Adani Enterprises Ltd: Buy

CMP: Rs.77

T: Rs.87

SL: Rs.74 (no need to keep but still giving)

Triggers: 

• Adani Enterprises is in the process of setting up a copper smelter project with a capacity of one million tonnes per annum at an investment of Rs.10,000 crore at Adani Port Special Economic Zone (APSEZ) in Gujarat. The project includes copper smelter, sulphuric acid plant, copper refinery, continuous cast copper wire rod plant, precious metal recovery plant, phosphoric acid plant, aluminium fluoride plant among others.
• Maharashtra, has lost 500 big and small industrial consumers due to high power tariffs over the past few years. The figures were released in a report submitted by the Maharashtra State Electricity Distribution Company Limited (MahaDiscom) to the Maharashtra Electricity Regulatory Commission (MERC). The report proposes from 19% to 27% increases in power tariff for industrial, residential, farming consumers in the next four years, ending 2019-2020. An independent analysis of the proposal shows that consumers such as Raymonds, Bharat Forge and the Railways have, along with 500 industrial users, shifted to an ‘open grid’ access beginning 2012. Such a grid allows consumers with a large use of power — 1 megawatt (1 MW) and above — to buy cheaper power from other companies or suppliers in the market. This came after the Central government amended the Electricity Act, 2003 to allow a smooth transition for industrial users. Major players in the open grid are Mittal Processor Limited, Global Energy Private Limited and Adani Enterprises Limited. A positive development for the company. 

  

  Photo: Business Standard

• Giving much relief to the debt-laden companies, especially those form the infrastructure, power and metals and PSU banking sectors, the Reserve Bank of India (RBI) has announced a scheme for sustainable structuring of stressed assets (S4A) for resolution of bad loans of large projects.  This development would not only strengthen the lenders' ability to deal with stressed assets, but would also put real assets back on track, benefitting both banks and the promoters of troubled entities. RBI said under the scheme, a portion of the debt will be converted into equity or other instruments under the supervision of IBA's overseeing committee. Basically, the scheme will cover those projects which have started commercial operations and have outstanding loans of over Rs 500 crore. This time RBI wants banks to segregate stressed loans into 'sustainable' and 'unsustainable' segments. Companies such as Jaypee Infratech, Adani Enterprises Ltd, etc, may get the benefit of RBI's sustainable structuring of stressed assets scheme.
• Analysts said the new scheme was better than previous such attempts at tackling bad loans. “On the one hand, RBI has allowed leveraged companies to have a comfortable capital position to service debt and on the other, banks do not have to necessarily take significant provisions to effect this change. We still need to see how many projects meet the conditions but this appears to be a major positive step for banks to reduce their gross non-performing loans,” said analysts at Kotak Institutional Equities.Experts said the schemes will particularly be beneficial for companies with operating assets and a high portion of sustainable loans.
• Adani Enterprises Ltd (AEL), flagship company of the $10 billion conglomerate Adani Group, registered a net profit of Rs.65 crore for the quarter ended March 31, 2016 where as the same was at Rs.72.80 crore for the quarter ended March 31, 2015, AEL said in its filing on BSE.
  The company's total standalone income for Q4 of fiscal 2015-16 was Rs.2,249.82 crore whereas the same was at Rs.3,597.23 crore for the quarter ended March 31, 2015.
  According to AEL, in view of the Gujarat High Court sanctioning the de-merger on May 07, 2015 of its port undertaking, power undertaking and transmission undertaking comprising the undertaking, businesses, activities, operations, assets (movable and immovable) and liabilities of AEL and transfer of the same to APSEZL, APL and ATL, respectively, the results of the fourth quarter and fiscal ending March 31, 2016 were not comparable with the previous period or year numbers.
  Commenting on the results, Gautam Adani, Chairman Adani Group, said: "Our portfolio of businesses across Mining, Renewable energy and Agro vertical benefits from vastly improved macro-economic and regulatory environment. Encouraging policy initiatives particularly in renewable space, enables us to explore new business opportunities in the sector."
• Among its various businesses, AEL's mine development and operations (MDO) business at Parsa Kente saw the company extracting and supplying washed coal of 5.5 MMT to RRVUNL in FY'16 as compared to 3 MMT in FY'15.
• Under its city gas distribution business, the project implementation work at seven cities under joint venture with Indian Oil Corporation Limited is progressing as per the schedule, the company stated.
• AEL recently launched India's first Diabetic care oil under brand "VIVO" for specific target segment under its agro business.

Axis Bank Ltd: Buy

CMP: Rs.517

Triggers: 

• Axis Bank has increased its stake in Max Life Insurance to 5.99 per cent. Max Financial Services recently informed the exchanges that it sold 3.99% stake for Rs.76.56 crore to the bank. The deal values the insurance insurance company at around Rs.1,918 crore approximately.
• Axis Bank Ltd holds the key for the success of the HDFC Life and Max Life merger. With sales through Axis accounting for more than half of Max Life's revenue, the entire valuation is dependent on Axis continuing with the distribution deal. 
• Recently, HDFC Life and Max Life declared their intention to merge their businesses to create the country's biggest private sector insurer amid 'challenges' which the two companies look to overcome with a three-decade old relationship between Deepak Parekh and Max Group founder Analjit Singh behind them. A challenge before Max would be to get Axis Bank on board which is the corporate agent for Max Life and generates close to 60% policy premium income.
• Kesoram Industries Ltd has informed on 17 June, 2016 that Brickwork Ratings has assigned A+ rating for its Rs. 2,200 crore long-term loan with Axis Bank.

JSW Energy Ltd: Buy

CMP: Rs.81.50

JSW Energy Ltd’s net profit for the March, 2016 quarter remained almost flat at Rs.305 crore against Rs 325 crore during the corresponding quarter of the previous year. The results were a little timid due to higher interest and depreciation expense incurred after the acquisition of hydro assets in Himachal Pradesh.

The total income from operations rose by 22% to Rs.2,681 crore, against Rs.2,190 crore, driven largely by increased generation from the thermal plants and was supplemented by additional generation from the hydro plants. 

JSW energy is an India based private power generation company. The company’s business segment includes power generation, power trading, power transmission, mining and equipment manufacturing. 

Recently there were media reports that, the company is shortlisted to supply electricity to a Karnataka utility through a power purchase agreement (PPA). However, in a filing to BSE, the firm clarified that the bid requires several approvals for it to be finally clinched.

The stock was first recommended in this blog at around Rs.67-68. You can still take fresh positions in the counter, for short term targets of Rs.87-91. SL: Rs.75.

JSW Energy Ltd: Buy

CMP: Rs.81.50

JSW Energy Ltd’s net profit for the March, 2016 quarter remained almost flat at Rs.305 crore against Rs 325 crore during the corresponding quarter of the previous year. The results were a little timid due to higher interest and depreciation expense incurred after the acquisition of hydro assets in Himachal Pradesh.

The total income from operations rose by 22% to Rs.2,681 crore, against Rs.2,190 crore, driven largely by increased generation from the thermal plants and was supplemented by additional generation from the hydro plants. 

JSW energy is an India based private power generation company. The company’s business segment includes power generation, power trading, power transmission, mining and equipment manufacturing. 

Recently there were media reports that, the company is shortlisted to supply electricity to a Karnataka utility through a power purchase agreement (PPA). However, in a filing to BSE, the firm clarified that the bid requires several approvals for it to be finally clinched.

The stock was first recommended in this blog at around Rs.67-68. You can still take fresh positions in the counter, for short term targets of Rs.87-91. SL: Rs.75.

DO YOU KNOW?

1. Merger talks between Reliance Communications (R-Com) and

Photo: Slide Share

Aircel will be extended by a couple of weeks, as both parties are thrashing out the final contours of the deal with their bankers, reported Business Standard. On 22 May, both had decided to extend exclusive merger talks with each other by a month, a deadline that will expire on Wednesday. Lenders are putting their weight behind the merger and the State Bank of India is leading this consortium of lenders. Read more .

On 8 June, Mint had reported that Reliance Communications Ltd (R-Com) and Aircel Ltd are likely to complete their merger by the end of June. The merged entity, which will be India’s third-largest telecom firm by subscribers, will save about Rs.2,500 crore a year  through synergies between the two operations. The combined entity is expected to have Ebitda (earnings before interest, tax, depreciation and amortization) of Rs.5,000-6,000 crore in the next financial year with a revenue of Rs.25,000 crore.

The scrip of Reliance Communications Ltd, ended the day at Rs.48.50 in the BSE after touching an intra-day high of Rs.49.80.

2. BREXIT: The whole thing is a bit of a sham, said the financial portal, Market Watch on 21 June, 2016..

The British government and political classes are overwhelmingly in favor of the European Union. So, crucially, is the country’s powerful civil service. British businesses are closely intertwined with the European single market. Attempts to disentangle them could lead to chaos. And the British economy is propped up by huge inflows of foreign capital, buoying everything from industry to London house prices.

Furthermore, Thursday’s referendum has no constitutional standing whatsoever.

Great Britain has no written constitution. By convention, theory and practice, sovereignty actually lies in the parliamentary House of Commons. Britain could only leave the EU by an act of Parliament. And it would be entirely up to Parliament to craft the terms of Brexit, and the shape of whatever followed. 

Therefore, for the time being you can stop fearing thinking about the possible negative outcomes from the BREXIT. 

3. The Economic Times reported on 13 June, 2016 that Raos, the promoter family of large infrastructure company Lanco, will have to become minority shareholders and the company will have to go through extensive restructuring if it has to stay afloat. This is part of a reorganisation plan that the Lanco management discussed with banks on Friday evening. 

Photo: Infogr.am

The promoters holding in the company stood at 70.55 % while Institutions and Non-Institutions held 4.97 % and 24.48 % respectively.

Lanco group, saddled with debt of a little over Rs 41,000 crore, may receive fresh loans of Rs 4,000 crore if it executes the new restructuring proposal. According to the terms laid down by lenders, Lanco InfratechBSE 0.00 % will remain as the listed holding company, while two new entities will be formed — which will house power projects, EPC — while remaining businesses like gas and roads projects will remain as its subsidiaries.

Reports indicated that Tata Power Company, JSW Energy and Piramal Enterprises are among those who are interested in buying Lanco Group's power assets. A meeting of the joint lenders forum is scheduled to meet in the next few days to take a decision on the sale of the power business of Lanco Group. As per reports, Lanco Group, has power assets of about 8,000 megawatts (MW), and is seeking about Rs.4.50 crore per MW while buyers are bidding at about Rs 3 crore per MW. Lanco Group's power business' enterprise value is pegged at Rs.45000 crore inclusive of debt, reports suggested.

Lanco Infratech reported consolidated net loss of Rs.200.71 crore in Q4 March 2016, as compared to the net loss of Rs.586.29 crore in Q4 March 2015. Net sales fell marginally by 7.4% to Rs.2044.74 crore in Q4 March 2016 over Q4 March 2015.

Lanco Infratech is one of the India's largest integrated infrastructure developers in India. The company has subsidiaries and divisions across a synergistic span of 5 business verticals viz. engineering, procurement and construction (EPC), power, natural resources, solar and infrastructure.

This along with the new RBI rules, will  again help investors gravitate towards the scrip of Lanco Infratech Ltd (Rs.4.87). 

4. Fixit: The First Post wrote on 21 June, 2016: 

Photo: EDBUS

When faced with the prospect of a loss of external confidence in India’s growth story, governments tend to become reformist: this happened in 1991, it happened in the Vajpayee’s government after the dotcom bust and US sanctions post-Pokharan 2, and it is happening now. External triggers help focus governments on the need for change.

However, the more important reason is revival of growth or Fixit - fixing the broken investment engine. FDI is the one investment engine available to revive the growth cycle, which has been ruined by the UPA that gave crony loans and saddled banks with impossible burdens of bad loans. With both India Inc and banks reeling under the pressure of bad loans, FDI is the obvious pick-me-up.

Of the four engines available to push up growth – government spending, private consumption, private investment and exports – only two are firing (the first two). Corporate investment is comatose, and exports are in steep decline as the external environment is weak.

FDI liberalisation will come as a booster dose to basic push being given by government spending to revive the investment cycle.

Meanwhile, in an ambitious drive to step up infrastructure investment and speed up execution, Prime Minister Narendra Modi has set targets for key ministries that have to be delivered by end of the financial year to effect visible change on ground. "Targets for infrastructure sectors have been approved by the Prime Minister and communicated to ministries. These will now be regularly monitored by NITI Aayog and reviewed by the Prime Minister himself on a quarterly basis," a government official told ET. 

Therefore, sit back and enjoy the rally in the infrastructure stocks as it unfurls, in the coming days; since the government is likely to pursue a loose monetary policy following the Rexit. 

The RBI Shakes the Corporate Tree to Make it Debt Free

Photo: The Economic Times

Mergers and acquisitions are one of the sexiest things in business world, but it has a soft underbelly which is always fraught with risks.

After years of furious expansions including leveraged buyouts of cheap foreign assets, India Inc is now not only slowing down but is also in a debt spiral; displaying leveraged balance sheets which showed a quantum surge in threat - ratio, in their own books and businesses.  

A whole catalogue of reasons played havoc with corporate blueprints: Business and commodity cycle downturn, prolonged up cycle in interest rates, export markets drying up, expansion plans derailed due to environmental and forest clearances, consumption slowdown, judicial activism, witch hunt by the 5Cs — CVC, CAG, CBI, CIC and courts, policy paralysis et al.

Very recently, India Ratings said in a report that almost half of the top 500 corporate borrowers in the country will find it difficult to refinance some of their loans. These borrowers have taken loans amounting to Rs.11.8 lakh crore, of which Rs.5.1 lakh crore is already stressed while another Rs.6.7 lakh crore faces elevated risk of refinancing.

However, Reserve Bank of India recently came out with a proposal (at par with international standards), which gave high flexibility to banks to bail out companies with high debt. The RBI decided to shake the "Debt Tree", to give the ailing companies of India Inc, one more chance to become debt free..

This innovative scheme, for debt-ridden companies, will spell relief in terms of ease of loan repayment period. The scheme will cover operational projects with loans of Rs.500 crore. 

The revised norms are in line with the measures being announced by RBI and the government to reduce the NPA problem. The new guidelines are more beneficial for resolution of those cases where a lot of debt has already been provided for...

Under the scheme, (lending) banks can split the loans of struggling firms into sustainable and unsustainable debt. 

Sustainable debt refers to loans that can be serviced with a firm's existing cash flow. Banks have been given the option of converting the unsustainable debt, which cannot be serviced with cash flow, into equity. 

Apart from most of the PSBs, the biggest gainers will be the companies like Jaiprakash Associates Ltd (Rs.8), Reliance Communications Ltd (Rs.48.50), Vedanta Ltd (Rs.125.50), GMR Infrastructure Ltd (Rs.12.79), Lanco Infratech Ltd (4.87), and so on...

Meanwhile, there were some media reports a couple of months back, that the asset sales along with reorganization efforts have yielded some relief for the Jaypee Group, as the Reserve Bank of India (RBI) has allowed banks with exposure to the (Jaypee) Group to classify the loans as standard assets for the January-March quarter. 

It is pertinent to mention here that both Jaiprakash Associates Ltd and Jaypee Infratech Ltd were set to be classified as non-performing assets (NPAs) during the March quarter, after the RBI’s stringent asset quality review in December. However, the Economic Times, reported that the banking regulator had reduced the burden of provisioning on banks by removing some names from the list of stressed accounts, including Jaiprakash Associates Ltd. “The group has made some additional efforts to ensure that repayment happens as per schedule. This allows us to give them some more time as a standard account,” said a senior official at a public sector bank that has exposure to at least two of the group’s companies.

In March 31, in one of the biggest deals in the domestic cement industry, Jaypee Group announced part sale of its cement business to Kumarmangalam Birla-led Ultratech for Rs.15,900 crore. It is encouraging to note that in FY16, the group managed to pare down debt by a whooping, Rs.25,100 crore. Jaiprakash Associates Ltd sold the Jaypee Group headquarters, commercial space and 250 acres of land in its Noida township project for Rs.2,700 crore to Axis Bank.

Moreover, better-than-expected earnings, strong economic data and lesser obstacles on the global front, will continue to trigger healthy domestic inflows, fueling more retail participation in the coming days with Small-cap and Mid-cap Indices outshining the Sensex/Nifty.

Reserve Bank of India Governor Raghuram Rajan’s remark that, in the land of the blind, the one-eyed man is king, has underlined the reality that the Indian economy is recovering fast, and is robust in the midst of a global downturn.

Bibliography: The Economic Times, Live Mint, The Daily Pioneer and The Hindu Business Line. 

Scheme for Sustainable Structuring of Stressed Assets

Photo: Buzz

Very Recently, the RBI has allowed lenders to carve out the "unsustainable" portion of their loans to troubled corporates and convert them into equity. The new restructuring scheme will help public sector banks in cleaning up large chunks of their bad loans, which amount to Rs 4.76 lakh crore. The extent of loans which cannot be supported by cash flows are termed unsustainable. This move will also aid the companies, which are reeling with large debts. 

What separates this scheme from earlier steps is that instead of leaving it to banks, an overseeing committee of eminent persons will be constituted by the Indian Banks Association in consultation with the RBI to identify loans eligible for restructuring. Banks will be able to upgrade bad loans through this exercise. But they may have to take a haircut as the market value of the stressed company may be less than the value of debt that is converted.

Photo: Live Mint

Once the unsustainable debt is converted to equity, banks can sell this stake to a new owner who will have the advantage of getting to run the business with a more manageable debt. Also, there has been talk of the government helping to set up a fund to pick up equity in stressed companies. It is not clear whether there are any plans for the equity created following the conversion to be sold to such a fund.

Thus, the RBI adopted international best practices in distinguishing between maleficent promoters and a business that has gone bad and can be brought back on track. The biggest beneficiaries of these would be banks which can now clean up their books quickly and move forward.

"Resolution of large accounts facing financial difficulties may require coordinated restructuring which often involves a substantial write-down of debt or large provisions. Often, such high write-downs act as a disincentive to lenders," the RBI said in a statement.

"After due consultation with lenders, RBI has formulated the 'Scheme for Sustainable Structuring of Stressed Assets' (S4A) as an optional framework for the resolution of large stressed accounts. The S4A envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around," said RBI.

The Reserve Bank of India (RBI) allowing banks to conduct deep restructuring of large accounts to revive projects that can be saved, effectively has thrown a lifeline to promoters who risked losing their companies.

This very tactical move by the RBI came at a time when Banks are struggling to dispose of many stressed assets they have already acquired and have no clue what to do next. 

According to this scheme, titled 'Scheme for Sustainable Structuring of Stressed Assets', accounts that are worth Rs.500 crore or more and have already started commercial operations will be eligible for the new recast scheme. Only those promoters who have shown no malfeasance in their actions while running the show can ask for the permission to continue with the management, even if they get reduced to minority shareholders in the process.

Some of the completed projects in these sectors were hit by external factors. Deep restructuring is done to ensure long-term sustenance. The strategic debt restructuring (SDR) scheme was of limited use in such cases. Under it, banks could convert debt into equity and take control of a company and sell off the assets. However, if they were not able to dispose of the assets within 18 months, the lenders had to incur heavy provisions.

In about a dozen companies where banks invoked SDR, they have not found a single buyer, defeating the entire purpose of loan recovery and at the cost of running down the company, which often times could be just victims of economic downturn.

Stating the 18-month timeframe of SDR was not enough for making full provisions on large loans, banks had asked for more time, necessitating the new scheme, RBI said. The new scheme gives a second chance to the existing promoters, and helps banks restructure loans at a faster pace to protect the value of the assets.

Under the new scheme proposed by the regulator, lenders will first segregate the existing debt of a company into "sustainable" (the share which can be serviced by the company even if cash flow remains the same as now) and "unsustainable".

The restructuring exercise involves the unsustainable portion of the debt, which at the time of such recast should not be more than 50 per cent of the total debt.

As part of the resolution mechanism of the new plan, the unsustainable portion of the debt should be converted into equity/redeemable cumulative optionally convertible preference shares. Banks should not grant any fresh moratorium on interest or principal repayment, or reduction of interest rate for servicing of the sustainable debt portion.

Both the promoters and the banks will have to take equal haircut in the process.

If there is no change in the existing management, the banks can also convert a portion of the unsustainable debt into coupon yielding debt instrument.

Equity shares thus acquired should be marked to market on a daily, or at least on a weekly basis for listed firms. In case the company is not listed, banks should take the lowest value after working out a prescribed rule the central bank outlined.

The upside for the banks would be primarily their equity holdings if the restructured entity turns around.

This scheme, will help the debt ridden companies not only to improve their cash flows, but it will also give them a cushion against, distress selling of assets. 

Just imagine what will happen, if a company instead of selling an asset at a distress price, goes for churning money out of, albeit with the aid of the banks (or the lenders). Will it not be a GAME - CHANGER for those debt laden companies? It is precisely one of the main reasons, due to which the stocks of debt-ridden companies are moving-up, since the last few days; apart from other factors. 

Therefore, the companies like Lanco Infratech Ltd (Rs.4.80), Gammon Infrastructure Ltd (Rs.6), Jaiprakash Associates Ltd (Rs.7.60), Reliance Communications Ltd (Rs.49), etc, will. be one of the biggest beneficiaries.

Source: Edited excerpts from The Times of India and Business Standard

Asset sales help Jaypee to bring down debt

June 20, 2016: Some of India's top business houses were termed "House of Debt" last year as they went on a massive expansion and diversification spree fuelled mainly by debt. As the economy slowed down, some of these groups failed to repay loans and were forced by banks to sell assets. We look at how these groups performed during the fiscal ending March this year and whether they managed to save themselves or sunk deeper into crisis.

For the promoters of Jaypee group, the aggressive expansion during the last decade across the infrastructure vertical has come with a steep price. The Delhi-based group had to sell profitable assets to remain afloat even as banks, alarmed by its defaults, are pressurising the group to put more assets on the block.

A senior banker with Mumbai-based public sector lender said the intent of Jaypee group to reduce debt level is genuine as evident from the sale of operating key operating assets like power plants and cement business. "But still more has to be done to bring down debt level to sustainable level. For this, the group is looking to monetize or swap its real estate along the Delhi-Agra expressway. While it is a feasible, the valuation of such assets holds key for effective deal making, " the official said asking not to be quoted. Bankers also say when compared to other "house of debt" groups, Jaypee is sincere in bringing down its debt levels.

But that sincerity is due to a reason. During fiscal 2016 results statement, flagship Jaiprakash Associates revealed that it has defaulted to bank loans, interest and statutory payments of Rs.4,539 crore. The defaults were mainly due to a massive loss of Rs.3,200 crore on revenues of Rs.17,181 crore in the fiscal 2016 and analysts said it's the Rs.7,500 crore odd finance costs, or almost Rs 21 crore a day, which is draining company's funds. The stock markets also punished the group as the market value of the group declined 72 per cent as on March 2015 to Rs.1,670 crore as on June this year.

Photo: The Times of India

Analysts said the group wanted to grow too fast with diversification in real estate and infrastructure sector without worrying about any slowdown. Two of its marquee projects - the Delhi-Agra expressway and Formula 1 stadium turned out to be white elephants with zero visibility of earnings. To make matters worse, Axis Bank took over the group's headquarters in Delhi as the group failed to repay loans.

For bankers the biggest worry is that the company's revenues and profits are falling faster than the debt obligations despite recent asset sell-off. For example, in FY16 Jaypee consolidated revenue was down 14 per cent year-on-year while operating profit was down 32.4 per cent. In comparison, company's consolidated debt declined by only 5 per cent last fiscal while interest obligations were up 4 per cent in the same period. The result, Jaypee's net debt to equity on consolidated basis inched-up to 4.4 from 4.0 a year ago and its interest coverage ratio declined to 0.6, making it virtually impossible to service debt with its internal accruals.

Analysts are not surprised. "This is what happens in a fire sale. You are forced to sell the most liquid and cash-rich assets and you are left assets with few buyers. This is what is happening with Jaiprakash Associates pushing the company even deeper into a debt trap," says G Chokkalingam, founder & CEO Equinomics Research & Advisory.

Jaypee is forced to divest its cash cement and hydro-power assets and there are few takers for its cash guzzling real estate, infrastructure projects or hospitality projects. The salvation for Jaypee lies in a secular growth revival in economy lifting the demand and valuation of its struggling infrastructure, power, hospitality and real estate business, analysts said.

Future after asset sales

Analysts say Jaypee has taken multiple steps to improve its financial metrics. In February this year, Jaypee sold its cement unit with a capacity of 17.2 mtpa to Aditya Birla group's Ultratech at an enterprise value of Rs.15,900 crore. The deal is not closed yet. Its subsidiary, Jaiprakash Power sold its hydro power projects to JSW Energy for Rs.9,300 crore. In September last year, the company sold its Bina power project to JSW for Rs.3,500 crore. It had sold its 74 per cent stake in Bokaro Cement to Dalmia for Rs.668 crore in November 2014 and its cement grinding unit in Haryana to Shree Cement in April 2015 for Rs.358 crore. These asset sales will help the group to bring down debt significantly and an investor could see the improvement in its financials by this fiscal end, said a Mumbai analyst.

Post the cement sale, Jaypee will have 10.6 mtpa of cement capacity in Madhya Pradesh, Uttar Pradesh, Andhra Pradesh and Karnataka, a hotel division with five luxury hotels, real estate division with land around Yamuna Expressway. 

"We have time and again shown our will to take proactive steps to tide over these turbulent times caused by the economic slowdown," Jaypee Chairman Manoj Gaur said on April 1 this year soon after signing the deal with the Birlas. 

Jaypee had blamed worsening performance of core sectors and a shaky economy for the fall in financial metrics. But despite assets sales, it has a long road ahead to return to black.

Courtesy: The Business Standard

Today's Recommendations...

1. Buy J P Associates Ltd at Rs.7.57, T: Rs.12-14, SL: Rs.6.4. The company should be one of the biggest beneficiaries, if the banks gives go ahead to convert a part of their debts into equities. Moreover, the company is in the process of hiring consultants, for a quick turnaround. As a strategy to shed its debts, the company has increased its focus on high realization markets and has withdrawn from certain markets of Haryana and Delhi where due to low prices and high freights (long lead markets) the net realization was very low and operations unviable.

Photo: The Times of India

Besides, in another significant developemnt, Jaiprakash Associates Ltd and Jaypee Infra are offering land parcels of around 2,200 acres to banks in a bid to buy peace with lenders and settle most of its loans.Banks have shown willingness to take over land parcels to avoid putting a non-performing asset (NPA) tag on the two Jaypee group companies. No project has been launched on these lands so far.

2. Buy Lanco Infrastructure Ltd at Rs.5.88, T: Rs.9, SL: Rs.5.40 (strict). The company is slowly coming into black, after lot of debt restructuring. 

3. Unitech Ltd has nearly touched my second target of Rs.6 (Rs.5.99 intra-day in BSE), therefore, book some profits.

4. Keep accumulating Reliance Communications Ltd (Rs.47.20) and hold for some time, to get some very good returns in the short term (less than 90 days). This is a no-brainer - you need to buy and forget for some time, just like your Fixed Deposits. 

5. Gammon Industries Ltd (Rs.14.89) hit the 20% upper circuits today. And Gammon Infrastructure Ltd (Rs.5.47) is up more than 6%. The infrastructure and real estate stocks should do well, after the news of Dr.Rajan's exit, as the government of India is likely to stop INFLATION TARGETING and focus on GROWTH. 

The Nifty is now as 8184, up ~14%. But I hope by the end of the day, it should close above 8200, with a spurt in the Infrastructure stocks, because of the NDA government now focusing on growth. Which means the interest rates, will now have a more pronounced downward trajectory, compromising a part of the inflation.

Real estate stocks rally on REIT buzz, Unitech Ltd, the biggest gainer

The rally in real estate stocks — driven by hopes of relaxed real

Photo: DNA India

estate investment trust (REIT) norms to be considered by markets regulator Sebi on Friday — saw Unitech shares jumping 15.75%, followed by HDIL (7.15%), Oberoi Realty (5.91%) and Sobha (4.22 %). 

All the four stocks were mentioned in this blog, the last week and Unitech Ltd, as expected gave one of the finest returns. 

The PTI reported a few days back that: Securities and Exchange Board of India (SEBI) is likely to consider a slew of norms pertaining to the real estate sector.  The regulator could consider making REITs "more attractive" to investors by permitting large investments from such trusts in under-construction asset. This has led to renewed optimism in the shares of real estate space. 

Now there is another counter, which did not rally much on last Friday and has the potential to cross Rs.10-12, in the short term, because of RBI's new debt restructuring plan. The CMP of the share is Rs.7.70 in NSE and Rs.7.73 in the BSE. The name of the scrip will be mentioned tomorrow in this blog. 

Regarding managing of corporate debts, the DNA India wrote on 27 May, 2016: 

It comes as a surprise that big corporations are finding ways to deal with debt and the banks are encouraging them to go ahead. As reported in this paper on Thursday, the economic research department of the State Bank of India has found that some of the big corporations are setting aside part of their assets to deal with debt. For example, Anil Ambani’s ADAG has set aside assets worth Rs.59,761 crore to manage a debt of Rs.1,24,956 crore.

That is a little less than 50% of the total debt. Reducing debt will improve not only the balance sheet of the corporation, but also that of the banks with their stressed assets. The banks, ICICI’s Chanda Kochhar has revealed in a media interaction, are encouraging corporations to sell off either core or non-core assets to bring down the debt burden.

Therefore, I feel that: as long as any company is able to service its debts, from internal accruals, I feel it is safe to invest in those companies, provided their financials are tracked regularly.  

In a significant development, in the domestic arena, the data released on last Thursday showed that India's CAD narrowed to $300 million (0.1% of GDP) in the March quarter (Q4) from $7.1 billion in the preceding quarter and $700 million in the fourth quarter of 2014-15.

The sharp decline in the deficit was attributed to a correction in trade deficit that shrank to $24.8 billion in Q4 from $34 billion in the December quarter and $31.6 billion in the March 2015 quarter. 

With inflation still below the RBI's comfort zone and the banks gearing up to take advantage of the new RBI guidelines, to clean the NPA, we could look forward for softer interest rates for some more time. Therefore, in such a situation, the companies, which are debt ridden and whose share prices were beaten down during the last few months, offer a good choice for punters, to rake in short term gains.

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Photo: The Hindu

The euphoria which fueled a Market Rally back in 2013-2014 on hope that Prime Minster Narendra Modi would boost growth, revive the investment cycle and prop up earnings growth, helped push earnings multiples for some of the mid and small cap stocks to reach record highs. 

However, some of these shares lost steam slowly in the past 12 months. But they are still good buying opportunity on dips, feel experts. Investors have to be selective before putting their hard-earned money in these stocks. 

One such stock is Reliance Communications Ltd, which looks to cut down the debts by 75% in the next few months. 

"Integration of MTS business with RCom is on track. We expect to complete the integration in August. We expect to make announcement with respect to Aircel merger anytime in June. Once we complete the Aircel transaction, we will go for the tower deal," RCom CEO for consumer business Gurdeep Singh said during a conference call on Tuesday.

"With completion of these deals, we expect RCom's debt to reduce by 75 per cent."

RCom's net debt at the end of March 2016 stood at Rs 41,362.1 crore.

RCom and Aircel have extended discussion period for a possible merger of the two till June 22. Mr Singh said discussions are in advanced stages.

Reliance Communications Ltd (R-Com) and Aircel Ltd are likely to complete the merger of their wireless operations by the end of the month, a top Reliance Group official said last week. Talks between RCom and Aircel, if successful, would lead to a combined entity holding 19.3% of the total spectrum allocated to the industry - the highest by an entity. .

On a lighter note: Outlook's Essar leaks show who controls the vital pillars of Indian democracy.. 

The two brothers, Mukesh and Anil (Ambani) have already tied up in the telecom space.

But most of the investors are now confused, because some of the rating agencies have still not changed their negative outlook on Reliance Communications Ltd, even though it has taken pro-active steps to push-up its fundamentals. 

And as usual some financial analysts who fail to understand the potential of this deal, continue to peddle their "Avoid Jargon". This has led to many Investors losing patience and selling the scrip of Reliance Communications Ltd at a distressed price, like they did in case of Vedanta Ltd (Rs.122.55), Hindalco Ltd (Rs.118.80), BHEL (Rs122.35), JSW Energy Ltd (Rs.84.10) and so on; only to repent later. 

Most Investors have a habit of believing more or drinking a bottle of cold drink more when they see suited-booted persons sitting in TV-channels and shooting their trading ideas. This is the irony!! 

Meanwhile, after R-Com and Aircel had begun discussions about six months ago, the former's shares have fallen by more 45% since then. 

This again gives the investors to zoom-in, in this shares, especially when the Telecom Commission has lowered the annual spectrum usage fee for telcos to 3% of revenue for all bands in the upcoming auction slated for July, and brought the 4G airwaves purchased in 2010 under the ambit of a formula to calculate the overall fee for each carrier. 

The Business Today writes, on 3 July, 2016 edition: 

It is a one-stop solution the government seems to have found to preclude allegations of corruption in the allocation of natural resources - hold an auction. From oil and gas blocks to coal blocks to spectrum bandwidth, auctions have become the preferred mode of sale to both ensure transparency and generate substantial revenue. The civil aviation ministry even considered auctioning unused and future bilateral rights (rights to fly to foreign destinations negotiated with destination countries), though the proposal was eventually stalled due to internal differences over its advisability. The reverse auction, where the government is the buyer of goods or services, has also become an effective means of driving down prices, especially in the case of solar tariffs.

Last year alone, a total of 55 coal mines were auctioned over three rounds, of which 28 went to private companies and 27 to Central and state PSUs. 3G and broadband wireless spectrum was auctioned too, earning the government over Rs.1.1 lakh crore. This year, there are expectations of another Rs 70,000 crore from the auction of 67 small oil and gas fields, which began in late May. (So far, under the New Exploration Licensing Policy or NELP, formulated in 1998, over 250 hydrocarbon blocks have been auctioned across nine rounds.)

Anyway, in the latest move to help banks deal with their stressed assets, RBI has issued guidelines to help banks identify opportunities to convert up to half of their non-performing debt positions in indebted companies into equity, should the borrowers meet certain criteria that would determine if their debt is sustainable in the long-term. Under RBI's ‘Scheme for Sustainable Structuring of Stressed Assets,’ the conversion into equity or quasi-equity instruments could provide an incentive to lenders to share in the profits should the indebted company turn around, according to an RBI note.

So what types of bad debt situations are eligible for this provision? Stressed debt related to all commercially operational entities that owe more than Rs.500 crore to lenders, including interest, would qualify. Additionally, their debt should also meet RBI’s test of sustainability which includes.

Once the sustainable debt has been worked out, the banks and borrowing companies can evaluate various recapitalisation scenarios with the help of an external agency. The equity portion of the deal will have to be "marked to market," or deemed at fair value, according to the RBI note.

Banks would also have to follow certain terms and conditions that will govern the sustainable debt portion -- such as one that would prohibit them from extending the repayment schedule of the loans, or otherwise amending loan terms, according to the note. Other caveats and conditions can be found here.

To be sure, banks have had the option to convert their debt into equity in the past, but the procedures have been somewhat onerous in India that would allow banks to take “haircuts,” where a lender agrees to a loan repayment less than what is owed.


The latest move is good news for banks as they have another option and framework at hand to resolve their bad debt mess, according to Srikanth Vadlamani, a senior analyst with Moody’s Investors Service. 

Thus, Dr.Raghuram Rajan's exit, could bring in a rally in the shares of companies, who have been sitting on the piles of debts, because it could rekindle the hopes of a massive interest rate cuts; if the INR remains stable. This gives legs to the shares like Reliance Communications Ltd (Rs.47.20). 

I will recommend another, a very well known share tomorrow in this blog (anytime after 10 am in the morning), which could get benefited both by Dr.Rajan's exit and also due to RBI's latest move, regarding restructuring of the debt portfolios. 

Therefore, buy the shares of Reliance Communications Ltd at the CMP of Rs.47.20, for a target of Rs.72-plus in some months. Just buy and forget!! 

RCom readies blueprint to revive telecom fortunes

[Editor: One thing I would like to mention here: don't depend on rating agencies and brokerage houses's "MOTIVATED UPGRADES", for your stock picking decisions!! You must remember, how some years back, Kotak Securities downgraded Reliance Industries Ltd only to see a spurt in the stock price. CLSA downgraded Vedanta Ltd, the stock is moving up everyday. Lot of downgrades were seen in Unitech Ltd (Rs.5.65), but the stock gave more than 50% return in the last few days. Recently, JSW Energy Ltd was seen downgraded to hold from buy, the stock touched Rs.85.95 yesterday. Also, how can we forget a series of downgrades by rating agencies on BHEL, the stock is now up more than 30%, from those prices. 

And at the end S P Tulsiyan said, after the results of Punjab National Bank Ltd, that he would not touch the PSBs in the next two quarters; only to recommend a buy on SBI a couple of weeks later - - pointing out how fickle are their decisions or how treacherous they can be while recommending stocks to the gullible investors/traders. 

Anyway, Reliance Communications Ltd has repeatedly said that it expects to cut down debt by 75% through merger of MTS, Aircel and sales of mobile towers. So, I feel there is no reason to be apprehensive about the company. Therefore, I again reiterate a buy on the shares of reliance communications Ltd at the CMP of Rs.47.20 for a target of Rs.72. This stock is to be bought and kept holding for some days; like your fixed deposits to get some wonderful returns. ]

MUMBAI, JUNE 7: Reliance Communications (RCom) may be a ‘trouble zone’ for the Anil Ambani-led Group, but the company has prepared a blueprint to revive its fortunes.

The plan includes sale of its tower assets, merging its wireless business with Aircel, and migrating from CDMA-based 2G services to 4G services. All of this is aimed at reducing its debt pile and expected to be completed within the next few months.

Tower asset sale

To start with, RCom has ended the exclusive nature of discussions with private equity firm Tillman Global Holdings LLC to sell its tower assets. The Anil Ambani-backed telecom firm has extended the discussions to at least two or three other interested bidders. In December, RCom had inked an agreement to sell its tower assets to private equity firms TPG and Tillman Global. The companies had entered into an exclusivity agreement till January 15. The exclusivity was then further extended.

However, differences over valuation forced RCom to look beyond Tillman. In order to improve the valuation, the tower deal will now happen only after RCom seals the merger of its wireless business with Aircel.

RCom wants to sell its 44,000 telecom towers to pare debt, which stands at ₹40,479 crore. The company hopes to get about ₹20,000-22,000 crore from the sale of tower assets. Of the balance ₹20,000 crore debt, RCom plans to transfer ₹14,000 crore to the newly created company post the merger with Aircel.

The merged entity will be owned jointly by RCom and Aircel. RCom will carve out its wireless mobile business and transfer the same to the new entity.

The enterprise business – which includes the international cable unit and the fixed line infrastructure within the country – will continue to be under RCom.

Post the merger with Aircel, expected to happen by end-June, the new entity is estimated to have a combined market share of 13 per cent in terms of the overall industry revenue.

Debt transfer

EBITDA of the new company is expected to be around ₹5,000-6,500 crore and the overall debt will be close to ₹28,000 crore. Aircel, which has nearly ₹18,000-20,000 crore of debt on its books, will transfer ₹14,000 crore to the new entity.

The balance debt will be settled by Aircel prior to the merger. Aircel has already sold its 4G spectrum to Airtel for nearly ₹4,000 crore. Once the merger with Aircel is done, RCom hopes to get better valuation for its tower assets riding on higher tenancy ratio and brighter prospects in the wireless business, especially 4G services.

RCom has already begun shutting down its CDMA-based 2G network by migrating subscribers to 4G services. Here too, the company is ensuring its focus on high-quality consumers.

End of CDMA services

Over the next few months, RCom will shut down CDMA networks across the country. The company has done a deal with Mukesh Ambani-backed Reliance Industries to share and trade 4G network and spectrum.

This, along with the spectrum from Aircel, will be enough for RCom’s wireless business to challenge Idea Cellular’s (the no. 3mobile operator in the country), according to senior company executives.

Analysts tracking the telecom sector said that though the plan looks good on paper, the actual outcome will depend on how soon Anil Ambani closes the sale of tower assets. “RCom’s tower asset has been on the block for a while. Fresh round of talks began in December but there seems to be a gap in expected valuation and what buyers are ready to offer. Hence the uncertainty continues,” said an analyst on conditions of anonymity.

But the company insists there are no delays. Senior executives said negotiations for the tower sale started only six months back, at a time when similar deals in the industry have taken 2-3 years.

Courtesy: The Hindu Business Line