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Friday, April 19, 2013

B F Utilities Ltd: Should Perk Up Based On Improved Fundamentals
Company Background: BF Utilities Ltd. (BFUL) is a part of  the reputed Kalyani Group. It earlier operated in two business segments –Infrastructure Business and Investment Business. BFUL has undergone a major restructuring where the Infrastructure Business has remained within the BFUL while the Investment Business has been transferred to BF Investment Ltd.
The projects:
1) Nandi infrastructure Corridor Enterprise (NICE) (74.5% holding). Project – BMIC – Bangalore Mysore Infrastructure Corridor Project.
2) Nandi Highway Developers Ltd (NHDL) (69% holding). Project – Hubli -Dharwad Bypass road. - The Hubli-Dharwar bypass in Karnataka is a 30 km road on NH4 that lets highway traffic bypass the two cities, speeding up traffic. NH4 connects Mumbai/ Pune with Bangalore/ Chennai. Operational since 2000.
3) Project – Wind energy, over 300 acres in Satara, Maharashtra is 100% owned. Despite the continued dismal state of US economy, it managed to add 13 GW of windmill capacities in the year 2012, just a whisker below China. However, the much awaited extension of Kyoto Protocol upto the year 2020 has not been able to bring cheer to the global carbon market. The buyers (designated nations) of carbon credits are required to declare by year 2015 their GHG (Green House Gases) reduction commitments for the period upto 2020. Due to the economic crisis in the EU, most of these buyers are reluctant to make commitments and this has led to uncertainty in the markets and has resulted in steep fall in the carbon prices."Despite much talk by world leaders," said IEA executive director, Maria van der Hoeven, "and despite a boom in renewable energy over the last decade, the average unit of energy produced today is basically as dirty as it was 20 years ago."  The IEA uses a complex calculation called the carbon intensity index to show how much CO2 is emitted to provide a given unit of energy. The index stood at 2.39 tonnes of CO2 per tonne of oil in 1990. By 2010, it has shrunk fractionally to 2.37 tonnes. This has led to a growing concern in the world and hence the things could be  looking better from here.
According to IEA report, the major reason for such a small reduction of that period, was due to the resurgence of coal. And, the coal demand continues to grow. Globally, coal-fired electricity generation rose by an estimated 6% from 2010 to 2012 , faster than non-fossil energy. The major growth in coal came from developing economies, with China accounting for 46% of global coal demand in 2011. However, it is not all bad news for the green sector. Renewables such as solar and wind have boomed in 2011 and 2012, perhaps driven by government spending. They accounted for 19% of global electricity generation in 2011 which according to a report is "broadly on track to meet a 2C scenario by 2020" for a globally altered climate.
The Kyoto Protocol’s Clean Development Mechanism was supposedly created to help finance sustainable development projects in the world’s poorest countries. Many of its supporters argued that it would make it possible for these countries to ‘leapfrog’ or skip the process of industrialization to a more sustainable economic model. But most of the money is going to the largest and most industrialized emerging economies. Over two-thirds of Clean Development Mechanism projects are initiated from just 3 countries: The Netherlands (35.59%), Britain (20.34%), and Japan (15.25%). So, when the name of Japan is there we can be optimistic considering the current set of events there.
Event: – The key asset for the company is the project BMIC (Bangalore Mysore Infrastructure Corridor Project) – A 164 km tolled expressway connecting the cities Bangalore and Mysore. It includes a peripheral road in Bangalore, 5 New Townships along the Expressway (the first Section A involves 7,290 acres land), a Town Planning Authority status, and a Concession period for the toll of 40 years. The BMIC is 75% owned by BF utilities. It has a single planning authority – Bangalore Mysore Infrastructure Corridor Area Planning Authority (BMICAPA) for the entire project.
The project is partly operational with the rest held up due to pending handover of land by the government of Karnataka. This high potential project has been stuck for over a decade due to land handover issues, and the firm is making losses. However recent reports indicate that now it may be close to resolving the issue as the Supreme Court has asked Karnataka to handover the Nandi project land to the company. PE fund raising plans are also in discussion who will invest in the development in the project.
This project has immense potential and is also very important for the growth of the South Bangalore and Mysore. Much of the value is dependent upon a successful handover of committed lands, followed by execution, commissioning, launch and success of sub-projects. This would further help the company to create value for itself as well the shareholders. This would further help the stock to re rate.
Interest Rate Cut: Any fall in the interest rate is positive for the company, as it is into infrastructure development as mentioned above. 
Concerns: Though during the last fiscal the windmill projects of the company performed satisfactorily and the trading of (RECs) generated by the projects helped the company to earn additional revenues, but the income from RECs this year is expected to be subdued due to lower rates owing to oversupply of RECs in the market. The CDM market has also witnessed a free fall in the last few months. However, on the issue of grant of open access for wheeling of windpower to third parties within the state, the Regulatory Commission, in an  order, had clarified certain aspects which will pave the way for open access for wind power projects in the state. This is expected to provide the much needed boost for the windmill projects in the state. Moreover, introduction of the Generation Based Incentive (GBI) for FY14 (Union Budget) and setting aside a sum of Rs.800 crore for this purpose augurs well for the company.
Chartical Analysis
The stock is in a positive trend and with technical attributes at 3 or more. The attributes show that the stock is displaying good relative strength. There is resistance at Rs.276.00 and support at Rs.244.00.