan ratings) provides high earnings visibility, CRISIL’s significant market share, zero debt, diversified revenue mix and superior margins (net profit margin of 27 per cent) are the key investment arguments.
At the current market price of Rs 3,265, the stock is trading at a trailing one year price to consolidated earnings multiple of 16.4.
That is at a discount to its lone listed competitor ICRA (20.2 times). CRISIL is essentially a defensive stock despite its mid-cap status. A low beta (0.47) led to its under-performance in the bull market, but the stock fared better than the market in the 2008 meltdown.
CRISIL claims a more than 55 per cent market share in bank loan ratings and a 70 per cent market penetration in debt ratings. The company’s net profit grew at 50 per cent compounded annual rate over the three years to 2008, while revenues grew at 42 per cent during the same period.
For the year 2008, 41 per cent of CRISIL’s revenues came from the research business, 30 per cent from ratings and the advisory business contributed to 19 per cent of the revenues.
In recent years, the contribution from the research business has steadily risen, from 11 per cent in March, 2005 to 44 per cent in December, 2008. However, ratings contributed 46 per cent in the latest March quarter.
After net profit growth of 68 per cent, on consolidated operations in the calendar year 2008, growth moderated to a modest 11 per cent for the quarter ended March 2009.
Lower revenue growth (3.1 per cent year-on-year), operating loss in its advisory business (Rs 1.4 crore loss against 2.36 crore profit last year) and discontinuation of revenues from the Gas Strategies group which CRISIL divested in December 2008, were triggers.
Operating margins moderated from 31 per cent to 38 per cent, even as the ratings business continued to grow at a strong pace (31 per cent for the quarter ended March) during the quarter.
An Rs 2.03 lakh crore Infrastructure investment is estimated to be required in the current Five Year Plan (2007-12). Even if this is funded through a debt-equity of 75:25; it offers immense scope for debt fund raising and thus, ratings.
Other rating opportunities include banks’ capital rising of over Rs 3 lakh crore to meet the minimum capital adequacy norm of 12 per cent.
The credit rating business offers huge growth potential in India as the corporate debt and fixed income market in India is still in a nascent stage. While demand for rating services (especially bank loan ratings) provides high earnings visibility, CRISIL’s significant market share, zero debt, diversified revenue mix and superior margins (net profit margin of 27 per cent) are the key investment arguments.
At the current market price of Rs 3,265, the stock is trading at a trailing one year price to consolidated earnings multiple of 16.4.
That is at a discount to its lone listed competitor ICRA (20.2 times). CRISIL is essentially a defensive stock despite its mid-cap status. A low beta (0.47) led to its under-performance in the bull market, but the stock fared better than the market in the 2008 meltdown.
CRISIL claims a more than 55 per cent market share in bank loan ratings and a 70 per cent market penetration in debt ratings. The company’s net profit grew at 50 per cent compounded annual rate over the three years to 2008, while revenues grew at 42 per cent during the same period.
For the year 2008, 41 per cent of CRISIL’s revenues came from the research business, 30 per cent from ratings and the advisory business contributed to 19 per cent of the revenues.
In recent years, the contribution from the research business has steadily risen, from 11 per cent in March, 2005 to 44 per cent in December, 2008. However, ratings contributed 46 per cent in the latest March quarter.
After net profit growth of 68 per cent, on consolidated operations in the calendar year 2008, growth moderated to a modest 11 per cent for the quarter ended March 2009.
Lower revenue growth (3.1 per cent year-on-year), operating loss in its advisory business (Rs 1.4 crore loss against 2.36 crore profit last year) and discontinuation of revenues from the Gas Strategies group which CRISIL divested in December 2008, were triggers.
Operating margins moderated from 31 per cent to 38 per cent, even as the ratings business continued to grow at a strong pace (31 per cent for the quarter ended March) during the quarter.
An Rs 2.03 lakh crore Infrastructure investment is estimated to be required in the current Five Year Plan (2007-12). Even if this is funded through a debt-equity of 75:25; it offers immense scope for debt fund raising and thus, ratings.
Other rating opportunities include banks’ capital rising of over Rs 3 lakh crore to meet the minimum capital adequacy norm of 12 per cent.
Dr Reddy’s Laboratories: Buy
Investors with a long-term horizon can consider buying the stock of Dr Reddy’s Laboratories (DRL) given its strong product pipeline, strengthening presence in key markets such as North America, Russia,Europe and India and the reduced uncertainty about the fortunes of its German business, Betapharm.
The earlier-than-expected approval for the company’s OTC generic Omeprazole by the USFDA also strengthen the case for investing in the stock. At the current market price of Rs 701, the stock trades at a somewhat high valuation of about 14 times its likely FY-10 per share earnings.
Dr Reddy’s has a fairly strong pipeline of over 68 new drug applications pending approvals by the US FDA, which represent a substantial earnings trigger for the company. The latest USFDA approval for the company’s Omeprazole Mg drug, which is the generic version of AstraZeneca plc’s Prilosec, is a case in point. The approval will grant DRL access into a roughly $360 million market, which features just another generic player, Perrigo.
That said, the company will be tested on its marketing and brand recall prowess since the product will be OTC and not prescription-based.
However, since the formulation patent expires only in 2016, it leaves DRL with sufficient time to capitalise on this business opportunity.
Sumatriptan sales, which had pepped up the revenues significantly since its Nov ‘07 launch now enjoys a share of over 50 per cent in the market, which features four players.
This revenue opportunity, however, may remain only till August ‘10, by when DRL is slated to lose its exclusivity. This may lead to a decline in the company’s operating performance.
Despite concerns of a falling ruble, DRL improved its revenues from Russia and CIS, well within the credit limit offered to its customers, by effecting price hikes.
It managed to grow its volumes by over 14 per cent in the country despite an industry de-growth of 0.2 per cent. Its stronghold is further reflected in the fact that its top ten brands in the country contributed to over 71 per cent of the revenue growth.
Overall, revenues from Russia registered a 41 per cent growth in FY-09. The management expects to maintain a healthy growth rate this year. However, excessive forex fluctuations can play spoilsport.
Concerns over DRL’s German arm appear to be on the wane, with Betapharm securing 23 contracts with German health insurer, AOK. Its contracts make up 18 per cent of the overall volumes awarded by the insurer.
For FY-09, the company recorded a one-time non-cash impairment loss with respect to intangible assets (Rs 326 crore) and goodwill (Rs 1,185 crore) in its German business, driven primarily by the shift in market dynamics towards tender-based supply model, characterised by decrease in market prices.
For FY-09, DRL’s sales growth in India remained muted at 6 per cent due to supply chain restructuring (to replenishment based-model) and a slow pace of product launches.
The management expects to ramp up product launches, both in-house and licensed, and increase product reach and coverage to grow from hereon.
The earlier-than-expected approval for the company’s OTC generic Omeprazole by the USFDA also strengthen the case for investing in the stock. At the current market price of Rs 701, the stock trades at a somewhat high valuation of about 14 times its likely FY-10 per share earnings.
Dr Reddy’s has a fairly strong pipeline of over 68 new drug applications pending approvals by the US FDA, which represent a substantial earnings trigger for the company. The latest USFDA approval for the company’s Omeprazole Mg drug, which is the generic version of AstraZeneca plc’s Prilosec, is a case in point. The approval will grant DRL access into a roughly $360 million market, which features just another generic player, Perrigo.
That said, the company will be tested on its marketing and brand recall prowess since the product will be OTC and not prescription-based.
However, since the formulation patent expires only in 2016, it leaves DRL with sufficient time to capitalise on this business opportunity.
Sumatriptan sales, which had pepped up the revenues significantly since its Nov ‘07 launch now enjoys a share of over 50 per cent in the market, which features four players.
This revenue opportunity, however, may remain only till August ‘10, by when DRL is slated to lose its exclusivity. This may lead to a decline in the company’s operating performance.
Despite concerns of a falling ruble, DRL improved its revenues from Russia and CIS, well within the credit limit offered to its customers, by effecting price hikes.
It managed to grow its volumes by over 14 per cent in the country despite an industry de-growth of 0.2 per cent. Its stronghold is further reflected in the fact that its top ten brands in the country contributed to over 71 per cent of the revenue growth.
Overall, revenues from Russia registered a 41 per cent growth in FY-09. The management expects to maintain a healthy growth rate this year. However, excessive forex fluctuations can play spoilsport.
Concerns over DRL’s German arm appear to be on the wane, with Betapharm securing 23 contracts with German health insurer, AOK. Its contracts make up 18 per cent of the overall volumes awarded by the insurer.
For FY-09, the company recorded a one-time non-cash impairment loss with respect to intangible assets (Rs 326 crore) and goodwill (Rs 1,185 crore) in its German business, driven primarily by the shift in market dynamics towards tender-based supply model, characterised by decrease in market prices.
For FY-09, DRL’s sales growth in India remained muted at 6 per cent due to supply chain restructuring (to replenishment based-model) and a slow pace of product launches.
The management expects to ramp up product launches, both in-house and licensed, and increase product reach and coverage to grow from hereon.
Sesa Goa: Buy
Acquired mining capacities that may deliver substantial volume additions and a likely recovery in iron ore prices over the next two years, make the stock of Sesa Goa a good investment for those with a three-year perspective. At Rs 200, the stock is trading at 8.6 times its fully diluted earnings for 2008-09. That is at a discount to its historic valuations as well as global iron ore majors such as BHP Billiton and Rio Tinto, making it an attractive investment within metal stocks.
Sustained signs of recovery in China’s steel sector, consolidation in the global iron ore sector and the additional volumes likely from Sesa Goa’s recent Rs 1,850-crore deal to acquire a 100 per cent stake in VS Dempo & Company, point to improved earnings prospects for the company.
A weak trend in spot prices of iron ore led to poor performance from Sesa Goa over the past two quarters, though the year 2008-09 saw a 50 per cent profit growth. Renewed Chinese buying this year and a recovery across the commodities pack has firmed up spot iron ore prices from their lows; though prices still hover far below their peaks.
The Dempo acquisition, funded entirely through internal accruals, will deliver numerous benefits for Sesa Goa. It is expected to give the company access to 60 million tonnes of mineable reserves, adding to its own reserve of 230 mt. Like Sesa Goa, Dempo markets much of its iron ore in the spot market. Apart from Nippon Steel of Japan, which procures a part of its requirement on long-term contracts; three fourths of the output goes to Chinese buyers at spot prices.
Dempo’s operations are also said to hold potential for margin optimisation. The 23 per cent addition to Sesa Goa’s sales volumes may offset any impact from lower iron ore realisations that are likely over the next couple of quarters. An unexpected dip in Chinese demand, rising freight rates and regulatory intervention to curb iron ore exports are the key risks to the earnings outlook.
Sustained signs of recovery in China’s steel sector, consolidation in the global iron ore sector and the additional volumes likely from Sesa Goa’s recent Rs 1,850-crore deal to acquire a 100 per cent stake in VS Dempo & Company, point to improved earnings prospects for the company.
A weak trend in spot prices of iron ore led to poor performance from Sesa Goa over the past two quarters, though the year 2008-09 saw a 50 per cent profit growth. Renewed Chinese buying this year and a recovery across the commodities pack has firmed up spot iron ore prices from their lows; though prices still hover far below their peaks.
The Dempo acquisition, funded entirely through internal accruals, will deliver numerous benefits for Sesa Goa. It is expected to give the company access to 60 million tonnes of mineable reserves, adding to its own reserve of 230 mt. Like Sesa Goa, Dempo markets much of its iron ore in the spot market. Apart from Nippon Steel of Japan, which procures a part of its requirement on long-term contracts; three fourths of the output goes to Chinese buyers at spot prices.
Dempo’s operations are also said to hold potential for margin optimisation. The 23 per cent addition to Sesa Goa’s sales volumes may offset any impact from lower iron ore realisations that are likely over the next couple of quarters. An unexpected dip in Chinese demand, rising freight rates and regulatory intervention to curb iron ore exports are the key risks to the earnings outlook.
Monday, June 1, 2009
Redington India: Buy
Investors with a three-year horizon may buy the shares of Redington India, an IT hardware and software distributor.
The company has potential for scaling up its sales in high growth markets of India, West Asia and Europe, even in a slowing global economy. Given the sharp rise in markets, investors may consider buying the stocks in a phased manner to capitalise on declines linked to broader markets. At Rs 230, the stock trades at 11 times its likely 2009-10 per share earnings.
In the recent March quarter, Redington’s revenues grew by 7.7 per cent over the same period in 2007, while net profits grew by 18.5 per cent over the same period.
Improving trends in IT hardware shipments, diversification from sales of electronic goods, and expanding after-sales services offer scope for revenue growth, while helping margin expansion. After three successive quarters of decline in hardware shipments around the world, sales growth is just starting to revive in the March quarter, especially in India, West Asian and African regions.
According to a recent IDC report, personal computer shipments in India have increased by 8 per cent sequentially in the recent March quarter. Further, hardware and software sales are likely to be to the tune of Rs 60,703 crore (7.1 per cent growth over 2008) and Rs 11,300 crore (17.4 per cent growth) in 2009.
This is expected to be led by Government spending on IT enablement, especially in schools and colleges, e-governance projects, and banking sectors. With the new Government in place, a continuity of policies is expected in these areas. IDC pegs the Middle-East and African IT markets to be worth $80 billion by 2013, up from $51 billion in 2008. Other research agencies such as TPI also point out the increasing average contract values in the West Asian region.
The company has also diversified into selling non-IT products such as cameras, consumer-durables, and mobile-phones. Redington has tied up with Nokia to distribute the latter’s mobile phones in Africa and Australia. Given the relatively under-penetrated African market and the interest shown by several operators such as Bharti Airtel, Vodafone and several Chinese operators in having a larger footprint there, this partnership could be quite fruitful.
Competition from well-entrenched distributors such as Ingram Micro and the resulting pricing pressure is a key risk to this recommendation. Given the capital intensive nature of business, interest costs have increased by 36.8 per cent for the company in 2008-09, but due to margin expansion, the interest cover has been stable.
The company has potential for scaling up its sales in high growth markets of India, West Asia and Europe, even in a slowing global economy. Given the sharp rise in markets, investors may consider buying the stocks in a phased manner to capitalise on declines linked to broader markets. At Rs 230, the stock trades at 11 times its likely 2009-10 per share earnings.
In the recent March quarter, Redington’s revenues grew by 7.7 per cent over the same period in 2007, while net profits grew by 18.5 per cent over the same period.
Improving trends in IT hardware shipments, diversification from sales of electronic goods, and expanding after-sales services offer scope for revenue growth, while helping margin expansion. After three successive quarters of decline in hardware shipments around the world, sales growth is just starting to revive in the March quarter, especially in India, West Asian and African regions.
According to a recent IDC report, personal computer shipments in India have increased by 8 per cent sequentially in the recent March quarter. Further, hardware and software sales are likely to be to the tune of Rs 60,703 crore (7.1 per cent growth over 2008) and Rs 11,300 crore (17.4 per cent growth) in 2009.
This is expected to be led by Government spending on IT enablement, especially in schools and colleges, e-governance projects, and banking sectors. With the new Government in place, a continuity of policies is expected in these areas. IDC pegs the Middle-East and African IT markets to be worth $80 billion by 2013, up from $51 billion in 2008. Other research agencies such as TPI also point out the increasing average contract values in the West Asian region.
The company has also diversified into selling non-IT products such as cameras, consumer-durables, and mobile-phones. Redington has tied up with Nokia to distribute the latter’s mobile phones in Africa and Australia. Given the relatively under-penetrated African market and the interest shown by several operators such as Bharti Airtel, Vodafone and several Chinese operators in having a larger footprint there, this partnership could be quite fruitful.
Competition from well-entrenched distributors such as Ingram Micro and the resulting pricing pressure is a key risk to this recommendation. Given the capital intensive nature of business, interest costs have increased by 36.8 per cent for the company in 2008-09, but due to margin expansion, the interest cover has been stable.
Sunday, May 17, 2009
IRB Infrastructure Developers: Buy
Investors with a three-five year perspective can consider buying the stock of IRB Infrastructure Developers. The company’s lucrative portfolio of 14 operational toll roads render superior earnings visibility compared with some of the infrastructure companies struggling to achieve financial closure or are strapped for funds to meet working capital requirements. Over the last year, the company has demonstrated its ability to not only achieve financial closure of its Surat-Dahisar project but also roped in private equity to contribute part of the equity capital for its special purpose vehicle.
At the current market price of Rs 104, the stock trades at 10 times its consolidated per share earnings expected for FY10. Given the volatility witnessed in the company’s stock, investor can consider buying the stock on declines linked to broader market.
As an early entrant in toll road operation, IRB has enjoyed certain privileges which include retaining the full share of revenues from toll roads, unlike recent public private partnership projects which come with a revenue sharing clause. This has resulted in the company enjoying operating profit margins of over 41 per cent, way beyond the infrastructure industry average of 10-14 per cent.
Order book of Rs 3,200 crore on the construction side, provide strong earnings visibility for the next couple of years. At the same time, high density traffic in Western highways such as the Mumbai Pune Expressway is likely to provide regular revenues.
At the current market price of Rs 104, the stock trades at 10 times its consolidated per share earnings expected for FY10. Given the volatility witnessed in the company’s stock, investor can consider buying the stock on declines linked to broader market.
As an early entrant in toll road operation, IRB has enjoyed certain privileges which include retaining the full share of revenues from toll roads, unlike recent public private partnership projects which come with a revenue sharing clause. This has resulted in the company enjoying operating profit margins of over 41 per cent, way beyond the infrastructure industry average of 10-14 per cent.
Order book of Rs 3,200 crore on the construction side, provide strong earnings visibility for the next couple of years. At the same time, high density traffic in Western highways such as the Mumbai Pune Expressway is likely to provide regular revenues.
Elecon Engineering: Buy
Investors can consider buying the stock of Elecon Engineering.
At the current market price of Rs 54, the stock trades at about 10 times its likely FY-10 per share earnings. Investors can accumulate the stock in lots on declines, as it may take a couple of more quarters for the order flow scenario to improve for Elecon.
The company’s order book at end-March 09 quarter stood at about Rs 1,600 crore, registering a growth of over 27 per cent year-on year. It has since added over Rs 300 crore worth orders from different companies. But even as the order book cover lends healthy visibility to its revenue, what remains a concern is that the order booking has been very weak. While most companies in the capital goods space have also reported weak order inflows, for Elecon, the concern arises from delay in execution of a Rs 500-crore order included in the current order book.
This order, bagged in June 2008 from Bramhani Industries, was put on hold by the latter. This issue, however, may be addressed soon as the management expects the order to take off in the next quarters.
The company’s industrial gears division, which owes its fortunes to the increasing spends by its user industries, reported a 32 per cent decline in revenues for the March-09 quarter as against the same quarter last year.
The facility also clocked lower utilisation levels of about 23-30 per cent. This was also partly due to the deferment of some orders last quarter, which will most likely get reflected in its current quarter revenues. The division currently has an outstanding order book of about Rs 230 crore only.
For the year ended March 09, Elecon managed a revenue growth of over 18 per cent, helped primarily by the strong growth in its MHE division.
The material handling business now has a share of about 70 per cent from 55 per cent last year, while the industrial gears division’s contribution has fallen to 50 per cent. On the margin front, Elecon improved its performance by 1.4 percentage points to 16 per cent, helped by lower raw material prices.
The company is likely to sustain profit margins once it exhausts its current raw material inventory. Net profits, however, fell by 14 per cent. Higher interest outgo and depreciation, besides lower revenues, led to the decline in profits.
There has not been any material progress in Elecon’s entry into the windmills and windmill gearboxes business.
While the company had earlier begun prototyping for windmill gearboxes of about 2 MW range for its customer and installed six wind turbine generators in Gujarat and supplied four in Maharashtra, the development so far has not been impressive. This scenario may, however, change in the next few quarters as the management indicated that the issue of certification for its windmills has been resolved recently. The management expects to make Rs 55 crore revenue contribution from the windmill segment this year.
At the current market price of Rs 54, the stock trades at about 10 times its likely FY-10 per share earnings. Investors can accumulate the stock in lots on declines, as it may take a couple of more quarters for the order flow scenario to improve for Elecon.
The company’s order book at end-March 09 quarter stood at about Rs 1,600 crore, registering a growth of over 27 per cent year-on year. It has since added over Rs 300 crore worth orders from different companies. But even as the order book cover lends healthy visibility to its revenue, what remains a concern is that the order booking has been very weak. While most companies in the capital goods space have also reported weak order inflows, for Elecon, the concern arises from delay in execution of a Rs 500-crore order included in the current order book.
This order, bagged in June 2008 from Bramhani Industries, was put on hold by the latter. This issue, however, may be addressed soon as the management expects the order to take off in the next quarters.
The company’s industrial gears division, which owes its fortunes to the increasing spends by its user industries, reported a 32 per cent decline in revenues for the March-09 quarter as against the same quarter last year.
The facility also clocked lower utilisation levels of about 23-30 per cent. This was also partly due to the deferment of some orders last quarter, which will most likely get reflected in its current quarter revenues. The division currently has an outstanding order book of about Rs 230 crore only.
For the year ended March 09, Elecon managed a revenue growth of over 18 per cent, helped primarily by the strong growth in its MHE division.
The material handling business now has a share of about 70 per cent from 55 per cent last year, while the industrial gears division’s contribution has fallen to 50 per cent. On the margin front, Elecon improved its performance by 1.4 percentage points to 16 per cent, helped by lower raw material prices.
The company is likely to sustain profit margins once it exhausts its current raw material inventory. Net profits, however, fell by 14 per cent. Higher interest outgo and depreciation, besides lower revenues, led to the decline in profits.
There has not been any material progress in Elecon’s entry into the windmills and windmill gearboxes business.
While the company had earlier begun prototyping for windmill gearboxes of about 2 MW range for its customer and installed six wind turbine generators in Gujarat and supplied four in Maharashtra, the development so far has not been impressive. This scenario may, however, change in the next few quarters as the management indicated that the issue of certification for its windmills has been resolved recently. The management expects to make Rs 55 crore revenue contribution from the windmill segment this year.
Piramal Healthcare: Buy
Investors with a long-term perspective can consider accumulating the stock of Piramal Healthcare on declines related to the broader market. A well-entrenched presence in the domestic formulations business helped by a dedicated field force of over 5,000 and the strengthening position of its Indian custom manufacturing division lend stability to Piramal’s prospects, even as its overseas CRAMS assets may lower contributions.
At current market price of Rs 250, the stock trades at about 12 times it likely FY10 per share earnings. This appears reasonable, considering the company’s growth rate and its strong foothold in the domestic market.
For the year-ended March 09, Piramal’s contract manufacturing business clocked a growth of 5.5 per cent, of which revenues from its global assets fell by over 14 per cent. Slowed investments by big pharma companies, de-stocking of inventories and drying up of funding for smaller biotech firms pushed down the revenues from the global CRAMS business.
For the year, the segment’s revenues from facilities in India have grown by over 75 per cent. That said, it is the contribution from the company’s healthcare solutions (domestic formulations) that will lend stability in its overall growth.
Piramal reported a net sales growth of over 15 per cent last year, driven primarily by the strong performance put in by the domestic formulations business. Its revenues grew by about 23 per cent, outperforming even the market growth rate of 10.4 per cent.
That the company expanded its market share to 5 per cent this year from 3.2 per cent earlier also points to the strengthening position of Piramal in the domestic market.
The management looks towards a growth of 14-18 per cent for this segment.It, however, has lowered its revenue guidance for the global critical care segment (GCC) for the current fiscal to $55-65 million, as Minrad International Inc, which Piramal acquired recently, may not be able to launch Desflurane this year.
At current market price of Rs 250, the stock trades at about 12 times it likely FY10 per share earnings. This appears reasonable, considering the company’s growth rate and its strong foothold in the domestic market.
For the year-ended March 09, Piramal’s contract manufacturing business clocked a growth of 5.5 per cent, of which revenues from its global assets fell by over 14 per cent. Slowed investments by big pharma companies, de-stocking of inventories and drying up of funding for smaller biotech firms pushed down the revenues from the global CRAMS business.
For the year, the segment’s revenues from facilities in India have grown by over 75 per cent. That said, it is the contribution from the company’s healthcare solutions (domestic formulations) that will lend stability in its overall growth.
Piramal reported a net sales growth of over 15 per cent last year, driven primarily by the strong performance put in by the domestic formulations business. Its revenues grew by about 23 per cent, outperforming even the market growth rate of 10.4 per cent.
That the company expanded its market share to 5 per cent this year from 3.2 per cent earlier also points to the strengthening position of Piramal in the domestic market.
The management looks towards a growth of 14-18 per cent for this segment.It, however, has lowered its revenue guidance for the global critical care segment (GCC) for the current fiscal to $55-65 million, as Minrad International Inc, which Piramal acquired recently, may not be able to launch Desflurane this year.
Maruti Suzuki: Hold
With a 15 per cent return over the past year, the Maruti Suzuki stock has outperformed the BSE Auto index (18 per cent decline) and has turned out to be one of the best defensive picks. At Rs 842, the stock discounts its four quarter earnings by 15 times. Strong performance has pushed its valuation to a premium over the entire auto pack (about 14 times), limiting possible upside over the medium term. However, shareholders of the company can remain invested for its strong earnings visibility.
With value-for-money offerings in the sedan segment and price increases to offset input costs, the company’s top-line for 2008-09 registered a growth of 12 per cent, beating the automobile slowdown. However, net profits have disappointed, declining by 28 per cent due to higher material costs, a change in depreciation policy and forex losses. Easing margin pressures, as commodity price declines filter in, suggest that the company is on track to deliver better earnings performance.
Maruti’s key advantage lies in its focus on the passenger vehicle segment, which has weathered the slowdown better than commercial vehicle. Products at almost every price point — Alto, WagonR, Zen Estilo, Swift and A-Star — make the company a market leader in the hatchbacks (A3) segment. Intense competition and tight credit availability that prevailed for most of last year muted its sales growth in this space to 2.5 per cent. But with credit crunch easing out, this segment has shown better growth since the beginning of 2009 (11 per cent increase in sales between December 2008 and April 2009). Maruti has enlarged its market share in this segment to 60 per cent this year as against 53 per cent last year. Swift and the recently launched A-Star have helped these gains.
While the hatchback segment witnessed a slowdown last year, it is the sedan or the A2 segment that has delivered surprising growth for Maruti. Driven by launches of SX4 and Swift DZire (the sedan version of Swift), this segment has grown by 50.9 per cent.
Concerns however remain on Maruti’s entry-level models such as Maruti 1000 and Alto. Preferred by the urban middle-class, these cars may face challenges in 12 cities, including Delhi, Mumbai Kolkata and Chennai, after a change in emission norms to Bharat Stage IV mandated by October 2009.
With the on-road price differential (in Delhi) of about Rs 45,000-Rs 50,000 between Maruti’s entry-level models and Nano’s high-end version, competition from this source cannot be ruled out.
Domestic sales apart, exports too are seen as a key growth driver for Maruti over the next couple of years. Engineered to suit European standards, A-Star has lifted Maruti’s exports by 33 per cent for FY09. Exports accounted for 11 per cent of the company’s sales volumes in the last fiscal.
Maruti has a contract with Nissan to manufacture 45,000 of A-Star under the ‘Pixo’ label in Europe and a tie-up with Suzuki to ship 11,000 units of the car to Latin America, Algeria, Australia and some African nations.
Maruti has reached 39 per cent of its export target (two lakh units by fiscal year 2010-11) so far. The launch of Ritz, could also hold potential.
The year 2008-09 ended with a sales growth of 14 per cent, while total volumes grew by 3.6 per cent. High-cost pressures from some raw materials such as steel, aluminium alloys and rubber, and a change in product mix in favour of diesel variants , resulted in the operating profits declining by 45 per cent on a year-on-year basis. The net profits shrank by 32 per cent.
With initiatives to localise vendors, operating profits are expected to grow by 23-30 per cent in 2010-11. On a sequential basis, the company has seen 32 per cent increase in sales volume and a 20 per cent increase in net profits for the March 2009 quarter.
With value-for-money offerings in the sedan segment and price increases to offset input costs, the company’s top-line for 2008-09 registered a growth of 12 per cent, beating the automobile slowdown. However, net profits have disappointed, declining by 28 per cent due to higher material costs, a change in depreciation policy and forex losses. Easing margin pressures, as commodity price declines filter in, suggest that the company is on track to deliver better earnings performance.
Maruti’s key advantage lies in its focus on the passenger vehicle segment, which has weathered the slowdown better than commercial vehicle. Products at almost every price point — Alto, WagonR, Zen Estilo, Swift and A-Star — make the company a market leader in the hatchbacks (A3) segment. Intense competition and tight credit availability that prevailed for most of last year muted its sales growth in this space to 2.5 per cent. But with credit crunch easing out, this segment has shown better growth since the beginning of 2009 (11 per cent increase in sales between December 2008 and April 2009). Maruti has enlarged its market share in this segment to 60 per cent this year as against 53 per cent last year. Swift and the recently launched A-Star have helped these gains.
While the hatchback segment witnessed a slowdown last year, it is the sedan or the A2 segment that has delivered surprising growth for Maruti. Driven by launches of SX4 and Swift DZire (the sedan version of Swift), this segment has grown by 50.9 per cent.
Concerns however remain on Maruti’s entry-level models such as Maruti 1000 and Alto. Preferred by the urban middle-class, these cars may face challenges in 12 cities, including Delhi, Mumbai Kolkata and Chennai, after a change in emission norms to Bharat Stage IV mandated by October 2009.
With the on-road price differential (in Delhi) of about Rs 45,000-Rs 50,000 between Maruti’s entry-level models and Nano’s high-end version, competition from this source cannot be ruled out.
Domestic sales apart, exports too are seen as a key growth driver for Maruti over the next couple of years. Engineered to suit European standards, A-Star has lifted Maruti’s exports by 33 per cent for FY09. Exports accounted for 11 per cent of the company’s sales volumes in the last fiscal.
Maruti has a contract with Nissan to manufacture 45,000 of A-Star under the ‘Pixo’ label in Europe and a tie-up with Suzuki to ship 11,000 units of the car to Latin America, Algeria, Australia and some African nations.
Maruti has reached 39 per cent of its export target (two lakh units by fiscal year 2010-11) so far. The launch of Ritz, could also hold potential.
The year 2008-09 ended with a sales growth of 14 per cent, while total volumes grew by 3.6 per cent. High-cost pressures from some raw materials such as steel, aluminium alloys and rubber, and a change in product mix in favour of diesel variants , resulted in the operating profits declining by 45 per cent on a year-on-year basis. The net profits shrank by 32 per cent.
With initiatives to localise vendors, operating profits are expected to grow by 23-30 per cent in 2010-11. On a sequential basis, the company has seen 32 per cent increase in sales volume and a 20 per cent increase in net profits for the March 2009 quarter.
UltraTech Cement : Hold
UltraTech Cement continues to be preferred exposure within the cement sector due to the advantages of operating in the East, which is showing high demand growth, and relatively low new capacity additions in FY-10.
The company’s ability to expand margins by saving on fuel costs and additions to captive power capacity are the plus points. At Rs 577, enjoying seven times trailing earnings, the stock valuation remains reasonable and is at discount to ACC which trades at seven times.
Though all-India cement despatches have grown by a stronger-than-expected 9.2 per cent in FY-09, the bunching up of fresh capacities in 2009-10 make the current year a challenging one for the sector.
At 6.3 million tonnes, UltraTech’s sales volume recorded a robust 12 per cent growth in the March quarter.
Its peers, ACC and Ambuja Cements, saw a lower growth at 6.2 per cent and 6.8 per cent. Being positioned in the West, the company made the best out of the higher demand in this region in recent quarter.
Year-to-date till March, the western region has shown the highest growth in despatches at 12.74 per cent growth compared to the all-India average of 7.95 per cent.
Further, of all the pockets in the country, the West will be seeing the least capacity expansion in FY-10. Of the total 60 million tonne of capacity expected to be added in FY-10, over 85 per cent will be in the North and Southern pockets.
With the commissioning of two grinding units of 1.1 million tonnes per annum (mtpa) each in the March quarter, UltraTech’s capacity stands at 23.9 million tonnes. This is expected to rise to 24.1 million tonnes by June 2009, with the commissioning of a grinding unit, work for which has already begun. Interest expenditure in the March quarter stood higher by 61 per cent over the previous year on borrowings for the capex.
However, the interest coverage stands at a comfortable 15 times. Further, for the full year FY-09, cash profits were higher on higher depreciation (up 33 per cent) on additions to the cement and captive power capacity. Cash profit for FY-09 was Rs 1,581 crore against Rs 1,228 crore for FY-08.
But, however, this is much lower than the prices in the South where a 50 kg bag is sold at Rs 271-75; this could mean leeway for further increases.
In the March ‘09 quarter, however, the company’s overall realisations came down by Rs 8.6 per bag on substantial decrease in export realisations of clinker.
Saving in cost
The addition of 191 MW to the captive power capacity may lead to further savings in costs in the quarters to come. With this, UltraTech’s captive power would meet 81 per cent of its total requirements.
Also, the sharp decline in thermal coal prices in the international markets has already begun to reflect in the March quarter numbers with power-fuel expenses declining by 24 per cent sequentially and operating profit margins expanding by 210 basis points to 30 per cent.
Coal prices continue to hover at low levels. From $77 per tonne in December ($190 per tonne in 2008), prices have now fallen to $65 per tonne and there is scope for some further saving on fuel as sea freight rates also linger at low levels.
In the March ’09 quarter, UltraTech’s sales was up 15.6 per cent supported by strong despatches growth.
The company’s ability to expand margins by saving on fuel costs and additions to captive power capacity are the plus points. At Rs 577, enjoying seven times trailing earnings, the stock valuation remains reasonable and is at discount to ACC which trades at seven times.
Though all-India cement despatches have grown by a stronger-than-expected 9.2 per cent in FY-09, the bunching up of fresh capacities in 2009-10 make the current year a challenging one for the sector.
At 6.3 million tonnes, UltraTech’s sales volume recorded a robust 12 per cent growth in the March quarter.
Its peers, ACC and Ambuja Cements, saw a lower growth at 6.2 per cent and 6.8 per cent. Being positioned in the West, the company made the best out of the higher demand in this region in recent quarter.
Year-to-date till March, the western region has shown the highest growth in despatches at 12.74 per cent growth compared to the all-India average of 7.95 per cent.
Further, of all the pockets in the country, the West will be seeing the least capacity expansion in FY-10. Of the total 60 million tonne of capacity expected to be added in FY-10, over 85 per cent will be in the North and Southern pockets.
With the commissioning of two grinding units of 1.1 million tonnes per annum (mtpa) each in the March quarter, UltraTech’s capacity stands at 23.9 million tonnes. This is expected to rise to 24.1 million tonnes by June 2009, with the commissioning of a grinding unit, work for which has already begun. Interest expenditure in the March quarter stood higher by 61 per cent over the previous year on borrowings for the capex.
However, the interest coverage stands at a comfortable 15 times. Further, for the full year FY-09, cash profits were higher on higher depreciation (up 33 per cent) on additions to the cement and captive power capacity. Cash profit for FY-09 was Rs 1,581 crore against Rs 1,228 crore for FY-08.
But, however, this is much lower than the prices in the South where a 50 kg bag is sold at Rs 271-75; this could mean leeway for further increases.
In the March ‘09 quarter, however, the company’s overall realisations came down by Rs 8.6 per bag on substantial decrease in export realisations of clinker.
Saving in cost
The addition of 191 MW to the captive power capacity may lead to further savings in costs in the quarters to come. With this, UltraTech’s captive power would meet 81 per cent of its total requirements.
Also, the sharp decline in thermal coal prices in the international markets has already begun to reflect in the March quarter numbers with power-fuel expenses declining by 24 per cent sequentially and operating profit margins expanding by 210 basis points to 30 per cent.
Coal prices continue to hover at low levels. From $77 per tonne in December ($190 per tonne in 2008), prices have now fallen to $65 per tonne and there is scope for some further saving on fuel as sea freight rates also linger at low levels.
In the March ’09 quarter, UltraTech’s sales was up 15.6 per cent supported by strong despatches growth.
Thursday, April 30, 2009
Bharti shines in India
India's top telcom company, Bharti Airtel, is expected to report quarterly profit rose by a fifth as it benefits from a strategy of keeping tariffs steady, while rivals cut prices to boost market share.
Cheaper call tariffs and expanding networks have helped mobile operators add subscribers at a furious pace, making India the world's fastest-growing wireless market.
The country added a record 44.6 million subscribers in January-March, boosting the total to 392 million, after the No. 2 player Reliance Communications expanded its GSM network and rivals such as Vodafone Essar and Idea Cellular also expanded.
In contrast, the China's mobile phone industry is slowing.
China Mobile, the world's largest mobile carrier with about 490 million subscribers, said last week its first-quarter net profit growth slowed to 8 percent, despite a near double-digit rise in revenue.
Consultancy Gartner expects the number of India's mobile phone subscribers to nearly double to 900 million by 2015.
"High competition in the sector will ensure their administrative cost, marketing cost will go up."
As companies expand to small towns, average revenue per user and minutes of usage, two key measurements of performance, have been under pressure as users in rural areas talk less on phones and some use phones only to answer calls.
In India, Bharti, about 31 percent owned by Southeast Asia's top phone firm SingTel, has a market share of about 35 percent, followed by Reliance with about 28 percent.
Cheaper call tariffs and expanding networks have helped mobile operators add subscribers at a furious pace, making India the world's fastest-growing wireless market.
The country added a record 44.6 million subscribers in January-March, boosting the total to 392 million, after the No. 2 player Reliance Communications expanded its GSM network and rivals such as Vodafone Essar and Idea Cellular also expanded.
In contrast, the China's mobile phone industry is slowing.
China Mobile, the world's largest mobile carrier with about 490 million subscribers, said last week its first-quarter net profit growth slowed to 8 percent, despite a near double-digit rise in revenue.
Consultancy Gartner expects the number of India's mobile phone subscribers to nearly double to 900 million by 2015.
"High competition in the sector will ensure their administrative cost, marketing cost will go up."
As companies expand to small towns, average revenue per user and minutes of usage, two key measurements of performance, have been under pressure as users in rural areas talk less on phones and some use phones only to answer calls.
In India, Bharti, about 31 percent owned by Southeast Asia's top phone firm SingTel, has a market share of about 35 percent, followed by Reliance with about 28 percent.
Bharti Airtel: As good as it is going get
The growth in the top line has been disappointing but a check on costs has helped sustain the operating profit margins.
In what has probably been one of the most difficult quarters for incumbent GSM telcos, because of Reliance Communication’s GSM rollout, Bharti Airtel’s numbers have been reasonably at rapid pace. It’s true the sequential rise in revenues at just 3 per cent is a tad disappointing — revenues in the past have risen by about 7-8 per cent — but a decent operating profit margin(OPM) has made up for it. The reported OPM of 40.7 per cent would be higher by about 200 basis points, if rentals paid for 45,000 towers transfered to Indus Towers are adjusted.
The fall in average revenue per user (ARPU) which slipped by 7 per cent sequentially to Rs 305 was more or less expected partly because of the competition and also because Bharti is increasing its rural reach with 52 per cent new subscribers from rural areas. Also, while the minutes of usage came off by 10 minutes to 485 minutes, it was partly because the quarter had fewer days; adjusting for that, the fall would be just 19 minutes.
Obviously the free minutes offered by the competition has had some impact but the average revenue per minute has fallen just 3 per cent sequentially implying that Bharti hasn’t attempted to match the competition’s prices. If margins for the wireless have been excellent, it’s because Bharti has managed to control expenses on sales — while market share gives it bargaining power in the urban areas, rural channels tend to be cheaper.
Also, since it now covers 90 per cent of the population, capital expenditure may not rise much going ahead. While competition is likely to get fiercer and put pressure on the top line — Vodafone has been gaining share in several new circles where it has launched — Bharti’s scale and revenue market share of 42 per cent give it an edge over the competition. The stock has underperformed the market since the start of the year and currently trades at 8.5 times EV/EBITDA (enterprise value/ earnings before interest, tax and depreciation) which is attractive.
In what has probably been one of the most difficult quarters for incumbent GSM telcos, because of Reliance Communication’s GSM rollout, Bharti Airtel’s numbers have been reasonably at rapid pace. It’s true the sequential rise in revenues at just 3 per cent is a tad disappointing — revenues in the past have risen by about 7-8 per cent — but a decent operating profit margin(OPM) has made up for it. The reported OPM of 40.7 per cent would be higher by about 200 basis points, if rentals paid for 45,000 towers transfered to Indus Towers are adjusted.
The fall in average revenue per user (ARPU) which slipped by 7 per cent sequentially to Rs 305 was more or less expected partly because of the competition and also because Bharti is increasing its rural reach with 52 per cent new subscribers from rural areas. Also, while the minutes of usage came off by 10 minutes to 485 minutes, it was partly because the quarter had fewer days; adjusting for that, the fall would be just 19 minutes.
Obviously the free minutes offered by the competition has had some impact but the average revenue per minute has fallen just 3 per cent sequentially implying that Bharti hasn’t attempted to match the competition’s prices. If margins for the wireless have been excellent, it’s because Bharti has managed to control expenses on sales — while market share gives it bargaining power in the urban areas, rural channels tend to be cheaper.
Also, since it now covers 90 per cent of the population, capital expenditure may not rise much going ahead. While competition is likely to get fiercer and put pressure on the top line — Vodafone has been gaining share in several new circles where it has launched — Bharti’s scale and revenue market share of 42 per cent give it an edge over the competition. The stock has underperformed the market since the start of the year and currently trades at 8.5 times EV/EBITDA (enterprise value/ earnings before interest, tax and depreciation) which is attractive.
NTPC needs legal opinion
State-owned power major NTPC is seeking legal opinion on to ink deal with RIL for KG basin gas at the government-approved price of USD 5.20 per mmbtu for its projects except those on which it is in legal dispute with the Mukesh Ambani group.
At present, both sides are in litigation at the Bombay High Court where NTPC's plea is that it should get gas for its Kawas and Gandhar expansion power projects, for which RIL was awarded a contract after it bid lowest at USD 1.6 per mmbtu (million Bristish thermal unit) to supply 10 million standard cubic metres per (mmscmd).
The move to sign an agreement with NTPC comes in the wake of RIL entering into similar contracts with nine other power producers, including GMR Power, Essar Power and Reliance Infrastructure, owned by younger Ambani sibling Anil.
NTPC is likely to sign the Gas Sale and Purchase Agreement (GSPA) with RIL for purchasing gas from the company's eastern offshore KG D6 basin, in four weeks' time.
NTPC will get 1.67 mmscmd of gas from KG-D6. But, NTPC has received draft GSPA from RIL and it will seek legal opinion so that it's other case with RIL does not get jeopardised.
The power sector has been allocated 28 mmcmd gas out of the initial 50 mmcmd output from the KG-D6 basin, of which 7.22 mmcmd would go to eight power plants in Andhra Pradesh.
RIL has signed deals to supply gas from its KG-D6 fields to most power sector consumers, but is yet to sign it with Ratnagiri Gas and Power, the owner of the Dabhol power plant, which has been allocated 3.7 mmcmd.
Essar's 300 MW power plant in Gujarat will get 1.78 mmcmd while Anil Dhirubhai Ambani Group's 230-MW Samalkot plant in Andhra Pradesh will get 1.19 mmcmd at the government-approved rates of USD 4.14 per million British thermal unit (mmbtu) plus taxes and transportation.
At present, both sides are in litigation at the Bombay High Court where NTPC's plea is that it should get gas for its Kawas and Gandhar expansion power projects, for which RIL was awarded a contract after it bid lowest at USD 1.6 per mmbtu (million Bristish thermal unit) to supply 10 million standard cubic metres per (mmscmd).
The move to sign an agreement with NTPC comes in the wake of RIL entering into similar contracts with nine other power producers, including GMR Power, Essar Power and Reliance Infrastructure, owned by younger Ambani sibling Anil.
NTPC is likely to sign the Gas Sale and Purchase Agreement (GSPA) with RIL for purchasing gas from the company's eastern offshore KG D6 basin, in four weeks' time.
NTPC will get 1.67 mmscmd of gas from KG-D6. But, NTPC has received draft GSPA from RIL and it will seek legal opinion so that it's other case with RIL does not get jeopardised.
The power sector has been allocated 28 mmcmd gas out of the initial 50 mmcmd output from the KG-D6 basin, of which 7.22 mmcmd would go to eight power plants in Andhra Pradesh.
RIL has signed deals to supply gas from its KG-D6 fields to most power sector consumers, but is yet to sign it with Ratnagiri Gas and Power, the owner of the Dabhol power plant, which has been allocated 3.7 mmcmd.
Essar's 300 MW power plant in Gujarat will get 1.78 mmcmd while Anil Dhirubhai Ambani Group's 230-MW Samalkot plant in Andhra Pradesh will get 1.19 mmcmd at the government-approved rates of USD 4.14 per million British thermal unit (mmbtu) plus taxes and transportation.
Wednesday, April 29, 2009
BGR Energy: Buy
Investors with a Five-year perspective can buy BGR Energy Systems.
The company’s strong financials, the resilience shown in the current slowdown and the ability to achieve financial closures in large projects during a liquidity crunch, suggest that the company will be able to capitalise on the huge business opportunity in the power and oil and gas space.
An order book of over Rs 15,000 crore (7 times FY08 sales) provides revenue visibility for the medium term. The company’s move to tie-up technology for power equipment manufacturing, if successful, could result in a significant rating of the stock over the next couple of years. At the current market price of Rs 150, the stock trades at 10 times its expected earnings for FY10. The stocks can be bought on declines linked to broad markets.
For the nine-months ended December 2008, BGR recorded 40 per cent growth in sales as well as net profits compared with a year ago numbers.
Profitability remained intact for the above nine months with operating profit margins holding at 11.5 per cent. While BGR did see a rise in its interest costs, higher profits provided sufficient cushion. The company’s superior debt servicing capabilities enabled it to tie up funding for two huge projects for state electricity boards (SEBs), thus achieving financial closure within time.
The company’s strong financials, the resilience shown in the current slowdown and the ability to achieve financial closures in large projects during a liquidity crunch, suggest that the company will be able to capitalise on the huge business opportunity in the power and oil and gas space.
An order book of over Rs 15,000 crore (7 times FY08 sales) provides revenue visibility for the medium term. The company’s move to tie-up technology for power equipment manufacturing, if successful, could result in a significant rating of the stock over the next couple of years. At the current market price of Rs 150, the stock trades at 10 times its expected earnings for FY10. The stocks can be bought on declines linked to broad markets.
For the nine-months ended December 2008, BGR recorded 40 per cent growth in sales as well as net profits compared with a year ago numbers.
Profitability remained intact for the above nine months with operating profit margins holding at 11.5 per cent. While BGR did see a rise in its interest costs, higher profits provided sufficient cushion. The company’s superior debt servicing capabilities enabled it to tie up funding for two huge projects for state electricity boards (SEBs), thus achieving financial closure within time.
Cipla: not well
The drug firm’s export performance in the March quarter has been disappointing, given the large depreciation of the rupees.
Lower than expected foreign exchange losses and higher technology licence fees have boosted Cipla’s net profits for the March 2009 quarter. After a strong growth in the top line in previous quarters, net sales were up just over 16 per cent at Rs 1,335 crore. While the growth in domestic formulations of close to 19 per cent was better than the industry’s performance, the drug major’s exports were rather disappointing given that the rupee has depreciated by over 23 per cent during the quarter.
Export formulations grew at just over 12 per cent way below the 46 per cent clocked in the nine months to December 2008. Thus, while Cipla was widely expected to grow its net profits in 2008-09 by about 12-16 per cent, theyhave risen just under 10 per cent to Rs 768 crore.
The management is understood to have indicated that revenues and profits would grow by about 12 per cent in the current year on a constant currency basis. At Rs 250, the stock trades at around 18 times estimated earnings for 2009-10, which, analysts say is somewhat expensive given the subdued earnings growth outlook.
Lower than expected foreign exchange losses and higher technology licence fees have boosted Cipla’s net profits for the March 2009 quarter. After a strong growth in the top line in previous quarters, net sales were up just over 16 per cent at Rs 1,335 crore. While the growth in domestic formulations of close to 19 per cent was better than the industry’s performance, the drug major’s exports were rather disappointing given that the rupee has depreciated by over 23 per cent during the quarter.
Export formulations grew at just over 12 per cent way below the 46 per cent clocked in the nine months to December 2008. Thus, while Cipla was widely expected to grow its net profits in 2008-09 by about 12-16 per cent, theyhave risen just under 10 per cent to Rs 768 crore.
The management is understood to have indicated that revenues and profits would grow by about 12 per cent in the current year on a constant currency basis. At Rs 250, the stock trades at around 18 times estimated earnings for 2009-10, which, analysts say is somewhat expensive given the subdued earnings growth outlook.
Man Industries bags Rs 1,350 orders
Man Industries (India), a major pipe manufacturer, has bagged orders worth Rs 1,350 crore from middle-east. The orders will be executed in the current financial year.
In addition to the recent orders, the company has also emerged as the lowest bidder for orders worth Rs 1,400 crore from domestic and international markets. The company is in the bidding stage for many projects for supplying pipes worth Rs 5,400 crore.
With the latest order of Rs 1,345 crore, the order backlog stands at Rs 2,500 crore, the company said.
In addition to the recent orders, the company has also emerged as the lowest bidder for orders worth Rs 1,400 crore from domestic and international markets. The company is in the bidding stage for many projects for supplying pipes worth Rs 5,400 crore.
With the latest order of Rs 1,345 crore, the order backlog stands at Rs 2,500 crore, the company said.
Tuesday, April 28, 2009
US sanctions may hit Reliance
The US Congress is moving a new and improved sanctions legislation on Iran this week, targeting foreign companies that supply refined petroleum products to Iran. Among several companies that have been named is Reliance Industries which is in India.
The Senate Foreign Relations Committee is expected to introduce a bill this week sponsored by Evan Bayh, Jon Kyl and Joe Lieberman to add to the sanctions against Iran. This bill is the Senate version of a bill introduced in the House of Representatives last week by Congressmen Brad Sherman, and seeks to replace the 1996 Iran sanctions act.
The new bill seeks to target foreign companies that sell refined petroleum products to Iran. In a statement on the legislation last week, Sherman and Kirk said nearly all of Iran’s imported gasoline was provided by four European companies —Swiss firm Vitol , Swiss/Dutch firm Trafigura , French firm Total and British Petroleum — and Indian firm Reliance.
In December 2008, Sherman had led a bi-partisan group of eight House members to pressure the US Exim Bank to suspend loan guarantees to Reliance. The bank had approved guarantees of $800 million for expansion of RIL’s Jamnagar facility.
In a letter to Exim Bank criticising it for lending to Reliance industries, Sherman said, “While we would normally strongly support this type of assistance to facilitate US exports to India, we are deeply concerned about the inadequate attention paid to other vital national interest in the approval of these guarantees.
The Senate Foreign Relations Committee is expected to introduce a bill this week sponsored by Evan Bayh, Jon Kyl and Joe Lieberman to add to the sanctions against Iran. This bill is the Senate version of a bill introduced in the House of Representatives last week by Congressmen Brad Sherman, and seeks to replace the 1996 Iran sanctions act.
The new bill seeks to target foreign companies that sell refined petroleum products to Iran. In a statement on the legislation last week, Sherman and Kirk said nearly all of Iran’s imported gasoline was provided by four European companies —Swiss firm Vitol , Swiss/Dutch firm Trafigura , French firm Total and British Petroleum — and Indian firm Reliance.
In December 2008, Sherman had led a bi-partisan group of eight House members to pressure the US Exim Bank to suspend loan guarantees to Reliance. The bank had approved guarantees of $800 million for expansion of RIL’s Jamnagar facility.
In a letter to Exim Bank criticising it for lending to Reliance industries, Sherman said, “While we would normally strongly support this type of assistance to facilitate US exports to India, we are deeply concerned about the inadequate attention paid to other vital national interest in the approval of these guarantees.
RIL inks gas supply agreements
Reliance Industries has inked deals to supply gas from its eastern offshore KG-D6 fields to most power sector consumers, including Essar Power.
However, it is yet to sign the GPSA with state-run NTPC Ltd and Ratnagiri Gas and Power.
NTPC is to get 3.67 million cubic metres per day of gas from KG-D6 while Dabhol has been allocated 2.3 mmcmd.
The power sector had been allocated 15 mmcmd gas out of the initial 41 mmcmd volumes from KG-D6. Gas of 6.22 mmcmd would go to eight power plants in Andhra Pradesh, the landfall point of the gas from the Bay of Bengal fields.
Essar's 300 MW power plant in Gujarat will get 1.05 mmcmd while ADAG's 230-MW Samalkot plant in Andhra Pradesh will get 1.19 mmcmd.
However, it is yet to sign the GPSA with state-run NTPC Ltd and Ratnagiri Gas and Power.
NTPC is to get 3.67 million cubic metres per day of gas from KG-D6 while Dabhol has been allocated 2.3 mmcmd.
The power sector had been allocated 15 mmcmd gas out of the initial 41 mmcmd volumes from KG-D6. Gas of 6.22 mmcmd would go to eight power plants in Andhra Pradesh, the landfall point of the gas from the Bay of Bengal fields.
Essar's 300 MW power plant in Gujarat will get 1.05 mmcmd while ADAG's 230-MW Samalkot plant in Andhra Pradesh will get 1.19 mmcmd.
Monday, April 27, 2009
Stock outlook: Cairn India
Cairn India (CIL) is set to emerge as one of India’s leading petroleum producer - and possibly the largest onshore producer - once its oilfields in Rajasthan reach peak production in 2 years. The company is about to commence production at its largest Mangala field and scale it up gradually to 80,000 barrels per day by the end of this year. Its growth prospects look attractive for long-term investors.
Business:
Cairn India, which is a 64.7% subsidiary of the UK-based Cairn Energy, holds petroleum exploration and production (E&P ) rights in 14 blocks across India. It is an operator in two blocks - with a 22.5% stake in Ravva field off the eastern coast and 40% in Cambay basin fields - which together produced around 67,600 barrels of oil equivalent per day (boepd) in 2008. Out of this, Cairn’s share worked out to around 17,600 boepd.
CIL made an important hydrocarbon discovery in Rajasthan in 2004 and, after further discoveries, has established inplace reserves of 3.6 billion barrels of oil equivalent (boe). It holds 70% operator’s stake in this field and the remaining 30% is held by ONGC. The company recently acquired exploration rights in one block in Sri Lanka.
The crude oil produced from the Rajasthan fields has high wax content and therefore needs to be heated while being transported through a pipeline. The land-locked nature of the oil field also makes marketing of this crude difficult. The company has overcome these difficulties by changing the point of delivery to the coast of Gujarat from Barmer and the cost of constructing the pipeline - nearly $800 million - was included in the field development programme expenses.
Growth Drivers:
The company intends to start the production of 30,000 bpd by October this year and raise it to 80,000 bpd by January 2010. By July 2010, the Mangala field will operate at full capacity of 1, 25,000 bpd. The Bhagyam and Aishwarya fields will come on stream in 2011, thereby raising the peak rates to 1,75,000 bpd.
The smaller fields in the Rajasthan - Rageshwari and Saraswati - can add another 10,000-15 ,000 bpd. CIL plans to drill nearly 300 more wells in these blocks and use enhanced oil recovery (EOR) measures from the early phase to improve the production levels in the future. The company’s exploration efforts elsewhere in the country are also on schedule and hold a possibility for new discoveries.
Financials
The consolidated profit of CIL stood at Rs 785 crore for the year ended December 2008, with Rs 446 crore coming from other income. The company is carrying a cash balance of Rs 2,943 crore, over and above its debt, for funding its capex plans. It generates healthy cash-flows from operations and had raised Rs 2,500 crore through preferential equity placement in April 2008 to build this war chest.
Valuation:
At the prevailing market price of Rs 188, the company is trading at 45.6 times 12 months profits. However, its current valuations are more dependent on expected petroleum output rather than existing operations.
If the company meets its production targets, it should report net profit of Rs 849 crore in FY2010 and Rs 5,144 crore in FY2011. The existing market price is 41.7 times the profits of 2009 but merely 6.9 times the expected 2011 profits. The company’s profitability would go up further after it commences peak production of 1,75,000 bpd in 2011.
Risk Factors:
The price movement of crude oil is the key risk for Cairn. The oil prices, which crashed to $35 in December 2008 from $145 in July 2008, have recovered over the past couple of months. But if they remain soft for a protracted period of time, Cairn’s realisations and profitability would take a hit. A substantial appreciation of the rupee against the dollar will also impact the company adversely.
Business:
Cairn India, which is a 64.7% subsidiary of the UK-based Cairn Energy, holds petroleum exploration and production (E&P ) rights in 14 blocks across India. It is an operator in two blocks - with a 22.5% stake in Ravva field off the eastern coast and 40% in Cambay basin fields - which together produced around 67,600 barrels of oil equivalent per day (boepd) in 2008. Out of this, Cairn’s share worked out to around 17,600 boepd.
CIL made an important hydrocarbon discovery in Rajasthan in 2004 and, after further discoveries, has established inplace reserves of 3.6 billion barrels of oil equivalent (boe). It holds 70% operator’s stake in this field and the remaining 30% is held by ONGC. The company recently acquired exploration rights in one block in Sri Lanka.
The crude oil produced from the Rajasthan fields has high wax content and therefore needs to be heated while being transported through a pipeline. The land-locked nature of the oil field also makes marketing of this crude difficult. The company has overcome these difficulties by changing the point of delivery to the coast of Gujarat from Barmer and the cost of constructing the pipeline - nearly $800 million - was included in the field development programme expenses.
Growth Drivers:
The company intends to start the production of 30,000 bpd by October this year and raise it to 80,000 bpd by January 2010. By July 2010, the Mangala field will operate at full capacity of 1, 25,000 bpd. The Bhagyam and Aishwarya fields will come on stream in 2011, thereby raising the peak rates to 1,75,000 bpd.
The smaller fields in the Rajasthan - Rageshwari and Saraswati - can add another 10,000-15 ,000 bpd. CIL plans to drill nearly 300 more wells in these blocks and use enhanced oil recovery (EOR) measures from the early phase to improve the production levels in the future. The company’s exploration efforts elsewhere in the country are also on schedule and hold a possibility for new discoveries.
Financials
The consolidated profit of CIL stood at Rs 785 crore for the year ended December 2008, with Rs 446 crore coming from other income. The company is carrying a cash balance of Rs 2,943 crore, over and above its debt, for funding its capex plans. It generates healthy cash-flows from operations and had raised Rs 2,500 crore through preferential equity placement in April 2008 to build this war chest.
Valuation:
At the prevailing market price of Rs 188, the company is trading at 45.6 times 12 months profits. However, its current valuations are more dependent on expected petroleum output rather than existing operations.
If the company meets its production targets, it should report net profit of Rs 849 crore in FY2010 and Rs 5,144 crore in FY2011. The existing market price is 41.7 times the profits of 2009 but merely 6.9 times the expected 2011 profits. The company’s profitability would go up further after it commences peak production of 1,75,000 bpd in 2011.
Risk Factors:
The price movement of crude oil is the key risk for Cairn. The oil prices, which crashed to $35 in December 2008 from $145 in July 2008, have recovered over the past couple of months. But if they remain soft for a protracted period of time, Cairn’s realisations and profitability would take a hit. A substantial appreciation of the rupee against the dollar will also impact the company adversely.
Welspun Gujarat Stahl Rohren: Buy
Investors with a high-risk appetite can consider accumulating the stock of Welspun Gujarat Stahl Rohren, a leading manufacturer of steel pipes. At the current market price of Rs 80, the stock trades at about five times its estimated FY10 per-share earnings. Besides attractive valuations, the company’s buoyant order book and well-entrenched relationship with global oil and gas players also makes it a good investment.
New business opportunities, in terms of setting up of pipe infrastructure network, driven by the commencement of the KG Basin gas supply by Reliance Industries and city gas distribution initiatives of the Government, also brighten prospects. Given the recent surge in the markets, phased accumulation is recommended for the stock.
Over the last few months, falling crude oil prices had sent the stock price of Welspun Gujarat into a downward spiral on concerns that this would eventually lead to a drastic decline in oil and gas capital expenditure. But despite the downturn, the company has managed to add significantly to its order book, which currently stands at about Rs 9,300 crore (2.4 times FY08 revenues). Not only does that reflect well on the company’s ability to procure business during tough times, it also provides revenue visibility that is higher than that enjoyed by peers.
As the bulk of these orders are with established global players, the risk of cancellations and postponements for its orders are lower. The company has also completed the commissioning of its helical pipe manufacturing facility in the US. Endowed with a capacity to produce 3 lakh tonnes of HSAW pipes, this facility has also received API accreditation.
News of order wins by both the domestic and the new site in the US may be the key triggers for the stock price in future.
For the quarter ended December 2008, even as the company managed to grow its revenues by over 40 per cent, it disappointed on both the margin and profits front. Led by writedown of inventories (Rs 38.5 crore) and forex losses (Rs 41.9 crore) due to re-alignment of creditors and ECBs, Welspun suffered a contraction in both operating and net profit margins.
While operating profit margins dropped seven percentage points to 10.2 per cent, its earnings nearly halved as compared with the corresponding quarter last year. Had it not been for these provisions, the company would have seen a mild increase in profits. In this context, the recent relaxation of mark-to-market norms may boost the reported numbers. The risk to realisations and to the outstanding loan amounts due to rupee fluctuations, however, remain.
New business opportunities, in terms of setting up of pipe infrastructure network, driven by the commencement of the KG Basin gas supply by Reliance Industries and city gas distribution initiatives of the Government, also brighten prospects. Given the recent surge in the markets, phased accumulation is recommended for the stock.
Over the last few months, falling crude oil prices had sent the stock price of Welspun Gujarat into a downward spiral on concerns that this would eventually lead to a drastic decline in oil and gas capital expenditure. But despite the downturn, the company has managed to add significantly to its order book, which currently stands at about Rs 9,300 crore (2.4 times FY08 revenues). Not only does that reflect well on the company’s ability to procure business during tough times, it also provides revenue visibility that is higher than that enjoyed by peers.
As the bulk of these orders are with established global players, the risk of cancellations and postponements for its orders are lower. The company has also completed the commissioning of its helical pipe manufacturing facility in the US. Endowed with a capacity to produce 3 lakh tonnes of HSAW pipes, this facility has also received API accreditation.
News of order wins by both the domestic and the new site in the US may be the key triggers for the stock price in future.
For the quarter ended December 2008, even as the company managed to grow its revenues by over 40 per cent, it disappointed on both the margin and profits front. Led by writedown of inventories (Rs 38.5 crore) and forex losses (Rs 41.9 crore) due to re-alignment of creditors and ECBs, Welspun suffered a contraction in both operating and net profit margins.
While operating profit margins dropped seven percentage points to 10.2 per cent, its earnings nearly halved as compared with the corresponding quarter last year. Had it not been for these provisions, the company would have seen a mild increase in profits. In this context, the recent relaxation of mark-to-market norms may boost the reported numbers. The risk to realisations and to the outstanding loan amounts due to rupee fluctuations, however, remain.
GAIL, GSPC keen on building KG basin gas pipeline
State-owned Gail India and Gujarat State Petronet Corporation (GSPC) have submitted proposals to build a 1,400 to 1,500 kilometre pipeline connecting the Krishna Godavari basin in the eastern coast to central India. The proposals have been made to the Petroleum & Natural Gas Regulatory Board (PNGRB).
The total cost of the project would be around Rs 4,000 crore to Rs 5,000 crore, depending on its route and diameter and the exact length of the pipeline. The proposals are being evaluated by PNGRB, which would consult the upstream regulator, the Director General of Hydrocarbons (DGH) before giving approvals. When contacted, PNGRB chairman L Mansingh said: “This pipeline has been proposed by the companies on the basis of improved availability of gas in the region. We are yet to approve the route after which bids would be invited.”
A Gail spokesperson said the pipeline, which is proposed to be built from Vijaywada in Andhra Pradesh to Bijapur through Nagpur, would enable easier transportation of gas from the Krishna Godavari basin to areas of northern India. It would also enable Gail to strengthen Bijapur as its hub from where it operates the Hazira-Bijapur-Jagdishpur (HBJ) pipeline. This would make transportation of gas from the east coast to north India easier for Gail, which otherwise has to be routed from east to west and then to north.
For GSPC, the pipeline from Andhra Pradesh to Gujarat via Nagpur and Bhopal would enable it to prepare its pipeline grid for the gas output that is set to begin from its own KG basin block in the next few years. It would also help GSPC connect central India to its Gujarat gas pipeline grid.
However, Reliance Gas Transportation (RGTL), which is privately owned by Reliance Industries chairman Mukesh Ambani, has opposed the twin proposals claiming the proposed pipeline would lead to duplicity of work. RGTL runs the East-West Pipeline.
When contacted, a spokesperson for RGTL said: “The company has developed the East West Pipeline connecting the KG basin in Andhra Pradesh to Bharuch in Gujarat. Other entities may connect the neighbouring regions by building spurs from our pipeline rather than building a new trunk pipeline, which may result in higher transportation cost to customers.” RGTL is expected to source gas from Reliance Industries’ blocks in the KG basin while GSPC would source gas from its own block in KG basin. Sources said Gail will be sourcing gas from other players like ONGC.
The total cost of the project would be around Rs 4,000 crore to Rs 5,000 crore, depending on its route and diameter and the exact length of the pipeline. The proposals are being evaluated by PNGRB, which would consult the upstream regulator, the Director General of Hydrocarbons (DGH) before giving approvals. When contacted, PNGRB chairman L Mansingh said: “This pipeline has been proposed by the companies on the basis of improved availability of gas in the region. We are yet to approve the route after which bids would be invited.”
A Gail spokesperson said the pipeline, which is proposed to be built from Vijaywada in Andhra Pradesh to Bijapur through Nagpur, would enable easier transportation of gas from the Krishna Godavari basin to areas of northern India. It would also enable Gail to strengthen Bijapur as its hub from where it operates the Hazira-Bijapur-Jagdishpur (HBJ) pipeline. This would make transportation of gas from the east coast to north India easier for Gail, which otherwise has to be routed from east to west and then to north.
For GSPC, the pipeline from Andhra Pradesh to Gujarat via Nagpur and Bhopal would enable it to prepare its pipeline grid for the gas output that is set to begin from its own KG basin block in the next few years. It would also help GSPC connect central India to its Gujarat gas pipeline grid.
However, Reliance Gas Transportation (RGTL), which is privately owned by Reliance Industries chairman Mukesh Ambani, has opposed the twin proposals claiming the proposed pipeline would lead to duplicity of work. RGTL runs the East-West Pipeline.
When contacted, a spokesperson for RGTL said: “The company has developed the East West Pipeline connecting the KG basin in Andhra Pradesh to Bharuch in Gujarat. Other entities may connect the neighbouring regions by building spurs from our pipeline rather than building a new trunk pipeline, which may result in higher transportation cost to customers.” RGTL is expected to source gas from Reliance Industries’ blocks in the KG basin while GSPC would source gas from its own block in KG basin. Sources said Gail will be sourcing gas from other players like ONGC.
DLF: Strength in unity
DLF is the giant of Indian realty sector and would indeed have been a humbling experience to get a taste of the collective power of people. Especially people who are irked. It’s like the story of the lion and the mouse. When the going was good, DLF was calling the shots – it was like take it or leave it. And now, the tide has turned and people are demanding answers. Almost 300 buyers, who had backed out of DLF’s ‘Garden City’ project in Chennai, refused to leave its premises till they got a written assurance that their money would be paid back in full.
The total number of exiters from the project was 580 out of its existing base of 1,800 customers and DLF was to give a letter outlining the timeline of refund. But people just continued waiting and and finally patience wore off and angry people refused to leave DLF premises until they got the refund letters.
DLF has now assured them that the formal refund letter addressed individually to the exiters would be given by April first and the process of full refund will commence from 1st April, 2009, and will be completed before 30 September, 2009. The priority of disbursement shall be based on the order of first exit letters received and will be intimated by 10th April 2009. Times are indeed bad but it seems to be the worst phase for realty developers.
The total number of exiters from the project was 580 out of its existing base of 1,800 customers and DLF was to give a letter outlining the timeline of refund. But people just continued waiting and and finally patience wore off and angry people refused to leave DLF premises until they got the refund letters.
DLF has now assured them that the formal refund letter addressed individually to the exiters would be given by April first and the process of full refund will commence from 1st April, 2009, and will be completed before 30 September, 2009. The priority of disbursement shall be based on the order of first exit letters received and will be intimated by 10th April 2009. Times are indeed bad but it seems to be the worst phase for realty developers.
GMR plans aircraft parts assembly plant
Bangalore-based infrastructure developer GMR is in talks with aircraft component manufacturers such as Honeywell and Safran to set up a components assembly plant in the country.
The company plans to invest $60 million for the proposed JV that will assemble airplane components at the aviation SEZ in Hyderabad, a GMR Group official said. GMR Hyderabad International Airport (GHIAL) vice-president of planning and strategic initiatives D Ravindran confirmed the development. “We have received proposals from several avionics manufacturers and currently evaluating them,” he said.
“The equity structure of the new company is yet to be finalised. However, it will depend upon partner’s proposal,” he said. GHIAL, a majority-owned subsidiary of GMR Group, has already formed a JV with MAS Aerospace Engineering of Malaysia to set up a facility for airframe maintenance, repair and overhaul (MRO) at the SEZ. The two are equal partners in the company.
GHIAL has set up two airport-based SEZs in Hyderabad, where it plans to undertake high-end aero engineering activities. About 250 acres of land, adjacent to the new Hyderabad airfield, have been designated as SEZs. GMR Group holds 63% in the airport company. While the Andhra Pradesh government and the Airports Authority of India (AAI) own 13% each in GHIAL, the remaining 11% is held by Malaysia Airports Holdings Berhad (MAHB).
Hyderabad is fast emerging as an aviation hub. The average traffic movement at the Hyderabad airport is about 218 flights a day. The airport handles nearly 18,000 passengers on a daily basis. “Going forward, international as well as domestic carriers would make Hyderabad their hub in South-East Asia.
The new Hyderabad airport has several advantages over other airports in the region. While the passenger-handling capacity is in excess of the current demand, the state government provides very friendly business environment,” Mr Ravindran said.
The company plans to invest $60 million for the proposed JV that will assemble airplane components at the aviation SEZ in Hyderabad, a GMR Group official said. GMR Hyderabad International Airport (GHIAL) vice-president of planning and strategic initiatives D Ravindran confirmed the development. “We have received proposals from several avionics manufacturers and currently evaluating them,” he said.
“The equity structure of the new company is yet to be finalised. However, it will depend upon partner’s proposal,” he said. GHIAL, a majority-owned subsidiary of GMR Group, has already formed a JV with MAS Aerospace Engineering of Malaysia to set up a facility for airframe maintenance, repair and overhaul (MRO) at the SEZ. The two are equal partners in the company.
GHIAL has set up two airport-based SEZs in Hyderabad, where it plans to undertake high-end aero engineering activities. About 250 acres of land, adjacent to the new Hyderabad airfield, have been designated as SEZs. GMR Group holds 63% in the airport company. While the Andhra Pradesh government and the Airports Authority of India (AAI) own 13% each in GHIAL, the remaining 11% is held by Malaysia Airports Holdings Berhad (MAHB).
Hyderabad is fast emerging as an aviation hub. The average traffic movement at the Hyderabad airport is about 218 flights a day. The airport handles nearly 18,000 passengers on a daily basis. “Going forward, international as well as domestic carriers would make Hyderabad their hub in South-East Asia.
The new Hyderabad airport has several advantages over other airports in the region. While the passenger-handling capacity is in excess of the current demand, the state government provides very friendly business environment,” Mr Ravindran said.
GAIL to invest Rs 3200 cr for pipeline network
The Gas Authority of India Ltd (GAIL) would invest Rs 3200 crore for laying the network of pipelines to transport and market the gas that would be made available from from Petronet LNG Ltd, kochi by 2011.
Mr U D Choubey, chairman and managing director, GAIL said that the company would invest Rs 2500 crore for the 800 kms Kochi-Bangalore-Mangalore pipeline. Another Rs 700 crore would be invested to lay the off-shore pipeline to Kayamkulam. The pipeline to NTPC Kayamkulam would be completed by 2011. The pipelines have to be designed after taking into account the future requirement also, he said.
Meanwhile, GAIL has identified the main customers for gas in Kerala. NTPC, FACT, Reliance-BSES etc would be the main customers, he said. GAIL would be supplying piped gas to the domestic users in Kochi.
Compressed natural gas for vehicles in the state would be another area that the company would be focusing on. Mr Choubey said that the large number of boats plying in the backwaters of the state could use gas as fuel. This would be around 30 % cheaper for them as compared to diesel, he said. He, however, said that R & D work has to be done to convert the diesel using engines to gas based units.
He said that the land acquisition work for laying the pipeline would be completed within 6 months. The state Government would be providing the services of two officers from the revenue department for this.
Mr Choubey said that GAIL is planning another pipeline from Dhabol to Bangalore. He said that with the commissioning of the national gas grid there will be a lot of flexibility in the supply of gas.
Despite the modern, hi-tech campaigning methods that it employs, the parliament elections have spurred the demand for a number of products and services that are part of the traditional, local culture.
These local products have many takers during the brief but intense period of campaigning. Politicians take a fancy to khadi as election nears. The coarse khadi becomes excellent material for not just kurtas but also for flags. The election demand has come on the top of the usual summer sales. Hence several khadi shops are working overtime to meet the demand. The premium silk khadi also has quite a few takers from among politicians.
It is interesting to note the connection between cardamom and election. North India is a large consumer of cardamom. In addition to its use in biriyanis and sweet dishes, cardamom forms an integral part of tea flavoured by spices. The cardamom growers of Idukki are happy that as the consumption of tea rises during the election campaign period, the cardamom offtake too increases keeping the prices high.
Elections also increase the demand for astrologers. “But this need not translate into business for all as most of the politicians have their own personal astrologers”, says reputed astrologer Ajithan Namboothiripad. According to him, politicians from almost all parties visit astrologers during the poll season to know more about the possibility of their personal victory.
Songs with revolution as theme were widely used in the early phase of the growth of the communist party. Since then such songs have become part and parcel of any election campaign in the state. Thousands of cassettes and CDs of these songs are sold throughout the state during elections.
But nowadays all parties produce songs for their candidates to be sold in the respective constituencies. “Small music companies that produce these CDs are mushrooming all over the state”, says Padmanabhan Kavumbai, a Kochi-based writer who has penned several songs to be used in the campaign.
The demand for tender coconuts in the state was on the rise for the past few months. But the summer heat and the month long campaigning has added to its demand. Finally, at the end of the poll campaign most of the politicians can be spotted in some traditional ayurvedic centres, resting and recuperating, which also shows that their feet are firmly planted in tradition.
Mr U D Choubey, chairman and managing director, GAIL said that the company would invest Rs 2500 crore for the 800 kms Kochi-Bangalore-Mangalore pipeline. Another Rs 700 crore would be invested to lay the off-shore pipeline to Kayamkulam. The pipeline to NTPC Kayamkulam would be completed by 2011. The pipelines have to be designed after taking into account the future requirement also, he said.
Meanwhile, GAIL has identified the main customers for gas in Kerala. NTPC, FACT, Reliance-BSES etc would be the main customers, he said. GAIL would be supplying piped gas to the domestic users in Kochi.
Compressed natural gas for vehicles in the state would be another area that the company would be focusing on. Mr Choubey said that the large number of boats plying in the backwaters of the state could use gas as fuel. This would be around 30 % cheaper for them as compared to diesel, he said. He, however, said that R & D work has to be done to convert the diesel using engines to gas based units.
He said that the land acquisition work for laying the pipeline would be completed within 6 months. The state Government would be providing the services of two officers from the revenue department for this.
Mr Choubey said that GAIL is planning another pipeline from Dhabol to Bangalore. He said that with the commissioning of the national gas grid there will be a lot of flexibility in the supply of gas.
Despite the modern, hi-tech campaigning methods that it employs, the parliament elections have spurred the demand for a number of products and services that are part of the traditional, local culture.
These local products have many takers during the brief but intense period of campaigning. Politicians take a fancy to khadi as election nears. The coarse khadi becomes excellent material for not just kurtas but also for flags. The election demand has come on the top of the usual summer sales. Hence several khadi shops are working overtime to meet the demand. The premium silk khadi also has quite a few takers from among politicians.
It is interesting to note the connection between cardamom and election. North India is a large consumer of cardamom. In addition to its use in biriyanis and sweet dishes, cardamom forms an integral part of tea flavoured by spices. The cardamom growers of Idukki are happy that as the consumption of tea rises during the election campaign period, the cardamom offtake too increases keeping the prices high.
Elections also increase the demand for astrologers. “But this need not translate into business for all as most of the politicians have their own personal astrologers”, says reputed astrologer Ajithan Namboothiripad. According to him, politicians from almost all parties visit astrologers during the poll season to know more about the possibility of their personal victory.
Songs with revolution as theme were widely used in the early phase of the growth of the communist party. Since then such songs have become part and parcel of any election campaign in the state. Thousands of cassettes and CDs of these songs are sold throughout the state during elections.
But nowadays all parties produce songs for their candidates to be sold in the respective constituencies. “Small music companies that produce these CDs are mushrooming all over the state”, says Padmanabhan Kavumbai, a Kochi-based writer who has penned several songs to be used in the campaign.
The demand for tender coconuts in the state was on the rise for the past few months. But the summer heat and the month long campaigning has added to its demand. Finally, at the end of the poll campaign most of the politicians can be spotted in some traditional ayurvedic centres, resting and recuperating, which also shows that their feet are firmly planted in tradition.
Tata Power : All charged up
The sales of an 8 per cent of its stake in Tata Teleservices, by Tata Power for Rs 317 crore has probably made up for the disappointment of Tata Sons choosing not to convert its preferential warrants. Of course, given the funding gap for projects, the Street is anticipating that Tata Power will reduce its stake in some of the project SPVs or even dilute equity in the parent company.
The company needs an estimated Rs 5,000 crore as contribution towards equity for various projects and more than half of this is expected to be generated from internal accruals. Besides, more of its investments can be sold which is not a bad idea because otherwise these are not always fully valued. As for the loans taken to buy a 30 per cent stake in two Bumi coal mines, Arutmin and KPC, perhaps too much is being made of falling coal prices.
Tata Power should manage to repay the loans more or less as scheduled, even at prices of $45 per tonne , though it may need to postpone some expenditure. Coal prices are currently ruling at around $60-65 a tonne. Outstanding loans for Bumi are expected to come down to $775 million by March 2009 from $850 million currently.
The stock is a good play on the power shortage in the country because the firm is expanding capacity to 11,000 MW in the next four years and most of the debt for the projects, of around Rs 18,000 crore, has been tied up.
The company needs an estimated Rs 5,000 crore as contribution towards equity for various projects and more than half of this is expected to be generated from internal accruals. Besides, more of its investments can be sold which is not a bad idea because otherwise these are not always fully valued. As for the loans taken to buy a 30 per cent stake in two Bumi coal mines, Arutmin and KPC, perhaps too much is being made of falling coal prices.
Tata Power should manage to repay the loans more or less as scheduled, even at prices of $45 per tonne , though it may need to postpone some expenditure. Coal prices are currently ruling at around $60-65 a tonne. Outstanding loans for Bumi are expected to come down to $775 million by March 2009 from $850 million currently.
The stock is a good play on the power shortage in the country because the firm is expanding capacity to 11,000 MW in the next four years and most of the debt for the projects, of around Rs 18,000 crore, has been tied up.
DLF to divest its wind power biz
Had invested around Rs 1,500 crore in the business; may exit at Rs 1,100 crore.
India’s largest real estate developer, DLF Ltd, has decided to divest its windmill power generation business, which it says is non-core. Sources in the company said the management had decided to put the business on the block to raise resources for a more related business. The company has an installed capacity of around 260 Mw.
Sources said after concluding the acquisition of DLF Asset Ltd, a group company owned by DLF promoters’, KP Singh and family, they would start working on divesting the power generation business.
Rajeev Talwar, group executive director, DLF Ltd, refused comment.
The company had invested around Rs 1,500 crore in the business. After taking a depreciation claim of a significant amount, the company is looking at exiting at around Rs 1,100 crore, according to sources close to the development. The company had serious discussions with some private equity players, but there was no deal due to differences over valuation, they added.
The cost of setting up a windmill power plant is Rs 5-6 crore per Mw as against Rs 4-4.5 crore in case of a thermal power plant. Since the company is allowed to take a huge depreciation claim, the profit-making company will save a significant amount on tax obligation.
Another senior official said the company was in the midst of restructuring its businesses, which included buying DLF Asset Ltd. The company would continue to take steps to ensure better returns for shareholders, he added.
Power generation was not a core-business, the official said, adding that in the current environment, it was difficult to invest more in it. Without disclosing the size of the proposed transaction, the official said, “It depends on the offer price for such assets.”
DLF is in an advanced stage of concluding the acquisition of DLF Asset Ltd. According to indications, the company was hopeful of an announcement in the first week of April, the source said. A detailed due diligence by bankers and others is under progress. “Since the valuation of DLF Asset Ltd has come down marginally, investment bankers and legal experts are engaged in structuring the transaction so that the investors in DLF do not lose,” said a source.
India’s largest real estate developer, DLF Ltd, has decided to divest its windmill power generation business, which it says is non-core. Sources in the company said the management had decided to put the business on the block to raise resources for a more related business. The company has an installed capacity of around 260 Mw.
Sources said after concluding the acquisition of DLF Asset Ltd, a group company owned by DLF promoters’, KP Singh and family, they would start working on divesting the power generation business.
Rajeev Talwar, group executive director, DLF Ltd, refused comment.
The company had invested around Rs 1,500 crore in the business. After taking a depreciation claim of a significant amount, the company is looking at exiting at around Rs 1,100 crore, according to sources close to the development. The company had serious discussions with some private equity players, but there was no deal due to differences over valuation, they added.
The cost of setting up a windmill power plant is Rs 5-6 crore per Mw as against Rs 4-4.5 crore in case of a thermal power plant. Since the company is allowed to take a huge depreciation claim, the profit-making company will save a significant amount on tax obligation.
Another senior official said the company was in the midst of restructuring its businesses, which included buying DLF Asset Ltd. The company would continue to take steps to ensure better returns for shareholders, he added.
Power generation was not a core-business, the official said, adding that in the current environment, it was difficult to invest more in it. Without disclosing the size of the proposed transaction, the official said, “It depends on the offer price for such assets.”
DLF is in an advanced stage of concluding the acquisition of DLF Asset Ltd. According to indications, the company was hopeful of an announcement in the first week of April, the source said. A detailed due diligence by bankers and others is under progress. “Since the valuation of DLF Asset Ltd has come down marginally, investment bankers and legal experts are engaged in structuring the transaction so that the investors in DLF do not lose,” said a source.
Logistics cos in a slow mode
The impact of sluggish growth in the domestic economy, coupled with a visible slowdown in India’s exports (it declined 7.9% y-o-y to $37 billion in the December ’08 quarter) has resulted in a marked fall in growth reported by seven leading logistic companies, excluding shipping companies.
For instance, the seven logistics companies (namely Container Corporation, Allcargo, Gateway Distriparks, GATI, Transport Corporation of India, Blue Dart and Aegis Logistics) reported a growth of just 4.5% y-o-y in their net sales in the December 2008 quarter, as compared to a 14.4 % y-o-y growth in the trailing four quarters ended December 08.
However, lower operating costs helped these seven companies to grow their operating profit margin by 90 basis points y-o-y to 20.6% in the last quarter. The truck rentals market is weak right now, and this helped the logistics companies to save.
The street has been broadly neutral to the logistics sector, given the difficult operating environment. For instance, the ET Logistics Index was broadly flat over the pass three months at 10,554 as compared to a 9.6% decline in the Sensex during the same period.
As the business models of logistics companies differ, this sector can be broadly divided across three segments—multi-modal logistics, including container freight services (CFS), and warehousing players like Container Corporation (Concor), Allcargo Global and Gateway Distriparks; surface transport and express distribution segment, which includes Gati, Transport Corporation of India (TCI) and Blue Dart, and companies in the oil & gas logistics segment like Aegis Logistics.
In the case of the players involved in CFS, warehousing and ICDs (inland container depots), the combined topline growth of Concor, Allcargo and Gateway, was just 6.9% y-o-y in Dec '08 quarter, as compared to a healthy 11.7 % y-o-y rise reported in the trailing four quarters ended Dec ’08.
This segment performed badly in the Dec ’08 quarter because Concor’s income from operations was more or less flat on a y-o-y basis at Rs 846 crore. That’s because this PSU was hit by the reduced external trade of India and it led to 11.4% yo-y drop in volumes transported. However, analysts say that Concor’s realisations grew almost 14.8% y-oy to Rs 15,349 per TEU (twenty-foot equivalent unit) in the last quarter and that was attributedtoearlier hikes in freight rates.
In the surface transport and express distribution segment, players like Gati and TCI have been moving up the value chain, in areas like supply chain management. Few years ago these players were primarily involved in surface transport, essentially trucking.
However, sluggish demand conditions from the key user segments like IT and auto sector, resulted in Gati, TCI and Blue Dart together reporting a topline growth of just 4.3% y-o-y in the third quarter of FY 09, as compared to a robust 16.4% rise in net sales in the trailing four quarters ended December ’08.
Growth Strategies :
The operating environment for logistic companies is expected to remain difficult over the next few quarters, but large players are going ahead with their expansion plans, given the considerable time-lag in setting up additional infrastructure facilities.
For instance, Container Corporation is planning to invest approximately Rs 3000 crore over the next five years, which includes purchase of additional wagons and setting-up new ICDs. The PSU’s existing infrastructure includes 58 ICDs, 8000 wagons and 1200 containers, and the company is understood to have already spent Rs 360 crore by the third quarter of FY09.
Container Corp is a debt free company and its cash and cash equivalents at the end of FY 08 was Rs 1521.5 crore, which is expected to be utilised for this purpose. In FY08, the company’s cash flow from operations was over Rs 700 crore and it has been growing in line with growth in profits.
Valuations :
Container Corp at Rs 659 trades at about 9.9 times its estimated FY10 earnings and investors could buy this stock with a long-term investment horizon. Other players like Allcargo Global at Rs 698.7, trades at 14.5 times estimated CY 09 earnings and it is expensive. Meanwhile, Gati at Rs 40, trades at 14 times estimated year ending June 10 earnings and we are also neutral on this stock.
For instance, the seven logistics companies (namely Container Corporation, Allcargo, Gateway Distriparks, GATI, Transport Corporation of India, Blue Dart and Aegis Logistics) reported a growth of just 4.5% y-o-y in their net sales in the December 2008 quarter, as compared to a 14.4 % y-o-y growth in the trailing four quarters ended December 08.
However, lower operating costs helped these seven companies to grow their operating profit margin by 90 basis points y-o-y to 20.6% in the last quarter. The truck rentals market is weak right now, and this helped the logistics companies to save.
The street has been broadly neutral to the logistics sector, given the difficult operating environment. For instance, the ET Logistics Index was broadly flat over the pass three months at 10,554 as compared to a 9.6% decline in the Sensex during the same period.
As the business models of logistics companies differ, this sector can be broadly divided across three segments—multi-modal logistics, including container freight services (CFS), and warehousing players like Container Corporation (Concor), Allcargo Global and Gateway Distriparks; surface transport and express distribution segment, which includes Gati, Transport Corporation of India (TCI) and Blue Dart, and companies in the oil & gas logistics segment like Aegis Logistics.
In the case of the players involved in CFS, warehousing and ICDs (inland container depots), the combined topline growth of Concor, Allcargo and Gateway, was just 6.9% y-o-y in Dec '08 quarter, as compared to a healthy 11.7 % y-o-y rise reported in the trailing four quarters ended Dec ’08.
This segment performed badly in the Dec ’08 quarter because Concor’s income from operations was more or less flat on a y-o-y basis at Rs 846 crore. That’s because this PSU was hit by the reduced external trade of India and it led to 11.4% yo-y drop in volumes transported. However, analysts say that Concor’s realisations grew almost 14.8% y-oy to Rs 15,349 per TEU (twenty-foot equivalent unit) in the last quarter and that was attributedtoearlier hikes in freight rates.
In the surface transport and express distribution segment, players like Gati and TCI have been moving up the value chain, in areas like supply chain management. Few years ago these players were primarily involved in surface transport, essentially trucking.
However, sluggish demand conditions from the key user segments like IT and auto sector, resulted in Gati, TCI and Blue Dart together reporting a topline growth of just 4.3% y-o-y in the third quarter of FY 09, as compared to a robust 16.4% rise in net sales in the trailing four quarters ended December ’08.
Growth Strategies :
The operating environment for logistic companies is expected to remain difficult over the next few quarters, but large players are going ahead with their expansion plans, given the considerable time-lag in setting up additional infrastructure facilities.
For instance, Container Corporation is planning to invest approximately Rs 3000 crore over the next five years, which includes purchase of additional wagons and setting-up new ICDs. The PSU’s existing infrastructure includes 58 ICDs, 8000 wagons and 1200 containers, and the company is understood to have already spent Rs 360 crore by the third quarter of FY09.
Container Corp is a debt free company and its cash and cash equivalents at the end of FY 08 was Rs 1521.5 crore, which is expected to be utilised for this purpose. In FY08, the company’s cash flow from operations was over Rs 700 crore and it has been growing in line with growth in profits.
Valuations :
Container Corp at Rs 659 trades at about 9.9 times its estimated FY10 earnings and investors could buy this stock with a long-term investment horizon. Other players like Allcargo Global at Rs 698.7, trades at 14.5 times estimated CY 09 earnings and it is expensive. Meanwhile, Gati at Rs 40, trades at 14 times estimated year ending June 10 earnings and we are also neutral on this stock.
Suzlon Energy : Capital headwinds
The high level of debt and urgent need for money are causes for concern.Wind energy player Suzlon needs to rustle up an estimated Rs 1,300 crore in the next few months to be able to pay for Martifer’s 17 per cent stake in REPower. There are reports that the Pune-headquartered company is exploring sale of a part of its stake in its Belgian subsidiary, Hansen. Besides, it may place shares with a private equity fund. That apart, the 13,679-crore Suzlon hopes to lower its working capital and inventories. The company is estimated to have piled up inventories of over Rs 5,000 crore because some orders could not be executed. HSBC believes Suzlon will at best be able to recover around Rs 500 crore from better use of working capital, leaving Rs 800 crore to be raised by other means.
Also, since the company’s net debt at the end of December 2008 was close to Rs 10,000 crore, there is little room to borrow further. As for the equity option, sale of Suzlon’s shares at the current market price of around Rs 45 could dilute the equity to a fairly large extent if the company is looking to raise about Rs 700 crore, as reported.
The good news is that after a break of almost a year, orders have started flowing in. Last month saw a 113 Mw order from the Australian utility, AGL Energy, which is an encouraging sign given the instances of blade cracks in January 2008. At the end of December 2008, Suzlon had completed around 30 per cent retrofitting of the blades, having provided Rs 450 crore for the programme, which is expected to be completed by June this year.
The management believes it should be able to win orders for about 1,000 Mw across Europe, China and Australia in the next six months or so. The stock has lost 80 per cent of its value over the past year but until it completes the REPower buyout, investors will stay cautious.
Also, since the company’s net debt at the end of December 2008 was close to Rs 10,000 crore, there is little room to borrow further. As for the equity option, sale of Suzlon’s shares at the current market price of around Rs 45 could dilute the equity to a fairly large extent if the company is looking to raise about Rs 700 crore, as reported.
The good news is that after a break of almost a year, orders have started flowing in. Last month saw a 113 Mw order from the Australian utility, AGL Energy, which is an encouraging sign given the instances of blade cracks in January 2008. At the end of December 2008, Suzlon had completed around 30 per cent retrofitting of the blades, having provided Rs 450 crore for the programme, which is expected to be completed by June this year.
The management believes it should be able to win orders for about 1,000 Mw across Europe, China and Australia in the next six months or so. The stock has lost 80 per cent of its value over the past year but until it completes the REPower buyout, investors will stay cautious.
Tata Chemicals
Acquisitions of soda ash makers (UK-based Brunner Mond in FY06 for Rs 800 crore and US-based General Chemical Industrial Products in March 2008 for $1.05 billion) have placed Tata Chemicals in the big league. It has not only emerged as the world's second largest producer of soda ash (capacity of 5.5 million tonne), but it now has an enhanced presence in US, UK and Africa. Soda Ash forms a large part of the chemicals division (sodium bi-carbonate and edible salt are the other major contributors), while crop nutrition (urea, DAP; mainly domestic focus) accounts for the rest.
Notably, while the chemicals business accounts for 40 per cent of consolidated revenues, it enjoys higher Ebidta margins (about 20 per cent) giving it a 55 per cent share in profit. With the overall economic environment having turned weak - prime users of soda ash are glass, soap, detergent, paper and textile industries - realisations and volumes have been under pressure. However, analysts expect Ebdita margins to remain stable in FY10 helped by a sharp decline in input prices (coal and coke; locally) and better realisations in the US (new long-term contracts at higher prices). Notably, majority of Tata Chemicals' production is of low-cost 'natural' soda ash (balance is produced through 'synthetic' route) and is supported by reserves in the US and Kenya. In the edible salt business, the company has been gaining ground and is expected to sustain profitability and growth.The crop nutrition business was impacted by lower realisation of DAP even as input prices were higher, which is also reflecting in its Q3 FY09 performance.
A shutdown at its Uttar Pradesh-based fertiliser plant to stabilise operations of the expanded capacity (up by 33 per cent to 1.16 million tonnes per annum) also impacted operations. Going ahead, lower input costs and higher capacity (and benefits of new urea policy) in the fertiliser business will mean better margins. Also, as the gas supply from Reliance Industries KG-basin is made available, margins should perk up in FY10.
With expansions scaled down, the cost will come down by 28 per cent to Rs 400 crore, which can be funded through annual cash generation of over Rs 1,000 crore. This should also help lower debt further. Operationally, although revenues are expected to decline in FY10 (due to lower realisation), expansion in margins and lower debt should help sustain net profit at FY09 levels; in FY11, it should rise. Expect the stock to deliver good returns.
Notably, while the chemicals business accounts for 40 per cent of consolidated revenues, it enjoys higher Ebidta margins (about 20 per cent) giving it a 55 per cent share in profit. With the overall economic environment having turned weak - prime users of soda ash are glass, soap, detergent, paper and textile industries - realisations and volumes have been under pressure. However, analysts expect Ebdita margins to remain stable in FY10 helped by a sharp decline in input prices (coal and coke; locally) and better realisations in the US (new long-term contracts at higher prices). Notably, majority of Tata Chemicals' production is of low-cost 'natural' soda ash (balance is produced through 'synthetic' route) and is supported by reserves in the US and Kenya. In the edible salt business, the company has been gaining ground and is expected to sustain profitability and growth.The crop nutrition business was impacted by lower realisation of DAP even as input prices were higher, which is also reflecting in its Q3 FY09 performance.
A shutdown at its Uttar Pradesh-based fertiliser plant to stabilise operations of the expanded capacity (up by 33 per cent to 1.16 million tonnes per annum) also impacted operations. Going ahead, lower input costs and higher capacity (and benefits of new urea policy) in the fertiliser business will mean better margins. Also, as the gas supply from Reliance Industries KG-basin is made available, margins should perk up in FY10.
With expansions scaled down, the cost will come down by 28 per cent to Rs 400 crore, which can be funded through annual cash generation of over Rs 1,000 crore. This should also help lower debt further. Operationally, although revenues are expected to decline in FY10 (due to lower realisation), expansion in margins and lower debt should help sustain net profit at FY09 levels; in FY11, it should rise. Expect the stock to deliver good returns.
IVRCL Infrastructures
The fall in interest rates and commodity prices and the improving availability of funds are some good signs for infrastructure and construction companies. Nonetheless, it is prudent to be selective. Among companies, analysts prefer IVRCL Infrastructures & Projects, a leading player in the water and irrigation segments (account for over 60 per cent of total revenue), which has better visibility in terms of continuous flow of orders and is less leveraged (debt-equity of 0.7 times). As about 90 per cent of these projects are government-sponsored, the company has been a key beneficiary of increased capital expenditure on irrigation projects.
The company generates about 30 per cent of revenues from the transportation sector, wherein the order book stood at about Rs 1,257 crore in December 2008. The company is constructing three road projects on a BOT basis (worth Rs 1,080 crore), which are expected to be commissioned by May 2009. Analysts value these projects at about Rs 20 per share of IVRCL, based on future cash flows.
IVRCL's total order book is about Rs 15,000 crore, which is four times its FY08 revenue and provides good visibility. Thus, revenues should grow at 30 per cent, while earnings are likely to increase by 25 per cent over the next two years. Besides its core business, the company also has an exposure in the real estate business through its subsidiary IVR Prime (62.3 per cent stake) and industrial water treatment and environment equipment segment through a 70 per cent controlling stake in Hindustan Dorr Oliver, (a listed domestic company). Meanwhile, based on estimated FY10 projections, IVRCL Infrastructure's stock is trading at a PE of 6.4 times and 0.87 times its book value of Rs 155 per share.
The company generates about 30 per cent of revenues from the transportation sector, wherein the order book stood at about Rs 1,257 crore in December 2008. The company is constructing three road projects on a BOT basis (worth Rs 1,080 crore), which are expected to be commissioned by May 2009. Analysts value these projects at about Rs 20 per share of IVRCL, based on future cash flows.
IVRCL's total order book is about Rs 15,000 crore, which is four times its FY08 revenue and provides good visibility. Thus, revenues should grow at 30 per cent, while earnings are likely to increase by 25 per cent over the next two years. Besides its core business, the company also has an exposure in the real estate business through its subsidiary IVR Prime (62.3 per cent stake) and industrial water treatment and environment equipment segment through a 70 per cent controlling stake in Hindustan Dorr Oliver, (a listed domestic company). Meanwhile, based on estimated FY10 projections, IVRCL Infrastructure's stock is trading at a PE of 6.4 times and 0.87 times its book value of Rs 155 per share.
Gateway Distriparks
For the largest player in the container freight station (CFS) segment at Mumbai's JNPT and with a significant presence in other ports, weak demand from India's key trading partners has resulted in decline in volumes and revenues. In the December quarter, exports from India have registered negative growth, while import growth has moderated. The volume decline has meant that Gateway, (operates CFSs at Mumbai, Chennai, Vizag and Kochi) will finish FY09 with single digit growth y-o-y to about 4 lakh TEUs (twenty-foot equivalent units) compared with a 49 per cent y-o-y growth in FY08.
In addition to CFSs (over half of revenues), Gateway also has a presence in the rail freight (35 per cent of revenues) and cold chain (7 per cent) businesses. While profits at the operating level will come from its core CFS business (contributes 90 per cent to Ebidta), revenue growth in FY10 will be driven by its rail freight/inland container depot business. While its rail business (with 14 rakes operational) is currently loss-making, its advantages over road transport, large volumes and connectivity to industrial hubs is expected to translate into increased revenues for the largest private rail freight operator in the country. A strong presence in the CFS business and an expanding rail freight infrastructure with good business prospects will help the company post improved growth rates in the long term. And obviously, any improvement in economic growth rates will provide a trigger for this stock. Expect returns of about 15-20 per cent over the next 15 months.
In addition to CFSs (over half of revenues), Gateway also has a presence in the rail freight (35 per cent of revenues) and cold chain (7 per cent) businesses. While profits at the operating level will come from its core CFS business (contributes 90 per cent to Ebidta), revenue growth in FY10 will be driven by its rail freight/inland container depot business. While its rail business (with 14 rakes operational) is currently loss-making, its advantages over road transport, large volumes and connectivity to industrial hubs is expected to translate into increased revenues for the largest private rail freight operator in the country. A strong presence in the CFS business and an expanding rail freight infrastructure with good business prospects will help the company post improved growth rates in the long term. And obviously, any improvement in economic growth rates will provide a trigger for this stock. Expect returns of about 15-20 per cent over the next 15 months.
BEML
BEML is a multi-product and multi-technology company. Its vast product range primarily caters to the needs of three segments, namely mining and construction (like hydraulic excavators, bulldozers, dump trucks), defence (field artillery tractor, tank transportation trailers, weapon loading equipment, armoured recovery vehicle) and railways and metro (metro trains, rail coaches, D-EMUs, wagons). BEML's other three divisions are technology (design and engineering solutions), trading (third party products) and exports.
Little wonder, the current economic slowdown and high input prices (besides higher wages) has impacted its performance in the recent quarter. While topline growth has slowed, margins have also slipped. However, net profits haven't declined thanks to higher other income.
Positively, receipt of a few high value orders recently has propped up its order book. In February 2009, BEML bagged a Rs 1,672.50 crore order from Bangalore Metro Rail Corporation for supply of 150 metro coaches (orders for another 63 is in pipeline). This is in addition to an Rs 1,365 crore metro coach order from Delhi Metro. Since new metro projects (Chennai, Mumbai) are coming up, BEML with the advantage of a local manufacturing base should gain.
BEML has also been active in terms of strengthening its vast portfolio by entering into joint ventures with foreign players. On March 19, it tied-up with France-based NFM Technologies (second largest globally) to produce Tunnel Boring Machine in India. Likewise, an agreement with Indonesia-based Sumber Mitra Jaya (30 per cent stake by BEML) for contract mining opportunities in India was also signed recently; total number of foreign partners is now 20.
To sum up, given the humungous investments planned in infrastructure, power, mining, steel, cement, transportation (air, road and rail) and urban infrastructure as well as focus on defence capex, the demand for BEML's offerings is likely to remain robust (equipment cost as a percentage of project costs range 4-15 per cent).
BEML expects revenues to grow at a CAGR of 11-12 per cent to Rs 5,000 crore by 2013-14. In light of the underlying potential, this is a modest target and should be achieved beforehand. On the flip side, analysts believe its past record has not been very impressive, which is also one reason for this stock to quote at relatively lower valuations. For now, in 2008-09, BEML is expected to clock revenues of Rs 2,800 crore and currently has an order book of over Rs 5,000 crore. With cash profits of Rs 250 crore a year and negligible debt on books, the stock can deliver steady returns in the long run, while it offers a decent dividend yield too.
Little wonder, the current economic slowdown and high input prices (besides higher wages) has impacted its performance in the recent quarter. While topline growth has slowed, margins have also slipped. However, net profits haven't declined thanks to higher other income.
Positively, receipt of a few high value orders recently has propped up its order book. In February 2009, BEML bagged a Rs 1,672.50 crore order from Bangalore Metro Rail Corporation for supply of 150 metro coaches (orders for another 63 is in pipeline). This is in addition to an Rs 1,365 crore metro coach order from Delhi Metro. Since new metro projects (Chennai, Mumbai) are coming up, BEML with the advantage of a local manufacturing base should gain.
BEML has also been active in terms of strengthening its vast portfolio by entering into joint ventures with foreign players. On March 19, it tied-up with France-based NFM Technologies (second largest globally) to produce Tunnel Boring Machine in India. Likewise, an agreement with Indonesia-based Sumber Mitra Jaya (30 per cent stake by BEML) for contract mining opportunities in India was also signed recently; total number of foreign partners is now 20.
To sum up, given the humungous investments planned in infrastructure, power, mining, steel, cement, transportation (air, road and rail) and urban infrastructure as well as focus on defence capex, the demand for BEML's offerings is likely to remain robust (equipment cost as a percentage of project costs range 4-15 per cent).
BEML expects revenues to grow at a CAGR of 11-12 per cent to Rs 5,000 crore by 2013-14. In light of the underlying potential, this is a modest target and should be achieved beforehand. On the flip side, analysts believe its past record has not been very impressive, which is also one reason for this stock to quote at relatively lower valuations. For now, in 2008-09, BEML is expected to clock revenues of Rs 2,800 crore and currently has an order book of over Rs 5,000 crore. With cash profits of Rs 250 crore a year and negligible debt on books, the stock can deliver steady returns in the long run, while it offers a decent dividend yield too.
'D6 revenues to come from volumes, marketing margin
As with all Reliance Industries Ltd (RIL) deals, the gas sales and purchase agreements (GSPA) and gas transportation agreement (GTA) which RIL and Reliance Gas Transportation Infrastructure Ltd (RGTIL) inked with the 12 fertiliser companies had its own share of ticklish issues.
The Government has fixed the gas price at $4.2/mBtu, at landfall point (excludes the taxes, transportation tariff and marketing margins).
RIL’s marketing margin at 13.5 cents/mBtu is lower than that being charged by GAIL (India) Ltd (17 cents). Marketing margin is the only component that the contractor is free to decide. After successfully sealing the GSPAs for its D6 gas from the East Coast, Mr P.M.S. Prasad, President and CEO (Petroleum), RIL, spoke to Business Line on concerns and standards which this contract has set for future agreements:
Where do you think the revenues are going to come from for the D6 gas?
We are looking at volumes and marketing margin to earn our initial revenues. We hope to transport a large volume, almost 65 mmscmd out of 80 mmscmd (once we reach peak production) through East-West pipeline network. (The revenue from marketing margin of 13.5 cents could be around $110 million on an annualised basis, if the company markets the entire volume of 80 mmscmd, which is towards the risk undertaken in the agreement). On the gas sales at $4.2/mBtu, the company’s turnover will be about $3,400 million annually ($9.5 million a day). The revenues from gas transportation would go to RGTIL, which is the operator of the 1,438-km East-West pipeline from Kakinada in Andhra Pradesh to Baruch in Gujarat.
Has a decision been taken on the transportation tariff? What is the indicative tariff being proposed by RGTIL?
I believe RGTIL will be submitting an indicative tariff structure to the regulator. However, the final decision will depend on the regulator’s decision, which is expected soon. I believe that the tariff for 300 km of the network from Kakinada would remain the same. It is difficult for me to give any tariff numbers, but I think it could be around 30 cents in Andhra Pradesh. The regulator has said that there would be zone tariff with each zone measuring 300 km. Therefore, the network of 1,438 km would be divided into five zones.
Do you think the contract will set a benchmark for future such agreements, as the D6 gas price is said to be a benchmark? What is the liability which RIL is taking in the entire project? There is also a force majeure clause in the contract which you have signed. What are the circumstances envisaged under which this clause will be applicable?
After much deliberation and consultations among the buyers, sellers and the two nodal Ministries – Fertiliser and Petroleum – the details of this contract have been worked out. I would say, it does justice to all stakeholders. Yes, it would set a benchmark for future contracts.
As regards force majeure clause, it is a standard provision, which has been mutually adjusted to accommodate incidents that are beyond control of either parties and the parties are excused from any non-performance in such events.
In situation where because of failure on buyer facility if gas could not be taken, then they will have to take or pay. However, the money would be adjusted in the future outstandings. And at the end of the contract if some money paid by the buyer still remains, and the buyer has not been able to receive gas then the entire amount will be refunded.
You are still awaiting a list of power companies to whom 18 mmscmd of gas has to be allocated as outlined under the gas utilisation policy decided by an Empowered Group of Ministers. With production about to begin in the first week of April, will it not affect your production schedule, as only supplies for 15 mmscmd of the initial 40 mmscmd have been tied up.
I agree that we will require a couple of weeks to work out an agreement with the power companies. We have requested the Government to give us the list by April 7. Otherwise, the Government/RIL may have to consider alternative arrangements so that the production plan is not disturbed. According to the production sharing contract (PSC), we have obligations to sell the entire gas. Once the gas starts flowing how can you stop it.
The fertiliser companies are going to pay RIL and its partner NIKO in rupee. We are given to understand that NIKO will face difficulties if this happens?
Yes, we are told that since fertiliser companies only sell in the domestic market, they would be making payments in rupee. NIKO has the right under the PSC and GSPA to be paid in dollars. Besides, there have been past instances where foreign players have been paid in dollars.
This gas is going to flow from Dhirubhai I and Dhirubhai III fields of D6 Block for which the pricing has been derived. RIL has discovered more gas in the block. What kind of pricing are you looking at for these additional finds from the block? What are the other exploration activities which RIL is looking at?
RIL has made an investment of $5.2 billion for the phase-I development of D6 block. Work is still going on. We still have to drill more development wells in D6 Block. We have a plan of 22 wells, of which 18 have been drilled. We have made eight satellite discoveries (these are small discoveries on the periphery of the main find). The development plan for this has been submitted to the Government.
We hope that by the time the entire D6 gas starts flowing, the supply-demand situation for natural gas in the country would have undergone a major change, and a more competitive environment will be there.
The initial production from the D6 block is estimated at 40 mmscmd. The gas is expected to start flowing in the next few days and supplies to consumers’ users will begin from mid-April. RIL plans to start production with 10-12 mscmd of gas in April and will ramp it up to 40 mmscmd by July and reach peak production of 80 mscmd in a year.
The Government has fixed the gas price at $4.2/mBtu, at landfall point (excludes the taxes, transportation tariff and marketing margins).
RIL’s marketing margin at 13.5 cents/mBtu is lower than that being charged by GAIL (India) Ltd (17 cents). Marketing margin is the only component that the contractor is free to decide. After successfully sealing the GSPAs for its D6 gas from the East Coast, Mr P.M.S. Prasad, President and CEO (Petroleum), RIL, spoke to Business Line on concerns and standards which this contract has set for future agreements:
Where do you think the revenues are going to come from for the D6 gas?
We are looking at volumes and marketing margin to earn our initial revenues. We hope to transport a large volume, almost 65 mmscmd out of 80 mmscmd (once we reach peak production) through East-West pipeline network. (The revenue from marketing margin of 13.5 cents could be around $110 million on an annualised basis, if the company markets the entire volume of 80 mmscmd, which is towards the risk undertaken in the agreement). On the gas sales at $4.2/mBtu, the company’s turnover will be about $3,400 million annually ($9.5 million a day). The revenues from gas transportation would go to RGTIL, which is the operator of the 1,438-km East-West pipeline from Kakinada in Andhra Pradesh to Baruch in Gujarat.
Has a decision been taken on the transportation tariff? What is the indicative tariff being proposed by RGTIL?
I believe RGTIL will be submitting an indicative tariff structure to the regulator. However, the final decision will depend on the regulator’s decision, which is expected soon. I believe that the tariff for 300 km of the network from Kakinada would remain the same. It is difficult for me to give any tariff numbers, but I think it could be around 30 cents in Andhra Pradesh. The regulator has said that there would be zone tariff with each zone measuring 300 km. Therefore, the network of 1,438 km would be divided into five zones.
Do you think the contract will set a benchmark for future such agreements, as the D6 gas price is said to be a benchmark? What is the liability which RIL is taking in the entire project? There is also a force majeure clause in the contract which you have signed. What are the circumstances envisaged under which this clause will be applicable?
After much deliberation and consultations among the buyers, sellers and the two nodal Ministries – Fertiliser and Petroleum – the details of this contract have been worked out. I would say, it does justice to all stakeholders. Yes, it would set a benchmark for future contracts.
As regards force majeure clause, it is a standard provision, which has been mutually adjusted to accommodate incidents that are beyond control of either parties and the parties are excused from any non-performance in such events.
In situation where because of failure on buyer facility if gas could not be taken, then they will have to take or pay. However, the money would be adjusted in the future outstandings. And at the end of the contract if some money paid by the buyer still remains, and the buyer has not been able to receive gas then the entire amount will be refunded.
You are still awaiting a list of power companies to whom 18 mmscmd of gas has to be allocated as outlined under the gas utilisation policy decided by an Empowered Group of Ministers. With production about to begin in the first week of April, will it not affect your production schedule, as only supplies for 15 mmscmd of the initial 40 mmscmd have been tied up.
I agree that we will require a couple of weeks to work out an agreement with the power companies. We have requested the Government to give us the list by April 7. Otherwise, the Government/RIL may have to consider alternative arrangements so that the production plan is not disturbed. According to the production sharing contract (PSC), we have obligations to sell the entire gas. Once the gas starts flowing how can you stop it.
The fertiliser companies are going to pay RIL and its partner NIKO in rupee. We are given to understand that NIKO will face difficulties if this happens?
Yes, we are told that since fertiliser companies only sell in the domestic market, they would be making payments in rupee. NIKO has the right under the PSC and GSPA to be paid in dollars. Besides, there have been past instances where foreign players have been paid in dollars.
This gas is going to flow from Dhirubhai I and Dhirubhai III fields of D6 Block for which the pricing has been derived. RIL has discovered more gas in the block. What kind of pricing are you looking at for these additional finds from the block? What are the other exploration activities which RIL is looking at?
RIL has made an investment of $5.2 billion for the phase-I development of D6 block. Work is still going on. We still have to drill more development wells in D6 Block. We have a plan of 22 wells, of which 18 have been drilled. We have made eight satellite discoveries (these are small discoveries on the periphery of the main find). The development plan for this has been submitted to the Government.
We hope that by the time the entire D6 gas starts flowing, the supply-demand situation for natural gas in the country would have undergone a major change, and a more competitive environment will be there.
The initial production from the D6 block is estimated at 40 mmscmd. The gas is expected to start flowing in the next few days and supplies to consumers’ users will begin from mid-April. RIL plans to start production with 10-12 mscmd of gas in April and will ramp it up to 40 mmscmd by July and reach peak production of 80 mscmd in a year.
Reliance Infra keen on expanding power distribution
Anil Dhirubhai Ambani group (ADAG) company Reliance Infrastructure today said it will bid for more power distribution business in Maharashtra, UP, Bihar and other states, claiming it helped the Delhi Government save Rs 19,000 crore through improvement in power supply.
"We are geared up to bid for distribution work in 20 cities including nine in Uttar Pradesh, five in Maharashtra and four in Bihar as and when bids are invited," Reliance Infra Chief Executive Officer Lalit Jalan said.
There are indications that these states would open up power distribution to the private sector, Jalan said, adding, "with our proven credentials in the sector, we are hopeful to be front-runners in the race.
He further said, "In case of winning awards, it will be our endeavour to reform the sector and reduce the aggregate technical and commercial (AT & C) losses substantially. In Delhi we helped the state government to bring down losses to 20 per cent from 55 per cent in 2002."
The operations in Delhi, he said, helped the state government save Rs 19,000 crore over the past seven years.
Reliance Infra, he claimed, is the largest private sector enterprise among power utilities involved in generating, transmitting, distributing and trading electricity and constructing power plants as engineering procurement construction partners.
He said the company has distributed power over the last six years to over 2.5 million customers in Delhi, with a peak demand of 2,650 MW, having invested over Rs 3,200 crore in infrastructure.
In Mumbai, he said the company distributes power to over 2.7 million customers, with a peak demand of 1,465 MW.
AT&C losses in Mumbai are the lowest, he claimed. Reliance Infra distributes more than 28 billion units of electricity to cover 25 million consumers in the country, over 1,24,300 square km.
It generates 941 MW, from its power stations located in Maharashtra, Andhra Pradesh, Kerala, Karnataka and Goa.
The company claims to be emerging as one of the leading players in India in the engineering, procurement and construction (EPC) segment of the power sector with an order book of Rs 8,300 crore, having executed projects worth Rs 10,000 crore in the past four years.
"We are geared up to bid for distribution work in 20 cities including nine in Uttar Pradesh, five in Maharashtra and four in Bihar as and when bids are invited," Reliance Infra Chief Executive Officer Lalit Jalan said.
There are indications that these states would open up power distribution to the private sector, Jalan said, adding, "with our proven credentials in the sector, we are hopeful to be front-runners in the race.
He further said, "In case of winning awards, it will be our endeavour to reform the sector and reduce the aggregate technical and commercial (AT & C) losses substantially. In Delhi we helped the state government to bring down losses to 20 per cent from 55 per cent in 2002."
The operations in Delhi, he said, helped the state government save Rs 19,000 crore over the past seven years.
Reliance Infra, he claimed, is the largest private sector enterprise among power utilities involved in generating, transmitting, distributing and trading electricity and constructing power plants as engineering procurement construction partners.
He said the company has distributed power over the last six years to over 2.5 million customers in Delhi, with a peak demand of 2,650 MW, having invested over Rs 3,200 crore in infrastructure.
In Mumbai, he said the company distributes power to over 2.7 million customers, with a peak demand of 1,465 MW.
AT&C losses in Mumbai are the lowest, he claimed. Reliance Infra distributes more than 28 billion units of electricity to cover 25 million consumers in the country, over 1,24,300 square km.
It generates 941 MW, from its power stations located in Maharashtra, Andhra Pradesh, Kerala, Karnataka and Goa.
The company claims to be emerging as one of the leading players in India in the engineering, procurement and construction (EPC) segment of the power sector with an order book of Rs 8,300 crore, having executed projects worth Rs 10,000 crore in the past four years.
Reliance Industrial Infrastructure - What is game?
Reliance Industrial Infrastructure Ltd (RIIL) share price has been moving up and had risen from Rs. 318 on 2nd April to Rs. 820 on 9th April. In three trading sessions, a rise of 158%. On Thursday, 9th April, it had a turnover of 105 lakh shares on NSE and 50 lakh shares on BSE which has surpassed the present paid up equity of the company, which is at 151 lakh shares. Obviously, delivery percentage has been very low at just 3%.
So why this sudden jump in the share price? Though Reliance Industries has denied merger of RIIL with itself, it has a different angle.
If one may recall, share price of RIIL in August 07 was ruling at Rs. 500 per share which rose to Rs. 3,200, one way, by October 07. At that time, people close to the management, as also, ex- promoter of the company, being Anand Jain, along with Reliance Industries Ltd (RIL), being the present promoters, sold over 20 lakh shares of the company. If we presume that all the shares were got sold at an average of Rs. 3,000 per share and now having bought them back , at an average of Rs 500 per share, this gave them a gain of close to Rs. 500 crores. Remember, RIL sold about 4.62% stake of Reliance Petroleum, during that time and made a gain of Rs. 4,733 crores .RIL became promoter of RIIL in March 06, though RIL has been holding 46% stake in RIIL, much prior to that .
However, it is learnt that RIL is planning to make RIIL as a gas carrier & distribution company. Reliance Gas Transportation Infrastructure Ltd. (RGTIL) is a closely held company of Mukesh Ambani, which had put up 1,400 kms., 48 inches diameter pipeline from Kakinada to Bharuch, capable to transport 120 mmscmd of gas , having set at a project cost of Rs. 15,000 crores. The present paid up equity of RGTIL is at Rs. 700.05 crores with face value of Re.1 and are presently held by 6 private limited companies, with each company holding 1166.75 million shares. In addition to this, it has Preference Share Capital of Rs. 330 crores, with face value of Rs. 10 each. This company is capable to generate a revenue of Rs. 700 crores, if we presume a transport of 80 mmscmd at US$ 0.13 per mBtu.
Apart from this, RIL has plans to set up gas pipelines in various parts of the country, originating from KG Basin, as also to take up gas distribution for domestic households in over 150 cities, of the country.
It is learnt that the Group is contemplating to bring all this pipeline network and business into RIIL, with a view to attain leadership in the sector. This move was also expected in the past, but got deferred due to delay in gas production by RIL from KG Basin.
Maybe now, if this gets implemented, RIIL paid up equity, which is now at Rs. 15.10 crores may get raised to Rs. 100 crores with promoters’ holding of 90%, which is allowed for an infrastructure company. The whole exercise is aimed with a view to raise US$ 2 Billion for new projects. This will be possible only if RIIL has a mega size of projects coupled with respectable market capitalisation.
RIIL has a market cap of Rs. 1,240 crores, inspite of recent surge in the share price, which is not befitting to the level of RIL Group. So, if these plans are required to get implemented. RIIL must become a $4 billion company in terms of size of assets and market capitalisation.
We hope that these expected plans are implemented by the Group this time for RIIL and not to indulge in market operations again.
So why this sudden jump in the share price? Though Reliance Industries has denied merger of RIIL with itself, it has a different angle.
If one may recall, share price of RIIL in August 07 was ruling at Rs. 500 per share which rose to Rs. 3,200, one way, by October 07. At that time, people close to the management, as also, ex- promoter of the company, being Anand Jain, along with Reliance Industries Ltd (RIL), being the present promoters, sold over 20 lakh shares of the company. If we presume that all the shares were got sold at an average of Rs. 3,000 per share and now having bought them back , at an average of Rs 500 per share, this gave them a gain of close to Rs. 500 crores. Remember, RIL sold about 4.62% stake of Reliance Petroleum, during that time and made a gain of Rs. 4,733 crores .RIL became promoter of RIIL in March 06, though RIL has been holding 46% stake in RIIL, much prior to that .
However, it is learnt that RIL is planning to make RIIL as a gas carrier & distribution company. Reliance Gas Transportation Infrastructure Ltd. (RGTIL) is a closely held company of Mukesh Ambani, which had put up 1,400 kms., 48 inches diameter pipeline from Kakinada to Bharuch, capable to transport 120 mmscmd of gas , having set at a project cost of Rs. 15,000 crores. The present paid up equity of RGTIL is at Rs. 700.05 crores with face value of Re.1 and are presently held by 6 private limited companies, with each company holding 1166.75 million shares. In addition to this, it has Preference Share Capital of Rs. 330 crores, with face value of Rs. 10 each. This company is capable to generate a revenue of Rs. 700 crores, if we presume a transport of 80 mmscmd at US$ 0.13 per mBtu.
Apart from this, RIL has plans to set up gas pipelines in various parts of the country, originating from KG Basin, as also to take up gas distribution for domestic households in over 150 cities, of the country.
It is learnt that the Group is contemplating to bring all this pipeline network and business into RIIL, with a view to attain leadership in the sector. This move was also expected in the past, but got deferred due to delay in gas production by RIL from KG Basin.
Maybe now, if this gets implemented, RIIL paid up equity, which is now at Rs. 15.10 crores may get raised to Rs. 100 crores with promoters’ holding of 90%, which is allowed for an infrastructure company. The whole exercise is aimed with a view to raise US$ 2 Billion for new projects. This will be possible only if RIIL has a mega size of projects coupled with respectable market capitalisation.
RIIL has a market cap of Rs. 1,240 crores, inspite of recent surge in the share price, which is not befitting to the level of RIL Group. So, if these plans are required to get implemented. RIIL must become a $4 billion company in terms of size of assets and market capitalisation.
We hope that these expected plans are implemented by the Group this time for RIIL and not to indulge in market operations again.
NHPC all set to heat up thermal power sector
Public sector NHPC, a hydroelectric power producer, has decided to spread its wings nationally in the thermal power business, a move that will put it into direct competition with larger peer NTPC, the country’s biggest power producer. Since NHPC is not permitted to construct thermal power projects, it plans to realise its ambitions through its subsidiary, Narmada Hydroelectric Development Corp (NHDC).
The 51:49 subsidiary between the NHPC and the Madhya Pradesh government has a mandate to build the first coal-based 1,000 mw power project in Madhya Pradesh. It has already commissioned hydroelectric projects of 1,500 mw.
NHPC chairman & managing director SK Garg confirmed to ET that the company plans to expand the activities of its Madhya Pradesh-based subsidiary. The company, however, requires state government’s approval to give NHDC a pan-Indian presence.
NHPC is only permitted to venture into renewable energy sources such as wind, solar and tidal power energy. The company is executing a 3.75 mw tidal power project in Durgaduani Mini Tidal Power in West Bengal. It has a generation capacity of 5,175 mw, entirely in the hydro sector. The company plans to add another 5,322 mw in the 11th Plan to scale up its hydro power generation capacity to over 10,000 mw.
The 51:49 subsidiary between the NHPC and the Madhya Pradesh government has a mandate to build the first coal-based 1,000 mw power project in Madhya Pradesh. It has already commissioned hydroelectric projects of 1,500 mw.
NHPC chairman & managing director SK Garg confirmed to ET that the company plans to expand the activities of its Madhya Pradesh-based subsidiary. The company, however, requires state government’s approval to give NHDC a pan-Indian presence.
NHPC is only permitted to venture into renewable energy sources such as wind, solar and tidal power energy. The company is executing a 3.75 mw tidal power project in Durgaduani Mini Tidal Power in West Bengal. It has a generation capacity of 5,175 mw, entirely in the hydro sector. The company plans to add another 5,322 mw in the 11th Plan to scale up its hydro power generation capacity to over 10,000 mw.
Reliance resumes D-6 oil output: Govt
Reliance Industries has resumed crude oil production from one well in its east coast deepwater block, the country's upstream regulator said on Monday.
"They (Reliance) have opened one well last night. They have said they will be opening more wells in the next few days," V K Sibal said.
Reliance stopped crude oil production form the Krishna Godavari block, popularly known as D-6, from March 22 to add more wells to raise the crude oil output.
"They (Reliance) have opened one well last night. They have said they will be opening more wells in the next few days," V K Sibal said.
Reliance stopped crude oil production form the Krishna Godavari block, popularly known as D-6, from March 22 to add more wells to raise the crude oil output.
Sunday, April 26, 2009
Concor: The momentum should pick up
The sluggish trend in imports and exports hurt the transporter’s volumes last year; this year should be better.
With exports and imports slowing down sharply, especially towards the close of the year, Concor revenues for 2008-09, at Rs 3,413 crore, were just marginally higher than previous year. The March 2009 quarter was particularly tough for the inland transportation company, though the management believes the environment is improving. In fact, it says there has been a clear uptrend in imports since mid-March, adding that the company’s business should grow by about 10 per cent in the current year.
That may not sound too encouraging, given that the base is already low and could result in the earnings per share (EPS) growing at a slower pace than it did last year. Analysts, in fact, are pencilling in a high single-digit growth in the top line and about an 8 per cent increase in the bottom line. That means the stock is trading at over 11 times estimated 2009-10 earnings which may seem expensive.
However, with the economy expected to see a revival early next year, Concor’s performance could improve significantly in 2010-11, with a growth in revenues of around 13 per cent and a rise in earnings of over 12 per cent. Also the company is efficient at the operating level and it’s the higher depreciation charges that are eating into the profits. Moreover, Concor has around Rs 1,700 crore of cash on its books.
The management appears confident that the situation will improve and is going ahead with its expansion plans. Having spent around Rs 500 crore last year, it plans to invest over Rs 600 crore in the current year. It has bought wagons, expanded its inland container depot network and purchased handling equipment, the idea being to increase capacity ahead of the demand. Although volumes for goods exported and imported have been relatively poor, Concor has been transporting an increasing quantity of goods for the domestic market. It has managed to win orders by passing on the benefit of lower haulage charges, levied by Indian Railways, to its customers.
With exports and imports slowing down sharply, especially towards the close of the year, Concor revenues for 2008-09, at Rs 3,413 crore, were just marginally higher than previous year. The March 2009 quarter was particularly tough for the inland transportation company, though the management believes the environment is improving. In fact, it says there has been a clear uptrend in imports since mid-March, adding that the company’s business should grow by about 10 per cent in the current year.
That may not sound too encouraging, given that the base is already low and could result in the earnings per share (EPS) growing at a slower pace than it did last year. Analysts, in fact, are pencilling in a high single-digit growth in the top line and about an 8 per cent increase in the bottom line. That means the stock is trading at over 11 times estimated 2009-10 earnings which may seem expensive.
However, with the economy expected to see a revival early next year, Concor’s performance could improve significantly in 2010-11, with a growth in revenues of around 13 per cent and a rise in earnings of over 12 per cent. Also the company is efficient at the operating level and it’s the higher depreciation charges that are eating into the profits. Moreover, Concor has around Rs 1,700 crore of cash on its books.
The management appears confident that the situation will improve and is going ahead with its expansion plans. Having spent around Rs 500 crore last year, it plans to invest over Rs 600 crore in the current year. It has bought wagons, expanded its inland container depot network and purchased handling equipment, the idea being to increase capacity ahead of the demand. Although volumes for goods exported and imported have been relatively poor, Concor has been transporting an increasing quantity of goods for the domestic market. It has managed to win orders by passing on the benefit of lower haulage charges, levied by Indian Railways, to its customers.
12th Plan order flows to be strong in FY10: BHEL
A dominant player in the power equipment business, Bharat Heavy Electricals (BHEL) has been a major beneficiary of the growing investments in the power sector, which is clearly reflecting in its huge order book. However, off late, there have been concerns building up with regards the slowdown in new order inflow and rising competition.
Also, margins have come down in the third quarter, on account of higher raw material prices and wage provisions, which are seen impacting earnings in 2008-09. In light of these events, Jitendra Kumar Gupta spoke to K Ravi Kumar, chairman and managing director, BHEL about his views on the same and the company’s future strategy.
Will the planned capacity addition of 78,000 mw for the 11th plan be achieved?
As per the planning commission report it will be about 60,000 mw and, as far as our orders are concerned we have about 40,000 mw.
What is the current order book and the average execution time? And, what sales growth is expected over the next two years?
Our current order book is Rs 1,25,000 crore with average execution cycle of 36 months.
In 2008-09, we are expecting sales growth of 25-30 per cent.
Out of the total orders, power accounts for about 80 per cent and, rest comes from the industrial sector where we want to enter into private sector transmission and transportation business in a big way. Going forward, the share of industrial sector will rise to 30 per cent. So far, demand has been good but, next year we will have to wait and see.
What is the status of capacity addition plan? And, what synergies will emerge apart from higher volumes?
The plan is on schedule. We will have manufacturing capacity of 15,000 mw by December 2009 and 20,000 mw by 2011. We are also investing in the supply chain, which will start showing by Q1FY10. Overall, along with the scale and advantage of supply chain, we will definitely have some cost advantages.
We will ourselves manufacture casting and forging products, ramp up capacity for the seamless steel plant and will increase the number of vendors in other areas as well.
We have seen order inflow slowing. What is the current status?
This year we are closing 20 per cent higher than FY08, so I do not think there is any kind of slowdown in the power sector. Because there is a demand-supply gap of about 13 per cent and power is a political subject, everybody wants to provide power to the masses.
So, you cannot overlook the power sector and there is lot of demand coming from the rural sector for new connections. Even from the private sector, demand is not slowing down as we are still getting orders.
We have seen companies blaming the supply side for the slippages in power generation capacity? What is your view?
What is happening is people expect that once the foundation is given to us, the next day we should compress our activities at the site and try to reduce the delays made during the construction (basic structure) phase. But today, we are not able to do that, because the number of projects have increased, there is dearth of welders and technicians. Even the number of vendors is very less. So, we are feeling the pinch.
The delay is not limited to BHEL. We are not taking the credit, we are delaying, but the delays are much more in the case of other players. At least, we know the ground realities, but foreign vendors are finding it more difficult.
Can you elaborate on your execution cycle, how it has been in the past and how it would move in future?
The execution cycle depends on the size of the project. For 250 mw, we are able to complete in 32 months and for 500 mw in 39 months. In the last six years, our execution cycle has improved from 55 to 39 months currently. People are now expecting it to further come down to 36 months. But, considering the transport bottleneck and inadequate manpower we are finding it difficult.
One should also consider that out of the total 30,000-40,000 items required for a project, even if a particular item is not available sequentially we cannot continue with the construction. Also, suppose there are 50 vendors, even if one vendor fails it could lead to a delay. This is also a reason that we are now increasing our vendor base and making our policies flexible so that we can shift to other vendors.
Have the orders for the 12th plan started coming in?
Yes, so far, about 10,000-15,000 mw has already been announced. We have seen recently that NTPC’s tender was accepted and state governments are also going for super critical projects. The 12th plan will have more of super critical projects than subcritical projects. And, the work should start flowing in the next year in a big way.
What is your view regarding the emerging competition from import of Chinese equipments as well as domestic players?
As far as Chinese competition is concerned, for the sub-critical segment we are now in a comfortable position. Within the 600 mw and 300 mw models, there was a problem for a short period of time. But now, also since the quality of the equipment is not suited to the Indian conditions there is not much sub-critical work.
But, there is one sub-660 mw range where the Chinese are operating, let’s see how to beat that competition also. We are not a monopoly, but we have about 60-65 per cent of the market share, which is reasonable for us. Let them close their projects and run it and we will know the difference between our equipments and the Chinese equipments. In our case, the PLF itself, for 15-year old plant, is more than 100 per cent.
This is also a reason that people are now coming back to us. Regards domestic competition, I do not think anybody can become a 20,000 mw player (capacity wise) or can even establish the supply chain to become our competitor. Once we have the capacity of 30,000 mw along with latest technology and good supply chain, it would be difficult to compete with us, I would not say impossible. After all, we are interested in maintaining our market share of 60 per cent; let them address the rest of the market.
During Q3FY09, EBIDTA margins were down. What trend do you see in margins going forward?
Ours is a longer cycle – from raw material to finished goods, it takes about 9-10 months. July 2008 was the highest in terms of procurement of the raw material. So, that effect will be there, but it will come down. Our raw material price is coming down every month, so I think going forward we should be able to improve our margins. Also, the wage revision and gratuity provision will be provided in 2008-09.
How much wage provisioning is pending?
This year, we are providing about Rs 1,300 crore and so far, we have already provided Rs 650-700 crore. In FY10, we will not have such provisions. So, the employee cost in FY10 will be lower and commodity prices have come down. So, FY10 should be better. Also, by end of FY09, we will fully liquidate our inventory losses.
Any updates regarding Reliance Power (Krishnapatnam UMPP) and TNEB JV (super critical technology) projects?
Talks are still on with Reliance Power. For TNEB, we are now investing and have made the project report. We are acquiring land and REC has agreed to provide finance. We will be completing this project in 48 months.
Also, margins have come down in the third quarter, on account of higher raw material prices and wage provisions, which are seen impacting earnings in 2008-09. In light of these events, Jitendra Kumar Gupta spoke to K Ravi Kumar, chairman and managing director, BHEL about his views on the same and the company’s future strategy.
Will the planned capacity addition of 78,000 mw for the 11th plan be achieved?
As per the planning commission report it will be about 60,000 mw and, as far as our orders are concerned we have about 40,000 mw.
What is the current order book and the average execution time? And, what sales growth is expected over the next two years?
Our current order book is Rs 1,25,000 crore with average execution cycle of 36 months.
In 2008-09, we are expecting sales growth of 25-30 per cent.
Out of the total orders, power accounts for about 80 per cent and, rest comes from the industrial sector where we want to enter into private sector transmission and transportation business in a big way. Going forward, the share of industrial sector will rise to 30 per cent. So far, demand has been good but, next year we will have to wait and see.
What is the status of capacity addition plan? And, what synergies will emerge apart from higher volumes?
The plan is on schedule. We will have manufacturing capacity of 15,000 mw by December 2009 and 20,000 mw by 2011. We are also investing in the supply chain, which will start showing by Q1FY10. Overall, along with the scale and advantage of supply chain, we will definitely have some cost advantages.
We will ourselves manufacture casting and forging products, ramp up capacity for the seamless steel plant and will increase the number of vendors in other areas as well.
We have seen order inflow slowing. What is the current status?
This year we are closing 20 per cent higher than FY08, so I do not think there is any kind of slowdown in the power sector. Because there is a demand-supply gap of about 13 per cent and power is a political subject, everybody wants to provide power to the masses.
So, you cannot overlook the power sector and there is lot of demand coming from the rural sector for new connections. Even from the private sector, demand is not slowing down as we are still getting orders.
We have seen companies blaming the supply side for the slippages in power generation capacity? What is your view?
What is happening is people expect that once the foundation is given to us, the next day we should compress our activities at the site and try to reduce the delays made during the construction (basic structure) phase. But today, we are not able to do that, because the number of projects have increased, there is dearth of welders and technicians. Even the number of vendors is very less. So, we are feeling the pinch.
The delay is not limited to BHEL. We are not taking the credit, we are delaying, but the delays are much more in the case of other players. At least, we know the ground realities, but foreign vendors are finding it more difficult.
Can you elaborate on your execution cycle, how it has been in the past and how it would move in future?
The execution cycle depends on the size of the project. For 250 mw, we are able to complete in 32 months and for 500 mw in 39 months. In the last six years, our execution cycle has improved from 55 to 39 months currently. People are now expecting it to further come down to 36 months. But, considering the transport bottleneck and inadequate manpower we are finding it difficult.
One should also consider that out of the total 30,000-40,000 items required for a project, even if a particular item is not available sequentially we cannot continue with the construction. Also, suppose there are 50 vendors, even if one vendor fails it could lead to a delay. This is also a reason that we are now increasing our vendor base and making our policies flexible so that we can shift to other vendors.
Have the orders for the 12th plan started coming in?
Yes, so far, about 10,000-15,000 mw has already been announced. We have seen recently that NTPC’s tender was accepted and state governments are also going for super critical projects. The 12th plan will have more of super critical projects than subcritical projects. And, the work should start flowing in the next year in a big way.
What is your view regarding the emerging competition from import of Chinese equipments as well as domestic players?
As far as Chinese competition is concerned, for the sub-critical segment we are now in a comfortable position. Within the 600 mw and 300 mw models, there was a problem for a short period of time. But now, also since the quality of the equipment is not suited to the Indian conditions there is not much sub-critical work.
But, there is one sub-660 mw range where the Chinese are operating, let’s see how to beat that competition also. We are not a monopoly, but we have about 60-65 per cent of the market share, which is reasonable for us. Let them close their projects and run it and we will know the difference between our equipments and the Chinese equipments. In our case, the PLF itself, for 15-year old plant, is more than 100 per cent.
This is also a reason that people are now coming back to us. Regards domestic competition, I do not think anybody can become a 20,000 mw player (capacity wise) or can even establish the supply chain to become our competitor. Once we have the capacity of 30,000 mw along with latest technology and good supply chain, it would be difficult to compete with us, I would not say impossible. After all, we are interested in maintaining our market share of 60 per cent; let them address the rest of the market.
During Q3FY09, EBIDTA margins were down. What trend do you see in margins going forward?
Ours is a longer cycle – from raw material to finished goods, it takes about 9-10 months. July 2008 was the highest in terms of procurement of the raw material. So, that effect will be there, but it will come down. Our raw material price is coming down every month, so I think going forward we should be able to improve our margins. Also, the wage revision and gratuity provision will be provided in 2008-09.
How much wage provisioning is pending?
This year, we are providing about Rs 1,300 crore and so far, we have already provided Rs 650-700 crore. In FY10, we will not have such provisions. So, the employee cost in FY10 will be lower and commodity prices have come down. So, FY10 should be better. Also, by end of FY09, we will fully liquidate our inventory losses.
Any updates regarding Reliance Power (Krishnapatnam UMPP) and TNEB JV (super critical technology) projects?
Talks are still on with Reliance Power. For TNEB, we are now investing and have made the project report. We are acquiring land and REC has agreed to provide finance. We will be completing this project in 48 months.
Tuesday, April 21, 2009
Reliance Infra likely to increase generation capacity at DTPS
Having emerged as the top thermal power station in terms of plant load factor, ADAG Group company Reliance Infrastructure’s Dahanu Thermal Power Station (DTPS) is looking at the possibility of expanding its generation capacity from 500 mw (250 x2) to 1,700 mw.
According to officials in the power ministry, Rel-Infra has expressed its intention to expand generation capacity at its DTPS by 1,200 mw and has sounded out the power ministry , Central Electricity Authority (CEA) as well as the Maharashtra government.
According to industry standards , the investment is estimated at about Rs 5,400 crore. Rel-Infra is likely to add two units of 600 mw there. Officials from Rel-Infra , however, declined to comment on the issue saying it was too premature. Incidentally, the company will not need to acquire additional land for adding new capacity as it already has acquired the required land.
Interestingly, DTPS supplies power to Mumbai suburbs over an area of 370 square km. The two units have been running at 100.99 % PLF, the highest in the country during 2008-09. This plant has been running with the highest PLF for the last three years. The plan to enhance capacity is a part of the company's strategy to try and reduce power-cuts.
According to officials in the power ministry, Rel-Infra has expressed its intention to expand generation capacity at its DTPS by 1,200 mw and has sounded out the power ministry , Central Electricity Authority (CEA) as well as the Maharashtra government.
According to industry standards , the investment is estimated at about Rs 5,400 crore. Rel-Infra is likely to add two units of 600 mw there. Officials from Rel-Infra , however, declined to comment on the issue saying it was too premature. Incidentally, the company will not need to acquire additional land for adding new capacity as it already has acquired the required land.
Interestingly, DTPS supplies power to Mumbai suburbs over an area of 370 square km. The two units have been running at 100.99 % PLF, the highest in the country during 2008-09. This plant has been running with the highest PLF for the last three years. The plan to enhance capacity is a part of the company's strategy to try and reduce power-cuts.
NHPC to develop 10,000 MW projects in NE by 2022
To harness the hydel power potential of the North eastern region, state-owned NHPC plans to set up over 10,000 MW capacity projects in the area at an investment of nearly Rs 50,000 crore by the 2022.
"We are going very strong in the North-east, we hope to execute over 10,000 MW capacity projects (worth approximately Rs 50,000 crore) in that region alone in the near future," CMD S K Garg told reporters in an interview.
"The hydro power projects have a long gestation period, therefore this capacity would be ready by the end of the XIIIth Five Year Plan," sources said.
The total hydel power potential of the country stands at 1,50,000 MW, and the North-east alone has a potential of nearly 60,000 MW. The government has identified 10,000 MW power capacity to be developed by NHPC.
State-run NTPC, which has entered hydel power generation segment would also develop some projects in the region and some would be developed by private power developers.
NHPC is developing, Subansiri Lower, the biggest hydro-electric project undertaken in the country so far and is a run of river scheme on river Subansiri near North Lakhimpur on the border of Assam and Arunachal Pradesh.
"We are going very strong in the North-east, we hope to execute over 10,000 MW capacity projects (worth approximately Rs 50,000 crore) in that region alone in the near future," CMD S K Garg told reporters in an interview.
"The hydro power projects have a long gestation period, therefore this capacity would be ready by the end of the XIIIth Five Year Plan," sources said.
The total hydel power potential of the country stands at 1,50,000 MW, and the North-east alone has a potential of nearly 60,000 MW. The government has identified 10,000 MW power capacity to be developed by NHPC.
State-run NTPC, which has entered hydel power generation segment would also develop some projects in the region and some would be developed by private power developers.
NHPC is developing, Subansiri Lower, the biggest hydro-electric project undertaken in the country so far and is a run of river scheme on river Subansiri near North Lakhimpur on the border of Assam and Arunachal Pradesh.
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