Monday, June 27, 2011

Lanco Infra Vs Perdaman.

The Lanco Infratech stock stabilised to close in the green today after Friday’s mauling on the back of the 3.7 billion dollar lawsuit filed by Australian-based Perdaman Industries. This despite Lanco issuing advertisements in leading dailies, clarifying its position on the dispute.

Speaking to CNBC-TV18, Lanco Infra CFO J Suresh Kumar said that the Perdaman's claim of a contract breach was " baseless ". He added that the company is confident of their legal position and add that will respond in an appropriate manner.

Perdman had signed a coal supply agreement for 25 years with Griffin Coal, which was acquired by Lanco last year. As per agreement, Griffin Coal was to supply 2.8 million tonne of coal to Perdman every year.

The case will be heard in court on July 27.

Meanwhile, Andreas Walewski, director (corporate), Perdaman Chemicals clarified that the lawsuit was based on conduct of Lanco . He said Lanco’s actions had put the project at risk.

Understandably, both companies have their own versions about the dispute.

Lanco maintained that they were always open to a dialogue and would have preferred if Perdman had approached them instead of going to court.

However, Walewski said, there were several meetings held between the two companies. He also said the concern raised by Lanco of financial closure is not an "issue".

The bone of contention — supply of coal — also seems to be somewhat unclear. Kumar said the contract is still effective. “As we see it, there is no termination that has happened. We were actually quite surprised that they preferred to go through court rather than through discussions,” he said.

Kumar is unsure about how Perdman arrived at a damages claim of Rs 16,733 crore, however, he said, that the legal costs will not to be too material.

Walewski on the other hand said the sum is based on the value of project.


Wednesday, June 22, 2011

GSPL Scale up is Limited.

Gujarat State Petronet is creating a pipeline network within Gujarat in anticipation of rising availability of gas even though its volumes dropped during FY11.

While its infrastructure will certainly find greater utilisation and generate higher profits once domestic availability of gas goes up, the lack of clarity on that front remains a key risk. The company also saw its tariff drop in FY11 to an average Rs 0.80 per cubic metre from Rs 0.86 of last year.

Although a concern, this is unlikely to weaken any further from the current level. The volume of gas that the company transported also dropped to 35.5 million cubic metres per day (MMSCMD) in the March 2011 quarter from 36.7 MMSCMD in the June 2010 quarter.

Over 58% of these volumes came from RIL's KG basin fields during FY11, while one-third came from regassified LNG. However, with the KG basin output dwindling, its share has fallen to around 40% at present. The company's 22% jump in FY11 profits, despite lower volumes and falling tariffs, came mainly from a change in depreciation policy. The company changed depreciation rate for pipelines from 8.33% to 3.17% in line with Gail's.

The company is expanding its pipeline network in Gujarat to 2,400 km in FY12 from 1,900 km, at present. The three pipeline contracts it won in consortium with Indian Oil, BPCL and HPCL is set to make it a leading inter-state gas transporter from intra-state at present.

These three pipelines with a combined length of 4,000 km and capacity of 125 MMSCMD are expected to get ready within three years at a total cost of Rs 12,000 crore to be funded with a debt-equity ratio of 70:30. In view of the stagnating domestic gas production, the company is increasingly depending on imported sources. Petronet's expanded capacity provides the key support.

Domestic projects - ONGC's KG basin fields and GSPC's Cauvery basin fields - are still years away. This means the company's ability to scale up in the near term may be limited. It is for this reason that the company's valuations appear to be under pressure. GSPL is trading at a price-to-earnings ratio (P/E) of less than 10, compared to an average of 16.2 for the industry.

Monday, June 20, 2011

10-Year India Bond Yields.



- Capital gains is exempted from tax in Mauritius - a Mauritian company cannot be taxed in India. That is why, Mauritius is a tax-haven for foreign funds investing in India.

- The two countries had first started negotiations on revising the Double Taxation Avoidance Agreement (DTAA) in 2006, a joint working group was set up, but the talks were stalled in 2008 as Mauritius was not ready to allow India to tax capital gains at source.
- India wants DTAA with Mauritius at par with that of Singapore. The new proposal states that only companies listed on a recognised stock exchange be eligible for capital gains tax exemption under the treaty. The company should have a total expenditure of $200,000 or more on operations in Mauritius for at least two years prior to the date on which a capital gain arises.
- Cayman Islands is the other such similar tax haven. If 40% FDI comes from Mauritius, around 27% comes from Cayman.


Wednesday, June 15, 2011

Selan Oil - Buy and Wait For The Gains To Appear

Towards the end of the previous fiscal Selan Oil began drilling it's first well in the Lohar, Gujarat Onshore field. Selan also intends to dig another 7 wells in Karjisan fields in FY11. The corporate has spent close to Rs 80 crore and nearly 2 years in mapping the unexplored fields for which it holds the licence to operate. The expectations from both Lohar and Karjisan are positive, and even though it may be speculative to count the chickens at this stage, the success of the first well at Lohar will lead to drilling of another 8-9 wells.

The aim is to get around 1.25 to 2.5 lakh barrels of crude per annum from Lohar. This would effectively raise Selan's Oil production to about 400,000 barrels in FY2012, including production from Indrora and Bakrol.

The other positives for Selan are:1) All proven fields.. 2) zero debt...3)Rs 80 cr for drilling oil...4.. survey completed..5. drilling commenced in the lohar field.. 6. Selan will drill 10 oil wells this year.. 7.. seismic done with 3d.

Annual production from existing fields is 2.5 lakh barrel per year from 20 wells. With another 15 wells in 2 new fields production could begin to ramp up over the course of the year. For the moment, cash flows of Selan cover it for the cost of drilling new wells, but there is a likelihood that a foreign strategic partner may be brought in as Selan has discovered Shale gas in some fields, and the latest rock fracturing technology rests with a few US corporations.

Back of the envelope calculations indicate EPS for FY12 will be Rs 60-65 as production is estimated is 4 lakh barrel, going upto EPS of Rs 115 in FY13 as production may reach 8 lakh barrels.


Tuesday, June 14, 2011

Noida Toll Bridge.

AC Choksi Share Brokers has recommended `Buy` on Noida Toll Bridge with a price target of Rs 39 as against the current market price (CMP) of Rs 25.15 in its report dated May 24, 2011. The broking house gave the following rationale:
> A Concession Agreement confers the right to Noida Toll Bridge Co. (NTBCL) for recovering the project costs with a designated rate of return (20%) over the 30 years concession period or till such time the designated return is recovered whichever is earlier; and if not recovered the right is extendable by 2 years at a time till the project cost and the designated return thereon is recovered.
> In Feb 2011 proposed toll hike was rolled back due to protests. As required for maintenance, NTBCL has taken up issue for increase in toll rates with authorities. It is expecting a hike in the range of 10-22% (at least 10%) in the toll rates by May - June 2011.
> From 2000-01 to 2009 -10 there has been good growth in the average daily traffic. For FY 2012, NTBCL is expecting at least 5% further traffic growth. The planned implementation of Noida and development of Yamuna Expressway will also lead to further increase in traffic.
> The Concession Agreement provides for granting Land Development Rights to NTBCL for supporting any shortfall in earnings. The Company has 100 acres of land and has been seeking development rights. Upon approvals and the commencement of land development, it will get revenues and profit contribution from land development also.
> As NTBCL pays interest at fixed rate on its debt of Rs 1.48 billion, it does not has any direct impact on its profitability in the current scenario of rising interest rates.


NTBCL has good earnings prospects in its business segment. Assured return clause in concession agreement, likely increase in toll rates, potential for increase in traffic and the clause in the concession agreement for grant of land development rights are some of the factors which are leading towards strong growth as well as earnings and profits of the company in the coming period. At the Current Market Price (CMP) of Rs 25.15 NTBCL is trading at a P/E of 12.51. Based on growth prospects, we believe that for financial year 2012, NTBCL`s forward Earnings per share (EPS) to be Rs.2.23, thus we recommend a buy call on the stock at CMP of Rs 25.15 which is trading at only 11.28x Financial year 2012 estimated EPS with a target price of Rs 39 giving a potential upside of 55%.

Jim Rogers Interview.

Jim Rogers , founder of Rogers Holdings, is a well known Asia and commodities bull who migrated to Singapore from the US. The former business partner of George Soros has been most critical of the US government and Fed's policies. He joins economists Nouriel Roubini & Robert Schiller in forecasting a slump in growh in the West. In an interview with ET NOW , he reveals where he is investing and what he is short selling.

Fitch says it may downgrade America's credit status if Congress does not increase the nation's debt limit by early August. Do you anticipate this possibility?

Rogers : Of course I do. What is Fitch talking about? What are they talking about? America should already be downgraded. It should have been downgraded years ago. These people, the rating agencies, have got it wrong for 10-15 years now. America is bankrupt. what are they talking about?

For the first time in 20 years, OPEC has not been able to come to a decision on crude supplies. Do you believe OPEC is now divided and is unable to come to a consensus?

Rogers : OPEC always comes to a consensus verbally when it has public relations announcements, but they are always cheating on each other. I don't pay too much attention to OPEC, because OPEC is running out of oil just like the rest of the world. Don't waste your time watching OPEC; I guess you have to, because you have to have something on TV. But OPEC is not nearly the force it used to be. The market is much more important.

Crude above $100/bl is seen as signaling inflation which is positive for gold and silver. Would you buy gold and silver at current prices?

Rogers: Not at current prices. Well, I did buy some silver this week. But if they go down, I'll buy more. I don't want to buy gold, it's at an all-time high. I'd prefer it to correct and go down and if it goes down and silver goes down, I'll be buying more.

Among popular asset classes like real estate, equities, commodities and currencies where do you see favourable returns in the near term?

Rogers : My own portfolio is I'm long on commodities, and I'm long on currencies. I have sold short EM stocks and I have sold short technology stocks and I've sold short bonds in the US and I've sold short a large bank in the US.

While Fed's Bernanke believes the second half of the year will be better for the US economy, you've got others like economist Robert Shiller saying the US is on the brink of a possible double-dip recession. Which side would you agree with?

Rogers: Bernanke has never been right. He's been in Washington for 7-8 years. Please go back and do a study of his record. You will see that the man has never ever been right. Don't pay any attention to Bernanke.

The economy is slowing down. We're going to have another recession in the US in late 2011 or 2012 or 2013 and it's going to be worse than the last time around, because America has shot all of its bullets, printing money and spending money we don't have. Be very careful.


Monday, June 13, 2011

Gujarat State Petronet Ltd - Possible Multibagger.

Extensive network in Gujarat and expansion plans position GSPL well to capitalise on favourable gas demand dynamics in the country.

June 11, 2011:

Investors with a long-term perspective can consider accumulating the stock of Gujarat State Petronet Limited (GSPL), which operates an extensive gas transmission network in Gujarat and has ambitious expansion plans, both within and outside the State. Expected increase in transmission volumes, widening of geographic footprint, limited downside on transmission tariff from current levels, and a steep fall in the stock price support our recommendation.

The GSPL stock has fallen sharply (down 24 per cent) since last October, primarily due to concerns on transmission volumes, flowing from the supply trouble in one of its major sources — the KG-D6 fields of Reliance Industries. These concerns have been vindicated to some extent, with transmission volumes in the past two quarters remaining either flat or declining marginally. At the current price of Rs 95.6, the stock trades at around 11 times its trailing 12-month earnings, a discount to bigger gas transmission and marketing major GAIL (around 14 times). The stock is also at a discount to its historic valuation levels (around 13 to 15 times).


Current concerns on volumes notwithstanding, GSPL, by virtue of its extensive network in Gujarat (India's most developed gas market) and expansion plans, is well-positioned to capitalise on the favourable gas demand dynamics in the country. Given the cost advantage of natural gas over other alternative modes of fuel for end-users, it is likely that gas, if not available in adequate quantity from domestic sources, will be imported in the form of regassified liquefied natural gas (R - LNG).

Imported gas, though costlier than gas produced domestically, still works out cheaper for end-users than other feedstock such as naphtha. Ramp-up in capacity of existing LNG facilities and setting up new ones such as those in Kochi should translate into increased availability of gas in the years ahead. There are also expectations of increased domestic gas availability in the future when the ONGC and GSPC fields in the KG basin commence production, and Reliance Industries resumes ramp-up. This should translate into increased volumes for GSPL.

Meanwhile, GSPL is itself in expansion mode. It is in the process of increasing its network in Gujarat from around 1,900 km currently to around 2,500 km. The GSPL-led consortium (in which the company has 52 per cent stake) has also received authorisation from PNGRB (the energy regulator) for construction of three cross-country gas pipelines. The Mallavaram-Bhilwara, Mehsana-Bhatinda and Bhatinda-Srinagar pipelines entail laying of around 4,000 km of pipeline at a cost of around Rs 12,500 crore.

These pipelines expected to be operational in around three years, and with a capacity of around 125 mmscmd should translate into significant volume growth for GSPL from current levels of around 36 mmscmd. While increased depreciation and interest cost due to these expansion initiatives could pressure margins in the near-term, they are expected to be value-accretive in the long-term. Expansion outside Gujarat will also help de-risk the company's business to some extent.


Besides, there have been concerns about PNGRB restrictions on transmission tariff, which had contributed to a decline in rates last fiscal. While GSPL has submitted its request for tariff fixation, it does not expect tariffs to be lower than Rs 0.75 per standard cubic meter (scm) (around Rs 0.80 per scm currently).

GSPL's revenues in the recent March quarter declined marginally (around 1 per cent) over the previous year to Rs 255 crore, mainly due to fall in volumes. Despite this, its profits grew around 40 per cent to Rs 151 crore, thanks mainly to lowering the applicable rate of depreciation from 8.33 per cent to 3.17 per cent over the last two quarters, along with retrospective effect for the same. The company's operating margins (in excess of 90 per cent) and net margins (around 50 per cent) are quite healthy. Return on equity is also robust at close to 25 per cent. Debt-to-equity at around 0.7 provides room for further leverage.


Wednesday, June 1, 2011

Clutch Auto De-Merger.

Q: What is the intended demerger plan of the auto ancillary business?

A: We are dividing Clutch Auto into three units - one will be the prime Clutch Auto business which will be as it is. The second one is the prime land that we have on the Delhi border which will go under the name of a new company called Clutch Developers Ltd. Since Clutch Developers tenure will be short till the property is commercially disposed off or some alternate solution is available this will be a part of CA Clutch Vision Ltd which incorporates all the patents and technologies that Clutch Auto has developed but has so far not exploited.

Along with this will be the new technologies that have been developed with the NMITLI (New Millennium Indian Technology Leadership Initiative) under CSIR government of India, Department of Science and Technology. The new technologies and patents will go under CA Clutch Vision which will own Clutch Developers. All shareholders of Clutch Auto will be shareholders of CA Clutch Vision.

This means that whatever allotments come into their kitty after the approval of the stock exchange or the Delhi High Court will go as a bonus to these shareholders. They will have access to the benefits of the commercial properties that we own.

Q: For every share that you own of Clutch Auto today would shareholders be entitled to one share of the CA Clutch Vision?
A: No, that proportion has to be determined after the approval of the stock exchange and the Delhi High Court but some percentage of Clutch Auto’s shares will be allotted as opening shares of CA Clutch Vision.

Q: What is the land value of Clutch Vision given the land that it has in Delhi and what the market value is and what your assessment of the value of the patents that are captured in Clutch Vision?
A: The current value of the patents that we have already taken in United States, India, Australia, Mexico and Iran will be anywhere around Rs 100 crore. The new technologies that are coming in where the four institutions that are working with Clutch Auto for the last four-five years that is National Chemical Laboratory, Pune; Central Glass and Ceramic Research Institute (CGCRI), Kolkata; Advance Research Center, Hyderabad and Indian Institute of Technology, Delhi.
So the new technologies have developed which will increase the service life of clutch across the board by 100% and these technologies will come under CA Clutch Vision and the patents for those which accrue from these technologies will be filed jointly or independently by the respective institutions with Clutch Auto holding the first right for utilization of these technologies for Clutch application or other applications that Clutch Auto decides upon. The land value currently would be anywhere between Rs 100 crore to Rs 250 crore.