Minority investors in Essar Energy have appealed to the Indian and British governments to intervene to head off a forced takeover by its majority owner at a price they say undervalues the company.Essar Energy is listed in London but remains 78 per cent-owned by Essar Group, an Indian conglomerate controlled by the Ruia family, which has offered 70 pence per share for the 22 per cent of Essar Energy it does not own.Other Essar Energy shareholders and independent directors say the figure is too low - but because the majority owner controls more than 75 per cent of the shares it is in a position to push through the delisting regardless.Robert Hingley, director of investment affairs at the Association of British Insurers, wrote to India's High Commissioner in London and British business minister Vince Cable about the matter on April 23. Copies of Hingley's letters were released to the media on Sunday.Hingley said the forced delisting of Essar Energy would cause "real damage to the integrity of the UK market and to the reputation of Indian companies more generally."The minority shareholders have also hired US law firm Skadden Arps to advise them. Essar Energy and its majority owner have so far declined to comment on the moves taken by investors unhappy with the delisting plan.Essar Energy owns power and oil assets in India and operates Britain's second-biggest oil refinery, Stanlow, in northwest England.Since it listed in London nearly four years ago, the company has faced a string of problems, including slow growth in its Indian operations, delays in getting coal licences, a tough tax regime in India and a fall in margins at Stanlow.(Reuters)
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Reliance Industries on Friday (18 April) reported a marginal rise in net profit to Rs 5,631 crore in the fourth quarter ended March 31 from Rs 5,589 crore a year earlier. Turnover rose 13 per cent to Rs 97,807 crore, Reliance said in a stock exchange filing. However, this is also Reliance's highest quarterly profit in more than two years as robust petrochemical margins and a surge in export earnings on a drop in rupee value offset weakness in the natural gas business. The company announced a dividend of Rs 9.50 per share. Net profit rose 0.8 per cent to Rs 5,631 crore, or Rs 17.4 per share, in the January-March period from Rs 5,589 crore, or Rs 17.3 a share, in the same period a year ago. Earnings from oil refining climbed 12.3 per cent, while those from the petrochemical segment were up 10.6 per cent, offsetting a 17.8 per cent dip in the oil and gas business, the company said in a statement. RIL, which operates the world's biggest refining complex at Jamnagar in Gujarat, earned USD 9.3 on turning every barrel of crude oil into fuel in the quarter, compared with a gross refining margin of USD 10.1 a barrel a year earlier and USD 7.60 a barrel in the preceding three months. Earnings got a boost as the rupee declined to Rs 61.8 against the US dollar in Q4 from Rs 54.2 a year earlier. Sales rose 13 per cent to Rs 97,807 crore in Q4. For the full financial year, the company reported a record net profit of Rs 21,984 crore, the highest by any private sector firm in the country. Net profit was 4.7 per cent higher than Rs 21,003 crore in 2012-13. Turnover, too, was at a record high of Rs 401,302 crore, up 8.1 per cent from Rs 371,119 crore previously. RIL Chairman and Managing Director Mukesh D Ambani said, "FY 2013-14 was a satisfying year for RIL. Refining business delivered the highest ever profits with a sharp recovery in GRMs towards the end of the year. Petrochemical earnings grew sharply with margin expansion across polymers and downstream polyester products. "While we continue to face technical challenges in growing domestic upstream production, the US shale gas business grew significantly during the year and has become a material contributor to our earnings." RIL's retail business has turned around and is now India's largest retail chain, he said, adding the company has accelerated efforts to roll out state-of-the-art 4G services across the country. (Agencies)
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The Bombay High Court has directed coal companies to respond to serious allegations made by the Maharashtra Power Generation Company Limited (MahaGenco) pertaining to short supply and inferior quality of coal, which has resulted in a huge power mess.A division bench here comprising Justice Bhushan Gavai and Justice C V Bhadang while recently hearing a PIL filed by Anil Wadpalliwar on the turf-war between coal and power utilities and the resultant loss to public exchequer as well as people at large, ordered the coal companies to file their reply by April 25 and posted the matter for April 30.The High Court had last year too asked the coal companies to come clean on short-lifting of raw domestic coal which is available in plenty with coal utilities near pit-head, justification about importing coal at exorbitant cost; and passing the burden on hapless consumers besides steps taken to increase generation and ensuring cheap and uninterrupted electricity to power-generating districts like Nagpur, Chandrapur and Akola etc.Now, Maha Genco in its latest affidavit has once again blamed the coal companies for its woes as they have not only given poor quality of coal but has also failed to deliver coal in the agreed quantum.The affidavit also asserted that in the past three years, Western Coalfields Limited (WCL) had supplied less quantity of coal.In 2011-12, the WCL supplied 76.84 per cent of the total agreed quantity, in 2012-13 it was 77.10 per cent while in 2013-14, the WCL supplied only 74.71 per cent of the agreed quantity, the affidavit said justifying the import of costly coal to bridge the gap.Even from Mahanadi Coalfields Limited, there is consistent short supply of coal which has compelled it to make alternate arrangements, the affidavit claimed while stating that in last three years it received only 53.01 per cent, 44.50 per cent and 44.82 per cent of the agreed coal from MCL.The MahaGenco, in its earlier affidavit had squarely blamed Western Coalfields Limited (WCL), South Eastern Coalfields Limited (SECL) and Mahanadi Coalfields Limited (MCL) with supplying low quality coal and charging much more from it.The total burden on account of grade slippage is Rs 2,160 crore in financial year 2012-13, MahaGenco had claimed in an earlier affidavit filed before the High Court. This burden has resulted in a rise in power tariff which has been ultimately passed on to consumers and recovered from them, the MahaGenco has claimed.It also alleged that due to poor quality coal supplied by WCL it paid Rs 1,000 crore more (Rs 573 per metric tonne) on account of grade slippage, Rs 1,100 crore to SECL (Rs 1,896 per metric tonne), Rs 60 crore to MCL (Rs 123 per metric tonne).In case of South Central Coalfields Limited, the MahaGenco fairly conceded that SCCL conducts sampling and analysis at both loading and unloading ends and there is no financial burden on account of grade slippage.MahaGenco receives 22.71 million metric tonne coal every year from WCL which is 46 per cent of the total linkage quantity and at least 90 per cent of the coal supplied by WCL is two-three grades below the declared grade, the previous affidavit had claimed.The power utility also receives 6.027 million metric tonne from SECL, 15.51 million metric tonne from MCL and 2.26 mmt coal from SCCL.Receipt of inferior quality coal of high ash content from all subsidiaries of Coal India Limited is a major concern for MahaGenco, the affidavit stated.Earlier the High Court on October 9, 2013 had ordered a third party independent sampling of coal at both loading and unloading point to ascertain quality of coal supplied by Coal Companies to state-run power utility in which the Central Institute of Mining and Fuel Research (CIMFR) confirmed that coal contained high-ash content and was sub-standard.The coal companies challenged the findings and sampling process itself and after a very stormy legal battle, the High Court on March 5 recalled its earlier order after the huge public cost involved in sampling process came to fore.Citing deliberations with Central Electricity Authority and other high-level policy initiatives, MahaGenco affidavit admitted that its boilers can use imported coal maximum to the extent of 10-15 percent and claimed that it had barely imported 7-8 percent of imported coal out of total requirement of 46.50 mmt to meet the domestic shortfall of coal to achieve heat value.Refuting the allegation of over-pricing of electricity, MahaGenco claimed that tariff is determined by the MERC based on fixed cost and variable charge and cost of power generation depends on quality of coal.If the quality of coal is not in accordance with the terms of contract, the result will be less generation of electricity, Mahagenco claimed while making it clear that it alone can not be blamed for the power mess.(PTI)
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Reliance Industries, owner of the world's biggest refining complex, and HPCL-Mittal Energy Ltd (HMEL), part owned by steel tycoon L N Mittal, have sought environment ministry approval for raising capacity of their plants.Reliance, whose two plants at Jamnagar in Gujarat has installed capacity to process about 1.2 million barrels per day (bpd) oil, has the capability to turn the heaviest crude into value added products.Billionaire Mukesh Ambani's Reliance seeks to add a fifth crude train of 400,000 bpd, some polymer units and changing the fuel for 450 megawatt of an already approved 2100 MW power plant from gas to coal, a note on the ministry's website said."Currently margins are low, demand also might not warrant such a huge expansion so the actual capacity addition may take some years," said an Asian trader.The timings and the cost of expansion depend on getting the necessary government approvals, which may take months to years.The new train will also help Reliance in further diversifying its crude portfolio and processing some of the "dirtiest, heaviest and high acid crude", said the trader."This could be their strategy to take all approvals in advance so at a future date they need not run after the bureaucracy for the approval," said an industry source.The proposal mentions that annually 1.8 million tonnes of imported coal would be required for the 450 MW power plant.In a separate proposal, HMEL seeks to raise capacity of its existing 180,000 bpd Bathinda refinery in northern India to 225,000 bpd.(Reuters)
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Lease arrangements have existed for decades and have evolved over the years. The increase in innovative ways of structuring business arrangements has kept the accounting regulators busy with ensuring that the accounting rules are also updated to reflect the real substance of the arrangement. Leasing of assets has been a strategy for the user of the asset to avoid blocking of their funds in non-core business assets and has also helped companies to reduce their tax liability. Typically, companies either finance the asset or take them on a lease usually for a period shorter than the total useful life of the asset. Financing is usually done where there is intent to take the ownership of the asset eventually (for example, in case of motor vehicles). However, where the user of the asset does not intend to own the asset, it enters into an operating lease arrangement.There are lease arrangements which are specific to the use of an asset/class of assets (Dry Lease arrangement) and those that are bundled with the services such as operating and maintenance of asset/class of assets (Wet Lease arrangement). Wet lease arrangements are common in the Airlines industry where the owner of the airline also provides crew, maintenance other services to the operator. Further, companies enter into take of pay arrangements or outsourcing arrangements that may require the vendor to use specific assets for example use of moulds/dies for producing customer specific components, in automotive sector. With companies getting more innovative in structuring their business arrangement, the classification of a lease arrangement as an operating or finance lease has become less of a challenge as compared to identification of a lease arrangement. Accounting regulators globally recognise the complexity in the business arrangements and continue to provide application guidance to ensure that companies identify, record and measure the lease arrangements appropriately to reflect the true substance.Companies that have transitioned to IFRS or equivalent framework globally have acknowledged that recording the real substance of a potential lease arrangement directly impacts the valuation of it's business, as it directly affects the EBITDA of their company as well as some of the key ratios such as debt-equity ratio. We have discussed below some practical business arrangements that may need detailed evaluation and consideration with respect to their potential impact on the company's financial statements and key ratios. This is more relevant for companies in India that have historically not reported under IFRS or USGAAP. Lessee being involved in the construction of the leased asset:This arrangement is common in real estate industry as well as infrastructure companies where it is mutually agreed that the lessee would spend significant costs to construct the asset (for example the cost to construct a shopping complex) and subsequentlylease the asset for a lower lease rental, as compared to the market rate. Typically, the lessee may wish to capitalise the construction cost incurred on it's balance sheet, as a leasehold improvementand recognize the lease expense based on the operating or finance lease classification.However, if we refer to the some of the global accounting principles and practices, it provides practical guidance on such arrangements, particularly where the arrangement is a linked transaction. In case the construction of the asset results in transfer of substantive risk and rewards associated to the construction of the asset (such as financing the construction cost, obligation to complete the construction etc.) to the lessee, he may be able to recognise the construction costs incurred on it's balance sheet only until the construction is complete. Post the completion of construction, the subsequent leasing of the asset may get considered as a sale and leaseback transaction and accounted for as such. This is on the basis rationale that the lessee has incurred the cost to construct the asset in lieu of lower lease rentals and did not have intent to eventually own the constructed asset. As such, the cost incurred by the lessee is recognised over the lease term. The cost incurred could either be considered as prepaid rent or included in the carrying value of the leased asset, depending on the operating or finance lease classification, respectively. Composite lease arrangement (land and building)It is common for companies to enter into lease arrangement containing lease of land and building. Under Indian GAAP there is no specific guidance to account for such lease arrangements. Particularly, AS 17 does not include within it's scope, lease of land. However, under IFRS/US GAAP, in case of a composite lease arrangement, operating or finance lease classification needs to be assessed separately for land and building, particularly where the fair value of land is significant part of the lease asset and significant portion of lease payment is towards land. There are multiple approaches provided under the international rules to separate the land and building values and evaluate the lease classification of both the components. Similar requirement is also included in Ind-AS 17 (Indian equivalent to IFRS standard), that shall be applicable once IN-AS is implemented in India. As such, companies may have a situation where land lease is an operating lease and lease of building, a finance lease, particularly where the lease arrangement is for 25-50 years, given land has indefinite economic useful life.Arrangement containing lease (multiple element arrangements):Under Indian GAAP, business arrangements such as outsourcing, take or pay supply arrangements are accounted for as a supply of goods or service contract and the amount paid is usually recognized as an expense. However, under international accounting rules (IFRS/US GAAP), in case such arrangements involve use a specific asset and there is adequate evidence to demonstrate that the provider of the service has conveyed the right to use the asset to the customer, the right to use the underlying specific asset would need to beidentified and separated from the service, as a lease arrangement and accounted for as an operating or finance lease, based on it's classification under the relevant leasing standard (IFRS/Ind-AS 17). Companies in India, particularly in the manufacturing, pharmaceutical or Telecom industry may have significant impact on their financial statements,in case the lease assessment results in finance lease of the asset, as it would mean an asset shall be recognized on the balance sheet of the company and amortised, resulting in improving the overall EBITDA.Lease accounting principles continue to evolve:Accounting rules around lease arrangements have continuously evolved over time and shall continue to change over time, as the regulator attempt to align the accounting principle with the substance. Even now there are on-going discussions between IASB and FASB, as part of it's joint project to come up with a revised version of the existing standard that would completely change the way operating leases are accounting for by the lessee, when and if the revised standard gets introduced. Under the revised exposure draft, the lessee of an operating lease arrangement may end up capitalizing the asset as a right to use the asset with a corresponding obligation to pay the lease rentals. What impact would it have on the business models for companies shall need detailed consideration, particularly in case it results in bringing off-balance sheet assets (in case of the lessee of the asset in an operating lease arrangement), on the company's balance sheet.Given the regulators are likely to introduce IFRS/IND-AS which may get applicable for a lot of Indian companies in it's first phase, CFOs and to an extent CEOs should gear up to understand the potential impact of leasing accounting standard (IFRS/Ind-AS 17) on not only their existing business arrangements, but also on the planned arrangements, to avoid any surprises.The author, Vishal Seth, is the founder and chief executive at BERC Consulting
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India's rapid advance from an emerging to a developed economy has given rise to a new breed of luxury consumers, who are heavily influenced by global tastes and beliefs. India's new affluents, while retaining a distinctly Indian identity, are redefining the market, taking marketers by storm. This is the preeminent conclusion of a roundtable discussion organised by Tata Housing Development on India's new affluents. The discussion was compiled by an array of experts representing the fields of research, marketing, real estate and consumer and brand intelligence: A. Harikesh, senior vice president, marketing and sales at Tata Housing was the host of the roundtable discussion, while Harish Bijoor, business strategy specialist and CEO of Harish Bijoor Consults, Bino Paul, professor and chairperson at Tata Institute of Social Sciences (TISS) and Sandeep Trivedi, director, growth market at Cushman & Wakefield were present.According to the Boston Consulting Group (BCG), the affluent class comprises around 13 million households in India. Among them, education and occupation help define consumption patterns and attitudes, creating two distinct segments: new and traditional. The recent emergence of the affluent class in India highlights this demographic group's obsession with the love for technology, high living and new-age affluence — in a nutshell, an opulent lifestyle. This has led to a conversation amongst manufacturers and marketers on who these 'affluents' are and why their consumption habits are of relevance to India.According to the panel, India's new affluents will not simply mimic western spending patterns but retain distinctly Indian characteristics; a type of jugaad that marries affluence with aspirations, with a strong focus on the former. "New Affluents are the ones driving the realty market today. They are ambitious and aspire to live a life of sheer luxury. They have the advantage of having both good education and as well successful careers. Most have travelled internationally and have lived abroad, a life they now want in their own home town as well," said Harikesh.Marketing and brand strategy specialist, Harish Bijoor, said that "in the marketing sector, we have changed the way offerings are assessed, while at the same time delving deep into the buying psychology of affluent consumers. For them, products should flaunt their value and brand name always trumps affordability."Social researcher, Bino Paul believes that, "new affluents are pivotal in transforming urban agglomerations into global cities whose steadfast longing for novelty and structural changes forms potent base for new ideas, products, markets, spaces and socialisation milieus." Sandeep Trivedi feels today, the average age of a first home buyer is in the age bracket of 28-32 years and this trend has transformed the residential market and created a niche within.
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Larsen & Toubro Ltd (L&T) warned of more speed bumps after India's largest engineering and construction group surprised investors with a profit drop as the protracted economic slowdown took a toll on infrastructure spending. Shares in L&T ended down 7.4 per cent, their biggest drop in nearly four years, after the company said net income fell 12.5 per cent in the quarter ended June from a year earlier. L&T, seen as a bellwether for the Indian economy, has been looking to boost sales in overseas markets as Asia's third-largest economy grows at its slowest pace in a decade. Project bottlenecks, largely because of problems in acquiring land and high funding costs, have also sapped investment in the infrastructure industry. But with India accounting for about 80 per cent of its sales, an investment slowdown in roads, ports and power plants is a major concern for L&T. The company, which makes equipment used in power stations, said revenue from its key power segment dropped 44 per cent in the April-June quarter due to delays in the awarding of large orders. "The fact is the situation is very challenging on the ground," said its chief executive officer Krishnamurthi Venkataramanan. "Overall, if you see the situation, for the next two years, looks quite challenging from the Indian context." Reflecting the poor economic climate, the earnings outlook of many mid-sized Indian infrastructure builders such as Jaiprakash Associates Ltd and GMR Infrastructure Ltd has deteriorated. ArcelorMittal SA, the world's top steelmaker, and South Korea's Posco last week scrapped plans to build two steel plants in India, underscoring the obstacles that large projects face in India. India has seen a slew of economic growth downgrades in the recent weeks due to the slow pace of reforms, high inflation and a record high current account deficit. Deutsche Bank last week cut its growth forecast for the year ending in March 2014 to 5 per cent from 6 per cent.Overseas BusinessNet profit fell to Rs 756 crore from Rs 864 crore a year earlier, said L&T, which builds roads and develops real estate. Analysts expected the company to post a profit of 9.5 billion rupees, according to Thomson Reuters data. The company's order book grew 8 per cent from a year earlier to 1.65 trillion rupees at the end of June. Its international order book increased 16 per cent. L&T said it was maintaining its earlier forecast of a gain of 15-17 per cent in net sales for the current fiscal year and a rise of about a fifth in new orders, thanks to expansion in the Middle East and Africa. In recent months, the company's overseas orders include a $350 million road project in Oman and a contract worth nearly $300 million from Saudi Aramco to build a gas processing plant. "Internationally, the sentiment is good. The real issue for us is to gear up to be able to execute them well and maintain good margins," Venkataramanan said, adding that the overseas sales would cushion the impact of the slowdown in its Indian business.(Reuters)
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India’s largest private company, Reliance Industries has slipped at three fronts — revenue, export and cash flow — in its first quarter result while discounting the rupee depreciation. The company’s revenue fell by 4.6 per cent to Rs 90,589 crore and net profit rose by 18.9 per cent to Rs 5,352 crore in rupee terms. But the revenue fall is higher at 10.53 per cent or $1.8 billion — from $17.1 to $15.3 — while comparing it in dollar terms that stated in the media releases.There is a reason why Reliance’s revenues in dollars need to be compared. In the June ended quarter, the company has earned an export revenue share of 62.75 per cent or $9.6 billion. A lion share of these transactions is believed to be in dollars because of the company’s higher dependency in the refined petroleum products export, which is mostly in the US currency.Reliance claims the export has risen by 3.2 per cent to Rs 57,026 crore. Again in dollar terms, the export revenue has slipped by 3 per cent to $9.6 billion from $9.9 billion. This comparison is more accurate than doing it in rupee terms. (According to Reliance’s numbers, the dollar stood at Rs 55.82 in Q1 12-13 and at Rs $59.40 in this quarter.) In fact, export revenue share has increased to 62.75 per cent from 57.89 per cent because of the natural gas output fall at Krishna Godawari (KG) basin and the resultant domestic revenue reduction. And, that doesn’t need to be counted, say analysts.Read Also: Reliance Industries Q1 Net Jumps 19%After revenue and export falls, the third dent in the balance sheet is at the cash flow. Reliance’s profit before depreciation, interest and tax (PBDIT) went up by 10.3 per cent to Rs 9,610 crore again in rupee terms. But the media releases of both the quarterly results quote the dollar PBDIT as flat at $1.6 billion.The Rs 849-crore jump at the net profit is partly because of the reduced depreciation, which fell by Rs 325 crore. Moreover, the interest cost was higher by just Rs 26 crore even after the rupee fell by Rs 4-5 year-on-year. Considering Reliance’s higher foreign currency borrowings, the interest outgo was expected to be higher. The outstanding debt stood higher at $13.5 billion at the end of June 2013 compared to $13.2 billion a year back. The saving grace is that the cash reserve of $15.7 billion, which went up by $3 billion in one year because of the cash flows in the previous quarters. nevin (dot) john (at) abp (dot) in
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