IOC – BLENDING TO SAVE EARTH AND ITSELF

One of the drivers plying the congested roads of Mumbai said, “ aaj kal Govt is mixing daaru with petrol and diesel. Is that good?” Well, when put like that, in the barest form, it does sound crude. But yes, that is indeed the truth today. The blending of ethanol, at grassroot level, actually means blending of alcohol. And many big wig companies, driven by the rising crude oil prices are now looking at running a sugar unit or a distillery, mainly for laying its hands on supplies of ethanol, which in some years time will become a gold mine.

And the latest company, albeit very late, Indian Oil Corporation, is now making grandiose plans of getting into ethanol production.

So why is IOC getting into ethanol production?

Currently the Govt of India has made 5% blending mandatory and from October 2008, 10% blending is expected to come into effect. The procurement price of ethanol has been fixed at an ex-factory price of Rs.21.50 per litre, for three years from October 2007. Hence it makes a lot of sense to get into ethanol production.

What exactly is ethanol?

Ethanol is a by product of the sugar industry. Currently, ethanol is used for making alcoholic beverages and the same ethanol is as fuel, produced by fermentation. In technical terms, when certain species of yeast, metabolises sugar in the absence of oxygen, ethnol is produced. Simple, molasses, a by-product of sugar mills is the raw material.

Why ethanol for blending into fuel?
Ethanol can be used as an automotive fuel by itself and can be mixed with gasoline to form what has been called "gasohol". Because the ethanol molecule contains oxygen, it allows the engine to more completely combust the fuel, resulting in fewer emissions. Since ethanol is produced from plants, it is a renewable fuel.

So what does IOC mean when it says that it getting into ethanol production?

The company can become an ethanol producer either by setting up a sugar unit or by following the simplest route which most of the other companies are doing – taking over existing suagr mills. The company is yet to decide about how it will go about procuring ethanol, it is not ruling out the viability of setting up a new unit also.

What would be the cost of setting up a new unit?

As per Ethanol India, to set up a ethanol unit using rectified spirit as raw material, with a capacity of 30,000 litres per day, it would cost Rs.3.84 crore. Same capacity, using raw material as molasses would cost Rs.7.90 crore and using sugar cane juice would cost Rs.15.25 crore.

Economical to buy a sugar unit?

The sugar mills in India are currently going through a very rough patch and most of the state onwed units have turned sick. The various state Govts are now giving the sugar units on lease. Infact the Bihar govt had invited bids for 15 of its sugar mills for long term lease of 60 years, extendable by 30 years. Reliance Industries was the highest bidder for the Motipur unit of Bihar State Sugar Corporation at a price of Rs.57 crore, marginally higher than the floor price of Rs.55.36 crore. HPCL had made a bid of Rs.45 crore for the Lauriya unit in West Champaran against the floor price of Rs.29.64 crore. For these prices, the capacities, which these companies are able to lay their hands on, are much larger. The economies of scale of taking over an existing sugar mill, compared to setting up a mill at today’s rates, are much higher.

On one hand, there is a major demand for ethanol and big companies are vying to lay their hands on these capacities. Yet, at the same time, sugar companies are sitting on huge stocks of ethanol where companies, blending it into fuel, are just not picking them up. The three State-owned oil marketing companies, BPCL, HPCL and IOC had contracted to lift a total 1,176.13 million litres of ethanol from sugar mills over a three-year period from November 2006. But till September 2007, these companies had procured just 7.2% of the total contracted quantity.

Are the environmentalists happy?

Currently we have a major shortage of wheat, edible oil and supply is tight in case of rice. Now henceforth, all efforts will be made to increase the production of these foodgrains. Sugar is in oversupply, which is why we do not see a spiraling run-up on its price. But now, with companies taking over sugar mills with the aim of making ethanol, it could soon lead to a situation in sugar from oversupply to shortage.

As Mr.Chidambaram had pointed out, developed countries are making more and more use of foodgrains for using as fodder for fuel and that, to a large extent has been the culprit leading to a run-up in the commodity prices. If that is the case, then this blending of ethanol will lead to a situation of sugar prices soaring and fall in production in the coming years. So this will once again be a double edged sword.

We can never keep all the people happy at all times, we can only keep some people happy for some time. So all in all, this is a good initiative on the part of IOC to get into ethanol production but it might not make sense to set up a new unit, which will have a longer gestation period, best would be to go for a readymade sugar mill and set the ball rolling immediately. The first big step would be to start at least lifting the abundant ethanol from the sugar mills, especially from those located in Uttar Pradesh.

By Ruma Dubey

Source: sptulsian.com

Markets Today

Sustained selling pressure in blue chips ever since the opening bell spooked the bourses today. Negative cues from global markets dampened sentiment. The sentiment was also hit by reports that the Institute of Chartered Accountants of India (ICAI) has asked companies to disclose losses on a mark-to-market basis incurred due to derivatives trades from the current financial year onwards (year ending March 2008), as a precursor to making a new accounting standard -- the AS-30 -- mandatory from 1 April 2011. This may hit Q4 March 2008 and FY 2008 (year ending March 2008) bottom line of Indian firms.
European markets, which opened after Indian markets, were weak in early trade. Asian markets, which opened before Indian market, were in red. US stocks dropped on Friday, 28 March 2008, as a profit warning from US department store chain J.C. Penney raised concerns about slowing consumer spending while persistent worries about credit-related problems throttled financial stocks. A prominent analyst warned that earnings will not support current dividend payouts in 2008 at Citigroup, Wachovia Corp and other US banks.
The BSE Sensex dipped below 16,000 mark. 28 stocks from the 30-member Sensex pack declined. Despite the sharp fall, the market breadth was positive.
As per provisional closing, the 30-share BSE Sensex plunged 808.14 points or 4.94% at 15,563.15, which was also its lowest level of the day. Sensex had opened with a downward gap of 144.63 points at 16,226.66.
The broader based S&P CNX Nifty plunged 233.95 points or 4.73% at 4,708.05 as per provisional closing.
The ICAI norm requires companies to provide for all losses, including those that may occur due to trading in derivatives. Indian companies are sitting on huge losses on account of the forex derivative transactions they undertook during the year. A steep decline in the value of the US dollar against the Japanese Yen and the Swiss Franc has hit Indian corporates which have used these two currencies (Yen and Franc) extensively to swap their rupee denominated debt.
There are many companies, which are not disclosing these losses, as it is not mandatory to show these numbers in the balance sheets. But with the new accounting norms they now have some compulsions. Companies, which thought that they could escape declaring the losses, will now have to come forward and show their numbers, which could hit their balance sheet, which, in turn, may impact their market capitalisation.
Earlier, robust corporate advance tax payments in Q4 March 2008 indicated that corporate profit growth will be strong in the quarter. Advance tax figures showed banks, hospitality and software firms were doing better than sectors like automobiles and cement.
Despite the market crash, the market breadth was positive: On BSE 1,356 shares advanced as compared to 1,302 that declined. 45 shares remained unchanged.
The BSE Mid-Cap index was down 1.93% to 6,397.21 while the BSE Small-Cap index slipped 1.02% to 7,821.04, as per provisional closing. Both these indices outperformed the Sensex
The total turnover amounted to Rs 5912 crore on BSE as compared to Rs 4376 crore by 14:30 IST.
Indias largest dedicated housing finance provider in terms of net profit Housing Development Finance Corporation slumped 9.10% to Rs 2376.20 on 2.74 lakh shares. It was the top loser from Sensex pack.
Banking shares slumped. HDFC Bank (down 6.87% to Rs 1304.85), ICICI Bank (down 8.03% to Rs 768.10), and State Bank of India (down 4.26% to Rs 1608.15), also slipped.
Indias largest private sector company in terms of market capitalisation and oil refiner Reliance Industries lost 4.11% to Rs 2251 on 11.24 lakh shares. The stock moved in a range of Rs 2251 and Rs 2340 during the day.
IT pivotals were hit on worries a recession in US may impact their revenues. Infosys Technologies (down 6.31% to Rs 1429), Satyam Computers (down 3.42% to Rs 394.50), Wipro (down 8.59% to Rs 415), and TCS (down 7.94% to Rs 801), declined. IT firms derive majority of their revenue from exports to US markers.
Reliance Energy, the countrys largest private sector power utility company in terms of net profit slipped 6.12% to Rs 1252. The company has bought back 6.50 lakh equity shares since the start of the offer on Tuesday, 25 March 2008 aggregating Rs 83.15 crore
Hindalco Industries (down 6.13% to Rs 164.70), DLF (down 7.14% to Rs 646) and ONGC (down 6.61% to Rs 982), edged lower from the Sensex pack.
Cipla, the countrys third largest pharma company in terms of sales, gained 0.96% to Rs 219.60 on 4.83 lakh shares. It was the lone gainer from Sensex pack.
European markets opened lower today, 31 March 2008. Key benchmark indices in United Kingdom (down 0.95% to 5,639.10), France (down 0.90% to 4,653.60), and Germany (down 1.46% to 6,464.63), edged lower.
Asian markets were trading lower today, 31 March 2008. Hang Seng (down 1.88% at 22,849.20), Japan's Nikkei (down 1.88% at 12,525.54), Taiwan's Taiwan Weighted (down 0.59% at 8,572.59), Singapore's Straits Times (down 0.81% at 3,007.26), Shanghai Composite (down 3% to 3,472.13), edged lower. However South Korea's Seoul Composite rose 0.13% to 1,703.99
US markets closed lower on Friday, 28 March 2008 after a profit warning from J.C. Penney renewed fears about slower consumer spending. The Dow Jones industrial average slipped 86.06 points, or 0.70%, to 12,216.40. The S&P 500 index was down 10.54 points, or 0.80%, to 1,315.22, and the Nasdaq Composite index declined 19.65 points, or 0.86%, to 2,261.18.
Back home, the 30-share BSE Sensex advanced 355.73 points or 2.22% at 16,371.29 on Friday, 28 March 2008. The broader CNX S&P Nifty was up 111.75 points or 2.31% at 4942 on that day.
The Sensex surged 1,376.46 points or 9.18% to 16,371.29 in the week ended Friday, 28 March 2008 on buying by foreign institutional investors. The S&P CNX Nifty rose 368.05 points or 8.04% to 4,942 in the week.
As per provisional data, foreign institutional investors (FIIs) purchased sold worth Rs 401.95 crore on Friday, 28 March 2008. Domestic institutional investors (DIIs) were net buyers of shares worth Rs 729.50 crore on that day.
FIIs were net sellers of Rs 132.21 crore in the futures & options segment on Friday, 28 March 2008. They were net sellers of index futures to the tune of Rs 366.53 crore and bought index options worth Rs 406.38 crore. They were net sellers of stock futures to the tune of Rs 184.53 crore and bought stock options worth Rs 12.47 crore
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Stock Idea: Apollo Tyres

A well known company, in the Indian corporate world but not much fancied on the bourses, the company’s financial performance for the third quarter ended 31st December 2007 has been encouraging. The company’s sales were up 15.37% on a q-on-q basis. The component of other income was down almost 10 times at Rs.37 lakhs (Rs.3.49 crore). Total expenditure surged 14.53% and yet, EBIDTA was up 17.67%. PBT rose 23.37% and net profit was up 21.66%. OPM was slightly up at 13.48% (13.21%) and NPM was up at 6.38% (6.05%).

The company, in August 2007, sub-divided its Rs.10 face value shares into 10 equity shares of Re.1 per share.

Apollo Tyres is planning to step up its truck-bus radial tyre capacity in the next fiscal. The company had set up its radial tyre facility for heavy commercial vehicles on pilot basis at Vadodara, using indigenous technology, in this fiscal. The pilot plant has nearly exhausted its capacities and is currently producing 1,000 tyres a day. Apollo is the second Indian company to make foray in truck-bus radial tyres after JK Tyres.

The company is likely to be the after-sales partner for the Tata Nano and later graduate to an original equipment supplier. Apollo may also soon become the OE partner for Czech auto maker Skoda and Korean auto maker Hyundai.

On the forthcoming off-the-road (OTR) tyre facility at Vadodara to meet the demands of Bharat Earth Movers, production is expected to commence by end-2008. The company is also planning production of speciality and industrial tyres such as docking tyres and those used in forklifts.
Currently quoted at Rs.42 one can stay invested.

Intraday Calls for 31st March

Markets may remain very volatile throughout the day today.

Today's Intraday Picks:
SAIL
UNITECH
BAJAJ HIND
MOSER BAER
MAN Industries
For Levels and Targets download the file by CLICK HERE

Short Term Delivery Buy Hind Motors (32.90) Target 40+.

Good Luck

Stock Idea

ABG Shipyard, the largest private sector shipbuilding yard in India has posted good results for third quarter ended 31st December 2007.

On a sequential basis, on a Q-on-Q basis, the net sales increased 29.79% at Rs.274.96 crore, EBIDTA was up 29.49% at Rs.83.56 crore, PBT was up 37.96% at Rs.71.67 crore and PAT was up 38.14% at Rs.47.12 crore. On an equity of Rs.50.92 crore, the EPS stands at Rs.9.25.

The company currently has an order book of Rs 8,277 crore. The company has been constantly upgrading its facilities and that is precisely one of its biggest strengths. It has expanded its existing facility in Surat and also acquired a strategic stake in Vipul Shipyard located near the existing Surat unit. ABG is also setting up a new facility in Dahej, which is expected to commence operations from April 2008. Once this facility is fully operational, the company would be able to manufacture ships up to 1,20,000 DWT (dead weight tonnage).

The company is well entrenched in the shipping sector and poised well to take advantage of the currently booming industry. Given its reputation and expertise, the company gets repeat orders which in turn help giving it better economies of scale. Though the OPM of the company has slipped marginally to 30.39% from 30.46% in the previous quarter, it is expected that given the improvements in the fortunes and margins of the shipping industry, the coming quarter will reflect a better and improved OPM.
Currently quoted at Rs.686, investors could well stay invested.

Source: sptulsian.com

Intraday Calls for 28th March

Markets may open flat to positive and ramians volatile with positive bias. A positive closing expected today in Indian Stock Markets.

Today's Intraday Picks:
UNITECH
CAIRN INDIA
HDIL
Parsvnath Developoers
Aurobindo Pharma
For Levels and Targets download the file by CLICK HERE

Others: GTL Infra, Bag Films, Dish TV.

Good Luck

Tata Motors - JLR Deal

Next time you go to USA or Europe and see someone driving a swanky Jaguar or a Land Rover (JLR), surely you can walk a little taller with the collar raised up, after all it is an Indian company, which now owns these luxury cars! Indeed, we have come a long, long way from the taboo that the “Made in India” tags had! Ex-Prime Minister of UK, Tony Blair owns a Jaguar and it is one of the few trademarks to hold Royal Warrants of Appointment from both Queen Elizabeth and Prince Charles. The Queen of England loves to ride in her Land Rover when in Scotland. India buying the most loved British brands, surely a moment of celebration!

Tata Motors clinching the deal for Jaguar and Land Rover for a whopping $2.3 billion would have surely made the world sit up and take notice. If the world had missed out looking at what India is all about when Tata Steel bought Corus, surely now, Tata Motors would have got the attention of one and all.

After the entire halo over the pride of being an Indian clears, comes the moot question – how will this affect the balance sheet of Tata Motors? The shareholders of Tata Motors are a worried lot today as they do not know whether they should cry in joy over the acquisition or shed tears of impending doom.

Tata Motors has acquired Jaguar and Land Rover (JLR) for $2.3 billion, which is actually a bargain considering that Ford had acquired these two brands for $5.23 billion in the early 2000s. Tata Motors Ltd, has signed a deal to receive a $3 billion (Rs12,180 crore) one-year bridge loan from Citigroup Inc. and JPMorgan Chase and Co. Of this $3 billion, the JLR acquisition will take away $2.3 billion and the rest is to be used to meet working capital needs and few other expenses, like maybe the cost of getting the Nano on the Indian roads.

A consortium of eight banks — State Bank of India, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, ING, Mizuho and Standard Chartered, is underwriting the bridge loan. The bridge loan has been structured in the form of step-up financing: for the first six months, the interest charge would be Libor (London Inter-Bank Offered Rate) plus 70 basis points and for the next six months, it would be 140 basis point over the benchmark rate. A special purpose vehicle is raising the bridge loan, which is 100% owned by Tata Motors.

A year later, the short-term borrowings are to be refinanced through a combination of long-term debt and equity. The company is looking at a debt equity ratio of 1:1. So this means that of the Rs.12,180 crore being raised, Rs.6090 crore is to come via debt and another Rs.6090 crore via liquidation of investments and issue of fresh shares.

First the debt part. On the Rs.6090 crore, assuming an interest rate of 6%, we are looking at an interest burden of Rs.365 crore per annum. So we now have to realize that about over Rs.400 crore of the bottomline will be additionally eaten away by the interest burden.

Now for the equity part. The company is also contemplating selling a slice of its holdings in its group companies to raise the amount. A look at the balance sheet of Tata Motors was a real eye opener. Instead of finding a string of investments, the company has only two major investments to talk about which on liquidation will give it money. One is the holding in Tata Steel. It holds 2.58 crore shares of Tata Steel. Currently quoted at Rs.655, if Tata Motors decides to sell off its entire holding in Tata Steel, it will be able to raise Rs.1690 crore, as of today. In unquoted, the company has 66.67 lakh shares of Tata Industries, which promotes the Group's entry into new and high-tech areas. If Tata Motors decides to sell its stake in this company which has face value of Rs.100 per share, at Rs.1000 per share, then it will be able to raise Rs.660 crore. So these two companies together, will be able to raise around Rs.2500 crore, which is over 40% of the total money to be raised via equity route. For the rest, the company will be able to raise another Rs.1500 crore via preferential allotment to Tata Sons and for the balance, it might come out with a rights issue. Now these are the plausible methods of raising the equity and might also prove to be the best.

It may be recalled that Tata Steel had sold 85 lakh shares in TCS at an average rate of Rs.1,082 per share, managing to raise Rs.920 crore to refinance a part of the Corus deal.

There is no doubt that Tata Motors has a huge responsibility now. It has taken over two of the biggest luxury brands of the world but both of them have had dwindling sales and a red balance sheet. It is now upto Tata Motors to turn it around. The balance sheet of Tata Motors of next fiscal will reflect the consolidated figures of JLR and their losses if they keep mounting, might be meager in the developed country parlance but would be enough to drown the company in a quagmire of losses.

Tata Motors also has the responsibility of ensuring that it is able to show profits on its Nano project and this too will require some more amount of investment.

Till now the shareholders of Tata Motors had to worry only about the Nano but now, they have to worry about the performance of Jaguar and Land Rover. It should not happen that this current moment of pride turns into a sore wound. The next two years will undoubtedly be painful, years of integration. Till then, the shareholders can take pride of being owners of the company, which owns JLR, so what if they don’t actually drive a Jaguar to home!

By Ruma Dubey
Source: sptulsian.com