Reliance Communications Ltd: Advantage Bulls

CMP: Rs.52

RCom's ownership of a pan-India spectrum in 800MHz/850MHz and its ability to offer faster 4G data services could help it fend off the competition, to some extent, according to Fitch Ratings.

4G data services could help it fend off the competition, to some extent, according to Fitch Ratings.

The firm said that RCom's IDR is constrained by its weak market position as the fourth-largest telco in India with a revenue market share of around 8% and a subscriber base of mostly low-revenue customers.

The top-three telcos - Bharti Airtel, Vodafone India and Idea Cellular- have been gradually gaining market share and now account for about 70% of wireless revenue in India's telecoms market.

"We forecast FCF will be limited in FY17 as Rcom needs to invest around Rs 40bn (FY16: Rs 34bn - excluding a one-off spectrum payment of Rs 11bn) on capex to support its fast-growing data traffic and to improve the quality of voice services. However, its capex/revenue of around 17%-18% will still be below than top-three telcos' average of 19%-20% due to its infrastructure and spectrum-sharing arrangement with Reliance Jio," the ratings firm said.

In January 2016, RCom said that it would share and pool its 800MHz spectrum with Reliance Jio in 17 regions. Rcom has future plans to share 800MHz spectrum in the remaining five circles. Spectrum sharing will give Rcom access to a wider band of spectrum and Jio's network to provide faster 4G data services and provide capex and operating costs savings.

RCom and Reliance Jio signed reciprocal infrastructure agreements during FY14-15 to share Rcom's 43,000 towers, 120,000km of inter-city fibre, and 70,000km intra-city fibre network for the next 17-20 years. Under the agreements, Rcom also has access to existing and future towers and fibre assets of Reliance Jio.

The ratings firm reckons that RCom's acquisition of Sistema Shyam Teleservices Ltd (SSTL), the Indian mobile subsidiary of Russia's Sistema JSFC, in an all-stock deal is credit neutral for Rcom, at least in the short term. RCom will benefit from additional nine million subscribers and Rs 15bn revenue and also will be able to extend the life of its 800MHz spectrum in eight Indian circles.

"However, we believe that in FY17 incremental EBITDA from the acquisition will likely fall short of SSTL's annual spectrum cost of Rs3.9bn - the cost of the spectrum SSTL acquired in the March 2013 auction will be paid annually over 10 years starting FY17. In the longer term we expect that growth in incremental EBITDA may make the transaction cash-flow positive. SSTL will pay off its existing debt before the acquisition," the firm said.

The firm expects competition to intensify in Indian market as Reliance Jio enters the market with cheaper tariff plans and faster data speeds, and armed with sufficient spectrum and access to funds. We expect the industry blended monthly average revenue per user (ARPU) to fall due to a decline in data tariffs, which will more than offset the rise in data usage.

RCom's FY17 blended ARPU, however, is likely to decline by 1%-2% compared with a 5%-6% decline in the industry's blended ARPU. This is because Rcom's ARPU of Rs 140 is already lower than the industry average of Rs 170.

RCom's liquidity, according to Fitch, is dependent on its ability to refinance its maturing debt because its cash generation and unrestricted cash of Rs 22bn are insufficient to pay its short-term debt of Rs143bn. Banks have been willing to lend on a secured basis with licences and immovable assets as collateral.

Meanwhile, the government is readying a presentation to convince RBI to modify its 30 November notification on external commercial borrowing (ECBs) so as to ease the ability of infrastructure firms, especially telecom firms, to raise short-term foreign-currency loans, according to a media report.

The telecom sector is also lobbying the government to get the service tax on spectrum trading, announced in the Union budget, rolled back.

Reliance Communications Ltd (R-Com), India’s fourth largest mobile-phone services provider, has bought the local unit of Russia’s Sistema JSFC in a deal valued at Rs.4,500 crore in stock and payments to the government for spectrum allotted to Sistema—a transaction that may herald the much-anticipated consolidation in India’s telecom industry.

Shareholders of Sistema Shyam Teleservices approved the merger of the company with Reliance Communications, according to reports. SSTL reportedly said the meeting in Jaipur was convened by the high court to seek approval of the SSTL shareholders.

In another significant development, recent media report suggests that, Tillman Global is looking for new partners for a tower deal for R-Com as TPG Capital valued the telecom towers sharply lower than the Rs.21, 500 crore as initially projected.

TPG and Tillman Global Holdings LLC signed a non-binding pact in December to buy cellular towers from Reliance Communications Ltd. The deal could be the largest private-equity investment in India, according to data compiled by Bloomberg.

In case of Reliance  Communications Ltd ( Rs.52), the change in Open Interest : -15,92,000 or % Change in Open Interest: -2.74 and the share price has fallen slightly.

Therefore, the inference is that the Bulls are preparig to come back in the arena.

Besides, the book value of the shares of Reliance Communications Ltd is Rs.114.25. The investors are suggested to buy the Stocks of the company at around Like Rs.52, for short term targets of Rs.57 - 59.

Reliance Communication Ltd: Buy

CMP: Rs.52.25

Reliance Power Ltd: Buy

CMP: Rs.46.50

The company’s consolidated total income from operation of Rs. 2,562.21 crore, grew by 47.97% yoy but declined 7.36% qoq.

Reliance Power Q3FY16 net profit grews at 38% yoy to Rs.352 crore.

Reliance Power, power generation and power distribution company, reported consolidated net profit of Rs. 351.81 crore for the quarter, registering growth of 38.26% yoy and 1.78% qoq. The company’s consolidated total income from operation of Rs. 2,562.21 crore, grew by 47.97% yoy but declined 7.36% qoq.

Its core operating profit of Rs. 1,229.68 crore for the quarter, clocked growth of 95.84% yoy and 0.69% qoq. Operating Margin at 47.99%, expanded by 1173 bps yoy and 384 bps qoq.

For nine months ended December 31, 2015, the company’s consolidated net profit of Rs. 1,041.79 crore for the quarter, increased by 38.56%, while total income from operations of Rs. 8096.1 crore was up by 53.68%.

It’s core operating profit of Rs. 3,620.44 crore for nine month period, clocked growth of 94.67%. Operating Margin for the period stood at 44.71% expanding 941 bps.

On standalone basis, the net profit stood at Rs. 274.96 crore clocking over 41 folds-jump yoy and nearly 30 folds-jump qoq. Note: The company reported other income of Rs. 322.03 crore, which clocked five-folds jump from Rs. 64.48 crore in the preceding quarter and six-folds jump against Rs. 58.51 crore in the corresponding quarter of the previous year. The company’s total income from operation of Rs. 7.45 crore, declined 73.23% yoy and 66.81% qoq.

It’s core operating loss stood at Rs. 9.39 crore as compared to Rs. 8.43 crore in the preceding quarter. The company had reported operating profit of Rs. 5 crore in the corresponding quarter of the previous year. 

For nine months ended December 31,2015, the company's standalone net profit of Rs. 291.37 crore, registered 14 folds-jump yoy, while its total income from operation stood at Rs. 52.37 crore, declining by 49.29% yoy.

Recently, there were reports that the promoter releasesd the pledge of 4.83 crore shares on February 1st, 2016.

Source: India Infoline

Affordable Segment to Grow

--by T G Muthoot

According to industry estimates, the housing shortage in India has touched 18.78 million units. As per the latest Economic Survey, there is a shortage of nearly 20 million homes in India. So, supporting the supply side is as critical as stimulating the demand side.

Realising about this widening gap, the government had rolled out an ambitious programme — Housing for All by 2022 — targeting the urban areas.

Rehabilitation of slum dwellers through public private partnership projects, promotion of affordable housing for weaker sections through credit linked subsidy and promotion of housing for urban poor are the elements of this initiative. The scheme will cover 4041 towns in three phases.

Government effort alone cannot fill this gap. It has to provide an enabling and empowering environment where private players can come in, with ease of doing business, and support the agenda. The Budget has constructive measures to improve the supply and demand side.

Allowing 100 per cent deduction for profits to housing projects up to 30 sq metres in the four metro cities and 60 sq metres in other cities is likely to spur supply of affordable homes, which makes for almost 90 per cent of the demand for homes in India.

Government’s service tax exemption on houses less than 60 sq metres, and the additional exemption of ₹50,000 for housing loans up to ₹35 lakh for homes not above ₹50 lakh will both likely to improve first-time home buyers’ sentiment. The government’s focus on digitisation of land records is in the right direction especially in the rural areas, which will render land records free from encumbrances.

The Budget has also increased the limit of deduction of rent paid under section 80GG from ₹24,000 per annum to ₹60,000, will help in the supply side.

Already there is an increased interest among the developers to lay out affordable housing. If we want to reach somewhere near the target of providing shelter to all, each developer needs to reserve 20 per cent of the projects as affordable housing component.

Evolving response

Over 20 projects are in progress at places like Karjat, Vasind, Palghar and Boisar in Mumbai along with Chakanand, Shikrapur in Pune. Developers like Xrbia Developers, Tata Housing (ShubhGriha) and VBHC are entirely focused on innovative affordable homes and have already launched multiple projects across cities. Housing Development and Infrastructure Limited (HDIL) and Usha Amenities, Breco Realty, Mahindra Lifespaces, TVS Housing and S Raheja are also into the space.

But the task ahead is to get the States also on the same platform and support the initiatives. There are different parameters for different States in many areas like the density norms. As always in the Budget announcements, the key lies in the execution, which is possible only with political will and administrative acumen.

Source: The Hindu Businesses Line

How property buyers will gain through Real Estate Regulator Bill

New Delhi, Tuesday, March 15, 2016: Once the Real Estate Regulator (Regulation and Development) Bill, pending since 2013 is passed, the realty regulator proposed in it, along with reforms, will empower and protect property buyers and investors, paving the way for more organised, fair, credible and transparent property transactions. The Indian realty industry, thus, will also become investor-friendly.

A recent survey by the Ministry of Consumer Affairs, dubbed real estate sector as the second worst industry after telecom in terms of quality of service. The prevailing liquidity crisis, unaffordable property prices, high delivery defaults, tepid sales and low investor confidence has plunged the sector into crisis.

In this backdrop, real estate regulatory authority-cleared by the upper house of Parliament and the main opposition, the Congress party, assuring support in ther lower house-assumes significance. It seeks to check fraudulent practices and provide a fair deal to property buyers.

The consumer-friendly landmark legislation is aimed at setting up regulatory and redressal mechanism, the absence of which is responsible for the present mess in the real estate.

The key provisions of the legislation, which bring brokers along with developers under its ambit, include:

• Mandatory registration of project
• Need to provide complete information on project plan, lay-out, approvals, land title
• Also required is completion schedule, with ban on pre-launch advertising without sanction
• Mandatory disclosures in ads and prospectus to check gap between promise and deliver
• Sale of property only on the basis of clearly defined carpet are
• Move to ensure buyers get exactly the space for which payment is made
• Mandatory escrow account to check diversion of funds that delay projects
• Provisioning of fair compensation for delays in delivery
• Focus also on quality of construction, speedy dispute resolutions
• Also proposed penalty and imprisonment for non-complying developers

Though this model legislation covers both residential and commercial real estate including ongoing projects, yet it's the residential real estate which is going to get big boost , especially by boosting the confidence of home buyers.

Unlike in the past, now the home buyers can take informed decisions to invest with all the project information at their disposal which developers and brokers are now liable to disclose. In this context, it is worthwhile to mention single-most important factor responsible for keeping home buyers away thereby resulting in lukewarm sales.

It has been the sheer lack of safety of their investment, especially in view of extraordinarily long delays in project completion, with buyers money stuck for years without redressal. But now the watchdog will ensure timely completion with time-frame for completion and delivery of registered projects to be clearly mentioned and adhered to.

The mandatory project-specific escrow account will ensure that as much as 70 percent of the money collected by developer for certain project from buyers is not diverted elsewhere, thereby ensuring that project is not delayed due to fund crunch. The escrow mechanism will also guarantee security of the money invested by home buyers.

The provision of a model and fair buyer-seller agreement under the regulatory mechanism will put an end to short-changing of home buyers on account of hidden charges like external development charge (EDC), internal development charge (IDC), parking charges, maintenance fee, club charges and preferential location charges.

So, there will be no escalation of charges and the home buyer will not be liable to pay any charges other than the ones mentioned in the agreement. The provision of speedy and time-bound dispute redressal within two months is also a big confidence-booster for home buyers who are till now deprived of this and were forced to run from consumer courts to lower courts to higher courts for justice.

The regulatory authority is fully supported by the ongoing reforms in the real estate and housing sector, which will prove a big boon for affordable and low cost housing, in line with government's flagship mission of "Housing for All".

This year's budget has addressed the affordability issue through a number of policy initiatives like 100 percent service tax exemption for affordable homes, and additional yearly rebate of Rs 50,000 on housing loan interest for first time home buyers in affordable segment with loans not exceeding Rs 35 lakh.

It also proposes a hike in the limit of deduction for rent paid to boost rental demand for affordable housing. Earlier, similar policy initiatives were taken like National Housing Board and HUDCO, creating a pool fund to promote affordable housing by incentivising cash-strapped developers engaged in affordable housing.

Lack of sustained fund flow has been the biggest bane, restricting the supply, leading to housing shortage, particularly in mass housing. But now with a regulatory authority set to become a reality, it will pave way for industry status to housing, particularly affordable housing to facilitate cheap bank funding.

It may be mentioned that banks' exposure to real estate in India is merely 3 percent, while it is 10 times in the US. The major policy decision in this year's budget to boost reat estate investment trusts by abolishing dividend distribution tax will help developers raise funds for affordable housing, besides commercial real estate.

Faster approvals are a key to affordable housing as delayed sanctions result in cost over runs. Project sanction is a long and tedious process where developers need to seek over three dozen clearances for construction and completion. As such, there is an urgent need for simplifying and streamlining the process to fast track approvals.

Some states like Maharashtra, under its new housing policy, is working to speed up the approval process by reducing number of approvals and making it online.The Centre, as part of its reform policy of "ease of doing business", needs to bring out a "model mechanism" to ensure faster approvals for other states to follow.

The provisions on the regulatory authority call for this-and an expert committee constituted by the housing ministry has come up with a reform blueprint in this regard to check large scale delivery defaults that not only add to the cost but also shake the confidence of property buyers and investors.

A recent study by CB Richard Ellis says that the real estate sector can double its share in GDP to 13 percent with the aid of reforms. With urbanisation expected to grow at a compounded annual rate of 2 percent over the next two years, the regulator can be used as a tool to achieve double-digit growth with reforms like online and speedier projects sanctioning, simplified and rationalised taxation through goods and services tax, liberalised floor area and density norms to boost supply.

Once the central bill takes the shape of a legislation, states will have to come up with their own framework of regulatory authority. With its implementation, the watchdogs will wipe out the negative image associated with the fragmented, unregulated and opaque realty sector.

This, in turn, will make real estate an attractive asset class for domestic and foreign investors. But then, the key to its success lies in implementing it in letter and spirit so that it does not end up as another piece of legislation.

Source: Business Today

Housing Development and Infrastructure Ltd: Buy

CMP: Rs.70

Real Estate Bill has been approved by Parliament, bringing relief for home buyers.

The proposed law makes it mandatory for all residential and commercial projects to register with the Regulator and will apply to new and ongoing projects.

Once the Bill is notified, the investments in the real estate sector are expected to move up. Also early clearances might bring down the property prices, bringing more volumes for the builders.

But the biggest advantage of this bill is that it is likely to eliminate bogus builders, which is positive for the established real estate developers like HDIL.

Last month, HDIL reported a consolidated net profit of Rs.92.95 crore in the December quarter as against Rs. 67.29 crore in the corresponding period a year ago.

Total income stood at Rs.329.09 crore in the third quarter of this fiscal year from Rs.359.48 crore in the corresponding period of the previous year.

The company's sales booking increased 14 % to Rs.389.19 crore during the October-December period. HDIL's net debt declined to Rs.2,890.55 crore as of December 31, 2015, from Rs.2,970.41 crore at the end of the September quarter.

The Mumbai-based developer has completed construction of 100 million square feet area since its inception in 1977. It has delivered more than 1.5 lakh homes. The company has 22 ongoing projects and about 46 million sq ft area under construction.

"Possession handed over in last 24 months is approximately 2,500 residential units. In the next 12-18 months we will hand over 4,500 residential units," the presentation said.

On its upcoming 550 acre township project 'Planet HDIL', the company said it is in "advanced stage to close first large FSI sale transaction".

HDIL has also initiated discussion with large warehousing, logistics park, cash and carry stores in and around this township project to create potential job opportunities, the firm added.

This year's budget has addressed the affordability issue through a number of policy initiatives like 100% service tax exemption for affordable homes, and additional yearly rebate of Rs.50,000 on housing loan interest for first time home buyers in affordable segment with loans not exceeding Rs.35 lakh. HDIL as you know is into affordable segment too-- the company recently launched the first phase of its affordable housing  project "Planet HDIL", the mega smart city in Virar (East); one of the largest affordable housing projects in the country.

Meanwhile, Neha Hiranandani, director of Mumbai-based House of Hiranandani said the new Real Estate Regulatory Bill is a step in the right direction, but could end up making property costlier. "The bill has failed to bring the government authorities into the ambit who are responsible for the continuous changes in regulations, lack of transparency and predictability in functioning. The bill is therefore incomplete in its approach, and the outcome of this is going to be more expensive products for consumers,” Hiranandani pointed out. “Placing 70% of receivables in an escrow account in an economy with such high interest rates is going to lead to a complete shift in the business model of many companies. Owing to lack of holistic approach, the end price to consumers will continue to rise, putting a severe strain on affordability,” Hiranandani said.

“We wish the developers’ interest is also taken care when buyers default and delay payment which result in delays in project execution. Developers cannot be blamed for such delays,” said Chintan Sheth – Director, Sheth Corp. “The Act also has to take into account the delays arising out of clearing plans and permissions.”

India’s real estate sector is arguably the most opaque segment of the economy due to the parking of ‘black money’ by politicians and bureaucrats in the sector.

At the same time, it is also highly unorganized, with practically anyone able to become a ‘developer’ even if he or she has no original capital or prior experience. Many people who own land in the cities take loans, build up complexes, sell the units and repay their loan. This has led to inconsistencies in quality, and affected even high-end developers due to inconsistent reputation around the sector.

The Real Estate bill is designed to bring accountability and predictability into the sector, but contrary to developers’ suggestions, it has left the government officials — who often cause project delays — from its regulatory ambit.

However, everyone felt the new law will ensure greater transparency and provide greater comfort to buyers. “This will boost buyer confidence and in turn will also help increase sales. This bill also looks at the developer’s interest by taking into consideration external factors in case of project delays,” said Vikas Oberoi – Chairman & Managing Director, Oberoi Realty.

Therefore, buy the shares of HDIL at Rs.70 for a target of Rs. 74.50-81, in the short term.

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BHEL: Buy

CMP: Rs.106.15

Bharat Heavy Electricals (BHEL) has achieved another milestone in its After-Sales-Service business by successfully synchronizing the 110 MW Unit-7 at Barauni Thermal Power Station (TPS) in Bihar following Renovation and Modernisation (R&M). Following the successful R&M, the working life of the machine, that was first commissioned in May, 1985, has been extended by another 15-20 years.

With the successful commissioning of Unit-7 at Barauni TPS, BHEL has once again showcased its inherent strength for R&M and uprating of old thermal power plants through in-house state-of-the-art technology, engineering capabilities and by incorporating the latest products/systems in renovated units. 

The synchronization of this unit comes close on the heels of the successful re-commissioning of Muzaffarpur Units-1&2 (110 MW each), and uprating of Bhatinda Units-3&4 of PSPCL and Harduaganj Unit-7 of UPRVUNL, from 110 MW to 120 MW. Of the 218 utility sets of 110-210 MW rating supplied by BHEL in the country, about 142 have outlived their designed economic life of 25 years. Of these 142 sets, R&M of 38 sets has already been taken up by the respective utilities.

Power utilities find R&M an opportunity for capacity uprating and life extension, which not only improves their performance level in terms of improving efficiency and reducing emissions but also extends their useful life.

Recently, the Ministry of Environment & Forest (MOEF), Government of India, has stipulated stringent emission norms for the power plants installed in the country. R&M capabilities of BHEL will provide effective solutions to utilities for controlling the prescribed emission norms including SOx & NOx control.

Of the 218 utility sets of 110-210 MW rating supplied by BHEL in the country, about 142 have outlived their designed economic life of 25 years.

Of these 142 sets, renovation and modernisation of 38 sets has already been taken up by the respective utilities. Power utilities find renovation and modernisation opportunity helpful in capacity uprating and life extension.

Recently,  State-owned power equipment maker Bhel emerged as the lowest bidder for a thermal power project in Bangladesh. The $1.6-billion project will give a boost to India's energy diplomacy.

The proposed plant at Khulna will run on imported coal with capacity of 1,320 megawatt (MW), with two units to be built each of 660MW.

Industry sources said Bhel had emerged as the lowest bidder. The decision on awarding the project will be taken by the end of March. It will be the company's biggest overseas power contract.

The tender was floated by Bangladesh India Friendship Power Company, a 50:50 joint venture between NTPC and the Bangladesh Power Development Board.


Meanwhile, BHEL has commissioned a 500MW unit at Anpara-D thermal power plant in Uttar Pradesh.

During the last few years the government of India has taken steps to improve the health of the power sector by resolving the coal supply issues and bringing state governments on board to improve the financial health of state electricity boards. 

On the other hand on account of the poor state of the entire power sector, BHEL’s receivables have remained high. The company’s receivables stood at Rs.35,900 crore, more than its annual revenue of Rs.30,667.63 crore in March 2015. However, its management pointed out that about 50% of it is deferred debt which will be due for collection once certain milestones are achieved and the remainder are collectibles, of which over Rs.10,000 crore are more than a year old.

BHEL is a debt-free company and if the government’s measures of Make in India and other electricity reforms are to take off, the company is ideally positioned to capitalise on it. Though 80% of current revenue and order book is from power sector (largely generation), Bhel has taken other initiative to augment growth in future in the other segments.

Industrials which accounts for nearly 20% of the revenue and order book and caters to segment like power transmission, railways, water treatment, defence and solar is likely to see action in the near to medium future.

The government’s initiative of strengthening the state electricity boards through UDAY is likely to see order flows increasing in the transmission sector rather than generation. Bhel has significant presence in the field of power transmission in India with a wide range of transmission systems and products in its portfolio. The company is one of the leading players in transformers in the country and has started booking in big orders in the space.

In order to capitalise on the solar sector, the company is capitalising on its knowledge in the sector. Bhel manufactures space grade solar panel and space grade batteries in association with ISRO. All Indian satellites launched by ISRO are equipped with Bhel manufactured solar panels since 2002 and batteries since 2005. The company is planning to ramp up its cell & module production capacity and enhance EPC capabilities to address the domestic market demand.

In railways Bhel provides electrical propulsion system and its controls and accounts for more than 40% of electric locomotives in operation by Indian Railways. The company is augmenting its locomotive capacity and tying up with global companies to meet the increased demand from dedicated freight corridor.

Bhel is an established supplier for defence equipment. The company is working closely with various defence research institutes of the country to develop new products under the Make in India programme. It has also tied up to address the business opportunity of producing six submarines for Indian Navy.

While it is still early days for the industrial segment to provide the next leg of growth opportunity, but the Bhel is well placed to capitalise on the opportunity.

The company is available at less than its book value, with nearly half of its market capitalisation in cash as per last balance sheet. Dividend yield at current price level is still around 1.12 per cent thus giving some more room before it becomes very attractive.

BHEL is a massive company and its shares are available at dirt cheap at Rs.106.15. If India is to grow, it cannot do without Navratnas like BHEL. Therefore, buy the shares of BHEL at Rs.106.15, for a short term target of Rs.125. The first resistance however comes at Rs.106.85. It is presently trading above its 21D SMA. Keep a SL of Rs.103, for any short term play.

Source: The Business Standard, Internet and Individual Research.

Vedanta Ltd: Buy

CMP: Rs.87.35

"There may be light at the end of what has been a long, dark tunnel" for oil, says the International Energy Agency (IEA).

In its latest monthly market update, the global watchdog speculates prices may indeed have bottomed when international benchmark Brent crude fell to $27 a barrel early last month.

Since then, there have been signs of a natural attrition on supply and, crucially, a deal to freeze production at January levels, which could eventually rebalance a heavily oversupplied market.

It pointed to outages in Iraq, Nigeria and the United Arab Emirates that took 350,000 barrels a day off the market in February alone, reports the Financial Times. Iranian production post-sanctions is also rising more gradually than expected, adding 220,000 barrels last month compared to claims it would boost output by 500,000 immediately.

Overall, global supplies eased 180,000 barrels last month – and exports from high-cost exploration areas such as the US and South America could fall more sharply than expected this year. But the IEA also noted that stockpiles are at record levels and that it would take the remainder of this year for supply and demand, currently out of kilter to the tune of two million barrels a day, to reach equilibrium.

In short, prices will be more stable at current levels around $40 a barrel and will not plough depths of $20 or below as some analysts once predicted. But neither will they rise substantially until next year.

Meanwhile, Goldman Sachs said on Friday that crude oil prices will rise by an average of $5 per barrel in the second quarter; priices are expected to increase to between $25 to $45 per barrel, up from the $20 to $40 per barrel range in the present quarter.

"As we do not expect growth from OPEC and Russia after 2Q16, and given our expectation for resilient demand growth, our confidence that stocks will draw in 2016 if prices remain low is rising," it said in a report.

Oversupply has been a major contributor to the worst price slump since 2008.

A supply glut has increased and caused a build up in inventories that has placed greater downward pressure on oil prices in the past 18 months.

Prices fell around 75 percent from June 2014 when they were around $115 per barrel, to around $27 a barrel in January.

Goldman Sachs pointed to three significant factors for the anticipated price recovery, including low oil prices that would increase global demand that has been low with economic slowdowns in Asia and Europe and would eventually trim crude inventories.

But low oil prices need to be sustained in order to allow a rebalancing of supply and demand in the global oil market, it said.

Bottom line: A rise in crude oil prices is likely to trigger a rally in the commodity market, leading to a price recovery in Metals and Gold. Moreover, the US Fed is expected to keep the interest rate hike on hold, triggering speculative rally in Gold and Crude oil.

Besides, the union budget document said that the import duty on aluminium will be raised to 7.5% from 5% while the export duty on low-quality iron ore fines would be scrapped. This Duty Revision on iron ore and aluminium is expected to benefit Vedanta Ltd, the most as it is a big producer of both commodities.

The iron ore duty cuts will help miners liquidate stocks at a time when international prices are low," Mines Secretary Balvinder Kumar, who proposed the revisions, told Reuters.

Iron ore fines and lumps, with ferrous content of less than 58%, were earlier charged 10% and 30% export duty respectively. The move will help Vedanta compete in the world market which is undergoing one of the worst commodity meltdowns in recent history. 

The low grade iron ore, exported by Vedanta from Goa, has few takers in the country, which still relies of high quality to iron ore to produce steel. The steel industry in India still lacks technology to extract iron from low grade iron ore. 

Therefore, buy the shares of Vedanta Ltd (whose valuation will increase corresponding to the rise in the valuation of Cairns India Ltd, following the rise in crude oil prices) at Rs.87.35 for short term targets of Rs.95--104. SL--Rs.83.

Letters from the Blog Readers...

I am a regular reader of your blog and you provide very valuable information to the investors.

You analyse the share perfectly. Moreover whenever we seek your advice,you always reply.

I have 10**** shares of Rasoya Protein and I have 50**** shares of GVK Power.

Whether I should hold them or sell. I can hold as long as advised.

Please  reply....

Thanking you,

Ketan Acharya

E-mail: ketan.acharya2002@gmail.com

                                 ----X----

Dear reader, thanks for your compliments. However, I shall be highly obliged if you share a part of your profit in the shares discussed here or if my suggestions have helped you to eke out some profit. It is because lot of hard work and money has to be spent to get reasonably accurate information--if you all help me in this process, then it would be of great help to me.

Anyway, regarding Rasoya Proteins Ltd, I would ask you to either keep holding or exit between the price ranges Re.0.25-0.30, with no profit no gain or with slight loss, if you are not willing to take further risks. I do not see much hope of share price revival till September, 2016, unless something drastic happens (the chance seems to be very limited). However, if you are a long term investor, then you can keep holding, without further averaging.

Now coming to GVK Power and Infrastructure Ltd (Rs.6.95), I would like to say that since I do not know your acquisition price, hence it would be difficult foir me to give relevant suggestions; however I feel that, you must be aware that GVK Power is among the most indebted infrastructure conglomerates in the country with Rs.26,500 crore net group debt in FY15. 

Off late it has been exploring several strategic options which included listing its airport vertical or sell a minority 49% at its airport holding company to investors or even an outright sale of its economic interests in the Bangalore airport for months. Last year it even mandated investment banks Bank of America Merrill Lynch and Goldman Sachs for the exercise that would have helped retire Rs.3500 crore debt in the vertical and prune group operations. Besides, it is already hobbled with coal-mine acquisition debt and low profitability of its power plants. 

Meanwhile though the Union Budget tried to give some boosting to the power companies/sector, but I feel it is too less and too late for the companies like GVK Power, who are saddled with mammoth debt traps.

In such circumstances, I would suggest you to exit the scrip, at the resistance zone of Rs.7-7.30, on some positive news. On the long term if you want to bet in the power sector, albeit with a little risk then Reliance Power LLtd (Promoters' holding slightly increasing in tbe December quarter) at Rs.46.45, is a better alternative.

Rs.500 notes: To be or Not to be....!!

After my article on my blog: SumanSpeaks, titled "Why is Rs.500 note banned in state run non-AC buses"; regarding the harassments faced due to non-acceptance of Rs.500 notes in Non-AC buses in Bombay; the administration has perhaps woken up from deep slumber.

On my way from Dombivli to Vashi (New Bombay), I found this conductor accepting Rs.500 note/s. 

After some initial hesitation and repeated requests he decided to pose/stand in front of my camera...Thank you gentleman, hope the erring ones will take cues from you.

Now if you face such problems in Bombay toss these photos in front of them. 

Hope the agencies of the state government of Maharashtra running bus services in Mumbai (Bombay), stops flouting the laws of Indian Union.

Bus No: MH-43 / H-5283

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Jindal Steel and Power: Buy

Buy Jindal Steel and Power Ltd at Rs.66-66.5, T-Rs.84+, SL--Rs.61.

According to media reports, Naveen Jindal-promoted Jindal Steel & Power Limited (JSPL) is in advanced discussions with Adani Group to sell its power generating subsidiary - Jindal Power (JPL).

Moreover, when most of the steel counters are moving up at this moment, then this stock should also follow the pattern---therefore strong buy recommendation.

Why is Rs.500 note banned in State Run Non-AC buses?

Rs.500 note cannot be used in non-AC BEST buses

Rs.500 is BANNED in Non-AC state run buses (BEST, NMMT, TMT, KDMT, etc) in Mumbai (Bombay). These buses of sundry banners are run by various divisions of the government of Maharashtra, especially the Municipalities.

The conductor simply refuses to take the note even if he/she does have change in its kitty; on the pretext that it has duplicates in the market. It is to be noted that Rs.500 note is a legal tender.

Oh, is it??!! But then why is the government of India allowing even high value banking transaction with such (Rs.500) notes? Why is the government not picking them up and destroying them,  if the matter is so serious, why??

Moreover, if there was no change for Rs.31-ticket (Mhape to Dindoshi) then the case would have been different. Isn't it? But it is a serious criminal offence, a case of public harassment.

As  a fallout of this, I had to get down twice from such buses and had shell out a high auto rickshaw charge/fare, while on my way from Mhape (New Bombay) to Infinity Mall, Malad (Bombay).

I was infact surprised to see a few Marathi speaking commuters supporting  this Criminal offence (using often heard typical Mumbaiya lingua of "Tum and Tu") !!!! 

The conductors of many such buses commented in their own style. One said, " Sabko malum hai ki Rs.500 ka note, non-AC bus mein chalta nahin, tumko kaise malum nahi hai?" (everyone knows that, how you do not know)?

When I said, I will call the media guys to publish such nees in leading dsilies, one such undaunted conductor on board the bus to Dhindoshi (Goregaon) from MBP (Mhape) said sternly, "Kissi ko bhi bulao, Jo tumhare marji karo, lekin bus se abhi utro, nahi to bus age nahi jayega, yahi pe khada rahega" (You call whoever you like, but get down first or else the bus will not move from here). Who gives these guys such absolute powers to commit such types of criminal offence, with impunity?

It is criminal offense to refuse a currency note issued by the Government of India, without any valid reason. I think like me, many other passengers have already suffered such harassments in the hands of drivers and conductors of the state run buses in the.

Moreover, why there is no Private sector participation in this space? Why is the government of Maharashtra so keen to support this loss making, white elephant?

Is Bombay going to the dogs? What is the current BJP government doing here..? Should I file a PIL or Police complaint against the government of Maharashtra?

Banned in Maharashtra government
 run non-AC buses

Also, I have pointed out in many occasions that not only the conductors but most of the state run buses are Ill-mannered and starts the buses before the commuters have actually boarded them, creating ample chances of accidents? 

What is solution guys? Why is the government of Maharashtra bent on harassing the common man, on the streets?

BHEL: Buy

CMP: Rs.107

The public sector engineering behemoth, BHEL is looking to break out of the current ranges and is all poised to touch Rs.125-127, in the short term.

Those who have missed the 2nd rally of Vedanta Ltd can try this scrip, keeping a strict stop loss of Rs.103. This is a must buy for every portfolio, as the Narendra Modi government is betting on smart cities.

Coming to fundamentals it is seen that on account of the poor state of the entire power sector, BHEL’s receivables have remained high. The company’s receivables stood at Rs.35,900 crore, more than its annual revenue of Rs.30,667.63 crore in March 2015. However, its management pointed out that about 50% of it is deferred debt which will be due for collection once certain milestones are achieved and the remainder are collectibles, of which over Rs.10,000 crore are more than a year old.

The Kotak Securities says FY16 will be a strong year for Bhel with orders booked at Rs.28,300 crore and the company is L1 in about Rs.17,000 crore, most of which are expected next year. For the first nine month of the current fiscal, Bhel’s order inflow was Rs.35,000 crore which translates to around 9-10 GW of power equipment’s. JM Financial has pointed out that the company’s management hopes to end the year with 15-16 GW on inflows versus 4-5 GW in the previous year.

Consensus estimates of analysts suggest that the company can touch a revenue of around Rs 36,000 crore by FY18.

Moreober, BHEL is a debt-free company and if the government’s measures of Make in India and other electricity reforms are to take off, the company is ideally positioned to capitalise on it. Though 80% of current revenue and order book is from power sector (largely generation), BHEL has taken other initiative to augment growth in future in the other segments.

Industrials which accounts for nearly 20% of the revenue and order book and caters to segment like power transmission, railways, water treatment, defence and solar is likely to see action in the near to medium future.

The government’s initiative of strengthening the state electricity boards through UDAY is likely to see order flows increasing in the transmission sector rather than generation.

BHEL has significant presence in the field of power transmission in India with a wide range of transmission systems and products in its portfolio. The company is one of the leading players in transformers in the country and has started booking in big orders in the space.

In order to capitalise on the solar sector, the company is capitalising on its knowledge in the sector. BHEL manufactures space grade solar panel and space grade batteries in association with ISRO. All Indian satellites launched by ISRO are equipped with BHEL manufactured solar panels since 2002 and batteries since 2005. The company is planning to ramp up its cell & module production capacity and enhance EPC capabilities to address the domestic market demand.

In railways BHEL provides electrical propulsion system and its controls and accounts for more than 40% of electric locomotives in operation by Indian Railways. The company is augmenting its locomotive capacity and tying up with global companies to meet the increased demand from dedicated freight corridor.

BHEL is an established supplier for defence equipment. The company is working closely with various defence research institutes of the country to develop new products under the Make in India programme. It has also tied up to address the business opportunity of producing six submarines for Indian Navy.

While it is still early days for the industrial segment to provide the next leg of growth opportunity, but the BHEL is well placed to capitalise on the opportunity.

The company is available at less than its book value (RRs139.26), with nearly half of its market capitalisation in cash as per last balance sheet. Dividend yield at current price level is still around 1.08% thus giving some more room before it becomes very attractive.

Recently, there were some media reports that the state-run power gear maker BHEL had beaten Chinese rivals to bag a contract for building $1.6-billion coal-fired power plant in Bangladesh, giving the Narendra Modi government's "Make in India" initiative a shot in the arm and writing down a reference for similar projects worldwide.

BHEL has also beaten India's L&T to emerge as the lowest bidder for the plant to be built at Khulna, some 450 km south-west of capital Dhaka. The contract would be the biggest overseas power project for BHEL, which does not have a major footprint abroad. More importantly , the Bangladesh contract would help lay down a new reference for BHEL and qualify it to compete for projects worldwide.

The contract would also breathe life back into the company's order book, which has remained flat in the absence of greenfield projects being undertaken in recent times, especially in the private sector.

But the victory comes with a hefty dose of financial steroid in the form of interest equalisation support from the government and commitment of 70% funding at a concessional interest rate. The financial package was available to L&T also. The government bears part of the interest burden under the interest equalisation scheme so that the borrower does not pay the entire interest. The package includes a 20-year dollar-denominated loan at 1% above the benchmark Libor.

The government also supported BHEL by persuading Bangladesh to scrap a contentious clause in the bid. Initially, the project promoters--Bangladesh India Friendship Power Company, a joint venture between NTPC and Bangladesh Power Development Board wanted to qualify only suppliers who had a 500 mw plant operating overseas.

This would have disqualified Bhel since it does not have any power plant of that size operating abroad.

However, this clause was scrapped after New Delhi took up the matter with Dhaka. The contract marks a reversal of fortune for BHEL, which has been lagging Chinese competitors who usually sweeten their bids with soft financing and credit lines for other projects from the go vernment.

The groundwork for the power plant was laid during the 2010 visit of Bangladesh PM Sheikh Hasina to India. An agreement envisaging wide-ranging energy ties between the two sides was signed during the visit. India has laid a transmission line to link the grids of the two countries and supplying 500 mw through it.

Besides, on the Budget day, the FM announced some measures, which are likely too be a major boost for power sector--at least some sentimental push. This may result in more power equipment orders for the company. The Finance Minister Arun Jaitley said the government has a target of 100% village electrification by May 1, 2018.

Chartically speaking, the stock closed above its 21 DSMA, which reflects its bullish trend. Also, you can see that "Three White Soldiers" pattern, has been formed on the daily candle stick chart, with an inverted hammer in between; again showing that the bulls are not ready to give up the fight and is infact in a leading position.

Note: The scrip of BHEL was recommended to the Premium Group members during market hours, today (Friday).

Vedanta Ltd: Book Profits

Vedanta Ltd, today made a high of Rs.80.65 in the NSE, which is very near the target price given by a brokerage house. 

The current price of Rs.79-80, which though has given a break out on daily chart is unlikely to sustain, as the fundamentats simply do not support the price amidst, the falling crude oil price (once again).

Moreover, the  Nifty has already tested the key Resistance zone of 7320-7365 (7372.45) today. We therefore, need to see if this zone is broken by the bulls; which is unlikely at the moment, especially when the Moody's have downgraded China and the crude oil prices are again on a downward spiral.

Therefore, my suggestion would be to book profit at Rs.79-80, and wait for dips around Rs.73, to enter again.

Vedanta wins Chhattisgarh gold mine in India's first-ever auction

Feb 28, 2016: Raipur: The first-ever auction of a gold mine in the country was held in Chhattisgarh on Sunday, Vedanta Ltd won the auction for Baghmara (Sonakhan) gold mine with its highest bid of 12.55 percent of IBM (Indian Bureau of Mining) price of Rs 74,712/ troy ounce (1 troy ounce = 31.10 gram), official sources said.

The production from the Baghmara mine can reduce the gold imports into the country that cost it $36 billion last year, the state mines department officials said.

This was the first time a composite license for gold mining was given in the country, officials added.

The mine is situated in Balodabazaar-Bhatapara district of Chhattisgarh, 130 km north-east of the state capital Raipur.

Vedanta, a unit of London-listed Vedanta Resources Plc, beat three other bidders in the auction of the Baghmara mine in Chhattisgarh, said the head of the state's Directorate of Geology and Mining, Reena Kangale, adding she expected mining for potential reserves of about 2,700 kilograms to begin in two years.

A troy ounce is equivalent of 31.10 grams.

In a statement, Vedanta said the block measuring 6.08 square kilometres required extensive exploration and that the process will commence in "due course".

India's insatiable appetite for gold has already prompted the government to raise import duties and launch a scheme aimed at mobilising a pool of over 20,000 tonnes of the metal lying idle in homes and temples.

Still the government has failed to curb imports by the world's second-biggest consumer, where gold is regarded as the highest form of gift for gods and humans alike.

The absence of local production has scuppered efforts further.

Federal Mines Secretary Balvinder Kumar last week told Reuters the government planned to auction at least three gold mines in 2016.

Source: First Post

DO YOU KNOW

Photo: Internet

Over the past 18 months, crude oil prices have fallen to below $35 per barrel from their apex of above $110 per barrel and since then the price have been on a downward swing, following a rock and roll path.

"The key takeway from the current volatility of crude oil prices is that we are starting to see a fall in production and it’s going to continue week-to-week," said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors LLC who helps manage $13.5 billion. "The theme of the earning calls has been the cutting of production forecasts."

Amidst extreme cimpcomplexities, implementation of the freeze remains unclear because Saudi Arabia and Russia said their commitment depends on other nations participating. 

Moreover, Iran’s cooperation is crucial to the success of the plan to halt the fall in prices, according to Daniel Yergin, vice chairman of IHS Inc. 

The pact will have “little impact on the oil market as proposed, while there remains high uncertainty that it even materializes,” said Goldman Sachs Group Inc.

On the other hand Iran is seeking to boost output by 1 million barrels a day and regain market share. The nation should increase production by 500,000 barrels a day by March 20, the end of the Iranian calendar year, Shana reported on Wednesday, citing Roknoddin Javadi, managing director of National Iranian Oil Co.

Now if we are talking of a freeze in production, then there are two things to consider: a freeze in production which maintains the oversupply situation and so it cannot sustain positive price movement on a long term basis and if the freeze is maintained and economic growth picks up, then there is an economic growth that will drive demand to meet up with supply.

Now while CMC Markets, a UK-based trader, in its analysis believes that oil prices are going to have to rise at some point, it still recognises that there is so much production currently underwater.

CMC Markets notes that oil prices at $34 per barrel could be the next resistance point for the commodity. It explains from a technical perspective that if oil can break above $34 per barrel for a while, then the northwards rally could have some momentum.

Again, at $35 per barrel, many oil and gas companies are cutting their expenditure on energy projects. Royal Dutch Shell for example announced earlier in the month that it had cut its 2016 capital spending to $33 billion, down from its previous projection of $35 billion.

Similarly, reports indicate that US Oklahoma-based Continental Resources also plans to reduce its investment this year by 66 per cent.

Meanwhile, favouring the crude oil bulls, there were media reports that the US oil rig count slided for ninth straight week. The number of U.S. oil rigs fell by 26 to 413 for a ninth straight week of declines to the lowest level since December 2009, according to the latest survey from Baker Hughes reported Friday.

The total rig count, which includes one fewer gas rig for a total of 101, fell by 27 from last week to 514 and is now down 796 rigs from last year's 1,310, with oil rigs down 606, gas rigs down 188, and miscellaneous rigs down 2.

Analysts, across the broad spectrum believe that the reduction in capital investment and rig count is not just expected to allow oil and gas companies to save funds to strengthen their balance sheet position, but would also help them to bridge the gap between supply and demand in the coming months.

Thus, at present there is a 50:50 chance for a likely, positive price movement in the near future. This is a tad better than the earlier 30:70 or 40:60 chances. 

In such circumstances, it would be prudent to re- enter energy or its related counters (Tata Steel, Vedanta Ltd, Hindalco, etc), this week; of course with strict stop losses.