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GMR Infrastructure

GMR Infrastructure‘s holding company plans to list itself on the London Stock Exchange. We believe that this would be positive for the stock as it would ease funding pressure for the group. GMR Infrastructure is slated to deploy a total of about Rs227 bn over the next three years, of which about Rs45 bn would be GMR Infra’s equity contribution in various SPV’s, & an additional Rs182 bn would be raised as debt funding for these projects. This does not include the USD1 bn bridge loan availed to acquire a 50% stake in Intergen and is due for repayment in May 2010.
[Business Standard]

July 2009 Port Volumes:

• Volumes at the major ports are down 1% YoY for July 2009, but cumulatively for YTD-FY10 are up 1% YoY.
• We believe that this indicates continued sluggishness in global trade vis-a-vis India.
• The key drivers for the YoY decline in July 2009 have been Haldia (-29.4% YoY) and Cochin (-10.1% YoY) ports. This decline was offset by increase in cargo volumes at Paradip (22.2% YoY), Mormugao (19.0% YoY) and Kolkotta (18.9% YoY) ports.
• Segmenting the data by commodity (YTD-FY10 vs YTD-FY09), thermal coal volumes have risen 20.4% YoY, but coking coal volumes have fallen 24.3% YoY, with all other commodities being almost flat. Container volumes are down 5.4% YoY.
• However, monthly trends reveal slow but steady increase in Iron-ore, thermal coal and container volumes, while coking coal volumes have been steadily decreasing.

Mundra Port consortium bags concession to operate Coal Terminal at Mormugao Port

MPSEZ has announced that it has won the concession to operate a coal terminal at Mormugao port. The concession is on a DBFOT (design, build, finance, operate and transfer) basis for a period of 30 years. MPSEZ has won this concession in consortium with Adani Enterprises (Not Rated). The coal terminal is expected to have a capacity of 6.5 MnMT per annum at an estimated cost of Rs252 crore. The revenue share agreed with Mormugao Port is 20%. The coal terminal is likely to begin operations in FY12. The concession agreement is scheduled to be signed on 27th August 2009 and the official date to operationalise the project is 28th February 2013, i.e. three years from starting of work on the project.

MPSEZ expects to fund the project through internal accruals as its equity portion, and debt-financing the balance portion.

I expect this news to have a positive impact on the company.

Highlights of the Mid-Term Reveiw of the Annual Policy 2006-07

• Repo Rate increased to 7.25% from 7.0%
• Reverse Repo Rate, Bank Rate & CRR kept unchanged.
• GDP growth forecast at 8.0% during 2006-07 (against earlier estimates of 7.5%-8.0%)
• Inflation to be contained within 5.0%-5.5% during 2006-07.
• Fresh issues of Central Government securities to be included in ‘When issued’ trading.
• Scheduled commercial banks & primary dealers allowed to cover their short positions in Central Government securities within five trading days.
• Resident individuals would be free to remit up to US$ 50,000 per financial year as against the earlier limit of US$ 25,000.
• 100% of foreign exchange earnings can be retained in Exchange Earners’ Foreign Currency (EEFC) accounts.
• Authorised dealer banks may borrow funds from their overseas branches & correspondent banks (including borrowing for export credit, external commercial borrowings (ECBs) and overdrafts from their Head Office/Nostro account) up to a limit of 50% of their unimpaired Tier I capital or US$ 10 mn, whichever is higher.
• Eligible ECB borrower can avail additional US$ 250 mn with average maturity of more than 10 years under the approval route.
• Prepayment of ECB up to US$ 300 mn without prior approval of the Reserve Bank.
• Increased foreign remittances allowed for corporates: Authorised dealer banks may allow remittances on behalf of their customers higher of 15% of the average of 2 year sales or 25% of net worth, for initial expenses, & up to 10% of the average 2 year sales for recurring expenses. Remittances for acquisition of immovable property for the overseas office, within these limits is also permitted.
• Limit on investments in Government securities by FIIs to be enhanced in phases to US$ 3.2 bn by March 31, 2007.
• Ceiling of overseas investment by mutual funds enhanced to US$ 3 bn (from US$ 2 bn).
• Booking of forward contracts for customs duty component of imports permitted.
• FIIs to be allowed to rebook a part of the cancelled forward contracts.
• Forward contracts booked by exporters & importers in excess of 50% of eligible limit to be on deliverable basis & cannot be cancelled.
• Authorised dealer banks to be permitted to issue guarantees/letters of credit for import of services up to US$ 100,000 for securing a direct contractual liability arising out of a contract between a resident and a non-resident.
• Lock-in period for sale proceeds of immovable property credited to NRO account eliminated, subject to a cap of US$ 1 mn in a financial year.
• Banks, with approval of their boards, may formulate a transparent policy for providing One Time Settlement facility to those farmers whose accounts have been rescheduled/ restructured due to natural calamities as also those who have defaulted on account of circumstances beyond their control.
• For opening small accounts, banks need to seek only a photograph of the account holder and self-certification of address.
• Basel II: Indian banks having presence outside India & foreign banks to migrate to the Basel II framework effective March 31, 2008 & other scheduled commercial banks to migrate in alignment but not later than March 31, 2009.
• Prudential limit on credit & non-credit facilities to Indian JVs/Wholly Owned Subsidiaries abroad to be enhanced to 20 per cent of unimpaired capital funds.
• Financially sound Urban Co-operative Banks (UCBs) registered in States that have signed MoU with the Reserve Bank & those registered under the Multi-State Co-operative Societies Act, 2002 to be allowed to convert existing extension counters into full-fledged branches.
• NBFCs allowed to issue co-branded credit cards with banks without risk sharing & market & distribute MF products.

(The above is extracted from the Highlights issued by the Reserve Bank of India on 31st October, 2006)

Full Text in word / pdf formats.

technorati tag: News, Views, Direct Taxation, Finance, Economy, Capital Market

I have been quoted in Business Standard on 28th October, 2006. Below is the full article as it appeared in the supplement.

I have highlighted my quote in the article.

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Suzlon Energy to go slow on buyouts

Gayatri Ramanathan / Mumbai October 28, 2006

After pulling off one of the largest acquisitions in Indian corporate history in March this year, wind power major Suzlon Energy has ruled out further acquisitions.

“For the next three to four years we are looking at an organic growth for the company while we consolidate the Hansen acquisition,” Tulsi Tanti, chairman, told Business Standard.

Suzlon had acquired Belgian gearbox maker Hansen in March this year for $520 million (Rs 2,600 crore).

The wind power solutions company may, however, put up a turbine manufacturing plant in Portugal and double capacity at its China plant over two to three years.

Tanti said the Portugal plan was contingent on the company winning a Portuguese government tender for wind farms. “Other than this, we have no plans to put up a manufacturing plant anywhere except India as that gives us the maximum margins,” said Tanti.

He said that the Suzlon would also expand the capacity of its China plant to 1200 mw from the current 600 mw by FY 2008-09. “This will help us service the Chinese market, expected to grow to 30,000 mw by 2020, more efficiently,” said Tanti.

Analysts, however, pointed out that the company’s ability to borrow further may be in question given its current debt equity ratio which stands at 1.2: 1. Suzlon’s total debt is pegged at Rs 3,298 crore, of which Rs 2,600 crore was borrowed for the Hansen acquisition.

technorati tag: News, Views, Direct Taxation, Finance, Economy, Capital Market

The SEBI has vide a circular issued late on 26th September, 2006 postponed the date for mandatory requirement of PAN No. for operating demat accounts (dematerialised shares in the depository system) to 31st December, 2006.

I shall be posting a more detailed version of this circular tomorrow (28th Sept. 2006)

Full Text is available on SEBI’s website.

I have been quoted in Business Standard’s Smart Investor Supplement on Tuesday last (29th August, 2006). Below is the full article as it appeared in the supplement.

I have highlighted my quote in the article.

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Low on energy
POUND WISE
Mitali Wagle / Mumbai August 28, 2006

Reliance Energy’s stock price reflects the ambiguity shrouding its ambitious plans to scale up its power generation capacity.

The Anil Ambani-owned Reliance Energy (REL) seems to be losing steam on the bourses. A leading private sector player in the power distribution business, REL announced plans to jack up its power generation capacity from less than 1,000 MW currently to over 13,500 MW by 2011.

Its Dadri project was to kick off in 2009. However, two years after the plans were announced, there is still no clarity on the time line for the projects.

Key issues like land acquisition, gas availability and pricing are still to be sorted out. Besides, the company is bidding for ultra mega power projects, which also will take time to materialise.

Thanks to the uncertainty, investors have shunned the stock. In the past twelve months, the stock has plunged 30 per cent even as the Sensex has gained 51 per cent.

At the current market price of Rs 446.20, the stock trades at a price-to-earnings multiple of 14.57. Based on earnings estimates for FY07 and FY08, REL is trading at 13.3x and 12.2x, respectively, while its competitor Tata Power is trading at higher multiples of 17.4x and 16.4x.

Is REL a value buy at the current levels? Analysts are divided on this. While some believe it is a good play on the future growth opportunities, others feel it may be premature to bet on the stock as revenue visibility for the next couple of years remains hazy.

Core businessAt present, REL derives a bulk of its revenues from its electrical energy business, which has delivered consistent growth.

In FY06, the segment contributed 79 per cent of the revenues against 70 per cent in the previous fiscal.

The distribution division supplies more than 5,000 MW of power to various areas of Mumbai, Delhi and Orissa. It has also applied to the Uttar Pradesh Electricity Regulatory Commission for distribution licences in Meerut, Ghaziabad and Noida.

REL’s Dahanu Power Station, one of the top performing coal-based power stations in the country, maintained a good performance despite lower demand because of heavy floods in Mumbai. Its other power stations at Samalkot and Goa are also doing well.

In the next couple of years, earnings growth from the existing energy business is likely to be muted unless state regulatory boards take some major steps to privatise more distribution circles.

The other significant revenue constituent for REL is its EPC division, which chipped in with 21 per cent (Rs 880 crore) to the company’s revenues in FY06.

The division takes up contracts for electrification, erection and operation of power plant equipment, grids, substations and transformers. It has bagged a rural electrification contract from the Uttar Pradesh Power Corporation (Rs 735 crore) and a power project order from Haryana Power Generation Company (Rs 2,097 crore).

Till March 2006, the EPC segment pocketed orders worth Rs 3,358 crore, to which in-house projects contributed 15 per cent. Considering the macro picture, the EPC business should help the company in boosting its growth prospects, believe analysts.

Promising futureAt present, REL’s 942 MW power generation business forms a small chunk of its revenues, but as and when the company’s proposed gas, coal, wind and hydro-based power generation projects in Maharashtra, Uttar Pradesh, Arunachal Pradesh and Uttaranchal fructify, the picture is likely to change.

The 7,480 MW Dadri (Uttar Pradesh) and the 4,000 MW Shahapur (Maharashtra) gas-based power projects are potential goldmines for REL, but given the present pace of progress it could take a while before they could be factored in the business valuations.

These two projects are likely to commence operations in mid-2009 and 2011 respectively.

REL recently bagged the Urthing Sobla hydropower project (Uttaranchal) and plans to develop the two hydro projects in a joint venture with the Arunachal Pradesh government.

Dadri dramaThe mega gas-based Dadri power project in Ghaziabad will, on completion, be the world’s largest power generation plant at a single location. The project was announced in February 2004, but it is yet to attain financial closure.

According to the gas supply agreement signed by the Ambani brothers, post-split, Reliance Natural Resources (RNRL) would source gas from Reliance Industries (RIL) and supply it to REL’s Dadri project at Rs 2.6 per kwh or $3.18 mmbtu.

However, the petroleum ministry has recently rejected the gas valuation formula citing that the price is significantly lower than the prevailing market price of around $8-10 per mmbtu.

Combined with this, RNRL’s intention to pocket marketing margin for the gas procurement is likely to impact the cost of the project that plans to draw heavily on gas procured from RIL, according to analysts.

New avenuesThe company is foraying into the transmission business and will participate in the construction of 300 km transmission line for the Parbati and Koldam hydropower projects in Himachal Pradesh.

Realising the potential in the higher margin infrastructure projects, REL is investing Rs 500 crore in two NHAI road development projects and Rs 2,360 crore in MRTS (mass rapid transit system) project in Mumbai, on a BOOT basis.

In FY06, REL’s net sales fell a marginal 2.7 per cent to Rs 4,019.07 crore. However, both operating profit and net profit grew 25 per cent to Rs 737.27 crore and Rs 650.34 crore, respectively.

Analysts expect the FY07 and FY08 revenues to be Rs 4,370 crore and Rs 4,820 crore, respectively. Though, purely based on valuations, the stock looks attractive, there is no near-term trigger for it. However, the scrip may be an interesting addition for a long-term investor.

technorati tag: News, Views, Direct Taxation, Finance, Economy, Capital Market

The due date for filing of returns for all other than salaried individuals & HUF is extended to 31st October, 2006; from 31st July, 2006.

In addition, returns can now be designated post offices. The full list of post offices that have started accepting returns from 26 July, 2006 is here. Use this link to search for post offices near you.

More updates on the Credit Policy Review to follow.

The effective service tax rate of 12.24% is applicable from 18th April 2006, since that is the day on which the Finance Bill 2006 was assented to by the Hon. President.

A gist of the slew of service tax notifications issued today (though these are dated 19th April 2006) is here. All these notifications are effective from 19th April, 2006.

1. The rate of interest for delayed service tax payment is 13% p.a. [Notification No. 8/2006]
2. Service tax to be payable, even if any taxable service is provided from any other country, but is received in India [Notification No. 9/2006]. The clause, prior to this amendment, did not specify the place of providing or receiving the taxable service. It refered to the person providing the service.
3. Notification No. 10/2006 amends the definition of ‘Person Liable for Paying Service Tax’ in the Service Tax Rules. The receipient of a taxable service which is received in India from any person from any other country, irrespective of from where the service is provided. The earlier definition made the receipent liable to pay service tax only if the provider was a non-resident or from outside India and did not have any office in India. This notification also removes the valuation methods for computing the service tax payable by clearing and forwarding agents and insurance agents.
4. A new set of Rules (yes, yet another set of rules) called the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 are notified vide Notification No. 11/2006. Under these rules, input, input service, output service are defined to have the same meaning as in the CENVAT Credit Rules, 2004. The list of taxable services provided from outside India and received in India is mentioned therein; and includes some services in relation to immovable property situated in India, and some other services. There are a few exceptions also specified. These rules require the receipent of the services to register and pay service tax. It is clarified that the taxable services provided from outside India and received in India shall not be treated as output services for availing credit of excise duty / service tax paid on any input / input service. Note that where a service is provided partly outside India and partly in India, will be treated as a service provided in india.
5. And yet more more set of rules … this time they are to be known as Service Tax (Determination of Value) Rules, 2006. These rules specify the method to value taxable services where the consideration is not wholly / partly received in money, i.e. by valuing the service at an equivalent gross amount charged by the service provided for similar services in the ordinary course of business; failing which the service provider is to determine the equivalent money value of such consideration which cannot be less than the cost of provision of the service. These rules also specify that the authority and powers of the Central Excise Officer to reject the valuation, and the procedure for the same. These rules, along with illustrations and examples, clarifies the inclusion and exclusion of certain costs from the value of service provided. [Notification No. 12/2006].
6. Notification No. 13/2006 amends the Export of Service Rules, 2005. This amendment specifies the what is export of taxable service and clarifies that any service that is partly performed outside India will be deemed to be performed outside India. The provision of any service shall be treated as export of service when the service is delivered outside India and used outside India; and the payment is received by the service provider in convertible foreign exchange.
7. And finally, Notification No. 14/2006 rescinds two earlier notifications; namely, notification no 22/2005 [service provided to an individual by a service provider, where the services are received and consumed outside India, not in the course business] and notification no 25/2005 [specified services provided by a non-resident person outside India and consumed outside India, in the course of sailing of a ship].

Related Links: Service Tax Website, Notifications Issued in 2006, CENVAT Credit Rules 2004