Suzlon expects more orders on accelerated depreciation booster

New Delhi,  November 3, 2014: Wind turbine maker Suzlon Energy expects to receive additional orders worth about Rs 3,250 crore this fiscal on the back of government re-instating the accelerated depreciation scheme. 

The accelerated depreciation scheme, that would provide relief for wind energy projects, came into force from mid-September. 

According to sources, Suzlon expects to receive additional orders to the tune of 500 MW, worth about Rs 3,250 crore, in the current fiscal on account of AD scheme. 

On a conservative basis, setting up 1 MW of wind energy generation capacity costs about Rs 6.5 crore. 

Accelerated depreciation (AD) refers to calculation that allows for higher deductions towards deprecation in the early life time of an asset. 

When contacted, Suzlon Group Head of Finance Kirti Vagadia told PTI, "We expect to receive more orders in third and fourth quarters on account of accelerated depreciation (scheme)". 

However, he did not divulge size of expected orders. 

The scheme, which had benefited the wind energy sector, was withdrawn by the earlier government in 2012. 

"To encourage the wind energy programme, there is an accelerated depreciation. There was a confusion whether we have extended it or not. Members wanted it to be extended. I am, therefore, continuing with that accelerated depreciation," Finance Minister Arun Jaitley had informed the Lok Sabha in July while replying to a debate on the Finance Bill. 

At the end of September, Suzlon's order book was worth USD 6.3 billion, with emerging markets alone accounting for about USD 1.1 billion. In terms of capacity, the order book stood at around 4,600 MW. 

Suzlon saw its consolidated net loss narrowing to Rs 656.21 crore in the three months ended September from Rs 782.37 crore recorded in the year-ago period. 

This figure is after taking into account 'share in minority interest'. 

In the second quarter (ended September) of current fiscal, the wind turbine maker's total income climbed to Rs 5,378.89 crore from Rs 4,808.90 crore in the same period a year ago.

Courtesy: Business Standard

Easier FDI in real estate means govt is inflating India’s urban housing bubble

[Editor: This news report says: (i) The move (relaxation of rules for foreign direct investment)  has surely been cheered by the real estate sector, for it will bring in much needed capital for those steeped in debt (ii) It is possible to fuel prices by creating a stock of inventory, diverting  money to other projects and investing to build land banks for future projects. With this thought in mind two real estate stocks/construction stocks, Jaiprakash Associates Ltd and Prajay Engineers Syndicate Ltd were recommended recently (since both the stocks did not participate fully in the whirl-wind rally). Moreover, in addition to this two scrips, the shares debt laden companies like IVRCL Ltd (Rs.20.50) is also likely to get sentimental upward-push. The Indian real estate companies apart from taking advantage of the new FDI rules, are expected to benefit in future, as the RBI is likely to start cutting interest rates from February, 2014 or may be before that]

Oct 30, 2014: India's relaxed rules for foreign direct investment (FDI) in construction will make it easier for foreigners to invest in real estate. While the move has surely been cheered by the real estate sector, for it will bring in much needed capital for those steeped in debt, it could bring more pain for home buyers. Reason: more foreign money in realty means higher property prices. Simple demand-supply logic.

Current urban realty prices represent affordability for a microscopic few, while the average home buyer will have to exchange 20-30 years of future earnings to afford a house.

Under earlier rules, the government allowed 100 percent FDI in real estate development but with strict riders, including a lock-in period of three years during which the investment cannot be repatriated. Under the new rules, the minimum built area for projects in which foreign investment is allowed will be reduced to 20,000 square metres from 50,000, the government said in a statement late on Wednesday. For "serviced plots", there is no minimum land requirement now, compared to 10 hectares earlier, while the  minimum capital investment by foreign companies has been cut to $5 million from $10 million.

"The announcement literally comes in the nick of time for Indian real estate. Construction, housing and real estate segment's share in total FDI had further slipped from 5 percent in the previous year to under 3 percent as of the current fiscal until August. In fact, its share has been consistently falling over the last six years since 2009-10, when it stood at over 20 percent. Meanwhile, developers continue to reel under high levels of debt, even as the channels of funding have shrunk. The easier rules will help faster completion of projects delayed by a squeeze on funds due to elevated debt levels," said Anuj Puri, chairman and country head at Jones Lang Lasalle India.

But a back-of-the-envelope calculation by Vallum Capital Advisors shows that an FDI-compliant project sale of $150 million requires a peak investment (except land and approval) of not more than $20 million, implying that private equity (PE) investment is not needed to support the project. It is possible to fuel prices by creating a stock of inventory, diverting  money to other projects and investing to build land banks for future projects. This essentially defeats the very purpose of allowing FDI in the real estate sector for making housing affordable. 

The reduction of minimum requirements for built areas and capital will now allow investment to flow into South Mumbai or central Delhi. Till now investment was going to the outskirts because it was tough to find large areas to develop or construct 50,000 square metres. So  the new rules will encourage the development of smaller projects, especially in urban areas, where the availability of land is limited.

More construction in prime areas does not imply that property prices here will come down. In fact, buyers are most likely to see more Rs 60 crore prices for 2 BHK flats in tony areas of south and central Mumbai areas like Worli or Peddar Road. This is because demand for houses in posh areas far exceeds supply and builders will cater to this snob requirement rather than construct 'affordable flats' in south Bombay or south Delhi.

The lower area requirement is also expected to result in more interest in smaller towns as the reform would now allow foreign investors to invest in smaller projects spread over land parcels of about three to four acres. This means that speculation in real estate is once again bound to rise and spread to smaller towns. "Allowing easier FDI in construction only spells bad news for home buyers because it is expensive capital seeking high returns," says Pankaj Kapoor, MD of real estate research firm Liases Foras.

Once the government allows more hot money to come in, investor expectations from returns on investment rise without any consideration for affordability. If builders have to ensure that investors get bang for the buck, they have no choice but to prop up realty prices. How else will they manage to deliver 25 percent RoI?

"Take the case of the NRI investor battle against ICICI. Investors have sued them for not delivering 25 percent returns as promised from the investment in a property fund. This is the case with most investors and, by easing the investment norms for them, the government is in essence creating an investor's market rather than a buyer's market. FDI in construction will kill the property market and I am seriously thinking of filing a PIL against the new norms, " said Kapoor.

The real devil lies here: While an investor will  be allowed to exit on completion of the project, or after three years, from the date of final investment, whichever is earlier, the government may also permit repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of the project. 

Such a move will not only make it easier for investors to repatriate profits, but also  increase speculation in the market since investors will once again trade in properties like they do in stocks, which in turn will make houses even more unaffordable for both middle class and masses.

And the  permission to sell completed projects to foreign investors will help builders get much-needed liquidity to trim their debt and hoard more inventory for longer.

For the benefit of consumers, there is just once clause which  makes it mandatory for developers with foreign funding to only sell "developed plots". This means tracts that have trunk infrastructure, including roads, water supply, street lighting, drainage and sewerage.  The fine print, otherwise says the real winners are the builders and investors once again.

In 2013, PE money started returning abroad as investors had stayed invested for seven to eight years. This marked the beginning of a slowdown in FDI in real estate. Builders increased prices  to accommodate investors at every stage of the development, thereby creating a false sense of price appreciation. With a steep slowdown in genuine sales (both Delhi and MMR currently have the highest unsold inventory), they are stuck in a catch-22 situation. By opening the floodgates to investors once again, the government is doing the exact opposite of deflating the housing bubble.

Courtesy: Firstpost.com

Market Mantra

The two Jaiprakash Group stocks, J P Power Ltd (Rs.13.80) and J P Associates Ltd (Rs.31.80) are on fire today. Though both the scrips are expected to move up vertically from here, but the more momentum is likely to be seen in the shares of the Jaiprakash Power Ltd. I think soon we will again see the levels of Rs.20, for the share. 
Gitanjali Gems Ltd (Rs.59) is showing good  upmove today. The marriage season and Christmas buying, should firm up its top and bottomlines. We could soon see the target of Rs.72-73, in the coming days. 
Allied Digital Services Ltd hit another buyer freeze in the opening trade. The company is expected to come up with better set of numbers from Q3FY14.

Suzlon Energy Ltd again becomes a buy around Rs.13.45, after yesterday and today's consolidation phase. The scrip will is expected to touch Rs.17--19, in the short term. Those who have booked profits in the counter can again enter it and keep holding. 
The shares of IVRCL Ltd are on a roll since the new of FDI in construction came up. The scrip is slowly inching towards Rs.24-25 mark. 
Hilton Metal Forging Ltd can be bought at the CMP of Rs.19, for a target of Rs.31-32, in the short term.  
Marg Ltd hits another buyer Freeze at Rs.14.25. Those who are holding or have taken fresh positions, should celebrate. 
The investors with risk appetite can go for the shares of Prajay Engineers Syndicate Ltd at around Rs.10.40. The company has a huge land bank not only in Hyderabad and Vizag, but also, in the Guntoo--Vijaywada road, according to my close sources. 

Buy SAIL; target of Rs.103: BP Equities BP 

Equities is bullish on Steel Authority of India (SAIL) and has recommended buy rating on the stock with a target of Rs.103 in its October 28, 2014 research report.

“Steel Authority of India Limited (SAIL) is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence. SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants, namely Bhillai (3.15 MTPA), Bokaro (3.9 MTPA), Durgapur (1.6 MTPA), Rourkela (1.7 MTPA) and IISCO steel plant (2.5 MTPA) with a total capacity of 12.4 MT in FY14 (2nd highest in India).” 

“SAIL’s on-going Modernization & Expansion Plan (MEP) will increase it’s saleable steel capacity from 12.4 MT to 20.2 MT and improve efficiency as well. The MEP will also serve to improve SAIL’s product mix to match the forthcoming rise in demand by increasing share of Structural's (4% to 14%), Bars and Rods (13% to 19%) and Railway products (13% to 19%) while rationalizing other product categories. 

We believe that SAIL’s product and cost rationalizations is planned and placed well to exploit the forthcoming lucrative domestic demand scenario and wave of infrastructure wave. The Government’s intention towards reviving the economy was evident in the Union Budget’s inclination towards infrastructure investment, manufacturing and formation of a dynamic investment climate. 

The budget’s emphasis on investments in infrastructure - namely Railways (Golden Quadrilateral, Connectivity in North Eastern India, etc.), Ports, Airports (development of airports in Tier I and Tier II cities), Roads, Construction (100 smart cities) and improved urban infrastructure (waste management plants, revamped public transport, etc) - through PPP route indicate higher demand for long products in forthcoming quarters as sanctioned and initiated projects are increasingly implemented.” 

“We believe that the Modernization and Expansion Program should result in improvements in efficiency and productivity, apart from an increase in saleable steel output. Additionally, demand revival on account investment push in infrastructure, manufacturing and equipment and impetus given to domestic steel industry is expected to drive volume growth going ahead. 

We initiate with a BUY rating on the stock to arrive at a DCF based target price of Rs. 103* (~27% upside from CMP). The stock currently trades at a EV/EBITDA of 9.7x and 7.3x FY15E and FY16E earnings respectively,” says BP Equities research report.

Courtesy: Moneycontrol.com

Jaiprakash Associates Ltd: Some Points

Manoj Gaur

• In the recently held Global Investors Summit in Madhya Pradesh, J.P. Gaur of diversified firm Jaiprakash Associates Ltd promised an investment of Rs.35,000 crore and also offered to develop Rewa as a smart city. 
• Aditya Birla group firm Ultratech Cement is believed to be looking at possible acquisition of Jaypee Group's three cement plants in Madhya Pradesh in a deal that could be worth about Rs.5,500-6,000 crore. 
• In a recent interview, Mr.Deepak Narang, ED, UBI, said, that their loan account with J P Associates Ltd: "As of now is standard. Once we are able to sell their assets we will be able to get back our money. We have already demanded money from them. We have raised an issue". This means anyhow, the next round of stake sell would happen. 

• The company also recently said in regards to the news report appearing in a financial daily, titled, "Jaypee may sell Bhilai unit to Shree cement": While on the subject we may add here that, as already announced on various occasions, with a view of enhance the stakeholders' value, the Company has its firm resolve to reduce its debt including through disposal of some of its assets/investments.
• Meanwhile, last month while addressing the gathering, elangana Retired Engineers Forum (TREF) general secretary Mereddy Shyamprasad Reddy appealed to Chief Minister K. Chandrasekhar Rao to release funds required to complete 44 km. long SLBC tunnel project. He said the Rs.1,920 crore worth project tenders were bagged by Jaiprakash Associates Limited in 2005 but the works were stalled as the engineering firm is demanding payments according to the increased expenditures besides sanctioning of some pending bills. Mr. Reddy said though the Jaiprakash Associates had agreed to complete the project by 2010, it was delayed because the successive Seemandhra rules delayed payments to the project intentionally. About Rs.1,150 crore have already have been paid to the contractor, he said. Another positive development in case of J P Associates Ltd. 

THIS MEANS BY HOOK OR CROOK THE STAKE SELL IS GOING TO HAPPEN AND THE COMPANY WOULD PARE ITS DEBT. In between if they can go for another round of QIPs, then further debt reduction is possible. Meanwhile, the 1st round of interest rate cut by the RBI, would probably happen in February, 2014--this is expected to bring in much relief to its HIGH interest outgo of J P Associates Ltd. Apart from this relaxation of FDI norms in the construction sector and revamping of the wind energy sector, would be positive for the company. It is to be noted that a few months back, the company raised nearly Rs.1,500 crore from investors at Rs.70 per share, through QIP-route. 

The shares of the J P Associates Ltd (Rs.30.10) which broke out of the earlier trend on last Friday,  after a long consolidation phase is likely to move up vertically from here and reach Rs.55-60 in the medium term. 

Jaiprakash Associates Ltd: Bullish Pattern is being formed on the Chart

The shares of Jaiprakash Associates Ltd (J P Associates Ltd), could see a vertical rise from here, on the back of Japanese Stimulus Package, apart from the news of stake sale. The scrip has given a clear break-out on the daily chart. The scrip is above its 21D EMA and SMA. Moreover, Jaiprakash Associates Ltd's proposed merger of subsidiary Jaypee Sports International Ltd with itself has received green signal from National Stock Exchange.

The Company has been operating Wind Power Project of 49 MW (40.25 MW in Maharashtra and 8.75 MW in Gujarat). Out of the aggregate capacity of 49 MW, 16.25  MW  (13  generators each  of 1.25 MW) was commissioned during December 2006 to March 2007 at Dhule in Maharashtra. The remaining 32.75 MW was commissioned at Sangli, Maharashtra (24 MW- 16 generators each of 1.5 MW) during September 2007 to March 2008 and at Kutchh, Gujarat (8.75 MW- 7 generators each of 1.25 MW) in  March 2008. The electricity generated from the project is being sold to Maharashtra State Electricity Distribution Company Ltd. (MSEDCL) in Maharashtra and Gujarat Urja Vikas Nigam Limited (GUVNL) in Gujarat. The energy sold and the revenue from sale of electricity during the FY14 were 89.41 Million units and Rs.37.15 crores against 94.74 Million units and Rs.38.19 crores respectively in the year 2012-13. The recent development on wind energy projects, brought about by the NDA government would help the company. 

The Company (either directly or through its subsidiary/ JVs) is engaged  in  the business of  Heavy  Civil Engineering Construction, Expressways, Cement Manufacturing, Generation of Power, Real Estate and Hospitality. The Business of construction of Hydro-Power Projects is operated from various sites of the Clients. Therefore, the relaxation of FDI investment norms for the construction sector is positive for the company.

The government on last Wednesday eased rules for foreign investment in the construction sector by allowing inflows into projects spread over a smaller area. The move may result in overseas players participating in the development of malls and office spaces in central Delhi and South Mumbai.

As an added sweetener for foreign investors, the Union cabinet also decided to ease the rules for them to exit the project and repatriate profits. For the benefit of consumers there is a clause that will make it mandatory for Indian companies with foreign funding to only sell "developed plots", which means tracts that have trunk infrastructure including roads, water supply, street lighting, drainage and sewerage.

While the government allows 100% FDI in construction, the rules related to minimum area requirement and exit of investors were hampering overseas interest, especially when the sentiment in the sector depressed. 

Consultants said that the biggest change is the reduction in the construction and development requirements. The minimum floor area requirement for construction and development has been reduced from 50,000 square metres to 20,000 square meters. For "serviced plots", there is no minimum land requirement now, compared to 10 hectares earlier. 

These moves will help in inner-city development. The lower area requirement is also expected to result in more interest in smaller towns where the requirement for large top-of-the line office or residential complexes is limited.

Nifty Outlook Continues to Remain Bullish

Key benchmark indices surged to record highs for a second consecutive session on Friday after Bank of Japan's surprise expansion of its massive stimulus programme raised hopes for additional foreign inflows into India. The Bank of Japan on Thursday decided to accelerate the purchase of government bonds to 80 trillion yen ($725 billion) annually, up by 30 trillion yen.

The 30-share BSE Sensex rose as much as 1.96% to an all-time high of 27,894.32, while the Nifty gained as much as 1.97% to reach the record level of of 8,330.75, surpassing their previous highs hit on Thursday. The market breadth indicating the overall health of the market was positive in Nifty50 stocks, the advance to decline stood at 45 advances to 5 declines.

The Economic Times, 1st November, 2014, wrote: 

According to experts, the announcement of the additional stimulus package from the Japanese central bank is a positive news development for India, and with macros situation well balanced, India stands out compared to other emerging market economies. "India stands to be a beneficiary from the potential QE in Europe and Japan. If a QE happens in these regions, the government will reduce the supply of bonds in the capital markets, bond prices are bound to escalate and investors are likely to sell off relevant debt instruments," says Vivek Gupta, CMT - Director Research, CapitalVia Global Research Limited.

Earlier this week, global ratings agency Moody's said that it may consider a ratings upgrade on India if inflation stays under control in the long term and the recent measures to boost growth and attract investments are implemented properly. Growth seems to have bottomed out, crude is falling, inflation is stabalising, the economy is showing signs of recovery and corporate earnings are expected to grow considerably in the next couple of quarters, which may attract more foreign capital into India. Apart from Japan, investors are also betting that the European Central Bank (ECB) will now announce its stimulus program to revive growth in Euro-zone. Experts feel that some of this excess liquidity will be coming to India compared to other emerging market economies. 

A 257 points gain in Future and Options settlement (October, 2014 expiry) and a close at Life Time High clearly shows strength among Bulls and continuance of the uptrend. With the Nifty closing at 8332.2, it has now entered a new "Resistance Free Zone" and the next upward level of Nifty is anybodys' guess. 

The BULLISH TREND is now likely to spread in the mid and small cap counters, in a more vigorous way. However, on next Monday. after such a mammoth rally on last Friday, the indices could trade range bound, but the broader market is expected to continue to remain bullish. The investors and traders are suggested to pick up the shares of good companies, with stories and keep holding.  

Suzlon Energy Ltd: Result Update

Wind turbine maker  Suzlon Energy on Friday posted net loss of Rs.656.21 crore for the second quarter ended September 30, 2014-15. The company had reported a net loss of Rs.782.37 crore for the July-September quarter, 2013-14. Suzlon Energy Ltd’s net loss narrowed by Rs.126.16 crore, Y-o-Y, because of a better operational performance and market mix. 

Its total income in Q2, 2014-15 increased from Rs.4,820.54 crore a year ago to Rs.5,391.76 crore. Ebitda for the reporting quarter was at Rs.114 crore against an operating loss of Rs.31 crore for the corresponding quarter last year. Suzlon’s order book stood at 4.6 GigaWatt, valued at $6.3 billion (~Rs.39, 000 Cr). Suzlon plans to list its German subsidiary Senvion on the London Stock Exchange through an initial public offer which is likely to garner close to Rs.7,000 crore. The company renamed its subsidiary REpower as Senvion, last year. REpower, which was founded in 2001, was acquired by Suzlon Energy in December 2009. 

The Paid Members, who had short term horizon, were asked to book profits, this week. I hold the view that the company would need some more time to recover from its blues, though in a statement, Suzlon Energy said it had posted its third consecutive quarter of positive earnings before interest, depreciation, taxes and amortization (Ebitda) at a consolidated level. Hence, I suggest the short term investors who still did not book profit, to hold on to their positions in the counter, with a SL of Rs.12.70. Also, the short term target is reduced to Rs.15, from Rs.17.

WINNING STROKES: THINK DIFFERENT

Rohit Ferro Tech Ltd recommended recommended a couple of days back to the Paid Group members, yesterday touched Rs.10.45, before closing at Rs.10.10, up 5.4%. The Company has acquired 60% equity stake in a coking coal mine in Indonesia owned by M/s. PT Bara Prima Mandiri through its subsidiary M/s. SKP Overseas Pte. Ltd., Singapore. The mine located in Central Kalimantan Province of Indonesia has an estimated coking coal reserve of 10 MN Tonnes. The Company is also having 60% economic interest in a thermal coal mine in Indonesia owned by M/s PT Palopo Indah Raya through its aforesaid Subsidiary. The mine located in Central Kalimantan Province of Indonesia has an estimated thermal coal reserves  of 20 MN Tonnes. The group now has a total installed capacity of 2,74,583 mtpa of ferro alloys. The book value of the shares of the company is Rs.50.94.Yesterday, it gave a clear upward break-out in daily charts with good volumes. Will it hit the upper circuits on Monday, as the steel shares are moving up, due to new optimism created after the government relaxed norms, in the construction and real estate, sectors.  

Country Club Ltd made a  new 52-week high yesterday, when it touched Rs.19.70, intra-day. The scrip was recommended around  Rs.7-8, if  you could recollect. 

Yesterday, was the field day for the Jaiprakash Group shares. My recommended J P Power Ventures Ltd raced to Rs.13.39 intray, before closing at Rs.13.27. Similarly. J P Associates Ltd moved to Rs.31.70, intra-day before closing at Rs.31.10. In order to boost to cash-starved real estate industry, the NDA government recently, relaxed rules for FDI in the construction sector by reducing minimum built-up area as well as capital requirement and easing the exit norms. Although 100 per cent foreign direct investment was allowed in townships, housing and built-up infrastructure and construction developments since 2005, the government had imposed certain conditions. The analysts think this new development will help the companies like Jaiprakash Associates Ltd (J P Associates Ltd). Hence, we can again look for targets of Rs.80-90, in the coming weeks. Meanwhile, the Economic Times, wrote on 27 October, 2014: "Titan, Axis Bank, Jaiprakash Associates, Larsen & Toubro, Tata Power, Havells India, Jain Irrigation, GMR Infrastructure, Bhushan Steel, JP Power and Jindal Steel were among the top buys of retail investors in the three months ending September 30". The scrip is expected to move vertically from here---therefore those are still away from the bus stop, are request to kindly book your tickets for this superb journey, before it is too late. 

Allied Digital Services Ltd, hit another buyer freeze yesterday and the scrip closed at Rs.19.50. The journey of the scrip to the BULL-SPHERE has just begun, and it is time that it will cross Rs.50. According to my close sources, the company is expected to come up with better results from Q3FY14 (December, 2014 quarter). The optimism is surrounding that is pushing the scrip high, in this BULL MARKET, as we are at the middle of the December, 2014 quarter.
Resurgere Mines and Minerals Ltd, yesterday closed flat at Rs.1.68. The company has started mining in its SOAPSTONE MINES, in Rajasthan. Therefore, it is NOT TRUE that the company dos not have any sales. The book value of the shares of the company is Rs.27.14, which is more than 16 times the CMP of Rs.1.68, speaks volumes about its financials. It only needs a spark in the form of a comprehensive mining policy from the GOI, to shoot past its FACE and BOOK values.
My recommended Tata Steel Ltd around Rs.450 yesterday touched the short term target of Rs.480, as the scrip rallied to Rs.492.70 intra-day. I feel Indian and Taiwan's steel industries are likely to benefit the Japanese Stimulus package. The bank will now make asset purchases at an annual pace of around 80 trillion yen, an increase from the previous 60 to 70 trillion yen target range. In a similar case earlier, the heavyweights of Taiwan's steel industry, including China Steel Company and Sheng Yu Steel Company, predicted that the stimulus plan will provide momentum and boost the international steel price. It is to be remembered that Japan's economic strategies have changed since prime minister Shinzo Abe came to power. Adopting different policies, the prime minister let the Japanese Yen devaluate over 10%, which helped revive the country's economy. Japan also diminished its steel export to meet the domestic demands.

India world’s 4th largest steel maker at 62.41 MT in Jan-Sept

October 26, 2014: With 62.41 million tonnes output, India remains the world’s fourth largest steel producer in the first nine months of the current year, preceded by China, Japan and the US.

World Steel Association (WSA) data showed India’s steel production grew by 1.8 per cent, the second highest among the top four steel producing nations, during the January-September period from 61.27 MT in the same period last year.

India has been the world’s fourth largest steel maker for the last four years. The order is likely to remain unchanged in current year too, an industry expert said.

During the first nine months, China produced 618 MT steel which is a little more than half of world’s total production at 1,231 MT.

China logged 2.3 per cent growth during the period. But its steel production remained static in September, as per data revealed by WSA, at 67.5 MT when compared with the same month last year.

Japan remained the remote second with 83.1 MT production during the nine-month period clocking just 0.8 per cent growth over 82.4 MT production in the same period last year.

The US stood at the third spot with 66.33 MT production compared to 65.3 MT output during the January—September period of the last year.

Though the growth in world’s third largest producing nation grew by 1.6 per cent during the period, in September steel production in the US fell by 0.1 per cent over the same month last year.

Russia and South Korea vie for the fifth slot with 53.4 MT and 53.2 MT output in the first nine months of the current year.

The balance is, however, tilted towards the Asian nation as it logged 9.4 per cent growth, highest among major steel producing nations, in steel production during the period compared to Russia’s 3.1 per cent.

Courtesy: The Hindu

Shake-out of ferrochrome industry overdue

[Editor: The demand for ferro alloys is driven by steel production, which in turn depends on growth from the infrastructure, housing, automobile and consumer durable industries. The ferro-alloy industry is at cross-roads now, with the new NDA government coming in New Delhi. I have already recommended Rohit Ferro Tech Ltd (Rs.9.63) pivoted on the source based information that the company's Captive Power Plant of 67.5 MW and 33 MVA Furnace are about to start operation within a very short time]

October 27, 2014: India's ferroalloys producers have built capacity of 5.25 million tonnes (mt), including 3.2 mt of manganese alloys and 1.75 mt of chrome alloys, anticipating much faster growth in domestic production of carbon, alloys and stainless steel than is actually the case. As a result, every segment of the ferroalloys sector has considerable idle capacity. The sector's attempt to beat overcapacity blues through exports has seen limited success in the face of oversupply of ferroalloys in the global market, thanks largely to Chinese dumping.

Ferromanganese is used for desulphurisation and strengthening of carbon steel, while ferrochrome imparts non-corrosive properties to stainless steel.

Bansidhar Panda, chairman of Indian Metals & Ferro Alloys (IMFA), says "the chromium sector is at a crossroads, buffeted by rising costs, stagnant prices" and China's overbearing presence in both ferrochrome and stainless steel sectors. Overcapacity is hitting non-integrated producers here, without ownership of chrome and manganese ore mines and captive power plants, the hardest. Such units in the chromium segment are never sure of securing the required supplies of chromite from the Odisha government-owned Odisha Mining Corporation. Grid power is expensive, as it is highly irregular. For ferroalloys plants without captive power, the electricity bill alone accounts for about 35 per cent of the overall production cost. Therefore, it isn't surprising that standalone units, which have to buy chromite and electricity, are in dire straits. Only a few, with toll smelting assignments from mines-owning ferroalloys groups, are able to keep their heads above water.

A shake-out of the sector is overdue. Integrated manufacturers still left with appetite for expansion will have a chance to buy furnaces and other equipment of closed units and those on the verge of closure at bargain prices. Ferroalloys Corporation (FACOR) says "acquisition" will remain one of the options for capacity growth.

But what is leading Tata Steel to build large new ferrochrome capacity when the sector is reeling under overcapacity in every ferroalloys segment? According to Odisha government officials, Tata Steel's new ferrochrome facilities are to be housed at Gopalpur, where it has large tracts of land. In 1995, the company acquired the land to build a steel plant, which didn't happen because of water scarcity and local agitation. Not only will Tata Steel make ferrochrome and roll steel at Gopalpur, it is also to play the role of an anchor in securing investments from southeast and Far Eastern countries in a variety of sectors. That the company has flagged off investment in two industries will inspire others in the multi-product Gopalpur special economic zone (SEZ). The presence of a soon-to-become all-season port nearby will underpin the SEZ's success. The capacity of the deep-sea port, capable of handling of up to 125,000-tonne vessels, is being raised from 3.5 mt to five to mt.

Being the most ideally integrated ferroalloys producer in India, with access to rich deposits of all required minerals, Tata Steel is in a vantage position to risk investment in new ferrochrome capacity. Not only does the group's large production of steel provide a major outlet for in-house production of ferrochrome and ferromanganese, it has "maximised profits by judicious allocation of ferroalloys products to profitable geographies". An important tenet of Tata Steel's ferroalloys marketing strategy is entering into long-term supply contracts with foreign steelmakers. The signing of a long-term contract with Nucor of the US for sale of ferrochrome will be followed by the attempts to get buyers in Japan and South Korea to increase sales tonnage.

Some other producers, including IMFA and FACOR, have also taken recourse to this route for long-term offtake assurance in the case of ferrochrome in a global market awash with Chinese material. Going a step further, IMFA is running a ferrochrome joint venture in Odisha, in partnership with Posco of South Korea. In all such supply arrangements, ferrochrome prices are revised periodically. Sustainability of the domestic sector, however, demands internal use of ferrochrome grows at a rapid pace. Much will depend on how quickly Indian per capita consumption of stainless steel, now 2.1 kg, approaches the world average of five kg. Continuing large imports from China are standing in the way of local stainless steel producers making better use of their capacity.

Courtesy: The Business Standard

Steel exports soar as domestic demand weakens

Photo: The Telgraph

30 October, 2014: Steel exports soared 39.3 percent year-on-year to 65.34 million metric tons in the first nine months of 2014 as domestic demand remained soft and prices fell, the China Iron and Steel Association announced on Wednesday.

In comparison, China imported 11 million tons of steel, up 5 percent year-on-year.

"The Chinese government has never encouraged domestic steel companies to export since the industry is a large energy consumer and its priority is to meet domestic demand," said Zhang Changfu, vice-chairman of the association.

China exported 8.52 million tons of steel products in September, up 9.8 percent month-on-month.

For the first three quarters, the average steel export price was $783 a ton, down $74 a ton compared with the same period of last year.

Exports are mostly going to Asian countries, which account for about 70 percent of the total. China also exports high-end steel products to the European, United States and African markets.

The CISA estimates that China's full-year steel exports will surpass 80 million tons, accounting for about 10 percent of the national output. In previous years, exports only accounted for about 2 percent to 3 percent of total output.

Large volumes of low-end steel exports "will generate more trade friction, and will affect future exports. Thus, the authorities will adjust export policies accordingly," Zhang said.

Faced with a domestic economic slowdown and price gaps between local and foreign steel markets, however, Chinese steelmakers are increasingly turning to exports to raise their profits.

Wang Yingsheng, director of the market research department at the CISA, said that large steel mills such as Hebei Iron and Steel Group, Shagang Group and Baosteel Group, all have growing exports.

"China is no longer exporting just crude steel. Instead, Chinese companies' high-end steel products for the vehicle and shipbuilding industries are sold abroad at competitive prices," Wang said.

For the first nine months of this year, medium-sized and large steel producers reported an aggregate profit of 19.28 billion yuan ($3.15 billion), up 71.3 percent year-on-year.

However, Zhang said the profitability of steel companies is generally still low. The improvement in profit mostly reflected lower raw material costs.

Oversupply and slowing demand have driven down international iron ore prices.

China imported 699 million tons of iron ore in the first nine months, up 16.5 percent. Last month alone, iron ore imports rose 13.1 percent month-on-month to 84.69 million tons.

The import price averaged $108.09 a ton for the first three quarters, down $21.66 a ton year-on-year, according to the association. Iron ore prices dropped below $80 a ton in late September.

As supplies of cheaper imported ore have increased, domestic iron ore mines have had to cut production or shutter capacity.

In September, domestic iron ore output fell 0.36 percent year-on-year to 137 million tons. For the first three quarters, output was 1.12 billion tons, up 7.24 percent.

Chen Kexin, chief analyst of the Beijing-based Lange Steel Information Research Center, estimated that China will import more than 900 million tons of iron ore this year with annual growth of 15 percent.

"In 2015, China is expected to import more than 1 billion tons of iron ore to meet domestic needs," Chen said.

"If the iron ore import price drops below $70 a ton, it is possible that imports next year may reach 1.2 billion tons."

Increasing iron ore imports will lead to closures of many domestic iron ore mines, he said.

Courtesy: Ecns.cn

  

MARKET MANTRA

Today my recommended Suzlon Energy Ltd at around Rs.11.99-12.10 touched Rs.13.60, intra-day. However, profit booking was suggested in the counter at around Rs.13.25-13.20, for the Paid Group Members and to those who trade through my brokerage terminal. 

Buy Rohit Ferro Tech Ltd at the CMP of Rs.9.65.9.70, for a target of Rs.12-13, in the short term. The short term traders can book some profits in Suzlon Energy Ltd at Rs.13.25 and enter Rohit Ferro. Rohit Ferro-Tech Limited was incorporated on 7th April, 2000 and is amongst India’s largest Ferro-Chrome manufacturing Company. The Company is engaged in manufacturing of chromium and manganese-based ferro alloys, such as High Carbon Ferro Chrome (H.C.FeCr), Silico Manganese (SiMn) and Ferro Manganese (FeMn) through Submerged Arc Furnace (SAF) route. The Company has three manufacturing facilities located at Bishnupur in West Bengal, Jajpur in Orissa and Haldia in West Bengal. The Company has commenced its commercial production of High Carbon Ferro Chrome (H.C.FeCr.) in October, 2003. Meanwhile, in a boost to cash-starved real estate industry, the NDA government yesterday relaxed rules for FDI in the construction sector by reducing minimum built-up area as well as capital requirement and easing the exit norms. This is expected to increase the demand for steel and other building materials in the coming days. The stock is near its 52-week low price of Rs.7.02 and is one of the safest bets. 
Tata Steel Ltd which was recommended around Rs.450, some days back, is near the first target of Rs.480, as intra-day it touched Rs.474.45 and is  now trading at Rs.471.
Resurgere Mines and Minerals Ltd today hit the buyer freeze at Rs.1.78 and is  now trading at the Upper Circuits. The company is carrying mining operations in the SOAPSTONE MINES in Rajasthan. It is also negotiating with the lease  holders to start mining in of its mines. 
Allied Digital Services Ltd hit the buyer freeze in the opening trade. The company is expected to come up with better numbers from Q3FY15. 
My recommended Country  Club India Ltd made a new 52-week high today as it touched Rs.18.44, intra-day. 

WINNING STROKES: THINK DIFFERENT

As expected, Sulon Energy Ltd hit the buyer freeze today at around Rs.12.70. The stock was yesterday recommended to the PAID GROUPS at around Rs.11.99-12.10. The  company has a massive order book of around Rs.43, 000 Cr and now less problem, for meeting its working capital needs. Meanwhile, the Hindu, on 27 October, 2014 writes: "The restoration of benefits such as accelerated depreciation (AD) and generation-based incentive (GBI) is expected to invigorate the domestic wind power sector.  Crisil Research estimates that 10,000 MW of capacity will be added during 2015-18, entailing investments of Rs.65,000 crore compared with 7,000 MW over the previous three years.GBI and AD (which expired in March, 2012) enable a quantum improvement in the economics of power projects, so it is understandable why capacity additions will go up with their restoration. Crisil Research estimates suggest that projects availing of AD (80 per cent depreciation allowed in the first year of operations) are economically viable at only Rs.3.80 a unit. In comparison, States such as Maharashtra, Rajasthan, Andhra Pradesh and Madhya Pradesh offer preferential tariffs ranging from Rs.3.90 to Rs.5.90 a unit, which make wind power attractive for developers in these States. The salutary impact of these incentives on capacity additions has been seen in the past too. AD propelled capacity additions until it expired in 2011-12; the share of AD in total installed capacity (21,693 MW as on March, 2014) is estimated at 65-70 per cent. That is not all. In States such as Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh and West Bengal, where industrial tariffs are high in the range of Rs.7 to Rs.7.50 a unit, wind power is an attractive option since generation costs are significantly lower, particularly in view of the restoration of AD". All these augurs well for Suzlon Energy Ltd. 

Pipavav Defence Ltd hit the buyer freeze in the opening trade at around Rs.45.20 before closing at Rs.44.30. There were media reports recently that the Indian government has cleared defence deals worth Rs.80,000 crores.  The scrip spurted on this news. 

Glodyne Tech Ltd hit another buyer freeze in the opening phase. The company came out with better set of numbers for Q1FY14, speaking sequentially. 

Nifty today closed above 8000, giving fresh ammunition to the BULLS. A weekly close above 8000 has resumed the uptrend once again, as the breakdown below 7800 proved to be short lived and false. The investors are suggested to go for the small and mid cap counters as November is approaching.

India’s Suzlon Energy Secures Orders For Wind Turbines Worth $200 Million

[Editor: There were earlier media reports that Indian government is planing to rapidly accelerate wind energy generation, adding an ambitious 10,000 MW every year, or five times the total new capacity that came up in the last fiscal. Wind energy, which had been overshadowed by solar projects in recent years, got a big boost in the current fiscal, as the government of India has restored key tax incentives that had helped India emerge as one of the top countries in the world in generating electricity from wind. The government feels that tax incentives coupled with conducive environment will rapidly accelerate wind energy. All these augurs well for the shares of Suzlon Energy Ltd (Rs.12.10)]

October 27th, 2014: The reintroduction of financial incentives for the Indian wind energy sector has led to a significant increase in the orders for wind turbines.

India’s leading wind turbine manufacturers, Suzlon Energy, has secured an order worth $200 million for supply of 150 MW wind energy equipment. The company, which has evolved into an integrated wind energy solutions provider, is likely to set up the wind farms and also bag orders for service and maintenance following commissioning.

The cumulative order has been placed by more than four companies. The large order signifies the customers’ renewed interest in the wind energy sector following reintroduction of tax incentives for wind project developers, the company noted in its press release.

Suzlon Energy is looking for a comeback as it is facing millions of dollars of debt. The company has taken several measures to raise credit from various equity-linked routes but any sustainable turnaround can only come through large orders.

The company may draw comfort from the upcoming reforms in the wind energy sector. The government is set to launch the National Wind Energy Mission, which is expected to boost annual capacity additions from the current 2.5 GW to 10 GW. Additionally, the government is expected to launch a comprehensive offshore wind energy policy.

Last month, the Ministry of New and Renewable Energy announced the launch of a joint venture of public sector companies that will set up a 100 MW offshore wind energy project in Gujarat. Suzlon Energy has also announced that it will say up 300 MW offshore wind energy project in Gujarat. The company enjoys a technological edge over most of the Indian wind energy manufacturers, as it has access to high-capacity offshore wind turbines through its European subsidiary Senvion SE.

Courtesy: Cleantechnica

Fresh surge of wind power

Photo: The Economic Times

October 27, 2014: The restoration of benefits such as accelerated depreciation (AD) and generation-based incentive (GBI) is expected to invigorate the domestic wind power sector. Crisil Research estimates that 10,000 MW of capacity will be added during 2015-18, entailing investments of Rs.65,000 crore compared with 7,000 MW over the previous three years.

GBI and AD (which expired in March, 2012) enable a quantum improvement in the economics of power projects, so it is understandable why capacity additions will go up with their restoration. Crisil Research estimates suggest that projects availing of AD (80 per cent depreciation allowed in the first year of operations) are economically viable at only Rs.3.80 a unit. In comparison, States such as Maharashtra, Rajasthan, Andhra Pradesh and Madhya Pradesh offer preferential tariffs ranging from Rs.3.90 to Rs.5.90 a unit, which make wind power attractive for developers in these States.

The salutary impact of these incentives on capacity additions has been seen in the past too. AD propelled capacity additions until it expired in 2011-12; the share of AD in total installed capacity (21,693 MW as on March, 2014) is estimated at 65-70 per cent.

That is not all. In States such as Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh and West Bengal, where industrial tariffs are high in the range of Rs.7 to Rs.7.50 a unit, wind power is an attractive option since generation costs are significantly lower, particularly in view of the restoration of AD.

Likewise, GBI (Rs.0.50 a unit for a period not less than four years and maximum of ten years) is also estimated to reduce tariff required to earn equity IRR of 16 per cent to about Rs.4.50-4.70 a unit from Rs.5 a unit, depending on the plant load factor (PLF).

AD and GBI are not the only incentives coming the way of wind power companies. The Central Government provides a ten-year tax holiday (under Section 80IA), funding through the Indian Renewable Energy Development Agency (IREDA) at favourable interest rates (~100 basis points lower than bank finance), concessional custom duty and excise duty exemption on wind turbine components. The government also proposes to set up a National Wind Energy Mission to facilitate and promote capacity additions in the sector.

During 2015-18, capacity additions will be driven by Maharashtra, Madhya Pradesh and Andhra Pradesh, which offer attractive preferential tariffs that are determined by the respective State electricity regulatory commissions based on capital costs and PLF. Moreover, the power distribution companies (discoms) in these States are relatively stronger financially, which ensures timely payments.

By contrast, capacity additions in Tamil Nadu are expected to decline due to significant evacuation issues and a poor track record of timely payments.

In the past, the sector was largely driven by the OEM (original equipment manufacturer) model. OEMs such as Suzlon, Gamesa, Vestas, Regen Powertech and Inox Wind provide end-to-end solutions, including wind and site studies, land procurement, installation of turbines and operation and maintenance services. The OEM model was prevalent as SMEs, which have limited experience in executing power projects, dominated capacity additions to reduce tax outgo by availing themselves of accelerated depreciation. But, over the last two years, we have witnessed a gradual shift in project execution due to the entry of IPPs (independent power producers).

However, in future, Crisil Research expects both models to co-exist. The OEM model will be driven by restoration of AD coupled with the fact that OEMs have acquired sites with good wind potential. The IPP route will be led by the focus of players such as Tata Power, China Light & Power and NTPC on wind power, particularly due to issues such as limited fuel availability, delay in clearances and the like in the conventional power space.

Key challenges

Even though the sector’s prospects appear to be bright, there are certain challenges ahead. Notable among these are lack of enforcement of renewable purchase obligation (RPO), the weak financial health of State discoms, and inadequate evacuation infrastructure.

Some States such as Tamil Nadu, Kerala and West Bengal have revised their RPO targets downwards in the past. Also, States such as Maharashtra, Haryana and Chhattisgarh have been allowed to carry forward their RPO obligations. The poor compliance of States is reflected in the sharp increase in unsold renewable energy certificates (REC) to 10.1 million as on September 30, 2014, from 3.7 million against the previous year. The REC is a mechanism available for States with lower renewable energy potential to meet their RPOs through purchase of these certificates on the power exchange. Clearly, if States reduce obligations or are unable to meet them, investments in the wind power market could be affected.

The poor financial health of State discoms too remains a major concern, as it hinders their ability to offtake wind power at nearly Rs.5 a unit. Some States also do not have sufficient transmission infrastructure to evacuate power within the State. Land availability, delays in land acquisition and obtaining clearances are difficult in States such as Karnataka and Maharashtra, which can also slow down project execution, leading to time and cost over-runs. Overcoming these challenges is important if the full potential of the sector is to be realised.

The author is Director, CRISIL Research.....

Courtesy: The Hindu

WINNING STROKES: THINK DIFFERENT

The bulls took a breather today amid the news of the disclosure of names of the alleged BLACK MONEY HOLDERS in the Honourable Supreme Court of India. Also, the uncertainity regarding the formation of the goverenment in Maharashtra, took its toll on the markets. However, as long as the level of 8000-7980 is held the bulls can still hope for a continuation of this rally. The focus is now expected to shift towards the small and mid cap counters as the broader market is likely to trade in a range till the F&O expiry on this Thursday. The traders are therefore, suggested to buy the scrips which has a story to tell and hold for few days to get some good returns,  as NOVEMBER-EFFECT draws closer. 

Glodyne Technoserve Ltd today hit another buyer freeze in the opening trade at Rs.4.11. The company came out with a slightly better Q1FY15 results, speaking sequentially. 

Today, the shares of Suzlon Energy Ltd were recommended, as BUY to the PAID GROUP MEMBERS, around the price range of Rs.11.99-12.10. After recommendation, the scrip touched a high of Rs.12.20 intra-day. The stock seems to have given both price and volume break out today. The next target according to my analysis should be Rs.16.50-17. Meanwhile, there were media report, this month that Suzlon Energy is planning to set up 2,000MW wind energy projects in Madhya Pradesh. The company will also establish supporting manufacturing facilities in the state for this purpose. Very recently, Suzlon Energy Ltd also announced that it has bagged contracts for wind power projects having total capacity of 150 MW, estimated to be worth about Rs.1,200 crore. The orders have been received from various entities including Malpani Group, Rajasthan Gum Group, KRBL, Sterling Agro Group and an assortment of Small and Medium Enterprises. There are repeat orders from existing customers including Malpani Group, Rajasthan Gum Group, KRBL Group, and Sterling Agro Group. Suzlon Group is the world's fifth largest wind turbine maker and has installed generation capacity of over 24,700 MW. Suzlon Energy Ltd is planing to list its German subsidiary Senvion on the London Stock Exchange through an initial public offer which is likely to garner close to Rs.7,000 crore. At the end of March this year, Suzlon Group's order book was worth about $7.2 billion (~Rs.43, 000 crore). The company is currently working on its business revival strategy and plans to raise about Rs.1,000 crore from sale of non-core assets in the current financial year (2014-15). The company is coming up with September, quarter results on 31st October, 2014.

Resurgere Mines and Minerals Ltd today hit another buyer freeze at Rs.1,72, before closing at Rs.1.71 in the BSE. The company is hoping to get approval of one of its mines in Maharashtra, after the new government has taken over. 

Pipavav Defence Ltd today hit the upper circuits at Rs.43.05 on the news that the government of India on Saturday cleared defence projects worth Rs.80,000 crore. Pipavav Defence and Offshore Engineering Company, a beneficiary from defence project announcements has put in bids of Rs.30,000 crore for new projects, as they claim to be well poised to secure and execute large government contracts, says company Chairman Nikhil Gandhi in an interview with a private news channel. 
Premier Explosives Ltd recommended at Rs.30.90 on Thursday, April 10, 2008, made a lifetime high of Rs.246.35 today. Congratulations to all bought the share and is still holding.