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Thursday, August 28, 2008
PHARMA SECTOR PICKS
*Organic growth led by emerging markets and contract
manufacturing:*Top-line growth for Jun-08 quarter was strong for many
companies, led mainly
by acquisitions, double-digit growth in emerging markets (including India ),
expanding product portfolio in the US and strong outsourcing by the MNC
Pharma companies. Overall top-line growth was 23.5% to Rs98.2b with
acquisitions contributing about Rs4.5-5b, while organic top-line growth was
18% (excluding one-off Para-IV upsides). Emerging markets continue to drive
both the top-line and the profitability for most of the generic companies
while the CRAMS players are witnessing the benefits of increased outsourcing
from India . We believe that revenue growth for the quarter would have also
been aided by the recent depreciation of the INR vs the US $ and the Euro.
manufacturing:*Top-line growth for Jun-08 quarter was strong for many
companies, led mainly
by acquisitions, double-digit growth in emerging markets (including India ),
expanding product portfolio in the US and strong outsourcing by the MNC
Pharma companies. Overall top-line growth was 23.5% to Rs98.2b with
acquisitions contributing about Rs4.5-5b, while organic top-line growth was
18% (excluding one-off Para-IV upsides). Emerging markets continue to drive
both the top-line and the profitability for most of the generic companies
while the CRAMS players are witnessing the benefits of increased outsourcing
from India . We believe that revenue growth for the quarter would have also
been aided by the recent depreciation of the INR vs the US $ and the Euro.
*Higher RM costs being offset by better product and geographical mix:* RM
costs for our universe has increased by 17.6% YoY and 15% sequentially led
by lower supplies of inputs from China (due to the onset of Olympics) and
depreciation of the INR vs the US$. However, these cost pressures are being
offset by improved product-mix as well as due to higher contribution from
emerging markets (which enjoy higher margins). RM cost as % of revenues has
declined by 400bps to 39.7% YoY. We believe that inventory valuations gains
would have also helped to report a lower number.
*EBITDA Margins in-line, but PAT impacted by forex losses:* Overall EBITDA
Margins for the Jun-08 quarter were in-line with estimates but higher MTM
forex losses on forward covers and foreign currency loans impacted PAT
growth. Key companies to be impacted by forex losses include Ranbaxy,
Jubilant and Cipla given their high level of forex borrowings.
*Outlook*
We continue to be selectively bullish on the pharmaceutical sector. The key
determinants of future success will be:
1. Generics – Geographically diversified presence, broad product portfolio
including a pragmatic mix of normal, low-competition and patent challenge
products, backward integration and cost effectiveness. *Top picks include
Dr. Reddy's Labs, Lupin and Sun Pharma.*
2. CRAMS – Strict IPR compliance, chemistry skills, established relations
with MNC pharmaceutical companies and ability to undertake front-ended capex.
*Piramal** Healthcare is our top pick in the CRAMS space.*
3. MNC Pharma – Parent's commitment, brand building ability and a pipeline
of new launches. *GSK Pharma is our top pick in this space.*
K S Oils - Updates
*The oily way to success*
Spencers and More outlets in certain cities in eastern India ," he adds. The
company plans to reach out through other organised retail outlets in rest of
the country. It has also launched its first television commercials in
certain parts of the country. "We have allocated a budget of Rs 10 crore for
advertising and marketing spends," says Agarwal.
Analysts who track the company say that KS Oils' transparency and
willingness to reach out to shareholders makes it a great company to follow.
"As an analyst, it's a great company to work with. You call them late in the
night and they are ready to talk numbers. It's a fundamentally sound mid-cap
company," says Girish Solanki, an analyst with Angel Broking who tracks the
company. The company's snazzy website is proof enough.
With a turnover of more than Rs 2,000 crore in 2007-08 and a market cap in
excess of Rs 1,800 crore, Morena-based KS Oils is a leading player in the
country's edible oil industry.
[image: KS Oils Agarwal: Cashing in on its brands]KS Oils Agarwal: Cashing
in on its brands
With a market share of 7 per cent in the overall mustard oil industry
(valued at Rs 12,000 crore), the company controls a fourth of the organised
mustard oil market in India.
However, the organised market itself accounts for just 15 per cent of
overall mustard oil sales in the country. Little wonder, then, KS Oils has
been aggressively pushing its branded products and is reaping rich rewards.
In its recently-declared first quarter results, revenues leapfrogged by 90
per cent to touch Rs 696 crore and net profit soared 75 per cent to touch Rs
41 crore y-o-y. "Our surge in revenues is largely due to our FMCG-led retail
sales focus," says Sanjay Agarwal, MD, KS Oils.
Spencers and More outlets in certain cities in eastern India ," he adds. The
company plans to reach out through other organised retail outlets in rest of
the country. It has also launched its first television commercials in
certain parts of the country. "We have allocated a budget of Rs 10 crore for
advertising and marketing spends," says Agarwal.
Analysts who track the company say that KS Oils' transparency and
willingness to reach out to shareholders makes it a great company to follow.
"As an analyst, it's a great company to work with. You call them late in the
night and they are ready to talk numbers. It's a fundamentally sound mid-cap
company," says Girish Solanki, an analyst with Angel Broking who tracks the
company. The company's snazzy website is proof enough.
Wednesday, August 27, 2008
Stock Picks / Investment Ideas / Market Updates / Reports
Balaji Tele - Stock Updates
Bosch & Chasis - Updates
Daily Trading Bites
Derivative Updates for the day
Derivative Updates 2
Derivative Updates 3
Derivative Stats
ICICIDirect DerivativesDaily
ICICI Direct Updates
iFlex Stock Pick 26Aug
India Brokerages Initiation Aug2008
Infosys Technology
Market Outlook for the day
Morning Insight 27Aug2008
Simplex Infrastructure Initiating Coverage20080825
Suprabhatam 270808
PTC Updates
TATA Communications
Top 25 Dividend Yield Stocks
Bosch & Chasis - Updates
Daily Trading Bites
Derivative Updates for the day
Derivative Updates 2
Derivative Updates 3
Derivative Stats
ICICIDirect DerivativesDaily
ICICI Direct Updates
iFlex Stock Pick 26Aug
India Brokerages Initiation Aug2008
Infosys Technology
Market Outlook for the day
Morning Insight 27Aug2008
Simplex Infrastructure Initiating Coverage20080825
Suprabhatam 270808
PTC Updates
TATA Communications
Top 25 Dividend Yield Stocks
Make property part of your investments
The stock markets are down, eroding investor wealth by millions of rupees. The markets that have stood against the tides of inflation aren't the mostfavoured today. Those planning for their retirement years may prefer reducing their exposure to stocks and increasing their investments in real estate.
While stocks are also long-term investment vehicles, the returns on real estate have always been remarkable.
For those close to retirement years, planning is crucial . Should your portfolio have an exposure to real estate? Retirement planning spans over a long term. With inflation looming large over your heads, it is essential that your investments yield decent returns that beat the inflation.
Yes, fixed deposits and other debt instruments are an indispensable part of a retirement portfolio. You can also consider exposure of a small portion of your money to the stock markets or mutual funds. To add real estate to this list of investments is a good idea.
Wouldn't it be nice if you had your own roof after retirement, for which you need not dole out monthly rent? Wouldn't it be nice if you had a piece of plot that could be sold anytime to meet unforeseen expenses? An investment in a house not only appreciates with time, but also allows you to enjoy income tax benefits on repayment of the home loan.
Inflation and increasing rates has dampened investor interest. This is a good time to invest in property .
The traditional social fabric has undergone a drastic change. Joint families have shrunk into nuclear families .
Thus, all senior citizens do not have their children's support. It becomes even more important for people to plan for their retirement years. Further, advancements in modern medical science and information about healthy lifestyles have increased life expectancy of people. Inflation has pushed up costs of everything from food grains to transport and healthcare.
It is essential that retired people have ample funds to meet their medical and other regular expenses.
Consider reverse mortgage . Here, a loan is offered to homeowners who are above a certain age, to enable them to convert the market value of their home into cash to finance their needs.
The basic condition is that the property should be self-acquired and selfoccupied . Reverse mortgage can be defined as a form of mortgage in which the lender makes periodic payments to the borrower using the investment in the house as security.
While stocks are also long-term investment vehicles, the returns on real estate have always been remarkable.
For those close to retirement years, planning is crucial . Should your portfolio have an exposure to real estate? Retirement planning spans over a long term. With inflation looming large over your heads, it is essential that your investments yield decent returns that beat the inflation.
Yes, fixed deposits and other debt instruments are an indispensable part of a retirement portfolio. You can also consider exposure of a small portion of your money to the stock markets or mutual funds. To add real estate to this list of investments is a good idea.
Wouldn't it be nice if you had your own roof after retirement, for which you need not dole out monthly rent? Wouldn't it be nice if you had a piece of plot that could be sold anytime to meet unforeseen expenses? An investment in a house not only appreciates with time, but also allows you to enjoy income tax benefits on repayment of the home loan.
Inflation and increasing rates has dampened investor interest. This is a good time to invest in property .
The traditional social fabric has undergone a drastic change. Joint families have shrunk into nuclear families .
Thus, all senior citizens do not have their children's support. It becomes even more important for people to plan for their retirement years. Further, advancements in modern medical science and information about healthy lifestyles have increased life expectancy of people. Inflation has pushed up costs of everything from food grains to transport and healthcare.
It is essential that retired people have ample funds to meet their medical and other regular expenses.
Consider reverse mortgage . Here, a loan is offered to homeowners who are above a certain age, to enable them to convert the market value of their home into cash to finance their needs.
The basic condition is that the property should be self-acquired and selfoccupied . Reverse mortgage can be defined as a form of mortgage in which the lender makes periodic payments to the borrower using the investment in the house as security.
How to invest when markets are choppy
Have you been feeling uncomfortable while dabbling in stocks after burning your fingers in the recent market meltdown? While only some with deep pockets could withstand the negative pressures, most investors seem to have lost their financial focus after suffering huge losses.
Take the case of Ravi Teja, a mid-level executive with a multinational company. The 31-year-old went into a state of shock after his portfolio eroded from Rs 50 lakh to Rs 10 lakh in a short span of six months. Teja is inconsolable and feels he has let down his family and future of his kids in his pursuit to grow wealth quickly.
The emotional and mental meltdown has now, in fact, started impacting his professional life as well. But Teja is not a one-off case. Since the capital market crash in January this year, lakhs of investors are yet to recover from the aftershocks, and have lost their confidence. Here are five steps which you can follow to regain your financial focus.
TAKE A BREAK
There is always light at the end of a tunnel! Always remember this adage and never lose your cool. In fact, you should try to maintain composure, as if nothing has happened. Your mental, emotional and physical state of being plays a key role in your fight back to regain financial focus.
A week-long vacation with family, or a short adventure trip can really help you retrieve your energy in re-starting your battle with financial adversaries. An optimistic frame of mind is a must for the momentum you need to fulfill your personal and family financial goals.
ANALYSE WHAT WENT WRONG
Once you recover your calm, you should assess what went wrong and why you lost your financial focus. There can be many reasons behind the loss of wealth — misjudged risk appetite, misjudged capital commitment ability and others.
“Until this is done and the reasons found, it is possible that the same mistakes/ developments could lead to similar undesired circumstances in the future again,” says Dinesh Thakkar, chairman and managing director, Angel Broking.
RE-DEFINE FINANCIAL GOALS
Planning is a critical element for a successful investment strategy. After you re-assess the situation, it’s time for you to set new goals/ timelines. A long-term plan comprising various asset classes and investment avenues should be developed keeping in mind your overall financial goals.
Volatility in the stock market and rise and fall of interest rates are inherent market characteristics and need to be considered while creating your financial plan. You can, in fact, hire the services of a certified financial planner to formulate the strategy.
Says Joydeep Roy, chief distribution officer, Tata AIG Life Insurance: “Financial planning not only helps you optimise returns on your existing financial resources but also prepares you for future expenses. A customised financial plan based on an individual’s specific needs, asset and liability matching, future cash flow requirements, and time horizon, ensures that you don’t lose track again.”
However, in case you define your targets yourself, make sure that the goals are ‘not way off realistic targets’.
COMMITMENT AND DISCIPLINE
These two virtues are pillars of success, which along with planning and execution make the perfect recipe for achieving your goals. After your plan of action is formulated, you need commitment and discipline to stick by it.
That’s why once an appropriate asset allocation structure has been formulated, adhering to it diligently is key to your future success. “For example, just because some year equities offered you exceptional returns, it would not justify a 100% shift to this asset class.
Similarly, just because some year it has given negative returns would not justify a 100% shift away from this asset class,” says Thakkar.
GAIN INSPIRATION
An inspired mind breathes fresh life into the seat of consciousness! Thus, you should look for inspiration from someone/ something, who/ which could serve as a good benchmark while you work towards your goals. These would act as motivation for you on various occasions. “And, not to be forgotten, have patience. Remember, Rome was not built in a day.
Similarly, give some time to your capital to grow and your financial goals to be achieved. Here, you must note that compounding plays a key role and it is not without reason that it is sometimes referred to as the eighth wonder,” points out Thakkar.
In a nutshell, a judicious way to maintain your financial focus is to follow the basic rules of prudent investing — regular and continuous investment, clarity of objectives, long-term investment horizon and diversified portfolio of investments, to name a few.
Take the case of Ravi Teja, a mid-level executive with a multinational company. The 31-year-old went into a state of shock after his portfolio eroded from Rs 50 lakh to Rs 10 lakh in a short span of six months. Teja is inconsolable and feels he has let down his family and future of his kids in his pursuit to grow wealth quickly.
The emotional and mental meltdown has now, in fact, started impacting his professional life as well. But Teja is not a one-off case. Since the capital market crash in January this year, lakhs of investors are yet to recover from the aftershocks, and have lost their confidence. Here are five steps which you can follow to regain your financial focus.
TAKE A BREAK
There is always light at the end of a tunnel! Always remember this adage and never lose your cool. In fact, you should try to maintain composure, as if nothing has happened. Your mental, emotional and physical state of being plays a key role in your fight back to regain financial focus.
A week-long vacation with family, or a short adventure trip can really help you retrieve your energy in re-starting your battle with financial adversaries. An optimistic frame of mind is a must for the momentum you need to fulfill your personal and family financial goals.
ANALYSE WHAT WENT WRONG
Once you recover your calm, you should assess what went wrong and why you lost your financial focus. There can be many reasons behind the loss of wealth — misjudged risk appetite, misjudged capital commitment ability and others.
“Until this is done and the reasons found, it is possible that the same mistakes/ developments could lead to similar undesired circumstances in the future again,” says Dinesh Thakkar, chairman and managing director, Angel Broking.
RE-DEFINE FINANCIAL GOALS
Planning is a critical element for a successful investment strategy. After you re-assess the situation, it’s time for you to set new goals/ timelines. A long-term plan comprising various asset classes and investment avenues should be developed keeping in mind your overall financial goals.
Volatility in the stock market and rise and fall of interest rates are inherent market characteristics and need to be considered while creating your financial plan. You can, in fact, hire the services of a certified financial planner to formulate the strategy.
Says Joydeep Roy, chief distribution officer, Tata AIG Life Insurance: “Financial planning not only helps you optimise returns on your existing financial resources but also prepares you for future expenses. A customised financial plan based on an individual’s specific needs, asset and liability matching, future cash flow requirements, and time horizon, ensures that you don’t lose track again.”
However, in case you define your targets yourself, make sure that the goals are ‘not way off realistic targets’.
COMMITMENT AND DISCIPLINE
These two virtues are pillars of success, which along with planning and execution make the perfect recipe for achieving your goals. After your plan of action is formulated, you need commitment and discipline to stick by it.
That’s why once an appropriate asset allocation structure has been formulated, adhering to it diligently is key to your future success. “For example, just because some year equities offered you exceptional returns, it would not justify a 100% shift to this asset class.
Similarly, just because some year it has given negative returns would not justify a 100% shift away from this asset class,” says Thakkar.
GAIN INSPIRATION
An inspired mind breathes fresh life into the seat of consciousness! Thus, you should look for inspiration from someone/ something, who/ which could serve as a good benchmark while you work towards your goals. These would act as motivation for you on various occasions. “And, not to be forgotten, have patience. Remember, Rome was not built in a day.
Similarly, give some time to your capital to grow and your financial goals to be achieved. Here, you must note that compounding plays a key role and it is not without reason that it is sometimes referred to as the eighth wonder,” points out Thakkar.
In a nutshell, a judicious way to maintain your financial focus is to follow the basic rules of prudent investing — regular and continuous investment, clarity of objectives, long-term investment horizon and diversified portfolio of investments, to name a few.
Major Brokerage Recommendations for Investments
Indian hotels
cmp: Rs 76.40
target price: Rs 85
India Infoline has maintained its ‘market performer’ rating on Indian Hotels Co with a reduced price target of Rs 85. The brokerage house expects the company’s volume expansion to come from its new properties and a stable revenue growth over the medium-term with the commissioning of its Ginger brand.
“Since the company now operates in all major price points, it is cushioned against an adverse affect of a weakness in luxury market room rentals or any localised downturn,” the India Infoline note to clients said. “We expect the company to witness sales and earnings CAGR (compounded annual growth rate) of 15.1% and 26.6% respectively over the next two years. Valuations appear reasonable, with price to earning of 10.8 times and EV(enterprise value)/EBIDTA of 6.8 on FY10 (estimated) earnings,” it added.
target price: Rs 85
India Infoline has maintained its ‘market performer’ rating on Indian Hotels Co with a reduced price target of Rs 85. The brokerage house expects the company’s volume expansion to come from its new properties and a stable revenue growth over the medium-term with the commissioning of its Ginger brand.
“Since the company now operates in all major price points, it is cushioned against an adverse affect of a weakness in luxury market room rentals or any localised downturn,” the India Infoline note to clients said. “We expect the company to witness sales and earnings CAGR (compounded annual growth rate) of 15.1% and 26.6% respectively over the next two years. Valuations appear reasonable, with price to earning of 10.8 times and EV(enterprise value)/EBIDTA of 6.8 on FY10 (estimated) earnings,” it added.
Tata motors
cmp: Rs 433.50
target price: Rs 454
HDFC Securities has maintained its ‘sell’ rating on the stock with a revised target price of Rs.454 (from Rs.431 earlier). The brokerage believes due to uncertainties looming over the company’s Nano project at Singur and 24-35% equity dilution would cap the upside in the stock.
Also the Jaguar-Land Rover (JLR) acquisition would continue to be an overhang on Tata Motors’ stock, the note added. “We are revising our earnings per share estimate upwards by 9% (Rs.29.9 earlier) mainly on account of lower equity dilution by reducing the amount of funds raised through the equity route. We value the company on an SOTP basis with the core business valued at Rs 293 per share and subsidiaries at Rs 161 per share,” the note to clients said.
target price: Rs 454
HDFC Securities has maintained its ‘sell’ rating on the stock with a revised target price of Rs.454 (from Rs.431 earlier). The brokerage believes due to uncertainties looming over the company’s Nano project at Singur and 24-35% equity dilution would cap the upside in the stock.
Also the Jaguar-Land Rover (JLR) acquisition would continue to be an overhang on Tata Motors’ stock, the note added. “We are revising our earnings per share estimate upwards by 9% (Rs.29.9 earlier) mainly on account of lower equity dilution by reducing the amount of funds raised through the equity route. We value the company on an SOTP basis with the core business valued at Rs 293 per share and subsidiaries at Rs 161 per share,” the note to clients said.
LUPIN
RESEARCH: CITIGROUP
RATING: BUY
CMP: Rs 738
Lupin’s deal to market Forest Labs’ AeroChamber Plus line of products to US paediatricians will allow it to leverage its branded field force and strengthen its franchise in the paediatrics segment. While the upside may not be on the same scale as Suprax, this will be accretive, given the lack of incremental spend on development or at the front end.
Lupin has entered into a multiyear agreement with Forest to promote the latter’s value holding chamber (VHC) product AeroChamber Plus to paediatricians. AeroChamber Plus is the most prescribed holding chamber for use with inhaled asthma medications in the US.
As per IMS ’07 data, two-thirds of all prescriptions for the product are written by paediatricians. Lupin’s 50-strong sales force in the US currently promotes only Suprax and has room to add two more products, thus implying no incremental spend for this deal. Lupin will make an undisclosed marketing margin up to a certain threshold level of sales, beyond which, the upside will increase.
Citigroup expects margins to be in the range of 10-15 % — while this is lower than Lupin’s core business margins, the lack of incremental regulatory, development or front-end spend makes this an accretive deal. Citigroup believes this deal — besides being a small step towards offsetting the impact of a potential generic threat to Suprax — highlights the scope for multiple growth drivers within Lupin’s business model.
RATING: BUY
CMP: Rs 738
Lupin’s deal to market Forest Labs’ AeroChamber Plus line of products to US paediatricians will allow it to leverage its branded field force and strengthen its franchise in the paediatrics segment. While the upside may not be on the same scale as Suprax, this will be accretive, given the lack of incremental spend on development or at the front end.
Lupin has entered into a multiyear agreement with Forest to promote the latter’s value holding chamber (VHC) product AeroChamber Plus to paediatricians. AeroChamber Plus is the most prescribed holding chamber for use with inhaled asthma medications in the US.
As per IMS ’07 data, two-thirds of all prescriptions for the product are written by paediatricians. Lupin’s 50-strong sales force in the US currently promotes only Suprax and has room to add two more products, thus implying no incremental spend for this deal. Lupin will make an undisclosed marketing margin up to a certain threshold level of sales, beyond which, the upside will increase.
Citigroup expects margins to be in the range of 10-15 % — while this is lower than Lupin’s core business margins, the lack of incremental regulatory, development or front-end spend makes this an accretive deal. Citigroup believes this deal — besides being a small step towards offsetting the impact of a potential generic threat to Suprax — highlights the scope for multiple growth drivers within Lupin’s business model.
Praj Industries
cmp: Rs 172.85
target price: Rs 277
ULJK Group has assigned an ‘accumulate’ rating to Praj Industries as it expects the company to benefit from its operational presence in all major ethanol-producing countries.
The firm believes that fuel ethanol production is seeing an uptrend on the back of the increase in crude oil prices and the company possesses process technology for the different types of feedstock for ethanol production.
“We expect the order book to grow at a CAGR of approximately 37%, backed by the increase in demand for fuel ethanol, the note said. “The revenue of the company is expected to grow at a CAGR of approximately 31% during the period FY08-FY10 (estimated). The company is expected to deliver a net profit of Rs 1,694 million in FY09(estimated) and Rs 2268 million in FY10 (estimated), a CAGR of approximately 22%,” the note added.
ONGC
RESEARCH: MOTILAL OSWAL
RATING: BUY
CMP: Rs 1,016
The government had indicated that subsidy-sharing in FY09 will be fixed at Rs 45,000 crore for upstream companies (ONGC shares ~86%), Rs 20,000 crore for OMCs and oil bonds issuance at Rs 94,600 crore. Motilal Oswal estimates the net shortfall in under-recovery sharing (post upstream, OMC and oil bonds sharing) for FY09 to be below average Brent price of $118/bbl (Rs 42 per dollar).
If oil prices remain below $118/bbl, the announced subsidy-sharing will sufficiently cover under-recoveries and thus, reduce the risk of higher sharing by ONGC. Brent price has fallen by 23% from its peak in July and if the trend continues, ONGC (with fixed subsidy burden) will be adversely affected.
Assuming the subsidy burden at Rs 38,700 crore for FY09, ONGC’s EPS can reduce by 21% to Rs 98.2 if average FY09 Brent price declines from $110/bbl to $100/bbl. However, at fixed subsidy burden, ONGC’s EPS will rise by 21% to Rs 150 at Brent price of $120/bbl. The Chaturvedi committee has recommended capping ONGC’s realisation at $75/bbl (100% special oil tax on realisation above $75/bbl).
The recommendations are unlikely to be fully implemented, given other harsh measures like frequent hike in retail fuel prices. Motilal Oswal remains positive on ONGC with a long-term perspective, as the bulk of its NELP acreage is yet to be explored, and thus, has huge potential for oil & gas discoveries . But in the near term, the stock performance will reflect movement in oil prices. At current oil prices, a movement either ways will pose a risk to earnings. The stock trades at 8.6x FY09E consolidated EPS of Rs 124.
target price: Rs 277
ULJK Group has assigned an ‘accumulate’ rating to Praj Industries as it expects the company to benefit from its operational presence in all major ethanol-producing countries.
The firm believes that fuel ethanol production is seeing an uptrend on the back of the increase in crude oil prices and the company possesses process technology for the different types of feedstock for ethanol production.
“We expect the order book to grow at a CAGR of approximately 37%, backed by the increase in demand for fuel ethanol, the note said. “The revenue of the company is expected to grow at a CAGR of approximately 31% during the period FY08-FY10 (estimated). The company is expected to deliver a net profit of Rs 1,694 million in FY09(estimated) and Rs 2268 million in FY10 (estimated), a CAGR of approximately 22%,” the note added.
Infosys Tech
cmp: Rs 1,697.60
target price: Rs 1,703
Broking firm Edelweiss Securities has maintained its ‘accumulate’ rating on the stock as it believes that the company’s recent acquisition of the Axon group would bolster the company’s presence in the consulting space.
“The deal is earnings per share (EPS) neutral on standalone basis in FY09 (estimated), but EPS accretion in FY10 (estimated) depends on Axon’s growth and margin trajectory. Incorporating the financial impact of this acquisition, the stock trades at 16.5 times and 13.9 times FY09 and FY10 earnings respectively,” the note said. However, according to the brokerage firm, slowdown in US, significant increase in the salary hikes and attrition rate, reduction in the number of H1B visas granted by US, and incremental appreciation of rupee against US dollar, euro and GBP remain key concerns for the company.
target price: Rs 463
Kotak Securities has recommended a “buy” on OCIL as it believes that strong global distribution network, expanded product portfolio and increasing outsourcing opportunities from global majors would drive company’s growth.
“We expect 56.7% and 43.7% compounded growth in revenue and net profit, respectively over the next two years. We estimate an earnings per share of Rs 20.2 in FY09 and Rs 29 in FY10.”
For FY10, expected overall revenue growth is 41.1% to Rs 11.49 billion while net profit is expected to grow at 43.9% at Rs 2.73 billion, the note said. “The key growth driver for topline would likely be the stents business which is expected to grow at about 80%. The stock will be valued at 15.9x FY10 price to earning multiple and 14.9 times FY10 EV/EBIDTA,” the note added.
target price: Rs 1,703
Broking firm Edelweiss Securities has maintained its ‘accumulate’ rating on the stock as it believes that the company’s recent acquisition of the Axon group would bolster the company’s presence in the consulting space.
“The deal is earnings per share (EPS) neutral on standalone basis in FY09 (estimated), but EPS accretion in FY10 (estimated) depends on Axon’s growth and margin trajectory. Incorporating the financial impact of this acquisition, the stock trades at 16.5 times and 13.9 times FY09 and FY10 earnings respectively,” the note said. However, according to the brokerage firm, slowdown in US, significant increase in the salary hikes and attrition rate, reduction in the number of H1B visas granted by US, and incremental appreciation of rupee against US dollar, euro and GBP remain key concerns for the company.
JSW Steel
cmp: Rs 336.95 target price: Rs 463
Kotak Securities has recommended a “buy” on OCIL as it believes that strong global distribution network, expanded product portfolio and increasing outsourcing opportunities from global majors would drive company’s growth.
“We expect 56.7% and 43.7% compounded growth in revenue and net profit, respectively over the next two years. We estimate an earnings per share of Rs 20.2 in FY09 and Rs 29 in FY10.”
For FY10, expected overall revenue growth is 41.1% to Rs 11.49 billion while net profit is expected to grow at 43.9% at Rs 2.73 billion, the note said. “The key growth driver for topline would likely be the stents business which is expected to grow at about 80%. The stock will be valued at 15.9x FY10 price to earning multiple and 14.9 times FY10 EV/EBIDTA,” the note added.
ONGC
RESEARCH: MOTILAL OSWAL
RATING: BUY
CMP: Rs 1,016
The government had indicated that subsidy-sharing in FY09 will be fixed at Rs 45,000 crore for upstream companies (ONGC shares ~86%), Rs 20,000 crore for OMCs and oil bonds issuance at Rs 94,600 crore. Motilal Oswal estimates the net shortfall in under-recovery sharing (post upstream, OMC and oil bonds sharing) for FY09 to be below average Brent price of $118/bbl (Rs 42 per dollar).
If oil prices remain below $118/bbl, the announced subsidy-sharing will sufficiently cover under-recoveries and thus, reduce the risk of higher sharing by ONGC. Brent price has fallen by 23% from its peak in July and if the trend continues, ONGC (with fixed subsidy burden) will be adversely affected.
Assuming the subsidy burden at Rs 38,700 crore for FY09, ONGC’s EPS can reduce by 21% to Rs 98.2 if average FY09 Brent price declines from $110/bbl to $100/bbl. However, at fixed subsidy burden, ONGC’s EPS will rise by 21% to Rs 150 at Brent price of $120/bbl. The Chaturvedi committee has recommended capping ONGC’s realisation at $75/bbl (100% special oil tax on realisation above $75/bbl).
The recommendations are unlikely to be fully implemented, given other harsh measures like frequent hike in retail fuel prices. Motilal Oswal remains positive on ONGC with a long-term perspective, as the bulk of its NELP acreage is yet to be explored, and thus, has huge potential for oil & gas discoveries . But in the near term, the stock performance will reflect movement in oil prices. At current oil prices, a movement either ways will pose a risk to earnings. The stock trades at 8.6x FY09E consolidated EPS of Rs 124.
Stock to watch
Equities are likely to open higher on Wednesday tracking cues from global shores. However, with crude oil prices inching northward, gains may be limited. Volatility is also likely given the August series derivatives contracts expiry due on Thursday.
Oil prices continued to move upwards on Wednesday on concerns that Tropical Storm Gustav may disrupt supplies. Crude for October delivery was at $116.71 per barrel, up $1.16 from its previous close.
Meanwhile, rupee was a tad higher at 43.75/76 per dollar, from the previous close of 43.84/85.
Tata Sons, the unlisted holding company for Tata group firms, is considering options to sell part of its stake in India’s largest software exporter Tata Consultancy Services to fund the group’s expansion plans, especially in telecom. Currently, Tata Sons holds 74.81 per cent stake in TCS, which has a market value of nearly Rs 61,000 crore at Tuesday’s closing price.
ONGC Videsh, the foreign investment arm of the country’s largest exploration company, ONGC, on Tuesday put in a formal bid to acquire UK-based oil firm Imperial Energy at 1,250 pence per share. Imperial Energy, with assets in the Russian Federation and CIS countries, is valued at $2.58 billion at the bid price.
Domestic airlines like Jet Airways and SpiceJet are considering fare hikes ahead of the start of the peak travel season in September-October to cope with rise in jet fuel prices.
In yet another attempt to keep steel prices from rising further, the government may raise export duty on iron ore. The committee of secretaries reviewing prices of essential commodities is set to discuss a proposal to raise export duty on iron ore to 20 per cent from 15 per cent.
Country's largest steel producer SAIL will set up a Steel Processing Unit in Gwalior at an investment of Rs 83 crore to meet the rising demand of the the product. The unit is expected to be completed in 18 months and would have a production capacity of one-lakh ton per annum of TMT bars.
The promoters and two major shareholders of Firstsource Solutions have put their combined 68 per cent in the BPO firm up for sale. The sellers — ICICI group, Aranda Investments and Metavante — are learnt to be asking for Rs 1,865 crore, or Rs 64 a share, for the transaction.
Cairn India is likely to sell its investments in Videocon Industries. At the current rate of Rs 272 per share, this investment us valued at Rs 72 crore.
With Trinamool Congress supremo Mamata Banerjee sticking to her principal demand on the return of the 400 acres set aside for the Singur vendor park, Tata Motors has told its Nano vendors that the company is working on a business plan to ensure they are not “financially hit” if the Nano project is shifted from Singur.
Realty giant DLF is planning to raise Rs 10,000 crore in next one year for its development projects.
Mumbai based HDIL may raise around Rs 1,000 crore to relocate slum dwellers for Mumbai airport project, say reports.
Shares of Nu Tek India, telecom infrastructure services provider offering rollout solutions for both mobile and fixed telecom networks, will list on the exchanges today. The company has fixed the issue price at Rs 192 per share. The issue was subscribed 1.63 times.
Oil prices continued to move upwards on Wednesday on concerns that Tropical Storm Gustav may disrupt supplies. Crude for October delivery was at $116.71 per barrel, up $1.16 from its previous close.
Meanwhile, rupee was a tad higher at 43.75/76 per dollar, from the previous close of 43.84/85.
Tata Sons, the unlisted holding company for Tata group firms, is considering options to sell part of its stake in India’s largest software exporter Tata Consultancy Services to fund the group’s expansion plans, especially in telecom. Currently, Tata Sons holds 74.81 per cent stake in TCS, which has a market value of nearly Rs 61,000 crore at Tuesday’s closing price.
ONGC Videsh, the foreign investment arm of the country’s largest exploration company, ONGC, on Tuesday put in a formal bid to acquire UK-based oil firm Imperial Energy at 1,250 pence per share. Imperial Energy, with assets in the Russian Federation and CIS countries, is valued at $2.58 billion at the bid price.
Domestic airlines like Jet Airways and SpiceJet are considering fare hikes ahead of the start of the peak travel season in September-October to cope with rise in jet fuel prices.
In yet another attempt to keep steel prices from rising further, the government may raise export duty on iron ore. The committee of secretaries reviewing prices of essential commodities is set to discuss a proposal to raise export duty on iron ore to 20 per cent from 15 per cent.
Country's largest steel producer SAIL will set up a Steel Processing Unit in Gwalior at an investment of Rs 83 crore to meet the rising demand of the the product. The unit is expected to be completed in 18 months and would have a production capacity of one-lakh ton per annum of TMT bars.
The promoters and two major shareholders of Firstsource Solutions have put their combined 68 per cent in the BPO firm up for sale. The sellers — ICICI group, Aranda Investments and Metavante — are learnt to be asking for Rs 1,865 crore, or Rs 64 a share, for the transaction.
Cairn India is likely to sell its investments in Videocon Industries. At the current rate of Rs 272 per share, this investment us valued at Rs 72 crore.
With Trinamool Congress supremo Mamata Banerjee sticking to her principal demand on the return of the 400 acres set aside for the Singur vendor park, Tata Motors has told its Nano vendors that the company is working on a business plan to ensure they are not “financially hit” if the Nano project is shifted from Singur.
Realty giant DLF is planning to raise Rs 10,000 crore in next one year for its development projects.
Mumbai based HDIL may raise around Rs 1,000 crore to relocate slum dwellers for Mumbai airport project, say reports.
Shares of Nu Tek India, telecom infrastructure services provider offering rollout solutions for both mobile and fixed telecom networks, will list on the exchanges today. The company has fixed the issue price at Rs 192 per share. The issue was subscribed 1.63 times.
Tuesday, August 26, 2008
Banking Sector Report JM Financial
Core Projects Snapshot
Enam Report on Fertilizer Sector
Fidelity Flash Aug
Financial Intelligence Report
OPTION STRATEGIES
Opto Circuit - Stock Pick
ICICIdirect AutoAxel Q1FY09
Micro TEchnologies hem
Morning Insight 26 Aug2008
Sun TV Network icicidirect
Top 25 Dividend Yield Stocks
Torrent Pharma
Under the Hood Aug
Varun Shipping Q1FY09 Report by ICICI Direct
Warren Buffett 8 Best Investment Plays
Wockhardt results update Reliance Money
Core Projects Snapshot
Enam Report on Fertilizer Sector
Fidelity Flash Aug
Financial Intelligence Report
OPTION STRATEGIES
Opto Circuit - Stock Pick
ICICIdirect AutoAxel Q1FY09
Micro TEchnologies hem
Morning Insight 26 Aug2008
Sun TV Network icicidirect
Top 25 Dividend Yield Stocks
Torrent Pharma
Under the Hood Aug
Varun Shipping Q1FY09 Report by ICICI Direct
Warren Buffett 8 Best Investment Plays
Wockhardt results update Reliance Money
FII trading activity on NSE and BSE on Capital Market Segment 25-Aug-2008
The following is combined FII trading data across NSE and BSE collated on
the basis of trades executed by FIIs on 25-Aug-2008.
Crores)
Category
Date
Buy Value
Sell Value
Net Value
DII
25-Aug-2008
538.85
442.59
96.26
the basis of trades executed by FIIs on 25-Aug-2008.
FII trading activity on NSE and BSE in Capital Market Segment(In Rs.
Crores)
Category
Date
Buy Value
Sell Value
Net Value
FII
25-Aug-2008
1289.21
1226.29
62.92
The following is combined Domestic Institutional Investors trading data
across NSE and BSE collated on the basis of trades executed by Banks, DFIs,
Insurance and MFs on 25-Aug-2008.
Crores)
Category
Date
Buy Value
Sell Value
Net Value
DII
25-Aug-2008
538.85
442.59
96.26
Stock Picks by ICICI Direct for August 2008
| Date | Company Name | Recomm. Price | Recommendation |
| Aug 20, 2008 | Automotive Axles | 290 | Outperformer |
| Aug 19, 2008 | Visa Steel | 52 | Outperformer |
| Aug 19, 2008 | Varun Shipping | 71 | Outperformer |
| Aug 18, 2008 | Adhunik Metaliks | 119 | Outperformer |
| Aug 13, 2008 | Shree Cements | 642 | Outperformer |
| Aug 14, 2008 | East India Hotel | 128.5 | Performer |
| Aug 13, 2008 | JBF Industries | 96 | Outperformer |
| Aug 13, 2008 | Nitin Fire Protection Inds. | 324 | Outperformer |
| Aug 12, 2008 | Everest Kanto Cylinders | 320 | Outperformer |
| Aug 11, 2008 | Opto Circuits India | 352 | Outperformer |
| Aug 11, 2008 | Viceroy Hotels | 54 | Outperformer |
| Aug 11, 2008 | Great Offshore | 444 | Outperformer |
| Aug 07, 2008 | Bajaj Hindustan | 180 | Outperformer |
| Aug 07, 2008 | Koutons Retail India | 800 | Outperformer |
| Aug 07, 2008 | Hotel Leela | 33 | Outperformer |
| Aug 07, 2008 | Escorts | 88 | Outperformer |
| Aug 06, 2008 | Elder Pharma | 335 | Outperformer |
| Aug 06, 2008 | Punjab National Bank | 497 | Outperformer |
| Aug 06, 2008 | Garware Offshore Services | 206 | Outperformer |
| Aug 05, 2008 | Yes Bank | 138 | Outperformer |
| Aug 05, 2008 | NTPC India | 174 | Outperformer |
| Aug 05, 2008 | Balrampur Chini | 92 | Outperformer |
| Aug 05, 2008 | Mercator Lines | 94 | Outperformer |
| Aug 05, 2008 | Vishal Retail | 395 | Outperformer |
| Aug 05, 2008 | Dishman Pharma | 303 | Outperformer |
| Aug 04, 2008 | HCL Technologies | 220 | Outperformer |
| Aug 04, 2008 | Usha Martin | 85.80 | Outperformer |
| Aug 01, 2008 | Bank of India | 286 | Outperformer |
| Aug 01, 2008 | ABG Shipyard | 327 | Outperformer |
| Aug 01, 2008 | KLG Systel | 377 | Outperformer |
| Aug 01, 2008 | Tulip IT Services | 950 | Performer |
Monday, August 25, 2008
Reports of the Day / Investment Ideas / Stock Picks / Stocks News
ABG SHIPYARD Bonanza
Agressive Model Portfolio Review icicidirect
Alchemy on FMCG Sector
All Bank AND OBC
2008 Aug JM
AnagramCommodityWeekly23082008
Anagrams Research Report Easun Reyrolle
Aug Enam Report
CLSA Market Report
Stock Pick - Bharti Airtel Ltd.
Ederlweiss Report on Fertilizer Sector
Ederlweiss Report on Steel
Eselweiss Report on IT
First Call August
Gemini
ICICI Direct Opening Bell
Investors EyeAug
India Infoline Weekly Wrap 250808
ICICI Direct Daily Technicals
Indian Hotel Company Ltd.
KARVY MARKET NEWS
KARVY TRADE WINDS
Market Strategy
Money Times 25th Aug
MTNL Bonanza
Reliance Money Morning Notes
NTPC Ltd
Reliance Money Weekly Technical
Report1
Report2
Report 3
Report 4
Report 5
Report 6
Report 7
Report 8
Sanwaria Agro Oils Ltd results update hdfcsec
Smart Investment Report
Stock Picks
Sun TV Report
Talking Points FISS
Tata Metalik - Networth Report
Tata Tea
THERMAX BNP Paribas
Two wheeler Sector Update
WEEKLY INVESTMENTY NEWSLETTER
Weekly Technical Perspective
Wockhardt Ltd
Anagram Weekly Stock Picks
Petro dollar Report
Agressive Model Portfolio Review icicidirect
Alchemy on FMCG Sector
All Bank AND OBC
2008 Aug JM
AnagramCommodityWeekly23082008
Anagrams Research Report Easun Reyrolle
Aug Enam Report
CLSA Market Report
Stock Pick - Bharti Airtel Ltd.
Ederlweiss Report on Fertilizer Sector
Ederlweiss Report on Steel
Eselweiss Report on IT
First Call August
Gemini
ICICI Direct Opening Bell
Investors EyeAug
India Infoline Weekly Wrap 250808
ICICI Direct Daily Technicals
Indian Hotel Company Ltd.
KARVY MARKET NEWS
KARVY TRADE WINDS
Market Strategy
Money Times 25th Aug
MTNL Bonanza
Reliance Money Morning Notes
NTPC Ltd
Reliance Money Weekly Technical
Report1
Report2
Report 3
Report 4
Report 5
Report 6
Report 7
Report 8
Sanwaria Agro Oils Ltd results update hdfcsec
Smart Investment Report
Stock Picks
Sun TV Report
Talking Points FISS
Tata Metalik - Networth Report
Tata Tea
THERMAX BNP Paribas
Two wheeler Sector Update
WEEKLY INVESTMENTY NEWSLETTER
Weekly Technical Perspective
Wockhardt Ltd
Anagram Weekly Stock Picks
Petro dollar Report
Reports of the Day / Investment Ideas / Stock Picks / Stocks News
ABG SHIPYARD Bonanza
Agressive Model Portfolio Review icicidirect
Alchemy on FMCG Sector
All Bank AND OBC
2008 Aug JM
AnagramCommodityWeekly23082008
Anagrams Research Report Easun Reyrolle
Aug Enam Report
CLSA Market Report
Stock Pick - Bharti Airtel Ltd.
Ederlweiss Report on Fertilizer Sector
Ederlweiss Report on Steel
Eselweiss Report on IT
First Call August
Gemini
ICICI Direct Opening Bell
Investors EyeAug
India Infoline Weekly Wrap 250808
ICICI Direct Daily Technicals
Indian Hotel Company Ltd.
KARVY MARKET NEWS
KARVY TRADE WINDS
Market Strategy
Money Times 25th Aug
MTNL Bonanza
Reliance Money Morning Notes
NTPC Ltd
Reliance Money Weekly Technical
Report1
Report2
Report 3
Report 4
Report 5
Report 6
Report 7
Report 8
Sanwaria Agro Oils Ltd results update hdfcsec
Smart Investment Report
Stock Picks
Sun TV Report
Talking Points FISS
Tata Metalik - Networth Report
Tata Tea
THERMAX BNP Paribas
Two wheeler Sector Update
WEEKLY INVESTMENTY NEWSLETTER
Weekly Technical Perspective
Wockhardt Ltd
Anagram Weekly Stock Picks
Petro dollar Report
Agressive Model Portfolio Review icicidirect
Alchemy on FMCG Sector
All Bank AND OBC
2008 Aug JM
AnagramCommodityWeekly23082008
Anagrams Research Report Easun Reyrolle
Aug Enam Report
CLSA Market Report
Stock Pick - Bharti Airtel Ltd.
Ederlweiss Report on Fertilizer Sector
Ederlweiss Report on Steel
Eselweiss Report on IT
First Call August
Gemini
ICICI Direct Opening Bell
Investors EyeAug
India Infoline Weekly Wrap 250808
ICICI Direct Daily Technicals
Indian Hotel Company Ltd.
KARVY MARKET NEWS
KARVY TRADE WINDS
Market Strategy
Money Times 25th Aug
MTNL Bonanza
Reliance Money Morning Notes
NTPC Ltd
Reliance Money Weekly Technical
Report1
Report2
Report 3
Report 4
Report 5
Report 6
Report 7
Report 8
Sanwaria Agro Oils Ltd results update hdfcsec
Smart Investment Report
Stock Picks
Sun TV Report
Talking Points FISS
Tata Metalik - Networth Report
Tata Tea
THERMAX BNP Paribas
Two wheeler Sector Update
WEEKLY INVESTMENTY NEWSLETTER
Weekly Technical Perspective
Wockhardt Ltd
Anagram Weekly Stock Picks
Petro dollar Report
Opportunities in infrastructure
The Eleventh five year plan (FY08 to FY12) is targeted to attain a sustainable GDP growth rate of 9% per annum. There is consensus that infrastructure inadequacies would constitute a constraint in realising this development potential. To overcome this constraint, an ambitious programme of infrastructure investment, involving both public and private sector, has been developed for this plan period by the Planning Commission of India (PCI).
Source: Planning Commission of India
Source: Planning Commission of India
India: Give me the power!
Certain infrastructure related initiatives, such as Bharat Nirman for rural development, as well as sectoral initiatives, such as the National Highways Development Programme (NHDP), the Airport Financing Plan, and the National Maritime Development Programme and the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) have been strengthened as compared to the previous years’ plan. In this article, we will go through PCI’s estimates for infrastructure spending during the XIth plan period and compare them to the Xth plan (FY03-FY07).
As per PCI’s estimates, for India’s GDP to grow annually at an average of 9%, the GCF (Gross Capital Formation) in infrastructure should be increased to levels in excess of 11% by the end of the FY12 (around 5% currently). Realistically, however, starting from a GCF level of less than 5% of GDP observed in FY05, such a rapid change in the structure of investments may not be feasible. Moreover, it may not be a necessary condition for achieving a 9% growth since many East Asian countries may have invested more than is essential and while 10% investment is desirable, India could try to achieve it over a longer period. Taking these factors into account, a GCF in infrastructure of around 9% of GDP by the end of the XIth plan seems to be more realistic.
A look at the estimates
As seen the table below, the thrust on power and electricity continues to remain top priority for the government. In order to achieve its objective of “Power for all” by 2012, the government has estimated an increase of 111% in spending towards power projects during the XIth plan (as compared to the Xth plan spending towards the sector). The other vital infra sectors (see table below) have also been allotted significant increases during the current plan period. The PCI also estimates private sector share in total infrastructure spending to increase from 18% in Xth Plan to 30% in the current one.
As can be seen from the table below, barring electricity and storage, the government’s share in investments is seen dropping in favour of private participation. This PPP (public-private participation) route adopted by the government (especially seen in the electricity, road, telecom, port and airport sectors) is seen as the way to increase private sector’s participation in infrastructure spending going forward. This we see as a positive, as it will help a faster development along with the de-bottlenecking of certain sectors. However, investments in irrigation, rural roads and other roads in backward and remote areas and water supply and sanitation sectors will be almost entirely undertaken by the government.
Planning Commission's estimates of infrastructure spending| (Rs bn) Sector | Xth Plan (Anticipated) | Share (%) in Xth plan | % of total Exp. | XIth Plan (Estimated) | Share (%) in XIth plan | % of total Exp. | Increase (%) over Xth plan |
| Electricity | 2,919 | - | 33% | 6,165 | - | 30% | 111% |
| Public | 2,000 | 69% | 4,540 | 74% | 127% | ||
| Private | 918 | 31% | 1,625 | 26% | 77% | ||
| Roads | 1,449 | - | 16% | 3,118 | - | 15% | 115% |
| Public | 1,379 | 95% | 1,993 | 64% | 45% | ||
| Private | 70 | 5% | 1,125 | 36% | 1507% | ||
| Telecom | 1,234 | - | 14% | 2,670 | - | 13% | 116% |
| Public | 790 | 64% | 893 | 33% | 13% | ||
| Private | 444 | 36% | 1,777 | 67% | 300% | ||
| Railways | 1,197 | - | 14% | 2,580 | - | 13% | 116% |
| Public | 1,194 | 100% | 2,075 | 80% | 74% | ||
| Private | 3 | 0% | 505 | 20% | 16336% | ||
| Irrigation | 1,115 | - | 13% | 2,231 | - | 11% | 100% |
| Public | 1,115 | 100% | 2,231 | 100% | 100% | ||
| Water Supply & Sanitation | 648 | - | 7% | 1,991 | - | 10% | 207% |
| Public | 638 | 98% | 1,937 | 97% | 204% | ||
| Private | 10 | 2% | 54 | 3% | 430% | ||
| Ports | 41 | - | 0% | 739 | - | 4% | 1705% |
| Public | 22 | 53% | 195 | 26% | 791% | ||
| Private | 19 | 47% | 545 | 74% | 2751% | ||
| Airports | 68 | - | 1% | 347 | - | 2% | 413% |
| Public | 38 | 57% | 136 | 39% | 254% | ||
| Private | 29 | 43% | 212 | 61% | 621% | ||
| Storage | 48 | - | 1% | 224 | - | 1% | 364% |
| Public | 14 | 30% | 112 | 50% | 676% | ||
| Private | 34 | 70% | 112 | 50% | 231% | ||
| Gas | 87 | - | 1% | 205 | - | 1% | 135% |
| Public | 87 | 100% | 140 | 68% | 60% | ||
| Private | N.A. | - | 65 | 32% | - | ||
| Total | 8,805 | - | 100% | 20,272 | - | 100% | 130% |
| Public | 7,178 | 82% | 14,252 | 70% | 99% | ||
| Private | 1,627 | 18% | 6,020 | 30% | 270% |
The total expenditure in the infrastructure space during these five years of the current plan has been estimated to increase by 130% to over Rs 20.2 trillion in absolute terms as compared to the Xth 5-year plan total of Rs 8.8 trillion. This shall open up tremendous opportunities for companies operating in this space – ones that are executing the projects and others that are providing resources like equipments, fuel and manpower.
However, while these plans look grand and when achieved can take India to the next level of growth, execution will remain an issue. This is especially considering the past track record of such plans, shortage of manpower across industries, rising commodity prices that have led to escalation in project costs and equipment shortages. Some leading engineering majors have, in fact, recorded losses on certain projects in the latest quarter on account of execution delays due to equipment and manpower shortages and have also seen their margins getting impacted.
Starting next article onwards of this series, we will be looking at each of these sectors individually and the kind of opportunities that India Inc. has therein.
During the eleventh five-year plan (2007-2012), the total investment set to be pumped into the power sector is to the tune of Rs 6,165 bn (assuming the 15% spillover into the next 5-year plan). These are Planning Commission of India’s (PCI) estimates. Below, we can see the commission’s estimates for the power sector spread over these five years of the plan period.
Year (Rs bn) 2007-08 2008-09 2009-10 2010-11 2011-12 Total XIth Plan Share % Public 544 683 860 1,084 1,369 4,540 74% Private 198 245 305 385 491 1,625 26% Total 742 928 1,165 1,469 1,860 6,165 100% % of total 12% 15% 19% 24% 30% 100%
As seen above, the expenditures are expected to grow in absolute terms year-on-year with 12% of the total being invested in FY08, subsequently increasing to 30% in FY12. However, interestingly, the share of private sector is expected to come down to 26% of total investments during the current plan period, from 31% in the Xth Plan (2002-2007). As far as the three segments of power generation, distribution and transmission are concerned, 56% of the total investments are planned towards setting up generation capacities with the remaining shared almost equally by the transmission and distribution segments. PCI’s estimates for each of these segments are as follows -
| (Rs bn) | Generation | Transmission | Distribution | Total XIth Plan |
| States | 956 | 468 | 933 | 2,357 |
| Central | 1,231 | 527 | 425 | 2,183 |
| Private | 1,243 | 298 | 85 | 1,625 |
| Total | 3,430 | 1,293 | 1,443 | 6,165 |
 |  |
With more than half the country’s population residing in rural areas, rural electrification is a major concern for the nation. Alternatively, we can say that there lies a huge opportunity in this particular space. The PCI has estimated that the rural electrification initiative will require investments of around Rs 340 bn (5% of total expenditue in this sector) over the next few years. The Government, through initiatives like Bharat Nirman and RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojana), plans to reach out to more than 23 m households.
Target Vs Achievement
The XIth plan proposes an addition of almost 80,000 MW to country’s power generation capacity, an increase of 67% over the installed capacity at beginning of the plan period. However, the actual achievement of this target will be keenly watched, considering the poor track record of the past. As seen from the adjacent chart, the situation has been worsening if one were to take into account the under-achievements of the past three completed plan periods (8th, 9th and 10th). As reported by the Central Electricity Authority (CEA), the major reasons for this under achievement have been time and cost overrun constraints faced by companies, whose order backlogs contained projects from the previous plans. Further, issues like equipment supplies and the overall regulated nature of the electricity sector (which repelled fresh investments, especially from the private sector) also impacted the sector’s growth.
Issues besides those in generation, like high levels of transmission and distribution losses, also added to the problems. As a matter of fact, India tops the charts when it comes to T&D losses. While the power ministry promulgated the APDRP Act (Accelerated Power Development and Reforms Programme) in 2001 with a vision to cut down India’s T&D losses to levels of 15% by the end of the Xth plan, things have remained where they were. As a matter of fact, the average T&D losses for all states remained at 40% (including uncollected bills) in the beginning of 2007. The same vision has now been shifted as a goal to be achieved during the XIth plan.
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