Pratim Ranjan Bose, Business Line, 25/8/11

source: http://www.thehindubusinessline.com/companies/article2393077.ece

Having set foot in Egypt in the last fiscal, Rs 1,700-crore Dhunseri Petrochem and Tea Ltd (DPTL) is mulling expansion of its downstream petrochemicals business in the North African country.

Greenfield opportunities are also being explored in Europe.

“We are very seriously looking at Egypt,” the executive chairman, Mr C.K. Dhanuka, told Business Line. The company is aiming at a four-fold increase in turnover to Rs 7,000 crore by 2013-14.

Though he stressed that the company was committed to commission its greenfield PET resin facility at Ain El Sokhna (approximately 100 km from Cairo) before embarking on fresh projects, Mr Dhanuka was categorical that the company had more plans in store for the African destination.

MARKET REACH

“Egypt is strategically located to cater to the markets in Europe, Africa and the US. This coupled with the low cost of energy, approximately half when compared with India, makes it an attractive production base. Naturally, DTPL’s future expansion will be in Egypt,” he said.

DPTL, through its 70 per cent subsidiary Egyptian Indian Polyester Company S.A.E (EIPET), is setting up a 430,000-tonne facility at the deep-sea port town on Red Sea. The estimated $159-million (over Rs 700 crore at current exchange rate) project had suffered minor delays during the civil unrest in Egypt and is now expected to be on stream in the first quarter of 2013.

The company had recently bid for a project in a West European nation. The attempt, however, was not successful. “We are open to greenfield opportunities in Europe,” Mr Dhanuka said.

The Rs 370-crore capacity expansion at DTPL’s PET Resin facility to 410,000 tonne at Haldia in West Bengal is scheduled to be complete this fiscal. Depending on the market conditions, the capacity may be expanded by 200,000 tonnes.

Having acquired a number of bought-leaf factories in the recent past, the company is aiming to double the size of its tea business to 20 million kg in 2012-13.

SITANSHU SWAIN, Financial Express 22/6/2011

Source: http://www.financialexpress.com/news/lic-chops-57-illiquid-scrips/806906/

Streamlining its equity portfolio, Life Insurance Corporation (LIC), India’s largest capital market investor has decided to knock off 57 illiquid scrips. While the company periodically reviews its market exposure, this is the largest tranche of stocks being removed at one go.

“We take this kind of decision on the basis of prevailing market conditions. Normally, we go by the definition set by Sebi for choosing illiquid stocks. This is one of largest blocks of stocks we have pruned from our equity portfolio to make it more productive,” said a senior LIC official.

Without specifically naming the scrips, the official said some of the better known companies in the illiquid list include Gokaldas Exports, Sundaram Finance, Cinemax India, JMT Auto, Crisil, Godfrey Phillips and Oriental Hotels.

According to the official, the corporation’s decision was necessitated by the bearish market. With the dip in combined daily average volumes on both exchanges, illiquid counters have naturally suffered the most. The number of illiquid scrips on the Bombay Stock Exchange and National Stock Exchange has risen sharply in the past six months.

According to Sebi data updated till April, 3,000 out of 5,069 listed companies were illiquid, most of which are listed only on BSE. In NSE, out of its 1,578 listed stocks, the number of illiquid scrips is only 120.

Two years ago, LIC set up an investment monitoring and accounting department, which also helps ensure the portfolio is churned regularly. LIC recently changed its practice of holding scrips indefinitely.

The government has appointed a committee headed by former RBI deputy governor Vepa Kamesam to, inter alia, figure out how LIC manages its stock market exposure. Former chairman and current managing director TS Vijayan had also reportedly come under fire for not optimising the company’s investment portfolio.

Last fiscal, LIC on net basis invested R43,000 crore in equity markets. By churning its portfolio, the corporation booked a profit of around R17,000 crore in 2010-11 as against R9,400 crore the previous year. As on March 31, 2011, on a mark-to-market basis, LIC’s equity portfolio has registered a growth of 69.71% in 2010-11.

LIC’s gross investment during 2010-11, under all funds taken together, crossed R1,96,000 crore and during the year, the total investment income was R91,688 crore.

Also, by maintaining a tighter control, LIC’s gross NPA was much lower at Rs 751 crore. LIC’s gross and Net NPAs as on March 31in terms of percentage were 0.99% and 0.31% respectively.

The corporation’s pension & group schemes (P&GS) portfolio witnessed substantial growth, with fresh investment during 2010-11 crossing more than R40,000 crore. For the third year in succession, LIC could maintain its yield on P&GS fund and increase it slightly up to 9.66%

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Vatsala Kamat, Mint, 20/6/2011

Source: http://www.livemint.com/2011/06/19214431/Sustained-order-inflows-lift-J.html

The firm’s shares rallied 2.5% on news of three orders in the power distribution business, adding to its backlog of Rs 4,500 crore at the end of March, which is twice its annual revenue

Among the mid-sized firms which make equipment for the power sector, Jyoti Structures Ltd (JSL) has been steadily picking up orders. The firm’s shares rallied 2.5% on news of three orders in the power distribution business, adding to its backlog of Rs. 4,500 crore at the end of March, which is twice its annual revenue. Further, the management statement that there is an equal amount of orders in the tender pipeline, allaying fears of sluggish order inflows in the sector, which has been the prophecy on the Street for some time.

In the past six months, lower than expected order inflows during the latter part of fiscal 2011 and the expected earnings dilution on account of equity expansion in the near term had weighed on the stock. The rights issue of nonconvertible debentures early this year saw a weak response, because of industry headwinds and JSL’s rising interest costs. But, better execution in the March quarter led to a 30% higher revenue than a year earlier. Operating profit, too, was higher by 18%.

Of course, like most Indian companies, higher sub-contracting expenses brought down the operating margin by almost 140 basis points (bps) during the quarter, compared with the year-ago period.

A bps is one-hundredth of a percentage point.

Rising interest costs have raised concerns for mid-sized capital goods makers because of higher working capital needs. In 2011, JSL’s borrowings grew by a third of its loan book at the end of the previous year. Analysts view that as revenue improves with better execution, the ratio of interest payout to profit earned will get better.

Meanwhile, revenue accretion from its businesses located abroad is expected to improve although more than three-fourths of its business is in India.

Its US facility will be operational by November. Other Indian companies such as KEC International Ltd, too, have set foot in the US, given the opportunity in transmission towers, and also higher profit margins of around 15% when compared with the stiff competition and margin contraction seen in the Indian terrain. So far, JSL has had limited exposure to overseas markets such as Africa and West Asia, largely through joint ventures.

Shares of JSL are reasonably valued on the street at around seven times its fiscal 2013 earnings.

Yet, lukewarm interest in the sector as a whole would suppress valuations until concerns on the macro picture on interest rates and industrial activity ease out.

Disclaimer: These are not the views of VRIDHI. We may or may not agree on the views mentioned in the article.

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Cuckoo Paul/Forbes India

Slothful bureaucracy, ever-changing rules, irrational competitors and fickle investors — the business of infrastructure can be quite tricky in India. Ask G.M. Rao

Safdarjung, India’s iconic British-era airfield that is now sadly defunct was the venue of a remarkable meeting one hot day in May. The crème de la crème of India’s passenger aviation business had assembled there to tell the sector’s new regulator how much they think travelers flying in and out of the city should be charged.

The Airport Economic Regulatory Authority, or Aera, had a tough question to settle: Who should be made to bear the brunt of a 41% cost escalation in the construction of the Capital’s gleaming new international airport — the passengers, the government or the guy who built the airport?

The guy who built the airport — Grandhi Mallikarjun Rao, or GMR — was chewing his nails off at his office in Bangalore 2,000 kilometres away. The veteran infrastructure entrepreneur was seeing his best-laid plans being blown to smithereens at a pace even he could not keep up with. In a matter of a few months, his world had turned topsy-turvy.

Rao was staring at a hole of Rs. 1,800 crore (USD 400 million) in his balance sheet for no fault of his. He had built a world-class airport terminal with a capacity of 34 million passengers in a record time of 37 months. Given that planning always lags behind demand growth for infrastructure in India, he had to widen the scope of the project along the way.

An exclusive terminal for low-cost carriers, an underpass for easier access from the highway and a few other bells and whistles had made the airport future-proof. Yet, in place of the accolades he had expected, Rao was facing regulatory hurdles and policy flip-flops that could make his business unviable.

At the core of his problems is the shift in the power equation from the civil aviation ministry to the new regulator. Aera is pushing for a tight control on the returns of private airport operators (and consequently on airfare) through a new system of calculating revenues. This passenger-friendly move, however, could temper the rate of return and delay the breakeven at Delhi International Airport Ltd. (DIAL), a subsidiary of the listed GMR Infrastructure.

Even if Rao were to accept a slower journey to breakeven, he has a more urgent problem to solve. As per his calculations, the project cost had risen to Rs. 12,857 crore (USD 2.86 billion) of which all the equity, debt and government funding could not meet a gap of about 15%.

He needs to recover that in some form and had proposed he be allowed to charge passengers a development fee for another three-and-a half-years. It is this question that the Safdarjung meeting debated. But no decision came through that day and it is still not clear whether the regulator will allow this unpopular move.

There is more bad news. Aviation is not the only business that is in jeopardy in GMR’s empire. Each of his other ventures — power, roads, special economic zones and even his recent international foray — has gotten into trouble. In most of these cases, the problems have largely to do with the changes in the environment, like regulatory U-turns, irrational competition and that fickle thing called stock market perception.

In the power sector, he is hemmed in by a shortage of gas and uncertainty over fuel linkages. Earlier, Rao lost out on the bids for ultra mega power projects that seriously undermined its plans to be a major player in power. As a way out, he paid a billion dollars for Dutch company Intergen with a capacity of 8,000 MW in five countries. But falling margins quickly turned that acquisition sour.

The roads business, while ostensibly more profitable than airports, has become a cutthroat pursuit. Taken in by the hype surrounding the infrastructure business, rookie entrepreneurs and road contractors are bidding aggressively. They are taking away the projects from more experienced hands. Last year, GMR bid for 24 projects and won only one.

While GMR demonstrated more hunger for new projects than their rivals like GVK, the pressure from investors grew by the day. “It is simply impossible to keep sustaining the hype,” says Vinayak Chatterjee, chairman of Feedback Infra. When short-term excitement ran out in this long-term business, shareholders became upset.

All this has led to a simple equation: Revenues are slow to come, profits uncertain, debt mounting and new investors hard to come by. This is not just the story of GMR but of much of the entire infrastructure sector in India, which after two decades of economic reforms, is still choked by bureaucratic and regulatory bottlenecks.

source: Fwd Email

Disclaimer: VRIDHI may or may not subscribe to the views mentioned in the article.

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Standard Chartered IDR Price Crash 6/6/2011

The Standard Chartered IDR open on a lower circuit of 20% today at 91.75 on the Bombay Stock Exchange and is trading now at 100 on value buying.

The UK’s Standard Chartered Bank, which was the first foreign lender to come out with Indian depository receipts, will not be required to convert their IDRs into shares as per the guidelines issued by Sebi. After the announcement of guidelines by the Securities and Exchange Board of India (Sebi) on Friday, the company, whose IDRs are frequently traded on Indian stock markets, need not convert them into underlying shares after one year of getting listed.

"After the completion of one year from the date of issuance of IDRs, redemption of the IDRs shall be permitted only if the IDRs are infrequently traded on the stock exchange(s) in India," Sebi said while clarifying the position with regard to StanChart IDRs. An IDR represents ownership in shares of a foreign firm, which trades in domestic capital market. An IDR is bought and sold just like a regular stock.

StanChart is the only foreign company to have issued IDRs to the Indian shareholders. Ten StanChart IDRs represent one underlying equity of the UK-listed bank. The StanChart IDRs were due to come up for redemption on June 11, 2011. The Sebi norms said that if the annual trading turnover in IDRs in the preceding six calendar months before redemption is less than 5%, then only the company could go into for redemption of IDRs.

Though the market it taking the SEBi directive as negative one may still benefit in the long run holding the IDRs itself.

-Inputs frm ET

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Jun 06, 2011 02:12 pm
STANCHART IDR – PERILS OF A NEW PRODUCT

By Ruma Dubey, Source: Fwd Email

All those who stayed away from Stanchart IDR would be having a smug, “I told you so!” expression on their face. The uncertainty and grey areas were too many and being a first-timer, retail investors really did not want to take a chance. But FIIs, who had kept away initially were eventually lured in by the arbitrage advantage. That explains the stock holding where FIIs currently hold over 70% while retail investors hold less than 8%. Interestingly, Azim Premji held 3.07% stake and Madras Aluminium held 1.54%.

The IDR, which was issued a year ago at a price of Rs.104 per IDR hit a new 52-week low today at Rs.91.75, hitting the 20% lower circuit. More than double number of sellers than buyers remained on the counter.

SEBI tweaked the basic norms at the last minute and this has caused immense heart burn. Obviously, if the basic premise of making the investment itself is changed, surely there will be an exodus. But on reading the fine print, it becomes clear that it is not something which SEBI suddenly pulled out of the hat; this was not exactly expected but not ruled out too.

The IDR hit the bottom after SEBI issued a framework for investors to redeem the IDRs into underlying equity shares if they become illiquid. As per the new norm now, Stanchart UK will not be required to convert these IDRs into shares. The rule, when the IDR was issued, had stated that after completion of a year from the date of issuance of IDRs, which falls due on 11^th June 2011, the IDRs were to be converted into share. When the IDR was launched, at that time itself, it was clear that convertibility would be an issue which was subject to regulatory decision and now SEBI has taken than decision.

This disallowance of convertibility, as we understand now, is based on the volume or liquidity of the IDR. SEBI has stated that redemption of IDRs will be permitted only if its annualized trading volume was less than 5% of the total IDRs issued. And that is surely not the case here. The annualized trading volume in Stanchart IDRs over the last six months was 48.5% of the total IDRs. And as there is obviously enough liquidity, SEBI has ruled that it need not be converted.

Well, SEBI has ruled what it thought was just but the underlying question is – should products which are mired in a lot of uncertainty be invested in? For every first timer, every step is a new step, a trial and error. So being a new product, the risk of that novelty does remain. But if do not take a risk and do not get products going, that would be a bigger blotch. The equity markets would not have evolved if that first step was not taken. And the markets are still evolving, the trial and error continues.

Ditto is the case for Stanchart IDR. Unless and until more such IDRs hit the market, SEBI might not exactly be forced to remove all the doubts surrounding such IDRs. The confusion over the tax angle and that on two-way fungibility remains. The two way fungibility means that the IDRs can be converted into underlying shares & underlying shares can be converted into IDRs. But as per the norms now, automatic fungibility is not permitted and neither is two-way. In case of Stanchart IDR, what this means is that investors cannot purchase existing shares on the London Stock Exchange and/or the Hong Kong Stock Exchange and deposit them into the IDR programme. And as this two-way fungibility is not allowed, if SEBI had allowed redemption, the fear was that liquidity could have been impacted. But this ban on two-way fungibility has made it less attractive to the FIIs.

Well, it’s a new product and this is probably the stage of experimentation. Unfortunately it is at the cost of investors but fortunately, not at the cost of retail investors who have been smart enough to stay away from the unknown.

This move by SEBI is a big blow to the IDR market and unless all the grey areas are cleared, this product does not seem to have too much going for it in India.

Food for thought: A terrific investment can become an even more terrific arbitrage but can a purely arbitrage investment ever become value investment?

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