Dead Presidents! - India Equity Research: Aug 1, 2009

Saturday, August 01, 2009

Oil India IPO likely to open on Sep 7 2009

Oil India Ltd (OIL) may hit the market with an initial public offering (IPO) on 7 September.

“As per the tentative schedule drawn, the IPO may open for public subscription on 7 September and will close on 11 September,” a petroleum ministry official said.

OIL will offer 26.4 million equity shares to public in the IPO, while the government will simultaneously sell 10% of its stake in the company to state refiners.

NHPC IPO to hit capital markets on Aug 7

Initial public offering (IPO) of Hyderabad based National Hydroelectric Power Corporation (NHPC) will hit the capital markets on August 7, 2009. The price band of the issue which closes on August 12, 2009 has been fixed at Rs 30- Rs 36 a share.

The issue comprises of 16.77 billion equity shares of Rs 10 each to be decided through 100% book building process. This comprises of a fresh issue of 1,118.25 million equity shares by the company and an offer for sale of 559.12 million equity shares by the president of India acting through the ministry of power, government of India. The issue also comprises a net issue to the public of 1,635.44 million equity shares and a reservation of 41.90 million equity shares for subscription by eligible employees.

The issue shall constitute 13.64% of the post-issue capital of the company. Government plans to divest a total of 13.64% stake via the public issue.

This Issue has been graded by ICRA Land has been assigned a grade of 3/5 indicating average fundamentals. The IPO Grading is assigned on a five-point scale from 1 to 5, with IPO Grade 5/5 indicating strong fundamentals and IPO Grade 1/5 indicating poor fundamentals.

While the company will not get a share in any proceeds derived from the follow on public offer, it plans to deploy the fresh proceeds from an issue towards to part finance the construction and development costs of certain of our projects, namely, Subansiri Lower, Uri ? II, Chamera - III, Parbati ? III, Nimoo Bazgo, Chutak, and Teesta Low Dam ? IV. Part of these proceeds would also be used towards funding for corporate general purpose issues.

Of the total equity float, at least 60% of the net issue shall be allocated on a proportionate basis to qualified institutional buyers (`QIBs`), of which 5% shall be available for allocation on a proportionate basis to mutual funds only and the remainder shall be available for allocation on a proportionate basis to all QIBs, including mutual funds, subject to valid Bids being received at or above the issue price. In addition, in accordance with Rule 19(2)(b) of the SCRR, a minimum of 2 million securities are being offered to the public and the size of the net issue shall aggregate to at least Rs 100 million. If at least 60% of the net issue cannot be allocated to QIBs, then the entire application money will be refunded forthwith. Further, up to 10% of the net issue shall be available for allocation on a proportionate basis to non-institutional bidders and up to 30% of the net issue shall be available for allocation on a proportionate basis to Retail Individual Bidders, subject to valid bids being received at or above the issue price.

NHPC is a hydroelectric power generating company dedicated to the planning, development and implementation of an integrated and efficient network of hydroelectric projects in India. The company is involved in all aspects of the development of hydroelectric projects, from concept to commissioning.

It has developed and constructed 13 hydroelectric power stations and our current total installed capacity is 5,175 MW. Its current total generating capacity is 5,134.2 MW, which takes in to account a downgrade of the capacity ratings of the Loktak and Tanakpur power stations by the CEA. This total installed capacity and total generating capacity includes two power stations with a combined capacity of 1,520 MW, constructed and operated through its subsidiary, NHDC. NHPC is presently engaged in the construction of 11 additional hydroelectric projects, which are expected to increase the company`s total installed capacity by 4,622 MW. Besides, It is also awaiting government sanction for a further five projects with an anticipated capacity of 4,565 MW.

Credit Cards - Aug 1 - online PIN necessary

Beginning August 1, online shopaholics using credit cards will have to provide an additional PIN number as an additional security before making any purchase.

This is in line with a directive of the Reserve Bank of India that makes it mandatory to have an additional authentication passcode verified by Visa or MSC (Mastercard Secure Code) beginning today. This is in addition to the other information already on the card like name, card number, expiry date and CVV (card verification value) number.

The PIN or password will be used as an additional layer of security at the checkout point before completion of the transaction.

This will be known to the card holder only. So, even if somebody notes your card number, he can’t misuse it for online shopping.

Ahead of today’s deadline, banks were loaded with thousands of requests for additional authentication. Some allowed customers to create passwords on their websites while others sent fresh user IDs and passwords to customers via post. Some banks like Citibank even allowed customers to use net banking password as their password for e-commerce transactions.

ICICI Bank has gone one step ahead. While generating 6-digit PIN as an additional security layer, it also asks its customer to type a message, known as personal assurance message (PAM) on the same web-page. This PAM is known only to customers. When you type your credit card number on the merchant’s website, it will take you to the bank’s website to complete the transaction, where you need to type in the PIN.

Prabhu Rangam, AGM (IT), State Bank of India, said, ‘‘SBI has already accommodated the required change. Our debit cards are PIN based, so they may not require another layer of security.’’ However, in case of credit card, the customers have to apply for PIN.

Industry observers feel that although the RBI directive may be a dampener for e-commerce industry initially, in a few months it would help the space to grow faster as it will deter online frauds.

via Zee

Great Offshore...The great takeover tussle continues

The high stakes battle for the control of Great Offshore escalated further after ABG Shipyard raised the open offer price to acquire a 32.12% stake in the offshore service provider to the oil & gas industry to Rs450 a share. The earlier open offer price was Rs375 a share. On July 29, ABG Shipyard bought 5.3% stake in Great Offshore through a series of block deals taking its stake to 7.3%. It bought a further 212,348 shares of Great Offshore (0.6% stake) at Rs450 a share on the National Stock Exchange (NSE), taking its total shareholding above 8%. Bharati Shipyard owns 19.5% of Great Offshore and has announced an open offer at Rs405 a share. The two companies have time till August 24 to change their offer price. Bharati Shipyard acquired a 14.89% stake in Great Offshore in May, at a price of Rs315 per share, from its vice chairman and managing director, Vijay Sheth, following an invocation of shares which he had pledged. This left Sheth with less than one per cent stake in the company and he lost control of the company. Bharati Shipyard needs just 6% to become a 26% shareholder and that will give it the power to block special resolutions.

Monsoon 18% below normal in July 29 week

The southwest monsoon rains were 18 percent below normal in the week to July 29, having been above normal for the previous two weeks, the India Meteorological Department said on July 30. Total rainfall since the beginning of June was 19 percent below average, the weather bureau said. Subdued monsoon rainfall activity is likely over central and adjoining Peninsular India during next 2-3 days, the IMD said on its web site. Widespread rainfall activity with isolated heavy to very heavy falls is likely over northeastern states and fairly widespread rainfall with isolated heavy falls over West Bengal & Sikkim and parts of plains of northwest India during next 48 hours and decrease thereafter, the IMD said.

High power prices to hit Indian utilities: Fitch

Fitch Ratings said in a report that significant increases in short-term power prices, especially those of peak load power, have started to affect the credit profiles of Indian power utilities. The distribution companies (DISCOMs), in deficit scenarios or otherwise, have sourced their peak demand power on the open market to achieve flexibility in power purchase operations.

Both the quantum and price of short-term power traded have exhibited a significant upward trend during the past two years. The spot price of short-term power contracts on India's two power exchanges has touched highs of Rs14 per kilowatt hour (Kwh) in recent months.

Fitch recognises that the upward trend in short-term power prices is a result of the increasing supply constraints prevailing in the power sector, as reflected in peak and base-load electricity shortages of 11.9% and 11.1%, respectively, during April 2008-March 2009.

"The reluctance of electricity regulators across different states to disallow higher expenditure on short-term power purchases has encouraged the utilities to bid aggressively for the purchases, driving rates even higher. Thus, the share of spot power cost in the total power purchase cost of power utilities is becoming disproportionate," says Salil Garg, Associate Director with Fitch's Energy & Utilities team.

Fitch notes that in the present policy scenario, where all power purchase costs are being considered as a legitimate pass-through in tariff fixation, the higher rates and quantum of power purchased from short-term sources outside the long-term PPA mechanisms directly increase the working capital requirements of these entities, which mean higher debt levels.

While the risk of the regulator disallowing the higher power purchase costs may be low, Fitch feels that the risk of a build-up of "regulatory assets" increases in the short-term when the regulator is reluctant to increase tariffs to match the increase in costs. With the expected build-up in regulatory assets, an increase in debt requirements of power distribution utilities may be inevitable, thus increasing the stress on their credit profile in the short-to-medium-term.

KG gas row...Anil Ambani ups the ante

In a speech lasting almost an hour-and-a-half, An emotionally charged Anil Ambani wasted no breath in taking on RIL and his estranged elder brother Mukesh Ambani during the annual general meeting (AGM) of Reliance Natural Resources Ltd. (RNRL). "What RIL has been communicating in the last few years is that it has no regard for its own solemn word, no time for values, no respect for the sanctity of contracts and, most of all, no morality in its headlong pursuit of corporate greed. The most important word for Shri Dhirubhai Ambani was trust and that word has, unfortunately, gone missing. The corporate greed of RIL is a stumbling block in the future of RNRL. "Over the past five years, I have made every possible effort to resolve the outstanding issues with RIL so that we can all focus on realizing our founder’s dream. But, unfortunately, without any success," he added.

He also launched a scathing attack on Petroleum Minister Murli Deora. "It is evident that the apparently biased stance commenced in 2006, coinciding with changes in the ministry. I am not casting aspersions on the integrity of individuals here - I am sure that they have good reasons for their stance," Anil Ambani said. Ambani was also scathing in his remarks about a government decision setting a price of US$4.20 per mmbtu of natural gas, claiming that the price should not be more than US$1.5.

The gas supply dispute between RIL and RNRL vitally affects public interest, RNRL said. The matter concerns power projects of national importance representing a capacity of 12,000 MW of power, and an investment of over Rs50bn, and affects the interests of over 10 million shareholders, it added. RNRL would like to have an early resolution of the matter expeditiously. The Supreme Court has been gracious to fix the September 1 for hearing preliminary aspects of the matter. RNRL counsel mentioned this matter before the Supreme Court on 30th July.

The apex court said that it will give a short date to expedite the decision pertaining to the KG basin gas dispute between RNRL and RIL. "The matter will be taken up on September 1. On that day we will give a short date for early decision in the case," said a bench headed by Chief Justice KG Balakrishnan. The court in its brief order said that it will list the matter on Sept. 1 for further directions.

FM unveils additional steps to boost economy

Finance Minister Pranab Mukherjee announced a few additional measures while replying to the debate on Union Budget in the Lok Sabha. The Lok Sabha approved the budget for the year ending March 31, 2010. The budget was introduced by Mukherjee in parliament on July 6. Mukherjee cut the interest rate on some home loans and reduced the tax burden for select industries, adding to the four stimulus packages already announced since December 2008 in a bid to bolster a sluggish economy. The Government will provide an interest-rate subsidy of 1% for loans of as much as Rs1mn provided the value of the home doesn't exceed Rs2mn, the Finance Minister said, announcing amendments to the budget.

"In the medium term, we must enhance internal demand," Mukherjee said. "The fiscal stimulus which we have provided to confront the situation has paid dividends." The Finance Minister also extended a tax break for companies engaged in building industrial parks by two years to March 31, 2011, and exempted companies engaged in the repair and maintenance of roads from paying service tax. "We have chosen the path of higher spending to ensure that we can have a reasonable growth rate in the current year and return to a higher growth trajectory," soon, Mukherjee said. India needs 4% agriculture growth to achieve a 9% economic growth, the Finance Minister said.

The Government also announced a tax holiday on profits from housing projects approved between April 1, 2007, and March 31, 2008, provided they are completed on or before March 31, 2012. "I expect the developers to pass on the benefit of tax holidays to the buyers of these houses," Mukherjee said.

The Indian economy is expected to maintain a growth rate of 6.7% in 2009-10, same as last fiscal, as some signs of pick-up are visible, the Finance Minister said. "We have ended 2008-09 at 6.7%. I do hope, this level of growth, we will be able to maintain (in 2009-10)," he said while commending the Finance Bill in the Rajya Sabha. He said although some signs of recovery are visible, it is too early to point out that whether they would be steady.

Mukherjee hoped the stimulus, both in terms of financial concessions, fiscal policy and the monetary measures announced by the RBI, will have its desired impact. The early signs of improvement in the Indian economy are seen despite no big recovery visible in the global economy, the Finance Minister said. Trillions of dollars would have been injected in Europe and North America. "But there is no immediate restoration of the global economy, he added.

Weekly Stock Picks - Aug 1 2009

Buy JP Associates

Buy Welspun Guj

Buy L&T

Buy Sterlite Indus

Buy Cummins

Weekly Newsletter - Aug 1 2009

Global indices including ours have hit calendar year highs. With most of the quarterly numbers out of the way, the market will look for some fresh triggers. The auto numbers to be released over the weekend will given an indication whether or not the pick up in the economy is being sustained.

The FMs announcement of additional stimulus measures and RBIs forecast for GDP growth at 6.5% were among the boosters this week. With no big bang announcements expected, the global cues will continue to influence the market heavily.

For the first time since 1947, the U.S. economy contracted for the fourth quarter in a row, at a much smaller rate than in the past six months. Real gross domestic product fell at a mere 1% annualized rate in Q2 as against an average 5.9% drop over the past two quarters. This news could always be discounted as it was on expected lines.

Back home, some stocks could gain momentum on buzz of inclusion in the F&O. Nothing official about it as yet though. With indices at a high, dizziness at the top could always set it. Take a closer look at your portfolio and make the necessary re-adjustments.

RBI sees upward bias to FY10 GDP growth estimate

On current assessment, the growth projection for GDP for 2009-10 is placed at 6% with an upward bias, the RBI said while announcing the first quarter review of the annual monetary policy. This updated growth projection for 2009-10, thus, marks a slight improvement over the growth expectations of around 6% indicated in the Annual Policy Statement in April, the central bank said.

There are now signs of an upturn in industrial production and revival of credit demand, though the delayed monsoon has increased the downside risks to agricultural production, the RBI said. The growth projection for the current year reflects the absence of any firm signs of definite recovery in the world economy, it added. The challenge is to return the economy to the high growth rate of 9% that we averaged in the period 2005-08, the RBI said.

In 2008-09, real GDP increased by 6.7%, in line with the projection in the RBI's Annual Policy Statement. However, the growth pattern was uneven as real GDP growth decelerated from 7.7% in the first half of the year to 5.8% in the second half.

RBI hikes FY10 inflation forecast

Keeping in view the global trend in commodity prices and the domestic demand-supply balance, WPI inflation for end-March 2010 is projected at around 5%, the Reserve Bank of India (RBI) said on July 28. This is higher than the projection of 4% made in the Annual Policy Statement of April, the central bank said while announcing the first quarter review of the annual monetary policy.

On a financial year basis, WPI inflation has already increased by 3.5% by July 11, the RBI said. The base effect, which is generating the negative WPI inflation, is projected to completely wear off by October, it added. Thereafter, the year-on-year WPI inflation will creep up even without any major supply shock, the RBI said.

The immediate challenge is to manage the balance between the short-term compulsions of providing ample liquidity and the potential build-up of inflationary pressure on the way forward, the RBI said. The task is to maintain the accommodative monetary stance till demand conditions further improve and the credit flow takes hold, but to be ready with a roadmap to reverse the expansionary stance quickly and effectively thereafter, the RBI said.

RBI maintains status quo on policy rates

As expected, the Reserve Bank of India (RBI) kept all policy rates unchanged, as it seeks to bolster economic growth amid persistent worries over the precarious global situation. Still, the central bank warned that inflation will start spiking up from later this year as the economy revives and the low base effect starts tapering off. The reverse repo rate was left unchanged at 3.25% while the repo rate was kept steady at 4.75%. These are at their historically lowest levels. The Bank Rate has been retained unchanged at 6%. The cash reserve ratio (CRR) of scheduled banks has been retained unchanged at 5% of net demand and time liabilities (NDTL).

The RBI said that it will maintain an accommodative monetary stance until there are definite and robust signs of recovery. This accommodative monetary stance is, however, not the steady state stance, the central bank said in a statement. On the way forward, the RBI will have to reverse the expansionary measures to anchor inflation expectations and subdue inflationary pressures while preserving the growth momentum. The exit strategy will be modulated in accordance with the evolving macroeconomic developments, the central bank said.

RBI Governor D. Subbarao said that a prolonged budget deficit can crowd out private investments and trigger inflation, and urged the Government to lay out a roadmap to trim the budget shortfall, including details on revenue and expenditure targets. The immediate challenge is to provide ample cash in the banking system for companies and Government borrowings to support growth, while at the same time control the potential build-up of inflationary pressures on the way forward, Subbarao said.

Since mid-September 2008, the RBI has reduced policy rates significantly: the repo rate by 425 basis points and the reverse repo rate by 275 basis points. The CRR was also reduced by 400 bps of NDTL of banks.

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