SBI Associate banks propose merger with parent SBI

May 17, 2016: After over five years of hiatus, associate banks of SBI including State Bank of Bikaner and Jaipur have proposed to merger with the parent lender.

The respective boards have proposed merger with the State Bank of India (SBI) in a meeting , sources said.

The meeting of central board of SBI is going to consider the merger, they added.

Meanwhile, a section of employee unions have registered protest against any such move and threatened to go on a strike if such move is approved by the SBI and the government.

Photo: The Hindu Business Line

All employees of Associate Banks will go on strike on May 20, All India Bank Employees Association (AIBEA) General Secretary C H Venkatachalam said.

The country’s largest lender has five associate banks - State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad.

Among these, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed.

SBI first merged associate State Bank of Saurashtra with itself in 2008. Two years later in 2010, State Bank of Indore was merged.

The government recently set up the Bank Board Bureau (BBB) to look into the issues including consolidation in public sector banking space.

The BBB headed by former CAG Vinod Rai had conducted interview for appointments of Managing Directors of some of the banks where posts will be falling vacant during the current fiscal.

The Bureau was constituted to help the government select heads of public sector banks and financial institutions and assist banks in developing strategies with regard to capital—raising and consolidation.

Besides Chairman, the Bureau has three ex-officio members and an equal number of expert members.

Expert members are ICICI Bank’s former joint MD H N Sinor, Bank of Baroda’s former CMD Anil K Khandelwal and rating agency Crisil’s ex-chief Rupa Kudwa.

Its ex-officio members are Secretary, Department of Public Enterprises, Financial Services Secretary and RBI Deputy Governor.

Courtesy: The Hindu

Do You Know?

That negative WPI is NOT GOOD for any economy, be it India or the US or the UK. 

For India, the WPI inflation in April came in POSITIVE for the first time in last 18 months, rising to 0.34% compared to negative 0.85% in preceding month. 

This marks the end of a depressing (or should we call it DEFLATION) era and heralds, the beginning of a POSITIVE START. 

This event is significant for all the sectors, especially the Banking space (SBI @ Rs.76 and PNB @Rs.74 and Allahabad Bank @Rs.50.40, are my top picks in a sector, which is a proxy of Indian economy) should cheer, the development, but unfortunately it selling off. 

As a thumb rule generally 2% inflation is taken to be beneficial for any growing economy. Hence, in future, we might see the sales (or turnover) apart from EBIDTA margins of companies improving; till the inflation numbers do not prove to be a menace once again. 

The Nifty is still down 36 points, but strongly feel that it would not only close in the Green but Nifty might actually close above 7830. 

Punjab National Bank to modernise enterprise data warehouse

10 May, 2016: Punjab National Bank (PNB), one of India’s “big four” banking groups, is looking to renovate its data management set-up. It issued an RFP “to revamp existing functionality” either by enhancing its current enterprise data warehouse (EDW) or to deploy a new one.

The RFP was issued late last year, for an end-to-end solution for EDW encompassing big data and analytics. Following a number of clarifications and deadline extensions, the RFP has finally and recently closed, Banking Technology understands.

The bank adopted its current EDW nearly ten years ago. IBM supplies the hardware and software components, and the reporting tool is based on SAP’s Business Objects.

The set-up provides information by utilising historical and current data from all source systems at PNB, including risk management software, CRM, an asset and liability management (ALM) solution from SAS, Infosys’ Finacle core banking system, ATM switch, Misys’ FusionCapital Kondor for treasury, HR management, digital banking and so on.

The new solution will leverage the existing IT architecture and will cover the entire organisation. It will be capable of handling large and complex data with 2,000+ concurrent users, and will handle both structured and unstructured data. It will be based on “the latest technology”, PNB states, such as Hadoop, Data Lake, Data Discovery etc. The availability of the solution should be at least 99.5%.

PNB expects the “extract, transform and load” (ETL) process of the new solution to be capable of processing data real-time and end-to-end. “Existing ETL process should be integrated in such a way that loading process can take place with least manpower requirement,” it states.

Scalability is vital too, with the system built capable of processing incremental 100 GB of data and overall database size of more than 200 TB.

PNB: facts and figures

PNB is state-owned. Its HQ is in New Delhi.

It has a network of 6,300 branches and over 7,900 ATMs.

It serves over 80 million customers.

Outside its domestic market, PNB has branches in Hong Kong, Dubai and Kabul. It also has a subsidiary in the UK – PNB International Bank – with seven branches.

It has representative offices in Oslo, Shanghai and Sydney.

PBN owns 51% of Druk PNB Bank in Bhutan, 20% of Everest Bank in Nepal and 84% of PNB Bank in Kazakhstan.

Courtesy: BankingTech.com

Do You Know?

State Bank of India Ltd is an Indian multinational, public sector banking and financial services company. It is India’s largest commercial bank.

Founded in 1806, Bank of Calcutta was the first Bank established in India and over a period of time, evolved into State Bank of India Ltd (SBI). SBI represents a sterling legacy of over 200 years. It is the oldest commercial Bank in the Indian subcontinent, strengthening the nation’s trillion-dollar economy and serving the aspirations of its vast population. The Bank is largest commercial Bank in terms of assets, deposits, profits, branches, number of customers and employees, enjoying the continuing faith of millions of customers across the social spectrum. Its banking activities include Personal Banking, Agricultural/Rural, NRI Services, International Banking, Corporate Banking and Services. 

State Bank of India is a regional banking behemoth and has 20% market share in deposits and loans among Indian commercial banks.As of 2014-15, it has assets of Rs.20,48,080 crores and more than 14000 branches, including 191 foreign offices spread across 36 countries, making it the largest banking and financial services company in India by assets. 

The Book Value of the shares of the company is Rs.165.49 and it has an EPS of Rs.160. This gives the fair value of the scrip as Rs.225-250, with suitable discounts. Therefore, buy the shares of SBI at Rs.176, for short term targets of Rs.225-250. 

SBI-hired 'bouncers' take over Vijay Mallya’s palatial holiday home in Goa

The villa, valued at Rs 90 crore, used to be Mallya’s base in Goa and also venue of many famous parties hosted by him during ‘good times’.

Vijay Mallya's Kingfisher house in Goa (Photo: Video grab)

May 15, 2016: Panaji: A troop of 50 staff members marched out of Vijay Mallya’s 'Kingfisher Villa' on Saturday giving way to bouncers from Mumbai, brought in by the State Bank of India, after the lenders took physical possession of yet another prime asset of the liquor baron to recover the loans defaulted by him.  

The palatial holiday resort was taken over after the revenue officials in Goa had on Wednesday allowed the lenders to take physical possession of ‘Kingfisher Villa’ in Candolim.

According to reports, the bouncers — over 40 of them distributed across the sprawling three-acre property — were not briefed about how long their stay at the famed villa would be, but the men are quite kicked about the idea of being there.

“Initially we were told by our agency that our client SBI’s property needed to be secured in Goa. It was much later that someone told us the property belonged to Mallya. Given the high-profile case, we were told to be keep a watch for media presence and be on our best behaviour,” Radheshyam heading the ‘bouncer team’ of Mumbai-based ADF security services said.

“For some of us, visiting Goa itself is a first, let alone visiting Mallya’s mansion,” he added.

Revealing that the villa staff were allowed to take away some furniture and other movables along with their personal belongings, Radheshyam said that they also took away a few cars. “But two cars are still on the premises. Proper authorisation is needed to take them away,” he explained.

The villa, valued at Rs 90 crore, used to be Mallya’s base in Goa and also the venue of many of the famous parties hosted by him during his ‘good times’.

Advocate Parag Rao, who appeared on behalf of United Spirits, said that the company had withdrawn its claim before the collector on Saturday.

Representing the bankers’ consortium, SBICAPS had sought physical possession of the property under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act in late 2014.

Last week, media reports had said that Mallya put up a “villa manager” as a caretaker to thwart the bank’s attempt to take it over.

The villa was mortgaged to the lenders while obtaining loans for the now defunct airliner, but the caretaker, who claimed to be an employee of United Breweries, and the subsequent establishment of tenancy rights would have made it difficult for the banks to take over the property.

According to reports, bankers’ attempts to take possession of the villa were repeatedly stalled by USL, which claims the first right to buy the property as it is a tenant.

So far, the banks have recovered over Rs 1,400 crore by selling shares and collaterals and over Rs 1,200 crore is blocked in escrow accounts at Debt Recovery Tribunal, Bengaluru and the Karnataka High Court. Mallya had told the Supreme Court he was ready to repay up to Rs 6,800 crore of the total dues of over Rs 9,400 crore.

Last month, the consortium of banks had failed in its attempt to sell Kingfisher Airline’s erstwhile headquarters Kingfisher House in Mumbai because of the high reserve price of Rs 150 crore.

Attempts to sell the Kingfisher brands and associated trademarks carrying a reserve price of Rs 367 crore had also found no takers. Mallya left the country on March 2 for London. Earlier this week, the Government asked Britain to deport Mallya, citing the revocation of his passport and a non-bailable warrant against him.

Courtesy: The Deccan Chronicle

Corporate Results Show Signs of Recovery in Q4: BS

Photo: Money Control

After a poor report card during the first nine months of financial year 2015-16, corporate results for the fourth quarter offer hope of a recovery.

The combined net sales of 350 companies, which have declared results so far (upto 8th May, 2016), were up 5.6%, year-on-year (y-o-y) for the quarter ended March 31, 2016. This marked the fastest growth in the past six quarters, reports Business Standard.

Before this, these companies had reported a decline in revenue for four consecutive quarters.

The combined net profit (adjusted for exceptional gains and losses) was up 16.9% y-o-y, growing at the fastest pace in the past six quarters. 

The reported net profit was, however, down 8.8% y-o-y, resulting in a decline in companies’ underlying earnings per share.

Do You Know?

Photo: India.com

This week the Rajya Sabha passed, Insolvency and Bankruptcy Code Bill, that seeks to create time-bound processes for insolvency resolution of companies and individuals. The Lok Sabha had passed it on May 5, 2016. This is one of the major reforms brought about by the Narendra Modi government. 

The Insolvency and Bankruptcy Code 2015 is expected to address the problem of dealing with multiple laws for anyone wanting to do business in India. The present government has realised that the ease of doing business is not only about convenient entry into the market but also providing easy exit and restricting debt.

One of the most important reform envisaged in this bill is to make substantive changes in eleven enactments and repealing some to avoid conflicting rules. There is also provision to takeaway the jurisdiction of the civil court to ensure fast and effective process. Specialised adjudicating authorities like NCLT and DRT will be adjudicating authorities to deal with special corporate issues effectively.

To ensure effective implementation of the procedure prescribed under the bill, there is provision for establishment of a new board to deal with this specialised matter because strong financial institutions have a major role in sustainability of the economy of any country, which will be ensured after enactment of the bill. Another unique feature of the bill is that it gives right to operational creditor to initiate procedure and the right is not limited to big creditors only who want their money back.

The operational creditor will also have a say in the procedure. Workmen and other employees have priority as per the bill. This code is here to say, “enough playing around with scattered laws and living a lavish life with unlimited debt.” There will be a limit in waiting for repayment of debt. In short, either restructure, repay or windup. One of the unique features of the bill is to establish an information utility for collection of all authentic information at one place.

It is a new concept in India that will facilitate one to check  the information before investing. It will consequently ensure one’s investment is secured. Information utility will collect, collate, authenticate and disseminate financial information to facilitate insolvency, liquidation & bankruptcy. The bill has provisions for the creation of a class of professionals, who will be specialised in dealing with such matters and will be accessible to the persons who need them because they will be registered with the agency as ‘insolvency resolution professionals’, who will ensure an efficient, effective and professional handling of repayment of debt.

One of the most important challenges before investors was to deal with bad debt in India with assets outside Indian jurisdiction. The bill has provisions to tackle issues of cross-border insolvency. If one cannot repay debt, then assets situated outside India can also be considered for repayment if the Indian property is insufficient.

For this purpose, two provisions have been included and details will be available in rules framed subsequently for the legislation. The bill, in short, will ensure that creditors are secured in India and could usher in a new economic era, where India could attract investors more than ever.

Taking cues from this new act, most of the Bank Stocks including HDFC Bank and SBI, rallied on Thursday; as the passage of the Bankruptcy Code in Parliament has rekindled investor hopes on the country's banks hit by rising bad loans.

Analysts, across the board expect a number of rating upgrades in the next few months as the implementation of the code, which suggests a time-bound settlement process for insolvent entities, at a time when some bank stocks are trading at their 2-3-year lows due to high non-performing assets (NPAs) in their books.

The bankruptcy legislation will set a time limit of 180 days - which can be extended by 90 days if three-fourths of creditors agree - to make a resolution when a borrowing entity fails to make loan repayment on schedule. If the borrowing entity fails to stick to the time limit, then the company will be liquidated.

Most analysts said this would give much needed confidence to long only funds to buy into the banking sector.

"Long only funds with contrarian bets are expected to invest in lenders such as ICICI Bank, Axis Bank, SBI, Bank of Baroda that stand out as major beneficiaries from the bankruptcy bill," said Kunj Bansal, chief investment officer-equity at Centrum Wealth Management.

Analysts said a robust and effective bankruptcy code will benefit lenders by improving the credit culture in the economy. "The code gives banks a legal path for recovering their dues in a time-bound manner. This should make lenders more confident in lending, and borrowers more accountable," said Sonal Varma, chief economist at Nomura India.

Here are some inputs regarding my recommendations on banking stocks: 

(i) Allahabad Bank Ltd (Rs.53.40): As long as the scrip does not break Rs.52.35, on the downside, the investors can continue to accumulate it on dips and can wait for it to break out above Rs.55.50.

(ii) State Bank of India Ltd (Rs.188.40): It closed near the day's high of Rs.189.40, adding to the further bullishness. As long as it does not break Rs.183.80, on the downside, the traders can continue to accumulate the stock and wait for a break out above Rs.191.55.

(iii) Punjab National Bank Ltd (Rs.79.50):  As long as the scrip does not break below Rs.77.50, the traders can accumulate the scrip, waiting for it to break Rs.83.50 on the upside.

Nomura in a report said, “India currently ranks 136 in the World Bank’s resolving insolvency ranking; It takes 4.3 years to resolve insolvency and the recovery rate (at 25.7 cents to a dollar) is very low. The Code will play a key role in improving the ease of doing business in India.”

Insolvency is a situation where an individual or a company is unable to repay their outstanding debt.

The government expects that the new framework will help in improving India’s position in the World Bank’s ease of doing business ranking.

The World Bank estimates that winding up an ailing company in India typically takes four years, or twice as long as in China and Russia, with an average recovery of 25.7 cents on the dollar, one of the worst rates in emerging markets.

Under the new law, a debtor could be jailed for up to five years for concealing property or defrauding creditors. Bankrupt individuals would be barred from contesting elections as well.

Bankers say the courts are usually reluctant to sign "death warrants" against defaulting companies to safeguard jobs, often resulting in delays in winding-up procedures and poor loan recoveries.

The new law virtually empowers creditors to decide whether a defaulter is declared insolvent or not, though legally their decision could still be challenged in the higher courts.

Currently, over 70,000 liquidation cases are pending in debt recovery tribunals and courts.

To conclude, I would like to point out that:  the new bankruptcy code has provisions to take tough and time bound action against corporate defaulters and help Indian banks to recover nearly 8 lakh crore, in troubled loans. In other words, the insolvency and bankruptcy code, will strengthen hands of lenders to recover outstanding debts by setting a deadline of 180 days for companies to pay or face liquidation.

You can go full hog on the banking counters, on Friday.

Indian Firms are Deleveraging Fast says the leading Public Sector Bank: The SBI

[Editor: In view of the Rajya Sabha, passing the Insolvency and Bankruptcy Code 2016, a vital reform, which is likely to make business environment easier; one can buy the shares of Public Sector Banks. Once the President signs the legislation, India will have a new bankruptcy law that will ensure time-bound settlement of insolvency, enable faster turnaround of businesses and create a database of serial defaulters.Along with the proposed changes in India’s two debt recovery and enforcement law. The new code will replace existing bankruptcy laws and cover individuals, companies, limited liability partnerships and partnership firms. It will amend laws including the Companies Act to become the overarching legislation to deal with corporate insolvency. It will also help creditors recover loans faster.The move is also expected to help India move up from its current rank of 130 in the World Bank’s ease of doing business index, since all reforms undertaken by 31 May are incorporated in the next ranking.

On the parameter of resolving insolvency, India is ranked 136 among 189 countries. At present, it takes more than four years to resolve a case of bankruptcy in India, according to the World Bank. The code seeks to reduce this time to less than a year. The bill proposes the creation of a new class of insolvency professionals that will specialize in helping sick companies. It also provides for creation of information utilities that will collate all information about debtors to prevent serial defaulters from misusing the system. The bill proposes to set up the Insolvency and Bankruptcy Board of India to act as a regulator of these utilities and professionals.It also proposes to use the existing infrastructure of National Company Law tribunals and debt recovery tribunals to address corporate insolvency and individual insolvency, respectively.

Therefore, I have suggested my Premium Clients to buy the shares of SBI at Rs.184.95, PNB at Rs.79.50 and Allahabad Bank (Rs.53.45)]

Photo: Money Munch

Indian companies are deleveraging in a meaningful manner and the perception that they are highly leveraged might not be the right one, says a research report by State Bank of India (SBI).

According to the report, authored by SBI’s chief economist Soumya Kanti Ghosh, domestic companies, particularly those in the cement, fertiliser, trading, finance and transport (airlines) sector, are deleveraging, or are now less dependent on debt.

“Top-rated companies are prepaying debt mostly from cash accruals. Cement, for instance, is one such case. However, some of them would be building a war chest for acquisition and may also resort to debt later at fine price,” said Ghosh.

Out of the 200 companies for which the research was done, 60 reported fall in debt levels in 2015-16 over 2014-15. The aggregate decline in debt levels, according to the report, was Rs 6,862 crore.

“Clearly, things are now looking better, contrary to popular perception,” the report said.

Indian firms deleveraging fast, says SBI
According to the report, focusing more on interest cover and the debt servicing ratios of the top 10 Indian companies to drive home the extent of corporate indebtedness is misleading, because what’s more important is “net worth, cash in hand, yearly accretion to net worth, investments, market value of assets and unbundling of value of some subsidiaries, thus, overall defining its repayment capacity”.

The overall indebtedness and debt-to-market capitalisation of such companies should be the right criterion. In that sense, SBI’s estimates show that on an aggregate basis, the top 10 companies’ ratios stood at 1.93x and 1.88x, respectively, which were “well within (the) respected level of 2x”.

Most of the ratings of these top 10 firms were above investment grade.

“While rating agencies' uniformity in applying rating parameters to various companies has also been inconsistent across continents, one nevertheless considers, as a matter of no choice, this as benchmark in raising debt. The investment grade companies... have been always able to raise resources at competitive rates,” the report said.

In listed companies, three finance companies -- Shriram Transport Finance, Cholamandalam Investment Finance and Motilal Oswal Finance, are reporting lower overall debt levels in FY16.

In fertilizer, Gujarat Narmada Valley Fertilizers Co Ltd (GNFC) reported loss to profit in FY16.

According to SBI, the fertiliser sector is also seeing a silent revolution, probably for the first time in 25 years.

Government's new investor policy is encouraging setting up of gas based urea plants in country. Already, there are three plants being set up in Kota (Chambal Fertlisers), Ramagundam (EIL and National Fertilisers Limited) and RCF. Additionally, with an aim to encourage setting up urea based plants in eastern part of country, government has directed NTPC, Coal India and ONGC to help set up plants at Sindhri, Gorakhpur and Barauni for facilitating Jagdishpur to Haldia gas pipeline being laid by GAIL.

SBI lauded UltraTech Cement Ltd for reporting lower long term indebtedness, but said the company needed to be watched more closely if it acquires Jaypee group's cement business.

Companies such as Maruti Suzuki and Essel Propack have also consistently brought down debt levels in last four years or so, the report said.

Among top five entities that deleveraged between fiscal 2016 and 2015, UltraTech Cement brought down debt by Rs 1,682 crore, Ushdev International by Rs 753 crore, GNFC by 711 crore, Interglobe Aviation by 639 crore and Shriram Transport by 632 crore, according to the report.

Courtesy: The Business Standard   

Idea Cellular Ltd: Buy

CMP: Rs.113.10

Idea’s 5% revenue and 16% Ebitda growth q-o-q were strong resulting in 340bp Ebitda margin improvement which is one of the highest in recent history. 

On the core business, it did well on voice with 4% improvement in prices and 1% in volumes. This is somewhat different to Bharti’s result—but both did well. Data trends are slow and steady—revenue rose 5%, ARPU 1% and 1.7 mn 3G adds growth.

In another significant, much-awaited relief for telecom operators, the Supreme Court on Wednesday struck down compensation policy for call drops levied by the Telecom Regulatory Authority of India. 

The operators had challenged the compensation of Rs 1 for every call drop, limited to a maximum of three such calls per day. Following an adverse judgement against them in the High Court, telcos approached the Supreme Court which stuck it down today, calling the Trai order "arbitrary and unconstitutional" as well as "illegal and not transparent".

"(The) SC has rendered historic judgement today by striking down the Trai s regulation," said Kapil Sibal, who was representing telecom operators in the court.

"SC said the regulation was unreasonable, arbitrary and the procedure followed was not transparent. Government and ministers should not try to be populist and do it in accordance with laws, not outside," he added. 

In October last year, Trai had come out with the regulation which was to come into effect from January 1, mandating operators to give one rupee for every call drop to the user, with a maximum of three per day.

The telcos had termed the regulation as arbitrary and whimsical, contending that providing compensation to consumers amounted to interfering with the companies' tariff structure, which could only be done by an order, and not by any regulation.

Trai had told the high court that consumers have a right to get compensated for call drops and this was different from the quality of service guidelines that cellular service providers have to follow under the licence conditions. However, telcos had argued that even if consumers were facing problems, a regulation without statutory backing cannot be created.

According to analysts, if Trai’s regulation is implemented, it could lead to a decline of seven-eight per cent in the operating income of telecom operators. However, for companies that had a call drop rate of two per cent or below – as was mandated earlier – will see a negative impact of three-four per cent on their operating income.

Interestingly, the new regulation did not allow leeway of two per cent call drops, which means the regulator expects the network to be perfect and telcos to pay for every call drop.

The government has been asking operators to invest in infrastructure to improve the quality of services, while operators say spectrum crunch is a major problem for call drops scenario.

Highlights:

## SC stucks down Trai s regulation for call drops compensation saying it's arbitrary and not transparent.

## In October last year, Trai had mandated telcos to pay subscribers Rs 1 for every call drop, subject to a cap of three call drops a day per user.

## Operators challenged the ruling in Delhi HC in December, 2015 which was dismissed on February 29 Telcos went to SC for a stay on March 3, but got no interim relief, hearing fixed for March 10.

## Telcos have earlier said the outgo from the industry would be nearly Rs 54,000 crore annually, but TRAI debunked these claims and said the payout would be only nearly Rs 800 crore annually.

Hindalco Industries Ltd: Buy

CMP: Rs.89.85

Courtesy: Quandl.com

Stock of India’s Hindalco Industries Ltd has experienced a correction of around 6% over the last two trading sessions on the National Stock Exchange of India. Some experts say the slide in the Aditya Birla Group subsidiary is due to a similar dip in the price of primary aluminium on the LME.

However, here are few of the positive points based on which you can buy the share of Hindalco Industries Ltd, for a short term target of Rs.97:

(i)  The sector has experienced a rise in demand of 6%, Chinese speculators appear to be responsible for most of the demand.

(ii) According to  Abhishek Poddar of Kotak Securities Ltd: "A large chunk of inventories is held by traders, banks or is locked in financial deals. Any rise in the interest rates will increase the cost of carry and lead to sharp unwinding" — a material risk to aluminium prices. However, the interest rate is on a downward trajectory in India and the in the US too, the Fed appears to be treading this path very carefully. On Friday, Labor Department figures showing that U.S. job growth slowed in April kept alive the bet on riskier markets. The data gave the Federal Reserve little reason to raise interest rates soon, economists said - -a move that could withdraw any further support to the USD.

“I was like ‘phew,’ ” said Paresh Upadhyaya, director of currency strategy at Pioneer Investments, after the weaker-than-expected jobs numbers were announced on Friday. “I breathed a sigh of relief that this risk rally will continue.”

Mr. Upadhyaya, whose firm manages $249 billion, has shut down his bullish positions on the dollar in recent months in favor of emerging-market currencies, including the Indian rupee, Russian ruble and Argentine peso.

(iii) Base metals edged higher in Tuesday morning LME trading, pausing after Monday’s correction lower. Better-than-expected Chinese data helped prices to consolidate. The Chinese CPI rose 2.3%  year-on-year in April, in line with consensus and unchanged from last month, while its PPI fell by a less-than-expected 3.4% compared with -4.3% in March. China's April consumer inflation and producer price data painted a mixed picture of deflationary pressures in the world's second largest economy.

Expectations of further monetary policy easing had already been dented by strong March China data, but economists are divided over whether that was just a blip or a more sustainable trend.
"I think monetary policy will be kept steady with structural easing - targeted easing for some sectors," said Nie Wen, economist at Hwabao Trust in Shanghai.

“[Metals] are clearly finding support from the less steep decline in producer prices in China in April. One role in this is likely played by the fact that the dampening effect of commodity prices is gradually moving away from the year-on-year comparison,” Commerzbank noted.

(iv) Hindalco Ltd has no plans for adding capacity in the near future, and the current facilities are running at 85% of the existing capacity. At present, Hindalco’s stock is trading at seven times EV/EBIDTA (enterprise value to earnings before interest depreciation and tax). Historically, most metals and mining companies, both in India and worldwide, trade at between five and six times EV/EBIDTA--which means CMP of Hindalco Industries Ltd is on the boundary line. So any uptick in the Q4FY16 result (on 28 May, 2016), could give a sudden push in the share price. 

(v) The powerful rallies that have lifted stocks, crude oil and emerging markets for the past three months have one important thing in common—the falling dollar. A  stronger U.S. currency, makes dollar-denominated commodities more expensive for non-U.S. firms.

Morgan Stanley’s Global Risk Demand Index, which measures risk appetite by analyzing moves in markets such as stocks, commodities, and emerging markets, is moving nearly in the opposite direction of dollar strength. The correlation reached negative 86% in early April.

A large negative correlation means risky assets tend to fall when the dollar gains and rise when the dollar falls. As of May 5, the correlation was minus-76%.

The Fed began the year with plans to raise interest rates four times after boosting rates by a quarter of a percentage point in December. But in March, Fed Chairwoman Janet Yellen signaled that the central bank was in no hurry to raise interest rates, citing slower global growth.

Federal-funds futures, used by investors and traders to place bets on central-bank policy, showed Friday that the odds for a rate increase at the Fed’s June meeting were 13%, while the chances of a rate increase at the December meeting were 61%, according to CME 

(vi) Global oil demand is catching up with supply and the market should see a “rebalancing” in the second half of the year as cheaper crude has forced some production to close, Qatar’s Energy Minister Mohammad Al Sada said.

The rate of production shutdowns is accelerating and global demand is increasing, especially for products such as gasoline, Al Sada said in an e-mailed statement on Tuesday. “This trend is likely to increase further from next month due to the onset of the summer driving season,” the minister said.

The Organization of Petroleum Exporting Countries will review the current oil market and the outlook for supply and demand at its next meeting on June 2, Al Sada, who is also OPEC president, said in the statement. 

Oil prices rose Tuesday on expectations that supply outages from Canada to Nigeria would help to alleviate the global glut of crude.

Light, sweet crude for June delivery settled up $1.22, or 2.8%, to $44.66 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose $1.89, or 4.3%, to $45.52 a barrel on ICE Futures Europe.

Oil-production outages in some regions are helping reduce crude output, boosting expectations that the global glut of crude that has battered prices since mid-2014 could be shrinking. 

Meanwhile, the US Energy Information Administration (EIA) has revised its earlier crude oil price forecast, originally issued in April, but now expected to be around $40.52 per barrel, up $6 from its April estimates of only $34.73 per barrel for the average price of crude in 2016.

"Improving economic data, growing supply disruptions, and falling U.S. crude oil production and rig counts contributed to the price increase," the EIA said in its Short-Term Energy Outlook report released recently.

Oil has rebounded after slumping to a 12-year low in January on signs the global glut is easing as U.S. output decreases. Production outside OPEC will drop the most since 1992 as the U.S. shale oil boom falters, the International Energy Agency said in April.

You can see from the chart above, that even after correction the Aluminium prices are still substantially higher, than the bottom formed at the end of 2015. At the end of last week, aluminium prices were 5% higher than the average for the previous 26 weeks.

Therefore, unless the scrip of Hindalco Industries Ltd breaks down below Rs.89.30 on closing basis, the traders can take short term BUY POSITIONS (above Rs.91.20 buy more), for targets of Rs.97-103. 

Aluminium Supply to Tighten, Prices to Rise: Rusal’s Soloviev

26 April 2016:  Global demand for aluminium will continue to remain strong as worldwide supply tightens. This will raise prices from seven-year lows, says Vladislav Soloviev, chief executive of Russia’s UC Rusal, the world’s second-biggest aluminium producer.

Exports of processed aluminium from the People’s Republic of China are expected to drop thanks to investigations of the fake semis market and resulting anti-dumping measures taken by the United States, Australia, and the European Union, explained Soloviev.

“Rusal estimates that [global] aluminium consumption will grow by 5.7 per cent to 59.5 million tonnes this year,” he told the South China Morning Post. “Chinese growth is expected to continue to be strong at 7 per cent year-on-year in 2016 to 31 million tonnes.”

He went on to explain that the automotive and aerospace sectors should lead demand growth, followed closely by the construction, electrical, consumer durables, and packaging sectors. As to supply, additions in capacity by China aren’t expected to make up for closures in the remainder of the market.

“We see no new significant capacity additions over the next five years outside China, with [the supply] deficit forecast to [rise] sharply in 2016 and expected to surpass 2.4 million tonnes this year,” Soloviev said.

Soloviev projects that China will idle an additional 1 million metric tons of capacity if prices hold at current levels. This is in addition to the 1 million metric tons projected to close by the end of the current quarter.

“Around 50 per cent of closed capacity is highly unprofitable at [an aluminium] price below 12,000 yuan [US$1,847.90] per tonne [and] thus has little chance to be restarted,” Soloviev said.

He went on to explain that, even if prices rebound in the immediate future, restarting closed capacity would still not be profitable due to tight supply of bauxite and alumina, and the correspondingly inflated prices of same.

In addition to tightening supply, aluminium prices have risen by ten percent in the previous month to a six-month high of US$1,635 per metric ton. China also has had a drop in the addition of capacity for four straight years up through 2014, according to analysts at Haitong Securities.

“With alumina price rebounding from the trough, the implementation of fees charged by grid operators on grid-connected power plants owned by [smelters], and power plant facilities upgrades to meet more stringent pollution reduction requirements, [mean that] aluminium production costs will rise,” said Haitong Securities in a report. “With supply slightly tight, aluminium price is set to continue its rebound.”

However, according to a China International Capital Corp. report, China’s plant utilization rate ran at only 75% capacity in 2015, with 12.5% of it consisting of idled or curtailed capacity.

China’s excess capacity problem is “structural rather than cyclical,” according to Soloviev, and fueled by cheap financing and government subsidies over the past several years.
“This is a vicious cycle: while volumes increase, prices and margins fall,” he explained. “This makes it impossible to invest in innovation or create new high-end products … the best solution would be to keep four to five large players [by consolidating] the industry.

Courtesy: Aluminium Insider

JSW Energy: High energy!

BSE Code: 533148,

CMP: Rs.67.70,

 FV: Rs.10.

-By Subramanian Mahadevan

Mumbai-based JSW Energy Ltd is a part of the $11 billion conglomerate - JSW group, a part of the O.P. Jindal group with strong footprints across core economic sectors namely steel, energy, infrastructure, cement ventures and sports with a diverse workforce of over 40,000 spread across India, USA, South America and Africa. It launched its IPO in December 2009 at an issue price of Rs.100/share to raise around Rs.2700 crore. JSW Energy operates 4,531 MW (Thermal – MW and Hydel – 1,391 MW) of power generation capacity with a vision to achieve 10,000 MW in power generation by 2020 coupled with transparent operations and stringent corporate governance norms setting benchmarks in the Indian power sector. 

During the last six years, JSW Energy has enhanced its power generation capacity from 260 MW to 4,531 MW (17.4 times) by strategic approach to expansion, ensuring diversity in geographic locations, fuel sources and power off-take arrangements and eventually helping itself to de-risk the business during tough times. Despite numerous acquisitions, JSW Energy’s debt:equity ratio still remains comfortable at 1.8 compared to its peers. 

The current challenging environment is affecting the profit margins of the power sector, which will no longer be a problem once the broader economy and industrial growth picks up. We have a strong Buy on this uninterrupted dividend-paying Company for decent returns. 

Reliance Communications Ltd: Buy

CMP: Rs.54.20

Reliance Jio has now empowered the group employees, who had got the trial SIM earlier, to bring 10 more people to the 4G network through a referral invite system. 

The ET reported yesterday, that

This is the first step of Reliance Jio's soft launch and it could be the turning point for Reliance Communications too.

Moreover, RTN Asia reported that Reliance Communications has upgraded its 4G network in 9 circles, with a data offer of 10 GB. This is likely to drive up data traffic for Reliance Communications.

Meanwhile, RNT Asia has also come up with an exclusive news on the topic today: Reliance Jio, the 4G operator from the RIL stable, has started expanding its trial services to the public, but through an invite-only system.

With this, you can go and get a trial SIM and a LYF phone, but you need to get the special invite — a bit like buying a OnePlus phone. To buy a OnePlus phone, you have to register for the sale and the company then hands out invites to those who have registered or who have already bought their phone or won contests.

Reliance Communications’ 4G upgrade has so far been rolled out in nine circles, and will reach the other states by around the 10th or 15th of this month.

Therefore, buy or average the shares of Reliance Communications at around the support of Rs.54.20-54.30, for short term Target's of Rs.59-60.

Reliance Communications Ltd: Buy

CMP: Rs.54.40

The ET reported today, that Reliance Jio has now empowered the group employees, who had got the trial SIM earlier, to bring 10 more people to the 4G network through a referral invite system. 

This is the first step of Reliance Jio's soft launch and it could be the turning point for Reliance Communications too.

Moreover, RTN reported that Reliance Communications has upgraded its 4G network in 9 circles, with a data offer of 10 GB. This is likely to drive up data traffic for Reliance Communications.

Therefore, buy or average the shares of Reliance Communications at around the support of Rs.54.20-54.30, for short term Target's of Rs.59-60.

Jindal brothers agree on power plant deal: Sources 

NEW DELHI: Sajjan Jindal's JSW Energy Ltd has all but agreed to buy a 1,000 megawatt power plant from his brother's heavily indebted Jindal Steel and Power Ltd in a deal valued at over $900 million, two sources told Reuters. 

An announcement could come as early as Wednesday, though one of the sources with direct knowledge of the matter said further talks were scheduled for Tuesday night to "discuss a few more things to conclude a deal". 

JSW and Jindal Steel officials have been meeting in New Delhi and Mumbai over the past weeks. A last-minute disagreement over valuation forced JSW to cancel a scheduled news conference last week, according to one of the sources. 

JSW and Jindal Steel officials did not immediately reply to requests for comment outside regular business hours on Tuesday. 

A deal would help reduce debt at Jindal Steel, majority-owned by Sajjan's younger brother Naveen, and would be a boon for top lender State Bank of India (SBI) that has been trying to broker an agreement between the companies. 

Jindal Steel - whose net debt at the end of December was 460 billion rupees ($6.91 billion), or seven times its current market valuation - had been in talks with lenders including SBI to reschedule repayments due to "cash flow mismatches". 

The Jindal brothers once competed to buy foreign assets, but Jindal Steel is now struggling after India's top court cancelled its coal mining licences and a weak commodity market hit margins. 

Buying a coal-fired plant would help JSW in its efforts to nearly triple its power generation capacity to around 12,000 megawatts by early next decade. 

Jindal Steel commissioned the first of the four 250-megawatt units at the site in the Raigarh district of Chhattisgarh in eastern India in 2007, becoming the first private company to set up an independent power plant.

Source: The Economic Times

Do you know?

Reliance Infrastructure has received 15 industrial licences, taking the parent's total licences to 25, the highest number of permits across the spectrum that any private sector company has. It is to be noted that Reliance Defence Ltd is a subsidiary of Reliance Infrastructure Ltd.

Reliance Anil Dhirubhai Ambani Group (ADAG) plans to manufacture hi-tech electronic warfare systems as well as heavy weapons at its upcoming defence park in Pithampur special economic zone (SEZ), about 30 km from Indore in Dhar district.

Reliance Defence Ltd, a wholly owned subsidiary of Reliance Infrastructure Ltd, which is part of the ADAG, applied to the Union ministry of commerce and industry for grant of industrial licences to manufacture a range of defence products in Pithampur.

The Board of Approval for SEZ gave its in-principle approval to the project, subject to certain terms and conditions, at a meeting held in New Delhi on Thursday, sources said.

According to the details mentioned in the application, Reliance Defence Ltd has proposed to manufacture hi-tech equipment, including directed energy weapon, laser for target destruction, high velocity kinetic energy weapon system, and particle beam system for destruction of target.

The firm has proposed to manufacture electronic equipment used for electronic counter measure (ECM) and electronic counter-countermeasure (ECCM), besides heavy weapons (artillery guns, AD guns, mortars, rocket launchers), remotely piloted vehicles (RPVs) and unmanned lighter than air vehicles.

The state government has earmarked 300 acres land for Reliance’s defence park in Pithampur SEZ, but the company will need additional land after forming a joint venture (JV) company with Rafael Advanced Defence Systems. “We are in the process of identifying additional land in Pithampur for Reliance,” a state industry department official told the Hindustan Times.

While the state government had cleared the proposal in January, the project got a fillip earlier this month when Reliance signed an agreement with Israel’s Rafael Advanced Defence Systems for manufacturing air-to-air missiles and other systems in Pithampur.

Though the Sensex fell yesterdasy by more than 200 points tracking subdued regional stock markets as weak China factory data rekindled global growth worries; analysts across the board remains optimistic about the health of the domestic economy after strong auto sales data for April and amid hopes of good monsoon.

However, SP Tulsian of sptulsian.com, took a contrary view and called the current correction a 'classic case of market moving into a bearish zone' and believes that volatility may continue for a couple of sessions.

Reliance Infrastructure saw a Block Deal on BSE, Qty: 137,456, Deal Price: Rs.539.95, Value: Rs.7.42 Cr, on 3 May, 2016. 

The shares of Reliance Infrastructure Ltd, having a face value of Rs.10, Book Value of Rs.786.79 and EPS of Rs.64.90 is trading very cheap, as compared to many of its peers. The stock of Reliance Infrastructure Ltd, which closed at Rs.535.90, is still trading above its 200D SMA, which is placed at Rs.435.70.

Buy the shares of Reliance Infrastructure Ltd at Rs.535-537, for a short term target of Rs.580. SL--Rs.527. 

Buy calls

1. Buy Allahabad Bank at Rs.56.85, for a target of Rs.64, in the short term. 
As the interest rate comes down gradually and as the Indian GDP improves, Banks in General will fare well on the bourses.

Recently, there were media reports that the public sector lender Allahabad Bank will raise over Rs.57.5 crore by issuing shares on preferential basis to LIC.

The Hindu Business Line reported on 2 May, 2016:
"The rising bad loan level in the banking system did not deter Life Insurance Corporation of India (LIC), the country’s largest life insurer, from betting big on bank stocks in 2015-16.

The state-owned insurer raised its shareholding in many banks, including Allahabad Bank, Axis Bank, Bank of Baroda, Canara Bank, IDBI Bank, ICICI Bank, Indian Overseas Bank, Oriental Bank of Commerce, and Punjab National Bank during the last financial year.

"In raising its stake, LIC may be pinning its hopes on a turnaround in the fortunes of banks after the clean-up of their balance sheets and a likely revival in the economy".

Another reason why LIC might have increased its stake in some banks including Allahabad Bank, could be Ibecause the finance ministry has categorically asked the PSU banks to step up bad loan recovery and is holding meetings with individual banks on their capital raising plans and how they will be selling their non-core assets.

The GOI had earlier issued statements that state-run banks seeking a share of the Rs.25,000-crore capital infusion by the government will have to show some movement on bad assets before they can petition for funds.

Meanwhile, an Indian finance ministry official said: "We are hopeful to get the bankruptcy law passed in this session of the parliament. In addition, we will introduce changes in SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) and DRT (debt recovery tribunal) laws to speed up the recovery process".

Banks that have made presentations to the finance ministry include Allahabad Bank, Bank of Baroda and Bank of India. 

If this happens then it would be a great news for the PSU bank shareholders.

Allahabad Bank has a book value of Rs.192.84 and market cap of Rs.3489.48 Cr. The Bank operates in four divisions: Treasury Operations, Corporate / Wholesale Banking, Retail Banking and Other Banking business. 

The Bank’s personal banking services include deposit products, other credit products, account portability, deceased depositors and All Ayushman Bima Yojana.

2. Buy JSW Energy Ltd at Rs.67.10 for a target of Rs.79.

JSW Energy Ltd, India’s fourth largest private power producer, is in various stages of discussions to buy three power assets, according to a recent media report.

The three power producers are Monnet Power Co. Ltd., Jaiprakash Power Ventures Ltd and Jindal Power Ltd, a unit of Jindal Steel and Power Ltd. 

The three deals together will add 2,591 megawatts (MW) of power generation capacity to JSW, making it the third largest private producer in India, dislodging Reliance Power Ltd (6,000MW) from the position. Currently, JSW has a total power generation capacity of 4,531MW. 

The top two private power producers are Adani Power Ltd (10,480 MW) and Tata Power Co. Ltd (9,130 MW).

There were also media speculation that JSW Energy Ltd is trying to reduce the cost of acquisition. If this happens, then it would further add to bottom lines of JSW Energy Ltd.

As 30 September, 2016, JSW Energy had a total debt of Rs.14,635.10 crore. The company’s debt-to-equity ratio in the same period was 1.76, which is manageable by any standards.

Also, in the current market conditions, it would be much easier for JSW Energy to raise fresh equity, as a spite of IPOs hit Dalal Street.

Earlier the CLSA said: "The core businesses grew on the back of 25% volume growth and lower fuel costs. Leverage peaked in 2Q and continued to decline in 4Q which is a positive sign". The global investment bank maintains outperform rating as the stock offers value at 8.1x FY17 EPS.

Meanwhile, after the CLSA, another well known research house, the IDFC has also come up with "Outperformer Rating" on JSW Energy Ltd, with a price target of Rs.87.

FULL DESCRIPTION
JSW Energy Limited is an India-based integrated power company. The Company is primarily engaged in generation and sale of power. The Company's operating segments include Power Generation, Power Transmission, Mining, Power Trading and Equipment Manufacturing. The Company produces approximately 3,140 megawatt (MW) of power. The Company's power plants are located at Vijayanagar, Karnataka; Ratnagiri, Maharashtra and Barmer, Rajasthan. The Vijayanagar plant produces 860 MW of power. The Company's subsidiaries include JSW Power Trading Company Limited, JSW Green Energy Limited, JSW Energy (Kutehr) Limited, JSW Energy Natural Resources Mauritius Limited, South African Coal Mining Holdings Limited, Umlabu Colliery Proprietary Limited, Jigmining Operations No 1 Proprietary Limited, Jigmining Operations No 1 Proprietary Limited and JSW Energy Natural Resources UK Limited, among others. The Company's subsidiary JSW Power Trading Company Limited is a power trading firm (Source: Reuters).

Cipla Ltd: Buy

CMP: Rs.541.10

T: Rs.572

According to The Economic Times, Cpla has set its sights on building a pipeline of speciality drugs in the United States. The company, India's third-largest drugmaker, plans to deploy more funds for research and development in respiratory, dermatology, neurology and oncology segments and hopes for the first commercial launch in the US around 2020.

Scouting for in-licensing opportunities is also part of the plan to jumpstart work, according to the company, which clocked over $2 billion in global sales last year.

Cipla's move is aimed at closing the gap with fellow drugmakers such as Sun Pharma, Dr Reddy's and Lupin. The drugmaker, which is going through an uneasy transformation process to professional management over the past four years, had partnered leading generic companies such as Teva but remained on the sidelines in the world's largest drug market.