Monday, September 27, 2010

XL Telecom - Interview.

Q: Did Goldman try to renegotiate further because you had brought down the conversion price from Rs 260 to Rs 150, but even at Rs 150 it was five times the market price?

A: There was no negotiation as such because the RBI guidelines only allowed the last Rs 150, plus of course the face value, Rs 160 is actually the conversion price.

Q: So what is Goldman’s stake now in your company post the conversion?

A: On behalf of couple of more people, it is close to 14.5%.

Q: What do you mean when you say on behalf of couple of other people?

A: It is P-Notes as we understand because the initial investor was Sansar Capital. As I do not know currently who are all the people who have converted, few of them had kept the original investors in the P-Notes. Maybe it is on behalf of somebody else, it may not be completely on behalf of Goldman Sachs.

Q: It’s 14.9%, the collective shareholding?

A: Yes.

Q: So who holds the remaining shares of the company?

A: There are lot of other institutions and promoters and general public as of now.

Q: What is your business looking like, the renewable energy side now?

A: Europe is picking up very well in the last few months. Post Lehman there was serious fall off business in 2008 September onwards. Last one quarter we have got close to Rs 150 crore worth orders from Europe. We are seeing a good visibility in Canada, Australia and other parts of the world.

Even in the case of India as we have observed a lot of tenders have been floated and lot of people have been allocated. We are seeing close to about 20% market share even in India where we have reached MoUs for establishing the solar parks close to about 20 MW. So, we should get close to Rs 200-300 crore from the Indian business as well, going forward.

Q: What is your current order book though now in solar?

A: Current firm order book is Rs 154 crore. We have another close to Rs 200 crore MoUs, we call it as MoU because the client has not got still the financial closure for their project. Till they get the financial closure, we enter into MoU and once they reach the financial closure we convert into the firm order.

Q: What is the execution timeline for Rs 200+150 crore?

A: This should be close to about six-eight months kind of timeline.

Q: So all of it will be booked in the next one year, this order book?

A: Yes. We are targeting about Rs 700 crore in the next 12 months that is October to September timeframe.

Q: With what kind of profitability because your last disclosed numbers still had a net loss of Rs 50 crore?

A: It was basically due to fall in the selling prices as we had to revalue the inventories accordingly. Now, the uptick is there in terms of price realization. So, we do not see that kind of a problem going forward. But the margins are about 15-17% gross margins and net margins are about 8% level.

Q: Are you sorted out on your balance sheet because you had run into a lot of problems, debt had to be restructured. Currently things are okay or do you still have a lot of pending obligation to the banks who restructured?

A: The CDR package has been completely implemented, banks have been very cooperative and they have in fact converted their interest outstanding into preferential equity. So, close to Rs 100 crore they will be taking cumulative redeemable preferential shares. So, currently things are in order and we should not have any problem from them and they have been very cooperative at this stage.

Q: You had taken some approvals to raise equity as well to the tune of USD 100 million or up to USD 100 million, any equity raising that you have in mind?

A: We are planning about 25 million to raise before December. This is basically for implementing the solar power projects in Canada and Australia.

Q: So that will be a QIP?

A: Either QIP or FCCB kind of an instrument.


Friday, September 24, 2010

XL Telecom Equity Expansion- Part 2

XL, which was largely a telecom equipment maker till three years ago, has shifted its focus to renewable energy.

Goldman Sachs has picked 8% stake in XL Telecom & Energy by converting foreign currency convertible bonds(FCCBs) into shares at a significant premium to the existing market price. Goldman Sachs picked the shares at Rs 150 per share, that fueled a rally on the company shares as the scrip shot up almost 20% hitting the upper circuit of the day at Rs 31.9 at BSE.

It had raised $40 million in October 2007 and, last year, reset the price of FCCB convertible into equity from Rs 260 to 160 and had issued some shares due to such conversion from FCCBs.

The company, that was largely a CDMA technology telecom equipment maker till three years ago, has shifted its business focus towards renewable energy, that contributed 94% of its Rs 430 crore odd revenues for the 18-month period ended December’09.

The company is focusing on grid connected solar solutions that is believed to be growing faster compared with standalone conventional solar systems. The firm’s board had two months ago approved change in the name of the company to XL Energy Ltd to reflect the new business model. It entered into big losses last year and approached the corporate debt restructuring cell given defaults on debt and interest obligations.

This in turn was due to cancellation of large order from Spain in 2008 coupled with mark-to-market losses due to decline in raw material prices thereafter. This forced the firm to go for debt restructuring by banks led by SBI. The restructuring scheme that was approved in December last year included repayment of loans in 32 installments beginning quarter ending September’11, reducing rate of interest for three year period, selling off wholly owned subsidiary Khandola Distilleries Ltd and the ethanol business in 2010.

The total cost of restructuring for lenders stood at 234.6 crore and the promoters were to bring in Rs 40 crore in two installments in FY 2010 and FY 2011.

XL Telecom & Energy also disclosed on Friday that it has raised Rs 23 crore through issue of cumulative redeemable preference shares to banks. It had earlier in June said it has raised Rs 49.2 crore by issuing similar preference shares to banks.

Goldman Sachs’ holding will whittle down once all the outstanding securities get converted into equity.


XL Telecom Equity Expansion- Part 1

XL Telecom & Energy on Friday said it has allotted over 18 lakh shares to Goldman Sachs Investments (Mauritius) I on the conversion of bonds.

The company has issued 18,65,156 equity shares at Rs 150 per share, aggregating to Rs 27.97 crore to Goldman Sachs Investments (Mauritius) I, XL Telecom said in a filing to the Bombay Stock Exchange.

Besides, the company has also raised Rs 23.06 crore by issuing 2.30 crore cumulative redeemable preference shares of Rs 10 each to banks. – PTI


Wednesday, September 22, 2010

The Rules Of Realty.

One of the more frequent questions I get asked is, “Is real estate going up?” The truth is, I don’t know. But that’s not how I typically answer. Instead, I ask a question in reply: “Why are you asking?” The other question I could ask is, “Over what time-frame?” Those two questions, in short, set my perspective on real estate—the nature of your interest in real estate and your time-horizon. Let me explain.

Real estate in urban India is an excellent investment and will continue to be so. India is one of the least-urbanised countries in the world, but that is changing fast. Urban planners project that Greater Delhi, for example, will become the largest city in the world by 2020. People make more money when they interact with each other, and the infrastructure of cities makes that possible. The desire to move to the cities is virtually universal among our village youth. If you plan to spend the bulk of your active life living and working in urban India, put money down for a home as soon as you can. EMIs and other terms of the housing loan industry will, I hope, ensure that you do not overextend yourself. If you are married, and both of you are earning, make sure that the monthly payments will be covered even if you plan to have a child soon, and one of you then take a longish break from work.

The first house you buy may not be the home you would like to have when your children need more space for themselves; but don’t wait till you can afford that dream home. One or two upgrades in the course of an adult life is par for the course. So, real estate offers great returns. After I have acquired my own home, why not invest in property as a retirement fund? In the best-case scenario, it works. Irrespective of the swings in property markets, thanks to the macro scenario in India, the property will eventually fetch you a good return.

In a growth market like India, unless you pick a real dud, investments in both real estate and listed companies usually pan out, and offer comparable returns. But, price cycles in Indian real estate are pretty long—12 years or so from peak to peak, or fi ve to six from top to bottom. If you need to cash out of real estate when the markets are dropping, fi rstly, you are looking at a substantial loss; secondly, when prices are dropping: you could wait for months before you fi nd a buyer, even when you are willing to take the market price.

The second problem with real estate investments is that they are expensive and messy—expensive because registration fees are high; messy because titles are not clear, real estate developers never deliver on time, and the brokers, the less you say about them, the better. I have been intimately involved with at least 10 real estate deals in the last as many years, and all except one had my blood pressure way out of control. In contrast, want to sell equity worth one thousand, or one crore? Make a phone call or press a key on your keyboard. Within 48 hours, the cash will be in your bank account.

Which brings me to the last point—if you need money, investments in real estate are indivisible. Meaning that, if you have a crore in shares, you can withdraw one lakh or fi fty with equal ease. But, if that same amount is invested in a fl at, and you need, say Rs 20 lakh, you need to sell the property, incur the selling costs on the whole amount, and then fi nd a lucrative way to reinvest the amount not immediately required. In other words, ignore the ups and downs of real estate prices. Buy your fi rst home as soon as you can, and don’t bother to fi nd out ‘What it is worth’.To invest your spare cash, find a vehicle that is less stressful.


Reality check on holiday homes.

Plots or bungalows in far-flung areas take more time to give returns.

The recent advertisements of holiday homes are inviting — a picturesque house nestled in lush green surroundings with the caption reading: “Invest and soak in luxuries of life” or “An investment for generations”. And, above all, a three-digit price tag: Rs 199 or Rs 299 a square feet (sq ft).

Enticed by one such advertisement, Chirag Shah bought a plot in Khadavli, a Mumbai suburb, six years ago and constructed a bungalow. “I plan to use it as a holiday home and sell when development starts in the area,” says Shah.

There are many people who buy such properties as an investment. But they cannot be sold in haste. Since Shah purchased the plot in 2004, its value has risen 80 per cent. In comparison, the price of his Mulund residence has increased four times, or 400 per cent.

No wonder experts say purchasing big properties in far-flung areas for returns may not be a smart idea. “Their value does not rise as much as a real estate property inside the city. In addition, the maintenance cost is high,” says Pranay Vakil, chairman, Knight Frank (India). Here are a few things to look at:


On rent: If your house is in a city or a town, you can let it out full time. And, if it is in the suburbs, you can give it on rent for a short duration to picnickers. But you will have to spend on a caretaker or a guard and also take care of the food.

for weddings or parties: Villas and bungalows in the suburbs are also used as wedding and party venues. For parties, you may have to incur a cost for arranging food.

Location shoots: Television and film producers are always scouting for new locations to shoot films or advertisements. Again, a caretaker or a guard will be required.


At Rs 299 a sq ft, you can buy a 4,000-sq-ft plot for only Rs 12 lakh. But actual expenses begin only when you start construction. The cost of basic construction is Rs 600-700 a sq ft. This means if you are constructing a two-storey house, using one-third of your plot, you will spend Rs 16 lakh for only the basic structure.

Many owners keep spending on such plots from time to time. Some may opt for landscaping, build a small swimming pool, or even add a gazebo.

“The maintenance cost of self-constructed property is higher as it is used only a few times in a year. The access road and the area around the plot wither more if the house is surrounded by hills or the area has extreme climate,” says Raja Kaushal, executive director, BNP Paribas Real Estate Advisory.

Ready villas or bungalows

Real estate experts said most such schemes were a flop because of security reasons and poor infrastructure, including sanitation and power back-up.

If you are buying a ready-made second home, go for a reputed developer or an existing project that has a good track record. This will ensure security, including boundary walls and fencing, and stationing of guards. Infrastructure, too, will be on a par with what you get in the cities. “However, be prepared to shell out five-seven per cent of the property cost on maintenance,” says Vakil. So, even if the value rises 10 per cent annually, the rise after deducting maintenance charges comes to three-five per cent.

Vacation ownership

Under such a scheme, a person buys from a developer who rents houses to vacationers when they are not in use. For instance, RCL Homes is offering two schemes— rent back and without rent — at Karjat in suburbs of Mumbai, Lonavala, Khandala and Alibaug.

In the rent-back scheme, for a 425-sq-ft studio apartment (which costs Rs 9 lakh), the builder will pay Rs 3,500 every month and use the apartment as a resort home throughout the year. You will be allowed to stay in the house for a month any time of the year without paying any maintenance cost. For a one-bedroom-hall-kitchen of 675 sq ft (which is priced at Rs 14 lakh), you will get a rent of Rs 5,000.

While the concept looks interesting, it has failed to take off. “Occupancy of the property is not guaranteed. So, income is irregular, and in most cases, does not even cover the maintenance cost,” says Sunil Rohakale, executive director, ASK investment holding. He also manages the company’s real estate fund.

The appreciation of land prices in these second homes is lower than plots and ready-made properties, says Vakil.


Monday, September 20, 2010

Mid-Cap Pick (Economic Times).

Mid Term Pick: Hindustan Zinc.

1074, 1410

Hindustan Zinc, India's largest zinc and lead producer, has huge mine reserves of more than 25 years and is the lowest cost producer at nearly $750 per tonne. It has recently expanded its capacity to 1MTPA, making it world's largest zinc/lead producer. At CMP, it is trading at an attractive EV/PAT of 5x.

“Hindustan zinc (HZL) has reported decent set of numbers for Q1FY11. The company falls into the lowest cost curve, with mine reserves of 298.6 MT which is to last over 25 years. Due to its backward integrated operations the company is the least impacted with the recent fall in the commodity prices. We believe that the base metal prices are likely to stabilize at these levels keeping in mind the marginal cost of production. Strong balance sheet, being cash rich and debt free, provides significant cushion to the company in undertaking initiatives for organic/inorganic growth. HZL is currently available at an EV/EBITDA of 3.3x its FY12 estimates. At the current market price the stocks EV/PAT works out to be 4x, a payback period of 4 years vs a mining life of over 25 years. We thus recommend a buy on the stock with a target price of Rs 1410,” says Sushil Finance research report.

Courtesy: Economic Times.

Wednesday, September 15, 2010


Reliance Industries

Reco Price: Rs 958,
Target Price: Rs 1,260

RIL’s stock price has borne the brunt of negative news flows on account of slower ramp-up of KG Basin gas, subdued refining and petrochemical margins and concerns over the redeployment of the cash flows. However, the current price has discounted the worst case scenario. Brokerages expect RIL’s profitability to register 34 per cent CAGR over 2010-12 driven by improvement in refining margins coupled with ramp up of oil and gas production at the KG Basin. Higher share of E&P in the profit matrix will reduce exposure to cyclical segments. RIL's newer ventures (shale gas, Broadband and power) will keep it on high growth orbit going ahead. The stock is relatively under-valued trading at 1.7x 2011-12 P/BV. Maintain buy.

—Angel broking


Gas Power Plant in Bharuch

Assam Company (India) has received a communication from the Energy and Petrochemicals Department, Government of Gujarat conveying that the state government has no objection to the company setting up a gas based combined cycle 750 - 1000 MW power plant on the energy plant of 60 hectres of energy SEZ land located at Vilayat Industrial Estate, Bharuch, Gujarat.