Winning Strokes: Think Different

Photo: Concarto.com

(i) Those who are holding the shares of JSW Energy Ltd (Rs.77) should exit, if the time horizon is for the short term, as the scrip is not going anywhere and could fall to Rs.74-75 once Rs.76 is broken, which is looks more probably than the scrip moving up.

(ii) Take Fresh Positions in Reliance Communications Ltd (Rs.49.20) on the twin news: (a) the announcement of the merger with Aircel could be announced soon (ii) Launch of Reliance Jio is positive for Reliance Communications, while it is negative for Idea Cellular Ltd (Rs.84) and Bharti Airtel Ltd (Rs.309).

(iii) Accumulate the shares of Unitech Ltd (Rs.5.25) in the dips before the AGM on 12th September, 2016, when the annual report could be presented. Also, the news that the shares of Hindustan Construction Ltd (HCC Ltd) has hit the Upper Circuits today at Rs.33, is positive for the company. 

(iv) Those who are holding the shares of Reliance Defence Ltd (Rs.64) can increase their holdings as the launch of Reliance Jio Ltd could trigger a price rise in the shares of Anil Ambani group companies. Already, the shares of Reliance Infrastructure Ltd (Rs.597) and Reliance Capital Ltd (Rs.530) are doing well.

(v) The shares of Shrenuj and Co Ltd (Rs.2.15) are trading very LOW as compared to their intrinsic prices. The market cap of the company at the CMP of Rs.2.15 is only Rs.42.05 crore,  which ridiculous and points how rumours can massacre to the shareholders' wealth. In the same sector, you can also accumulate Gitanjali Gems Ltd at Rs.45.50, as the festive season kicks in from this month. 

(vi) The shares of IVRCL Ltd (Rs.5.20) today touched Rs.5.65, the scrip was recommended some days back around Rs.4.80. 

Indian Real Estate Market: Some Thoughts

Photo: Don R. Campbell

The Indian real estate market has seen a huge boom in the past decade thanks to a growing urban middle class population. Major real estate companies are targeting developable areas and turning them into construction marvels.

Real estate in India has been severely impacted by the global economic meltdown, leading to stressed assets that have affected buyers as well as developers. Incomplete or delayed projects, depleted financial resources and unutilised land parcels point towards the urgent need for innovative solutions to break the logjam. The solution lies in tackling the ‘stressed assets’ and reviving the real estate sector.

India’s real estate sector witnessed a boom in 2004-08 leading to a proliferation of commercial office space and retail mall space when companies and investors were lapping up every announcement/launch.

Faced with a long time-gap cycle between purchase of land and delivery of product, companies entered in frenzied land parcel purchases to cope up with the rush. But this crashed with the economic slowdown.

Anyway, the Indian Real Estate sector is not only the biggest contributor to Gross Domestic Product (GDP) of the country but is also one of the largest sectors in terms of Foreign Direct Investment (FDI) inflows in the country. 

The two main reasons responsible for an upcoming boom in the real estate industry in India include liberalization of Government policies, which has decreased the need for permissions and licenses before taking up mega construction projects and the expanding industrial sector. Urbanization and increasing household income are some of the major factors that influence demand for residential /commercial property which results in India's economic growth.

India is expected to gain back its growth momentum in the medium term owing to higher savings and easing inflationary pressures which would lead to capital formation and fresh investments.

The NDA government has taken several initiatives to encourage the development in the sector, the key ones being:

• Relaxation in the norms to allow foreign direct investment (FDI) in the construction development sector. This move is expected to boost affordable housing projects and smart cities across the country.
• Clearance of model real estate bill by the Union Cabinet.

The Securities and Exchange Board of India (SEBI) has notified final regulations that will govern real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). This move will enable easier access to funds for developers and create a new investment avenue for institutions and high net worth individuals and eventually ordinary investors. 

Tax efficiency can be critical to the success of REITs. While the basic framework for one-level taxation has been laid down by the Finance (No. 2) Act, 2014 and supplemented by the Finance Bill, 2015, certain challenges persist in structuring a REIT.

Demand for residential/commercial property is being driven by India's economic growth. One of the core sub-sectors of residential, commercial, retail and housing, the first category offers maximum promise, while the balance three sectors are also growing well and have a bright future. Residential segments are nowadays hero of the moment due to continues demand.

But all is not lost for the real estate sector. Green shoots are visible. The Indian realty market, which has been in a slump for the last five to six quarters, is on a recovery path, believe analysts. 

True, the sector has been plagued by issues of finances as well as incomplete or delayed projects in recent years. But that is about to change, they contend. 

A joint survey by Frank Knight India and FICCI titled 'Real Estate Sentiment Index ’ reveals that a large chunk (about 95 percent) of people now believe sales volumes in the residential [market] are already on a path of recovery. 

The survey was conducted during the April-June period this year. “After a lull that lasted six quarters, the future sentiment scores are strengthening and witnessing a similar trend as [seen] during the first quarter (Q1) of 2016,” said Knight Frank India's chief economist and national director, Research, Dr Samantak Das in a press statement. 

While sales are expected to improve, investors feel that the prices will remain muted in 2016. Residential prices are expected to stay at the same level or worsen further as per the survey. On the other hand, the commercial office market segment is expected to improve in the next six months. A previous report by the Frank Knight (India) revealed that housing prices in the country’s top eight cities have been stagnant for the last eight quarters. 

Housing demand, too, has been muted. The report further states that unsold inventory in the second half of 2015 were about 691,000 housing units in different stages of construction. Consumer sentiment has also been down due to delay in delivery by real estate companies. 

Real estate dealers also expect the upcoming festive season to boost residential sales across the country. Already stressed margins as well as expectations of a rise in demand will prevent developers from lowering prices from current levels. 

Besides, successful implimentation of government initiatives like Housing for All, Start Up India and Smart City projects are bound to benefit the realty sector.   Real Estate Investment Trusts -- (REIT is a company that owns or finances income-producing real estate) -- will be a big boost for investors in the real estate market. 

With a move to remove hurdles for investors in real estate, the government announced in the Union Budget that it would do away with Dividend Distribution Tax (DDT). This had been a bottleneck in REITs getting listed in India. Soon after, REIT norms were relaxed in June, allowing these trusts to invest in under-construction projects. 

 In the light of positive sentiment, the sector could heave a sigh of relief. But questions still remain over the unfinished and undelivered projects. Recently, states have begun cracking the whip on errant developers. In Maharashtra home buyers can now file an FIR with the police and have the errant developers arrested. With such harsh measures being introduced, developers will think twice before delaying possession.

Real estate dealers are banking on festive season for a surge in property market. Property purchases are expected to rise during Ganesh Chaturthi and Navratri as the period is considered auspicious for locking new deals.

Property sales are likely to jump by 10-15 per cent this season as compared to last year due to prospects of better crop production on bountiful rains and conducive weather, according to industry experts.

Property prices are unlikely to drop from the current levels despite huge unsold properties due to squeezing margins and anticipation of demand from upcoming companies.Property dealers said September to November is the peak period for sales and purchase of properties.

The landscape changes:
Consequently, malls began closing and commercial office space faced excessive ‘over-supply’. Sales halted and lease rentals went down drastically. To continue business, real estate companies shifted to residential projects, hoping that the shortage of homes in India would fuel adequate demand.

However, those expectations were belied and today, even the completed residential projects have suffered from delays, fall in prices and unsold inventories.

These stressful conditions have precipitated judicial and buyer activism, burgeoning complaints by buyers and investors and a surfeit of stressed assets with real estate companies.

In this backdrop there are a series of measures that can be adopted. First, land parcels are the first of the stressed assets which can be salvaged by the Government and urban development authorities/public sector corporations.

These were auctioned or leased and here, projects were unable to mushroom. The issue is that they cannot be launched in the near future as the existing excess supplies still have to be absorbed.

So the solution lies in returning the land and money/funds paid by the developers. Not only would the Government benefit from increased land prices but the developers would also get ready-made cash to pump into viable projects.

Building them up:
The second set of stressed assets comprise delayed projects where cash outflow is less than the expected inflows. These are the projects where a substantial part of the structure is ready, but they need ‘top-up’ funds for completion and delivery.

So where would these funds be sourced from? Obviously, they can be taken from funds received by surrender of leased/auctioned land parcels by the Government/public sector corporations.

Even a construction-linked commitment from buyers, with a marginal funding from financial institutions to kick-start the largely-completed structure, can be another source.

This is again a win-win situation because the developer would revive stalled projects and buyers would benefit from assets purchased at old prices.

The third set of stressed assets are those projects that have not begun construction but have hugely over-leveraged, either through excess collections from buyers or due to huge debts to financial institutions. These are projects and companies in distress.

The first option would be to look for internal funds from the companies itself. It could be funds returned by the Government or authorities for land parcels returned to the agency concerned, but to be kept in Escrow Accounts to be used for completing distressed projects primarily.

The second option could be to permit Rules of Escrow accounts for existing projects to allow funded projects to pay for over-leveraged projects and projects which can be completed.

To begin with, banks and State authorities can draw up lists and examine the magnitude of the problem. These can be used by the new real estate regulatory authorities to be set up in each State.

Also, the authorities could act as a bridge between companies in distress and banking institutions to give finance at reasonable rates and for short-term duration to complete distressed projects.

The quantum of funds required can be worked out by the figures collected by banks and State authorities. While dealing with the situation, we must factor in the reality that many are in trouble only because of economic realities they cannot control.

So, in a situation where it is critical to restore the faith of buyers, the Government, banks and the real estate industry should collaborate for innovative solutions.

Good initiatives:
Some such steps have been taken by the surface transport ministry. They include:

To give 10 per cent of the project cost as advance to private developers, which could be deducted along with interest from the pre-scheduled payments due to the Real Estate companies.

Raw materials can be collectively bargained at discounted rates, due to large requirements of the sector.

The Government and public sector undertakings could plan to buy housing in bulk, fulfiling the requirements of housing among government/PSU employees and at the same time get the same in prized locations. They could be provided on an immediate availability basis. Also, the prices will be lower than the Government/PSU costs, specially if interest rates will be added, to the cost of money being deployed if the same were to be constructed by the Government/PSUs.

In sum, the real estate logjam can be tackled with the right approach, ideas and implementation.

JSW Energy Ltd: Buy

CMP: Rs.77.90

The stock of JSW Energy Ltd after correcting significantly from Rs.126 in a year, is trying to consolidate and look up now. Though major concerns due to subdued demand and realisations, and increasing debt led by acquisitions, still remains. 

JSW Energy sells power through combination of long-term and short-term Power Purchase Agreements (PPAs). JSW Energy Ltd's management in June, 2016 said: “For sale of its power, the company participates in bids sought by power procurers and has participated in a recent tender floated by Power Company of Karnataka Limited (PCKL) in which bids were opened yesterday and thereafter the bids are to be evaluated, processed and approved by various authorities prior to placement of any order/contract”. 

The company further made the clarification with reference to the news flashed on CNBC TV 18: "JSW Energy is second lowest bidder in Karnataka SEB PPA and may get 750MW PPA contract. Rate can be around 4.38/unit.

Photo: Live Mint

The bid involves the 860 megawatts Vijayanagar power plant in Karnataka, which right now is operating on short-term power contracts. Thanks to the plant’s location advantage—situated in high power deficit southern India—JSW Energy had managed to get sufficient buyers, and that too at a good price, till now.

Whenever any proposal results into execution of binding documents, the company will comply with the provisions of the Securities and Exchange Board of India, it added.

Meanwhile, the hydro power assets’ acquisitions, saw the company’s generation rise 12 per cent year-on-year to 6,052 million units, excluding it volumes were flat. Good monsoon, has already increased the optimism, in the hydro-power units. 

It concluded the acquisition of Himachal Baspa Power Company Limited (HBPCL) adding 1,391 MW of hydroelectric capacity consisting of two hydro power projects - 300 MW Baspa-II and 1,091 MW Karcham Wangtoo in Himachal Pradesh. This acquisition helped the company in diversifying the power generation portfolio with high quality hydro power assets, besides increasing the share of long-term power purchase agreement in its basket.

JSW Energy Ltd has also agreed to acquire the 1,000MW (4X250) thermal power plant located at Tamnar, Chhattisgarh from Jindal Steel & Power Limited (JSPL). JSW Energy has also got fair trade regulator CCI's approval to acquire this 1,000 MW power plant in Chhattisgarh from Jindal Steel and Power Ltd (JSPL).

Under the deal announced in May, the Sajjan Jindal-led firm was to purchase the power plant in Raigarh for Rs.6,500 crore with certain conditions.

JSW Energy Ltd has been evaluating interesting opportunities for inorganic growth. With significant assets in the sector being stressed, a meaningful engagement with lenders will be essential to evaluate and conclude deals in the space. 

The ever-growing power demand in the country, large capacity addition plans, rising availability of fuel resources and falling prices of the same, portrays a positive outlook for the sector. Progressive policylevel changes and effective implementation of directives promise enormous opportunities for various stakeholders and market players. Improvement in the financial health of State Electricity Boards and the gamut of Government’s initiative will also boost demand.

As base load deficits narrow down, the company's strategic intent is to transform the business model to that of a utility company with stable cash flows, by tying up a substantial part (85%-90%) of its power capacity under medium/long-term PPAs.

But as transmission congestion in the region eased and stranded gas capacities came back on stream, short-term or merchant power prices began to fall. This impacted JSW Energy’s realizations, which fell 8% in 2014-15 and 3% in the last fiscal year. With merchant power rates remaining depressed and the Union government encouraging state utilities to purchase short-term electricity contracts through competitive bidding or reverse auction system, the firm’s realizations are expected to remain under pressure. The concerns have made analysts cautious, with some even paring their earnings estimates for the current and next fiscal years.

JSW Energy Ltd in July, 2016 said that its subsidiary has sold 26% stake in South African Coal Mining Holdings Ltd (SACMH) to meet regulatory norms.

“JSW Energy Natural Resources South Africa (PTY), a step down subsidiary of the company in South Africa has disposed of 26% stake in its subsidiary, South African Coal Mining Holdings (SACMH),” JSW Energy Ltd informed the BSE.

While its acquisition-led strategy is positive given the time and effort required to establish new capacities, increased debt at a time when industry’s generation is exceeding demand and merchant power realisations are subdued, has highlighted the Street’s concerns.

Caution also prevails on average realisations looking at grid synchronisation by end-2016. JSW Energy has one of the highest shares of short-term (less than a year) electricity sales among the listed power utilities. In the  last fiscal year, 47% of its sales came from short-term contracts. 

Factoring all these concerns and the share price correction, some analysts feels that an upside potential of 15-20% from the CMP of Rs.77.90 is possible. JSW Energy is engaged in the business of power generation, power trading and transmission, and mining and equipment manufacturing. 

Bibliography: (i) The Business Standard
                      (ii) Live Mint, etc

DLF Q1 profit jumps over 2-fold to Rs 261.42 cr

[Editor: The real estate sector started with a bang, as the realty major DLF Ltd came out with a reasonably good Q1FY17 result. This is expected to bring more optimism in the space, and attest to the fact that after a long time, perhaps the real estate sector is looking up, albeit with hiccups on the way. The real estate sector is one of the most globally recognised sectors. In India, real estate is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade.

The Indian real estate market has become one of the most preferred destinations in the Asia Pacific# as overseas funds accounted for more than 50 per cent of all investment activity in India in 2014, compared with just 26 per cent in 2013. The Indian real estate market is expected to touch US$ 180 billion by 2020. The housing sector alone contributes 5-6 per cent to the country's Gross Domestic Product (GDP). 

Those who are holding the shares of Unitech Ltd (Rs.5.20) should now increase their holdings, for extended targets of Rs.12-14]

Photo: IBEF

Aug 30, 2016: India's largest realty firm DLF   today reported more than two-fold jump in consolidated net profit to Rs 261.42 crore for the quarter ended June 30, helped by sale of its cinema business to PVR. 

Its net profit had stood at Rs 125.87 crore in the April- June quarter of last financial year. Income from operations fell by 22 percent to Rs 1,867.46 crore during the first quarter of the current fiscal, from Rs 2,388.72 crore in the year-ago period. 

DLF's total income declined however to Rs 2,025.58 crore for the quarter ended June, 2016-17, from Rs 2,520.02 crore in the year-ago period. 

The company's finance cost increased to Rs 747.84 crore from Rs 621.82 crore during the period under review. DLF has booked a profit before tax of Rs 372 crore under exceptional item from sale of its cinema business. 

In May, it had entered into an amended agreement to sell its 32 screens of DT cinemas to multiplex operator PVR at a revised consideration of Rs 433 crore. The company has a land bank of 281 million sq ft, of which 37 million sq ft is under construction. 

DLF promoters are likely to sell 40 percent stake in a rental arm DLF Cyber City Developers Ltd (DCCDL) by September, a deal estimated to fetch around Rs 12,000 crore. It would continue to own 60 percent stake in the DCCDL. 

The promoters - billionaire K P Singh and family - would reinvest a significant part of the amount realised from this sale into DLF Ltd, helping the realty giant to reduce its debt substantially. Three global institutional investors -- Blackstone, GIC and Abu Dhabi Investment Authority -- have been shortlisted as potential buyers. 

Due diligence process is on and agreement is likely to be signed by September. DCCDL has about 25-26 million sq ft of leased commercial space with an annual rental income of about Rs 2,250 crore. The subsidiary also has 20 million sq ft of future development potential.

Source: Money Control

Important

Photo: Financial Express

(i) After a long time Reliance Communications Ltd moved above Rs.54 today; following news in a Business Channel. This kind of news keeps on popping up but at the end nothing happens. Therefore, the short term traders are suggested to book profits at around Rs.54.50. However, long term traders can keep holding the scrip with  a SL of Rs.46.

(ii) You can keep on adding the shares of JSW Energy Ltd for a short term target of Rs.84-85. Three years ago, JSW Energy’s market capitalization was a third that of Tata Power Co. Ltd and three-fifths that of Adani Power Ltd. Tata Power’s and Adani Power’s installed power generating capacities then were 2.7 times and 1.7 times bigger, respectively, than JSW Energy’s. With its latest 500 megawatt (MW) power plant purchase, JSW Energy’s capacities have almost doubled from back then. Tracking the rise, the company’s market value has jumped 90% during the period to Rs.13,333 crore. Capacities at Tata Power and Adani Power also rose. But unlike JSW Energy, market caps of these companies fell in the range of 13-18%.

JSW Energy’s market cap is now greater than that of Adani Power, despite the latter having higher generation assets. Similarly, Tata Power market cap is now only 42% higher than JSW Energy. The changes reflect the hurdles these companies hit, while JSW Energy was lucky to avoid non-remunerative power purchase agreements (PPAs).

(iii) Shrenuj & Co Ltd hit the buyer freeze in the opening trade. The stock should move higher in the coming days, as the promoters will manage Rs.300 crore from somewhere to refinance the loans.

(iv) Investors can continue to buy the shares of IVRCL Ltd for short term target of Rs.7-8. The company is operating in 5-sectors therefore the chance of a turnaround looks bright  once a strategic investor chips in....

Important

(i) After a long time Reliance Communications Ltd moved above Rs.54 today; following news in a Business Channel. This kind of news keeps on popping up but at the end nothing happens. Therefore, the short term traders are suggested to book profits at around Rs.54.50. However, long term traders can keep holding the scrip with  a SL of Rs.46.

(ii) You can keep on adding the shares of JSW Energy Ltd for a short term target of Rs.84-85. Three years ago, JSW Energy’s market capitalization was a third that of Tata Power Co. Ltd and three-fifths that of Adani Power Ltd. Tata Power’s and Adani Power’s installed power generating capacities then were 2.7 times and 1.7 times bigger, respectively, than JSW Energy’s. With its latest 500 megawatt (MW) power plant purchase, JSW Energy’s capacities have almost doubled from back then. Tracking the rise, the company’s market value has jumped 90% during the period to Rs.13,333 crore. Capacities at Tata Power and Adani Power also rose. But unlike JSW Energy, market caps of these companies fell in the range of 13-18%.

JSW Energy’s market cap is now greater than that of Adani Power, despite the latter having higher generation assets. Similarly, Tata Power market cap is now only 42% higher than JSW Energy. The changes reflect the hurdles these companies hit, while JSW Energy was lucky to avoid non-remunerative power purchase agreements (PPAs).

(iii) Shrenuj & Co Ltd hit the buyer freeze in the opening trade. The stock should move higher in the coming days, as the promoters will manage Rs.300 crore from somewhere to refinance the loans.

(iv) Investors can continue to buy the shares of IVRCL Ltd for short term target of Rs.7-8. The company is operating in 5-sectors therefore the chance of a turnaround looks bright  once a strategic investor chips in....

IVRCL Ltd: Buy

CMP: Rs.4.93 (BSE) and Rs.4.90 (NSE)

Click on the Photo to Expand

IVRCL Ltd is a leading engineering, procurement and construction (EPC) and infrastructure company.

Founded over 25 years ago, the company has been involved in various projects related to water and environment, transportation, buildings and industrial structures, power transmission projects and mining. It is listed on the BSE and NSE and employs more than 3,000 engineers, managers and professional technocrats.

IVRCL Ltd’s operations cut across geographical frontiers of the sub-continent, with headquarters in Hyderabad and administrative offices in Chennai, Cochin, Bangalore, Pune, Kolkata, Jodhpur, Raipur (Chattisgarh), Ahmedabad, Margao (Goa), Jind (Haryana), Udhampur (J&K), Billaspur (MP), Kotdwara (Uttaranchal) & New Delhi besides liaision offices setup near project sites.

The company is known, among other things, for construction of the first desalination plant at Minjur (near Chennai) with a capacity of 100 million litres per day (MLD). IVRCL Ltd has undertaken construction of several flyovers and bridges in cities like Chennai, Kondalampatti, Amritsar, Chengapalli, Bagalkote and Palasa.

Some of these include:

• Rail over bridge at Perambur in Chennai. Their client for this project is the Corporation of Chennai, Bridges department.
• Design, construction, development, finance, operation and maintenance of major interchange at Kondalampatti on NH-47 as part of four-laning of Salem to Kumarapalayam Section in Tamil Nadu. Their client for this project is National Highways Authority of India.
• The construction of a major bridge across the river Baes on NH-1 as part of the laning of the Jalandhar-Amritsar section. The client for the project is the National Highways Authority of India.
• Major bridge across the river Cauvery on NH-47 as part of laning of Kumarapalayam to Chengapalli section in Tamil Nadu, for which the client is National Highways Authority of India.
• Construction of a road over bridge at Palasa in lieu of existing Visakhapatnam-Bhuveaneshwar road in Srikulam District, the client for which is the Superintending Engineer (R&B) Circle, Srikakulam.
• Construction of a bridge across the river Krishna of Jamkhandi Savalgi road near Jambagi village in Jamkhandi Taluk, Bagalkote District, client for which is the Karnataka Road Development Corporation Limited.

The construction firm, which is helmed by Chairman and Managing Director E Sudhir Reddy, registered more than 12 quarters of losses due to mounting debts, payment obligations and project delays. The story of IVRCL Ltd, once aggressive developer, has been one of momentous rise and then a steep fall.

At the height of its success, the company bagged projects in several key sectors, including irrigation, roads, power and real estate, but the jewel in the IVRCL Ltd's crown remained the construction of the integrated sports village during the national games in Hyderabad in 2002.

However, in an complete reversal of fortunes, by the 2015 end, it was sitting on a debt of about Rs.10,000 crore and a net loss of close to Rs.2,000 crore. In an indication of its dire situation, the company availed the Strategic Debt Restructuring (SDR) scheme launched by the RBI. Post SDR, the shareholding of the promoter group plummeted to less than 8 per cent, while that of the banks, other financial institutions and foreign institutional investors crossed 51%.

It closed the last financial year FY16, with a turnover of Rs.3,117 crore and a loss of Rs.672 crore. In the third quarter ended December 31, 2015, it registered a turnover of Rs.448 crore and a loss of Rs.304 crore. IVRCL Ltd’s troubles started about three years ago when the infrastructure business slowed down. However, the things are looking a little better now. 

As of 31st March, 2016, the small-cap company has equity capital of Rs 145.74 crore. Face value per share is Rs.2.

Shareholding Pattern: The Promoters hold only 5.37% but this makes little sense as the company has been taken over by the lenders, whose names are mentioned below along with their holding percentage. 

The FI / Banks hold 56.62% or the controlling stake in the company. As of now the public shareholding in the company is 94.63% which includes the following entities. 

• DBS Bank Ltd: 4.05%
• IDBI Bank Ltd: 6.75%
• Andhra Bank Ltd: 4.75%
• Tamilnad Mercantile Bank Ltd: 3.09%
• State Bank of India Ltd: 6.31%
• Indusind Bank Ltd Treasury Department: 1.55%
• Indian Overseas Bank Ltd: 7.99%
• ICICI Bank Ltd: 8.09%
• Corporation Bank Ltd: 4.25%
• Canara Bank-Mumbai: 7.09%
• SREI Equipment Finance Pvt Ltd: 1.76% 
• Unit Trust of India Investment Advisory Services Ltd A/C Ascent India Fund III: 1.24% 
• International Asset Reconstruction Co Pvt Ltd: 2.64%
• Bodies Corporate: 11.07%

Last year, the company was forced to take up strategic debt restructuring because debts spiralled quarter after quarter and revenues dwindled due to poor execution of contracts — both due to delays in securing clearances and because of the working capital crunch.

The Joint Lenders Forum headed by SBI invoked the provisions of a Strategic Debt Restructuring programme in November 2015.

IVRCL Ltd said that State Bank of India, monitoring Institution acting on behalf of the lenders informed the company that joint lenders' forum (JLF) at the meeting held on 23 February 2016, has approved the special drawing rights (SDR) conversion package and that the lenders will convert part of the debt of the company into equity, in one or more tranches, at the price of Rs.8.765 per equity share of face value of Rs.2 each, enabling the lenders to collectively hold 51% or more of the total share capital of the company. 

Last year, the company announced that it has has made an allotment of 2,42,26,656 equity shares of Rs.2 each, at issue price of Rs.24.39 per share, on 27 November 2015 to CDR Lenders who have signed the Master Restructuring Agreement. This allotment is towards conversion of Funded Interest Term Loan (FITL ) into equity, for the period of 01 July 2015 to 30 September 2015.

This price of Rs.8.765 per equity share, which now forms a base price for any future takeover and also Rs.24.39 per equity share, allotted to CDR lenders are much higher than yesterday's closing price in the BSE/NSE.

It is pertinent to mention here that Strategic Debt Conversion (SDR) option gives lenders the right to convert their outstanding loans into a majority equity stake if the borrower fails to meet conditions stipulated under the restructuring package and in the process take control of the operations of a company. Or in other words, under the RBI norms, when such a move is initiated, the banks join the Board and decide how to put the business back on track. It provides for 18 months to recoup.

The lenders now scouting for a new owner for the beleaguered company; but before they do that, the company's individual assets may be sold to improve its operational performance. The company is also looking to sell its subsidiaries and reduce the debt on their books. Lenders and consultants are now working along with them to identify ways to maximize the value of its subsidiaries. This is positive for the shareholders. 

With the government spending liberally on overcoming the water crisis, companies offering water solutions are set to flourish in future, according to a report by Business Today. 

Among the biggest players in the water business in India, Larsen & Toubro (L&T) has laid water pipes across 40,000 km and built water treatment and wastewater treatment plants of a total capacity of 3,400 million litres a day (MLD).

L&T is not the only one. Betting big on India's water story are French major Suez Environment, local heavyweights such as Thermax, IVRCL Ltd, VA Tech Wabag and Ion Exchange, all of whom are seeing their order books swelling. VA Tech Wabag, for instance, trebled its revenue in the past five years. Earth Water Group estimates the current size of the water treatment market in India at Rs.17,907 crore. "It is a very attractive and significant market, growing at 17-18 per cent," says Hariharan Subramaniam, Chief Operating Officer, Earth Water Group.

Opportunities are multiplying because both the Centre and state governments have realised the urgency and magnitude of the water problem. A big driving force is the millennium development goal of sanitation and water access for all. Programmes such as the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), the Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSSMT), the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart City Mission all include water solutions as an important component. Separately, there are plans to clean up rivers, such as the Namami Gange and the Yamuna Action Plan.

The government is also offering incentives - encouraging public private partnerships in water, making bigger allocations for civic bodies, providing a 10-year tax holiday to companies participating in the programmes, and allowing 100 per cent foreign direct investment in the sector.

In January, 2016, the company informed the exchanges that it has bagged orders worth Rs.350.96 crore under its Irrigation Division and Water Division. The company bagged orders worth R.324.67 crore under Building Division from Cauvery Neeravari Nigama. Under Water Division, the company bagged orders worth Rs.26.29 crore from Karnataka Urban Water Supply & Drainage Board.

Conclusion:  The company in June, 2016 said it has allotted 6.46 lakh shares to Bank of Nova Scotia as part of Strategic Debt Restructuring (SDR).

"Pursuant to provisions of Companies Act, 2013 and Sebi (Issue of Capital Disclosure Requirement) Regulations, 2009 and implementation of SDR, the company has made an allotment of 6,46,810 equity shares at a price of Rs 8.765 each, to Bank of Nova Scotia," it said in a regulatory filing.

Moreover, since, it conducts operations in 5 sectors namely Water and Environment, Transportation, Buildings, Power and Industrial Structures hence once the finance problem gets sorted out, its order book could soar, due to large field of operations.

On the chart we find that the stock has probably made a botton around Rs.4.60 and is steadily moving up. The scrip is above its 100D SMA and 21D EMA. Moreover, MACD and Stochastics are in buy mode. 

The investors should buy the stock with immediate target of Rs.5.20, followed by Rs.6.10 - Rs.6.70 - Rs.7.5 -  Rs.8.4. In case of short term play, they can keep a SL of Rs.3.70. 

Important

(i) Those who have entered Shrenuj & Co Ltd can continue to hold with a SL of Rs.1.95 (which is not likely to break). The company is having an office in a posh location in Bandra, Bombay. Most of the directors are overseas scouting for funds. The consortium of lenders are co-operating and soon a debt restructuring news might come in the media. The next target is Rs.3.05.

(ii) Those who are holding the shares of JSW Energy Ltd (Rs.78.50) can continue to add on declines. With its latest 500 megawatt power plant purchase, JSW Energy’s capacities have almost doubled from three years ago. JSW Energy Ltd comes under infrastructure space. 

(iii) The investors can continue to add the shares of Unitech Ltd (Rs.5.30) on all declines, as the ensuring festive season, is likely to give the required buoyancy to the real estate sector. Moreover, the company's annual report would probably be ready by 12 September, 2016.

(iv) Today, most of the shares in the infrastructure space (especially those who are into Railways) are up, after the Committee on Economic Affairs at the Indian Government approved nine projects estimated at Rs.24,374.86 crore, envisaging expanding the railway network in 9 states of India, Zbusiness reported. As a result of this IVRCL Ltd (Rs.4.95), Reliance Infrastructure Ltd (Rs.610), Lanco Infra (Rs.4.50), Reliance Defence Ltd (Rs.65.50), etc are all up today.  Anil Ambani-led Reliance Defence and Engineering Ltd (RDEL), formerly Pipavav Defence and Engineering Ltd, is focusing on providing integrated solutions for naval ships. It has also diversified into design and development of naval weapons and sensors to provide combat suite which costs about 50 to 60% of the platform costs.

(vi) The shares of Bharat Heavy Electricals Ltd (Rs.138) are now trading above Rs.137 and hence can be accumulated before the results.

(vii) Adani Enterprises Ltd (Rs.74.70) is finding difficulty to cross the resistance zone of Rs.75-77. Therefore, for the time being avoid the counter.

(vii) The investors can accumulate the shares of Gitanjali Gems Ltd (Rs.46), for short term targets of Rs.55-61.

Important

(i) The short term traders can exit Bharat Heavy Electricals Ltd at Rs.136, as it has broken Rs.137. If it

Photo: CanStock Photo

gets support around Rs.132, then buy or else wait for the price to stabilize. For the long term you can hold with a SL of Rs.107.

(ii) The short term traders can exit Adani Enterprise Ltd as it has broken Rs.75. You can again accumulate around Rs.67-68, where it might get some support. If it goes below Rs.67, then long term traders can forget the counter.

(iii) Accumulate Unitech Ltd (Rs.5.05) and IVRCL Ltd (Rs.4.80), because the construction activities are about to start post monsoons. 

(iv) Reliance Communications Ltd (Rs.51.80) is moving on the hope of any merger news. But unless it closes above Rs.53.50, there is no hope. In such circumstances, the short term traders can book profits as it moves up, till it closes above Rs.53.50, where you can again start accumulating.

(v) Those who have entered Syncom Formulations Ltd (Rs.2.88) again at around Rs.2.70, should continue to hold the counter with a SL of Rs.2.40. 

Shrenuj & Co Ltd: Updates

Rs.2.27 (BSE) and Rs.2.25 (NSE)

The 100-year-old diamond house and one of the largest in the trade, Shrenuj & Co has survived across four generations. In 1989, Shrenuj & Co was one of the first gems and jewellery companies to be listed on the BSE and had introduced laser technology to diamond manufacturing in the '80s.  The company has cutting and polishing diamond facilities in Botswana and Johannesburg, in addition to existing ones in Mumbai and Patna. The company procures rough diamonds from overseas, cuts and polishes them and makes diamond jewellery. 

There was news that in the ET,. 29 June, 2016: 

Banks, with a combined exposure of around $450 million, has obtained court order to repossess the inventory - stock of diamond lying with the company - and restrict travel of the promoters.....Trade circles attribute the problems faced by the group to aggressive expansion overseas even as rough diamond prices kept soaring and polished diamond prices remained relatively muted after the financial meltdown of 2008-09..The slowdown in the diamond industry along with some of the company's business bets such as diversification in Africa backfired. 

But then this is half truth and is a case of Yellow Journalism. It is true that Shrenuj Far East Limited, based in Hong Kong, which has a credit line of US$15 million with ICICI Bank Limited, has been placed in Receivership, with the ICICI Bank's Hong Kong branch as Receiver. Shrenuj Far East Limited forfeited all its assets to the Receiver and shared all the information with the Receiver on best effort basis. ICICI Bank approached the Debt Recovery Tribunal (DRT) in India and sought an ex-parte order to attach all the company's inventories in India and place restrictions on the international travel of the company's top management.

While the Economic Times article ambiguously links the DRT decision to the lending consortium - Bank of India, ICICI Bank, Punjab National Bank, State Bank of Patiala, Standard Chartered bank and Andhra Bank, and a number of others, Mr. Shreyas Doshi, company's Chairman Doshi says the action was undertaken unilaterally by ICICI Bank.

Mr.Doshi further clarifies that "...this action has reference to only one of the several banks lending to one of the smaller subsidiaries of the Company, and the operations of the Shrenuj Group or its listed flagship entity are not directly affected by this unilateral action by ICICI Bank Limited," adding that, "The Company is in the process of seeking legal opinion to challenge this ex-parte decision of DRT-III and take remedial measures."

According to my close sources, the matter should be over within a couple of months as the company is bringing Rs.300 Crore, to refinance its debt and at the same time is taking measures to boost its EBIDTA. Also, the problem started when the rough diamond prices, started coming down or remained stagnant and in the process its inventory got devalued.  According to the sources, it is also not true that, because the of the problems in its African diversification, the company accumulated debts. The company's debt problems started due to over-all slowdown in this space and the NDA government's step-motherly attitude towards gems and jewelry sector.

However, many of the top officials of the company are abroad, to solve this issue and the sources are hopeful that a favourable solution will be found very soon. The stock has hit the lower circuits, after the company's website, viz.ho.shrenuj.com, was taken off due to some technical issues. 

The company has undertaken an exercise to rationalize its manpower across all levels,” Shrenuj said in a statement to the Bombay Stock Exchange.  The management is of the opinion the realizable value of the firm’s inventory and other assets are sufficient to repay all outstanding liabilities, the report said. 

In such circumstances, I would suggest all to add the scrip slowly in declines so that your acquisition prices becomes further less. As of now there is no danger, as this issue relates to only one of the overseas subsidiaries of the company. 

Bharat Heavy Electricals Ltd

CMP: Rs.139

Photo: The Economic Times

State-run Bharat Heavy Electricals (Bhel) is an integrated power plant equipment manufacturer. It is one of the largest engineering and manufacturing companies in India engaged in the design, engineering, manufacture, construction, testing, commissioning and servicing of a wide range of products and services for core sectors of the economy, viz. power, transmission, industry, railways, renewable energy, oil & gas, water and defence. The Government of India currently holds 63.06% stake in the company as per the shareholding pattern as on 30 June 2016.

Bharat Heavy Electricals (Bhel) last month, successfully commissioned the third unit of the 160 megawatts (MW) Teesta Low Dam Hydro Electric Project (HEP) Stage-IV in West Bengal. The greenfield project located in Darjeeling district of West Bengal, Teesta HEP is being set up by National Hydroelectric Power Corporation (NHPC), on the River Teesta. The fourth and final unit of the project is also in advanced stages of execution. The order for electrical & mechanical (E&M) works for four units of 40 MW each was placed on Bhel by NHPC.

BHEL is presently executing hydro electric projects of around 3,300 MW in the country which are under various stage of implementation. Other projects of NHPC currently under execution by BHEL are the 800 MW Parbati HEP Stage – II and 330 MW Kishanganga HEP. In West Bengal, Bhel is also executing the 120 MW Rammam Stage-III hydro-electric project of NTPC. Significantly, more than 500 hydro generating sets with a cumulative capacity of more than 29,000 MW of various ratings have been contracted on Bhel in India and abroad. Of this, equipment for about 5,700 MW generating capacity has been contracted outside India.

Key Statistics:

(i) Face Value of the shares: Rs.2

(ii) Book Value of the shares: Rs.136.10

(iii) Enterprise Value/Revenue (ttm): 0.94

(iv) Total Debt (mrq): Rs.1.67 billion (Rs.167 Cr)

(v) Total Cash Per Share (mrq): Rs.42.20

(vi) Total Cash (mrq): 103.29 billion (Rs.10329 Cr)

BHEL shares slumped nearly 4% on Tuesday amid speculation that the state-run power equipment manufacturer may lose a major power plant order from state-run utility NTPC. According to Macquarie, NTPC is re-visiting its tender for four power plants of 1000MW capacity each for its Pudimadaka ultra mega power project. The tender was earlier awarded to BHEL. However, what is interesting to note is that the the order accounts for ONLY around 4% of BHEL's total order book, said Macquarie - - therefore, if at all such event takes place, its effect will be minimal.

The R&D department of BHEL-HPVP is currently engaged in indigenous development of four new types of compact heat exchangers for the Mk2 version of the Tejas aircraft. Indian Navy is also planning to order another 40 sets of Tejas heat exchangers in the coming years.

The country’s nuclear power programmes and the revised emission norms for coal-based thermal power plants offered considerable business opportunity for Bharat Heavy Electricals Limited. BHEL Corporation had achieved a record project execution during the previous fiscal despite the slowdown in the power sector and maintained its leadership with 74% market share.

The Welding Research Institute has won Skoch BSE award for technology development and has also won National Safety Award along with Seamless Steel Tube Plant and Fossil Fuel Development Complex. Buy the shares of BHEL at the CMP of Rs.139, for short term targets of Rs.143 - 147. 

Do you know?

Rolta Power Pvt. Ltd. is part of the more-than-three-decades-old Rolta Group business interests in Real estate, investments and IT. Rolta Power is headquartered in Mumbai and is a new entrant in the Rolta Group fully owned by Rolta Pvt. Ltd.

Recently, Rolta Power Pvt. Ltd. and China-based Zhenfa New Energy Science and Technology Co. Ltd. has signed an agreement to build solar parks in India, targeting a capacity of 2 GigaWatt by 2020.

Reliance Defence and Engineering Ltd

CMP: Rs.66.10

Reliance Defence & Engineering formerly Pipavav Defence and Offshore Engineering Company is into building defence warships and is an integrated defence, heavy engineering and offshore oil & gas assets' construction company. Reliance Infrastructure together with its wholly owned subsidiary Reliance Defence Systems ealier completed the acquisition of erstwhile Pipavav Defence. The mandatory open offer to acquire up to 26% shares from the public shareholders of Pipavav Defence was at a price of Rs 66 per share, which is close to the CMP of Rs.66.10.  

The erstwhile, Pipavav Shipyard was the first corporate shipyard to be granted clearance to build warships and other vessels for the Indian Navy, though the initial licence limits this to up to 5 ships per year. 

On March 26, 2015, the Company successfully implemented one of the biggest debt restructurings in India. Pipavav raised additional debt of INR 5,500 crore resulting in total debt line in excess of INR 12,000 crore (about USD 2 billion). The Company has a total enterprise value of USD 2.7 to 2.9 billion (Rs.19461.9 crores).

Pipavav Shipyard is one of the largest and leading shipbuilding company in India, spread over 500 acres (2.0 km2). It has access to over 720 meters of exclusive waterfront.

Key Statistics: 

(i) Face Value of the shares: Rs.10.

(ii) The Book Value of the shares: Rs.27.50

(iii) 50-Day Moving Average: Rs.64.93

(iv) 200-Day Moving Average: Rs. 64.27

(v) Market Cap: Rs.4,855.28 at the CMP of Rs.66.10

(vi) Industry P/E: 34.37

(vii) 52 Week High/ Low: Rs.72.85/ Rs.54.30

(viii) Industry P/E: 34.37, indicating the high growth of the sector. 

Buy the shares of the Reliance Defence and Engineering Ltd at the CMP of Rs.66.10, for a short term target of Rs.72-75.

Some Encouraging Points Concerning the NDA government

(i) Foreign direct investment during October 2014 and May this year grew 46 per cent to USD 61.58 billion after the launch of Make in India programme. To further boost investment environment and bring in foreign capital, the NDA government is taking various measures like opening up FDI in many sectors, carrying out FDI related reforms and improving ease of doing business.

(ii) Sectors that attracted maximum FDI include services, trading, automobile and power. 

(iii) The NDA government has approved as many as 259 proposals for setting up of special economic zones relating to IT/ITeS and electronic hardware sector in many parts of the country. During the last four years and the current financial year (up to July 15), the Board of Approval, under the ministry, gave more time to as many as 139 developers of SEZs, including the IT/ITeS sector, to complete their projects. 

(iv) Some of the biggest global investors such as Morgan Stanley, Macquarie and Ivanhoe Cambridge (an arm of Canada's CDPQ) are re-entering Indian real estate after a long gap. These three investors are looking to forge joint ventures worth Rs.4,000 crore. These investors, along with others such as Goldman Sachs, Citigroup, Merrill Lynch, Credit Suisse, Lehman Brothers and Deutsche Bank, had either exited Indian real estate or became dormant after the global financial crisis of 2008, as they sought to clean their balance sheets and concentrate on home markets.

Adani Enterprises Ltd

CMP: Rs.75.50

The Adani Group has grown to become a global integrated infrastructure player with businesses in key industry verticals - resources, logistics and energy. The integrated model is well adapted to the infrastructure challenges of the emerging economies.

The company said that its coal business, ports and power businesses continue to scale up steadily. Further, improved utilization of operational capacity has resulted in robust overall performance.

Key Statistics: 
Face Value of the shares: Re.1
Book Value of the shares: Rs.121.98
Enterprise Value (22-Aug-2016): Rs.269.37 billion (Rs.26,937 Cr) as against a market cap of only Rs.8309.07 Cr
P/E: 8.11 against the industry P/E of 18.96
EPS: Rs.9.32
Dividend: 40%
52-week low/high: Rs.58.45/Rs.101.90

Adani Enterprises Ltd, the flagship company of Adani group, reported a flat consolidated net profit of Rs.363.71 crore for the quarter ended June 30, 2016.

The company had posted a consolidated net profit after taxes, minority interest and share of profit of joint ventures and associates of Rs.363.57 crore in the year-ago period.

Net sales in April-June quarter were also almost flat at Rs 8,884.74 crore as against Rs 8,828.81 crore in corresponding period of FY16. The total expenses during the quarter was at Rs 8,468.68 crore, over Rs 8,393.11 crore in the year-ago period.

"Adani Enterprises continue to focus on the sectors of national interest through presence in critical and often under penetrated spaces. The investment climate in the country is building up and the intent of Government to pursue economic reforms is clearly visible. We remain committed to our investment plans in Renewables and domestic Mining sectors as they align with national priorities," Adani Group Chairman Gautam Adani said. Ameet Desai, CFO Adani Group and Executive Director, Adani Enterprises, said, "We maintained our earnings growth trajectory during this quarter. This is testimony of intrinsic strength of our business portfolio."

The government spending on infrastructure and other development projects, well progressing monsoon and pay revisions shall drive an uptick in the investment cycle and energy demand leading to our improved performance, Desai said.

"In Q1FY17, Coal Mining volume grew by 122 percent to 2.1 MMT (Million Metric Tonnes) and in Q1FY17, City Gas Distribution volume is 97 MMSCM," the statement said. Adani group is one of India's leading business houses with revenue of over USD 10 billion.

Adani Enterprises Ltd, recently incorporated a subsidiary, Korba Clean Coal Pvt Ltd for carrying on the business of coal washing. 

There were also news reports that the Queensland Federal Court said there were no grounds for a judicial review of the decision to grant the mining lease to the MNC.

Buy the shares of the company at Rs.75.50 for a short term target of Rs.83-85. The stock is above its 150D SMA. If it is able to clear the resistance around Rs.79-80, then we can look for ward for targets of Rs.87-91.

Moreover, at present the major indices are going to remain flat, but action will be seen in the beaten down counters. Therefore, don't look at the indices for your buy and sell decision. 

Adani Enterprises Ltd

CMP: Rs.75.50

The Adani Group has grown to become a global integrated infrastructure player with businesses in key industry verticals - resources, logistics and energy. The integrated model is well adapted to the infrastructure challenges of the emerging economies.

The company said that its coal business, ports and power businesses continue to scale up steadily. Further, improved utilization of operational capacity has resulted in robust overall performance.

Key Statistics: 
Face Value of the shares: Re.1
Book Value of the shares: Rs.121.98
Enterprise Value (22-Aug-2016): Rs.269.37 billion (Rs.26,937 Cr) as against a market cap of only Rs.8309.07 Cr
P/E: 8.11 against the industry P/E of 18.96
EPS: Rs.9.32
Dividend: 40%
52-week low/high: Rs.58.45/Rs.101.90

Adani Enterprises Ltd, the flagship company of Adani group, reported a flat consolidated net profit of Rs.363.71 crore for the quarter ended June 30, 2016.

The company had posted a consolidated net profit after taxes, minority interest and share of profit of joint ventures and associates of Rs.363.57 crore in the year-ago period.

Net sales in April-June quarter were also almost flat at Rs 8,884.74 crore as against Rs 8,828.81 crore in corresponding period of FY16. The total expenses during the quarter was at Rs 8,468.68 crore, over Rs 8,393.11 crore in the year-ago period.

"Adani Enterprises continue to focus on the sectors of national interest through presence in critical and often under penetrated spaces. The investment climate in the country is building up and the intent of Government to pursue economic reforms is clearly visible. We remain committed to our investment plans in Renewables and domestic Mining sectors as they align with national priorities," Adani Group Chairman Gautam Adani said. Ameet Desai, CFO Adani Group and Executive Director, Adani Enterprises, said, "We maintained our earnings growth trajectory during this quarter. This is testimony of intrinsic strength of our business portfolio."

The government spending on infrastructure and other development projects, well progressing monsoon and pay revisions shall drive an uptick in the investment cycle and energy demand leading to our improved performance, Desai said.

"In Q1FY17, Coal Mining volume grew by 122 percent to 2.1 MMT (Million Metric Tonnes) and in Q1FY17, City Gas Distribution volume is 97 MMSCM," the statement said. Adani group is one of India's leading business houses with revenue of over USD 10 billion.

Buy the shares of the company at Rs.75.50 for a short term target of Rs.83-85. The stock is above its 150D SMA. If it is able to clear the resistance around Rs.79-80, then we can look for ward for targets of Rs.87-91.

Moreover, at present the major indices are going to remain flat, but action will be seen in the beaten down counters. Therefore, don't look at the indices for your buy and sell decision.