Microsec - NEWS ANALYSIS
RAJESH DESAI
INFRASTRUCTURE
Blackouts Spur $18 Billion Power Grid Upgrade:
· Power Grid Corp. of India Ltd., the nation’s largest electricity transmission company, may exceed a 1 trillion rupee ($18 billion) spending plan to upgrade its network and avoid a repeat of the world’s biggest blackout.
· Revenue of the state-owned company, which is doubling expenditure in the five years through March, 2017, may rise fourfold in the period following completion of transmission projects. The grid aims to boost its market share to 70 percent from 50 percent as the company increases spending at a rate that will dwarf its competition.
· The company has already approved projects worth 800 billion rupees and plans to raise at least 700 billion rupees in debt over the next five years. Of that, about a third has already come from local and foreign lenders and another 40 billion rupees will be raised through a bond sale later this month.
METALS & MINING
CIL output leaps over 'coalgate'
· Away from the thunder of the ‘Coalgate’ controversy, India’s national miner, Coal India Ltd (CIL), is quietly staging a recovery. For a company which reported a mere 4.5 million tonne (mt) increase in production in the last three years, CIL’s promise to produce 29 mt more coal in this fiscal appeared tall. Nearly half way through the year though, the target appears within reach. CIL has already produced 12.25 mt more coal when compared with the same period in 2011.
· Incidentally, CIL’s production was down by 10 mt during April-September 2011, reportedly due to heavy rains and flooding of mines. What affected the industry the most was a drop in offtake or despatches. But that brings the company to the bigger challenge – maintaining growth in the second half of the fiscal, when the railways get busy transporting food grains. Traditionally, despatches for Coal India lag behind production during this period leading to piling up of pit head stock, which touched 71 mt in 2011-12. But this year the company intends increasing net availability of coal by 37 mt, enough to fuel 7,400 MW of power generation capacities.
· The company’s stock fell to Rs 300 in December 2011, in the face of dwindling production, the Government’s restrictions on selling coal through a highly profitable e-auction route, and last but not the least, a huge 50 per cent wage hike demand from nearly four lakh workers. The workers finally agreed to smoke the peace pipe at a 25 per cent hike effective from July 1, 2011, making the company poorer by nearly Rs 6,000 crore annually.
· The Rs 75,000-crore turnover company always received help from an ‘other income’ component in the form of fixed deposit earnings (on a mammoth Rs 58,000-crore cash reserve) and e-auction revenues to boost profit growth. But, a further squeeze in operating margin was a cause of concern.
· Because, under pressure from the Government to enter fuel supply pacts (FSA) with generation utilities commissioned after March 2009, CIL is diverting its incremental production to the power sector, for which coal prices have largely remained the same for the last three years since October 2009. While power (also fertiliser and defence) enjoyed a preferential treatment on the ground in that its end product (electricity) prices are regulated; it was the non-power segment (like steel, cement, aluminum), which bore the brunt of two rounds of wage hikes by CIL in the interim period.
· Coal prices were raised by 30 per cent for the non- power segment from February 2011. To cut a long story short, the focus on power sector consumers would reduce the proportion of sales to the more profitable non-power segment from 30 per cent to nearly 27.5 per cent of total sales. The shift in sales pattern, coupled with wage hike and the cap on e-auction offerings at approximately 50 mt should keep up pressure on CIL’s profitability.
Pool pricing: Coal India may take Rs 3,000-cr hit, say independent directors
· Coal India Ltd may suffer losses to the tune of Rs 3,000 crore, if it implements the proposal for pool pricing mooted by Central Electricity Authority. Coal India plans to import around 20 million tonnes of coal in 2012-13.
· Spread over the next 20 years, even at the current levels of imports and the sale prices, the anticipated losses to Coal India will come to nearly Rs 60,000 crore, sources say. This observation has been made by the independent directors of the company. While giving their note of dissent before the Board of Coal India, they said that the company should not agree to CEA proposal, which would result in supplying subsidised imported coal to power companies, which is not legal. The independent directors also wanted their views to be communicated to the Coal Ministry.
· Coal India has always maintained that it will implement pool pricing only if all stakeholders agree to it. The company will not take the burden of even a single rupee on its own balance-sheet. These are parts of discussions and nothing is final. We would write to customers seeking their view also. We are yet to come to any conclusion.
· CEA has proposed blending up to 20 per cent of the committed coal quantity with imports. This will moderate the sale price of the fuel for both private and public power producers. According to the New Coal Distribution Policy (NCDP), Coal India may adjust its overall price when coal is imported to meet the domestic requirement. This means the prices of coal can be increased or decreased depending on cost of imported coal.
· An attempt was made by CEA to cover up the issue of subsidy by saying that the losses incurred through selling imported coal at half the cost may be made good by increasing the price of indigenous coal by around Rs 100 per tonne for all power producers.
IMG May Decide Fate of 6 more Coal Blocks Today
· The Inter Ministerial Group (IMG) on coal blocks will meet today to decide the fate of six more mines that were issued notices for delaying production. As of now, the IMG has recommended cancellation of seven coal blocks. The IMG may decide the fate of around six coal blocks in its next meeting scheduled on Monday, an official in the Coal Ministry said. The official, however, refused to share the name of the blocks which would come for the review.
· Last week, the IMG recommended cancellation of coal blocks that include Himachal EMTA Power, JSW Steel, SKS Ispat and Power and Bhushan Steel, among others. The panel also recommended deduction of Bank Guarantee in the case of blocks allotted to firms like Gupta Metaliks & Power & Gupta Coalfields, Usha martin and Tata Sponge Iron, among others.
BANKING
LIC likely to invest Rs 2.4 lakh cr in companies
The country’s largest domestic institutional investor, Life Insurance Corporation, keeps a distance when it comes to daily working of companies in which it has a significant stake. Indications are that LIC will deploy an incremental Rs 2.4 lakh crore in securities this fiscal. Of this, about Rs 45,000 crore is expected to be incremental in equities. The balance will be new investments in debt, and reinvestment of redeemed debt, dividends and profit from sale of equities. In the past fiscal, incremental investment was about Rs 2 lakh crore. As of March 31, 2011, total investment in securities was close to Rs 11.47 lakh crore.
Regards,
Team Microsec Research
Microsec Capital Limited
Tel: 91 33 30512100
Fax: 91 33 305120
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CA. Rajesh Desai
RAJESH DESAI
INFRASTRUCTURE
First Sasan unit ready to connect to grid
· Reliance Power today said its 4,000-MW Sasan ultra mega power project in Madhya Pradesh has been connected to the national grid.The 400 Kv switchyard at the Sasan Ultra Mega Power Plant has been commissioned and with this, the Sasan UMPP is now connected to the national grid.The project is now ready to draw power from the grid to provide start-up power for the first 660-MW unit which is nearing completion. The same switchyard would enable evacuation of power to seven states from the Sasan UMPP.
BGR Energy bags Rs 1,900-cr contract from DVC
· BGR Energy Systems Ltd has bagged a Rs 1,900-crore contract from Damodar Valley Corporation to supply steam generators, according to a press release from BGR Energy.The Chennai-based company will supply steam generators for the Raghunathpur Thermal Power Project Phase-II. BGR Energy has received the Letter of Award from Damodar Valley Corporation, which is setting up the 2x660 MW project.
· The order value includes a €109.79-million component and a rupee component of about Rs 1,121 crore totalling Rs 1,901.57 crore. The order is to be executed over 58 months and provides for price variation and foreign exchange changes. The company’s order book stands at Rs 14,577 crore.
Udupi Power commissions 600 Mw plant |
· Udupi Power Corporation Limited (UPCL), a subsidiary of Lanco Infratech Ltd, has commenced commercial operation of its second unit of 600 Mw in Udupi district of Karnataka. The company had synchronised the second unit a month ago with the grid and was waiting for the completion of 400 Kv transmission line between Nandikur and Hassan.
· The power project was completed about one and a half years ago and there was no evacuation of power due to the absence of 400 Kv transmission line. UPCL has set up a 1,200 Mw (600x2) thermal power project at Nandikur in Udupi district at a cost of Rs 5,800 crore. About 76 per cent of the project cost is debt borrowed from a consortium of bankers and financial institutions led by Power Finance Corporation (PFC).
Heftier penalties for errant discoms from today
· Power distribution companies (discoms) would now have to bear a heavier penalty for breaching grid discipline. This comes in the wake of two national grid failiures recently, brought about by state power utilities guilty of this.
· With effect from midnight, the unscheduled interchange (UI) rates have been revised (from the schedule set in April 2010). The required frequency band has been compressed to 49.7-50.2 Hz from the existing 49.5-50.2 Hz. There was a UI charge till now of Rs 8.33 a unit for overdrawals sending a Rs 9 per unit UI charge, an additional 20 per cent for grid frequency from 49.5 Hz to 49.7 Hz, and, if the frequency goes below 49.2 Hz, the overdrawing utilities need to pay Rs 18 per unit.
AUTOMOBILES
Tata Motors global sales up 13% in August, JLR growth slows
Tata Motors Ltd's global vehicle sales rose 13 percent in August from a year earlier, with sales at its key Jaguar Land Rover subsidiary rising 13 percent, less than in recent months.
Sales at the luxury British brand, a key driver of the company's recent profit growth, rose 41 percent in July, 39 percent in June and 35 percent in May.
Tata Motors, part of the salt-to-steel Tata Group conglomerate, sold a total of 97,225 vehicles in August. Overall passenger cars sales stood at 47,141 vehicles, a rise of 23 percent from a year earlier.
Tata sold 24,060 Jaguar Land Rover vehicles in the month. Commercial vehicle sales rose 4 percent to 50,084.
METALS & MINING
Coal blocks of SKS Ispat, Bhushan Steel de-allocated
· Coal blocks of SKS Ispat and Power Ltd (Rawanwara North) and Bhushan Steel Ltd (New Patrapara) have been de-allocated following the recommendations of the inter-ministerial group (IMG) going into the coal block allocation scam. This takes the total count of de-allocated blocks to seven. The IMG, is meeting almost daily to review more blocks.
· Gourangdih ABC block allocated to Sajjan Jindal-promoted JSW Steel Ltd and Himachal EMTA Power Ltd, a joint venture between Himachal Pradesh Power Corporation Ltd (HPPCL) and Kolkata-based Eastern Mineral and Trading Agency (EMTA), have already been de-allocated. Gourangdih, located in Raniganj, West Bengal, was awarded to the contractors in July 2009 with geological reserves of 68.85 million tonnes.
· Monday’s de-allocation was signed by Coal Minister Sriprakash Jaiswal.The Minister also gave his nod for forfeiting the bank guarantee of Nerad Malegaon block in Wardha Maharashtra. The block was awarded to Gupta Metallics & Power Ltd and Gupta Coalfields & Washeries Ltd in January 2006. The block has estimated geological reserves of 19.5 million tonnes.
· Similarly, Bhushan Ltd (Bijahan block), Tata Sponge Iron Ltd (Radhikapur; East) and Usha Martin (Lohari) will have to forego their bank guarantee for not meeting milestones of exploring captive mines. IMG on Monday decided to recommend deduction of bank guarantee for Tubed block in Jharkhand. The block was awarded to Hindalco Industries and Tata Power in August 2007. Tubed has 189 million tonnes of geological reserves.
· CBI probe: The Central Bureau of Investigation has started examining officials named in the first set of FIRs. The agency interrogated Arvind Jayaswal, Director of AMR Iron and Steel Private Ltd, sources said. The other persons named, including Congress Member of Parliament Vijay Darda, would also be examined soon.
Hindalco raises Rs 9,900 cr for Odisha project
· Hindalco Industries, an Aditya Birla Group company, has raised Rs 9,896 crore to fund its aluminum project in Odisha. The debt funded through a consortium of 28 banks and financial institutions has a tenor of 12.5 years and interest rate of 11.25 per cent a year.
· The Rs 13,195-crore Aditya Aluminum smelter project is being funded in a debt-equity ratio of 75:25. The company will set up a 3.59 lakh tonnes a year aluminum smelter along with a 900-MW captive power plant at Lapanga in Odisha. The equity part for the project has already been financed by internal accruals and QIP (qualified institutional placement) issuance of $600 million (about Rs 3,300 crore) made in November 2009.
· The company is also setting up an alumina refinery with integrated bauxite mines at Koraput in Odisha, which is expected to be completed by 2014. The company is also implementing two other greenfield projects – Utkal Alumina at Rayagada in Odisha and Mahan Aluminum in Madhya Pradesh. The company has achieved financial closure at a time when the Government is reviewing a series of coal block allotments made to various metal companies, including that of Hindalco.
Steel imports surge despite weak demand, rise in domestic output
· Steel imports continued to surge amidst weak demand and rise in domestic output. This rise in imports could be attributed to the continued flooding of the Indian market by Japanese and Korean companies. Steel makers from Japan and Korea, taking advantage of a low duty structure under the free trade agreement (FTAs) with India, have stepped up their shipments in recent times, sources said. For the April-August period, steel imports grew 39 per cent to 3.32 million tonnes over the corresponding period last year.
· Interestingly, the rise in imports has happened in the traditional lean period, when consumption turns sluggish during the monsoon season and domestic players are staring at an inventory build-up. The provisional data collated by the Joint Plant Committee under the Ministry of Steel indicate that imports of carbon steel or non-alloy steel grew 40.2 per cent to 2.60 million tonnes (1.85 mt).
· The rise in imports has begun to hurt domestic players. Recently, Sajjan Jindal, Chairman and Managing Director of JSW Steel, called for excluding steel products from the purview of FTA with Japan and Korea. India has signed a comprehensive economic partnership agreement with Korea in January 2010. A similar agreement with Japan was signed in August last year.
RINL IPO to Hit Market on Oct 16,Stay Open for 3 Days
· The INR2,500-crore initial public issue of the state-run Rashtriya Ispat Nigam (RINL) is likely to hit the market on October 16 and will remain open for subscription till October 18.The IPO, which would mark the kick-off the government's disinvestment process for the current fiscal,was earlier deferred twice since the filing of the draft documents with the market regulator Sebi on May 18.
· The government plans to raise.30,000 crore through disinvestments in 2012-13.The RINL IPO will hit the market on October 16 and close on October 18.The listing of the shares in the bourses will be done on October 31.
Regards,
Team Microsec Research
Microsec Capital Limited
Tel: 91 33 30512100
Fax: 91 33 30512020
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CA. Rajesh Desai