FINANCE & STOCK ADVICE

Analysis of JSW Steel Ltd.

2010-07-07T23:12:00.000-07:00

About The Company

The Company was incorporated on March 15 1994, and the Certificate of Commencement
of Business was received on July 8. The Company is engaged in the business of integrated steel.
It was promoted by the assisted sector by Jindal Iron & Steel Co. Ltd. and Karnataka State
Industrial Investment and Development Corporation Ltd.

Main Stories In the Company

1.FY11 seems to be a excellent year for the company. It expects to operate 11.390 Mw by 2015 from its current 995 Mw capacity.

2.In April 2010 the company invested Rs.382 crore to get a share in the South African Coal Mining Holdings I

3.It acquired 70% in another South Africa-based coal company, Indian Ocean Mining (IOM) from Osho Venture FZCO of Dubai.

4.Repayment of Rs.450 crore of debt will bring down interest costs and it expects annual average short-term prices of power to be range-bound between Rs.4.80 and Rs 5.25 a unit for FY 2011. Stay invested and accumulate for long term on every dip.

5.High fuel costs on account of imported coal is a concern but the company is trying to overcome this by acquiring coal mines and is scouting around for mines.

6.Its plant at Ratnagiri could run into trouble due to environmental issues. But on 30th June, the company has stated that this issue has not been sorted out and it expects to commission the first phase (300 mw) of its 1,200 mw Ratnagiri power plant in 15 days.

7.The ministry has asked the company to set up a flue gas desulfurisation (FGD) technology to keep the emissions of sulphur dioxide in check. JSW has to do so at a cost of Rs.527 crore.It was followed after objection raised by mango growers in the Ratnagiri area, who had expressed concerns that toxic gases emitted by the thermal power plant would hamper the production of Alphonso mangoes.

About The Stock

The company is no doubt a giant in steel sector and a promising stock for long term prospective.Every unit has to face problems but the management has the potential to overcome the same. We can expect a better return in long term. The stock could be bought in dips by average method. Any dips in the stock would be an opportunity for true investor.

Analysis of Walchandnagar Industries Limited

2010-06-30T05:21:00.001-07:00

About The Company

Walchandnagar Industries Ltd is an ISO-9001 -2000 certified, multi product,multi discipline,high-tech, heavy engineering, Projects execution company catering to diverse Industries such as: Projects Include Steam & Power generation , Cement , Mineral processing & Sugar Plant Products Include Heavy duty gear boxes , Material Handling & Process equipments , Castings & precision instruments , & Production of customer designed equipment of National importance for Aerospace , Defence and nuclear power.

The company was incorporated on 25th November 1908 , at Mumbai with 2,500 No. of equity shares issued without
payment in cash.In 2008  the Company has issued Bonus Shares in the Ratio of 1:1 & has splits its face value
from Rs10/- to Rs2/-

About The Financials

For the second quarter ended 31st March 2010, the topline of the company remains flat, with a QoQ fall of 4% and 2% rise on a YoY. Net profit fell sharply on the back of mounting operating costs, down 52% QoQ and 61% on a YoY. NPM was its lowest at 1.5%.

Major News

Walchandnanagr has signed a MoU with French naval shipbuilder DCNS, to manufacture critical
equipment for Scorpene submarines to be used by the Indian Navy.

It shortly expoected to have a second contract P75i project, advanced submarines with DCNS.

India plans to source 70% of its defence requirement from indigenous sources by the end of this year.

My Recommendation

The company profile is satisfactory with a diverisified portfolio in the working field. The company has always rewarded its shareholder in form of bonus , split , dividend and hike in price of the stock. From long term prospective the stock is a good buy and could be bought on dips by averaging method.

Factors to consider before selcting an IPO for Investment

2010-05-04T23:32:00.000-07:00

Get answers for the following questions to determine whether or not you should invest in a particular IPO ?

1. Is this an IPO or an FPO?

In IPOs, initial public offers, company decides the price and the collective secondary market discovers the true price post-listing after more information inflows/analysis.
In FPOs, follow on public offers, the price is already discovered; gains/losses can only be marginal; no new information for the market to analyze/process.

2.Is this a fixed-price or a book-building issue?

The methodology, classes of investors and issue pricing are totally different.
There is no book or price discovery in a fixed-price issue.
There are no reservations for FIIs/HNIs in a fixed-price issue; 50% of the issue is reserved for small investors (in book building, it is 35%).
Fixed-price issues are typically small.

Issues in 2004-05 (Rs in crore) Source: Prime Database
Issue Type	No. of Issues	Issue Amount	Average size of Issue
Fixed Price	10	378.82	37.88
Book Building	19	21,052.74	1,108.04

3. Is this a “good” promoter?

Get to “know” the promoter – that’s the key.
If the promoter is okay, almost all other factors will automatically get taken care of.
If there is any foreign collaboration of repute, it helps.

4. What is the promoters’ background and experience?

Experience in the same business/industry (promoting individuals/ promoting companies)

5. Is the promoter a liability or an asset?

Are there any material defaults/ litigations against the company or its promoters?
Persons/Companies that have not been compliant with laws of the land reflect a worrisome mindset.
If you find too many defaults/litigations of a material nature or even one of a very serious nature, a the issue.
– Criminal proceedings against the promoters.

6. What is the status of the issuing company?

Holding company
Main company

7. How has been the performance of the company?

Number of years in the business
Size of the company
Growth rate
Market share and growth

8. Are the financials, specially the recent ones, reliable?

Many resort to window dressing; high sales often lie in sundry debtors, profits could be because of a very high “other income” or “unusual income”.
Beware of bloated previous year’s financials; amazing how almost every company performs so exceedingly well in the year and quarter preceding the issue!
Look at aging of sundry debtors (and earlier write-offs).
Look for changes in accounting policies (depreciation etc.), in financial year.
Look if there are any significant Notes to the Accounts.
Look if there are any significant qualifications by the auditors.

9. What to look for in the Balance Sheet?

Fixed assets
Investments
Loan and advances

10. What are the key financial parameters/ ratios to look at?

Earnings per share (EPS)

EPS measures the earnings a company makes for each share in existence. It is calculated by taking a company’s net earnings and dividing them by the number of shares in issue.
A higher EPS is regarded as better than a low EPS as it means investors are earning bigger profits for every share they own.
Investors look not only at the current EPS but also at estimates of future EPS to get an idea of the profits they will earn in future years.

Price Earnings ratio (P/E)

The ratio you will see mentioned more than any other is the Price Earnings Ratio, which you will often see represented as P/E.
The P/E measures whether a company is cheap or expensive. It is calculated by dividing a company’s share price by its earnings per share (profits after tax divided by the number of shares in issue). As a rule, the higher the P/E, the faster its earnings are growing but if the P/E is high compared with other companies in the same sector, it could also mean the shares are overvalued.
This ratio enables any business to be compared with another, although in reality investors tend to compare companies against those in the same industry sector or against the P/E on the entire market.
Investors look not only at P/Es based on the past year’s earnings but also at estimates of future P/Es, also known as prospective P/Es. This gives investors an idea as to how fast a company’s earnings are expected to grow in the future and, therefore, whether their shares are worth buying or not.

PEG ratio

If you are investing in growth companies it is worth looking at a company’s PEG ratio. This ratio, which shows a company’s P/E relative to its earnings growth rate, is worked out by taking the prospective P/E ratio and dividing this number by the prospective EPS growth.
The lower the PEG ratio, the better value a company’s shares are.

Return on capital

This ratio helps investors assess how hard a company is making its assets work. It is calculated by taking profits before interest and tax are removed and dividing this figure by the capital employed.
Broadly speaking, the higher the return on capital, the more successful a company is.

EBITDA and EV

EBITDA is a profit key ratio that looks at the Earnings Before Interest, Tax, Depreciation and Amortisation. It is used to assess the operative profitability of a company.
You can use this ratio to analyse companies that reinvest heavily in their businesses by taking the Enterprise Value and dividing it by EBITDA.

11. How are the cash flows?

Is it negative?

12. What is the dividend track record?

No relevance in the case of IPOs

13. What is the promoter’s attitude towards shareholder rewards, in case of listed group companies?

Dividend policy
Bonus issues
Rights issues
De-listing of group companies
Past public issue pricing

14. How has been the performance of the group companies?

Number of years in the business
Size of the companies
Growth rates
Market shares and growth
Financials

15. How significant are the related party transactions?

Is it a family business?
Do group companies constitute the main clientele?
Is most raw materials sourced from group companies?
Extent of related party financial transactions?
Is there any conflict of interest among group companies?
Are there companies in the group doing the same business?

16. Who is on the Board of Directors?

Family-controlled or broad-based
Independent directors
Key directors-in terms of experience and “connections”
Compliance of Clause 49 of the Listing Agreement on Corporate Governance

16. What are the products/ services of the company?

Old economy/ new economy?
Cyclical?
“Flavour of the season”?
Upstream/ downstream?
Market outlook?
Be concerned about your own exposure to a particular industry.

17. What about technology?

Do not bother too much about this.

18. What about customers?

Over dependence on one or a few customers?
Too many fixed priced, long-term contracts etc?

19. What is the size of the issue?

A large issue ensures better allotment as also better liquidity.

20. What will be the public float after the issue?

This is critical as public float finally determines the liquidity.

21. What is the promoter’s holding after the issue?

A small post-issue stake does not inspire much confidence

22. Is the price justified?

Do not be guided by ‘par’ ‘premium’ parameters
In “Justification of Issue Price”, look whether P/E has been calculated on recent period EPS or on weighted average of 2-3 years.
Look at the peer group prices, but do not rely entirely on it.
Industry low/ average/ high figures of P/E are deceptive; there are no two similar companies, each is unique.

23. What has been the capital build up?

Previous public issues/rights issues/overseas issues/preferential issues.
To whom, when, at what price?
Is there any venture capital/private equity fund investment in the company?
Who invested, when, at what price, for what stake?
How does the offer price compare with price of allotments made to them?
Are these now funds exiting fully or partially in this offer?
Partial exit or no exit is more confidence building; VCs are expecting a higher secondary market exit price. In 2004-05, there were two such companies where VCs exited partially, NDTV and UTV.

24. What are the objects of the issue?

Finance a new project (new/diversification)?
Undertake expansion
Augment working capital?
Repay debt? (to promoters?)
Do acquisitions?
Fund subsidiaries?
Open branches?
For general corporate purposes?
Exit to promoters/others (offer for sale); No fund inflows into the company?

25. What are the components of the project cost?

Any oddities in the components of the project cost?
Comparison of cost of projects of two “similar” companies difficult as there would rarely be two exactly similar projects.

26. What has been the utilisation of existing capacity?

Is the present capacity fully/ substantially being used?

PSU Boom Study at a Glance

2010-01-30T00:00:00.000-08:00

Recently, we have seen a major spurt in all PSU stocks , whether it's a listed company or not. There is great news of IPO & FPO of the PSU units in the stock market. The Govt. has recently announced the proposal of reducing the promoter stake to maximum of 75% of the total equity or else the public participation in any company has been settled to a minimum of 25%. This cowers not only private units but also all PSU stocks. Govt. has been carrying a fiscal deficit in budget due to prolonged carried forward balance and also due to waiver of farmer loan in last budget. The recovery of such deficit will be done by either making initial public offer of unlisted stock or by divesting the stake in already listed stocks to get reasonable amount of funds to settle the deficit.

Now we are expecting IPO of the following PSU stocks :- BSNL , VSNL , COAL INDIA , KUDREMUKH , SATLUJ JAL VIDYUT NIGAM.

We can expect divestment in those PSU stocks , where the govt. stake is reasonably high. Like wise NMDC , MMTC , STC , HINDUSTAN COPPER , REC , NTPC , NEYVELI LIGNITE , SAIL , ENGINEERS INDIA , RCF , HMT , ANDREW YULE ETC

NOTE :

All registered members are hereby informed that they may email me mentioning there date of registration with us to claim for the detail study of the divestment in public sector and the gem stock stock to be bought , the price level for best buy and target expectation.

Mandatory Rules to have Safe Return In Stock Market

2009-12-18T22:18:00.000-08:00

Some of the major mandatory rules to be kept in mind to have safe and steady return in capital market :

Being a trader or investor in stock market , we need to keep some of the basic concept in mind while trading or working in stock market to avoid any sort of major uncertainty and to have steady and stable return of the hard invested funds with less or no risk engagement.

Some of the major points could be summarized as below:-

Proper Allocation of Funds

The most crucial point while investing in stock market is to allocate the funds in proper counter and in the ratio as required to maintain stability and to expect reasonable return of the invested funds within proper time.

Diversification of Investment

On macro basis , diversification is a tool where investment of funds is done in various aspects or opportunity available in market in proper ratio to avoid any risk of a particular field and to enjoy the benefit of all sort of available options with the available funds.

Likewise in equity market we must diversified the amount or funds available with us , say we can invest 50% of the fund in long term stocks with allocation of fund in designed portfolio , 25% is invested in medium and short term stocks to get regular return and balance 25% to be invested in mutual funds through proper channels or via Systematic Investment Plan (S.I.P).

This will reduce the risk involved while investing the funds in stock market as if one of the option fails to give you proper return , you need not apologize to miss the other one. Though practically it is found a investor who goes with this theory is gainer in long term as the average return from all aspect from time to time is excellent.

Proper Time of Entry & Proper Exit

This is one of the most essential element while investing as we need to maintain the time factor here proper time of entry will get you invested in the proper counter as correct time , while if we are not informed about the time of exit we will be greatest looser by not only loosing the deemed and accumulated unrealized gain but a handsome part of the invested fund will get washed away with our wait to get the repetition of levels.

The ultimate gainer of the stock market is one who has not been able to accumulate heavy gain by investing in the stock and watching it on screen but one who has not only earned but also has realized the same and taken the entire pr hand some part home.

Strong Decision at Tough time

The other part to be kept in mind is that if we do not have the capacity to take strong decision at tough time else we will be left out with only feeling of apologize.

In case, market shows the extreme reverse trend at any time when all our expected stop loss in mind are broken , then at that point we should not be stubborn and wait endlessly to get the targets revised to exit , we must makeup our mind and take a wise decision at per practical situation , though at some times we may be proved wrong but as we had exit with gain so it would be better instead to loose the entire left out residual gain with expectation to get the revision of previous high levels.

Average Buying

Averaging is the most wisest mode of investment in stock market , as we enjoy buying at all levels of the market and do not have left out feeling in case the market goes reverse.

Say, if we are interested to buy 100 shares of a stock we should buy it 50:25:25 ratio i.e buy 50 shares at the most expected lowest level as per your expectation and later if the market and stock slides further buy 25 and remainder to be bought at further lower level , though some times it may be bought at little higher levels but never mind it happens occasionally. This theory is always better then emotional buying of the entire stocks at a single point.

Analysis Of Shivani Oil For Investment

2009-11-11T22:37:00.000-08:00

About The Company

Shiv-Vani Oil is India’s largest services provider for onshore exploration and production activities and is currently operating 40 rigs. It is the largest seismic data operator and also the largest operator of land breaks in India.

About The Financials

It has posted a good performance for the second quarter ended 30th September 2009. YoY, net sales rose 58% at Rs.323.52 crore. Contract expenses rose 72% and despite oil prices now ruling lower than last fiscal, its outgo on oil and lubricants rose 68%. But firmer prices on rigs helped it shore the margins. EBIDTA was up 52% at Rs.138.23 crore. Net profit was up 18% at Rs.56.39 crore.

The improvement in the performance has been mainly on the back of deployment of five new onshore rigs. Depreciation of the rupee has also helped as it has posted a currency fluctuation gain of Rs.3.69 crore as against a loss of Rs.3.66 crore in Q1FY10.

The company is sitting on a debt of around Rs1,400 crore , payable in about six years. The huge interest outgo, which in Q2FY10 was at Rs.40.80 crore v/s Rs.17.51 crore in Q2FY09, is the effect of this debt burden. Taking the recourse which many others have taken, the company is looking at the option of raising funds to the tune of Rs.600 crore, either via QIP or private placement to be used to retire debt and fund its future capex.

The current fiscal will remain good for the company, notwithstanding the ONGC fracas. Infact ONGC has stated that it will go ahead with Shiv Vani as it has already made expenditures in facilitating the delivery of rigs by Shiv-Vani and it is difficult for ONGC to scrap the contract at this juncture. ONGC had already imposed on Shiv-Vani a 5% penalty on the Rs 1,610-crore contract value for failure to meet the time schedule. It has also given the company its sixth extension for the completion of the 8th rig.

About The Stock

My personal opinion on this stock with regard to its’ price performance in short to long term on basis of Fundamental analysis , Technical analysis and exclusive multi bagger reliable news sources are exclusively reserved for the registered member with detailing of the same. Only registered member have right to email me mentioning the name and date of registration to ask for the same.

Disclosure : I do not feel any need of giving any disclosure over here , my personal portfolio are always shared with the members.

Notice

Visitors may now log on to www.financeandstockadvice.blogspot.com to have detail analysis on the following essential financial subject matter:

1. Refinancing.
2. Auto Loan.
3. Credit Cards.
4. Debt Consolidation.
5. Mortgage Loans.
6. Equity line of Credit.
7. Home Loans.
8. Personal Loans.
9. Equity Finance.

An Outlook on India Credit Policy

2009-10-30T23:00:00.000-07:00

RBI Credit policy has been announced and it has revised the inflation targets upwards from 5% to 6.5% for FY10. RBI has said that it will ‘watch inflation like a hawk’. This clearly means that RBI is concerned about the spiralling prices and this could be the prime issue which would dictate the policy decisions in the coming months.

Apart from that, the RBI Monetary Policy was just another non-event.Interest rates were kept unchanged.Major announcement could be summarized as below:-

1. CRR was unchanged at 5%.

2. Repo rates unchanged at 4.75%.

3. Reverse repo rates unchanged at 3.25%.

4. SLR rate was hiked to 25% from 24% and this, the RBI says would not affect liquidity.

5. FY10 GDP forecast has been kept unchanged at 6% for FY10 with upward bias.

And at the same time, the policy has said that it expects to see a modest decline in agriculture. The RBI does not seem to be overtly worried about the decline in agri growth as it is feels this fall is seasonal and once the monsoons, hopefully, improves in the next year, things would fall back in place. It expects robust growth in industrial sector to more than make up for the decline in agri and that, RBI hopes, would keep the GDP buoyant.

RBI is also equally worried about the present situation of liquidity. And knowing this, it has pointed out that there is enough evidence pointing to excess liquidity feeding into asset prices. FY10 money supply growth projection has also been lowered to 17%.

Loans to real estate companies are to become more expensive as realty provisions have been hiked to 1% from 0.4%. The immediate fallout of this would be that some developers who are already having a huge interest cost would now have to pay more. This would mean, costs for realty companies would go up and in all probability, developers would pass on this cost to the consumers, meaning realty prices would go up.NPA norms for banks have been tightened, which is expected as always.

Collateral borrowings are to now attract CRR. So this is more like a back door entry of the hike in CRR which seems like a surety in Jan 2010, or even before that.

Indian Markets Reaction to the Policy

Markets were down 110 points just few minutes before the RBI Monetary Policy came in. And it continued to remain in the red, with realty companies slipping fast. Though a non-event, the market is now worried about the hawkish stance taken by RBI. It clearly sends out the signal that in the coming months, when the next policy is out in January 2010 or even before that, screws will get tightened.

Calculation Of Inflation Figure in India

2009-10-21T02:07:00.000-07:00

Weekly inflation figure is a big joke.

The rate which was given by the Govt and the actual rates which a man on the street had, had no co-relation. Inflation is currently at below one percent but we are paying over Rs.100 for a kilo of toor dal. And though we all in the media and economists have been screaming themselves hoarse, urging the Govt to relook at the way in which it was looking at inflation, unfortunately, which till two days ago, fell on deaf ears. But finally some noise seems to have reached and the Govt has actually changed the way we calculate inflation. Yet, the sad part is that this new change would in no way once again reflect the true picture.

Amendments made for Calculation of Inflation Figures

Inflation for the week ended October 3, 2009, was 0.92%. And inorder to present a better relfection of the reality, the Cabinet Committee on Economic Affairs approved the proposal to release inflation data on a monthly basis. The base prices for calculation of inflation would be those in 2004 as against the earlier comparison with 1993 prices. The government will now release two sets of inflation data, one is the weekly data which will have primary articles and fuel items and the second one would be more comprehensive on a monthly basis.

Why did this sudden light dawn on the Govt?

Weekly figures were not giving a true picture of the change in prices, especially from the manufacturing sector. But once the Govt goes with a monthly calculation, there would be a much better reflection of the correct picture. One month is a good enough time to take into account price changes over various sectors and that in the real sense, would give a more correct picture of inflation.

The decision to change the base year to 2004 is also a good one as it is considered to be a more stable year, with respect to economic activities like production, trade and their prices. This 2004 base year will ensure more consistency. The monthly data and 2004 as base year is good but what would be a more apt reflection of the true prices would be a change in the weightage of goods on the Wholesale Price Index (WPI). This, the Govt says would also be changed and we will have to wait till November.

India is probably amongst the very few countries in the world which uses the Wholesale Price Index (WPI) to calculate inflation while all the developed countries use the Consumer Price Index (CPI).

WPI METHOD

WPI was used a method of calculation way back in 1902 and we have shrugged off most of the old ways of life, but this continues. In WPI, a total of 435 commodities data on price level is tracked and of this over 100 commodities have no relevance when it comes to giving an indication of price levels. The last time, the WPI was updated to ‘current’ times was in 1993-94. In the computation of WPI, the 3 major variables are Primary articles, fuel, power, light and lubricants and manufactured products. The receipt of input on weekly prices in manufactured products is very low. Services form no part of the WPI at all though its share in the calculation of GDP is over 50%.

Why can’t we shift to CPI like the rest of the world?

CPI tracks the prices of a specified basket of consumer goods and services. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. In India, CPI is calculated on a monthly basis while WPI is on a weekly basis. CPI, as the name suggests indicates price which is a consumer is paying while WPI is about the wholesale prices and there is always a huge variance between the two. So how can wholesale prices be an indication of what the layman on the road is paying?

Conclusion –

we will get a new set of inflation rate but once again it may not be a 100% reflection of the picture on the ground.

Analysis Of Mundra Port For Investments

2009-09-22T23:24:00.000-07:00

About The Company

Mundra Port and SEZ, an Adani group company, is currently the only listed non-captive private sector port. It is engaged in developing, operating and maintaining the Port and port based related infrastructure facilities, including multi-product SEZ. The company recently bagged Mormugao Port coal terminal development on a design build, finance, operate and transfer (DBFOT) basis. With this expansion into Western coast ports with good presence in coal and gas terminals, it will vastly improve the potential of the company.

About The Results

The company has done very well for the first quarter ended 30th June 2009. It posted a net sales of Rs.298.04 crore, rising 18% on a YoY. EBIDTA was up 22% at Rs.220.11 crore. Net profit was up by a healthy 76% at Rs.170.75 crore.

This strong performance has been on the back of strong growth in cargo volumes. While major Indian ports have together shown a growth of 1.9%, Mundra Port has shown a rise of 24% in cargo volumes in Q1 June 2009.

In Q1FY10, there was a 23% (YoY) rise in the number of vessles, which called at the port. There was a 24% rise in total cargo handled at the port at 9.89 mmt. Of this 24% came from coal, 20% from crude, 165 from vegetable oil and chemicals, 26% from container, 5% from fertilizer, 5% from steel and 45 from mineral and others.

About The Stock

My personal opinion on this stock with regard to its’ price performance in short to long term on basis of Fundamental analysis , Technical analysis and exclusive multi bagger reliable news sources are exclusively reserved for the registered member with detailing of the same. Only registered member have right to email me mentioning the name and date of registration to ask for the same.

Disclosure : I do not feel any need of giving any disclosure over here , my personal portfolio are always shared with the members.

Analysis Of India Cements Limited for Investments

2009-09-17T22:55:00.000-07:00

About The Company

India Cements, India’s leading cement manufacturer of South India.Indian Cements 1.10 mt capacity went on stream in April 09’. The company is investing Rs 300 crore for establishing a cement plant with an initial capacity of 1.5 million tonnes per annum (tpa) in Rajasthan and this investment is through Indo Zinc. The total project cost is Rs.600 crore and of this, Rs.300 crore it plans to bring in from debt. This is the second foray of the company into north India, its first project is in Himachal Pradesh, which unfortunately has been embroiled in infra bottlenecks. Its unit in Maharashtra is up and running.

Clearly India Cements is breaking its image of being just a South India based company. These forays into other parts of India will thus help the company get a better-rounded growth. Huge capacities are to go on stream in this fiscal, and it will leave the industry with surplus capacities.

About The Financial Results

The company has presented a good set of results for the first quarter ended 30th June 2009. Net revenues were up 9% at Rs 953.48 crore on a YoY. EBITDA/tonne was at Rs 1188 as against Rs 877 on a QoQ while it was at Rs.1092 on YoY. Net profit rose just marginally by 2% at Rs 144.28 crore.

The pressure is more evident on the profit margins. OPM was down to 30% as against 34% in Q1FY09. The quarter saw a sharp rise in ‘other expenses’; it was up YoY by 74%. These expenses included Rs.13.47 crore on account of dry docking expenses on a ship. Its power, fuel and freight costs remained flat when compared on a sequential basis.

The subdued performance was mainly on account of lower demand from parts of Karnataka and Andhra Pradesh. Andhra Pradesh is the largest consumer of cement in South and in Q1, consumption was flat in that region as most of the infra projects were put on hold due to the elections. But now with elections over and done with, it is expected that cement would see a pick up in this current Q2 quarter.

Disclosure : I do not feel any need of giving any disclosure over here , my personal portfolio are always shared with the members.

Detail Analysis of Uttam Galva Steel Ltd.

2009-09-07T05:46:00.000-07:00

Uttam Galva Steels promoters have signed a co-promotion agreement, with Arcelor Mittal Netherlands (AMN), B.V. Netherlands, which is a 100% indirect subsidiary of Arcelor Mittal, the world’s largest steel manufacturer. Under this, existing promoters will be transferring 5.60% stake to AMN, out of 45.60% held by them.

Though AMN, have not yet acquired 15% or more in the company, but in view of they becoming joint promoters of the company, open offer has been triggered. AMN has made an open offer to acquire 3.52 crore equity shares of the company, at Rs.120 per share, which is opening on Saturday, the 31^st October 2009 and closing on 19^th November 2009. The present paid up equity capital of the company, is at Rs.119.85 crores, which would eventually rise to Rs.136.73 crores, on conversion of series A, US $ 17.50 million FCCB, at Rs.45.12 per share, with fixed rate of exchange on conversion of Rs.43.53 per U.S. Dollar. Though conversion option of these FCCBs, can be exercised upto 31^st July 2010, it is most likely that, this will get exercised in the near future, so as to enable them to participate in the open offer.

Paid up equity of the company, which was at Rs.113.97 crores, got raised to Rs.119.85 crores, on allotment of 58.75 lakh equity shares, on 27^th August 2009, to the promoters of the company, on acquiring power division, of Shree Uttam Steel and Power Ltd. Due to this, promoters stake in the company, rose from 40.71% to 45.60%.

With open offer now being made at Rs.120 per share, and share now ruling at Rs.125, with frozen at the upper circuit, commercial sense says that it will not see any response coming in. So does it likely to get revised upwards, the last date for which is 10^th November 2009. Quite likely, and the revised price call would be taken at that time, which is likely to be close to the prevailing market price, of the company, at that time.

However, if one sees the present shareholding pattern of the company, 4.40 crore shares, which is about 32.20% of the emerging voting capital, is held by just 5 FIIs. In addition to this, 1.69 crore equity shares, being 12.35%, most likely to get acquired by FCCB holders on conversion, puts it at about 44.50% of the expanded equity base. One knows that, due to overseas presence of the new promoter, it will be easy to acquire the stakes held by these OCBs and FIIs. However, existing promoters of the company have also hinted of AMN, increasing their stake in the company, in the near future.

So can one expect a complete buy-out of the company, by AMN, with 75% stake to be held by them, with 25% remaining with the public, to enable the company to remain listed? This 25% stake may in turn, partly remain to be held by these FIIs or OCBs, with very low Indian public float. Probably, smelling this, the share is seeing renewed buying interest, as future AMN company in India.

The present market capitalization of the company works out at close to Rs.1600 crores, adding debt thereto, of close to Rs.1200 crores, enterprise value of the company works out to Rs.2800 crores. This valuation, definitely appears to be quite stretched, which is over 25 times of its average PAT, of last three years, and considering that the company has never rewarded to its shareholders with the dividend as yet. But, as AMN was unsuccessful in creating its presence on the Indian soil, and especially in the steel sector, it seems that they have overlooked the valuations, or consciously moved to pay Rs.500 crores, or so, more. The company presently has a capacity of 6 lakh TPA and raising it to 8 lakh TPA in this fiscal. With AMN assuming complete control of the company, it can get raised to 2 million tonne plus in next couple of years, at very low cost, due to in-house strength and capability lying with AMN, for various value added products.

This acquisition has one more twist. Bhushan Steel and Uttam Galva promoters are related to each other (Miglani’s son married to Singal’s daughter) and even Bhushan Steel Ltd. may be next on the radar of AMN group. Bhushan Steel is also a one million tonne producer of CR coil, GP/GC and Colour Coated coils. In the recent past, promoters of both these companies, seems to be more bullish on power generation and realty space and have been making huge investments in both these sectors. So maybe, realizations of the stake sale, can give them better returns in these two sectors, instead of continuing in their existing companies.

Keep fingers crossed. If this happens, it will be uttam for the country, and for the shareholders of both the companies. Presence of Mittal Group, in India will see many steel stocks getting re-rated.

Analysis of BASF India For Investments

2009-09-01T23:05:00.000-07:00

About The Company

BASF India Limited is the flagship company of the BASF Group in India. The company is listed on the National Stock Exchange and the Bombay Stock Exchange. BASF India Limited is headquartered in Mumbai, with manufacturing facilities in Thane, Mangalore and Dadra.

BASF India Limited manufactures and markets expandable polystyrene, tanning agents, leather chemicals and auxiliaries including specialised metal complexdyes, leather dyes, Textile Chemicals, dispersions and speciality chemicals, acrylic polymers in primary forms and crop protection chemicals.BASF India Limited is also involved in the trading of chemicals including dyestuffs and related textile auxiliaries, and renders technical services to various industries.

About The Financial Results

Given the cyclical nature of its business, the first two quarters of the fiscal, Q1 and Q2 are always good, with Q2 being the best in the year and the worst is Q4. BASF India has posted an ‘Ok’ performance for Q1FY10. It reported a rise of 12% in its net profit for Q1FY10 though total income fell marginally to Rs384.15 crore from Rs385.87 crore in Q1FY09.

The company plans to stop production of agrochemicals at its Dadra site under the company’s rationalisation measures. The company has stated that this will not affect the earnings of the company in any way. Further, to rationalise the company’s manpower needs and to build efficiency, the board has also approved the introduction of voluntary retirement scheme for employees. As a part of its rationalization, the company has removed low margin generic products and has also shifted its resources from cotton to soyabeans, fruits and vegetables which would help boost the margins.

The company is planning to set up a 9000 tpa compounding plant at Thane for the engineering plastics business, costing Rs.17.20 crore which is to be funded mainly via internal accruals.

On consolidated basis, BASF Polyurethanes a wholly owned subsidiary is incurring losses, and BASF SE have expressed their intention to acquire this subsidiary, which if happens, would re-rate the company as also would increase its bottomline even on consolidated basis.

In July 08, Promoters of the company raised their stake from 52.69% to 71.18% by acquiring shares under open offer at Rs.300 per share. Open offer at the time did not evoke full response as insurance companies and financial institutions did not tender shares in open offer and continue to hold about 18% in the company.

About The Stock

My personal opinion on the stock with regard to its’ price performance in short to long term on basis of Fundamental analysis , Technical analysis and my exclusive multi bagger reliable news sources are exclusively reserved for the registered member with detailing of the same. Only registered member have rights to email me mentioning the name and date of registration and asking for the same.

Disclosure : I do not feel any need of giving any disclosure over here , my personal portfolio are always shared with the members.

My View On Goa Carbon Ltd for Investments

2009-08-27T03:07:00.000-07:00

About The Company

A part of the Dempo group, it is one of the leading manufacturers of calcined petroleum coke (CPC) in India. The company has a capacity to produce 2,40,000 tonnes per annum (tpa) of calcined petroleum coke, which is next only to Rain Commodity’s annual production capacity of around 6,00,000 tpa. The company supplies raw petroleum coke to Indian Oil Corporation, Baruni and Bangaigaon Refinery and Petrochemicals. The plants of the company situated at Goa, Bilaspur and Paradeep. It exports to Australia, Egypt, Dubai, France, Kuwait, Iran, Saudi Arabia, Singapore, Malaysia, Indonesia, Thailand, South Africa, Russia, Wales and England.

About The Financial Results

The company has had a very volatile time, oscillating between losses and profits. The company has been making losses since Q4FY09 and now has run into Q1FY10 also. Being dependent to a large extent on exports and given the overall slowdown, lack/postponement of orders is what has ailed the company.

For Q1FY10, net sales on a QoQ was up 59% at Rs.47.41 crore. It ended with a net loss of Rs.4.82 crore, which is again an improvement over the net loss of Rs.7.05 crore in Q4FY09.

The company was unable to pass on the burden of increased costs to the customers as many has postponed delivery. The costs have gone up due to imported raw materials and exchange rate fluctuations. Realisations were down. The company had a write down of finished goods inventory during the quarter of Rs.28.78 crore to bring to net realisable value. Also due to reduction of viable export & domestic orders, the plants were shut down during the quarter, where Goa plant was shut for 80 days and Paradeep plant was closed for 40 days.

The Board has approved the setting up of a wholly owned subsidiary outside India to invest in a JV in China to manufacture CPC.

About The Stock

My view are reserved only for the registered members and exclusively meant for them.All registered member may email me to have my advice on this stock mentioning there date of registration.

Bharat Nirman

2009-08-18T23:27:00.000-07:00

The Govt has announced its second phase of Bharat Nirman which has a deadline of 2014.

This includes providing electricity to 40,000 villages, connect 23,000 villages by roads, raise the number of low cost houses to be constructed from 6 million to 12 million. Given the stress it has laid on promoting agriculture growth, it aims to being 3.5 million hectares of land under irrigation. Bharat Nirman is split into six parts – roads, electricity, low cost housing, drinking water, irrigation and telecom.

This sounds good but no one is really too excited at the moment as it is yet to clear the huge backlog from phase I itself. It proposed to give road connection to 66,802 eligible habitations which was later scaled down the target to 59,536 habitations. The achievement, however, has fallen short of the target – it provided only 49% of the proposed new roads, 55% in upgraded and developed roads and it managed to reach only 49% of the proposed habitations.

Providing electricity has been its biggest failure. Till 31st March 2009, 60 thousand villages remained untouched by electric power. Totally, of the targeted 7.8 crore households, which were to be provided with electricity, it reached only 7% households.

In irrigation, the target till March 2009 was 10 million hectare but it achieved only 5.58 million hectares, which is around 44% short of the target.

In water supply, the target was to provide potable water to 6,03,639 villages but it provided to only 4,79,898 villages till March 2009, which is 20% less than the target.

But in providing low cost housing to the rural population, it has actually exceeded the target. Done under the banner of Indira Awas Yojana, it is routed through the panchayats. As against the target of providing 60 million units, it has managed to provide 61 million houses, which is 102% above the target.

In telephones, the aim was to provide telephone connection to 66,822 number of villages without a telephone and replace presently dysfunctional systems. Of this, till March 2009, it managed to achieve 84% of the target at 56.030 villages.

Bharat Nirman has been an excellent idea, not just for the UPA as it helped them win the elections but also for India. But clearly, it has to work on speeding up when it comes to implementation. Till 31st March 2009, it had spent Rs.1.14 lakh crore on Bharat Nirman which is two-thirds of the target. This means, paucity of funds was the issue. Land litigation, vested political interests, problems with private contractors, corruption and cost overruns too its toll.

New Direct Tax Code

2009-08-13T05:40:00.000-07:00

New Direct Tax Code

A new Direct tax code has been introduced , which would replace the Income Tax Act of 1961 within the next 45 days.It will change the way we Indians have been paying tax. And maybe prompt those who have been shirking away paying their taxes as now rates would be lower and it’s so simple.

It was like a mini Budget.The entire Income Tax Act 1961 has actually got replaced with a more progressive norm, more in lines with what the developed countries follow.

The Code is like a law. What is stipulated in the Code is what remains. So this means, the Budget would probably be more about indirect taxes and other budgetary allocations. Once this Direct Tax Code gets implemented, the Budget might then not have this anticipation in terms of changes in Income Tax.The new direct tax code would become a law only by 2011, which is 50 years since Income Tax Act came into being.

The second very important take away from this Code is that all direct tax codes would come under one umbrella.

Third facet is that it has been kept very simple and that is done to ensure better compliance and eliminate scope of litigations. The code also ensures that we will not have any confusion over assessment year and financial year and previous year. It will be about financial year, like how we have for our corporate results.

Negative Points Of New Code

According to the new proposals, all interest on savings will be taxed from 2011 onwards. And that is something which would not really go down too well with people. The markets might not be too happy with the idea of reintroducing long term capital gains on securities trading which means that there is really no incentive for along term investor to stay put.

The Code also suggested that perquisites given to employees should be included in salary income. This would inflate the taxable income of certain categories of salaried persons and this might not be such a welcome move.

Highlights of the Direct Tax Code:

1. No tax on annual income upto Rs.1.60 lakh

2. 10% tax for Rs 10 lakh income; 20% for Rs.25 lakhs and 30% for over Rs.25 lakhs

3. Corporate tax to come down from 30% to 25%

4. Wealth tax on wealth over Rs.50 crore

5. Increase deduction limit for savings upto Rs.3 lakhs

6. Interest on savings to be taxed

7. Security transaction tax (STT) to be abolished

8. To do away with long, short-term capital gains differentiation

9. Base year for calculation of capital gains tax moved to Apr '00

10. Allow indefinite carry forward of business losses

11. No tax deduction on interest payable on any Govt security

12. Rationalization of taxation of all non profit organizations

13. Annual disclosure of profits of non-life insurance business

14. Reintroduction of tax on long term capital gains on securities trading

15. Foreign companies to pay additional tax of 15% as branch profit tax

All About The Concept " Non Convertible Debenture "

2009-08-10T23:03:00.001-07:00

NCD ROUTE IN INDIAN DOMESTIC CAPITAL MARKET

Tata Capital, which even in the most troubled times, when others were harping about lack of investor interest and general apathy to all investment instruments, it managed to close its non-convertible debenture (NCD) issue with a resounding success. That was way back in Feb 09’ when it had managed to raise Rs.1500 crore thro the NCD issue. This success proved that companies with a good brand presence can manage to get investors to part with their money as the bond of trust has already been established.

And now, a new record of sorts has been set by the NCD issue of Shriram Transport, which managed to garner an unbelievable Rs.4500 crore as against the need of Rs.500 crore, that too on the first day itself. The issue will close on 14th August and it would be interesting to see how much amount it did manage to collect.

Enthused by this, there are others now queuing up with their NCD issues. L&T has already announced that it plans to raise Rs.1000 crore via NCDs to meet its capex plans and Dewan Housing too has plans to raise Rs.1000 crore, once again through the NCD route. Indian Hotels said that it might take the debt or the equity route to raise money for its capex. And there are quite a few more companies, from NBFCs as well as from the manufacturing sectors which are looking at taking the NCD route.

Why is NCD a preferred route today?

1. Currently people have the money and being constantly on the lookout for a better avenue to park their funds, NCD is coming forth as a stable, low risk investment,

2. NCDs give better returns than the bank deposits and in the equity market, small retail investors feel most of the stocks have gone beyond their reach.

3. Rules are softer when it comes to NCD issues - easier declaration requirements, remains open for more than 5 days which is the time stipulated for equity issues and advertising rules are also more relaxed.

4. For NBFCs especially this is the most viable route to raise long term money as they heavily on institutional funding and such long term money of five year duration is almost never available.

5. A NCD is a debt instrument that is issued for a fixed maturity and in which, no part of the debenture is convertible into equity. So this means, no equity dilution for the offering companies.

6. NCDs offer a higher interest interest rate as opposed to convertible debentures do and the security of the capital being intact is a big plus in today’s turbulent times.

REFINANCING

2009-08-03T23:18:00.001-07:00

What is Refinancing ?

Refinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms. The most common consumer refinancing is for a home mortgage.

Advantages of Refinancing..

Refinancing may be undertaken to reduce interest rate/interest costs (by refinancing at a lower rate), to extend the repayment time, to pay off other debt(s), to reduce one's periodic payment obligations (sometimes by taking a longer-term loan), to reduce or alter risk (such as by refinancing from a variable-rate to a fixed-rate loan), and/or to raise cash for investment, consumption, or the payment of a dividend.

In essence, refinancing can alter the monthly payments owed on the loan either by changing the loan's interest rate, or by altering the term to maturity of the loan. More favorable lending conditions may reduce overall borrowing costs. Refinancing is used in most cases to improve overall cash flow.

Another use of refinancing is to reduce the risk associated with an existing loan. Interest rates on adjustable-rate loans and mortgages shift up and down based on the movements of the various indices used to calculate them. By refinancing an adjustable-rate mortgage into a fixed-rate one, the risk of interest rates increasing dramatically is removed, thus ensuring a steady interest rate over time. This flexibility comes at a price as lenders typically charge a risk premium for fixed rate loans.

In the context of personal (as opposed to corporate) finance, refinancing a loan or a series of debts can assist in paying off high-interest debt such as credit card debt, with lower-interest debt such as that of a fixed-rate home mortgage. This can allow a lender to reduce borrowing costs by more closely aligning the cost of borrowing with the general creditworthiness and collateral security available from the borrower. For home mortgages, in the United States, there may be certain tax advantages available with refinancing, particularly if one does not pay alternative minimum tax

Risk Of Refinancing

Most fixed-term debt contains penalty clauses (known as "call provisions") that are triggered by an early payment of the loan, either in its entirety or a specified portion. In addition, there are also closing and transaction fees typically associated with refinancing debt. In some cases, these fees may outweigh any savings generated through refinancing the loan itself. Typically, one only rationally considers refinancing if the potential for a substantial cost savings exists, or if there is a need to extend the loan due to weak cash flow or other non-recurring commitments.

In addition, some refinanced loans, while having lower initial payments, may result in larger total interest costs over the life of the loan, or expose the borrower to greater risks than the existing loan, depending on the type of loan used to refinance the existing debt. Calculating the up-front, ongoing, and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance.

Types Of Refinancing

No Closing Cost

Borrowers with this type of refinancing typically pay few upfront fees to get the new mortgage loan. In fact, as long as the prevailing market rate is lower than your existing rate by 1.5 percentage point or more, it is financially beneficial to refinance because there is little or no cost in doing so.

However, what most lenders fail to disclose is that the money you save upfront is being collected on the back through what's called yield spread premium (YSP). Yield spread premiums are the cash that a mortgage company receives for steering a borrower into a home loan with a higher interest rate. The latter will even eventually lead to borrower's overpaying.

Cash Out

This type of refinance may not help lower the monthly payment or shorten mortgage periods. It can be used for home improvement, credit card and other debt consolidation if the borrower qualifies with their current home equity; they can refinance with a loan amount larger than their current mortgage and keep the cash difference.

Focus On RBI CREDIT POLICY

2009-07-27T23:42:00.001-07:00

Reserve Bank Of India Credit Policy

1.CRR, Repo and Reverse Repo rates have been kept unchanged. It has upped inflation target from 4% to 5%. It has kept the GDP target at the same levels of 6% with an upward bias. M3 supply target has been increased from 17% to 18%.

2.The various stimulus packages are now doing their jobs, the first quarter results have been good, hence it made no sense to right now tinker with any rates.

3.Growth has been taken care of by the Govt but as expected, RBI is concerned about inflation which is why we saw the target upped.

4.RBI has stated that there were indications of inflation firming up by the end of the year due to increases in commodity prices, easy monetary policy and expansionary fiscal policy.

5.has reiterated that it will maintain an accommodative monetary stance until there are definite and robust signs of recovery,

6.RBI has said that banks have cut rates but need to do more. The message which RBI has thus sent across is that it has done its job well and the ball now lies in the court of the banks. They need to lend but not mindless lending. But once banks loosen their purse strings, demand would pick up and this as per RBI, is where the trick now lies.

Reaction Of Indian Stock Market.

The market opened lackluster and remained low but it had already discounted the credit policy and it was absolutely no surprise to anyone on the street. RBI has sent a message across that it has adopted a neutral stance and is now allowing the market forces to play.

IT COMPANIES ARE RECOVERING VERY SHARPLY

2009-07-22T23:42:00.000-07:00

Most of the bigwig IT companies have declared their performance for Q1FY10 and call it muted analysts expectations or improved performance, most of the bigwigs have done well despite the trying circumstances.

It started with Infosys which for first quarter of current fiscal posted a 17.2% YoY rise in net profit at Rs.1,527 crore but QoQ, it was down 5.3%. But what really worried the marketmen was its guidance for FY10, where it has forecast consolidated revenue to fall 3.1-4.6% to $4.45-$4.52 billion and expects earnings to decline 11.1-12.3% in dollar terms. For Q2FY10, its guidance states that it expects revenues to decline by 1.9% to 0.1%.

TCS showed a YoY 23% and QoQ 15% growth in net profit at Rs.1520 crore. TCS does not give guidance. But the news on the street is that the company is expected to show a higher forex loss of around Rs.90 crore in Q2FY10, up from Rs.84 crore in Q1FY10. This is because the company expects over $112 million of its forex hedges expected to mature during the period.

Wipro showed a 5% (YoY) rise in revenues during the first quarter at Rs.6,274 crore but QoQ it fell marginally by 3%. Net profit was up 11.78% (YoY) at Rs 1015.5 crore and almost flat when compared on a QoQ. The company however provided a cautious and flat forecast for the quarter ending September reflecting lower demand for India’s $40-billion software export industry.

The common thread running between all three bigwigs is that their Q1FY10 numbers beat expectations – both of the market as well of analysts, who had expected a much dismal performance. Another commonality is that they all have given a much subdued guidance for Q2FY10 and for FY10.

There is no doubt that the Indian IT companies have managed to keep their heads up even in these turbulent times. Despite having a wide exposure to America, Europe and also the BFSI sector, which witnessed the big bash-up, these companies have managed to walk tall. Yes, their businesses to these developed countries have come down marginally. But what it has also done is open up new opportunities which would have remained unexplored but for this recession. So these bigwigs are now looking at new markets like Latin America, South East Asia.

Things have also started stabilizing in the developed countries as volume shrinkages have stopped and business ramp downs have also tapered off. Hence in that context, we can say that the worst does seem to be over. And the companies have given a lower guidance to be more on the safer side. As per a survey conducted by Bloomberg of economists, the consensus is that the U.S. economy will expand faster than previously forecast in the second half of this year and in 2010 as a revival in consumer spending signals an end to the recession. This optimism could have also stemmed from the fact that IBM the world’s biggest computer-services provider, on July 16 reported second-quarter earnings that topped analysts’ estimates and raised its full- year forecast.

Also most of these companies have re-negotiated prices at lower rates for the current year and they do not expect the prices to go up any time soon though at the same time, they do not expect the prices to fall also. It is a happy situation for them even if prices are maintained at current levels.

Another positive for the Indian frontline IT companies is that they have also started looking at home itself for big time business. Wipro and TCS have always had a presence in the domestic market, especially when it came to execution of Govt projects. But Infosys is looking anew at the Indian shores and the business potential it sees is immense. Infosys is looking at a business worth $2 billion in India itself to keep the slump at bay.

Apart from the Unique Identity Card project, there is the $2 billion e-biz program initiated under the National e-governance Plan which has 27 mission mode projects. Government organisations such as India Post, Indian Railways are also earmarked for major computerization exercise. There are also smaller outsourcing contracts from ONGC, LIC and the State Bank of India. Based on their track record and reputation, these bigwigs are sure to get massive orders from the Indian Govt in the coming months and this will more than makeup for the loss of business in

developed countries.

POWER GENERATION PROGRAMME OF INDIA

2009-07-21T23:19:00.000-07:00

The Power Minister said that India would add 100,000 MW capacities during the 12th Plan period and the target for 11th Plan (ends in 2012) is 60,000MW. This has actually been scaled down from earlier announced 78,000MW for the 11th Plan. This scale down was blamed on the shortage of power supply equipments from BHEL and L&T. Till April 2008, we had achieved just about one percent of the earlier set target which is probably the main reason why the target has been scaled down considerably. Yet even this scaled down target seems difficult.

Of the target of 60,000MW, till date only 21% has been completed, meaning only 12,500MW has been added. So over the next three years, we are looking at a capacity addition of 47,500MW. This means, on an average, we have to add on 15,800MW every year till 2012. Well, 12,500MW took two years, can we have 15,800MW each year? When broken down as simply as this, clearly, it seems like a pipe dream. The Govt is banking on the private sector to deliver around 30% of the target before the end of the 11th Plan. It expects parts of the UMPPs to start adding on – 600MW from Reliance Power’s Rosa unit (end of 2009), 1320 MW from Reliance Power’s Sasan (by 2012) and Butiburi power unit to contribute 300MW by 2011. Tata Power has set itself a target of 5800MW by 2012 which includes parts of the Mundra UMPP going on stream and it expects 4000MW JV project with Damodar Valley to also be commissioned before end of 2012. So, putting together Reliance Power and Tata Power, we are looking at the best case scenario of 8000MW coming up by 2012.

JSW Energy is setting up a 3200MW power project and by March 2010, it expects 1200MW to go stream. Lanco Infratech also hopes to get 1000MW on stream by end of the current fiscal. GVK Power is also hoping to add another 1200MW before 2012. The biggest contributor would probably be Adani Power which is looking at delivering 6600MW by 2012. Indiabulls Power is also planning on huge power units but no major capacities are expected to go on stream before 2012. So when we total up all this, we are looking at another 10,000MW by 2012. And if we take into account Tata Power and Reliance Power, we are looking at the private sector contributing around 18,000MW of power by 2012. This is way above the 30% target given by the Govt but then we are assuming that there would be no slippages and the biggest contributor – Adani Power will keep up to its schedule.

The rest is to come from NTPC, which seems to be talking in the wind when it says that it is looking at setting up 30,000MW by 2012. Infact the private sector might deliver but NTPC will fall way short of the target and that could jeopardize the entire 11th Plan target.

To conclude, we will continue to have power shortages – both, in terms of actual supply of power and also in terms of generation but the private sector might just be able to keep the shortage at a lesser level if it does manage to keep to its schedules.

IPO's are back !!!!!!!!!!!!!!!!!!

2009-07-17T23:34:00.001-07:00

The near comatose IPO market is surely showing of life and that too good life. All of a sudden, there seems to be a bevy of activity around the IPO markets and investors are reminded that apart from the secondary market, there is also the option of primary market coming forth soon.

The issue of Mahindra Holiday, despite being expensive managed to do well and the fact that it listed well above the IPO price, 5% premium over the issue price, has managed to buoy the moods – not just of the investors but of the companies too. The success of Mahindra IPO sent out a strong message – there is an appetite for IPOs but investors clearly are now careful about where they are investing. Known and reputed companies are what will see a good response.

The first such big issue is from Adani Power. This issue is opening on the 28th of July and closing on 31st July. This is the biggest power IPO to come to the market in a long while. The news on the street is that in all probability the IPO would be priced at around Rs.100-110 and aims to raise over Rs.3000 crore. Adani Enterprise, the listed group company, has been up since this news was announced as it holds a substantial stake in the company.

Then on 7thAugust, there is the IPO of PSU National Hydroelectric Power Co. (NHPC). The issue closes on August 12 and aims to raise over Rs 2,500 crore. As per the DRHP, the company is coming out with a public issue of 167,73,74,015 shares of Rs 10 each, which comprises a fresh issue of 1,11,82,49,343 equity shares by NHPC and an offer for sale of 55,91,24,672 equity shares by the president of India acting through the ministry of power, government of India. The issue shall constitute 13.64% of the post-issue capital of NHPC.

A month later, on 7th September, we have the IPO of Oil India Ltd (OIL), which aims to raise around Rs.2000 crore. The DRHP states that the issue is up to 26,449,982 equity shares of Rs 10 each and will be 11% of the fully diluted post-issue capital of the company.

So by September the IPO market aims to have raised Rs.6000 – Rs.7000 crore and surely, once this gate of raising money opens up, we will soon a flurry of activity. Infact Indiabulls Power has filed its DRHP with SEBI and it expects to raise around Rs.1500 crore.

As per Prime Database, 16 more companies have regulatory approvals and are finalizing plans to raise over Rs.5,700 crore from the IPO markets in this year. So what we are saying here is that 2009 would probably see around Rs.8000-Rs.10,000 crore being raised from the IPO markets. And those who have seen the IPO of Reliance Power, cannot help but ask, “will the market be able to absorb so much?”

The fact that over Rs.12,000 crore was raised via QIPs and there are more in the pipeline means that even the FIIs are waiting in the sidelines. Another point in favour of the primary markets this time around is that we are not in the stratosphere, with a zooming index. The Sensex is more subdued right now and this makes the pricing more attractive.

COMMODITIES TO BE BULLISH AHEAD

2009-07-14T23:06:00.000-07:00

Rains are lashing Mumbai city and the commercial capital of India, is facing flooding in many areas and public transportation system is grappling to keep going despite the rains. Though this does not talk too highly about the infrastructure development of the city, it certainly is good news if the lakes manage to get sufficient water to quench the thirst of the city.

Though Mumbai is having a good rainfall today, the other states in India, especially Northern India is facing a tough time. Jharkhand today declared four of its districts as drought hit. The Met department is worried but not yet panicking. Revival of monsoon since July 8th has managed to reduce the deficiency from 46% to 33%. The Met Dept today stated that states of Madhya Pradesh and Maharashtra and Gujarat would get good rainfall over the next two days.

And in the midst of all these clouds, one thing shining brightly is the emerging truth that commodities might well turn out to be the 'next big thing'.

A deficient rain would mean lower agricultural production, meaning pressure on foodgrains and crops, which in turn means that prices would go up further. Unlike the stock market, where there are more downs than ups, the outlook is extremely bullish on commodities. If there is a drought, the prices will go up and if the rainfall in sufficient, production would be higher and that signals a positive for the commodities. We all need food, irrespective of a bull or a bear run. If there is a drought, imports will have to come in to feed us all. And once there is a bounce back in the economy, it is commodities which will be the first to see a jump. What happens if the downturn continues? People will still back commodities as the faith in currencies is slowly getting lost.

Take a look at the trend in China. In a bid to steer away from US dollars and stop putting all its reserves in the US dollars, China has been secretly stocking up on gold to diversify its vast foreign reserves. Usually, gold prices rise when dollar weakens and that is probably the trend which China, like the rest of the world, foresees in the future. Russia is another country which has been increasing its holdings of bullion.

Metals too will be the first to rise once the bounce back happens. Currently, the rally in iron ores is driven by China and its controversy with Rio Tinto. The three largest suppliers of iron ore in the world - Vael, SA, Rio Tinto and BHP Billiton are currently holding out to their cash sales to China to ensure supplies to customers in Europe, Japan and South Korea. Commodity experts say that demand and prices for Indian ore may increase should the Chinese state investigation discourage purchase of ore from Australia and Brazil. As per data put out by Bloomberg, China’s iron ore imports rose 3.4% in June to the second highest level this year. The shipments had hit a record of 57 million tons in April.

There are some murmurs in the corridors of corporate honchos that negative data from US came in at a time when it was essential to pull down the stock markets, timing it with the auction of the US Treasury Bonds last Wednesday. The usual trend is that people turn towards bonds when equities slip and in that auction, there was record demand for the bonds even as world over Govt's are having a tough time with bonds. The auction was three times oversubscribed, and this was the first time it had happened since 1994. But some time soon, US will realise that it is borrowing too much and that is the time which is feared by the currency traders.

Overall, the perception is that global stock markets would remain volatile, the dollar long term outlook does not look too good but outlook for commodities is bullish.

International Monetary Fund Report

2009-07-09T23:19:00.000-07:00

IMF has put out a report which suggests that this recession might well be at its bottom and there is recovery ahead.

IMF has stated today that

India

’s economy would grow by 6.5% in 2010, compared with the April forecast of 5.6%. It has stated that sectors with strong domestic demand – auto and FMCG are expected to see very good growth.

In an update of its World Economic Outlook, the IMF said the global economy is likely to contract 1.4% this year, marginally lower than the 1.3% decline it projected in April. It now sees world growth strengthening to 2.5% in 2010, compared to an April forecast of 1.9%. The report has said that the global economy is slowly starting to pull out of its deepest recession since World War Two but a recovery will be sluggish and policies would need to remain supportive.

IMF states that while the world economy is still in recession, the recovery is coming but it is likely to be a weak recovery and emphasized that confidence in the financial sector would not return until toxic debts were removed from banks' balance sheets and frail institutions recapitalized. The IMF report warns an economic recovery still depends on government intervention. It says governments need to continue pushing stimulus measures, including increased spending or greater tax cuts, through 2010.

The revised IMF forecast says the U.S. economy will shrink 2.6% in 2009 and grow by 0.75% next year, rather than the 0% it forecast earlier this year. China's economy is now forecast to grow 7.5 percent this year. The IMF lowered its expectations for growth in Africa, the Middle East and Latin America, as they have been more hurt than the rest of the world. It expects Europe to show a much slower than expected growth in 2009 but in 2010 would grow faster than expected.

The Asian economies are expected to do much better but IMF has also warned that the growth in these countries could slow if the economic recovery fails to take hold in advanced economies.

This is not like a glowing report on the world economy from IMF but then at least for a change, there is something positive. At least there is the promise of recovery and that is good enough for now.

Advice On Sail & Adhunik Metaliks

2009-07-08T23:02:00.000-07:00

Advice On Steel Authority Of India Ltd.

At the current market price (CMP) of Rs 153.65, the stock is trading at a forward P/E of 10.9x and 10.5x the FY10 and FY11 earnings, respectively. Based on our DCF valuation, we have arrived at a target price of Rs 181 (assuming a 15.4% WACC and a 5% terminal growth rate). At the CMP, the stock provides an upside potentional of 18%. Thus, we give a Buy rating to the stock. As the DCF valuation is sensitive to the changes in WACC and terminal growth rate, we have performed a sensitivity analysis of the same.

Advice On Adhunik Metaliks

AML's increased capacity (steel and ferro alloy) will be fully reflected from FY10 onwards. OMML has also started mining from the Q3 FY09. So, there will be a significant contribution (due to high margins) by OMML towards the consolidated net profit of AML, the full effect would be seen in the FY10E. At the current price of Rs 79.55, the stock is trading at a P/E of 6.1x FY10E & 4.2x FY11E, which we feel is quite undervalued looking at the huge earnings potential of the company & the quantum of mineral resources owned by the company. The current price of Rs.79.55 per share discounts our Target price of Rs.98.90 per share by 24.3%. We Recommend a “HOLD” Rating on the Stock with a Revised price target of Rs.98.90 per share.

My View On INEOS ABS

2009-07-07T00:19:00.001-07:00

About The Stock

Known earlier as ABS Plastics, 83.33% stake is held by Ineos ABS Jersey and it today the holding company of Lanxness AG of

Germany

. The company has a manufacturing plant in Nandesari, Moxi which manufactures acrylonitrile butadiene styrene (ABS) with an annual production of 60,000 TPA was to be increased to 80,000 TPA in FY09 and further to 100,000 TPA in the current fiscal, which was to be funded through internal accruals. There is no news about this expansion in FY09 having gone through, especially given the tough times the company had to go through. The company`s products are used as raw materials in many households, automotive, electronic and telecom sectors, with a clientele list to include names like Samsung, LG, Videocon, BPL, Ford, Hero Honda, Cello, Lexi and Bajaj.

About The Results

For the first quarter ended 31^st March 2009, the company managed to turnaround and that itself was reassuring. From a net loss of Rs.4.35 crore in sequential quarter, it managed to post a net profit of Rs.5.93 crore and this was up 36% on a YoY. And this was despite a 15% fall in net sales on a YoY and a 19% on a QoQ. And this turnaround was thus possible only because the reduction in operating expenses, which on a QoQ was down 30% and 18% on a YoY.Interestingly, it is a zero debt company as it has no interest outgo.

Its strong point is its R&D facility at Moxi, Gujarat. Rated as one of the best in the business, this centre is currently engaged in research and development in areas of engineering thermoplastics for Lanxess’s global operations. The company plans to further upgrade its R&D facilities and its main focus will be on high-grade ABS which is a metal substitute at lower costs.

About The Stock

Its best to take a call on the stock once its results for Q2 is out, till then the outlook on the stock remains cautious.

Disclosure: I do not have any personal holding in this stock.

Indian Economic Survey

2009-07-02T22:56:00.001-07:00

Presented by the Finance Minister, the economic survey is basically what the Govt wants to do over the next few years, not just in the forthcoming Budget but in the ensuing months. Usually, the survey is dull and drab and is mumbo jumbo of figures of revenues and expenses of the fiscal, but this Economic Survey is path breaking in the sense that it is more like a wish list of what to expect in the Budget.

THE ROAD MAP AHEAD:

ABOUT ECONOMICS…

1. GDP maintained at.7% in FY10

2 Ample liquidity to fuel next inflationary cycle

3 Roll back excess liquidity once growth picks up – clear signal of rates going up

4 Passage of Pension Regulatory bill

5 Zero Fiscal deficit on cyclical adjusted basis

FDI

1. 100% FDI in healthcare, weather insurance

2. Insurance FDI to be raised to 49%

3. FDI in defence production to 49%

4. Permit FDI in multi-format retail starting with food

PATH BREAKING MOVES….

1. Decontrol sugar and fertiliser

2. End Govt monopoly in railways, coal and nuclear energy

3. Lift price controls on all drugs, except essentials

4. Lift all bans on future contracts to restore price discovery

DISINVESTMENT…

1. Disinvestment - 5-10% in profitable non-navratnas

2. Auction loss making PSU

3. Aim – Rs.25,000 crore per annum from disinvestment

4. List unlisted PSUs , offload at least 10% equity

5. In loss making PSUs where net worth is zero, allow negative bidding in the form of debt-write off

TAXATION….

1. Introduce new income tax code

2. Rationalise dividend distribution tax to do away with double taxation

3. Review customs duty exemptions

4. Phase out cesses, surcharges and transaction taxes - commodities transaction tax, securities transaction tax and Fringe Benefit Tax

SUBSIDY…

. 1. Provide fertiliser subsidy directly to farmer

2. Limit LPG subsidy to 6-8 cylinder per consumer per year

3. Cut oil, fertiliser, food subsidy leakages

4. Convert producer subsidies into direct consumer subsidies

5. Kerosene subsidy to non-electrified/ non-LPG homes

Too many things in the economic survey appear more like wishful thinking than something which can be implemented. It would require a gargantuan amount of legislations and implementation mechanisms. The intent is good but does not seem feasible, especially when it comes to subsidies. How will the Govt ensure that fertiliser subsidy go to the farmer directly? How will the Govt know which home has no electricity or LPG to give them kerosene subsidy.

Advice On RIIL Ltd & Unitech Ltd.

2009-06-29T23:54:00.000-07:00

About Reliance Industrial Infrastructure Ltd.

Reliance Industrial Infrastructure is referred as RIIL at Rs 1,002.15 with a target of Rs 1,048. This is a crude carrier company of Reliance Industries and there is a speculation of a big restructuring happening within the group by transfer of the gas line or maybe the gas carrier business in this company to act as a front for all the projects to be undertaken. So merely on speculation or on the expectation we have been seeing a good value coming in into the stock, so target for the day is Rs 1,048.

Advice on Unitech Limited

Unitech has restructure itself & shed off lot of non core assets. The company has repaid its debt. He feels that the main trigger for the stock is a possible increase in income tax exemption for interest & repayment of loans.

Advice On Nalco & Sun Tv Network

2009-06-28T23:55:00.000-07:00

Advice On Nalco

As per technical analysis Nalco has corrected quite sharply. It did not participate in the metals rally on Friday, so we would be looking to buy it once it gets past Rs 314 for a target of about Rs 360. It is quite beaten up so you have Rs 10 downside probably.

Advice on Sun TV

Sun TV Network is currently trading at 26.2x its FY09 EPS of Rs 9.4, which is premium to its peer and deserve the premium valuation because of its unique business model (time slot model), highest operating margin as compared to its peers, strong balance sheet which has an cash position of Rs 400 crore. We believe company has a better placed than its peers because of its less dependent of advertising on national front and strong movie pipeline for FY10. Thus, we recommend a “BUY” on the stock with a target price of Rs 294, which represents a potential upside of 20%

India Budget 2009-10

2009-06-27T00:09:00.000-07:00

Should reducing fiscal deficit be a priority or should thrust remain on growth?

There is no denying that India’s fiscal deficit is a cause for concern. As per the tax figures for April 2009, excise collections have been badly hit, and this has led to the fiscal deficit burgeoning to 16% of the targeted Rs.3,32,835 crore for FY10, in April itself.

But the Govt feels that there is nothing really to worry much about fiscal deficit as in April 2008, it was at 24.7% of the projected figure for the entire 2008-09. So compared to that we are better off. Fiscal deficit is projected to be 5.5% of GDP in the interim Budget for 2009-10. But this was base don the assumption that some of the tax cuts given in the Budget would be rolled back by then and that has not yet happened. Once the stimulus packages were announced, this fiscal deficit was revised higher at 6% and it was at 6.2% of GDP in FY09.

Montek Singh Ahluwalia said that there is nothing too much to worry about and assured that fiscal deficit would not get into the double digits. By saying this, he probably sent out a signal that the focus would be on growth as deficit is not really yet a cause for worry.

But in the same tone, it is imperative then to mention that RBI Governor, Mr.Subbarao had said that there was an urgent need to get the fiscal deficit under the belt and said that keeping interest rates low would only lead to this deficit burgeoning.

If the Govt goes ahead with a populist budget, deficit could rise to around 7.5%, ie: assuming that there are more tax cuts and other benefits. The Govt plans to spend heavily on social causes. President Pratibha Patil in her address to the joint session of Parliament had said that the Government's commitment to its flagship programmes like NREGA would continue. This again means that more money will be spent. And if we add this cost too, the deficit could rise to 7-8-8%.

Surely, these numbers would have been considered by Montek Singh when saying that fiscal deficit is not a cause for worry. And this would also be based on the fact that the Govt expects money to come in from PSU disinvestments and also from the recently announced 3G licence auctions.

Updates on Wockhardt

2009-06-25T23:21:00.000-07:00

The Awaited News

Wockhardt is all set to seal its Corporate Debt Restructuring (CDR) on 26th June 2009. This is the most awaited news in Wockhardt as the future of the debts and thus its impact on the overall earnings of the company earnings depends on the way this CDR is packaged.

Financial Status

Wockhardt is sitting on a total debt of Rs.3100 crore of which rupee debt, borrowed from ICICI Bank, SBI, IDBI, BOI, ING and PNB stands at Rs.2000 crore. Forex debt is at Rs.1100 crore, taken mainly from ICICI Bank and some more foreign banks.

Reason For Debts

The reason for the mounting debt has been the overseas acquisitions made by the company in the last two years. It had acquired Ireland based Pinewood Lab for $150 million, then the France based Negma Lab for $265 million and US based Morton Grove Pharma for US$ 38 million. This has constrained the fund raising ability of the company.

As per the CDR worked out, the debt has been rescheduled to 7 years from 5 years. Interest rate has also been reworked at 8-9% compared to the 12.5% it is paying now. So the savings which would be made on account of the lowering of interest rates would be quite substantial.

There is also concern about the FCCBs worth $110 million which are due for redemption in October this year. These FCCBs are today trading at a huge discount. In all probability promoters will buy back the FCCBs and negotiations are on to go through with this too.

Promoters of the company, who own 74% stake, have already pledged 79.21% of this. They now plan to raise additional funds by selling their biotech and vet unit. It sold its German subsidiary Esparma on 18th June and raised Rs.120 crore. It had acquired this unit in May 2004 for Rs.49 crore, so this has proved to be a good deal. The cash raised would be infused back into the company. Promoters also plan to raise Rs.50 crore via equity.

The benchmark clause in the CDR, which could probably pave the way for others in India Inc would be the way it has managed to work its way out of the forex derivatives losses. For the financial year ended December 31, 2008, Wockhardt posted a Rs.581-crore mark-to-market loss on currency contracts. This is about the expired contracts, where losses have been realised, meaning the company now owes this money to the banks. On this issue, as per the CDR, banks are to be paid back by issuing zero coupon preference shares, which will mature in 2017. These shares will be converted into equity at a premium on redemption. But what is to be borne in mind here is that only 40% of the entire forex loss is part of the CDR, the rest is yet to be settled.

This working out of the CDR is good news and will help Wockhardt work its way out of the woods and once again concentrate all its attention back on running the business. It remains a sound company and is still the seventh largest pharma company by revenue.

Valuation Of The Company

Apart from this issue of debt, the company is not on thin ice. The company is estimated to have an annual sales of Rs.3,500 crore of which, Rs.2,200 crore may come from Europe and USA, based on the past data. Generally, on a global parameter, an established pharma company like Wockhardt, gets valued at 3 times of its topline. This means, it can get a valuation close to Rs.10,000 crore and if we deduct the debt of Rs.3,100 crore, it can have a net enterprise value of Rs.6,900 crore, resulting in a value per share of around Rs.630.

Shareholder Interest

As we had assured earlier, the minority shareholders would tend to gain, as we did not see the promoters leaving the company in a lurch. It is already up today by over 4% at Rs.147 and continues to hold tremendous value and potential for those, who have a 12 months view on the stock. Now with the CDR underway, the fundamental of the stock looks brighter.

Updates on Great OffShore Ltd.

2009-06-24T23:07:00.000-07:00

The Story

This is one company where the original promoters just watched their entire control going away to their biggest competitor. Vijay Kantilal Sheth, vice-chairman and managing director of Great Offshore became the first promoter in India to lose control of his company after Bharati Shipyard took over shares Sheth had pledged against loans. Bharati acquired the shares at Rs. 315 a share.

And now this battle for complete control over Great Offshore by Bharati Shipyard continues. Drama started when ABG Shipyard made an open offer to acquire over 32% in Great Offshore at Rs.375 a share, countering Bharati's bid of Rs 344/share for a 20% made earlier this month. ABG holds a 2.02% stake in Great Offshore, purchased in FY09 from the open market. This open offer of ABG opens on 13 August 2009 and closes on 1 September 2009, with today being the last date for a competitive bid.

Bharati Shipyard, which had a 14.89% stake in Great Offshore disclosed yesterday that it had bought further 4.5% stake in the company from Bharat and Ravi Sheth (cousins of Vijay Seth) for Rs. 403 a share. With this buy, Bharati’s stake now stands at 19.1% and till date, it has spent Rs.245 crore for this stake.

The drama here is that both –ABG and Bharati are reluctant to let go. Bharati has said that it will make a counter bid for controlling stake and ABG has reacted stating that it will make another bid over this counter bid.

Effect On Shareholders

For the shareholders of Great Offshore, this is good news, especially in the short term. Today, the stock is quoted at Rs.420 levels and they should stay put for this war of bids to end at the end of which, the final price would be much higher and thus best to hold on.

Why do these two companies want Great Offshore?

For Bharati Shipyard, it is imperative that it gets the company as currently 30% of its order book comes from Great Offshore and if ABG gains control, then it might stand to lose more than just the controlling stake. So for Bharati it’s a cacth-22 as taking over will trigger off high debt and letting go would mean probable loss of revenue.

What these Company Do?

Great Offshore is an offshore oilfield services firm while ABG and Bharati are ship manufacturing and repairing companies. The outlook looks bleak for both ABG and Bharati as no new ships are being built and order book is not very good for current year. But if either of them manage to get control of Great Offshore, it would help them get over their current slowdown. The acquisition could make either of them into fully integrated player in the highly lucrative field of offshore oilfield services market. Great Offshore has a fleet of 40 vessels of which 75% are old and needs to be decommissioned. This would mean business for ABG and Bharati, not to mention revenues which would come out of repairs.

But can ABG and Bharati really afford this price war induced acquisition?

For them, this counter bidding will prove to be counteractive as every hike in the offer price, signals more money than anticipated going out of the company. Bharati would have arrived at a price of Rs.344/share after calculating all the fair valuation parameters. And now, it paying Rs.403 for 4.5% stake and new offer price, are all price forced due to circumstances. This new price would not be the fair valuation because it has now become more or a tussle than a ‘strategic’ takeover, and this works out to be too expensive. Bharati has already spent Rs.245 crore till date. So this means the company will now go for more debt to make this acquisition that too at a time when business for the shipping sector is not exactly booming. For FY09, Bharati Shipyard posted net sales of Rs.1019.23 crore on which it posted a net profit of Rs.130.03 crore. Its interest outgo was at Rs.56.71 crore and it does not have reserves to really fall back upon to fund this acquisition, meaning its debt component would go up further.

On the other hand, ABG Shipyard for FY09 posted a net profit of Rs171.10, up 6.48% on net sales of Rs. 1412.20 crore, up 46%. Its interest outgo for the year was higher at Rs.74.24 crore. It has reserves of Rs.788.05 crore which is why it has stated that it will fund this acquisition through internal accruals.

IPO NORMS BY SEBI

2009-06-21T23:07:00.000-07:00

With the objective of boosting investor confidence in the primary market, SEBI has announced a few fresh measures for new Public Offer.

A look at the primary market measures:

1. Any unlisted company making an IPO will have to list in at least one of the stock exchanges having nationwide trading terminals – this means companies cannot call themselves being ‘listed’ by getting the company listed on any of the small regional exchanges. It would necessarily have to go for a listing on the NSE or BSE. This would also ensure that the companies, to get themselves listed on the NSE or BSE would have to comply with some strict norms and that ensures some amount of quality. Also, listing on any of these national exchanges would bring in more depth and give assurance of trading. There are so many stocks, which though listed, hardly ever gets traded and becomes a liability for the investor and for the stock exchange. And one more big advantage – it will ensure that terminals of NSE and BSE now reach all nook and crannies of the country thus ensuring ‘national’ participation. This will provide a liquid trading platform to investors in securities of the company.

2. The biggest move is the ushering in of the concept of an ‘anchor investor’. In CB Bhave’s words, “The concept will work like this. The anchor investor will have to be a QIB, what we call the Qualified Institutional Buyer. He can get up to 30% of the quota that is reserved for a QIB. In effect, about 15% of the issue can be given to the anchor investor.”

3. As per the guidelines, anchor investors will apply for the shares a day before the subscription opens for other investors. They will pay 25% of the purchase price when placing the order and the remaining 75% within two days after the IPO has closed. There will be a firm allotment to this anchor investor and therefore there will be a lock-in of 30 days after the issue gets listed. No person related to the promoter, promoter group or the book running lead managers will be allowed to apply as an anchor investor. This is a good move as it brings a certainty to the issue and would help the promoters of the IPO create demand for their shares and get a better price.

4. SEBI has also tinkered with some norms in the rights issue. It has barred companies from issuing shares with superior voting rights. One of the representations from the market was that the disclosure documents for rights issues tends to be extremely bulky because it is treated like a public issue, whereas that company is already listed and has continuing disclosure requirements. Investors know not only the price of the shares but also know the continuing disclosures. So SEBI has decided to do away with certain earlier requirements, including disclosing the summary of the industry and business of the issuer company. This will hasten the process for companies and also help reduce the costs.

Negative Inflation In India

2009-06-18T22:51:00.000-07:00

Latest Inflation Figures

Inflation for the week ended 6th June 09 came at -1.61%. It has happened for the first time since 1977 that we have a negative inflation. And this only evinced a smirk from most as for every man on the street, these figures have no meaning as they continue to pay more and there is no indication for them that prices have come down.

Capital Market Response To It

The markets also gave this number a cold shoulder and ignored it completely. But it surely got the economists excited, as this was a first. Negative inflation which is also referred to as deflation is the biggest indicator of recession in the economy. But here, in Indisa, it was touted by all as a “historic statistical curio”, that’s all it was. A statistical aberration.

Does this mean that the Indian economy is in recession?

Definitely not! For a economy to be officially declared as being in recession, it has to show a negative real economic growth or falling GDP consistently for at least two quarters. Deflation in economic parlance means fall in price level of goods and services, resulting in an increase in the real value of money.

When Deflation Occurs?

Deflation occurs where there is a fall in demand and prices are also down. In deflationary economy, people typically delay their buying until prices fall further which in turn reduces overall economic activity, leading to huge idle capacities thus contributing to the deflationary spiral.

Deflation is usually counteracted with a cut in interest rates, increasing supply of money and announcing economic stimulus. Now this is something which we see in USA – the stimulus, the bailout leading to increased money supply and interest rates are at their lowest levels.

Indian Scenario

In India, there was a time when people delayed their buying’s but this was seen only in realty sector but not all around. It’s not like people have been putting off buying cars because they expect prices to come down further. One has to just go the shopping malls on any given weekend to see if people have stopped buying. And rate cuts? There is no way that RBI is going to initiate any rate cut now based on this negative inflation as it is simply not needed.

Then there is the question of increase in the real value of money. Apart from the rupee rising vis-à-vis the US dollar, there is no real rise in the value of money. Price of commodities is up, pulses and grains, vegetables and fruits costs’ more.

Yes, we did have economic stimulus and lowering of interest rates but that was at a time when the entire world was reeling under recession and we had huge piles of inventories. At that time, if someone had said that we had deflation it was more believable. But today, when the April IIP numbers have come in the positive and some sectors are showing sure signs of revival, how can we say this -1.61% is deflation?

why do we have a negative inflation?

The biggest reason is the base effect. Due to higher prices last year as measured by the WPI, we thus have a negative inflation. It is more of a statistical fall and does not indicate any systemic deficiency. Consumer price index is over 9% and India’s GDP is growing at the rate of 6%.

The struggling-to-survive man on the street, the woman haggling with the vendors to save a few pennies more and the elderly having to do away with healthy fruits simply because they are unaffordable all point in one direction – prices need to come down. On one had we have deflation and then life becoming tough due to mounting costs on the other. This means, we need to urgently change the way we calculate our inflation rates as it seems to have no connection whatsoever with the ground reality.

Fuel Price In India to get fired.

2009-06-17T22:44:00.000-07:00

Deregulation Of Oil Sector

If crude crosses $75/barrel, the Govt would get into the picture and control the prices once again. Well, at that time, on 29th May to be precise, there was no real fear of that $75/barrel coming in too soon. But now, this is the stark reality staring at our faces. Crude continues to flirt with $70/barrel levels and the threat is very real of it reaching the $75 threshold soon. So then that makes us wonder about all the hullabaloo and celebrations on Dalal Street over the decontrol of oil.

When things just about seem to be improving, something comes up on the horizon which threatens to remove the small trace of smile coming on the face of the economy. If the April IIP numbers had managed to bring in cheer, the rising crude price and the delay in monsoon shows those days of low inflation might as well be over. Prices of petrol and diesel are expected to be hiked any time soon.

But one has to be thankful that this deregulation did not happen because if it had happened, once crude had crossed $70, price of petrol would have been hiked by Rs.6.50 per litre and that of diesel at Rs.3.25 per litre.

Infact, the private sector OMC – Essar has already hiked its price. It has raised diesel prices by Rs1-2 a litre and petrol prices by Rs1-2.5 per litre depending on location of the fuel station. RIL which had recently started selling diesel at its 65 operational outlets, has not yet taken a final decision. This scenario of rising crude is a no-win situation for the private sector players. They cannot afford to sell at lower prices and if they hike prices, they lose their customers to the PSUs.

About our PSU OMNCs?

After having made profits for the past seven months, once again HPCL, BPCL and Indian Oil have started making losses on the diesel and petrol which they are selling. The figure which has come in is that these OMCs stand to lose around Rs.38,700 crore in revenue this fiscal. IOC, BPCL and HPCL are selling diesel at a loss of Rs2.96 a litre from Tuesday. And the loss in petrol is higher – Rs.6.08 per litre of petrol from Rs3.68 a litre in the first half of June. So this means, these three OMCs are losing Rs.135 crore per day on sale of petrol, diesel, domestic LPG and kerosene.

OMCs have already hiked the price of aviation fuel. Effective 15^th June 2009, IOC, BPCL and HPCL raised aviation turbine fuel (ATF) price by Rs 3,949 to Rs 36,252 per kilolitre in Delhi. This is an over 12% price hike. Jet Airways has been the first to react and today, it announced a Rs.400/ticket fuel surcharge across all domestic sectors effective June 17.

Is a fuel price hike imminent?

The Govt has categorically given a firm “No” and has stated that prices will be hiked, if and only if, the average price of crude crosses $70/barrel. The average price of crude oil this quarter is around $57 a barrel, so that clearly means that there is no case for a fuel hike right now. This is good news for us but for the OMC, it means that their losses would mount further.

There was news that there was to be to an oil cess on income tax to recover oil subsidies but today, the Oil Ministry has clarified that there is no such move and if a cess is put, it plans to oppose the cess.

Small Savings Rates To Reduce : NSC & PPF Under Cowerage

2009-06-16T23:13:00.000-07:00

Small Saving Schemes

Just as traditions and cultures are handed down to us through generations, we are taught very early on in life to invest in National Savings Certificate (NSC) and PPF. Their interest rates are higher and being owned by the Govt, it is considered most secure. It also gives tax benefits. And this is precisely why majority of our elderly put their savings into these NSC and PPF schemes and it becomes a major source of income for those retired without pension benefits.

Latest Govt. Planning

Hence it came as shocker to know that the Govt is now planning to reduce the interest rates on these small saving tools. Grappling with huge fiscal deficits, the Govt is looking at every single nook and corner to either raise money or curb outgo. And after all this hunting around, it has come up with a solution – it may look at reducing the rates on small savings schemes by 50-75 basis points from the current rate of 8%. To look into the viability of this, it is planning to do what it does always – set up a committee, and this will be chaired by the former governor of RBI to study the issue and suggest appropriate steps regarding the same.

Why are they looking at this option?

If banks reduce their fixed deposit rates beyond a certain limit, it would become unattractive and people would divert all their money into small savings schemes. They say that close to 55% of savings by Indians are in bank deposits, and a shift of 15-20% of these deposits to small savings schemes can be expected if the term deposit rates are cut further.

This they feel is the main reason why the banks are not reducing their interest rates. So to get the banks to reduce their rates, the Govt wants to reduce the small savings rates. Well, if that is the logic, then where was the Govt when bank rates were much higher than the small savings rates? At that time, did they think of increasing the small savings schemes rates?

Impact Of action

This Govt has built up an image for itself of being a very fair Govt, giving benefits to those in the lower rung, being more social without being Leftist. So, in that context, this reduction of interest rates on PPF and NSC would go completely against the very grain of the Govt. This reduction, if it comes in, would hit the elderly and the vast majority of the middle and lower middle class very badly.

We may have an inflation rate of below one percent but does it really mean that the elderly and the middle class have more disposable income in their pockets today? Prices of commodities, fuel, health care, education, everything is higher than earlier. When the elderly spend 60% of their income on medical needs, this reduction from 8% will risk them making almost destitute.

HC Judgement Reliance Industries & Reliance Natural

2009-06-15T23:03:00.000-07:00

As expected, the much awaited High Court judgement went in favour of RNRL. The HC has directed Reliance Industries (RIL) to supply 28 metric standard cubic metre per day (mmscmd) of gas at US $ 2.34 per million metric British thermal unit (mmbtu), for a period of 17 years.

The repercussions of this landmark judgement:

1. This also means that 12 mmscmd gas will be supplied to NTPC at the same terms – 17 years and at a price of $2.34/mmbtu. If NTPC decides to forego this gas, the entire 40 mmscmd would go to RNRL.

2. RIL, throughout its arguments before the court, had maintained that gas could not be supplied to RNRL or any other company for lesser than $4.20/mmbtu, as the price has been decided by the Empowered Group of Ministers. But now, with the HC deciding on a much lower price, it is quite evident that RIL would knock the doors of the Supreme Court.

3. RIL pays royalty and profit sharing levies to the Govt at the rate of $4.20/mmbtu. But with it now selling gas to RNRL at $2.32/mmbtu, would RIL still continue to pay the various levies to the Govt at the higher rates?

4. RNRL currently does not have gas based power plants ready, so till such time that it gets to use 28 mmscmd of gas, where will this gas be used? RNRL can use this gas to trade within the group companies and now this gas would thus be made available to Reliance Power and this is great news for Reliance Power. Firstly, it will fast track the power projects – Dadari and Shahpur, and this availability of gas at such a lower rate, would ensure a saving of almost Rs.3500 crore on its raw material costs, resulting in an equivalent rise in its profitability.

5. The capex outlay of RIL has been increased from $ 2.47 billion to $ 8.8 billion, with increase in estimated production also, from 5.3 trillion cubic feet (tfc) of recoverable reserves at a plateau production of 40 MMSCMD now to 11.3 tcf and plateau production of 80 MMSCMD. With this pricing rule now coming in, how does RIL make up for the increase in capex?

6. What happens to 40% claim of RNRL on excess production by RIL from K G Basin, beyond 40 MMSCMD? RNRL may have to contest strongly, to push for this claim of overflow capacity and also on the 12 mmscmd, if not supplied to NTPC.

7. The HC asked RIL to arrive at an arrangement along these lines within a month. And it has also ruled that the Ambani brothers may consult their mother, Kokilaben, if there is any difficulty in arriving at a conclusion as the MoU provides for this. This once again proves that the Court has upheld the supremacy of the role of mother.

8. Govt has stated that RIL will have to sign the gas supply master agreement (GSMA), if RIL goes with this pricing of $2.34/mmbtu.

The biggest positive of this ruling, more than RNRL is actually for Reliance Power. With assured supply of gas and that too at such a lower price, will go a long way in improving the profitability of the company.

ATTENTION REGISTERED MEMBERS

2009-06-15T01:00:00.001-07:00

NOTICE.
Dated: 15/06/2009

ALL REGISTERED MEMBERS ARE HEREBY INFORMED THAT SCRIPTS FOR GOOD RETURN IS LIKELY TO BE FORWARDED TO ALL MEMBERS TO BE BOUGHT FOR GREAT RETURNS.

IN THIS REGARD ALL MEMBERS ARE SUPPOSE TO EMAIL ME MENTIONING THE DATE OF REGISTRATION ASKING FOR THE LIST.

A.GOYAL
Senior Advisor , Multi bagger Group

Inflation & Ineterst Rates

2009-06-11T23:16:00.000-07:00

Disappointing Inflation Figures

Inflation figure proved to be a non-event again.It is either because people feel there is no co-relation between the inflation figure published and what they are actually paying for necessities. Or it is because the market has already discounted for the low rates and its like ‘ho-hum-so-what’ kind of reaction.

Inflation came down to as low as 0.13% for the week ended 30th May 09 as against 0.48% last week. But hidden in this low inflation figure is a message for the future – interest rates are bound to go up by Jan 2010.

Present Liquidity

Right now there is a lot of liquidity in the market and banks, which are sitting tight on the rates and pots of money, will soon loosen their purse strings. Be it at the behest of the Finance Minister or economic conditions, banks will bring down the rates in the immediate few days. It is not expected that RBI will announce rate cuts but it is the turn of the banks to now act on the earlier rate cuts announced and bring down the PLRs.

Once money starts flowing in, economic revival starts happening, then demand is bound to pick up. And once demand starts picking up and economic growth starts showing a better pace, prices or inflation starts going up. Economic growth and inflation also go hand-in-hand. Inflation and interest rates move in tandem while economic growth rate and inflation move in opposite directions. So to bring down the prices, it becomes essential to put some curb on the supply of money and thus interest rate hikes will come in.

Inflation In coming Days

Once growth starts picking up in India, it will gallop and in that context, inflation is also expected to more than double up. The Indian economy is showing slow but sure signs of recovery and strong recovery is expected to happen by Q4FY10. Economists are predicting inflation to go up to as high as 5.5-6.5% levels by the end of this current fiscal.

Crude Pricing in Coming Days

Crude which was ruling low for some time has also started picking up and today it rules above the $70/barrel price. This rise in crude, without any cut in oil output is also an indication of activity slowly picking up. And once globally, recovery starts happening, naturally demand for crude is expected to go up considerably. Oil experts, on a conservative note, expect crude to rule at around $85/barrel by Dec 09 and expect it to go up to $95/barrel levels by end of 2010.

Interest Rates may rise in 2010

About 60% of India’s import basket comprises of oil imports and naturally, we are at a disadvantage when crude rises. This will only further add on to the inflationary pressures. Even a 10% price hike in petrol and diesel would add on around 0.6% to benchmark wholesale price index.

And based on previous discusssions, it seems inevitable that interest rates would go up by Jan 2010.

Advice On Cummins India & Thermax

2009-06-10T23:10:00.000-07:00

Cummins India's (CIL) comparable Q4FY09 net revenue and net profit reported decline of 8% and 12% respectively. After Q3FY09 results the management had indicated that net revenue and net profit are likely to fall due to recession in domestic and global markets. Export revenue (50% to total revenue) is expected to decline in FY10E while we expect improvement in domestic revenue on the back of initial positive signals and likely focus on infrastructure projects which will help construction, mining, marine, power generation segments. We estimate CIL to report EPS of Rs.19.4 for FY10E which is a 17% decline. We assign 'Reduce' rating on the stock with a target price of Rs 237.

Thermax is Indian engineering MNC providing solutions in Energy and Environment sector. In FY10, it is likely to report an EPS of Rs 27. Investors can 'BUY' at CMP for a target of Rs 460 i.e. 17 PE on FY10 estimates.

Disclosure: I do not have any personal holding in these stock.

Satyam : Large Cap to Midcap , Tough way ahead too!

2009-06-09T00:07:00.000-07:00

In the disclosures made by Satyam , one thing comes forth – we need to change our perception about Satyam being in the league of Infosys and Wipro. We have to now change our perspective and look at Satyam like any other mid cap IT company. This change in outlook, from a frontline IT to mid cap IT company helps us take a more objective view. Let’s face it – the fact that Satyam is where it is today, notwithstanding the damage done by Ramalinga Raju, is indeed quite good.

A look at the numbers in the table given below, shows that things have gone bad but not as bad as we had expected. Or rather, we had already made up our minds for the worst and in that context, what came forth is not bad.

The biggest question in everyone’s mind is what to do about the open offer of Tech Mahindra? The offer is scheduled to open on 12th June 09’ and will close on 1st July 09’ and has been made at a price of Rs.58/share. Tech Mahindra will buy a 20% stake. After these disclosures, Satyam has already moved up to the levels of over Rs.66/ share on the BSE. For investors, financials of the company would not have much meaning, it would be all about making money. At this point of time, investors tendering in their shares at this lower open offer price is very doubtful. This then raises two options – either Tech Mahindra ups its open offer price or as per the rules, if the offer is not fully subscribed, it has the option of a further preferential issue from Satyam to lift its stake.

Then the question which comes to mind is – if Tech Mahindra ups the offer price, is the share worth above the current market price? Based on the current financial disclosures, assuming that the company has an annualized revenue of Rs.10,000 crore and giving due credence to the loss of clients, high attrition rate and the Rs.1230 crore claims made by 37 companies, it would be prudent to assume a NPM of around 10%. Based on this, the annualized net profit would be around Rs.800 crore and on an equity of Rs.134.70 crore, annualized EPS would be around Rs.6. This, on the current market price gives us a PE of around 11. It is pointless trying to compare it with the PEs of Infosys and Wipro but if we look at the mid cap IT companies, then it seems reasonable priced, with a slight margin of probably going up further. But anything above 14 PE would be more than fully priced.

More than Satyam, based on the disclosures, it is apparent that it is a very good deal for Tech Mahindra. The synergistic advantages would be very good and allows Tech Mahindra to move away from the shadow of British Telecom and emerge as a more, well rounded IT company. At this juncture hold on to both Satyam as well as Tech Mahindra as a clear picture will emerge in a day or two.

(Standalone)	JAN 09	FEB 09
REVENUE	681cr	676cr
NET PROFIT	4cr	52cr
OPERATING PROFIT	61cr	118cr
OPM (%)	8.96	17.46
Total orders at $380 mln as on 31/03/09
Cash balance of Rs.373 crore as on 31/03/09
23 clients lost with billing of $70 mln
$164mln Forex contracts outstanding as on 31/03/09
Forex loss at Rs.110cr as on 31/3/09 and Rs.148cr between Jan-Feb 09’
Consolidated NP for Oct-Dec 08’ at Rs.160cr

Disclaimer:

(These financials have been prepared by the company with data collected using the company's internal management information system, which may not be adequate and books of accounts, making certain management estimations, assumptions and approximations. The figures are unaudited.)

AGRICULTURE GROWTH

2009-06-07T23:48:00.000-07:00

If being a predominantly agrarian country was a drawback for India a few years ago, it has become our biggest strength today. Infact, it has shown the world that in such turbulent times, it was rural India which, to a large extent, helped India keep its head above water. Rural India is today the biggest thing, not just for the UPA Govt and scores of Indian companies but also for the MNCs. The potential of rural buying has been realised and everyone wants to make the most of it.

During this ongoing downturn, urban India faced the brunt of development and global alignment but it was rural India which helped the companies show a decent growth, despite the downturn. What does this mean? Rural India is crucial for our growth and the growth of rural Indian depends solely on agriculture. So, if India’s economy has to grow, agricultural growth has to happen. It is only when there is money in the hands of the farmer that buying will happen, be it bikes, tractors, televisions or even shampoo’s and soaps. And money will come into the hands of the farmer only when he has a good harvest. And it is only a good harvest which will keep a check on the prices of commodities and thus keep a lid on inflation. So the roots for overall growth lies in agriculture and this is an irrefutable truth.

In India, 67% of the population and 55% of the total workforce depends on agriculture and other allied activities. India's economy grew 5.8% in the Jan-March 2009 period, which was better than had been expected. Among the sectors showing an improvement was farm output, which grew at an annualised rate of 2.7% having contracted 0.8% in the previous quarter.

CMIE expects agricultural output to grow at 1.3% in 2009-10 compared to 0.7% during the previous year. Production of foodgrain as well as non-food crop is projected to increase during the year, assuming that there will be adequate precipitation during the 2009 south-west monsoon season. CMIE has assumed that the 2009 monsoon will be good and hence it will not spoil the growth story in FY10.

To achieve a 6.5 - 7% GDP growth, India needs to have a 3% growth in agriculture and a good agriculture growth depends on good and evenly spread out monsoon. We may have made tremendous progress in terms of technology and science but we continue to be held to ransom by the rain gods. India has had four consecutive years of good monsoons, will we be lucky fifth time around? On 18 April, India Meteorological Department (IMD) had said the country’s average annual monsoon is likely to be around 84cm this year, the lowest since the last four years. The annual June-September monsoon generates nearly 80% of the annual rainfall over the country and is the main source of water for agriculture, which accounts for around 17% of India’s GDP.

As per the estimates of the farm ministry, India’s rice production may total 99.37 million tons in the year ending June, up from 96.69 million tons a year earlier. Wheat output may be 77.63 million tons, compared with a record 78.6 million tons a year ago. Shortfall is expected in maize, jowar, bajra, pulses, gram, pulses, oilseeds, sugarcane and cotton.

The current year’s monsoons are crucial for the economy as it is only buoyant rural consumption which will be the key driver of growth for India.

Bad News For Reliance Industries Ltd.

2009-06-05T01:35:00.000-07:00

The News

Supreme Court has rejected the Mukesh Ambani-promoted Mumbai SEZ plea for staying the land acquisition process for its project in Raigad in Maharashtra. One cannot say that this was not expected news. It was not possible that the SC would bend the rules for Mukesh Ambani, just because he was unable to get the required land.

This SEZ had a requirement of 10,000 hectares of land and Mukesh Ambani was looking at an investment of Rs.1 lakh crore and around 20lakh jobs were to get created. But the biggest problem, which almost all the SEZs face today, is of land acquisition. Last year notices, saying the Government intended acquiring land for the SEZ, were issued to farmers in 45 villages in three talukas of Raigad district. But 95% of the farmers were not ready to give up their land and there were major protests and agitations. Due to this, the land acquisition just did not happen. Under the Act, land acquisition had to be completed a year after notices under Section 4, and that deadline was June 8^th.

Mukesh Ambani had filed a plea first with the High Court, asking for speedy completion of its SEZ land acquisition process by the collector at Raigad. The company had contended that a delay in land acquisition further than June 8 would result in the lapse of the entire process under the Land Acquisition Act 1894.

The HC rejected the plea and asked the company to move the Supreme Court, where a number of other petitions related to the Mumbai SEZ are already pending. And now this plea has been rejected by the SC.

So what does this rejection mean?

If the acquisition is not completed by June 8, the entire process would lapse under the Land Acquisition Act, 1894. And it seems unlikely that Mukesh Ambani would be able to get 10,000 hectares by June 8^th. So this means, that the entire process would have be initiated all over again and this would mean a delay of another two years.

Maharashtra has a total of 131 Special Economic Zones in the pipeline; and the biggies amongst them are: Mumbai SEZ of Mukesh Ambani at Raigad; Navi Mumbai SEZ which is once again of Mukesh Ambani and it requires 2180 hectares of land; then there is the SEZ of Indiabulls at Raigad and its requirement is for 2,500 hectares; Videocon is also setting up a SEZ in Pune and it is to be spread over 1000 hectares and then there is the SEZ of Essel Infrastructure which is setting up its SEZ in Gorai and requires 358 hectares.

Many of these companies, had followed Mukesh Ambani’s formula of trying to acquire land directly from the farmers but that too does not seem to have worked. Getting financial closures is easy but getting land has become virtually impossible.

Land acquisition for SEZs has been mired in controversies. In fact, in some states, it has become an election issue. At some places, locals rose in protest against what they termed as either forceful acquisition or exploitation by offering much lower compensation. The role of state governments in land acquisition also came under fire. In northern India, farmers rose in protest against the proposed 25,000 acre SEZ in Haryana. And recently DLF managed to get denotification for four of its SEZs .

Breakdown Of General Motors

2009-06-02T23:43:00.000-07:00

About The Fall

The fall of GM is symbolic of the current times in which

America

is living in. If GM was the symbol of the arrival of the super power in the early 1900’s, the fall of this mammoth company is a reflection of the collapse today. It is Japanese cars which command the maximum respect and market share in US , and it is once again the Japanese which have made significant inroads into all facets of the country.

Now that GM has filed for bankruptcy, it’s easier to see what went wrong with the company. As the saying goes, one should learn from mistakes. For Indian car makers, a lesson to keep in mind is the mistakes which GM made. By looking at what exactly went wrong, we can see what Indian car manufacturers can avoid doing.

What went wrong with GM?

1: The company just hoped that it would be able to live forever on its brand loyalty. It felt that people would just keep on buying their same cars even when things all around GM were changing rapidly. Losing sight of what people actually wanted led to this end of an era.

2: GM made SUV which were basically gas guzzlers. When price of fuel was at reasonable levels, it was ok to have an SUV but over a period of time, with fuel prices soaring and global warming becoming a reality, people changed their preference to a more ‘green’ and fuel efficient car. People wanted a car which would give them better mileage and this important indicator, of having more fuel efficient cars was also missed by GM. This is where Toyota gained and GM started losing out.

3: The designs of GM just simply did not appeal. GM did keep up with new models but with competition from the likes of Honda and Toyota, churning out swanky and better looking cars, the new models of GM just did not find favour. Its Aveo model was a complete failure and its Cobalt, though was doing well was no match for Toyota’s Corolla and Honda’s Civic.

4: The economic turbulence and then the fall in demand also just added on to the already brimming cup of woes. With demand falling sharply, costs became untenable. And the most significant cost, which was affecting the costing of the cars was the burgeoning labour bill. Labour cost was almost $2,360 per car, which was $800 more than Ford's and $500 more than Chrysler's.

5: Its sheer size was also its nemesis. It grew so big, it lost touch with its customers, especially the new ones. Those who grew up with GM knew what it was but those who saw their father’s with GM cars, wanted no part of it. The median ages for buyers of GM's Chevrolet was 45, it was 55 for Oldsmobile and 60 for Buick. As against this, the new generation preferred the Japanese cars and their age ranged from 35 to 40. When an elephant walks with its head up, it is sure to miss the pitfalls and thus get trapped.

6: The biggest lesson for all car makers from this fall of GM – always listen to the dealers. The showrooms are the true indicators of what customers actually want. GM failed to do that. Though it kept on giving new models, these were versions of the older ones and not what its competitors were giving. The floor manger in the car showroom can give one the exact idea of how well or badly the car is doing.

7: Companies need to change with time, especially the way in which the top management functions. GM ran the company the in the same way for 70 years, following the same rules laid down in the memo by its founder. Also the arrogance of success was so high, they just failed to adapt to fundamental changes in the industry.

MOODY's TO DOWNGRADE 13 INDIAN BANKS

2009-06-01T23:46:00.000-07:00

What's the Threat?

Moody’s have threatened to downgrade 13 Indian banks based on the size of the banking system in relation to government resources, the level of stress in the banking system and its foreign currency obligations relative to the government’s own foreign exchange resources, among other things.

For those living in a fool’s paradise - India’s fiscal deficit is today the biggest cause for worry. The combined fiscal deficit of the Centre and state governments, including oil and fertilizer subsidies, is around 11% of India’s GDP. Moody’s have voiced concern that with such a huge fiscal deficit, the government’s ability to support the banking system through a capital infusion, if needed gets hugely compromised. And it is based on this inability that Moody’s have placed these 13 banks on the watch list.

Factors that Moody's will consider for assessing the rating of banks include the size of the banking system in relation to the government's resources, the level of stress in the banking system, the foreign currency obligations of the banking system relative to the government's own forex resources and changes to the government's political patterns.

WHO ARE TARGETED ?

The banks whose ratings are placed under review are — SBI, ICICI Bank, PNB, Bank of Baroda, Bank of India, Canara Bank, HDFC Bank, IDBI Bank, Union Bank of India, Axis Bank, Central Bank of India, Syndicate Bank and Oriental Bank of Commerce.

The entire assumption of Moody’s is placed on the Govt’s inability to come to the rescue of the banks. But the question we ask is – will these 13 banks need a bailout in the first place? Well, it would be needed if the banks are doing as badly as those in USA. Thanks to the conservative banking system that we have in India, things are really not bad. These 13 banks, irrespective of these trying times have managed to do well.

What would indicate the health of a bank?

First would be the Capital Adequacy Ratio (CAR). This ratio determines the capacity of the bank in terms of meeting the time liabilities and other risks. CAR is thus an indication whether the bank's capital has the "cushion" for potential losses, which protect the bank's depositors or other lenders. Capital Adequacy Ratio = Total Capital(Tier I Capital+Tier II Capital)/ Market Risk+ Credit Risk + Operation Risk. In case of Scheduled Commercial Banks CAR is 9%, private sector banks CAR is 10%, banks undertaking insurance business is 10% and local area banks have a CAR at 15%.

The second criteria would be Non Performing Assets (NPA). There are two types of assets viz.,performing and non-performing. Performing loans are standard loans on which both the principle and interest are secured and their return is guaranteed. NPAs are loans given to doubtful customers who may or may not repay the loan on time.

And then the profitability’s of the banks. Take a look at the table given below, which speaks for itself.

Most Dangerous Situation Banks

1. The findings are quite revealing. Going by the data, none of these 13 banks have a risk as such. All have a CAR above the RBI stipulated 9% for Basel II capital. ICICI has the highest CAR, followed by HDFC Bank. Amongst all, the lowest on the rung is IDBI Bank.

2. NPA indicates that except for four banks – SBI, ICICI Bank, Canara Bank and Central Bank of India, all have a net NPA of less than one percent. The most efficient has been PNB at 0.17% NPA, followed by BoB. This is the NPA when the economy was at rock bottom but now with the economy expected to be on the rebound soon, it is unlikely that bad assets would rise. Higher provisions have brought down the level of net NPAs.

And a look at the net profit figures of the banks indicate that most of the banks have done pretty well for themselves given the circumstances. Except for ICICI Bank, all banks have shown an improvement in net profit for FY09. The best improvement has been shown by Axis Bank, followed by BoB and BoI.

NAME OF BANK	CAR (BaselII) (%)	NET NPA (%)	NET PROFIT (% YoY)
STATE BANK OF INDIA	14.25	1.76	36
ICICI BANK	15.5	1.96	(10)
ORIENTAL BANK OF COMM	12.98	0.65	8
PUNJAB NATIONAL BANK	14.27	0.17	51
BANK OF BARODA	14.05	0.31	55
BANK OF INDIA	13.29	0.44	57
CANARA BANK	14.10	1.09	32.4
HDFC BANK	15.1	0.63	41.22
IDBI BANK	11.57	0.92	17.70
UNION BANK OF INDIA	13.27	0.34	24.51
AXIS BANK	13.69	0.35	69.5
CENTRAL BANK OF INDIA	13.12	1.24	3.80
SYNDICATE BANK	12.68	0.77	7.63

Currencies - Indian Rupees & U.S Dollars Story

2009-05-29T00:27:00.000-07:00

When the new UPA Govt took charge, the stock markets surged and so did the Indian rupee vis-à-vis the US dollar. And after a run up of almost over a week, the rupee slipped yesterday. And even today, the rupee depreciated 24 paise to 47.52/53 a dollar in the early trade. The word on the street is in the short term, the rupee will remain weak but in the long run, after August – September, once US stops buying its own Treasuries, the rupee will once again show some strength through the year. Though there are various versions saying that the money pouring into Asia has now cooled off, with some blaming this rupee fall of yesterday on the North Korea nuclear test, which is scaring off everyone from investing in Asia. Now that’s too far fetched a reason but what really ails the rupee?

To understand the behavior of the rupee, one has to keep an ear to the ground and watch out for some key international happenings. India can say that it is decoupled to a large extent when it comes to the stock markets, what with Indian economy being more resilient and all. But the movement of currency is necessarily dependent on international happenings. So what are the key things which could dictate the movement of the rupee?

US Rating downgrade?

Standard and Poor’s has put the U.K.’s Sovereign Debt rating on negative credit watch. This has raised fears that the ratings of US might also be downgraded as both US and UK have more or less followed the same policy of injecting billions of dollars into their economies by buying assets from banks. A downgrade in the rating would not bode well for the US economy which could weaken the dollar, if and when it happens.

It is unlikely that US or UK would be downgraded but surely will be put on a credit watch. Why? Because tinkering with the dollar, which is the global currency could once again send the entire world into a tailspin. India’s rating was downgraded by S&P on concerns of mounting fiscal deficit. But downgrading the US is not so easy. Hence it will not happen. No one, be it Moody’s or S&Ps or Fitch; no one would have the courage to downgrade US. The fear of another recessionary reaction worldwide is enough to keep these rating agencies from being proactive. So downgrade seems ruled out but being put on a credit watch seems more likely.

Ballooning deficit of US?

If we in India thought we had a problem with our fiscal deficit, take a look at the figures of US. Big deficits mean the government has to borrow more, which could put its credit rating at risk. They can also put upward pressure on inflation, thus cutting the purchasing power of the dollar.

S&P has presented a report wherein it has stated that debt in the U.K. could hit 100% of GDP in the near term. IMF released a report in April which stated that U.K. debt load will be at around 67% of GDP compared to 70% for the U.S. and 69% for the Eurozone. So clearly, the highest debt risk weighs on the US.

Why eye on US economic figures?

Now all these assumptions of deficit estimates are made on the basis of economic estimates like GDP growth rate, unemployment and these have not been too good in reality. In the first quarter of 2009, GDP was at - 6.1% and as against this, the estimate for the deficit is based on the assumption that the GDP growth in 2010 will be 3.8%. Unemployment at the end of April was at 8.9% while estimate is at 8.8% for entire 2009. So based on this, we now need to keep an eye on the figures of unemployment and growth rate of US GDP as it will indicate whether deficit would go up further than estimates or be around same levels.

So from whom will US borrow?

It is not like borrowing money directly as we do from a bank – how this works is that countries buy the financial securities issued by the US govt. Hence when we read news of China, Japan buying US Treasury it means US is actually borrowing. To now get over this deficit, US needs more money, the estimate is borrowing to the tune of $1 trillion by September. The government has said it will need to borrow $2 trillion, or 14 percent of the country's total economic output, in 2009 alone. The Federal Reserve will be buying back $1.5 trillion in mortgage and agency debt issued by Fannie Mae and Freddie Mac and is making direct purchases of U.S. Treasury bonds to the tune of $300 billion. This week the US Treasury is selling up $101 billion of fresh government securities.

China has purchased $23.7 billion dollars of US treasuries bringing their total to $768 billion. 70% of the estimated $1.95 billion dollars of China's reserves is in US treasuries. With countries not having enough to buy more from the US, the US Fed now plans to buy back mortgage- backed securities to the tune of $1.25 trillion this year. The Fed is in the process of buying $300 billion of long- term Treasuries through September. So this means that the dollar will remain up, at least till then.

Story in the long term?

With more and more money getting printed and pumped into the market to buy back these securities, it is estimated that more money supply will get more money into the hands of people, who in turn are expected to spend more. Right now, no one is really spending but once they do start spending, money supply will be more than the goods and that will lead to inflation. And at that time, to control the inflation and curb money supply, interest rates would have to be hiked and securities will have to be sold. When so much gets sold, the value of money will go down. And if China is one of the biggest buyers today, won’t it sell when the value goes down? So at that time, all would sell dollar into their currencies. And that is the time when US will have to come with another rescue plan to stem the crash of the dollar.