Reports » India
Indian stock market and companies daily report (December 11, 2013, Wednesday)
Indian markets are expected to open in the red today tracking a weak opening in SGX Nifty which is trading lower by 0.5%. Most of the Asian markets are trading in the negative territory.
US markets closed lower on Tuesday due to profit booking by traders. The markets showed weakness throughout the day offsetting the strength seen in the previous two trading sessions. Negative sentiment was due to a report from China's National Bureau of Statistics which showed that Chinese industrial production rose by slightly less than expected in November. The report said that Chinese industrial production rose 10% yoy in November, down from 10.3% yoy growth seen in October. However, the markets shrugged off a report from the Commerce Department showing that U.S. wholesale inventories rose by much more than expected in the month of October. European markets too fell on Tuesday due to the unexpected dip in French industrial production and the weaker than anticipated Chinese industrial production data.
Meanwhile, the Indian markets fell modestly on Tuesday following Monday's big rally tracking mixed global cues after top Federal Reserve officials voiced support for a small tapering beginning next week.
The trend deciding level for the day is 21,253 / 6,334 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 21,330 - 21,405 / 6,361 - 6,389 levels. However, if NIFTY trades below 21,253 / 6,334 levels for the first half-an-hour of trade then it may correct up to 21,178 - 21,100 / 6,306 - 6,280 levels.
CERC Draft Tariff Regulations for 2014-2019
The Central Electricity Regulatory Commission (CERC) has released the Draft Tariff regulations for the central power utilities for FY2015-19E. The ROE level has been maintained at 15.5% with a 0.5% incentive for timely completion; however, the draft regulations disallow the grossing up of ROE on marginal tax rate and also lay out strict operational norms. Earlier companies were allowed to retain tax benefits earned from grossing up of ROE on the marginal tax rate which has now been disallowed and the generation company will get tax benefit only on the effective tax rate. Also, there has been a shift from PAF (Plant Availability Factor) based incentives to PLF (Plant Load Factor) based incentives to generation companies. CERC has aimed to further improve the efficiency of generation stations with these regulations though there are some drawbacks for the generation companies.
Shift from PAF (Plant Availability Factor) based incentives to PLF (Plant Load Factor) based incentives to generation companies: As per current regulations, if the PAF is maintained above 85% the fixed charge goes up proportionately even if there has not been any off-take and therefore the generation companies can recover their fixed costs. However, in the draft regulations CERC has changed this to PLF based where the generation company will get an incentive of Rs.0.5/unit of power generated if it maintains the PLF greater than 85%. Even for transmission companies the efficiency norms have been increased from 98% to 99% for AC System, from 92% to 98% for HVDC Bi-pole links and from 95% to 98% for HVDC back-to-back station. This puts the generation companies at a disadvantage because they may have to take a hit if there is no off-take or fuel is unavailable which is due to factor out of their control. We believe this would have a negative impact on NTPC.
Tax arbitrage disallowed: As per current regulations companies are allowed to retain tax benefits earned from grossing up of ROE on the marginal tax rate which has now been disallowed in the draft regulations and the generation company will get tax benefit only on the effective tax rate. This will result in companies like NTPC taking a hit on the effective ROE.
Major changes in operational norms:
- The normative Gross station heat rate (GSHR) for 500MW sub critical plants has been reduced from 2,425 Kcal/KWh to 2,375 Kcal/KWh in an attempt to improve efficiency
- The coal inventory included in calculating the working capital for interest calculation has been reduced for pit-head stations from 1.5 months to 0.5 months and for non-pithead stations from 2 months to 1 month. This is attempted to make the operational norms more stringent
- Any savings on fuel cost will be shared with the consumers in the ratio of 3:1
We believe that with these CERC regulations aim to improve operational efficiency and have a positive impact on power prices for end consumers. Also, we believe tightening of the Operating norms will reduce savings from operational efficiencies for generation companies. In our view the final regulations which are expected to come out by April 2014 could be different from the draft regulations as has happened in the past and may provide some relaxation to the generation companies like NTPC. We have not revised our earnings estimates for NTPC, however, we believe that if these regulations are implemented as it is, they would have an impact of ~Rs.700cr-Rs.800cr on the earnings of NPTC. Therefore, due to these uncertainties we would recommend Neutral rating on NTPC.
CCI slaps Rs.1,773cr penalty on Coal India
Media reports suggest that the Competition Commission of India (CCI) has slapped a penalty of Rs.1,773cr on Coal India (CIL) for abusing dominant power in the coal exploration business. The penalty figure is ~10.2% of the company's consolidated PAT for FY2013. CIL is the monopoly merchant miner of coal in India and it supplies coal to power companies and other industries on a contract basis as well as sells coal through e-auction. In the past, CIL's biggest customer, NTPC (comprising of —1/3rd of CIL's volumes) has complained that the quality of coal from CIL has not been upto the mark. However, we await further clarity on the matter. Until then, we maintain our estimates and our Neutral rating on the stock.
Bharti Airtel, Reliance Jio in pact for telecom infra sharing
Bharti Airtel and Reliance Jio Infocomm announced a comprehensive telecom infrastructure sharing arrangement under which they will share infrastructure created by both parties. This will include optic fibre network - inter and intra city, submarine cable networks, towers and internet broadband services and other such opportunities identified in the future. This deal, which is even bigger than the infrastructure sharing Reliance Infocomm has signed with Reliance Communications, is unprecedented. It will mean sharing of infrastructure for a whole range of telecom services and not just in one state but across the country. A joint statement by the two companies said the arrangement could, in future, be extended to roaming on 2G, 3G and 4G and any other mutually benefiting areas relating to telecommunication, including but not limited to jointly laying optic fibre or other forms of infrastructure services. With this arrangement, Reliance Jio and Bharti Airtel will have cellular networks across all the 22 circles in India, through roaming arrangements and possible spectrum trading, if required. While Bharti Airtel subscribers will be able to access 4G services in all 22 circles, Reliance Jio users could access other network bands like 2G and 3G as well. This is not the first time the two companies have agreed to share infrastructure. In April, they had signed an agreement that gave Reliance Jio an exclusive right to use Bharti's 3,100km submarine cable i2i connecting Chennai and Singapore. While Reliance's fibre-optic network will be useful for Bharti Airtel, the latter's massive tower network will benefit the former. This deal seems to be beneficial for both companies. Investment in setting up new infra will be lowered. We believe that this deal is positive for Bharti Airtel as it will improve the utilization rate of the assets owned by the company and, in turn will aid in improving the cash flows going ahead. We currently maintain our estimates for Bharti Airtel and wait for more details from the company on the scope and financials of this deal. We maintain Accumulate rating on Bharti Airtel.
L&T Shipbuilding has won orders worth US$154mn
L&T Shipbuilding, a subsidiary of Larsen & Toubro has bagged orders for six specialized commercial vessels worth US$154mn. This includes orders from Halul Offshore Services Company W.L.L., Qatar, for design, construction, trials and commissioning of four Platform Supply Vessels (PSVs) and two Anchor Handling Towing Supply and Standby Vessels (AHTSSVs) with 150 MT bollard pull. We continue to maintain our Accumulate rating on the stock with a target price of Rs.1,188.
Lupin Receives USFDA Approval for Generic Trizivir Tablets
Lupin today received final approval for its Abacavir Sulfate, Lamivudine, and Zidovudine Tablets, 300 mg (base) / 150 mg / 300 mg from the United States Food and Drugs Administration (FDA) to market a generic version of ViiV Healthcare's (ViiV)Trizivir Tablets, 300 mg (base) / 150 mg / 300mg. Lupin's Abacavir Sulfate, Lamivudine, and Zidovudine Tablets, 300 mg (base) / 150 mg/ 300 mg is indicated in combination with other antiretrovirals or alone for the treatment of HIV-1 infection. Lupin was the first applicant to file an ANDA for Trizivir® Tablets and as such will be entitled to 180 days of marketing exclusivity. Trizivir® Tablets, 300 mg (base) / 150 mg / 300mg had annual U.S sales of approximately $US111.6mn (IMS MAT Sep, 2013). Hence the product will contribute almost US $20-25mn during the exclusivity period. We maintain our accumulate with a target of Rs.904.
Economic and Political News
- Lack of trust in both businesses and government: Arun Maira
- Domestic car sales dip 8% in Nov: SIAM
- Govt. to create price stabilisation fund for sugar industry
- Govt. to sell HZL stake through auction, Cabinet note soon
- ONGC to appeal in Supreme Court against Gujarat HC order
- Power Grid FPO price set at Rs.90/share, govt. to get Rs.1,600 cr
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