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Tuesday, May 20, 2008
Company Background - ONGC
More than half century survival in oil and gas industry is a record of work by Oil and Natural Gas Corporation Limited (ONGC). It was originated in the year of 1956 as a private sector company. Later, in the year 1993 the company was came to known as Public Sector Company. ONGC's habitual activities deals with exploration, development and production of Crude Oil, Natural Gas, LPG and some other value added petroleum products such as NGL, C2-C3, Aromatic Rich Naphtha and Kerosene. The company going along with two of its folds namely ONGC Videsh Limited (OVL) and Manglore Refinery & Petrochemicals Limited (MRPL) and ten of Joint Ventures/Associates. ONGC's Basins are totally seven in numbers, Western Offshore Basin (Mumbai & Baroda), KG Basin (Rajamundary), Cauvery Basin (Chennai), Assam & Assam-Arakan Basin (Jorhat), CBM-BPM Basin (Kolkata) and Forntier Basin (Dehradun) and ONGC has two plants situated in Uran and Hazira. The company covers five regions such as Mumbai, Baroda, Nazira, Chennai and Kolkata and also ONGC running eleven institutes for different specialisation in different locations.
During March 1999, ONGC, Indian Oil Corporation (IOC) and Gas Authority of India Limited (GAIL) both of three agreed to have cross holding in each other's stock to pave the way for Long-term strategic alliance amongst themselves for the domestic and overseas business opportunities in the energy value chain. The ONGIO International Pvt Ltd was incorporated in the year 2001 as 50:50 joint venture projects with Indian Oil Corporation Ltd with aim of providing Training, Consultancy & Services in Hydrocarbon Sector and later company has decided to wind up ONGIO due to loss. During 2001-02 the augment recovery from onshore fields of 13 projects 2 were resourcefully commissioned. By the end of the same year 2001-02 the company 's subsidiary unit ONGC Videsh Ltd commenced its commercial production of gas.
In the year of 2004 ONGC initiated Phase-I of a collaborative project on CBM in Jharia Field and successfully completed the same in 2005. During 2004-05 the company discovered its third deep-water exploration campaign 'Sagar Samriddhi' in Krishna-Godavari (KG) Basin at the location Vashistha (VA-1A) in block KG-OS-DW-IV. In the western offshore a shallow-water oil and gas was recorded in D-33, about 60 Kilometers South-West of Mumbai High, Onshore, Oil and Gas was found in Tiphuk-1 in North Assam Shelf and Oil was struck at Wamaj in Cambay Basin. Offshore, four new Platforms (2 Well Platforms, 1 Process Platforms and 1 Clamp-on) were Commissioned for enhancing production. New trunk pipelines are being laidsub-sea from Mumbai High Field to Urban Oil and Gas processing facility.
In March 2005 ONGC launched its retail marketing business with commissioning of its first autofuels outlet at Manglore under the brand 'ONGC Values' and 'Shopp'njoy' for fuel and non-fuel business respectively. The company has also received approval/license from the Government for marketing of non-subsidised LPG cooking gas, Kerosene and Aviation refueling sales. Tripura Power Development Company Pvt Ltd (TPDCL) was incorporated to set up a gas-based power-generating project in Tripura. TPDCL has been renamed as ONGC Tripura Power Company Pvt Ltd after the domination. In the same year the company has entered into various alliances in form of execution of Memorandum of Understanding with Kakinada Seaport & IL&FS with 26% equity stake for development of Port based SEZ at Kakinada, Andhra Pradesh. During the year 2006 the company was awarded 60 out of 110 exploration blocks by the Government in the five NELP rounds. Out of these 60 NELP Blocks 35 are in the form of unincorporated joint ventures and remaining blocks are company's 100% participating interest.
For the sake of its excellent concert, the company has received numerous awards every year. The highlights are NDTV Profit Business Leadership Award, Motilal Oswal CNBC TV18 Biggest Wealth Creator of India for the period of 2001-06, Golden Peacock Award 2006 for Corporate Governance in PSU category, is this award has been conferred to the company regularly. Dun & Bradstreet-American Express Corporate Awards 2006 in the oil and gas exploration sector and Greentech Gold Safety Award in petroleum sector apart from this, the company listed and ranked in Indian level also in global level by various evaluators.
ONGC entering the alternative energy segment with a Rs 1,200 crore-plus investment to generate 200 mw of wind power for captive use and the country's largest field, is all set to produce an additional 20.7 million tonnes of oil and 3.32 billion cubic metre (bcm) of gas with an investment of about Rs 5,713 crore in Mumbai High, the project envisages drilling of 86 infill wells. Five new well head platforms and six clamp-on structures are also planned. A new process platform bridge connected to the existing process complex ICP in Mumbai High South is proposed to handle the additional production. ONGC have future enhancement plans in all sector under the company, in that the production plans covers to develop Deep/Ultra Deepwater field and flow assurance issues, extraction by Twister Technology to produce about 16 TPD of condensate is conceptualized. Further, from the condensate fractionation scheme, production of about 1077 TPA of LPG and 3516 TPA of Naphtha is planned at coast of Rs.30.21 crores. Under the Drilling, formulation of polyamines enhanced High Performance Water Based Mud (HPWBM) system and integrated cementing solutions for HPHT Oil and Gas Wells and some other plans in above said categories and also under in Technology. The company being set up Rajiv Gandhi Urja Bhawan in Delhi for holistic research in Alternate Energy Sources. As on may 2008, part of the strategic alliance initiative, the ONGC proposed assignment of participating interest to BG Exploration and Production India Limited (BGEPIL), a 25 % participating interest in its Mahanadi basin deep water block, MN-DWN-2002/2.
Company Background - Indianoil Corporation
Indian Refineries & Indian Oil Company were set up in 1958 and 1959 respectively, to build national competence in the oil refining and marketing business. In 1964 these two companies were merged to form the Indian Oil Corporation (IOCL). IOCL is the 21st largest petroleum company in the world and the # 1 petroleum trading company among the National Oil Companies in the Asia-Pacific region. Indian oil is also the highest ranked Indian company in the Prestigious fortune Global 500 listing moving to 153th position.
IOCL controls 10 of India's 18 refineries with a combined refining capacity of 54.20 million tonnes per annum. These includes two refineries of subsidiary Chennai Petroleum Corporation Ltd and one of Bongaigaon Refinery and Petrochemicals Ltd. IOCL and its subsidiaries account for 47% petroleum products market share among public sector companies, 41% national refining capacity and 51% downstream product pipeline capacity. It also owns and operates crude oil and product pipelines of over 9000 Km across the country. IOCL also has the largest marketing network in the country, comprising over 30000 sales points backed for supplies by 183 bulk storage points and depots, 88 Indane bottling plants and 97 Aviation Fuel Station to cater the Aviation, Defence as well as Civil industry. Indian oil together with IBP, operates the largest and the widest network of petrol and diesel stations in the country numbering over 15,000. In the overseas business, the company continues to explore new opportunities and coordinate business activities between its various overseas offices at Dubai, Kuwait, Kuala Lumpur, Sri Lanka and Mauritius.
IOC has it subsidiaries namely Chennai petroleum Ltd, Bongaigaon Refinery and Petrochemicals Ltd, IBP Co Ltd, Lanka IOC Ltd, Indian Oil Mauritius Ltd, Indian Oil Technologies Ltd, Indian Strategic Petroleum Reserve Ltd.
During 2000-2001, the company acquired the entire holding of Government of India (GOI) in Chennai Petroleum Corporation (CPCL) (51.81%) for Rs.509.33 crore and Bongaigaon Refinery & Petrochemicals (BRPL) (74.46%) for Rs 148.80 crore, thereby making these companies subsidiaries of it. It has also acquired IBP & Co Ltd by purchasing 33.58% equity capital at a price of Rs.1154 crores.
As a vertical integration through E&P intitatives,the company along withONGC Videsh Ltd was awarded the Farsi Exploration Block in Iran. The mainoperator will be ONGC Videsh in which IOCL will have 40% equityparticipation.
The company is investing Rs.24,400 Crore during the X Plan period from 2002to 2007, in integration and diversification projects apart from refiningand pipeline capacity augmentation, product quality upgradation and retailexpansion. As part of expansion, the company commissioned the world largestsingle train Linear Alkyl Benzene plant at Koyali Refinery in August 2004and the on-going integrated Paxaxylene/Purified Terephthalic Acid plant &World-Scale Naphtha Cracker with downstream polymer projects are part ofthis expansion. The company is also planning to convert the ParadipRefinery into a refinery-cum-petrochemicals complex.
IOCL in association with other companies was awarded 11 exploration blocksin NELP and acquired participating interest in on-shore blocks in Assam andArunachal Pradesh region. The company has now finalised an import deal for1.75 Millions tonnes of LNG per annum with Iran for supplies from the year2009 onwards. The company has proposed to develope gas blocks in the NorthPars fields of Iran jointly with Petropars, a subsidiary of NationalIranian Oil Company. IOCL is first Indian and 6th Global Company todevelope marine Oils and also obtained global approvals for shipboardapplications in the entire family of vessels of MAN B&W,Denmark andWartsila, Finland.
During 2005 the new Panipat-Rewari product pipeline was commissioned and this network was expanded to 7,730 km. Also the company has completed LABplant at Gujarat Refinery, MS quality improvement project & Dieselhydrotreating plant at Mathura Refinery, Sidhpur-Sanganer productspipeline. Some of the ongoing projects of the company are Panipat Refineryexpansion from 6 to 12 million tonnes per annum, crude oil blendingfacilities at Mundra, bottling Plants at Ilayangudi, Raipur and Vasai.Thenew projects of the company during this period are Chennai- Bangalore product pipeline, LPG Bottling plant at Mathura etc.,
During 2005-06, Indian oil entered into South India with the commissioning of the 681-km Chennai-Trichy-Madurai product pipeline. With the commissioning of several other key projects, including the Sidhpur-Sanganer product pipeline and branchline to Ajmer and the Mundra-Churwa crude oil pipeline, the pipeline network was expanded to 9024 km during the year. A section of the Kandla-Bhatinda pipeline from Sidhpur to Sanganer was also convered to crude oil service to ensure enhanced crude oil availability to Mathura and Panipat refineries.
During the year under review, IOC completed projects for Doubling of capacity at Panipat Refinery from 6 to 12 million tonnes per annum , Paraxylene/Purified Terephthalic Acid (PX/PTA) unit at Panipat., MS quality improvement projects at Mathura and Haldia refineries, Diesel hydro-treatment facilities at Mathura Refinery, Chennai-Trichy-Madurai and Sidhpur-Sanganer product pipelines - Mundra-Churwa(Kandla) crude oil pipeline and conversion of Kandla-Panipat section of Kandla-Bhatinda pipeline to crude oil service.
IOCL's production capacity of Lubricating Oil was expanded from 286000 MTs to 525000 MTs.
Indian oil Blending company Ltd, a wholly owned subsidiary of the company was merged with the company w.e.f 12th May 2006.
The merger of IBP Co. Ltd. with IndianOil is at an advanced stage with the shareholders of both the companies approving the Scheme of Amalgamation with a swap ratio of 110 equity shares of IndianOil for 100 equity shares of IBP Co. Ltd..
The valuation process for the merger of Bongaigaon Refinery & Petrochemicals Ltd. (BRPL) with IndianOil is in progress after the Boards of both the companies accorded 'in-principle' approval for the merger.
In accordance with the decision of the Government of India, IndianOil has transferred its entire equity holding in Indian Strategic Petroleum Reserves Ltd. (ISPRL) to the Oil Industry Development Board, a Government body functioning under the Ministry of Petroleum & Natural Gas. Consequently, ISPRL ceased to be a wholly-owned subsidiary of IndianOil effective 9th May, 2006. IndianOil has formed a wholly-owned subsidiary company, viz., IOC Middle East FZE, in Jebel Ali Free Trade Zone, Dubai, with the objective of marketing lubricants and other petroleum products in the Middle East, Africa and CIS regions.
A joint venture company, viz., Indo-Cat Pvt. Ltd., was incorporated in June 2006. The Company is a 50:50 venture between IndianOil and Intercat. Inc. of USA for manufacture and marketing of FCC catalysts and additives. Green Gas Ltd., was incorporated in October 2005 as a joint venture between IndianOil and GAIL (India) Ltd. for city gas distribution in Agra and Lucknow.
During 2006-07, the pipeline network was expanded to 9,273 Km. IOC also commissioned major projects like Mundra-Panipat pipeline, the Koyali-Dahej product pipeline and a branch line to Chittaugarh on the Sidhpur-Sanganer product pipeline. A state of art marketing facility was also commissioned at Trichy, Tamil Nadu on the 683 km Chennai-Trichy-Madurai product pipeline which was dedicated to the nation during the year.
The ongoing projects of IOC during the year are capacity expansion of Panipat Refinery from 12 to 15 MMTPA, Naphtha Cracker with downstream polymer units at Panipat, Hydrocracker for improvement in diesel quality and distillate yield at Haldia Refinery, Residue upgradation and petrol/diesel quality improvement at Gujarat Refinery, Paradip-Haldia crude oil pipeline Koyali-Ratlam product pipeline, Augmentation of Mundra-Panipat crude oil pipeline from 6 to 9 MMTPA, Dadri-Panipat R-LNG spur pipeline, Automation of 1,000 petrol/diesel stations, New depots/terminals at Chittaurgarh, Jasidih, Ratlam, Zewan, Lalkuan & Ennore, LPG bottling plants at Mathura and Vadodara
The New Projects under taken by the company during the year are 15 MMTPA integrated refinery-cum-petrochemicals complex at Paradip, Petrol quality upgradation projects at Panipat, Mathura, Barauni, Digboi and Guwahati refineries, Panipat-Jalandhar LPG pipeline.
During the year, IndianOil was associated with successful discoveries in two exploration blocks, one each in India and overseas. In the domestic exploration block in offshore Mahanadi, gas discovery has been made and currently the reserve potential is being assessed. In the Farsi Block in Iran, oil & gas have been discovered and the block is presently being appraised for commerciality.
The Corporation farmed-in an exploration block, Shakthil in Gabon along with Oil India Ltd. (OIL) as the operator. IndianOil and OIL have each acquired participating interest in an on-land block in Nigeria. IndianOil, in consortium with OIL and two other companies, had bid for oil & gas exploration blocks in Yemen under the third International Bid Round and succeeded in getting two blocks. Exploration work is continuing in the two exploration blocks awarded to the IndianOil-OlL consortium in Libya earlier in 2005.
In India, under the NELP-VI round of bidding, the Corporation, in consortium with other Indian partners, has been awarded two exploration blocks in Mumbai offshore.
Today's Pick - Ashapura Minechem
We recommend a buy in Ashapura Minechem from a short term perspective. It is evident from the chart that the stock has been on a medium term down trend from the January peak at Rs 448. This down trend was arrested at Rs 168 in March and the stock has been moving higher since then.
The crossover of the 21 and 50-day moving averages in the daily charts is a positive signal. The volume traded has also increased over the past two trading sessions. The daily momentum indicator has entered the bullish zone.
Moreover, the daily moving average convergence and divergence is featuring in the positive territory in line with the uptrend. Our short-term forecast for the stock is bullish. We expect the stock’s current up move to continue until it hits our price target of Rs 280 in the short term. Investors with short-term perspective can buy the stock while keeping the stop-loss at Rs 233.
via BL
Gold closes above $900
Precious metals rise as oil continues to hover around $128
Gold futures closed above $900 an ounce Monday, 19 May, 2008 marking their first closing above $900 level in almost a week. Prices rose as crude oil prices rose once again and the dollar remained steady against its rivals. Crude oil's rally to a fresh record high near $128 a barrel boosted the precious metal's appeal as an inflation hedge.
Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. 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. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies.
Comex Gold for June delivery rose $5.9 (0.65%) to close at $905.8 ounce on the New York Mercantile Exchange. Last week, gold prices ended higher by $14 (1.6%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. Prices have dropped by 12% since then.
This year, gold prices have gained 7.9% for the till date against a 8.4% drop for the dollar against the euro. For April, prices closed lower by 6.3%. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%.
Comex Silver futures for July delivery rose 7 cents (0.4%) to $17.03 an ounce. Silver has gained 13.4% in 2008 till date. For April, it closed lower by 5.5%. Silver gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
At the currency markets on Monday, the dollar recovered from a two-week low against the euro, extending gains after a rise in U.S. leading economic indicators. The dollar index, which tracks the performance of the greenback against other major currencies, was at 73.092, up from 72.799.
Among major economic news, the Conference Board's index of leading economic indicators rose for a second straight month in April. The index, which attempts to forecast turning points in the economy, rose 0.1% in April, matching March's gain after falling for the five prior months.
In the crude market, crude-oil futures marked their first close above $127 a barrel on Monday, with the market extending last week's strength on growing concerns about energy supply and demand from China. Last week, crude-oil futures rallied to a fresh record high near $128 a barrel as Goldman Sachs raised its second-half-of-the-year forecast for oil prices by 32% to $141.
At the MCX, gold prices for June delivery closed higher by Rs 3 (0.02%) at Rs 12,347 per 10 grams. Prices rose to a high of Rs 12,472 per 10 grams and fell to a low of Rs 12,308 per 10 grams during the day’s trading.
At the MCX, silver prices for July delivery closed Rs 77 (0.32%) lower at Rs 23,474/Kg. Prices opened at Rs 23,580/kg and fell to a low of Rs 23,310/Kg during the day’s trading.
Crude ends modestly higher
Crude prices give up intraday gains and closes seventy six cents higher
Crude-oil futures closed above $127 a barrel on Monday, 19 May, 2008, below the day's record peak, after concerns regarding demand and supply continued to rattle the energy market. Prices rose amid speculation that Saudi Arabia's decision to increase output by 300,000 barrels a day will be sufficient to reduce prices. Prices for crude oil have been hovering above $125 for quite some time now against a backdrop of disruptions to oil production in Nigeria.
Crude-oil futures for light sweet crude for June delivery today closed at $127.05/barrel (higher by $0.76/barrel or 0.6%) on the New York Mercantile Exchange. Price touched a high of $127.77 earlier during the day. But the upcoming expiration of the June futures contracts kept gains in check.
Last week, crude prices closed higher by 29 cents. For the year, crude is up by 28% till date. Prices are higher by 92% on a yearly basis.
It was reported last week that Saudi Arabia will boost production by about 3.3% to 9.45 million barrels a day in June.
Last week, prices almost kissed 4128 after Goldman Sachs raised its forecast on Friday for the average price of West Texas Intermediate oil in the second half of 2008 to $141 a barrel from $107 a barrel. As per the company’s reports, long-term oil prices will need to continue to rise to bring trend oil demand growth in line with trend supply growth.
At the currency markets on Monday, the dollar recovered from a two-week low against the euro, extending gains after a rise in U.S. leading economic indicators. The dollar index, which tracks the performance of the greenback against other major currencies, was at 73.092, up from 72.799.
Among major economic news, the Conference Board's index of leading economic indicators rose for a second straight month in April. The index, which attempts to forecast turning points in the economy, rose 0.1% in April, matching March's gain after falling for the five prior months.
Brent crude oil for June settlement today rose $0.07 (0.7%) to $125.06 on the London-based ICE Futures Europe exchange. The London benchmark rose 54% in FY 2007, the most since 1999 when prices more than doubled.
Natural gas and heating oil slip
Natural gas fell as heating oil declined and the dollar gained against the euro. Natural gas for June delivery fell 14 cents (1.3%) to settle at $10.954 per million British thermal units.
Against this backdrop, June reformulated gasoline rose 2 cents to finish at $3.24 a gallon but June heating oil fell 2 cents to end at $3.68 a gallon.
Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude’s biggest yearly gain in five years.
At the MCX, crude oil for May delivery closed at Rs 5,330/barrel, lower by Rs 13 (0.24%) against previous day’s close. Natural gas for July delivery closed at Rs 470.8/mmbtu, lower by Rs 3.2/mmbtu (0.67%).
Monday, May 19, 2008
Gold back at $900
Precious metals rise as oil touches $128
Gold futures closed near $900 an ounce Friday, 16 May, 2008 marking their highest level in more than three weeks, as crude oil's rally to a fresh record high near $128 a barrel boosted the precious metal's appeal as an inflation hedge.
Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. 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. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies.
Comex Gold for June delivery rose $19.9 (2.3%) to close at $899.9 ounce on the New York Mercantile Exchange. Prices touched a high of $904.5 during intra day trading. For the week, gold prices ended higher by $14 (1.6%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. Prices have dropped by 13% since then.
This year, gold prices have gained 7.3% for the till date against a 8.5% drop for the dollar against the euro. For April, prices closed lower by 6.3%. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%.
Comex Silver futures for July delivery rose 28 cents (1.6%) to $16.96 an ounce. Silver has gained 13.1% in 2008 till date. For April, it closed lower by 5.5%. Silver gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
At the currency markets on Friday, the dollar extended losses Friday, despite better-than-expected housing data, after a weak consumer sentiment index reading kept alive doubts about the strength of the U.S. economy. The dollar index, which tracks the performance of the greenback against other major currencies, fell 0.1% to 72.80.
Among major economic news, according to a report from the University of Michigan, the U.S. consumer sentiment index in May fell to 59.5 from 62.6 in April.
In the crude market, crude-oil futures rallied to a fresh record high near $128 a barrel as Goldman Sachs raised its second-half-of-the-year forecast for oil prices by 32% to $141.
Inflation may be much higher
Inflation, as indicated by latest Government data, may be understated and the rate of price rise could be higher than eight percent as global prices of a number of commodities have not been accounted for, say leading economists from HDFC Bank and Crisil.
As per the latest preliminary figures, inflation stood at 7.83 percent for the week ended May 3. The last revision of inflation numbers saw it touching 7.78 percent against the provisional figure of 5.92 percent for the week ended March 8, up by 1.86 percent.
It is possible that the revised data against the provisional figure could move up to 8 percent or a tad higher than that, as revised figures for March and April are likely to go up because prices of a number of commodities were recorded lower than the global prices, HDFC Bank Chief Economist Abheek Barua said to the news agency.
During the UPA regime, highest rate of inflation was 8.74 percent (revised) for the week ended August 28, 2004.
Conforming to the view, Crisil Principal Economist D K Joshi said the sharp upward revision would continue for the next 4-5 weeks and the revised data could touch 8 percent.
Explaining the rationale for the spurt in the revised figure, Joshi said prices of variety of commodities were updated leading to sharp difference between provisional and final figures.
Some of these commodities are metals, edible oil and raw cotton, Barua said, adding that there were gaps between international prices and domestic prices.
This could again be reflected in the revised inflation figure for the week ended March 1, for which the provisional figure was 5.11 percent, updated to 6.21 percent, an increase of 1.1 percent. Thus, for the first two weeks of March, the revision was over one percent.
During 2008, of the 11 revisions, the change from provisional to final has been more than 0.5 percent in 10 cases.
Till the week ended February 23, the revisions were less than one per cent, but thereafter it jumped to over one percent.
Barua said post-April data were better captured and the gap between provisional and final are likely to come down.
Speaking on price rise Prime Minister Manmohan Singh said on his way back to India from Bhutan, "If weather gods cooperate, we would see moderation of inflation after September 15."
"We have taken adequate measures. We have had excellent procurement of rice and wheat. We have taken effective steps. We are hopeful of moderation over the next few weeks," he said.
Singh said there is always a rise in prices between May and September.
Grey Market Premium - Gokul, Anus
Gokul Refoils 175 to 195 15 to 18
Anus Laboratories 200 to 210 35 to 40
Inflation in other FMCG items now
The next time you head out to the corner store after reading the morning papers about spiralling inflation, you could take some solace or cold comfort, if you will, from the fact that prices of tea, coffee, soft drinks and certain food items such as confectionery have remained pretty much stable.
But for everything else, be prepared to fork out a lot more than what you did last year. .
It isn’t just fruits and vegetables or pulses and rice which you’re paying more for as sharp increases in input costs across several categories of items of daily consumption (fast moving consumer goods/FMCGs) have seen manufacturers hike prices sharply over the past year.
You could be shelling out far more for that jar of Horlicks or Bournvita, or your detergents, toilet soaps and biscuits, not to mention the oil for your pans and the atta for the phulkas.
With petroleum prices going through the roof, it was inevitable that prices of products such as detergents that use petro-derivatives as inputs would go up.
The prices of palm oil (used in toilet soaps), wheat and milk — key inputs for malted beverages and biscuits — have risen.
And, what’s more, packaging costs have gone up too as prices for LDPE and HDPE plastic, again petro-derivatives, have also shot up, fuelling the price hikes.
Sharp rise
After holding prices for over three years between 2005 and 2007, FMCG makers have, over the past year, pegged up prices sharply.
Ask Mr D. Sundaram, Vice-Chairman and CFO, Hindustan Unilever, the country’s largest FMCG maker, whether higher prices of consumer goods are merely keeping pace with the higher inflation, and he says that prices for HUL brands need not necessarily match the underlying inflation in the relevant commodities. “For instance, vegetable oil prices have gone up by over 50 per cent in recent times while the increase in soap prices has been significantly lower; this is true across many categories,” explains Mr Sundaram.
Nor has the reduction in peak import duties over the past two years helped offset the steep increases in input costs of palm oil and petroleum-related raw material.
As Mr Sundaram points out, prices of industrial vegetable oil (which go into soaps) have gone up by over 50 per cent while the duty reduction has been about 5 per cent.
For three years till 2007, a combination of several factors, such as fierce competition among existing players, entry of new players and depressed demand, ensured prices of most consumer goods largely stayed static.
But, a cursory glance of current MRPs of a sampling of FMCGs spread across various categories ranging from beverages to biscuits and detergents to soaps shows that prices have risen in a band of Rs 2-Rs 10.
A 500-gram jar of Horlicks now retails for Rs 128 against Rs 118 last year and Bournvita for Rs 123 against Rs 116 last year.
Or, take detergents. A 1.5-kg pack of Surf Excel Blue retails for Rs 135 today while it sold for Rs 120 in February 2007 (See table on Page 3).
While most brands have seen an outright increase in prices (malted beverages by at least Rs 10), in some categories such as biscuits, manufacturers have chosen to reduce the weight of the packet, tantamount to a price increase.
Less grammage
According to Mr Praveen Kulkarni, Marketing Manager, Parle Ltd, “We reduced our grammage by almost 10 per cent across the brands this January and will continue to do so till the time every other biscuit player does the same thing. There have been input cost increases by 30 per cent for ingredients such as wheat, flour, sugar and vegetable fats. The category is price-sensitive and under these circumstances, we would rather not increase prices for our biscuits.”
So, in the context of higher prices across a swathe of consumer goods, what is happening to the consumer’s shopping basket? Are they downtrading to cheaper products, postponing purchases, refraining…?
Mr R. Subramanian, Managing Director of discount retail chain Subhiksha, who closely observes that “moment of truth” when a customer makes a brand purchase, does see an impact at some levels.
“But the core basket still survives, mostly the impulse discretionary items are clearly suffering at the margin. This month (May) is key — this is the first month of salaries under lower taxes — and hence more cash in consumer hands.”
Shift in preference
Mr Subramanian emphasises that impulse goes down — and substitution happens.
“Gingelly oil at Rs 150 per kg is clearly substituted in large part by groundnut oil while palm oil consumption has also grown at the cost of sunflower oil. There are clear shifts, even in items like rice, but prices of agri-produce have been the biggest pain area in the basket,” he adds.
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