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Monday, March 02, 2009
US markets to fall to 11 year low
Indices drop to lowest levels in eleven years
Wall Street continued with its streak of loss making weeks even for the week that ended on Friday, 27 February, 2009. Though the week kicked off on a relatively strong note with some modest support from the financial sector, couple of economic reports and developments in Wall Street in the banking sector weighed on investor sentiments during the course of the week. Big companies continued to slash their dividends to curtail costs and unemployment continued to remain at highest levels in three decades.
The Dow Jones Industrial Average lost 302 points (4.1%) for the week to end at 7,062. Tech - heavy Nasdaq lost 63 (4.4%) to end at 1,377. S&P 500 lost 35 (4.5%) to end at 735.
On Monday, 23 February, 2009, amid news of nationalization of US banks, stocks did witness a modest rally led by the financial sector. But the rally fizzled out in the second half but once again rebounded on next day, Tuesday, 24 February, 2009.
On Tuesday, Fed Chairman Bernanke finished his semiannual testimony in front of the Senate Banking Committee. The testimony continued to dominate financial news coverage. Bernanke noted in his remarks that measures taken by the Federal Reserve, other U.S. government entities, and foreign governments have helped restore a degree of stability to some financial markets. However, he noted that first banks have to be stabilized and then only overall development despite a range of lower borrowing costs, significant stresses persist in many markets.
JP Morgan and GE were two big names on Wall Street that announced dividend cuts during the week. General Electric cut its long-standing dividend to $0.10 from $0.31 to save nearly $8.9 bln a year. JPMorgan reduced its dividend to $0.05 from $0.38 to retain $5 billion in additional common equity per year. But the company said that its first quarter performance to date has been "solidly profitable'.
In the US market on Friday, 27 February, 2009, stocks ended in the red. Market started the day in the red and limped in the same for the entire day. The Dow Jones Industrial Average ended lower by 119 points at 7,062, the Nasdaq closed lower by 13.7 points at 1,377 and the S&P 500 closed lower by 17.7 points at 735.
Stocks started losing steam on Friday after reports that Citigroup has decided to offer common shares for up to $27.5 billion in existing preferred equity at a conversion price of $3.25 per share. The government will match this exchange to a maximum of $25 billion face value of its preferred stock. The transaction is expected to increase Citigroup's tangible common equity, but it also gives the government a 36% stake in the company.
In the earnings arena, retailers Gap and Kohls reported worse than expected earnings. Dell's results were at par with other tech companies.
Among major economic reports scheduled for the day, fourth quarter GDP was revised lower to reflect an annual rate of -6.2% versus a previously estimated -3.8%. The decrease in fourth quarter activity primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment. The report once again questioned the demand for oil in the coming months. That marked the steepest drop in GDP since 1982.
On Friday, crude-oil futures for light sweet crude for April delivery closed at $44.76/barrel (lower by $0.46 or 1%) on the New York Mercantile Exchange. For the week, crude ended higher by 12%. For the month of February, crude prices ended higher by 1.5%.
Among major economic reports for the week, durable Goods Orders ex-transportation dropped a larger-than-expected 2.5% in January, more than the -2.2% consensus estimate. The prior month's figure was revised sharply lower to -5.5% from -3.6%. In the housing sector, new home sales dropped to an annualized rate of 309,000 units in January. That was below the 324,000 consensus estimate, 48.2% below the year-ago level and also marked a new low for records dating back to 1963.
For the year 2009, Dow, Nasdaq and S&P 500 are down by 19.5%, 12.6% and 18.6% respectively.
All eyes on Reliance Industries and Reliance Petroleum
The board of Reliance Industries will meet later today to consider absorbing its Reliance Petroleum unit, giving it direct control of the world's largest refinery complex. Reliance Industries separately said it would buy Chevron Corporation's 5% stake in Reliance Petroleum, valued at $344 million as of the close of trade on Friday, 27 February 2009. Reliance Industries said it would own 75.38% of Reliance Petroleum after buying out Chevron's stake. Mukesh Ambani is chairman of both the Reliance companies.
Meanwhile, Reliance Industries reportedly expects losses of Rs 4005 crore from sale of gas from its D-6 block in 2008/09, according to its submissions in the Bombay High Court. However, it expects profit of Rs 962 crore in 2009/10. Reliance expects to double production to 80 million metric standard cubic meters per day by December, from 40 million metric standard cubic meter per day when it starts production this month.
Sterlite Industries, part of the London-based Vedanta Group, has reportedly put in a fresh bid to acquire US copper miner Asarco LLC for $1.5 billion, much lower than $2.6 billion it offered last year.
Hero Honda Motors reported a 24% jump in its total sale for the month of February 2009, at 3,29,055 units, as compared to 2,65,431 units in February 2008.
TVS Motor Company's two-wheeler sales for February 2009 rose 13% to 1,07,301 units from 95,235 units in February 2008. Its exports grew 32% to 16,583 units in February 2009 over February 2008. Meanwhile, TVS group firms, including TVS Motor, are reportedly planning to raise Rs 200 crore by selling land in the southern city of Chennai.
Thailand's ThaiBev has reportedly initiated talks with liquor maker United Spirits, even as the latter is negotiating a minority stake sale to Diageo Plc.
Tech Mahindra may reportedly tie up with a private equity firm to launch a bid for beleagured Satyam Computer Services.
The board of Dewan Housing Finance Corporation will meet on 6 March 2009 to consider raising funds via a rights issue of shares.
Daily News Roundup - March 2 2009
Reliance Industries says it would merge its wholly-owned subsidiary, Reliance Petroleum, with it to create an integrated company in oil refining and petrochemicals.(FE)
Reliance Industries plans to ramp up production of gas from its D6 block in the KG basin in Bay of Bengal far faster than estimated earlier.(DNA)
ONGC is planning an IPO of its subsidiary, which is building the Rs124bn petrochemical plant at Dahej in 2011, even as it agreed to give GAIL (India) a 19% stake in the project.(FE)
Chevron Corp, which holds a 5% stake in Reliance Petroleum, is likely to exit the company.(BL)
GAIL (India) signs pact for gas supply to four fertilizer units.(BL)
Company Law Board is not in favour of superseding the board of Maytas Infra.(FE)
Petronet LNG plans to mobilise Rs22bn from the domestic and external markets to part-finance its captive port with re-gassification facilities at Kochi.(BL)
Hero Honda February sales rise 24% to 329,055 units. (BS)
TVS Motors February sales rose 13% to 107,301 units. (BS)
Union Bank, PNB cut rates on car, home loans.(BL)
GMR group has signed an agreement with Malaysian Airlines to set up an Rs4bn MRO facility at the Aerospace Park near the Rajiv Gandhi International Airport in Hyderabad.(BL)
ICRA revises Tata Motor Finance to A1. (BS)
Shareholders of Zenotech, an associate company of Ranbaxy, have moved the Chennai High Court against the "low" open offer price quoted by Daiichi to acquire more Zenotech shares. (BS)
Shoppers Stop shut three of its unprofitable book stores 'Crossword' and airport store 'Stop & Go' in the country. (BS)
Sterlite cuts bid for US Asarco to US$1.5bn. (ET)
Unitech in talks with Oriental Bank of Commerce to sell its office building in Sake in New Delhi. (ET)
Tech Mahindra plans to launch a bid for Satyam jointly with a private equity fund. (ET)
Infosys cuts 5% of workforce at Australian unit. (ET)
TVS Group to raise Rs2bn via land sale. (ET)
Bidding for Satyam Computer not to be restricted to domestic companies but also open to international companies. (BL)
Reliance Industries’ gas production facility at the KG basin will supply gas to fertiliser, power and steel plants across the country in a couple of weeks.(TOI)
MTNL to launch 3G in Mumbai by April. (BS)
Raymond plans to have a 50 strong store network in Middle-East and SAARC markets by 2012. (ET)
BHEL dispatches the boiler drum for the first unit of 2x500 mw thermal project of NTPC TN energy company coming up in Thiruvallur district. (ET)
Orissa Sponge Iron to Coopt Monnet Ispat as strategic partner. (ET)
Ashok Leyland ties up with Bank of Baroda for extending finance to the company's end-customers. (ET)
Hindustan Motors looks for non-auto business to stay afloat. (BS)
Having bought two coal mines, one each in South Africa and Indonesia, the GMR Group is set to establish new power plants on the east and west coasts of India.(DNA)
Emami Group is planning to invest Rs 22bn for setting up a writing and printing paper manufacturing plant in West Midnapore district of West Bengal.(BL)
Coming to the rescue of new telecom licensees like Unitech Wireless, Datacom, Loop Telecom and Swan Telecom, the government has postponed and staggered the penalties liable for failing to meet year-one rollout obligations.(FE)
Moser Baer Photo Voltaic, a subsidiary of optical storage device maker Moser Baer India, said the construction of its new Chennai plant would begin in October and production from fiscal 2011.(DNA)
Power Grid Corp. of India says its board had approved investments in three transmission projects.(BL)
Honda has indefinitely put on hold opening of its Rs10bn second plant in India due to slowdown in the auto market.(FE)
BSNL launches 3G mobile services on commercial basis from 11 cities.(BL)
Forex reserves fell by US$165mn to US$250bn in the week ended February 20.(BL)
GDP expanded by 5.3% in Q3 FY09, the slowest in almost the last six years.(BL)
Government strikes deal with the RBI to receive Rs450bn of market stabilization funds in installments by March 30.(FE)
India's fiscal deficit for the April-Jan period stood at $52bn, or 80.5% of an upwardly revised budget target, according to a government statement.(FE)
Domestic pharma retail market has recorded nearly 15% growth in January.(TOI)
The government plans to invest upto Rs100bn annually into drug research. (ET)
Automobile companies plan their captive finance arms.(TOI)
Plan panel to review bidding guidelines for infrastructure projects.(FE)
State-run fuel retailers cut ATF rates by a further seven%, making it the 11th reduction since September last year.(FE)
Exports of garments and leather items to US & EU from April 1 to get a 2% incentive from government.(BL)
The same old story!
Things have never been more like the way they are today in history.
History is set to repeat on the bourses, as Reliance has done it again. Most analysts expect the ratio to favour RIL, though there could be a positive surprise for RPL shareholders.
Though expected, we are surprised by the timing of the proposed merger of RPL with RIL. The swap ratio may be in a range between 16:1 and 24:1 (RPL:RIL). RPL shareholders could lose out if the ratio is unfavorable. But they will get an exposure to RIL’s high profile E&P assets, retail and SEZ businesses. So, we expect RIL to rally (later than sooner).
RIL’s weightage is high in the key indices but it may not be able to counter the persistent headwinds from the global markets. Even the macro-economic outlook is getting worse by the day, which is evident in the Q3 GDP data. The government’s fiscal situation also seems to be spiraling out of control.
On the overall bourses too, we see the same old story; a weak start and later globally clues directing the proceedings.
FIIs were net sellers in the cash segment on Friday at Rs4.63bn, while the local institutions pumped in Rs6.49bn. In the F&O segment, the foreign funds were net sellers at Rs3.16bn. On Thursday, FIIs were net sellers in the cash segment at Rs2.38bn.
US stocks ended lower on Friday, capping another terrible month on a sour note after the Obama administration increased its stake in the troubled Citigroup, and revised fourth-quarter GDP figure down.
The Dow Jones Industrial Average lost 119 points, or 1.7%, to 7,062.93. It was the lowest close for the blue chip barometer since May 1997. The S&P 500 index dropped 18 points, or 2.4%, to 735.09, closing at its lowest point since Dec. 18, 1996.
The Nasdaq Composite index shed 13.5 points, or 1%, to 1,377.84. The tech-laden index has held up better than the other major averages this year and remains above its lows from Nov. 21, 2008.
The S&P 500 closed below its November lows and also below the 740-750 range that some had hoped will hold up. For the week, the broader marker indicator was down 4.5%, giving it a monthly hit of 11%.
The Dow slid 4.5% in the week and 11.7% in the month. The Nasdaq shed 4.4% during the week and 6.7% in the month.
Financials led the declines, with Citigroup down 39% on news the US government was hiking its stake in the battered bank to as much as 36%. The deal converts preferred shares that the US Treasury already holds for common shares.
It gives the bank more capital, which ideally would lead to more lending. The government had earlier given Citi US$45bn in exchange for preferred shares. Citi shares have plunged around 90% over the last year as the company has struggled to stay solvent amid the housing sector collapse and the credit crisis.
Still, Wall Street worry that Citi will ultimately have to be taken over by the government, a move that would completely wipe out shareholders.
The US economy shrank at a much faster pace in the fourth quarter than initially thought. GDP contracted at the fastest pace in 26 years on sharp declines in consumer spending, investment and exports, the government said.
GDP fell at a 6.2% seasonally adjusted annualized pace in the final three months of 2008, revised from the initial estimate of a 3.8% drop, the Commerce Department reported. It was the worst decline in GDP since a 6.4% decrease in the first quarter of 1982.
Economists had expected a revision to a 5.5% decline, based on updated monthly data on inventories, exports and other key measures.
Economists don't expect any relief in the current quarter, which ends March 31. The current projection sees first-quarter GDP falling at a 4.8% annual rate. Since 1947, GDP has never fallen by more than 4% for two quarters in a row. Most economists don't expect GDP to grow until the second half of the year.
While the report was worse than expected, it also wasn't surprising to investors, following weak readings on manufacturing, employment and consumer spending. Hence, the stock market reaction Friday was negative, but not awfully bad.
The New York Stock Exchange said it is temporarily waving its minimum price for listed stocks, due to the unprecedented stock market environment. There are 50 stocks that have traded for less than a US$100 for at least 30 days, the NYSE said. Typically, those stocks would be put under review, which could eventually lead to a delisting. Last month, the NYSE changed its market cap for listed companies to US$15 million from US$25 million. Both changes are in effect through the end of June.
In other economic news, the Chicago PMI, a regional reading on manufacturing, rose to 34.2 in February from 33.3 in January. Economists had predicted a drop in the index to 33. Any figure below 50 signals weakness in the sector.
The University of Michigan said its consumer sentiment index rose to 56.3 in February from an initially reported 56.2. Economists thought it would dip to 56.
Dell reported weaker quarterly sales and earnings late on Thursday that missed analysts' forecasts. The company also said it plans to cut an additional US$1 billion a year from its annual expenses within two years, picking up the pace on an existing cost-cutting plan. This seemed to reassure investors and shares rose almost 4%.
General Electric (GE) said that it will cut its quarterly dividend by 68% to 10 cents per share from 31 cents per share, a move the company says will save it about US$9 billion a year. GE shares lost 6.5%.
Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.01% from 2.99% on Thursday.
In currency trading, the dollar gained versus the euro and fell against the yen. COMEX gold for April delivery fell 10 cents to US$942.50 an ounce.
US light crude oil for April delivery fell 46 cents to settle at US$44.76 a barrel on the New York Mercantile Exchange.
The S&P's finish was its worst since the 731.54 hit at the close of Dec. 18, 1996, with its percentage decline in February proving to be the second-worst on record following the 18.4% hit that came in 1933.
After the worst January performance in its 113-year history, the Dow tallied the index's worst February point decline, and its second-worst percentage drop since 1933, when it lost 15.6%.
The Nasdaq decline proved its worst percentage drop since 2001, when it discarded 22.67% of its value.
Another choppy day ended on in the red on Friday. Weak global cues coupled with selling pressure dragged the Indian bourses at open. After trading in a narrow range, key indices managed to stage a smart pull back in the second half finally ending the day with marginal losses. Sensex slipped 63 points to close at 8,891 and the NSE Nifty was down 22 at 2,763.
The BSE benchmark Sensex recovered nearly 170 and the NSE nifty recovered almost 60 points from their day’s low.
Shares of SREI Infra gained by 1% to Rs30 after 4.1% of equity shares of the company were traded in a single transaction. The scrip touched an intra-day high of Rs34.8 and a low of Rs29.2 and recorded volumes of over 6mn shares on NSE.
Shares of United Spirits gained by 3.3% to Rs621 after reports stated that United Spirits and Diageo Plc are still in discussions about a possible stake-sale agreement. The scrip touched an intra-day high of Rs628 and a low of Rs595 and recorded volumes of over 2.1mn shares on BSE.
Shares of Shoppers Stop have declined by a percent to Rs86 after the company announced that it closed three crossword book stores. The scrip touched an intra-day high of Rs86 and a low of Rs83 and recorded volumes of over 8,000 shares on BSE.
Shares of ONGC declined by over 3.5% to Rs690 after reports stated that the company shut a platform in the Bombay High offshore field reducing gas output by 40%. The scrip touched an intra-day high of Rs720 and a low of Rs621 and recorded volumes of over 3.2mn on BSE.
Shares of HDFC surged by 5% to Rs1271 after 1.12mn equity shares changed hands in two trades. The scrip touched an intra-day high of Rs1275 and a low of Rs1200 and recorded volumes of over 1.9mn shares on BSE.
Shares of Mphasis erased early gains and slipped by 1.6% to Rs168. The group revenues increased by 58.1% to Rs9.8bn for the quarter ended January 31 from Rs6.1bn for the corresponding quarter I the previous year.
Operating profit during the quarter ended January 31 was Rs2.1bn a growth of 246.6% as compared to operating of Rs608mn in the same period a year ago. The scrip touched an intra-day high of Rs177and a low of Rs158nd recorded volumes of over 0.5mn shares on BSE.
The markets have fresh news to ponder and speculate on. Reliance Industries has done it again and finally announced a board meeting to mull merger with Reliance Petroleum. With Fortune 500 companies coming down in value, mergers will like may well create the balance sheet size that Indian conglomerates desire. All said and done, bulls and bears may hardly March anywhere this F&O series.
Asian Markets crumble
Asian markets : Nikkei 3.2% down, Hang Seng : 3.71% down, Straits Times: 3.27% down
Bullion metals end mixed
Gold gains 7.5% in February, 2009
Bullion metal prices ended marginally lower on Friday, 27 February, 2009. Prices fell as traders anticipated that economy will recover in the coming months and this decreased the appeal of the precious metals.
Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa.
On Friday, Comex Gold for April delivery fell $0.1 (0.01%) to close at $942.5 an ounce on the New York Mercantile Exchange. For the week, gold ended lower by 6%. For the month of February, gold ended higher by 7.4%. For January, 2009, gold had gained 3.9%. Year to date, gold prices are higher by 8.5%.
On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (8%) since then.
On Friday, Comex silver futures for March delivery rose 13.5 cents (1%) to end at $13.085 an ounce. Year to date, silver has climbed 18.5% this year. For 2008, silver had lost 24%.
The World Gold Council reported in February that demand for gold surpassed $100 billion last year for the first time ever, amid increased industrial and jewelry consumption and investors' purchase of the metal as a safe haven. Gold demand - including jewelry consumption, industrial demand and identifiable investments such as bars, coins and gold exchange-traded funds - hit $102 billion in 2008, up 29% from a year ago. In tonnage terms, gold demand rose 4% to 3,659 tons.
In 2008, gold prices ended higher by 5.5%. The dollar index had gained 12% that year.
Crude falls on GDP data
Prices rise 12% for the week
Oil prices ended lower for the first time in four days on Friday, 27 February, 2009. Prices fell after preliminary fourth quarter GDP report showed that the US economy contracted more than expected in US.
On Friday, crude-oil futures for light sweet crude for April delivery closed at $44.76/barrel (lower by $0.46 or 1%) on the New York Mercantile Exchange. For the week, crude ended higher by 12%. For the month of February, crude prices ended higher by 1.5%.
Prices reached a high of $147 on 11 July, 2008 but have dropped almost 69% since then. Year to date, in 2009, crude prices are higher by 4%. On a yearly basis, crude prices are lower by 63%.
On Friday, in US, fourth quarter GDP was revised lower to reflect an annual rate of -6.2% versus a previously estimated -3.8%. The decrease in fourth quarter activity primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment. The report once again questioned the demand for oil in the coming months.
EIA had reported earlier during the week that U.S. gasoline consumption during the past four weeks rose 1.7% from a year ago. Gasoline inventories fell by 3.4 million barrels.
EIA had also reported that crude inventories rose by 700,000 barrels to 351.3 million during last week. Market had expected a rise of more than 2 million barrels. Total products supplied over the past four weeks, including gasoline, diesel and jet fuel, averaged 19.7 million barrels per day, down 0.8% from a year ago. Excluding jet fuel, total products supplied rose slightly.
Prices had been sliding since past couple of months after fear gripped the US economy that US banks might be nationalized.
OPEC has been trying to cut production consistently in order to step up prices from their current low levels. During the last weekend, Algerian Energy Minister Chakib Khelil said that OPEC is likely to reduce output in March, 2009. OPEC has already agreed to cut cartel quotas by 4.2 million barrels a day since September, equivalent to about 5% of global oil demand. The cartel is supposed to meet on 15 March at Vienna.
Against this background, April reformulated gasoline fell 1.2% to $1.3725 a gallon and April heating oil dropped 2% to $1.2675 a gallon.
Natural gas for April delivery also rose 3.1% to $4.203 per million British thermal units. It fell to $3.916 earlier, the lowest level since November, 2002.
Kirloskar Brothers
We recommend a buy in Kirloskar Brothers stock from a short-term trading perspective. It is evident from the charts of Kirloskar Brothers that it had been on a long-term downtrend from its January 2008 high of Rs 520 to its January 2009 low of Rs 59. However, the stock reversed direction, triggered by prolonged positive divergence displayed in the weekly relative strength index (RSI) as well as weekly moving average convergence and divergence (MACD) indicator. The stock ha s been on a medium-term uptrend from its January low.
On February 27, the stock conclusively broke through its long-term down trendline and 50-day moving average by gaining 10 per cent, with heavy volumes.
The daily RSI has entered in to the bullish zone and the weekly RSI has entered in to the neutral region from the bearish zone. The daily MACD is on the verge of entering in to the positive territory.
Our short-term forecast is bullish on the stock. We expect it to move up until it hits our price target of Rs 89 in the upcoming trading sessions. Traders with short-term perspective can consider buying the stock while maintaining a stop-loss at Rs 76.
Reliance Industries - RPL Merger impact
The Reliance Industries board will meet on Monday to consider the merger of Reliance Petroleum with the mothership, which will catapult the merged entity into the list of the world's top 50 profitable companies. DNA Money looks at what it means:
18:1 SWAP RATIO?
Historically every company that Reliance Industries Ltd has floated has been folded into the mothership at some stage. This way, the promoters have always been able to increase their stake in the mothership.
The merger ratio, therefore, is more likely to favour RIL than RPL. Again, speaking of history, RIL has set the swap ratios for earlier mergers at a CAGR of 8-10% from IPO price. RPL's IPO (in April 2006) was priced at Rs 60. The RPL share price on Friday was Rs 76 (exactly at 8% CAGR). A 10% CAGR would mean a share price of Rs 80. Given this, the swap should at best be around 18:1, said Kunal Bhakta, director, Foster Capital Ventures.
THIN ARBITRAGE FOR TRADERS
Basically, whenever a merger is announced and the swap ratio becomes public, the shares of the company that will cease to exist typically trades at a discount to the implied swap ratio. The arbitrage opportunity in the extinguishing company's share depends on liquidity.
"On Monday morning , initially both stocks will react positively in the region of 2-4% because there will always be two schools of thought in terms of which company will benefit more," said Bhakta. He expects discount (arbitrage window) will be around 2.5% to 3%. "Even if it touches 4%, it will come back to those levels converging with time, tangoing the process or sequence of merger," Bhatka said.
MERGER BY APRIL END
The first step for RIL will be to seek legal sanction for the merger. The high court will hear the application in a week at the earliest. The court is then expected to ask RIL to get approval from shareholder. A notice for an extraordinary general meeting will have to be sent 21 days before it is held as per Companies' Act. So net-net, the merger could be consummated legally by April-end, said analysts.
EARNINGS & REFINING CYCLE
RPL's cash flows are seen helping RIL's capital expenditure plans because RPL is more efficiently structured in terms of cash flows, analysts said. However, while the deal would bring much-needed liquidity in the short term, it also makes RIL less attractive to those who do not want to invest in a cyclical, commoditised business.
RIL already earns two-thirds of its revenues from refining, an industry that is facing a multi-year cyclical downturn. This merger would double RIL's refining capacity, thereby making its non-refining revenues negligible.
This will tie RIL's fortunes more closely to the refining cycle, which is globally entering a stage of depression. On the positive side, there will be a huge contribution to RIL's bottomline from sale of Krishna Godavari gas. The company, which pays only a 11% minimum alternate tax, can now use the depreciation from RPL plant to lower the profit of the combined entity and save on tax.
SEZ & TAX HOLIDAYS
The merger is unlikely to have any impact on the tax holidays enjoyed by RPL, since they are bestowed upon the refining unit operating inside the special economic zone, rather than on RPL as a company. The tax benefits are expected to continue without any change. However, it will have an indirect beneficial impact due to the transfer of depreciation of RPL's plants to RIL's profit & loss accounts.
via DNA
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