There are great expectations being built up around Budget 2008, as it is the last Budget from this government before the general elections. People are looking to it for relief in an economy where inflation and taxes leave little to be enjoyed.
The significant increase in direct tax collections in the current financial year has also raised the expectations of individual taxpayers. According to the latest data releases from the Central Board of Direct Taxes, direct tax collections have recorded a robust growth of over 40% for the April to 15 January period.Salary earnersRe-introduction of the standard deduction could be an easy option to give the salaried section a boost and encourage them to spend more. There are also hopes being voiced in certain sections about the fringe benefits tax (FBT). Salaried taxpayers are wondering if the rate of FBT will be eased on some perks and if employee stock options will be exempt from this tax. Another welcome sop will be an increase in the exemption limit for medical reimbursements by employers (currently capped at Rs 15,000). It is also time that the tax exemptions available on payment of interest and repayment of principal on home loans are revised. An increase in the exemption limits would encourage investment in property. Coupled with some moderation in home loan rates, this may aid the real estate business.InvestorsCurrently, the ceiling for investment of capital gains in infrastructure bonds is Rs 50 lakh. The government should increase the limit or completely withdraw the cap, which is considered very restrictive, especially when the funds are directed towards infrastructure growth. The finance minister may also consider including bonds of other companies that promote growth of important sectors of the economy like education, agriculture, manufacturing and real estate.It is also necessary to clarify the tax positions applicable to individuals who are taxed in India on their worldwide income. Indian tax laws exempt capital gains derived from the sale of a long-term capital asset when an individual invests the gains in specified assets, including a house property. However, it is not clear whether investments made in a house property outside India will be eligible for this exemption.GeneralThe ceiling, as well as number of investments that qualify for tax exemption under Section 80C could be raised. Also, higher deduction could be permitted towards insurance premium payments by individuals (currently Rs 15,000; for senior citizens Rs 20,000). As with every Budget, this time around too, taxpayers expect income tax slabs to be aligned with the rate of inflation and the pace of the growth in other sectors of the economy. Relaxed rates might work as an incentive towards voluntary compliance. Hopefully, no further elements (i.e cess, surcharge) are added to the rate. Taxpayers are also hoping for some steps taken towards a simplified tax regime. For instance, improving administration in PAN allotment, tax refund and assessments will be welcome. It would also help if the government introduces a joint tax filing system for married couples, giving them additional tax concessions, similar to the system followed in the US.
-The author is Director-Tax Practice, Ernst & Young, India
Bulls
Get Ready...for a Bull Ride !!!
Wednesday, February 27, 2008
Budget Outlook- Look out
World's biggest democracy India's budget is going to be announced on 29th Feb.'08 from the bags of Shri P.Chidambaram, finance Minister. Common people of India, Media, Industrialists of India & abroad, FII's,Inst.Investors, Mutual Funds, HNIs, all are looking towards eyes of Shri P.Chidambaram. Whole World's Big Financial Heads are keenly waiting for 29-02-2008,cause U.S. and Euoripean Economies are struggling against fear of economy and industrial slowdown, Where as Emerging Markets like India, China,Brazil, Russia are doing good since last 4-5 Years.
Lawyer from Chennai, Shri P.Chidambaram had given the budget for the financial year 1997-98 & since last 3-4 years. All were super-duper budgets for all common people, Industrialists, Economy,Development & also for the Stock-Market. This year also, people from all over India & abroad hoping for repetition of history. Even I also believe that Central budget would be as good as P.Chidambaram's & Dr. Manmohansingh's image .Simultaneously he has to take care of Inflation,Sub-prime effect to Indian Economy, Rising Crude Oil Prices, Slowing Economic as well as Industrial growth,Further push to Agriculture growth so as to achieve agri sectors targets,Volatality of Foreign Markets & its effect on indian economy,market, Tax-payer's Expactations,Liquidity Flow Control,Interest Rates and Keep GDP Growth above 8.5 or 9 in coming years...etc.
This time finance minister will get the full support of Prime minister who himself was a finance minister & was the promoter of the Economic Reforms.Lalooprasad's Rail Budget is going to favourable.It seems that, this Central Budget is also people,Investor,Industry & Market Friendly. But he has to take care of Left parties, Tax plannings,Inflation,Economic Reforms,PSU Disinvestments,Employment,Fresh investments,support to Indian industries for development & growth in India & abroad. Many Sectors are Waiting for good announcement. Many sectors are struggling against severe competition, so that sectors really needs to boost up and some good relief in taxation. Last few figures of Economic data, Industrial Data was poor but Tax Collection data is coming out with mind blowing figures... roughly 42% up…Record Break tax collection which fullfills Finance Minister's last year budgetary expactations. 29-02-08's budget will be well balanced,likely to focus more on Employment,Rural Development,Agriculture growth,Infrastructure Growth. Coming Budget can be called as " Comman-Man Budget "....In coming budget following Industries likely to gain on good announcement from the FM. Keep a close eye on stocks belonging to these sectors.Undoubtly this year budget is likely to focus more on common people,Farmers cause of Elelctions are nearby in India & Shri P.Chidambaram has to take care of Smt. Sonia Gandhi's view for forthcoming political events.
Here are the few hot scripts sector wise. If these sectors related news is positive then these companies will be in lime light & may create firework in coming days.
Sector : Co.'s Will Be benefited if Good Announcement : Oil and Gas :HPCL,BPCL,IOC,ONGC, Cairn,Gail, Essar OilInfrastructure :IVRCL, Nagarjuna
Construction, DLF, Jai Corp, Telecom :MTNL, R Com, Bharti Tele, IDEA,Spice Tele, GTL
InfraAviation :Jet Air, Air Deccan, Spice Jet
Media & Entertainment :Cinemax, Zee, NDTV,Dish Tv, Zee news.
Banking : SBI, ICICI, HDFC, Union Bank, BOI, Dena, Vijaya, Indusind Bank, Fedral Bank
Agriculture : KS Oil, Ruchi Soya, Zuari Agro, Excel Crop, Usher Agro, Nutraplus Products
Pharma :Surya Pharma, Sandu Pharma, Glenmark,Ranbaxy, Nutraplus Products, Wanbury
Biotech :Jupitor Bio, Sharon Bio, Biocon, Mediaman
IT : TCS, Zensar, Prithvi, Infosys, Tutis Tech, Aftek Info, D-link, Tech Mahindra, Fin.Techno
FMCG :Colgate, ITC, Hind.Lever, Nestle
Oil Exploration :Hind.oil, Selan Exploration
Fertilizers :RCF, GSFC, GNFC,Nagr.Fert, Godavari, Chambal
Tyres : TVS Shrichakra, CEAT, MRF, Apollo
Gems & Jewellery :Rajesh Export, Vaibhav Gems
Finance :Continental Credit, TFL, Ind.Lease
Mining & Minerals :Hind.Copper, RNRL, Kachch Mineral, Sesa Goa, Hind.Zinc,GMDC,VBC Ferro Alloys
Metals :Tisco, Jindal Stainless, Kaamdhenu,Ferro Alloy, Hindalco
Retails & Textile :Arvind, Life Style Fashion, Timex, Santogen Export, Super Spinning, Suryajyoti
Shipping :Mundra Port, SCI, GE Shipping, SEAM
Const. Material :Hyderabad Industries
Chemicals,Paints :Asahi Songwan, Vikram Thermo
Hotels & Tourism :Hotel Leela, Indian Hotel, EIH Associated, ITH
Insurance & Housing Finance :LIC Housing, HDFC, ICICI, GIC, Ind. Lease
Sugar :Renuka, Riga Sugar, Bajaj Hind.,Uttam Sugar
Cement :OCL, ACC, India Cement, Birla Corp
Engineering :Rolta, Hind-Door, Batliboi
Food( Agri Base) :Britannia, Nestle,GTC,ITC, Nutraplus,ADF Food
Logistics :Aegis Log., Gati, GDL
Irrigation :Rungta Irrigation, Jain Irrigation
Elect.Goods : Salzer Electr.
E-Governance & IT Education :Prithvi Info,NIIT, Aptech, NIIT Tech
Auto :Maruti,Telco, Punjab Trac, M&M, VST Tillers
Pumps :KSB Pump,Roto PumpPaper :BILT, AP Paper, Sirpur Paper
Medical Services :Indraprasth Mediacal, Apollo Hospital, Span Diag.
Leather: BATA, Mayur Leather, Liberty Shoes
Pesticides :Excel Crop, Zuari Agro, Bayer Crop
Plastics :Nilkamal,
Printing & Stationery:Navneet Publications
Food Processing:Usher Agro, Agro Dutch Ind., Ravalgaon Sugar, Quality Dairy, Satnam Overseas, Dawat.
Also Keep Eye on Jayaswal Neco, Hitachi Home, Rohit Ferro, Asian Oil Field, Assam Co., Sathwahna Ispat,Pyramid Retail, Ankur Drug, Oswal Chem, Crest Animation, Mphasis, DCB, Kabra Extrusion, India Glycol, VIP Ind,Viceroy Hotels, Max Ind, Voltas, Amar Raja, Garware Off, Sunil Hi-tech, GTL, BRFL, Jyoti, Tata Sponge, Shilp gravures, Avental Soft, Gujarat Gas from respective sectors. May u all get profits in all scripts u have or u r going to trade.
-- Nextresearch
Lawyer from Chennai, Shri P.Chidambaram had given the budget for the financial year 1997-98 & since last 3-4 years. All were super-duper budgets for all common people, Industrialists, Economy,Development & also for the Stock-Market. This year also, people from all over India & abroad hoping for repetition of history. Even I also believe that Central budget would be as good as P.Chidambaram's & Dr. Manmohansingh's image .Simultaneously he has to take care of Inflation,Sub-prime effect to Indian Economy, Rising Crude Oil Prices, Slowing Economic as well as Industrial growth,Further push to Agriculture growth so as to achieve agri sectors targets,Volatality of Foreign Markets & its effect on indian economy,market, Tax-payer's Expactations,Liquidity Flow Control,Interest Rates and Keep GDP Growth above 8.5 or 9 in coming years...etc.
This time finance minister will get the full support of Prime minister who himself was a finance minister & was the promoter of the Economic Reforms.Lalooprasad's Rail Budget is going to favourable.It seems that, this Central Budget is also people,Investor,Industry & Market Friendly. But he has to take care of Left parties, Tax plannings,Inflation,Economic Reforms,PSU Disinvestments,Employment,Fresh investments,support to Indian industries for development & growth in India & abroad. Many Sectors are Waiting for good announcement. Many sectors are struggling against severe competition, so that sectors really needs to boost up and some good relief in taxation. Last few figures of Economic data, Industrial Data was poor but Tax Collection data is coming out with mind blowing figures... roughly 42% up…Record Break tax collection which fullfills Finance Minister's last year budgetary expactations. 29-02-08's budget will be well balanced,likely to focus more on Employment,Rural Development,Agriculture growth,Infrastructure Growth. Coming Budget can be called as " Comman-Man Budget "....In coming budget following Industries likely to gain on good announcement from the FM. Keep a close eye on stocks belonging to these sectors.Undoubtly this year budget is likely to focus more on common people,Farmers cause of Elelctions are nearby in India & Shri P.Chidambaram has to take care of Smt. Sonia Gandhi's view for forthcoming political events.
Here are the few hot scripts sector wise. If these sectors related news is positive then these companies will be in lime light & may create firework in coming days.
Sector : Co.'s Will Be benefited if Good Announcement : Oil and Gas :HPCL,BPCL,IOC,ONGC, Cairn,Gail, Essar OilInfrastructure :IVRCL, Nagarjuna
Construction, DLF, Jai Corp, Telecom :MTNL, R Com, Bharti Tele, IDEA,Spice Tele, GTL
InfraAviation :Jet Air, Air Deccan, Spice Jet
Media & Entertainment :Cinemax, Zee, NDTV,Dish Tv, Zee news.
Banking : SBI, ICICI, HDFC, Union Bank, BOI, Dena, Vijaya, Indusind Bank, Fedral Bank
Agriculture : KS Oil, Ruchi Soya, Zuari Agro, Excel Crop, Usher Agro, Nutraplus Products
Pharma :Surya Pharma, Sandu Pharma, Glenmark,Ranbaxy, Nutraplus Products, Wanbury
Biotech :Jupitor Bio, Sharon Bio, Biocon, Mediaman
IT : TCS, Zensar, Prithvi, Infosys, Tutis Tech, Aftek Info, D-link, Tech Mahindra, Fin.Techno
FMCG :Colgate, ITC, Hind.Lever, Nestle
Oil Exploration :Hind.oil, Selan Exploration
Fertilizers :RCF, GSFC, GNFC,Nagr.Fert, Godavari, Chambal
Tyres : TVS Shrichakra, CEAT, MRF, Apollo
Gems & Jewellery :Rajesh Export, Vaibhav Gems
Finance :Continental Credit, TFL, Ind.Lease
Mining & Minerals :Hind.Copper, RNRL, Kachch Mineral, Sesa Goa, Hind.Zinc,GMDC,VBC Ferro Alloys
Metals :Tisco, Jindal Stainless, Kaamdhenu,Ferro Alloy, Hindalco
Retails & Textile :Arvind, Life Style Fashion, Timex, Santogen Export, Super Spinning, Suryajyoti
Shipping :Mundra Port, SCI, GE Shipping, SEAM
Const. Material :Hyderabad Industries
Chemicals,Paints :Asahi Songwan, Vikram Thermo
Hotels & Tourism :Hotel Leela, Indian Hotel, EIH Associated, ITH
Insurance & Housing Finance :LIC Housing, HDFC, ICICI, GIC, Ind. Lease
Sugar :Renuka, Riga Sugar, Bajaj Hind.,Uttam Sugar
Cement :OCL, ACC, India Cement, Birla Corp
Engineering :Rolta, Hind-Door, Batliboi
Food( Agri Base) :Britannia, Nestle,GTC,ITC, Nutraplus,ADF Food
Logistics :Aegis Log., Gati, GDL
Irrigation :Rungta Irrigation, Jain Irrigation
Elect.Goods : Salzer Electr.
E-Governance & IT Education :Prithvi Info,NIIT, Aptech, NIIT Tech
Auto :Maruti,Telco, Punjab Trac, M&M, VST Tillers
Pumps :KSB Pump,Roto PumpPaper :BILT, AP Paper, Sirpur Paper
Medical Services :Indraprasth Mediacal, Apollo Hospital, Span Diag.
Leather: BATA, Mayur Leather, Liberty Shoes
Pesticides :Excel Crop, Zuari Agro, Bayer Crop
Plastics :Nilkamal,
Printing & Stationery:Navneet Publications
Food Processing:Usher Agro, Agro Dutch Ind., Ravalgaon Sugar, Quality Dairy, Satnam Overseas, Dawat.
Also Keep Eye on Jayaswal Neco, Hitachi Home, Rohit Ferro, Asian Oil Field, Assam Co., Sathwahna Ispat,Pyramid Retail, Ankur Drug, Oswal Chem, Crest Animation, Mphasis, DCB, Kabra Extrusion, India Glycol, VIP Ind,Viceroy Hotels, Max Ind, Voltas, Amar Raja, Garware Off, Sunil Hi-tech, GTL, BRFL, Jyoti, Tata Sponge, Shilp gravures, Avental Soft, Gujarat Gas from respective sectors. May u all get profits in all scripts u have or u r going to trade.
-- Nextresearch
Railway Budget: Record outlays may benefit a host of cos
Armed with a cash surplus of Rs 25,000 crore, the Indian Railways hasannounced several initiatives towards easing infrastructurebottlenecks in the Railways. These moves may open up a host ofbusiness opportunities for many companies.
Backed by the largest ever annual plan outlay of over Rs 37,500 crore,the Railways Minister's growth initiatives appear promising.Rolling stock
The Budget has laid down plans to procure an all-time high number of20,000 wagons, 250 diesel and 220 electric locomotives for the comingyear. This opens up sizeable potential revenues for wagonmanufacturing companies such as Texmaco, BEML and Titagarh Wagons (thecompany has recently filed for an initial public offering with SEBI),which derive a significant portion of their revenues from themanufacture of wagons for the Railways.
Besides revenue growth, these companies may also benefit by way ofmargin expansion over the long-term, given the proposal to migrate tohigh-end stainless steel wagons starting from 2011. The Government'sfocus on setting up public-private partnerships to furtherinfrastructure growth may also help keep the demand for wagonsbuoyant.
That apart, introduction of a wagon leasing policy and the wagoninvestment scheme may reduce the capital outgo for the buyers andboost demand. Nonetheless, this could also breed competition. Attemptsby established foreign players such as General Electric, Alstom andBombardier, with a superior technology backup to expand theiroperations in the Indian market, may raise competition for existingplayers.
In this context, the fact that Indian companies enjoy access to lowermanufacturing cost offers some respite.Freight corridors
Kalindee Rail Nirman, a frontrunner in railway related infrastructureworks such as construction of new line and gauge conversion, maybenefit significantly from the setting up of dedicated freightcorridors by the Railways. This may translate into topline growth forthe company from the next financial year, with the work on both theEastern and Western dedicated freight corridors slated to begin by2008-09.
The thrust on setting up of freight corridors, rail-port connectivityand increased investments expected in container rolling stock andinland container depots by Container Corporation and other operatorsmay also open up opportunities for logistics players such as GatewayDistriparks and Allcargo Global.
With newer schemes in place for procuring wagons, these players may beable to expand at a faster rate. This could have marginally negativeimplications for Container Corporation, which stands to lose itsmonopoly in rail logistics. The proposal to form special purposevehicles to establish rail links to ports such as Mundra, Kandla andKrishnapatnam may help Mundra Port and SEZ scale higher growth by wayof improved connectivity.Other initiatives
Kalindee Rail Nirman may also benefit from the railways' target to setup new lines spanning 350 km and gauge conversion for over 2,150 km.Notably, these have been planned for an outlay of Rs 1,730 crore andRs 2,489 crore respectively.
Further, the Government's focus to strengthen railway safety throughautomatic devices such as anti-collision device (ACD) and signal andtelecommunication (Rs 1,520 crore) also holds potential. Companiessuch Kernex Microsystems, which manufactures ACDs and other companiessuch as Integra Hindustan, Kalindee and Siemens, which are involved inproviding signalling equipment to the Railways stand to gain fromthis. Among other beneficiaries of the rail budget are companies suchas Stone India, Hind Rectifiers and Simplex Castings.IT push
Apart from capital goods suppliers, the Railway Budget offers someopportunities for domestic IT hardware and software companies as well.Proposals ranging from increased mobile ticketing, augmenting ITinfrastructure, fleet tracking, having CTV and LED displays at Railwaystations to having complete call-centre infrastructure by 2008-09gives companies operating in these segments significant opportunity.
For example, while Bartronics might benefit from greater RFIDdeployment, proposals to increase mobile ticketing may benefit CMC.
MIC Electronics being a strong LED and video display manufacturer maybe a beneficiary.
HCL Infosystems with its complete IT infrastructure offering andexisting Government clientele could make inroads into Railways. Alongwith CMC, it could also look to tap into system integration projects.
All these companies are used to working with the relatively smallermargins that domestic deals provide. But it remains to be seen if tier-I IT companies will look at entering this fray, as a means to increasetheir domestic footprint.
Source : Business Line
www.thehindubusinessline.com/2008/02/27/stories/2008022752331700.htm
Backed by the largest ever annual plan outlay of over Rs 37,500 crore,the Railways Minister's growth initiatives appear promising.Rolling stock
The Budget has laid down plans to procure an all-time high number of20,000 wagons, 250 diesel and 220 electric locomotives for the comingyear. This opens up sizeable potential revenues for wagonmanufacturing companies such as Texmaco, BEML and Titagarh Wagons (thecompany has recently filed for an initial public offering with SEBI),which derive a significant portion of their revenues from themanufacture of wagons for the Railways.
Besides revenue growth, these companies may also benefit by way ofmargin expansion over the long-term, given the proposal to migrate tohigh-end stainless steel wagons starting from 2011. The Government'sfocus on setting up public-private partnerships to furtherinfrastructure growth may also help keep the demand for wagonsbuoyant.
That apart, introduction of a wagon leasing policy and the wagoninvestment scheme may reduce the capital outgo for the buyers andboost demand. Nonetheless, this could also breed competition. Attemptsby established foreign players such as General Electric, Alstom andBombardier, with a superior technology backup to expand theiroperations in the Indian market, may raise competition for existingplayers.
In this context, the fact that Indian companies enjoy access to lowermanufacturing cost offers some respite.Freight corridors
Kalindee Rail Nirman, a frontrunner in railway related infrastructureworks such as construction of new line and gauge conversion, maybenefit significantly from the setting up of dedicated freightcorridors by the Railways. This may translate into topline growth forthe company from the next financial year, with the work on both theEastern and Western dedicated freight corridors slated to begin by2008-09.
The thrust on setting up of freight corridors, rail-port connectivityand increased investments expected in container rolling stock andinland container depots by Container Corporation and other operatorsmay also open up opportunities for logistics players such as GatewayDistriparks and Allcargo Global.
With newer schemes in place for procuring wagons, these players may beable to expand at a faster rate. This could have marginally negativeimplications for Container Corporation, which stands to lose itsmonopoly in rail logistics. The proposal to form special purposevehicles to establish rail links to ports such as Mundra, Kandla andKrishnapatnam may help Mundra Port and SEZ scale higher growth by wayof improved connectivity.Other initiatives
Kalindee Rail Nirman may also benefit from the railways' target to setup new lines spanning 350 km and gauge conversion for over 2,150 km.Notably, these have been planned for an outlay of Rs 1,730 crore andRs 2,489 crore respectively.
Further, the Government's focus to strengthen railway safety throughautomatic devices such as anti-collision device (ACD) and signal andtelecommunication (Rs 1,520 crore) also holds potential. Companiessuch Kernex Microsystems, which manufactures ACDs and other companiessuch as Integra Hindustan, Kalindee and Siemens, which are involved inproviding signalling equipment to the Railways stand to gain fromthis. Among other beneficiaries of the rail budget are companies suchas Stone India, Hind Rectifiers and Simplex Castings.IT push
Apart from capital goods suppliers, the Railway Budget offers someopportunities for domestic IT hardware and software companies as well.Proposals ranging from increased mobile ticketing, augmenting ITinfrastructure, fleet tracking, having CTV and LED displays at Railwaystations to having complete call-centre infrastructure by 2008-09gives companies operating in these segments significant opportunity.
For example, while Bartronics might benefit from greater RFIDdeployment, proposals to increase mobile ticketing may benefit CMC.
MIC Electronics being a strong LED and video display manufacturer maybe a beneficiary.
HCL Infosystems with its complete IT infrastructure offering andexisting Government clientele could make inroads into Railways. Alongwith CMC, it could also look to tap into system integration projects.
All these companies are used to working with the relatively smallermargins that domestic deals provide. But it remains to be seen if tier-I IT companies will look at entering this fray, as a means to increasetheir domestic footprint.
Source : Business Line
www.thehindubusinessline.com/2008/02/27/stories/2008022752331700.htm
Martin T Sosnoff: If You Still Have A Head Hanging On Your Shoulder, then do the following:
-Sell Real Estate Stocks
-Sell Banks
-Sell Stock Brokerages
-Sell All Growth Stocks
-Pull Money Out Of Mutual Funds
For neither will Real Estate get sold at artificially inflated prices, nor will the Banks ever get their money back from Real Estate related mortgages. Worse, not a single guy or research analyst in Bombay will tell you that earnings this year will not be growing 20 per cent, but may dwindle down to low teens. In such a scenario, not a single mutual fund will get spared as the market itself caves down by mid-summers to levels not considered possible in February 2008.
Six weeks ago, former President Bill Clinton stood in my living room and told me he expected Hillary would wrap up the nomination by Super Tuesday. He added that Mitt Romney looked presidential to him. All this from one of the greatest politicians of the 20th century.
Even the Federal Reserve Board and U.S. Treasury run scared as the contagion in credit markets leeches out of bounds. First, subprime paper deconstructed; then all kinds of collateralized debt obligations, unplaced leveraged-buyout paper and high-yield bonds already outstanding. Even investment-grade corporate debentures now yield 5.7%, and auction bonds find no buyers.
The municipals market is skittish, too. Mortgage insurers belch black blood from their disastrous diversification, guaranteeing subprime mortgage credits. They need enormous infusions of capital to cover losses from this still-deteriorating paper.
The size and scope of our financial markets' upset goes beyond the $200 billion savings-and-loan disaster and the south-of-the-border lending fiasco of our reserve city banks decades ago. The U.S. Treasury made savers whole on their savings deposits and ended up guaranteeing much of the sovereign loans to Mexico and South America.
Citigroup (nyse: C - news - people ) touched down around $10 a share; it's presently trading at $25, down from $50. Let's hope its broad-based franchise in worldwide consumer banking stabilizes the flagship office's trading writeoffs.
The market prices Citigroup, Merrill Lynch (nyse: MER - news - people ) and other financial houses on what it believes is core earning power--this is shaky ground. American International Group (nyse: AIG - news - people ) was forced by its auditors to take a $5 billion writedown on junk paper, and the stock dropped 10% overnight.
Additional writedowns by Wall Street houses won't go unnoticed. Their equities will be marked down in proportion to the hits their net asset values have suffered.
I liked the old Wall Street better. There were no PhD mathematicians triggering massive programmed trades, and house traders had limited calls on capital. Société Générale's trader could not have sustained a $70 billion open position in the futures market undetected by the bank. CEOs didn't award themselves $30 million bonuses one year and then face dismissal the following year when their businesses blew up.
Wall Street houses weren't public until Donaldson, Lufkin and Jenrette broke the ice. Before then, if the business collapsed, partners lost all their capital and moved to garden apartments in New Jersey. The elongated recession of 1973 to 1974 was a killer for anyone undercapitalized--there was no one swooping in from Saudi Arabia or China to bail out the Street.
The Heartland doesn't care that Wall Street and a bunch of banks shot themselves in the foot--but it should care. It's harder to qualify for a mortgage, credit card debt is still expensive, and the yield on money market paper--even on two-year notes--is under 2%.
The Federal Reserve Board has already signaled lower money market rates are in the cards. As the economy falters, I can see Federal Funds at 2%. So the real yield on money market paper falls below zero. Not good for all the country's widows parking capital therein.
The underwriting capacity on Wall Street now is strictly prescribed. You can't sell leveraged buyout paper, so deal activity is on hold. Alternative investment players like Blackstone and Fortress stand sliced in half by the market. Only well-heeled corporate giants, like Microsoft (nasdaq: MSFT - news - people ) and Google (nasdaq: GOOG - news - people ), carry the wherewithal to make mega deals.
Wall Street, littered with the carcasses of wounded beasts, impacts the stock market. Deal excitement carried the market through much of the 1980s, before Black Monday. Today, there's no speculation in the air. The backlog of old deal paper that never get placed runs into the hundreds of billions. It may take all this years to clear it out of brokerage house inventory--at a discount up to 20%.
The Street's security analysts are behind their economists in accepting recession as the most likely scenario this year. Earnings estimates for the market are coming down slowly.
I'm on the low side with a $90-a-share projection for the S&P 500 Index. If the recession bites deeply, I could drop down to the low $80s. The multiplier for the market will hang tough in the mid teens, with interest rates so low, but the possibility of a market in the low 1,200s, alas, is real.
I'm talking about taking another 10% off family wealth, which already sustained a $6 trillion hit from financial assets and real estate. Statistics on home inventories disturb me. The home builders' run rate on construction looks to be around 600,000 new homes.
Normalized demand is 1.2 million, but there are approximately 2 million homes in inventory for sale. And it could take a couple of years to clear at lower price points. To rationalize home prices bottoming out this year--even in 2009--remains a stretch.
I'm not the only one who believes the bottoming of home prices is the leading indicator for the end of recession and the beginning of a new bull market. It will quicken consumer sentiment and cap the rising rate of mortgage delinquencies.
Wall Street firms then have their day in the sun. But I don't believe it's around the corner, and thus premature to discount as a probability for the second half of 2008. Too many money managers are in this camp.
The month of January was a very bad year for me. There weren't 10 big surprises, but three or four were enough. Growth stocks abruptly started to underperform value properties. This wasn't my call.
Oil prices surged the past few weeks while I expected a fall to the $80-a-barrel level, not the $99 price point we're seeing now. Super growth stocks like Apple (nasdaq: AAPL - news - people ) and Google caved in. There's just no other descriptive terminology.
Airlines and natural resource properties outperformed high-valuation growth. You wouldn't expect this in a weakening economy.
I bought Delta and Continental because I thought oil was heading south. When talk of mergers in the industry stirred the pot, I got lucky. Vale (RIO) remains my top natural resource play--iron ore earmarked for China's steel mills.
Many of the health care stocks I bought as recession hedges lay dead in the water--Merck (nyse: MRK - news - people ), HMOs like Wellpoint and Aetna (nyse: AET - news - people ), even Celgene (nasdaq: CELG - news - people ) and Gilead are stalled out.
Sooner or later the market humbles all its players. The proper frame of mind is that if your reasoning is sound, the market will come your way, sooner or later. If your working hypothesis is wrong, you'll pay for it, and then change. Rationalizing yourself into the poor house is not exactly a viable option.
-Sell Banks
-Sell Stock Brokerages
-Sell All Growth Stocks
-Pull Money Out Of Mutual Funds
For neither will Real Estate get sold at artificially inflated prices, nor will the Banks ever get their money back from Real Estate related mortgages. Worse, not a single guy or research analyst in Bombay will tell you that earnings this year will not be growing 20 per cent, but may dwindle down to low teens. In such a scenario, not a single mutual fund will get spared as the market itself caves down by mid-summers to levels not considered possible in February 2008.
Six weeks ago, former President Bill Clinton stood in my living room and told me he expected Hillary would wrap up the nomination by Super Tuesday. He added that Mitt Romney looked presidential to him. All this from one of the greatest politicians of the 20th century.
Even the Federal Reserve Board and U.S. Treasury run scared as the contagion in credit markets leeches out of bounds. First, subprime paper deconstructed; then all kinds of collateralized debt obligations, unplaced leveraged-buyout paper and high-yield bonds already outstanding. Even investment-grade corporate debentures now yield 5.7%, and auction bonds find no buyers.
The municipals market is skittish, too. Mortgage insurers belch black blood from their disastrous diversification, guaranteeing subprime mortgage credits. They need enormous infusions of capital to cover losses from this still-deteriorating paper.
The size and scope of our financial markets' upset goes beyond the $200 billion savings-and-loan disaster and the south-of-the-border lending fiasco of our reserve city banks decades ago. The U.S. Treasury made savers whole on their savings deposits and ended up guaranteeing much of the sovereign loans to Mexico and South America.
Citigroup (nyse: C - news - people ) touched down around $10 a share; it's presently trading at $25, down from $50. Let's hope its broad-based franchise in worldwide consumer banking stabilizes the flagship office's trading writeoffs.
The market prices Citigroup, Merrill Lynch (nyse: MER - news - people ) and other financial houses on what it believes is core earning power--this is shaky ground. American International Group (nyse: AIG - news - people ) was forced by its auditors to take a $5 billion writedown on junk paper, and the stock dropped 10% overnight.
Additional writedowns by Wall Street houses won't go unnoticed. Their equities will be marked down in proportion to the hits their net asset values have suffered.
I liked the old Wall Street better. There were no PhD mathematicians triggering massive programmed trades, and house traders had limited calls on capital. Société Générale's trader could not have sustained a $70 billion open position in the futures market undetected by the bank. CEOs didn't award themselves $30 million bonuses one year and then face dismissal the following year when their businesses blew up.
Wall Street houses weren't public until Donaldson, Lufkin and Jenrette broke the ice. Before then, if the business collapsed, partners lost all their capital and moved to garden apartments in New Jersey. The elongated recession of 1973 to 1974 was a killer for anyone undercapitalized--there was no one swooping in from Saudi Arabia or China to bail out the Street.
The Heartland doesn't care that Wall Street and a bunch of banks shot themselves in the foot--but it should care. It's harder to qualify for a mortgage, credit card debt is still expensive, and the yield on money market paper--even on two-year notes--is under 2%.
The Federal Reserve Board has already signaled lower money market rates are in the cards. As the economy falters, I can see Federal Funds at 2%. So the real yield on money market paper falls below zero. Not good for all the country's widows parking capital therein.
The underwriting capacity on Wall Street now is strictly prescribed. You can't sell leveraged buyout paper, so deal activity is on hold. Alternative investment players like Blackstone and Fortress stand sliced in half by the market. Only well-heeled corporate giants, like Microsoft (nasdaq: MSFT - news - people ) and Google (nasdaq: GOOG - news - people ), carry the wherewithal to make mega deals.
Wall Street, littered with the carcasses of wounded beasts, impacts the stock market. Deal excitement carried the market through much of the 1980s, before Black Monday. Today, there's no speculation in the air. The backlog of old deal paper that never get placed runs into the hundreds of billions. It may take all this years to clear it out of brokerage house inventory--at a discount up to 20%.
The Street's security analysts are behind their economists in accepting recession as the most likely scenario this year. Earnings estimates for the market are coming down slowly.
I'm on the low side with a $90-a-share projection for the S&P 500 Index. If the recession bites deeply, I could drop down to the low $80s. The multiplier for the market will hang tough in the mid teens, with interest rates so low, but the possibility of a market in the low 1,200s, alas, is real.
I'm talking about taking another 10% off family wealth, which already sustained a $6 trillion hit from financial assets and real estate. Statistics on home inventories disturb me. The home builders' run rate on construction looks to be around 600,000 new homes.
Normalized demand is 1.2 million, but there are approximately 2 million homes in inventory for sale. And it could take a couple of years to clear at lower price points. To rationalize home prices bottoming out this year--even in 2009--remains a stretch.
I'm not the only one who believes the bottoming of home prices is the leading indicator for the end of recession and the beginning of a new bull market. It will quicken consumer sentiment and cap the rising rate of mortgage delinquencies.
Wall Street firms then have their day in the sun. But I don't believe it's around the corner, and thus premature to discount as a probability for the second half of 2008. Too many money managers are in this camp.
The month of January was a very bad year for me. There weren't 10 big surprises, but three or four were enough. Growth stocks abruptly started to underperform value properties. This wasn't my call.
Oil prices surged the past few weeks while I expected a fall to the $80-a-barrel level, not the $99 price point we're seeing now. Super growth stocks like Apple (nasdaq: AAPL - news - people ) and Google caved in. There's just no other descriptive terminology.
Airlines and natural resource properties outperformed high-valuation growth. You wouldn't expect this in a weakening economy.
I bought Delta and Continental because I thought oil was heading south. When talk of mergers in the industry stirred the pot, I got lucky. Vale (RIO) remains my top natural resource play--iron ore earmarked for China's steel mills.
Many of the health care stocks I bought as recession hedges lay dead in the water--Merck (nyse: MRK - news - people ), HMOs like Wellpoint and Aetna (nyse: AET - news - people ), even Celgene (nasdaq: CELG - news - people ) and Gilead are stalled out.
Sooner or later the market humbles all its players. The proper frame of mind is that if your reasoning is sound, the market will come your way, sooner or later. If your working hypothesis is wrong, you'll pay for it, and then change. Rationalizing yourself into the poor house is not exactly a viable option.
Reliance Powered???
Business: R POWER.
The company claims that it will be developing power generation projects of 28200 MW over the next decade.
According to the IPO RHP, some of the projects that it will be developing are:
Rosa-I (to be commissioned in March 2010) - 600 MW - Coal based.
Butibori (to be commissioned in June 2010) - 300 MW - Coal based.
Rosa-II (to be commissioned in September 2010) - 600 MW - Coal based.
Shahpur Gas (to be commissioned in March 2011) - 2800 MW - Gas based.
Shahpur Coal (to be commissioned in December 2011) - 1200 MW - Coal based.
Dadri (to be commissioned in March 2013) - 7480 MW - Gas based.
Krishnapatnam (to be commissioned in September 2013) - 4000 MW - Coal based.
Urthing Sobla (to be commissioned in March 2014) - 400 MW - Hydropower based.
Tato II (to be commissioned in March 2014) - 700 MW - Hydropower based.
MP Power (to be commissioned in July 2014) - 3960 MW - Coal based.
Siyom (to be commissioned in March 2015) - 1000 MW - Hydropower based.
Kalai II (to be commissioned in March 2016) - 1200 MW - Hydropower based.
Sasan (to be commissioned in April 2016) - 3960 MW - Coal based.
If
everything goes as planned, capacity of Reliance Power at end of each year till 2016 will be:
2008: 0 MW.
2009: 0 MW.
2010: 1500 MW.
2011: 5500 MW.
2012: 5500 MW.
2013: 16980 MW.
2014: 22040 MW.
2015: 23040 MW.
2016: 28200 MW.
=======================================
Other Similar Companies:
I can think of two companies in the power generation sector that Reliance Power can be compared with:
NTPC and Tata Power.
NTPC has current capacity of 28000 MW and has target to achieve 66000 MW by 2017. ( See this thread on NTPC).
Tata Power has current capacity of 2300 MW.
It will be adding 10000 MW of capacity more by 2012. Thus, it will have a capacity of around 12300 MW by 2012 end.
The additions will all be coal based.
-Mundra Ultra Mega Power Project -4000 MW.
-Power plants in Maharastra - 3000 MW.
-Captive power plants for Tata Steel - 2000 MW
-Maithon Power Plant at Jharkhand - 1000 MW.
Tata Power also has other smaller business and also wants to enter shipping and logistics. Besides that Tata Power has investments valued at Rs 400+ per share of Tata Power. This works out to be Rs 10000 crore.
Around 2012 - 2013, both Tata Power is expected to have similar capacity as Reliance Power.
The interesting thing is at current price of Rs 1457, Tata Power is valued at just Rs 30000 crore. Remove Rs 10000 crore of investments and you can have it only for Rs 20000 crore.
At Rs 900, Reliance Power will have market value of 200000 crores....6.67 times that of Tata Power. .
========================================
Financials:
With 2300 MW capacity, Tata Power made standalone profit of Rs 700 crore in FY 2007.
With 28000 MW capacity, NTPC made standalone profit of Rs 6900 crore in FY 2007.
Lets assume Reliance Power turns out to be much more efficient than these two companies. Add to that increased power rates.
With 28200 capacity, assume Reliance Power makes Rs 15000 crore of net profit in 2016-2017. Power companies are considered as utilities and worldwide trade at 10-15 times their earnings.
Lets assume 15 times ratio for Reliance Power in 2016.
What will be its market value?
15000 X 15 = Rs 225000 crore or Rs 995 per share.
This is an optimistic view:
-there will be no further equity dilution till 2016.
-assuming nearly twice as much efficiency as NTPC.
-that all projects will be completed before 2016 end.
-the company would have paid back all debt by then and interest costs would be in similar range as NTPC.
(NTPC already has established 28000 MW capacity and comparatively much lesser interest costs. (NTPC's P&L account states Rs 1800 interest cost for FY 2007).
So what about the debt?
The RHP mentions estimated cost of six projects Rosa I, Rosa II, Butibori, Sasan, Shahpur Coal, Urthing Sobla as Rs 30000 crore+.
Analysts estimate that Reliance Power will need Rs 70000 crore of debt to finance its projects which are estimated to cost 100000 crore+.
Rs 70000 crore of debt is not going to come at 2% interest rate. Even a 6% interest would mean an annual interest cost of Rs 4200 crore. Only in 2013, the company's capacity will cross 10000 MW. Thus, I do not expect any major debt repayment before 2014. If things don't go as planned, the debt burden will make a mockery of the balance sheet.
With Rs 12000 crore raised in equity and Rs 70000 crore of debt, these whole business will become a high-risk venture.
Any unforeseen delay/derailment of plans may create major problems for this company.
========================================
Reliance Power - The Overlooked Fact:
Is Reliance Power just "Reliance Power"?
No.
It is actually "Reliance Power Limited" - a limited company.
So what does this mean for Reliance Power Limited?
It means if in the rare case, the calculations of the management go wrong and the company somehow goes to insolvency, none of the shareholders will lose anything expect the value of the shares.
If you are a share holder of Reliance Power and it goes into insolvency (unable to pay back debts), what do you stand to lose?
Rs 430 per share.
Lot of money....right?
What does Anil Ambani's AAA Project or REL lose?
Both of them had got their 45% (post-IPO) stake for Rs 1000 crore each. Plus they will each subscribe to 1.6 crore shares each at Rs 450 in the IPO......which works out to be Rs 720 crore.
Thus, AAA Project will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore and REL will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore.
Little less than Rs 17 per share.
This is what both the promoters are risking in this project.... Rs 17 per share ; while investors will be risking Rs 450 per share .
This is exactly the reason why Reliance Power was created.
First, by contributing just Rs 1720 crore each to Reliance Power, the promoters have shifted all risk to investors.
Second, by getting 45% stake (in REL's projects) to AAA Project for a mere Rs 1000 crore, AAA Projects (and Anil Ambani) have created wealth out of thin air.
Anil Ambani's Rs 1000 crore investment will be worth Rs 100000 crore when Reliance Power lists at Rs 900.
If the gamble works, the promoters (holding 90% stake in Reliance Power) will be worth billions of dollars.
If the gamble doesn't work, the promoters will lose Rs 1720 crore each and investors will lose Rs 10000+ crore which they will be paying for a mere 10% stake in Reliance Power.
What a way to create wealth...!!!....I don't have words to describe the brilliance of Anil Ambani's plans... .
========================================
First, other companies are much cheaper.
Why should I keep a company valued at Rs 200000 crore -
when another company (with similar capacity by 2013) is available at Rs 30000 crore with much smaller debt burden and Rs 10000 crore worth of investments ...........referring to Tata Power.
If Reliance Power (at Rs 900) is available for Rs 200000 crore, why not buy NTPC for a similar price ......Rs 225000 crore. NTPC plans to have a capacity of 66000 MW in 2017, while Reliance Power will have 28200 MW capacity in 2016.
Second, the risk is higher than other existing companies.
With marginally cash flows for next 5 years and Rs 70000+ crore of debt, the risk for Reliance Power is high. Tata Power and NTPC have existing cash flows to handle expansions....Reliance Power does not.
Third and the biggest factor is....the valuation of the company doesn't make much sense.
Why should Reliance Power be valued at Rs 200000 crore, when in highly optimistic scenario, it will not make more than Rs 15000 crore of profit in 2016 ? Even if it touches that figure of Rs 15000 crore, its market value in 2016 will not be much more than 225000-300000 crore. (if given a 15-20 times multiple).
A fixed deposit will make more money than that in 8 years.....and that too without any risk.
Also, I got the optimistic Rs 15000 crore figure by assuming two times margins as NTPC.
The fact is..... at least till 2014, Reliance Power will still be carrying most of its Rs 70000 crore debt and its interest costs will squeeze margins to a large extent.
Author: Dr. Kamlesh Agarwala
Source:
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www.groups.google.com/group/aiii
www.smsgupshup.com/groups/EagleEyeTrade
-~----------~----~----~----~------~----~------~--~---
The company claims that it will be developing power generation projects of 28200 MW over the next decade.
According to the IPO RHP, some of the projects that it will be developing are:
Rosa-I (to be commissioned in March 2010) - 600 MW - Coal based.
Butibori (to be commissioned in June 2010) - 300 MW - Coal based.
Rosa-II (to be commissioned in September 2010) - 600 MW - Coal based.
Shahpur Gas (to be commissioned in March 2011) - 2800 MW - Gas based.
Shahpur Coal (to be commissioned in December 2011) - 1200 MW - Coal based.
Dadri (to be commissioned in March 2013) - 7480 MW - Gas based.
Krishnapatnam (to be commissioned in September 2013) - 4000 MW - Coal based.
Urthing Sobla (to be commissioned in March 2014) - 400 MW - Hydropower based.
Tato II (to be commissioned in March 2014) - 700 MW - Hydropower based.
MP Power (to be commissioned in July 2014) - 3960 MW - Coal based.
Siyom (to be commissioned in March 2015) - 1000 MW - Hydropower based.
Kalai II (to be commissioned in March 2016) - 1200 MW - Hydropower based.
Sasan (to be commissioned in April 2016) - 3960 MW - Coal based.
If
everything goes as planned, capacity of Reliance Power at end of each year till 2016 will be:
2008: 0 MW.
2009: 0 MW.
2010: 1500 MW.
2011: 5500 MW.
2012: 5500 MW.
2013: 16980 MW.
2014: 22040 MW.
2015: 23040 MW.
2016: 28200 MW.
=======================================
Other Similar Companies:
I can think of two companies in the power generation sector that Reliance Power can be compared with:
NTPC and Tata Power.
NTPC has current capacity of 28000 MW and has target to achieve 66000 MW by 2017. ( See this thread on NTPC).
Tata Power has current capacity of 2300 MW.
It will be adding 10000 MW of capacity more by 2012. Thus, it will have a capacity of around 12300 MW by 2012 end.
The additions will all be coal based.
-Mundra Ultra Mega Power Project -4000 MW.
-Power plants in Maharastra - 3000 MW.
-Captive power plants for Tata Steel - 2000 MW
-Maithon Power Plant at Jharkhand - 1000 MW.
Tata Power also has other smaller business and also wants to enter shipping and logistics. Besides that Tata Power has investments valued at Rs 400+ per share of Tata Power. This works out to be Rs 10000 crore.
Around 2012 - 2013, both Tata Power is expected to have similar capacity as Reliance Power.
The interesting thing is at current price of Rs 1457, Tata Power is valued at just Rs 30000 crore. Remove Rs 10000 crore of investments and you can have it only for Rs 20000 crore.
At Rs 900, Reliance Power will have market value of 200000 crores....6.67 times that of Tata Power. .
========================================
Financials:
With 2300 MW capacity, Tata Power made standalone profit of Rs 700 crore in FY 2007.
With 28000 MW capacity, NTPC made standalone profit of Rs 6900 crore in FY 2007.
Lets assume Reliance Power turns out to be much more efficient than these two companies. Add to that increased power rates.
With 28200 capacity, assume Reliance Power makes Rs 15000 crore of net profit in 2016-2017. Power companies are considered as utilities and worldwide trade at 10-15 times their earnings.
Lets assume 15 times ratio for Reliance Power in 2016.
What will be its market value?
15000 X 15 = Rs 225000 crore or Rs 995 per share.
This is an optimistic view:
-there will be no further equity dilution till 2016.
-assuming nearly twice as much efficiency as NTPC.
-that all projects will be completed before 2016 end.
-the company would have paid back all debt by then and interest costs would be in similar range as NTPC.
(NTPC already has established 28000 MW capacity and comparatively much lesser interest costs. (NTPC's P&L account states Rs 1800 interest cost for FY 2007).
So what about the debt?
The RHP mentions estimated cost of six projects Rosa I, Rosa II, Butibori, Sasan, Shahpur Coal, Urthing Sobla as Rs 30000 crore+.
Analysts estimate that Reliance Power will need Rs 70000 crore of debt to finance its projects which are estimated to cost 100000 crore+.
Rs 70000 crore of debt is not going to come at 2% interest rate. Even a 6% interest would mean an annual interest cost of Rs 4200 crore. Only in 2013, the company's capacity will cross 10000 MW. Thus, I do not expect any major debt repayment before 2014. If things don't go as planned, the debt burden will make a mockery of the balance sheet.
With Rs 12000 crore raised in equity and Rs 70000 crore of debt, these whole business will become a high-risk venture.
Any unforeseen delay/derailment of plans may create major problems for this company.
========================================
Reliance Power - The Overlooked Fact:
Is Reliance Power just "Reliance Power"?
No.
It is actually "Reliance Power Limited" - a limited company.
So what does this mean for Reliance Power Limited?
It means if in the rare case, the calculations of the management go wrong and the company somehow goes to insolvency, none of the shareholders will lose anything expect the value of the shares.
If you are a share holder of Reliance Power and it goes into insolvency (unable to pay back debts), what do you stand to lose?
Rs 430 per share.
Lot of money....right?
What does Anil Ambani's AAA Project or REL lose?
Both of them had got their 45% (post-IPO) stake for Rs 1000 crore each. Plus they will each subscribe to 1.6 crore shares each at Rs 450 in the IPO......which works out to be Rs 720 crore.
Thus, AAA Project will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore and REL will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore.
Little less than Rs 17 per share.
This is what both the promoters are risking in this project.... Rs 17 per share ; while investors will be risking Rs 450 per share .
This is exactly the reason why Reliance Power was created.
First, by contributing just Rs 1720 crore each to Reliance Power, the promoters have shifted all risk to investors.
Second, by getting 45% stake (in REL's projects) to AAA Project for a mere Rs 1000 crore, AAA Projects (and Anil Ambani) have created wealth out of thin air.
Anil Ambani's Rs 1000 crore investment will be worth Rs 100000 crore when Reliance Power lists at Rs 900.
If the gamble works, the promoters (holding 90% stake in Reliance Power) will be worth billions of dollars.
If the gamble doesn't work, the promoters will lose Rs 1720 crore each and investors will lose Rs 10000+ crore which they will be paying for a mere 10% stake in Reliance Power.
What a way to create wealth...!!!....I don't have words to describe the brilliance of Anil Ambani's plans... .
========================================
First, other companies are much cheaper.
Why should I keep a company valued at Rs 200000 crore -
when another company (with similar capacity by 2013) is available at Rs 30000 crore with much smaller debt burden and Rs 10000 crore worth of investments ...........referring to Tata Power.
If Reliance Power (at Rs 900) is available for Rs 200000 crore, why not buy NTPC for a similar price ......Rs 225000 crore. NTPC plans to have a capacity of 66000 MW in 2017, while Reliance Power will have 28200 MW capacity in 2016.
Second, the risk is higher than other existing companies.
With marginally cash flows for next 5 years and Rs 70000+ crore of debt, the risk for Reliance Power is high. Tata Power and NTPC have existing cash flows to handle expansions....Reliance Power does not.
Third and the biggest factor is....the valuation of the company doesn't make much sense.
Why should Reliance Power be valued at Rs 200000 crore, when in highly optimistic scenario, it will not make more than Rs 15000 crore of profit in 2016 ? Even if it touches that figure of Rs 15000 crore, its market value in 2016 will not be much more than 225000-300000 crore. (if given a 15-20 times multiple).
A fixed deposit will make more money than that in 8 years.....and that too without any risk.
Also, I got the optimistic Rs 15000 crore figure by assuming two times margins as NTPC.
The fact is..... at least till 2014, Reliance Power will still be carrying most of its Rs 70000 crore debt and its interest costs will squeeze margins to a large extent.
Author: Dr. Kamlesh Agarwala
Source:
--~--~---------~--~----~------------~-------~--~----~
www.groups.google.com/group/aiii
www.smsgupshup.com/groups/EagleEyeTrade
-~----------~----~----~----~------~----~------~--~---
Saturday, February 23, 2008
NIFTY and SENSEX Thru' 22-02-2008- EWI STU- Tom Denham
NIFTY and SENSEX Thru' 22-02-2008- EWI STU- Tom Denham
NIFTY and SENSEX Thru' 22-02-2008
[Beyond Western Europe]
Wave (3) on the monthly line chart of the [India National Nifty Index] displays 13 subwaves. The completion of 13 waves would make a top likely. In addition, price slipped below its 8-month exponential moving average in January and remains below it as of 22 February. Price gave a false bearish signal when it slipped under this long-term guide to the trend briefly in April 2005, but if wave (4) is in progress, the standard Elliott target would be a Fibonacci 38.2 percent retracement of wave (3) to 4364
The pattern of the [S&P CNX Nifty Index] suggests staying bullish until price pushes above 5545, but thereafter, the potential of another fall increases. Let me explain why. Price fell 30 percent to 4448 in one steep move. Sharp falls are often just the start of a move. In addition, the initial rebound to early February developed in three-wave form. These factors suggest that the January low was wave A and the current rebound wave B of an ongoing correction. If this view is correct, then wave C should fall to a new low sometime in the coming weeks.
Price rebounds often achieve two equal legs up and that would occur at 5900. However, any move above 5545 would satisfy minimum expectations for an ABC rebound. In addition, price may begin to encounter resistance from the top formation just above 5545.
On the other hand, the [S&P CNX Nifty Index (Singapore Exchange)] rebounded from trend channel support in May 2004, June 2006, and January 2008. On numerous occasions since 2004, price rebounded from above trend channel support. This performance is a reason to favor the upside from the January low. In addition, RSI is near historic lows, which has been a bullish condition in the past. Finally, trend continuation is a common surprise delivered by third waves, so I am reluctant to rule out the possibility of Indian stocks rallying while the trend channel remains intact.
This daily chart of the [India Sensex Index] highlights bullish potential from a near complete triangle correction. Triangles are not common in the Sensex, but it is a possibility worth considering while price is above 16,457. A fall under 16,457 would exceed the limits of a converging triangle and suggest favoring the downside instead.
Budget, economy and the markets
You only find out who is swimming naked when the tide goes out,” said Warren Buffett. As a retail investor, you might well be caught unawares by sudden market shifts, like the one in January. Bhavesh Shah, vice-president (research), Asit C Mehta Investments, says: “The fall was more an issue of liquidity management than trust in India’s growth.”
This only goes to show that small investors cannot ignore macroeconomic events if they want to survive—and thrive— in times of volatility. The threat of recession in the US, FII investments in India, and now, the Budget, are all factors that could affect your wallet.
Amid the rush of not-so-pleasant news, there’s a lot that’s positive in the economy. There are as many silver linings as there are dark clouds on the economic landscape. So, although economic growth in 2007-8 will be slower than last year, it will still be an impressive 8.7%. There’s a slowdown in home and car purchases—especially credit-financed—but the cost of borrowing is beginning to fall.
The US economy is in a downturn, but that might benefit some Indian companies just as it might harm others. Obviously, the time for a carefree ride to wealth creation is over. Doing homework before investing was always necessary. Now it’s obligatory.
“I would also ask investors to prepare a matrix. This will give them an informed view on the market,” says Shah. Remember that most experts are still positive about investing in India. A recent JP Morgan report says that fiscal reforms “and some restraint on government spending... have contributed to the improving fiscal dynamics”.
A Credit Suisse report is even more bullish: “India is likely to be on a highly reflationary policy drive in the coming weeks, unlike most others in the emerging world.” No matter how much the finance minister makes you richer—or poorer—on 29 February, there is something he has already done to make you a more intelligent investor.
Three years ago, by restructuring Section 80C of the Income Tax Act, he moved away from an era of government-dictated tax investing to need-driven investing. Freedom, be it of economy or investing, can be made most of only if you do your homework well.
Sensex and budget
Crash, boom, bang...That seems to be the response of the key market indices after every Budget speech. Investor sentiment veers wildly immediately after the Budget, usually pushing the indices down. And this generally has little to do with the provisions of the year’s most important financial statement.
In fact, the only one of P Chidambaram’s Budgets (during his second stint) that caused the Sensex to nosedive was his most people-friendly one (2005-6). Obviously, the market is least interested in whether tax slabs are simplified or not, or what taxsavings are offered. Index gyrations in the run-up to, and immediately preceding the Budget speech, are largely because of market expectations and kneejerk interpretations.
But, as the graphs on the right show, the indices generally bounce back in the days following the Budget, proving eventually that it is fundamentals and not sentiment that drives the markets.
Amid the rush of not-so-pleasant news, there’s a lot that’s positive in the economy. There are as many silver linings as there are dark clouds on the economic landscape. So, although economic growth in 2007-8 will be slower than last year, it will still be an impressive 8.7%. There’s a slowdown in home and car purchases—especially credit-financed—but the cost of borrowing is beginning to fall.
The US economy is in a downturn, but that might benefit some Indian companies just as it might harm others. Obviously, the time for a carefree ride to wealth creation is over. Doing homework before investing was always necessary. Now it’s obligatory.
“I would also ask investors to prepare a matrix. This will give them an informed view on the market,” says Shah. Remember that most experts are still positive about investing in India. A recent JP Morgan report says that fiscal reforms “and some restraint on government spending... have contributed to the improving fiscal dynamics”.
A Credit Suisse report is even more bullish: “India is likely to be on a highly reflationary policy drive in the coming weeks, unlike most others in the emerging world.” No matter how much the finance minister makes you richer—or poorer—on 29 February, there is something he has already done to make you a more intelligent investor.
Three years ago, by restructuring Section 80C of the Income Tax Act, he moved away from an era of government-dictated tax investing to need-driven investing. Freedom, be it of economy or investing, can be made most of only if you do your homework well.
Sensex and budget
Crash, boom, bang...That seems to be the response of the key market indices after every Budget speech. Investor sentiment veers wildly immediately after the Budget, usually pushing the indices down. And this generally has little to do with the provisions of the year’s most important financial statement.
In fact, the only one of P Chidambaram’s Budgets (during his second stint) that caused the Sensex to nosedive was his most people-friendly one (2005-6). Obviously, the market is least interested in whether tax slabs are simplified or not, or what taxsavings are offered. Index gyrations in the run-up to, and immediately preceding the Budget speech, are largely because of market expectations and kneejerk interpretations.
But, as the graphs on the right show, the indices generally bounce back in the days following the Budget, proving eventually that it is fundamentals and not sentiment that drives the markets.
Warren Buffets predictions for 2008
"Eight for '08"
Warren Buffett became one of the wealthiest people in the world by
making predictions and putting money behind those predictions. Every
time he buys a stock or a business or some other investment, he's
forecasting the future.
Judging by the incredible returns of his holding company Berkshire
Hathaway, Buffett and his colleagues are very good at making those
predictions.
Of course, it helps when you can give your predictions plenty of time
to come true. That's one reason Buffett's favorite holding period for
investments in "outstanding businesses with outstanding managements"
is "forever." After all, "We don't get paid for activity, just for
being right. As to how long we'll wait, we'll wait indefinitely."
1. Recessions can't be avoided forever.
In the last few days, Buffett told that if unemployment picks up
significantly, the "dominoes" will fall and the U.S. economy will fall
into recession in 2008. He's not sure, however, that unemployment
will go up next year. In fact, he's surprised that all the weakness
we're seeing in housing hasn't affected the jobs market ... yet.
Here's what he is sure about: "It is the nature of capitalism to
periodically have recessions. People overshoot."
2. We'll survive future recessions just as we've survived past
problems.
As Buffett told in August, "We've got a wonderful economy... There's
never been anything like that in the history of the world. We live
seven times better than the people did a century ago on average...
We've had problems all along. If you look at the last century, we had
that Great Depression and World War Two, we had the Cold War, we had
the atomic bomb, but the country does well."
3. Recessions will create opportunities.
"I made by far the best buys I've ever made in my lifetime in 1974.
And that was a time of great pessimism and the oil shock and
stagflation and all those sort of things. But stocks were cheap."
4. All stocks won't be cheap.
Like Ted Williams waiting for the right pitch, a successful investor
waits for the right stock at the right price, and it doesn't happen
every day. "What's nice about investing is you don't have to swing at
pitches. You can watch pitches come in one inch above or one inch
below your navel, and you don't have to swing. No umpire is going to
call you out." You get in trouble, Buffett says, when you listen to
the crowd chanting "Swing, batter, swing!"
5. The crowd will make mistakes.
Buffett cites this piece of advice from his mentor Benjamin Graham:
"You're neither right nor wrong because other people agree with you.
You're right because your facts are right and your reasoning is right--
and that's the only thing that makes you right. And if your facts and
reasoning are right, you don't have to worry about anybody else."
6. Investors will mistakenly think falling stock prices are bad.
"If they reduce the price of hamburgers at McDonald's today I feel
terrific. Now I don't go back and think, gee, I paid a little more
yesterday. I think I'm going to be buying them cheaper today. Anything
you're going to be buying in the future, you want to have get cheaper.
7. Good times will prompt bad decisions.
In his 2000 Letter to Berkshire shareholders, Buffett compared the
crowd that buys big when prices are high to Cinderella at the ball.
"They know that overstaying the festivities - that is, continuing to
speculate in companies that have gigantic valuations relative to the
cash they are likely to generate in the future - will eventually bring
on pumpkins and mice. But they nevertheless hate to miss a single
minute of what is one helluva party. Therefore, the giddy participants
all plan to leave just seconds before midnight. There's a problem,
though: They are dancing in a room in which the clocks have no hands."
8. There will be more dancing at another wild party followed by
another painful hangover.
Looking back at the Internet bubble, Buffett is quoted as saying,
"The world went mad. What we learn from history is that people don't
learn from history."
Warren Buffett became one of the wealthiest people in the world by
making predictions and putting money behind those predictions. Every
time he buys a stock or a business or some other investment, he's
forecasting the future.
Judging by the incredible returns of his holding company Berkshire
Hathaway, Buffett and his colleagues are very good at making those
predictions.
Of course, it helps when you can give your predictions plenty of time
to come true. That's one reason Buffett's favorite holding period for
investments in "outstanding businesses with outstanding managements"
is "forever." After all, "We don't get paid for activity, just for
being right. As to how long we'll wait, we'll wait indefinitely."
1. Recessions can't be avoided forever.
In the last few days, Buffett told that if unemployment picks up
significantly, the "dominoes" will fall and the U.S. economy will fall
into recession in 2008. He's not sure, however, that unemployment
will go up next year. In fact, he's surprised that all the weakness
we're seeing in housing hasn't affected the jobs market ... yet.
Here's what he is sure about: "It is the nature of capitalism to
periodically have recessions. People overshoot."
2. We'll survive future recessions just as we've survived past
problems.
As Buffett told in August, "We've got a wonderful economy... There's
never been anything like that in the history of the world. We live
seven times better than the people did a century ago on average...
We've had problems all along. If you look at the last century, we had
that Great Depression and World War Two, we had the Cold War, we had
the atomic bomb, but the country does well."
3. Recessions will create opportunities.
"I made by far the best buys I've ever made in my lifetime in 1974.
And that was a time of great pessimism and the oil shock and
stagflation and all those sort of things. But stocks were cheap."
4. All stocks won't be cheap.
Like Ted Williams waiting for the right pitch, a successful investor
waits for the right stock at the right price, and it doesn't happen
every day. "What's nice about investing is you don't have to swing at
pitches. You can watch pitches come in one inch above or one inch
below your navel, and you don't have to swing. No umpire is going to
call you out." You get in trouble, Buffett says, when you listen to
the crowd chanting "Swing, batter, swing!"
5. The crowd will make mistakes.
Buffett cites this piece of advice from his mentor Benjamin Graham:
"You're neither right nor wrong because other people agree with you.
You're right because your facts are right and your reasoning is right--
and that's the only thing that makes you right. And if your facts and
reasoning are right, you don't have to worry about anybody else."
6. Investors will mistakenly think falling stock prices are bad.
"If they reduce the price of hamburgers at McDonald's today I feel
terrific. Now I don't go back and think, gee, I paid a little more
yesterday. I think I'm going to be buying them cheaper today. Anything
you're going to be buying in the future, you want to have get cheaper.
7. Good times will prompt bad decisions.
In his 2000 Letter to Berkshire shareholders, Buffett compared the
crowd that buys big when prices are high to Cinderella at the ball.
"They know that overstaying the festivities - that is, continuing to
speculate in companies that have gigantic valuations relative to the
cash they are likely to generate in the future - will eventually bring
on pumpkins and mice. But they nevertheless hate to miss a single
minute of what is one helluva party. Therefore, the giddy participants
all plan to leave just seconds before midnight. There's a problem,
though: They are dancing in a room in which the clocks have no hands."
8. There will be more dancing at another wild party followed by
another painful hangover.
Looking back at the Internet bubble, Buffett is quoted as saying,
"The world went mad. What we learn from history is that people don't
learn from history."
Sunday, February 3, 2008
Indian Equity Markets - A status quo
Indian Equity Markets - A status quo
Growing concerns about a possible recession in the US followed quickly by an ongoing weakness in the Asian markets pushed down the Indian equity markets in the recent past.
FII outflows stand at $4.119 billion year to date with over $1 billion outflows in the last week of January alone. While the broad indices corrected significantly, Mid and small cap stocks have been the worst affected. The real estate, consumer goods and power sectors were worst hit by the sudden fall in the markets. The drastic fall in the Indian markets was due to technical factors such as unwinding of speculative positions and the triggering of margin calls.
We have come to the end of the earnings season. The results have been largely in line with expectations barring disappointments from few sectors like infrastructure. Technology stocks witnessed buying action in the last week as the results were not too bad amidst the rising rupee. FMCG and Pharma sectors look to be safer bets in the near future.
There could be volatility in the markets in the coming weeks And the Indian markets appear to be fairly valued at this point of time. But, the long term "India" growth story remains optimistic. The call for the markets is to pick up solid long term stories as opposed to the momentum stocks.
Growing concerns about a possible recession in the US followed quickly by an ongoing weakness in the Asian markets pushed down the Indian equity markets in the recent past.
FII outflows stand at $4.119 billion year to date with over $1 billion outflows in the last week of January alone. While the broad indices corrected significantly, Mid and small cap stocks have been the worst affected. The real estate, consumer goods and power sectors were worst hit by the sudden fall in the markets. The drastic fall in the Indian markets was due to technical factors such as unwinding of speculative positions and the triggering of margin calls.
We have come to the end of the earnings season. The results have been largely in line with expectations barring disappointments from few sectors like infrastructure. Technology stocks witnessed buying action in the last week as the results were not too bad amidst the rising rupee. FMCG and Pharma sectors look to be safer bets in the near future.
There could be volatility in the markets in the coming weeks And the Indian markets appear to be fairly valued at this point of time. But, the long term "India" growth story remains optimistic. The call for the markets is to pick up solid long term stories as opposed to the momentum stocks.
Stock Ideas
Post all your stock tips, stock recos, stock ideas...with a valid source in this space...
IPO Review - IRB Infrastructure Developers
IRB Infrastructure Developers: Invest
Hindu Business Line
--------------------------------------------------------------------------------
A good track record in the build-operate-transfer (BOT) space and an early-mover advantage in running toll roads suggest strong growth potential.
--------------------------------------------------------------------------------
Investors with a long-term outlook can subscribe to the initial public offer of IRB Infrastructure Developers. A good track record in the build-operate-transfer (BOT) space, early-mover advantage in running toll roads and in-house capabilities in construction, road maintenance and toll collection suggest strong growth potential for this infrastructure company.
The offer price of Rs 180-220 appears stiff and the current market correction has provided an opportunity to enter a number of blue chips at reasonable valuations. We would, therefore, be comfortable recommending an ‘invest’ at the lower end of the price band. Our conservative estimate of the consolidated per share earnings for FY 2009 on the post offer equity base works out to Rs 3.1.
This is, however, without factoring in any increase in toll charges and traffic for the toll roads operated by the company, or revenues likely to flow from the company’s real-estate venture.
Background
IRB Infrastructure Developers is primarily a holding company with wholly-owned subsidiaries, which are engaged in road and highway construction and maintenance. The group is at present involved in 12 BOT projects out of which 11 are in the operational phase (with maintenance and toll collection being done by the group). The company also plans to foray into real-estate . IRB plans to raise about Rs 100 crore to invest in one of the subsidiaries and also repay its own loans and that of its subsidiaries. Post-listing, the market capitalisation of the stock would be Rs 6,000-7,000 crore.
Early bird
The toll model is normally considered risky, although the revenue potential is high if the project attracts high traffic. Being one of the early private players in the space, IRB has managed to negotiate lucrative business terms that have compensated for risks associated with the toll model.
For one, IRB’s existing BOT projects do not have any toll-sharing arrangement with the Government. With high-traffic segments such as the Mumbai-Pune Expressway, part of NH-4 and Pune-Nashik road in its portfolio, IRB is likely to enjoy a high internal rate of return on its projects compared to peers who have more recently entered the segment and have thus settled for less attractive terms.
While the current basket of 12 BOT projects would enjoy superior profitability, new bids may see relatively muted returns with the Government now actively looking at toll-sharing models. .
Two, the company has non-compete clauses in some projects, which would restrict the Government from building or operating any competing BOT projects that could possibly reduce the toll inflows for the company. Similarly, control over projects such as the Mumbai-Pune Expressway as well as the Mumbai-Pune portion of the NH-4 corridor (both under IRB’s purview) ensures that the company does not face any competition from adjoining corridors.
Three, the company may benefit from periodic hikes in toll rates, some of which may be significant if traffic numbers are encouraging. For instance, the Mumbai-Pune Expressway is likely to command 18 per cent increase in toll rates the coming year.
The above factors suggest that the timing and locational advantages of the existing portfolio may endow IRB with a clear edge in the toll road segment.
Pre-qualification and integration
While IRB’s operations have been concentrated in Maharashtra and Gujarat, its experience in BOT has earned it pre-qualification by NHAI in NHDP Phase V projects in other States such as Tamil Nadu, New Delhi and Uttar Pradesh. Additionally, IRB’s operations appear well integrated, with capability to build and maintain roads as well as manage toll collection. This integration reduces the need to outsource work, which, in turn, results in higher profit margins.
IRB’s order book as of October 2007 stood at Rs 2,325 crore. While this would convert to revenues over 2008-2010, we expect toll revenues (not included in the order book) to be the most significant revenue driver. Income from BOT projects (predominantly toll revenues) accounted for the largest chunk of the recent consolidated revenues of the company .
IRB posted consolidated sales of Rs 262 crore for the five months ended August 2007 and net profits after minority interest of Rs 24 crore. The reported numbers may not be indicative of the company’s future revenues for two reasons. Revenues of fully controlled subsidiaries have been only partly captured in the August 2007 financials, because of recent consolidation.
Two, a few other subsidiaries have also been consolidated post August 2007; and these have not been accounted. The recent consolidation is positive because earnings that would have otherwise accrued to special purpose vehicles (SPVs) will now directly accrue to the fully-owned subsidiaries.
As most of the projects under the subsidiaries are operational, risk of funding also appears minimal.
IRB and its subsidiaries carry high levels of debt. While repayment from the offer proceeds would reduce the debt, newer projects and a foray into real-estate could require further raising of funds.
IRB plans to venture into real-estate and has acquired 925 acres of land for building a township in Pune district. With its hands full in the infrastructure space, we are cautious about its capability as a real-estate developer. The offer closes on February 5.
Hindu Business Line
--------------------------------------------------------------------------------
A good track record in the build-operate-transfer (BOT) space and an early-mover advantage in running toll roads suggest strong growth potential.
--------------------------------------------------------------------------------
Investors with a long-term outlook can subscribe to the initial public offer of IRB Infrastructure Developers. A good track record in the build-operate-transfer (BOT) space, early-mover advantage in running toll roads and in-house capabilities in construction, road maintenance and toll collection suggest strong growth potential for this infrastructure company.
The offer price of Rs 180-220 appears stiff and the current market correction has provided an opportunity to enter a number of blue chips at reasonable valuations. We would, therefore, be comfortable recommending an ‘invest’ at the lower end of the price band. Our conservative estimate of the consolidated per share earnings for FY 2009 on the post offer equity base works out to Rs 3.1.
This is, however, without factoring in any increase in toll charges and traffic for the toll roads operated by the company, or revenues likely to flow from the company’s real-estate venture.
Background
IRB Infrastructure Developers is primarily a holding company with wholly-owned subsidiaries, which are engaged in road and highway construction and maintenance. The group is at present involved in 12 BOT projects out of which 11 are in the operational phase (with maintenance and toll collection being done by the group). The company also plans to foray into real-estate . IRB plans to raise about Rs 100 crore to invest in one of the subsidiaries and also repay its own loans and that of its subsidiaries. Post-listing, the market capitalisation of the stock would be Rs 6,000-7,000 crore.
Early bird
The toll model is normally considered risky, although the revenue potential is high if the project attracts high traffic. Being one of the early private players in the space, IRB has managed to negotiate lucrative business terms that have compensated for risks associated with the toll model.
For one, IRB’s existing BOT projects do not have any toll-sharing arrangement with the Government. With high-traffic segments such as the Mumbai-Pune Expressway, part of NH-4 and Pune-Nashik road in its portfolio, IRB is likely to enjoy a high internal rate of return on its projects compared to peers who have more recently entered the segment and have thus settled for less attractive terms.
While the current basket of 12 BOT projects would enjoy superior profitability, new bids may see relatively muted returns with the Government now actively looking at toll-sharing models. .
Two, the company has non-compete clauses in some projects, which would restrict the Government from building or operating any competing BOT projects that could possibly reduce the toll inflows for the company. Similarly, control over projects such as the Mumbai-Pune Expressway as well as the Mumbai-Pune portion of the NH-4 corridor (both under IRB’s purview) ensures that the company does not face any competition from adjoining corridors.
Three, the company may benefit from periodic hikes in toll rates, some of which may be significant if traffic numbers are encouraging. For instance, the Mumbai-Pune Expressway is likely to command 18 per cent increase in toll rates the coming year.
The above factors suggest that the timing and locational advantages of the existing portfolio may endow IRB with a clear edge in the toll road segment.
Pre-qualification and integration
While IRB’s operations have been concentrated in Maharashtra and Gujarat, its experience in BOT has earned it pre-qualification by NHAI in NHDP Phase V projects in other States such as Tamil Nadu, New Delhi and Uttar Pradesh. Additionally, IRB’s operations appear well integrated, with capability to build and maintain roads as well as manage toll collection. This integration reduces the need to outsource work, which, in turn, results in higher profit margins.
IRB’s order book as of October 2007 stood at Rs 2,325 crore. While this would convert to revenues over 2008-2010, we expect toll revenues (not included in the order book) to be the most significant revenue driver. Income from BOT projects (predominantly toll revenues) accounted for the largest chunk of the recent consolidated revenues of the company .
IRB posted consolidated sales of Rs 262 crore for the five months ended August 2007 and net profits after minority interest of Rs 24 crore. The reported numbers may not be indicative of the company’s future revenues for two reasons. Revenues of fully controlled subsidiaries have been only partly captured in the August 2007 financials, because of recent consolidation.
Two, a few other subsidiaries have also been consolidated post August 2007; and these have not been accounted. The recent consolidation is positive because earnings that would have otherwise accrued to special purpose vehicles (SPVs) will now directly accrue to the fully-owned subsidiaries.
As most of the projects under the subsidiaries are operational, risk of funding also appears minimal.
IRB and its subsidiaries carry high levels of debt. While repayment from the offer proceeds would reduce the debt, newer projects and a foray into real-estate could require further raising of funds.
IRB plans to venture into real-estate and has acquired 925 acres of land for building a township in Pune district. With its hands full in the infrastructure space, we are cautious about its capability as a real-estate developer. The offer closes on February 5.
IPO Review - Emaar MGF Land
Emaar MGF Land: Invest at cut-off
Hindu Business Line
--------------------------------------------------------------------------------
Sufficient land bank, tie-ups with international players for project execution and a diversified portfolio with joint ventures in relatively new areas, provide a strong foundation.
--------------------------------------------------------------------------------
Investors can consider applying to the initial public offer of real-estate company, Emaar MGF Land (EMGF), but should retain at least a three-year perspective. The company’s shares are on offer from February 1-8 at a price band of Rs 540-630 (revised).
Backed by a strong promoter with a global presence, EMGF has swiftly accumulated a solid land bank in India and has demonstrated its marketing abilities through strong demand for its recently launched residential projects. In its targeted pan-India presence and ambitious plans across segments, the company could well be compared to large players such as DLF and Unitech. The drawback would be its lack of track record in the Indian market. Successful execution of its plans would, therefore, hinge on the support from its international parent, Emaar, and domestic partner, MGF. The company now appears to have built a strong base — sufficient land bank, tie-ups with international construction players for project execution and a diversified portfolio with joint ventures in hospitality and infrastructure.
On the company and offer:
Strong promoter track record could be the key to success.
EMGF is a real estate company incorporated in 2005, co-promoted by Emaar Properties of UAE and MGF Developments. The company is into residential, commercial and retail projects and has plans to foray into hospitality and airport projects. At the higher end of the price band, the offer would raise about Rs 6,400 crore to be utilised towards land acquisition, construction cost and loan repayment. Post-listing, the market capitalisation would be Rs 53,000-62,000 crore.
Strong promoter background
EMGF’s promoter, Emaar Public Joint Stock Company (Emaar), is an international real estate player with a presence spanning Saudi Arabia, UAE, Egypt and the US. Emaar PJSC is building the world’s largest tower and Mall in Dubai and is also involved in the prestigious King Abdullah Economic City in Saudi Arabia.
Apart from skill sets and cash infusion of over Rs 3,000 crore into EMGF, Emaar brings to the table an ability to forge business and funding ties. This lends confidence on two key success factors — execution capability and meeting fund requirements. Emaar’s interest in this venture is also evident from the agreement to route all its Indian projects only through EMGF.
MGF Developments, the other promoter, specialises in retail space and has an established presence in North India, with local knowledge to handle issues such as land identification, procurement and dealing with local procedures. That the company has managed to add 13,024 acres to its land reserves in a short span of time — a high proportion of it also being fully paid — suggests that the local partner’s knowledge has played a pivotal role.
Comfort from land holding
As much as 89 per cent of EMGF’s land reserve is fully paid, thus locking in to prices; reducing risks of escalation in prices at a later date. This proportion is higher than Emaar’s peers in the listed space. Though the land bank is spread across regions, the north accounts for 75 per cent. This probably arises from the MGF’s strength in the region and suggests caution in testing new waters.
Buoyant take-off
EMRF has already made available for sale about 80 per cent of the 17.3 million square feet of residential projects under development. This provides comfort on the company’s execution capabilities, given that it otherwise lacks a track record in the country.
Of the total developable area of 566 million sq ft., residential segment accounts for over 75 per cent with about 15 per cent in commercial and the rest planned for retail and hospitality.
The focus on residential appears appropriate for two reasons. The demand for residential area is expected to be higher than the other segments over the long term. This would also enable the company to cash-in on projects, replenish the land bank and move ahead to other projects. This build-sell model prevents locking-in of capital. However, projects coming up over 2008 and 2009 are tilted towards the commercial and retail space, with plans to adopt a lease model.
This strategy appears to be targeted at building a high-grade asset basket, targeting Real Estate Investment Trusts (REIT). Even if EMGF is able to complete 50 per cent of the targeted 89 million sq ft of commercial space, it could garner a sizeable share of the REIT market.
In the residential segment, the company has chosen a strategy of ‘integrated master planned communities’ (similar to the integrated township concept) in many Tier-II and Tier-III cities.
This provides flexibility to the company to sell plotted land or full fledged housing, depending on the response in these areas. The sale of plotted land would also aid regular infusion of cash to meet working-capital requirement.
The strategy appears well thought out, as it may result in regular cash infusions, while building a portfolio of income-yielding assets.
Sound joint ventures
EMGF has used international joint ventures to access technology, and make up for lack of experience in dealing with local contractors. Exclusive tie-ups with Australia-based companies, Leighton International and Multiplex, and the US-based Turner Construction are cases in point.
The company has also formed a consortium with Dubai Aerospace Enterprise to venture into opportunities in port privatisation, modernisation and management in India. Given that this segment in the infrastructure space has just taken off in India, the move to focus on it appears well-timed.
The company’s foray into hospitality is supported by tie-ups with the Hyatt, Accor, Marriot and Four Seasons.
While the JV is desirable, we are cautious about prospects for up-market and luxury hotels in places such as Kolkata, where attractive pricing may remain a key.
No cheap valuations but..
EMGF has managed to break even within two years of incorporation; profits for the half year-ended September 2007 fully offset the earlier losses. Consolidated revenue for the half year stood at Rs 473 crore, while net profits were Rs 130 crore.
We conservatively estimate revenues crossing Rs 3,000 crore by FY-09 with per share earnings close to Rs 10.
This estimate does not factor in earnings from the hospitality segment and the leased commercial and retail spaces. The latter, especially, could provide significant upside to the earnings estimate.
EMGF’s operating and net profit margins for the half-year ended September 2007 stood at 39 per cent and 27 per cent respectively. This compares well with the industry average but is slightly lower than the leading players.
A recently accumulated land bank may explain the lower margins. This factor may see more steady margins on the company’s projects compared to peers, as the latter may witness contraction as they move over to recently replenished land reserves.
Risks
We are concerned about a chunk of EMGF’s present projects being concentrated in Mohali. While purchasing power in this location no doubt remains high, the market is yet to be tested for projects of such huge scale. Risks of excess supply also remain high.
As is the case with most other big players, Emaar’s targets for development appear aggressive given that no player has so far proven such capabilities.
While Emaar has a good track record, the size of total projects executed so far is only about 50 million sq ft (although huge developments are under way) across the world.
Hindu Business Line
--------------------------------------------------------------------------------
Sufficient land bank, tie-ups with international players for project execution and a diversified portfolio with joint ventures in relatively new areas, provide a strong foundation.
--------------------------------------------------------------------------------
Investors can consider applying to the initial public offer of real-estate company, Emaar MGF Land (EMGF), but should retain at least a three-year perspective. The company’s shares are on offer from February 1-8 at a price band of Rs 540-630 (revised).
Backed by a strong promoter with a global presence, EMGF has swiftly accumulated a solid land bank in India and has demonstrated its marketing abilities through strong demand for its recently launched residential projects. In its targeted pan-India presence and ambitious plans across segments, the company could well be compared to large players such as DLF and Unitech. The drawback would be its lack of track record in the Indian market. Successful execution of its plans would, therefore, hinge on the support from its international parent, Emaar, and domestic partner, MGF. The company now appears to have built a strong base — sufficient land bank, tie-ups with international construction players for project execution and a diversified portfolio with joint ventures in hospitality and infrastructure.
On the company and offer:
Strong promoter track record could be the key to success.
EMGF is a real estate company incorporated in 2005, co-promoted by Emaar Properties of UAE and MGF Developments. The company is into residential, commercial and retail projects and has plans to foray into hospitality and airport projects. At the higher end of the price band, the offer would raise about Rs 6,400 crore to be utilised towards land acquisition, construction cost and loan repayment. Post-listing, the market capitalisation would be Rs 53,000-62,000 crore.
Strong promoter background
EMGF’s promoter, Emaar Public Joint Stock Company (Emaar), is an international real estate player with a presence spanning Saudi Arabia, UAE, Egypt and the US. Emaar PJSC is building the world’s largest tower and Mall in Dubai and is also involved in the prestigious King Abdullah Economic City in Saudi Arabia.
Apart from skill sets and cash infusion of over Rs 3,000 crore into EMGF, Emaar brings to the table an ability to forge business and funding ties. This lends confidence on two key success factors — execution capability and meeting fund requirements. Emaar’s interest in this venture is also evident from the agreement to route all its Indian projects only through EMGF.
MGF Developments, the other promoter, specialises in retail space and has an established presence in North India, with local knowledge to handle issues such as land identification, procurement and dealing with local procedures. That the company has managed to add 13,024 acres to its land reserves in a short span of time — a high proportion of it also being fully paid — suggests that the local partner’s knowledge has played a pivotal role.
Comfort from land holding
As much as 89 per cent of EMGF’s land reserve is fully paid, thus locking in to prices; reducing risks of escalation in prices at a later date. This proportion is higher than Emaar’s peers in the listed space. Though the land bank is spread across regions, the north accounts for 75 per cent. This probably arises from the MGF’s strength in the region and suggests caution in testing new waters.
Buoyant take-off
EMRF has already made available for sale about 80 per cent of the 17.3 million square feet of residential projects under development. This provides comfort on the company’s execution capabilities, given that it otherwise lacks a track record in the country.
Of the total developable area of 566 million sq ft., residential segment accounts for over 75 per cent with about 15 per cent in commercial and the rest planned for retail and hospitality.
The focus on residential appears appropriate for two reasons. The demand for residential area is expected to be higher than the other segments over the long term. This would also enable the company to cash-in on projects, replenish the land bank and move ahead to other projects. This build-sell model prevents locking-in of capital. However, projects coming up over 2008 and 2009 are tilted towards the commercial and retail space, with plans to adopt a lease model.
This strategy appears to be targeted at building a high-grade asset basket, targeting Real Estate Investment Trusts (REIT). Even if EMGF is able to complete 50 per cent of the targeted 89 million sq ft of commercial space, it could garner a sizeable share of the REIT market.
In the residential segment, the company has chosen a strategy of ‘integrated master planned communities’ (similar to the integrated township concept) in many Tier-II and Tier-III cities.
This provides flexibility to the company to sell plotted land or full fledged housing, depending on the response in these areas. The sale of plotted land would also aid regular infusion of cash to meet working-capital requirement.
The strategy appears well thought out, as it may result in regular cash infusions, while building a portfolio of income-yielding assets.
Sound joint ventures
EMGF has used international joint ventures to access technology, and make up for lack of experience in dealing with local contractors. Exclusive tie-ups with Australia-based companies, Leighton International and Multiplex, and the US-based Turner Construction are cases in point.
The company has also formed a consortium with Dubai Aerospace Enterprise to venture into opportunities in port privatisation, modernisation and management in India. Given that this segment in the infrastructure space has just taken off in India, the move to focus on it appears well-timed.
The company’s foray into hospitality is supported by tie-ups with the Hyatt, Accor, Marriot and Four Seasons.
While the JV is desirable, we are cautious about prospects for up-market and luxury hotels in places such as Kolkata, where attractive pricing may remain a key.
No cheap valuations but..
EMGF has managed to break even within two years of incorporation; profits for the half year-ended September 2007 fully offset the earlier losses. Consolidated revenue for the half year stood at Rs 473 crore, while net profits were Rs 130 crore.
We conservatively estimate revenues crossing Rs 3,000 crore by FY-09 with per share earnings close to Rs 10.
This estimate does not factor in earnings from the hospitality segment and the leased commercial and retail spaces. The latter, especially, could provide significant upside to the earnings estimate.
EMGF’s operating and net profit margins for the half-year ended September 2007 stood at 39 per cent and 27 per cent respectively. This compares well with the industry average but is slightly lower than the leading players.
A recently accumulated land bank may explain the lower margins. This factor may see more steady margins on the company’s projects compared to peers, as the latter may witness contraction as they move over to recently replenished land reserves.
Risks
We are concerned about a chunk of EMGF’s present projects being concentrated in Mohali. While purchasing power in this location no doubt remains high, the market is yet to be tested for projects of such huge scale. Risks of excess supply also remain high.
As is the case with most other big players, Emaar’s targets for development appear aggressive given that no player has so far proven such capabilities.
While Emaar has a good track record, the size of total projects executed so far is only about 50 million sq ft (although huge developments are under way) across the world.
IPO Review - Wockhardt Hospitals
Wockhardt Hospitals: Avoid
Hindu Business Line
--------------------------------------------------------------------------------
The asking price for the offer appears stiff and does not provide any comfort on execution-related risks either.
--------------------------------------------------------------------------------
Investors can refrain from subscribing to the initial public offer of Wockhardt Hospitals being made at a price band of Rs 220-260 per share (revised).
Even at the revised offer price, the offer appears expensively valued vis-À-vis sector leader, Apollo Hospitals.
Wockhardt Hospitals is the fourth largest player in the Indian healthcare sector with a presence in western, southern and eastern India.
It plans to scale up its operations to 3,500 beds by 2010, from around 1,400 currently.
Wockhardt Hospitals focusses on tertiary care clinical areas such as cardiology and cardiac surgery, orthopaedics, neurology, urology, nephrology, critical care and minimally invasive surgery.
Wockhardt’s current earnings rely significantly on three out of its total of 15 facilities (one hospital in Mumbai and two in Bangalore contributed 69 per cent of income in nine months of FY-07).
Overall, the occupancy rates are at about 57 per cent; with occupancy at some of the facilities set up over the last couple of years yet to pick up to healthy levels.
With the company in a heavy investment phase, investors should expect lower profit realisations and relatively low return on capital in the initial years (7.5 per cent in nine months ended December 2007).
With the reduction in the size of this offer (from Rs 778 crore to Rs 652 crore at the higher end of price band) and aggressive plans to ramp up capacities over the next few years, further debt or equity offerings to raise more capital cannot be ruled out.
At end of December 2007, the company’s internal accruals stood at Rs 10 crore, which cannot make up for the shortfall.
Wockhardt Hospitals’ current earnings are relatively small; translating into per share earnings of Rs 0.9 (on post-offer equity base) for the nine months of FY2008 ended December 31, 2007.
It currently owns/operates 15 hospitals (1,400 beds), having invested Rs 370 crore in capex in recent years. Plans are afoot to add another 2,127 beds through six brownfield hospitals (operated/managed by company or group companies on long-term agreements with original infrastructure owners) by end-2008 and four greenfield (to be entirely built by company) by end-2009.
Two-thirds of the net IPO proceeds, after deducting issue expenses and corporate purposes, will be used to construct and expand these 10 hospitals.
The remaining sum may be used to prepay short-term loans. Such prepayment, if it materialises, could significantly reduce the high leverage in the balance-sheet (debt-equity ratio, including short-term debt, may be significantly reduced from 3.8 currently).
Performance
Wockhardt Hospitals’ network spans ten super-specialty and five regional specialty intensive care unit (ICU) hospitals with an 18 year track record and expertise in minimally invasive surgery (up to 10 per cent of surgical operations performed in FY07).
Wockhardt plans to leverage on these to reduce average length of stay (the turnaround time, which is crucial to realisations) and maintain revenues per bed of Rs 24 lakh per year.
Wockhardt’s strategy revolves around garnering in-patient revenues by focussing on areas such as secondary care and advanced tertiary care; both of which have strong growth prospects and potential for high margins. Personnel being critical to hospital business, attrition is a key risk.
However, Wockhardt Hospitals claims a 99 per cent retention rate (last 12 months) for its workforce of 160 full-time specialists. The attrition rate was 20 per cent for resident doctors.
With operating margins of 20.8 per cent in the last nine months, the company’s margins are among the highest in the listed hospital space.
The company’s ability to ramp up occupancy would be crucial to prospects, as it has greater dependence on its core in-patient business (75 per cent of revenues) for revenue than peers such as Apollo, which has a pharmacy and medical BPO business as well.)
Going forward, a higher reliance on brownfield expansion may provide some relief as brownfield hospitals are typically asset-light and allow a quicker payback period, provided occupancy rates are healthy. Litigation risks to seven of the present and proposed facilities also exist.
Valuation
The company’s valuation at an enterprise value (EV) multiple of about 44 times its estimated FY-08 EBITDA (earnings before interest, tax, depreciation and amortisation) appears expensive. Apollo Hospitals, with 7,000 beds under operation and a more diversified profile, commands an EV/EBITDA multiple of around 20 times on FY-08 earnings while Fortis Healthcare enjoys around 42 times.
While Apollo enjoys strong brand equity, Wockhardt Hospitals also enjoys reasonable recognition in regions where it has been in operation for more than 8-10 years.
Given that the company is foraying into Tier-II cities (Madgaon, Nasik, Ludhiana, Jabalpur, Bhavnagar) packaging and pricing may be more important than the brand.
Taking into account the long gestation period in the hospital business and prospects for steady, rather than spectacular growth in earnings, the asking price for the offer appears stiff. It also does not offer any comfort on execution-related risks.
Hindu Business Line
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The asking price for the offer appears stiff and does not provide any comfort on execution-related risks either.
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Investors can refrain from subscribing to the initial public offer of Wockhardt Hospitals being made at a price band of Rs 220-260 per share (revised).
Even at the revised offer price, the offer appears expensively valued vis-À-vis sector leader, Apollo Hospitals.
Wockhardt Hospitals is the fourth largest player in the Indian healthcare sector with a presence in western, southern and eastern India.
It plans to scale up its operations to 3,500 beds by 2010, from around 1,400 currently.
Wockhardt Hospitals focusses on tertiary care clinical areas such as cardiology and cardiac surgery, orthopaedics, neurology, urology, nephrology, critical care and minimally invasive surgery.
Wockhardt’s current earnings rely significantly on three out of its total of 15 facilities (one hospital in Mumbai and two in Bangalore contributed 69 per cent of income in nine months of FY-07).
Overall, the occupancy rates are at about 57 per cent; with occupancy at some of the facilities set up over the last couple of years yet to pick up to healthy levels.
With the company in a heavy investment phase, investors should expect lower profit realisations and relatively low return on capital in the initial years (7.5 per cent in nine months ended December 2007).
With the reduction in the size of this offer (from Rs 778 crore to Rs 652 crore at the higher end of price band) and aggressive plans to ramp up capacities over the next few years, further debt or equity offerings to raise more capital cannot be ruled out.
At end of December 2007, the company’s internal accruals stood at Rs 10 crore, which cannot make up for the shortfall.
Wockhardt Hospitals’ current earnings are relatively small; translating into per share earnings of Rs 0.9 (on post-offer equity base) for the nine months of FY2008 ended December 31, 2007.
It currently owns/operates 15 hospitals (1,400 beds), having invested Rs 370 crore in capex in recent years. Plans are afoot to add another 2,127 beds through six brownfield hospitals (operated/managed by company or group companies on long-term agreements with original infrastructure owners) by end-2008 and four greenfield (to be entirely built by company) by end-2009.
Two-thirds of the net IPO proceeds, after deducting issue expenses and corporate purposes, will be used to construct and expand these 10 hospitals.
The remaining sum may be used to prepay short-term loans. Such prepayment, if it materialises, could significantly reduce the high leverage in the balance-sheet (debt-equity ratio, including short-term debt, may be significantly reduced from 3.8 currently).
Performance
Wockhardt Hospitals’ network spans ten super-specialty and five regional specialty intensive care unit (ICU) hospitals with an 18 year track record and expertise in minimally invasive surgery (up to 10 per cent of surgical operations performed in FY07).
Wockhardt plans to leverage on these to reduce average length of stay (the turnaround time, which is crucial to realisations) and maintain revenues per bed of Rs 24 lakh per year.
Wockhardt’s strategy revolves around garnering in-patient revenues by focussing on areas such as secondary care and advanced tertiary care; both of which have strong growth prospects and potential for high margins. Personnel being critical to hospital business, attrition is a key risk.
However, Wockhardt Hospitals claims a 99 per cent retention rate (last 12 months) for its workforce of 160 full-time specialists. The attrition rate was 20 per cent for resident doctors.
With operating margins of 20.8 per cent in the last nine months, the company’s margins are among the highest in the listed hospital space.
The company’s ability to ramp up occupancy would be crucial to prospects, as it has greater dependence on its core in-patient business (75 per cent of revenues) for revenue than peers such as Apollo, which has a pharmacy and medical BPO business as well.)
Going forward, a higher reliance on brownfield expansion may provide some relief as brownfield hospitals are typically asset-light and allow a quicker payback period, provided occupancy rates are healthy. Litigation risks to seven of the present and proposed facilities also exist.
Valuation
The company’s valuation at an enterprise value (EV) multiple of about 44 times its estimated FY-08 EBITDA (earnings before interest, tax, depreciation and amortisation) appears expensive. Apollo Hospitals, with 7,000 beds under operation and a more diversified profile, commands an EV/EBITDA multiple of around 20 times on FY-08 earnings while Fortis Healthcare enjoys around 42 times.
While Apollo enjoys strong brand equity, Wockhardt Hospitals also enjoys reasonable recognition in regions where it has been in operation for more than 8-10 years.
Given that the company is foraying into Tier-II cities (Madgaon, Nasik, Ludhiana, Jabalpur, Bhavnagar) packaging and pricing may be more important than the brand.
Taking into account the long gestation period in the hospital business and prospects for steady, rather than spectacular growth in earnings, the asking price for the offer appears stiff. It also does not offer any comfort on execution-related risks.
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