microsec: NEWS ANALYSIS

[RAJESH DESAI]

 

INFRASTRUCTURE

 

Adani buys HDIL's Mumbai plot for Rs 900 cr

·         In one of the biggest property deals in the country in recent years, the real estate arm of Adani Enterprises (AEL) has bought a two-acre land parcel in Mumbai from property developer HDIL for Rs 900 crore. The plot is located at the city’s Andheri suburb. The sale of the land parcel is expected to help HDIL to bring down its debt, which stood at Rs 4,000 crore in the third quarter of current financial year. The company plans to decrease its debt by 20 per cent by March-end through sale of land parcels and development rights.

·         Adani Infrastructure Development, a subsidiary of AEL, has invested over Rs 2,000 crore in projects in Ahmedabad, National Capital Region and Mumbai to develop more than 40 million sq ft of office and residential properties.

Enquiry into Lanco case is still going on: Minister

·         The enquiry into the Lanco Infratech case is going on, said Mr Farooq Abdullah, Minister for New and Renewable Energy, on the sidelines of an Assocham conference. The Government has ordered a probe into the contravention of one project-one proponent norm in the National Solar Mission brought out by the Centre for Science and Environment (CSE) investigation.

·         According to the investigation, Lanco Infratech floated front companies and grabbed nine projects worth 235 megawatt, about 40 per cent of the 620 megawatt worth of projects auctioned by the Government during the first batch of the first phase of the Solar Mission.

GVK Power Gains on Optimism It May Sell Asset Stakes to Pay Debt

·         GVK Power & Infrastructure Ltd. (GVKP), controlled by Indian billionaire G.V. Krishna Reddy, gained a second day in Mumbai on speculation it will sell stakes in assets to repay debt.

·         The company explores various options to buy or sell stakes in businesses in the normal course, GVK Power said in a stock exchange filing yesterday. No agreement has been signed to sell stakes in its airport or oil and gas businesses.GVK Airport Holdings Pvt., the unit that operates the Mumbai and Bangalore airports, increased its stake in the properties last year. GVK Power has a total debt of 69 billion rupees ($1.4 billion)

·         GVK Power is in talks with BG Group Plc (BG/) for a possible sale of its stake in seven oil and gas blocks, Mint newspaper reported yesterday, citing two unidentified people familiar with the development. The Indian company is looking to raise $1.1 billion to invest in power and other businesses.

NTPC to supply 250 MW power to Bangladesh

·         The country’s largest electricity producer NTPC will supply 250 MW power to Bangladesh, a move that will help strengthen trade ties between the two nations. NTPC will export 250 MW power to Bangladesh from the unallocated quota available with the Power Ministry.

·         A power purchase agreement was inked between NTPC Vidyut Vyapar Nigam Ltd (NVVN), a wholly-owned subsidiary of NTPC, and the Bangladesh Power Development Board (BPDB) on Tuesday. The electrical grid interconnection between the two countries would be through a 1X500 MW HVDC back-to-back asynchronous link between the eastern region of India and the western grid of Bangladesh.

CONSUMER DURABLES

 

Voltas, Blue Star: Fundamentals still weak

·         Though stocks of Voltas and Blue Star went up as foreign money poured into Indian equity markets in 2012, the outlook continues to be cautious due to subdued economic activity in international markets and a slump in the domestic commercial real estate sector.   ·         We expect limited upside given the challenging macro environment in India and subdued order inflow activity in the Middle East. There are still no signs of pick-up in demand from commercial real estate. With valuation at about 14 times one-year forward earnings and no improvement in fundamentals, both stocks look fairly priced at current levels, believe analysts. In the December 2011 quarter, while Blue Star disappointed the Street, Voltas’ performance was better than expected.   Analyst Views:   FY13: Ray of hope   ·         Blue Star’s management expects FY13 to be better as new orders in EMP division are being bagged at higher margins of 10-11 per cent and current loss-making projects are expected to get executed by first half of FY13.   ·         Even Voltas’ management is hopeful of booking adequate orders in FY13 with the two new joint ventures in Middle East and East Asia, but reiterated that incremental orders in EMP-international (which contributes 70-75 per cent of segment revenues) are coming in at lower margins of three to four per cent, compared to the current seven per cent. However, the Qatar project, which is 53 per cent complete, and low-margin legacy orders of loss-making subsidiary, Rohini Electricals, are expected to be completed by 2012end. Sequentially margins should improve.   Valuations ahead of fundamentals   ·         Analysts feel valuations have run ahead of fundamentals. Voltas trades at 12.5 times FY13 estimated earnings, close to historical average one-year forward price to earnings (P/E) multiple of 15 times. Similarly, Blue Star trades at 15.5 times FY13 estimated earnings, which is close to its historical multiple of 18-19 times.   ·         The outlook, namely on order inflows and profitability, still continues to be cautious though the extent has softened. Blue Star continues to witness a challenging environment. The business environment remains challenging for Voltas across the three segments. EMP margin is likely to be under pressure owing to lack of sufficient new orders given the slowdown and high competitive intensity.   CAPITAL GOODS   BGR-Hitachi Power emerges L1 bidder for NTPC order   ·         A joint venture of BGR Energy Systems Ltd and Hitachi Power Europe GmbH has emerged as the lowest bidder for the supply of supercritical boilers to state-run NTPC Ltd. The equipment, part of a Rs.22,000 crore order for 11 supercritical boilers of 660 megawatts (MW) each, and an equal number of turbines of the same size, will help power utilities NTPC and Damodar Valley Corporation (DVC) improve plant efficiency and achieve economies of scale. While nine sets are for NTPC, two are for DVC.   ·         To mitigate a shortfall in coal, India plans to set up a bulk of its power generation capacity using supercritical and advanced ultra-supercritical equipment, which are more efficient. While the BGR-Hitachi joint venture will supply seven units, state-run Bharat Heavy Electricals Ltd (Bhel), the second-lowest bidder, will get the contract for the supply of four units. A joint venture of Larsen and Toubro Ltd (L&T) and Mitsubishi Heavy Industries Ltd was the third-lowest bidder. BGR, in a filing with BSE on Wednesday, put the value of the contract atRs.6,500 crore.   ·         BGR Energy shares jumped 9.5% to Rs.368.35 each on BSE on Wednesday. NTPC ended nearly unchanged at Rs.180.85, as did Bhel at Rs.308.20 and the benchmark Sensex at 17752.68. L&T fell nearly 3% to Rs.1,308.10. NTPC has projects totalling 14,088MW under construction. Equipment for 16,192MW is still under the tendering process, while it plans to award orders for equipment meant to generate 40,000MW during the 12th Plan period (2012-17) for about Rs.2 trillion.     CEMENT   ACC to set up plant in Chhattisgarh  ACC Ltd will set up a new clinker production facility of 2.79 million tonnes per annum and allied grinding facility at Jamul, in Durg district of Chhattisgarh, phasing out the existing clinkering and grinding lines there. The new plant will help meet the demand for cement in the eastern region.   It also plans to decentralize grinding stations which will use clinker produced at Jamul. The project will be implemented in a phased manner and scheduled for completion by the first quarter of 2015. AUTOMOBILES Industry Ministry wants income-tax rebate for electric vehicle buyers Will buyers opt for an electric/ hybrid car (xEV) if it means paying lower income-tax? The inter-ministerial body headed by the Heavy Industries Ministry for the development of the sector certainly seems to think so. A final call though is expected to be taken by the Finance Ministry only by April when it announces the incentives package under the ‘National Electric Vehicle Policy'. MULTIPLE SOPS “An income-tax rebate has been suggested as part of an incentive package for the buyer. This is apart from multiple sops proposed for both the customer and the manufacturer. Probably the first such move to promote a manufactured product via an income-tax benefit, individual taxpayers could get an alternative to investment in financial instruments such as life insurance policies or mutual funds. If adopted, this should push electric car sales significantly. Two-wheeler sales may not see a benefit as most such customers do not have a taxable income. CARS AND BIKES While only Mahindra-Reva makes and sells electric cars in India, others such as Toyota and General Motors have shown interest to follow suit given the right policy environment. In two-wheelers, there are about half a dozen players, though Hero electric claims a 44 per cent market share (85,000 units market in 2011-12). With the existing Ministry of New and Renewable Energy (MNRE) scheme of 20 per cent factory price subsidy included, the total price benefit for electric cars and two-wheelers could amount to 30-35 per cent. The manufacturer can also get a tax holiday on investment in a new plant. There are many things being considered both on the buyer and seller side. A study commissioned by the Heavy Industries Ministry to Booz-Allen last year said that a Rs 22,500-crore public investment will be required to reach 6-7 million xEV sales target by 2020. BANKING Moody's lowers Central Bank's rating to ‘negative' Moody's Investors Service has revised Central Bank of India's ratings outlook to ‘negative' from ‘stable' due to the bank's modest capital, weak asset quality and large exposure to troubled industries, such as the power sector. Central Bank reported a Tier 1 capital ratio of 7.77 per cent as of December 31, 2011, below the 8 per cent Tier 1 ratio that the Government wants public sector banks to maintain. The public sector bank's Tier 1 is lower than its peers; the system Tier 1 ratio average reaching 9.60 per cent. On the assets quality front, the bank's Non Performing Assets (NPA), as of December 31, 2011, reached a two-year high of 3.7 per cent of loans, and Rs 4,920 crore on an absolute basis. INFRASTRUCTURE LOANS The rating agency has assessed that the country's sixth largest public sector bank has larger exposures to stressed sectors than the system average. For example, infrastructure loans represented 21 per cent of loans against 15 per cent for the system. Within infrastructure, loans to the power sector accounted for 14 per cent.  The bank's provision coverage declined to 48.1 per cent in December 2011 from 70.3 per cent a year earlier. Union Bank may soon cut interest rates on retail loans Union Bank of India will reduce interest rates on home and education loans next month if its net interest margins (NIM) remains strong. The bank would take a call on reducing interest rates on the retail side (such as home and education loans) after the NIM data for February is available. State Bank of India's move to reduce education loan rates by 1 percentage point. Union Bank's NIM in end December was 3.3 per cent. The bank had in December last year reduced its base rate by 0.1 percentage points to 10.65 percent. On overseas expansion,  the bank was looking to open a subsidiary in the UK and was awaiting the regulatory nod of the UK authorities. The bank has already received the go ahead from the Reserve Bank of India. Union Bank is also looking to open branches in Belgium and Sydney, besides offices in Dubai, Shanghai and Beijing. Home loan growth slows to 13.2% in Jan The impact of rising interest rates and high property prices seem to reflecting in the pace of growth of housing loans. Sectoral deployment of bank credit, housing loans for the month of January 2012 grew by 13.2 per cent, over the year-ago period. This is slower that last year, that is, January 2011, when housing loans grew by 15.1 per cent over the previous year. NON-FOOD CREDIT Non-Food Credit for January was 15.9 per cent, lower than 23 per cent last year. The growth in personal loans was lower at 12.7 per cent (15.8 per cent). Only credit card outstanding saw higher growth at 8.5 per cent, against a de-growth of 11.9 per cent. Loans to industry grew by 20.2 per cent (26.5 per cent). Credit to agriculture and allied activities also grew at a lower pace at 6.3 per cent (21.5 per cent).

 

Regards,

 

Team Microsec Research

 

 

 

--
CA. Rajesh Desai