NEWS ANALYSIS
RAJESH DESAI
INFRASTRUCTURE
GMR Coal Resources, DSS in purchase pact with United Fiber
· GMR Coal Resources and its partner Dian Swastatika Sentosa through its subsidiary - Golden Energy Mines (GEMS) has entered into a share purchase agreement with Singapore-listed United Fiber Systems (UFS). As per the agreement, UFS will acquire from GMR Coal and Dian Swastatika 97 per cent stake in GEMS.
· GMR Coal Resources is a Singapore-based subsidiary of GMR Energy Ltd (subsidiary of GMR Infrastructure Ltd. UFS being listed on the Singapore Stock Exchange provides significant benefits to GMR Energy by way of better investor appetite and higher liquidity.
Tata Power uses cheaper coal to cut costs at Mundra project
· Under financial pressure, Tata Power Ltd is blending up to 70 per cent of its fuel requirement at Mundra Ultra Mega Power Project with cheaper imported coal. This is because the Power Ministry will not consider reopening old contracts that may have given some respite against higher Indonesian coal prices.
· The company has offered to do future restructuring. In this, Tata Power will facilitate 75 per cent of the cash flow on account of dividends on the investments in an Indonesian coal mine to benefit Coastal Gujarat Power Ltd (CGPL), the special purpose vehicle formed for setting up and operating the 4,000-MW Mundra UMPP.
· The increase in coal cost per year has been more than 130 per cent against what would have been 17 per cent as per CERC guidelines for the intervening period under reference.
Krishnapatnam Project: Reliance Power drags 11 buyers to arbitration
· Reliance Power Ltd has said that it has taken its dispute with the 11 electricity distribution companies in four States, which had entered into power purchase agreements with it, to the Indian Council of Arbitration.
· Reliance Power seeks renegotiation of power purchase agreements following changes in mining regulations in Indonesia, from where it proposes to bring coal for the power plants. Reliance Power feels the change in laws to be beyond its control and therefore “force majeure,” or an “act of God”.
· Reliance won the project in November 2007, quoting a uniform tariff of Rs 2.33 a unit for 25 years. The project would supply 1,600 MW to Andhra Pradesh, and 800 MW each to Tamil Nadu, Karnataka and Maharashtra. Seeing no progress, Andhra Pradesh Central Power Distribution Company sent notice to Reliance in April saying that it would invoke the bank guarantee, effectively forcing Reliance Power pay Rs 400 crore.
GVK plans to raise Rs 3,500 cr from airport biz stake sale
· After talks with Changi Airport failed to sell 26 per cent in its airport business, GVK Power and Infrastructure Ltd is in discussions with a few private equity players in an effort to dilute stake in GVK Airport Holdings. Discussions are on with a few infrastructure-focused PE majors such as Macquarie SBI Infrastructure Fund (MSIF), Morgan Stanley Infrastructure Partners and JPMorgan Asian Infrastructure Fund. Kotak Mahindra Bank and Macquarie are jointly advising GVK on the sale process.
· GVK has plans to raise about $600-650 million (Rs 3,300-3,500 crore) through the sale. GVK Airport Holdings operates the Mumbai and Bangalore airports.
· Reducing debt is a major concern for GVK, as high interest rates have been eating into the company’s earnings. The interest expense jumped over 200 per cent year-on-year, mainly due to an increase in debt to increase stakes in the Mumbai and Bangalore airports, and higher interest rates.
Pratibha Ind bags Rs 1,089-cr DMRC contract, order book swells to Rs 7,100 cr
· Pratibha Industries Ltd has announced that it has bagged an order worth Rs 1,089.60 crore from Delhi Metro Rail Corporation, and another worth Rs 345 crore from IREO Private Ltd.
· The DMRC order is for construction of a tunnel and a ramp between Motibagh and Lajpat Nagar stations. This falls in the Mukudpur-Yamuna Vihar corridor of the Delhi MRTS project, Phase-III. The project is to be completed in 42 months. The IREO project is for the construction of a 24 lakh sq ft group housing project at Gurgaon. This project is to be completed in 31 months. With these orders, the order book today stands at Rs 7,100 crore, which would be executed over three years.
ICICI Bank sells Kingfisher debt to Srei Infrastructure Finance
· India’s largest private lender ICICI Bank Ltd sold its entire Rs 430 crore exposure in Kingfisher Airlines Ltd to a debt fund managed by the Kolkata-based Srei Infrastructure Finance Ltd, even as pilots at the cash-strapped airline stepped up pressure on the management for “immediate payment” of salaries.
CONSUMER DURABLES
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TTK Prestige eyes acquisitions in Europe |
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· TTK Prestige, one of the leading brands in the kitchen appliances market, is looking at acquisitions in Europe. The proposed exercise would help the company have an exclusive brand for the overseas market. The size of the acquisition would be about ~300 crore, he added. “The idea is to acquire a European brand for the global market. It’s like Tata’s acquiring Jaguar.
· At present, four per cent of the company’s total turnover comes from exports. This year it is expected to touch five per cent, he added. In 2011-12, its sales, including excise duty, was ~1,122.7 crore, compared to ~775.6 crore, an increase of 45 per cent.
· It has been enlarging its products through global firms to bring advanced product ranges and foreign brands through tie-ups. It has concluded deals with World Kitchen, USA, which would enable it to enter the high-end tableware/cookware and storeware segments. TTK’s products would henceforth include foreign brands like Corelle, Corningware, Pyrex, Visions and Snapware. Except Corelle, all other products will carry the Prestige brand. |
METALS & MINING
Sponge iron units accuse private miners in Odisha of cartelisation
· Taking cue from the Competition Commission of India’s order against 11 cement companies recently, sponge iron units are planning to approach the Commission against some private iron ore miners. They allege that these miners, mostly from Odisha, have formed a cartel. The office-bearers of several State-level sponge iron manufacturers’ associations are to meet in Delhi shortly to firm up their plan. They will also meet senior officials of the Ministries concerned in the Union Government, it is learnt.
· In the past one year, the domestic price of iron ore has been raised at least by Rs 1,000 a tonne by these miners. In May alone, the price was hiked by Rs 500 a tonne. During the period the international price dropped by at least 30 per cent. More important, an estimated half of the sponge iron units are either closed or are operating much below their capacity. Given the present situation in the market, the iron ore price should be reduced at least by 20 per cent.
· For iron ore, the sponge iron manufacturers in the country are by and large dependent on the supplies from mines in Odisha. This is because private mining in Karnataka has virtually come to a halt following a Supreme Court order and Goa’s ore, mostly of inferior quality, is by and large exported. Odisha’s iron ore mining, it is complained, is controlled by less than a dozen miners. The crackdown on illegal mining by the Odisha Government for the past one year or so has hit operation of many mines, causing shortage of the ore. The argument of the Odisha miners, therefore, is that the recent price hike is the inevitable outcome of free interplay of market forces, with demand far exceeding supply. But the sponge iron units are not convinced.
· Meanwhile, OMC, an Odisha Government undertaking, is believed to have received a not-so-satisfactory response to its bids for supplying high grade iron ore. The bidders, it is learnt, have quoted prices which are lower by Rs 200 to 300 a tone (5 to 7 per cent) for the July-September supply as compared with the prices OMC received in the current quarter.
CIL to Adopt Price-Pooling Mechanism
· Price-pooling mechanism, which will lead to an increase in the average price charged by the monopoly miner, to ease the burden of growing imports by private power producers. The mechanism, proposed recently by the Prime Minister’s Office in response to the demand of private producers, needs to be discussed thoroughly. The concept has been tabled and it will have to be discussed and debated to arrive at the mechanism and the method of calculating the pool price.
· While CILs coal with gross calorific value of 4,000 costs about.1,100 per tonne, for example, imported coal with 5,000-8,000 GCV will be costlier. While CIL will be supplying about 350 million tonnes to power producers, another 70 million tonnes may be required for imports. Pooling will, through a fair calculation, result in uniform, but marginally higher prices for the combination on a per-tonne basis. The uniform price will be determined only after discussions with the Central Electricity Authority, Central Electricity Regulatory Commission, the coal ministry, power ministry, state utilities and power generators.
· Coal India is unable to meet the demand from power producers who are forced to make up for the shortfall through imports, which typically cost more than double the price of domestic fuel. Since CIL will meet only 65% demand of power plants that have come up since December 2009,these plants will be able to effectively operate at just 55% load factor. The idea of price pooling has been mooted because CIL cannot meet more than 65% demand of these plants.
Regards,
Team Microsec Research
Microsec Capital Limited
Tel: 91 33 30512100
Fax: 91 33 30512020
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CA. Rajesh Desai
RAJESH DESAI
INFRASTRUCTURE
KNR Constructions ties up funds for Bihar road project
· KNR Constructions Ltd has achieved financial closure for the Rs 359-crore road project coming up in Bihar with a lenders’ consortium. The company has inducted JKM Infra Projects Ltd, a Delhi-based company, as a strategic partner for the special purpose vehicle (subsidiary) executing the road project wherein the latter has picked up 49 per cent stake.
· The company informed that KNR Muzaffarpur-Barauni Tollway Pvt Ltd, a subsidiary of the company, is implementing the road project in the Mzaffarpur-Barauni section of National Highway 28 between 519 km and 627 km.
FICCI favours 100% land acquisition before start of work on road projects
· Industry chamber FICCI’s infrastructure committee wants 100 per cent land acquisition before a road project starts. That NHAI has awarded the highest-ever project road length in fiscal 2012 makes it all the more natural for developers to demand availability of the entire land.At present, 80 per cent land has to be acquired and made available to the developer by the time the concession agreement is signed. The agreement is usually signed within nine months of opening a bid.
· Delay in land availability adds to the project cost. Developers also face delays in collecting the toll if the project is not completed on time. One year of delay in construction could impact the internal rate of return by 100 basis points (one percentage point ).In case land is not made available, NHAI has to pay some penalty. However, developers usually avoid taking the NHAI head-on as they depend on it for their business and dispute resolution.
Tata Power to set up projects abroad
· Tata Power plans to diversify into geo-thermal energy and set up power projects outside India.Company will continue to explore new power generating capacity to touch 26,000 MW by 2020, with 20-25 per cent coming from clean energy sources.Company is targeting to tie-up 50 million tonnes a year of coal resources for fuel securitisation.
· The company has prioritised seven countries. These include South Africa and other Sub-Saharan Africa countries, Indonesia, Vietnam, Turkey and West Asia. The company is in the process of deploying resources in these places to understand the market dynamics and scout for opportunities. Tata Power, along with Norway’s SN Power, has a partnership to develop hydropower projects and is currently developing 600-MW Tamakoshi-3 in Nepal.
Hydro power plants facing the blues
· At a time when coal supply constraints are keeping thermal power generation capacity under-utilised, hydropower producers, too, are facing the heat. Reservoir levels are down to 16 per cent from 27 per cent last year, setting the alarm bells ringing for hydropower generators. If rainfall fails, the situation could turn grim.
· Water levels in the major reservoirs across the country have dipped because southwest monsoon this year has been uneven so far across the country. Though most experts believe it is not unusual for water levels to fall during this time of the year, what is striking is levels now almost match their 10-year average.
· The hydropower sector in India has not been growing, though its capacity addition has been good this time. Data from the Central Electricity Authority showed capacity addition stood at 60 Mw in May against a target of 35 Mw. However, there has been some dip in the electricity generation from hydro units, which stood at 9,995 million units (Mu) in May against a target of 10461 Mu.
CONSUMER DURABLES
Inventory pile-up factored in this summer, say AC makers
· Anticipating an economic slowdown, air-conditioners makers said they had already factored in last summer’s inventory pile-up for this season’s plans. The consumer durable space has shown a 20 per cent de-growth, largely because of delayed summer, battering air-conditioner sales. Godrej saw a 10 per cent marginal growth in the segment and Whirlpool was down 20 per cent in the April-June quarter. However, in June, with the onset of the heat wave, Whirlpool’s sales picked up, registering 15 per cent growth.
· Whirlpool India, says it could see the slowdown setting in and we began de-scaling in the beginning of the year. We have imported marginally. While Daikin Air Conditioning India, says, after the slowdown seen last summer, it brought down inventory.
· However, there was not all gloom-doom in the market, with several manufacturers posting strong results. Daikin’s AC sales grew by 40 per cent in the first quarter of the current fiscal, with no pile-up of inventory. Panasonic India grew by 101 per cent summer-on-summer and the market leader LG sales grew by 20 per cent. Voltas air-conditioners saw a 18 per cent quarter on quarter growth.
Voltas Mars LGs Summer
· After a decade of dominance in white goods, Korean giant LG abdicated its leadership position in India in May when it was relegated to No 2 position by Voltas in the.7,000-crore room air-conditioner market. According to latest data from market researcher GfK-Nielsen India, LGs volume market share in multibrand outlets a key sales channel that accounts for almost 90% of AC dealerships-stood at 17.7% in May against 18.3% of Voltas.
· A year ago, in July 2011,LG was the leader, with a share of 22.6%.Samsung retained its third slot in room ACs but its market share has plunged from 14.5% in July 2011 to 10% in May 2012.The drop was a result of it vacating the window AC segment this year; now it is not far behind Japanese brand Panasonic, which has doubled market share to 9.9% in the last 10 months. Even Hitachi increased its market share from 5.2% to 7.3% in the period.
· There could be a temporary market share loss since LG is consciously focusing more on high-energy efficient products not on the high volume window ACs. LG has factored in such short term losses and that LG is targeting 10%-15 % cumulative growth for calendar year 2012.He said that volume share in multi-brand outlets is not a true representation, and that LGs exclusive brand stores some 1,400 of them have also to be considered.
· LGs combined market share in multi-brand and its own exclusive outlets was 23% in May, much ahead of similar figures for Voltas. We cannot look at multi-brand outlets in isolation. Voltas attributes its strong performance to price competitiveness, a strong position in the window AC market and product innovations like an all-weather AC on which the company had spent significant marketing resources to break through the clutter.
METALS & MINING
SAIL, Kobe to ink pact forINR1,500-cr plant
· SAIL would sign the final pact with Japan’s Kobe Steel next week for a joint venture which would set up a facility to produce iron nuggets at an investment of INR1,500 crore. The memorandum of agreement between the two parties would be signed in Japan during steel minister Beni Prasad Verma’s visit to that country next week.
CIL board to meet next week on fuel
· Against the backdrop of the PMO asking CIL to sign pacts with power firms, assuring a minimum supply of 65 per cent of the total coal committed to these, the PSUs board will meet on July 10 to finalize various issues, including changes in the penalty clause of new model FSAs.
Regards,
Team Microsec Research
Microsec Capital Limited
Tel: 91 33 30512100
Fax: 91 33 30512020
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CA. Rajesh Desai
RAJESH DESAI
AUTOMOBILES
M&M's two-wheeler arm eyeing turnover of Rs 20,000 crore by 2020
Mahindra Two Wheelers (MTWL), a part of the $15.4 billion M&M Group, is eyeing a turnover of Rs 20,000 crore by 2020. Also, the two wheeler market that is slated to grow to 30 million units a year by 2020, the company is eyeing to sell 3-4 million units.
Besides, M&M has opened a new R&D centre for two-wheelers in Pune, with the investment of Rs 100 crore. The R&D center has 175 engineers and designers. It aims to spend around Rs 500 crore over the next five years on this center.
Mahindra & Mahindra is the flagship company of the Mahindra Group. The company's core automotive and farm equipment businesses have grown into market leaders whose triple bottom line ethic is driving industry trends towards technological innovation, social responsibility, and constantly improving customer satisfaction.
INFRASTRUCTURE
Alstom Projects gets Rs 530 cr orders from BHEL
· Alstom Projects India Ltd has secured orders worth nearly Rs 530 crore from BHEL to supply components and services for the 660-MW supercritical boilers at NTPC sites of two units in Mouda, Maharashtra. The company said it would cooperate with BHEL in designing the boilers and supply pressure parts for the 660-MW supercritical boilers. It would assist BHEL in erecting and commissioning the units.
BHEL sets up 250 MW gas turbine in Delhi
· Bharat Heavy Electricals Ltd on Thursday said it has commissioned the third 250 MW advanced-class gas turbine Pragati-III project at Bawana in New Delhi. Now, 1,000 megawatts is available for feeding power to the grid from this station.
· The project comprises two power blocks of 750 MW each fired by natural gas. Treated water from a nearby sewage treatment plant is being used as the source for raw water for the plant. This power plant is equipped with two steam turbines of 250 MW each and can be operated in both open cycle and closed cycle mode.
Tata Power's UMPP under scanner of IFC Ombudsman
· Tata Power's 4000 MW Ultra Mega Power Project (UMPP) in Kutch district has come under scanner of the Ombudsman for International Finance Corporation (IFC), a member of the World Bank Group. IFC is funding this project. This is following a complaint by the association of local fishing community raising concerns over the adverse social and environmental impact on them.
· The Office of the Compliance Advisor Ombudsman (CAO) for the IFC and the Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group have initiated a process to assess if an audit of IFC‘s handling of its investment in the Tata Power's UMPP at Mundra in Kutch is warranted.
CoalMin wants captive block holders to sell power through bidding
· The coal ministry has asked power companies having coal block allocations to participate in the bids for sale of power from end-use projects in line with the guidelines from the ministry of power. Else, they face cancellation of their coal blocks.The directive came after the ministry of power recommended cancellation of allocations to power companies not selling electricity through rate-based bidding.
· While allocating coal blocks to independent power producers (IPPs), it was expected that the benefits for low cost of coal from blocks would be passed onto the consumers in the form of lower rates. However, it has been noticed that many coal block allocates are either not participating in the bid or are quoting higher rates, almost similar to coal linkage-based projects
PowerMin for review of regulator performance
· The power ministry, seeking an update of the Electricity Act, 2003, has mooted the formation of committees both at the central and state level to monitor respectively the performance of the Central Electricity Regulatory Commission (CERC) and state electricity regulatory commissions (SERCs).The move comes at a time when several distribution utilities had not approached SERCs for rates revision. In some cases, SERCs have on their own, refrained from initiating this exercise to revise rates.
· The power ministry has proposed the inclusion of a Section 89(6) in the Electricity Act, 2003 so that the regulator’s performance can be reviewed annually by a multi-disciplinary body on the basis of a performance evaluation matrix and report to the appropriate government for necessary action. Another trigger to the move is the set of observations the VK Shunglu Committee made on the financial problems of state electricity boards. Its report had emphasized the need for regulators to regularly carry out tariff revision exercise.
Coal India offers 70 mt pithead stocks to power producers
· Coal India Ltd wants to liquidate 70 million tonnes of pithead stock, beginning this quarter. At least three private producers — Sterlite Industries, Adani Power, and China Light and Power (CLP) — have responded to a recent CIL offer to all 89 power stations in the country to lift coal on ‘as is where is’ basis. The pithead coal is over and above the committed supplies under the fuel supply agreements (FSA).
METALS & MINING
JSW Steel keen on bidding for iron ore mines
· JSW Steel is exploring the possibility of bidding for iron ore mines when auctioned by the Government. Last year, the Supreme Court-appointed Central Empowered Committee (CEC) had recommended cancellation of ‘Category C’ mines (where substantial illegal mining had happened) and auction them based on a scheme to be approved by the Supreme Court.
· The company will have an opportunity to participate in the bidding to get some of these mines, said JSW Steel in its annual report. Even after having a presence for more than two decades in Karnataka, investing more than Rs 35,000 crore and creating thousands of jobs in the State, JSW Steel remains the only major steel company in India with no captive mines.
· With a production capacity of 11 million tonnes, JSW Steel is completely dependent on imports for coking coal, while iron ore is sourced from mines in Karnataka. Last year, the Supreme Court banned iron ore mining in Bellary, Chitradurga and Tumkur districts of Karnataka. The shortage of iron ore supply had put pressure on JSW Steel’s profitability. In April, CEC recommended mining at ‘Category A’ mines, which were not part of illegal mining.
· The company plans to nearly double its retail outlets, JSW Shoppe, to 600 in next three years from 350 currently. It plans to add 50 outlets by end of this fiscal. Sales through these outlets have gone up 23 per cent to 1.40 million tonnes (mt). The company targets average monthly sales of 1,000 tonnes per Shoppe, adding up to 7.2 mt a year sales by 2015.
Sponge iron makers allege monopoly at ore e-auctions
· Nearly 80 per cent of the 65 sponge iron mills in Karnataka have either been shut down or are on the verge of closure, said Mr T. Srinivas Rao, president, Karnataka Sponge Iron Manufacturers Association (KSIMA).
· Ever since the Supreme Court imposed ban on iron ore mining and introduced e-auctions, sponge iron mills have been facing severe hardship. The sponge iron units use hard iron ore lumps or pellets as raw material. Ever since the ban, these units have no access to lumps. Lumps are sold in the e-auctions and are being cornered by big companies or large steel mills. We cannot match their pricing to buy ore. The sponge iron mills cannot use soft lumps or iron ore fines and, hence, many of the units had to shut shop.
· The sponge iron mills lost Rs 1,000 crore and two lakh jobs in the last two years. The sponge iron industry produces around 12,000 tonnes daily. On annual basis, production is around six million tonnes after consuming around 12 million tonnes of iron ore. The sponge iron mills need one-and-a-half tonnes of ore to produce one tonne of pellets. Cost of pellet production is around Rs 22,000 per tonne. But the market price is hovering at Rs 20,000 per tonne.
· Sponge iron mills earlier bought ore at around Rs 2,000 per tonne, which included all charges. Now with the e-auctions in place, it is forced to buy at around Rs 4,000 per tonne along with 27 per cent component involving forest development tax (FDT) and royalty which is unaffordable.
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Iron Ore Exports may Dip to 40 mt This Fiscal:
Fimi
Iron ore export is likely to fall
massively to around 40 million
tonne (mt) in the current financial year
due to the continuing ban on mining activities in many parts of the country
coupled with higher export duty and rail freight charges. Iron ore exported
stood at 117 mt in FY10 and it dipped to around 98 mt in FY11.It dipped further
to 60 mt in the last financial year. Iron ore exports from the country will not
be more than 40 million tonne due to stalled mining operations in various parts
of the country.
CIL to Take Over IOCs Explosives Unit
· Coal India (CIL) plans to take over Indian Oil Corporations explosives division and expand its capacity to meet the requirements of the mining giant. The explosives division originally belonged to IBP.IBP was merged with IOC (Indian Oil Corporation) and its importance in the overall schemes of things diminished. However, explosives are an essential input for CIL and it intends to take over the company lock, stock and barrel, invest in it and increase its capacity.
· At present, the explosives division of IOC meets about 20-25 % of our requirements. CILs move comes on the heels of the Competition Commission of India (CCI) imposing a penalty of INR60 crore on 10 private explosives manufacturers following a CIL complaint of cartelisation. It was found by CCI that Gulf Oil Corporation, Ideal Industrial Explosives, Solar Industries India,Blastec India Pvt and Indian Explosives, among others,had formed the cartel in supplying explosives to Coal India.CIL spends about.1,500 crore annually in purchasing explosives and the project is expected to result in significant savings for explosives procurement.
· It will also ensure smooth supply in case of any disruption. CIL is also considering a strategic stake in the unit apart from a takeover, and a memorandum of understanding will be signed soon. The IOC explosives division has seven bulk plants and three satellite plants. Its total capacity is about 71,000 tonne per year and some of its units are located at Singrauli, Dhanbad, Talcher and Rajmahal.
· CIL has also signed an MoU with Gail and Rashtriya Chemicals and Fertilizers to form a joint venture that will revive the closed FCI unit. The idea is to manufacture ammonium nitrate from coal gas at this FCI unit. The state-owned company’s interest in the project lies in sourcing ammonium nitrate, which is used in manufacturing explosives for its mines. It is expected to ensure at least 25-35 % of CILs ammonium nitrate requirement.
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Coal Min wants captive block holders to sell power through bidding |
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· The coal ministry has asked power companies having coal block allocations to participate in the bids for sale of power from end-use projects in line with the guidelines from the ministry of power. Else, they face cancellation of their coal blocks. The directive came after the ministry of power recommended cancellation of allocations to power companies not selling electricity through rate-based bidding. The coal ministry has also asked the companies to take necessary steps accordingly and file compliance report to it, along with ministry of power and the coal controller. The directive has incorporated it as a condition in the allocation letter even for already allotted coal blocks for power sector IPPs. · While allocating coal blocks to independent power producers (IPPs), it was expected that the benefits for low cost of coal from blocks would be passed onto the consumers in the form of lower rates. However, it has been noticed that many coal block allocates are either not participating in the bid or are quoting higher rates, almost similar to coal linkage-based projects, the letter added. As coal blocks were given for power sector, the developers must participate in the bids for procurement of power by the discoms and offer the benefit of the government allotted coal blocks to the consumers.
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BANKING
Govt borrowings may come down this year
Mr R. Gopalan, Secretary, Department of Economic Affairs hinted that government borrowings are likely to come down this year. Higher government borrowings from the domestic market crowd out the private sector from the market, while greater reliance on external debt worsens the country’s balance of payments position. If the government implements its strategy to reduce borrowings, it will benefit India Inc.
A couple of months ago, the then Finance Minister, Mr Pranab Mukherjee, said the government’s net borrowing for 2012-13 is estimated at Rs 4.79 lakh crore. This, along with cash management bills of about Rs 90,000 crore, works out to around Rs 5.69 lakh crore. This is higher than in 2011-12, when the net borrowing programme was estimated at Rs 3.58 lakh crore.
Outstanding debt
As per Finance Ministry data, the government’s outstanding debt stood at Rs 41.7 lakh crore as of March 31, 2012. On a year-on-year basis, the outstanding borrowings rose by 17.2 per cent (Rs 6.12 lakh crore) in 2011-12. In contrast, outstanding borrowings had risen at a slower pace of 11.6 per cent in FY11 and 12.3 per cent in FY10. While external debt rose by 15.4 per cent in FY12, the government’s domestic borrowings shot up by 20.8 per cent and other liabilities crept up by 1.7 per cent year-on-year.
IRDA slaps Rs 15 lakh penalty on Indusind Bank
The Insurance Regulatory and Development Authority has imposed a penalty of Rs 15 lakh on Indusind Bank Ltd for violating corporate agency norms. Indusind Bank is a corporate agent of Cholamandalam General Insurance Company and Aviva Life Insurance Company. On the basis of data submitted by Cholamandalam General Insurance, the regulator has found that Indusind had received higher payments than permissible from the insurer as a corporate agent. The payments were received in the form of database sharing/incentives to the employees of corporate agent and infrastructure setting up costs for the three financial years commencing from 2007-08, IRDA said in an order. Indusind Bank was ordered to pay Rs 5 lakh fine for each of the three financial years within 15 days, according to order.
Union Bank cuts farm loan rates by up to 175 bps
Union Bank of India has reduced interest rates for various types of loans in the agriculture sector by up to 175 basis points (bps). This move is aimed at boosting loans to the small and marginal farmers. Crop loans, investment credit and loans for allied activities up to Rs 50,000 will be available at the Base Rate (10.50 per cent). The bank, in a statement, said interest rate for lending to self-help groups (SHGs) has also been reduced by 175 bps. (A basis point is equal to one hundredth of a percentage point.) . The revised interest rates are effective from July 1, 2012. The bank is also offering 3 per cent interest subvention upfront to farmers for repaying dues in time for both pre- and post-harvest finance (for loans up to Rs 3 lakh).
Regards,
Team Microsec Research
--
CA. Rajesh Desai
RAJESH DESAI
INFRASTRUCTURE
NTPC hopes to get 3 de-allocated mines this month
· NTPC has expressed hope of getting three out of its five de-allocated mines from the government this month. The Coal Ministry last year had de-allocated NTPC’s five mines - Chatti Bariatu, Chatti Bariatu (S), Kerandari, Brahmani and Chichiro Patsimal - in Jharkhand following the power firm’s failure to develop them within the stipulated time-frame.
· Earlier this year, the Coal Ministry had also said that in-principle it has given three de-allocated coal blocks - Chatti Bariatu, Chatti Bariatu (S), Kerandari - to NTPC. Last year, the Coal Ministry had cancelled the allotment of 14 coal blocks and one lignite block to six PSUs, including NTPC, and three private firms for failing to develop mines.
Despite late rain, India aims 8.9% more hydel power
· India has set a generation target for hydel projects 8.9% higher in the current financial year despite the widespread fear that delayed arrival of monsoon could lead to a drastic decline in reservoir levels of rivers and hurt hydrogeneration.The Union power ministry has targeted to produce 122 billion units of electricity from hydropower plants in the current year. In comparison, the target for 2011-12 was 112 billion units and the actual generation was 130 billion units.
· Hydropower plants generated less power during the first quarter on the decline in reservoir levels of river due to delay in arrival of Monsoon. As a result, actual generation from hydro plants in the first quarter was just 98.45% of the target envisaged for the period. Despite below-than-expected performance of hydropower plants during the April-June 2012 quarter, overall generation in the country was 8.5 billion units higher than the target.
METALS & MINING
SAIL to open bids for Tasra coal block tomorrow
· Steel Authority of India Ltd (SAIL) will open the technical and commercial bids from the prospective mine developer cum operators (MDO) for Tasra coal block on July 10. This is latest of SAIL’s several attempts to rope in an MDO for the coking coal block, which it obtained from BCCL in 1996.
· The proposed open cast mine project includes setting up a pithead coal beneficiation plant, rehabilitation and resettlement of people from the site and setting up a 200-300 MW thermal power unit in a joint venture with SAIL. SAIL is also in discussion with the State Government, DVC, Fertiliser Corporation for acquisition of 102.88 ha, including 20 ha needed for the planned (minimum capacity of 3.5 mt a year) beneficiation unit.
· The proposed project has a number of pluses too, according to sources in the mining circles. Apart from an approved mine plan, the mining lease is under deemed extension (renewal application is being considered by Jharkhand) and the environmental clearance is in place. The selected MDO would, however, have to obtain environmental clearance for the beneficiation plant.
· The crucial but unimplemented captive project is estimated to have 28 years of life including two years of construction period. The block’s projected “minable reserves” is 96.78 million tonnes.
Price war hots up for Orissa Sponge stake
· With Monnet Ispat & Energy Ltd announcing an increase in the open offer price for Orissa Sponge Iron & Steel Ltd, at Rs 370 a share, the latter could see higher activity at the bourses. Together with two promoter entities (as persons acting in concert) of Orissa Sponge, Monnet raised the offer price to Rs 370 a share from Rs 310 announced earlier.
· This is a markup of Rs 10 a share over the nearest rival offer in a three-corner battle for the loss-making company’s control. Monnet is seeking to buy up 20 per cent or 61 lakh shares (of Rs 10 each) of OSIPL, which has iron ore and coal assets. Bhushan Power and Steel had earlier offered to buy up to 61 lakh shares at a price of Rs 360 a share. Similarly, Bhushan Power & Steel Ltd, the other suitor for Orissa Sponge, is offering Rs 300 a share, the lowest offer price to Orissa Sponge shareholders.
Domestic finished steel demand up by 8.8% in April-June period
· India’s steel industry should be in a good mood if demand for steel is to be used as a gauge. The country’s real consumption of finished steel in the April-June period is up by 8.8% to 18.2 million tonnes, according to data from the Joint Plant Committee’s flash report. Part of the reason is a low base effect, as consumption in the year-ago period had risen by only 1.5%, and producers were exporting steel to maintain the domestic demand-supply balance.
· The changed scenario should come as a relief to steel companies, who faced a slowdown in domestic consumption in 2011-12. They have raised their output but collectively have not been in a position to cater to the increase in demand. Thus, total domestic steel output of local producers has increased by only 4.9%, which has led to an increase in imports to bridge the gap.
· Despite an increase in imports, the tight domestic supply situation and the strong dollar have helped protect their realizations. Local steel prices, especially those of long products, have not displayed the kind of weakness seen in global steel prices. At the same time, international prices of key inputs such as coking coal and iron ore have turned soft, reducing the pressure of rising material costs on them.
Regards,
Team Microsec Research
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CA. Rajesh Desai