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Sunday, June 01, 2008
Most Popular Pages - June 1 2008
See the most expensive home in the World
Reliance Power went ex-bonus
Banking Sector woes
What is India Strategy now ?
Is Suzlon the next big thing ?
Does our Stock Picks for 2008 still hold good ?
Warren Buffet blames Banks - find out why
ITC reported decent results - See why you should buy!
IPL ka funda
Sensex extends loss
India`s benchmark index, Sensex extended its losses for the week, due to heavy selling by overseas investors and discouraging global markets. The 30-share index fell on concern the soaring inflation may force the central bank to tighten monetary policy, while the soaring oil prices weighing down auto makers. Jaiprakash Associates, Tata Motors, and ICICI Bank led the fall.
The 30-share index lost 234.07 points, or 1.40%, to 16,415.57 in the week ended May 30, whereas the broad based NSE Nifty declined 76.45 points, or 1.54%, to 4,870.10 in the same period.
However, Sensex has shown some signs of recovery on Friday by gaining 99.31 points, or 0.61% to settle at 16,415.57, while the broad-based Nifty 34.80 points, or 0.72% to end at 4,870.10.
Broad-based rally in the market was led by metal, consumer durable, and IT shares.
BSE mid-caps and small-caps declined 2.54% and 4.51% respectively over the week.
The whole price index, inflation climbed to 8.1% for the week ended May 17, as compared with 7.82% in the previous week, fuelled by high prices of all essential commodities.
Tata Motors fell 9.56% over the week after the India`s largest automobile company announced it will raise Rs 72 billion via Rights issues to fund the acquisition of Jaguar.
Leading utility vehicles maker, Mahindra & Mahindra slipped 9.11% during the week after the company posted lower than forecasted fourth quarter earnings which missed analysts estimate.
However, Larsen & Toubro rallied 4.80% after the engineering and construction giant pleased investors by announcing bonus issue of shares, dividend and excellent financial performance, which beaten analysts forecast.
Indian Oil Corporation, the nation`s biggest oil marketing company, posted net loss of Rs 4.14 billion due to soaring crude oil prices and its inability to pass on the same to the end users.
The government is likely to announce the fuel price hike in next couple of days to rescue oil marketing companies.
Company Background - Reliance Power
The company was incorporated on 17th January 1995 as Bawana Power Pvt Ltd and Subsequently; the company name was changed to Reliance Delhi Power Pvt Ltd. In January 2004, the company name was changed to Reliance EGen Pvt Ltd and further company name was changed to Reliance Energy Generation Pvt Ltd. In July 2007, the company name was changed to Reliance Power Ltd.
The company was part of the Reliance ADA group and established to develop, construct and operate power projects domestically and internationally. The prevailing and expected electricity demand and supply imbalance in India presents significant opportunities in the power generation sector. To capitalize on this opportunity, the company has currently developing 13 medium and large sized power projects with a combined planned installed capacity of 28,200 MW, one of the largest portfolios of power generation assets under development in India.
The companies 13 power projects are planned to be diverse in geographic location, fuel type, fuel source and off-take, and each project is planned to be strategically located near an available fuel supply or load center. The identified project sites are located in western India (12,220 MW), northern India (9,080 MW) northeastern India (2,900 MW) and southern India (4,000 MW). They include seven coal-fired projects (14,620 MW) to be fueled by reserves from captive mines and supplies from India and abroad, two gas-fired projects (10,280 MW) to be fueled primarily by reserves from the Krishna Godavari Basin (the "KG Basin") off the east coast of India, and four hydroelectric projects (3,300 MW), three of them in Arunachal Pradesh and one in Uttarakhand. The company has intend to sell the power generated by these projects under a combination of long-term and short-term Power Purchase Agreements to state-owned and private distribution companies and industrial consumers.
More Company Backgrounds?
Reliance Power - dumped post bonus
Reliance Power Ltd shares tumbled below market expectations on Friday when these started trading ex-bonus, touching an intra-day low of Rs231.70 while analysts had expected the stock to settle at Rs270-280 post bonus.
“This was a really disappointing performance, we were actually expecting the stock to close between Rs330-360,” Anurag Purohit, research analyst with Religare Securities Ltd, said.
Reliance Power had announced in February it would give three bonus shares for every five held.
“Certain selling was expected, especially because of the run up the stock had witnessed post the announcement of the bonus issue, but it was certainly not expected that the stock will fall to the levels it did. Even in a worst-case scenario, we were expecting a closing of about the Rs280 mark,” Purohit added.
“This will certainly trigger a panic among retail investors, and going forward, we can expect profit booking at every rise.”
The stock closed at Rs235.85 on Bombay Stock Exchange (BSE), below the post-bonus cost of shares.
The bonus issue of three shares for every five held had brought down the cost of each Reliance Power share held to Rs269 for retail investors and Rs281 for institutions. The company had offered the shares at a discount of Rs20 to retail investors at Rs230 a share, as against a price of Rs250 for institutional investors.
The founder-promoters of the company, including Reliance Anil Dhirubhai Ambani Group (R-Adag) chairman Anil Ambani and Reliance Energy Ltd, who together held 90% of Reliance Power’s equity, were not issued any bonus shares. The promoters, however, had acquired shares in Reliance Power at Rs17 each.
The company had set 30 May as the ex-date. Investors holding Reliance Power stock at the end of trading on 2 June will be given the bonus shares, the company said in a statement to BSE on 5 May.
The share sale of Reliance Power, India’s biggest domestic initial public offering (IPO) thus far raising Rs11,700 crore, was sold out in less than a minute. But on the listing day, 11 February, the shares plunged and closed at 17.22% below the issue price of Rs450.
Meanwhile, R-Adag has another initial public offering in the pipeline. The group plans to offload a 10.05% stake in Reliance Infratel to raise Rs5,000-6,000 crore through the IPO.
“Raising money in the Reliance Infratel IPO, given the current market price of the Reliance Power share, is going to be challenging for the group as it has lost a lot of investor confidence since the listing of Reliance Power,” said Arun Kejriwal, director, Kejriwal Research and Investment Services, a Mumbai-based advisory firm.
“He (Anil Ambani) has tried everything possible to regain investor confidence since. He will have to pull another rabbit out of the hat to make the Reliance Infratel offering successful.”
Reliance Power plans to set up 13 plants with 28,200MW of generating capacity. Seven of these will start operating in the first five years, with the first plant in the line-up starting production in 2009.
“There are no fundamentals to judge the performance of the company as of now, so it is very difficult to know how the stock will react going forward,” said an analyst with a domestic brokerage, who did not wish to be identified.
Lehman Brothers - Inflation in India to be strong
Anti-inflationary measures are unlikely to turn India into a slow growing economy, while other Asian nations could face the situation of rising prices and economic stagnation, a latest report says.
"We do not believe that India would be affected significantly in a stagflation scenario and growth would remain strong in relative terms...," global research firm Lehman Brothers said in a recent research report.
However, even as the economic growth is projected to remain strong, interest-rate sensitive stocks could be adversely impacted during stagflation situation in Asia.
Stagflation refers to a situation when inflation is rising and the economic growth is simultaneously slowing down.
The negative impact is likely to be felt by interest rate-sensitive stocks or by companies that are not in a position to pass on cost pressures to consumers, Lehman said.
Further, investment spending is unlikely to witness a substantial slowdown primarily on account of significant shortages in key sectors such as steel and power.
The report pointed out that risks out of a stagflation scenario would be high for the banking sector, infrastructure, automobile and cement firms.
"The risks are significant for part of the banking sector, companies with a high proportion of fixed-price contracts and companies with high energy usage without the ability to pass on increased costs," it said.
Lehman noted that in India inflation would remain on the higher side for some more time due to the base effect -- which relates to the inflation data of the corresponding week in the previous year.
Given particular prices in the current week, inflation would turn out to be higher, if it was a small number in the previous year, but would be less, if it was high a year ago.
In addition, the report said that inflationary headwinds would lead to increased fiscal deficit and negatively impact the country`s expansion plans.
"One of the major reasons for India`s premium expansion has been the reduction in fiscal deficit, a process which could be derailed in the short term due to inflationary headwinds," it added.
The government has initiated fiscal and monetary measures to lessen the effects of inflation on consumers. However, according to the report, some of these measures do not reflect the "true market economics."
"If the inflation period is prolonged, we expect the government to start passing on some of the suppressed price increases (especially those relating to crude oil and fertilisers) in small doses.”
However, we do not expect this anytime soon, given the proximity of the elections, the report pointed out.
Grey Market - Bafna, Anus, Niraj Cement, Gokul Refoils
Gokul Refoils 195 8 to 10
Anus Laboratories 210 40 to 45
Niraj Cement 175 to 190 5 to 7
Bafna Pharmaceutical 40 10 to 12
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