Shares in CESC dropped 15 per cent on 26 October' 2012 as investors questioned why the Indian power utility has agreed to buy a stake in business process outsourcing company Firstsource Solutions Ltd. CESC said on Thursday it would purchase a 49.5 per cent stake in Firstsource for 3.95 billion rupees. Including a mandatory open offer for another 26 per cent of Firstsource shares, the total purchase could amount to around 6.5 billion rupees. CESC said growth opportunities in the power sector were getting challenging, while returns were no longer as lucrative. Citigroup downgraded CESC to 'sell' from 'buy', saying the acquisition was "unrelated" to its core business, while noting the utility's prior record of diversification into the retail sector "has been poor." The bank added buying Firstsource would increase CESC's leverage and depress profits, and cut its target price to 300 rupees from 345 rupees. Firstsource shares ended down 13.7 per cent at Rs 12.3.(Reuters)
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The issues of India’s power sector are getting worse. While thermal capacity addition plans are tripping mainly due to the unavailability of coal, manufacturers in the other two main segments of the industry — transmission and distribution (T&D) — are now fighting for survival. For the first time in 10 years, the Indian electrical equipment (EE) industry has seen a negative growth of 2.4 per cent in the first quarter of 2012-13 (against a growth of 13.8 per cent in the same quarter in 2011). The growth has declined to –3.9 per cent in first five months of the fiscal and is expected to further slip to –4.2 per cent for the first half of 2012-13. Generation equipment such as boilers, turbines and generators comprise 26 per cent of the Rs 1.2 lakh crore EE industry. The rest is made up by T&D and allied sectors, which make transformers, switchgear, transmission lines, etc. In the last few years, the EE industry has doubled its capacity on the back of huge power generation capacity addition plans in the 11th and 12th Five-Year Plans. “Now, capacity utilisation of the T&D industry has come down to 67 per cent from 80-85 per cent a few years ago, and many units are on the verge of closure,” says J.G. Kulkarni, vice-president of Crompton Greaves and president of the Indian Electrical and Electronics–3.9 per cent was the growth of EE sector till Sept.Manufacturers Association. The main reason for the slump is the threefold growth in imports from China since 2005-06. China’s share in Indian imports of EE stands at 44.5 per cent (2011-12), growing at a compound annual growth rate of 57.5 per cent in the last six years. “In the case of rotating motors, growth of domestic manufacturers’ revenues has come down by 10-12 per cent in the last six months. Imports have grown by 65 per cent during the same period,” says Anil Nayak, an executive with Bharat Bijlee. The situation of insulator makers is even more grim, due to a lack of new orders, project delays and a severe cash crunch owing to non-payment by electricity boards. Industry experts say import duties on most of the generation equipment for non-mega projects and T&D equipment are quite low (around 5-7.5 per cent) and are being further lowered under various free-trade agreements. They say domestic EE manufacturers suffer a cost disadvantage of about 14 per cent against Chinese imports. Chinese manufacturers also get export subsidies, giving them a 24 per cent cost advantage. Chinese firms such as transformer maker Tebian Electric Apparatus Stock and Baoding Tianwei are already planning to set up manufacturing units in India. The Centre’s decision to impose about 21 per cent import duty on power generation equipment will also not be of much help to the T&D sector. The poor financial health of state electricity boards, the main customers of T&D companies, has made the problem more acute for the power sector. Considering these issues, the Department of Heavy Industry is developing an ‘Indian Electrical Equipment Industry Mission Plan 2012-2022’ to lay down a clear 10-year road map for enhancing the competitiveness of the domestic EE sector.(This story was published in Businessworld Issue Dated 26-11-2012)
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Petrol price was cut by 95 paise per litre on 15 November' 2012, the second reduction in rates since October, on account of fall in international oil prices. Petrol in Delhi would cost Rs 67.24 a litre from midnight tonight, down 95 paise from Rs 68.19 a litre. Prices vary from city to city due to differential local sales tax or VAT rates. The last reduction in petrol price before this was the 56-paise cut to Rs 67.90 a litre on October 9. Thereafter, the rate was hiked by 29 paise following government decision to raise the commission paid to petrol pump dealers. "Presently, the international oil prices are relatively stable," a statement by Indian Oil Corp, the nation's largest fuel retailer, said. Petrol price in Mumbai has been reduced by Rs 1.20 per litre to Rs 73.53, while it will cost Rs 70.57 a litre in Chennai from tomorrow instead of Rs 71.77 a litre currently. In Kolkata, the price has been cut by Rs 1.19 to Rs 74.55 per litre. IOC and other state retailers, Hindustan Petroleum and Bharat Petroleum, lost over Rs 2,000 crore on selling petrol below cost during the first six months of current fiscal. And since the product is deregulated, there will be no subsidy support from the budget to cover these losses. "It may be noted that oil marketing companies are bearing the burden of a loss of over Rs 2,000 crore on sale of petrol during April-September 2012 due to inability to change retail selling prices to the desired extent in line with market conditions," IOC said. Besides petrol, fuel retailers sell diesel, domestic LPG and kerosene at heavy losses. IOC said oil firms were losing Rs 9.84 a litre on diesel, Rs 31.30 a litre on kerosene sold through PDS and Rs 478.50 per 14.2-kg cooking gas cylinder supplied to households. "Projected under-recovery (revenue loss) on these products is expected to cross Rs 160,000 crore for the current year," it added. (PTI)
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State-run firms Oil India Ltd and Indian Oil Corp have jointly bought a 30 per cent stake in Houston-based Carrizo Oil & Gas's Niobrara shale asset in Colorado for $82.5 million, the companies said in a statement.The deal marks the first investment by the two state companies in shale assets in the United States, where booming shale gas output has caused prices to plummet and may push the US government to consider exports to energy-hungry Asia.Oil India will acquire 20 per cent and Indian Oil Corp will get 10 per cent in Carrizo's Niobrara basin acreage assets through their respective subsidiaries."We have earmarked part of our reserves for acquisitions and new opportunities to bolster our overseas portfolio and were keen on joint ventures in countries with geo-political stability," Oil India Chairman S.K. Srivastava told reporters.India, the world's fourth-largest oil importer, imports about 80 per cent its crude needs, and has been scouting for oil and gas assets overseas to satisfy rising local demand and to feed its expanding refining capacity.The total investment by the two companies would be around $82.5 million, including an upfront cash payment of $41.25 million and a carry amount of $41.25 million, linked to Carrizo's future drilling and development cost, the companies said in a statement.Oil India may raise $100 million in foreign loans by December to part fund the deal, its finance director said.As part of the transaction, Oil India and IOC will also receive a 30 per cent interest in Carrizo's existing production of about 1,850 barrels of oil-equivalent a day from 24 gross wells, it said.Carrizo holds 61,500 gross acres in the Niobrara basin, of which the Oil India-IOC consortium will have 18,450 acres, spread over three counties in Texas.Oil India, whose assets in India's northeast account for its entire crude oil production and the bulk of gas production, has been aggressively scouting for overseas assets in discovered and producing assets overseas.The company, along with Indian Oil Corp, the country's biggest fuel retailer, holds stakes in oil and gas blocks in various countries including Venezuela, Libya, Gabon, Iran, Yemen and Nigeria.India's largest listed company, Reliance Industries, holds stakes in three shale gas joint ventures in the United States, including one with Carrizo in the Marcellus shale acreage in Pennsylvania.State gas utility GAIL India acquired a 20 per cent stake in Carrizo's Eagle Ford shale acreage last year.Shares in Oil India closed up 2.3 per cent in a strong Mumbai market. Indian Oil shares ended up 2.4 per cent.(Reuters)
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Voith, a Germany-based engineering company, has big plans for India but the management is waiting for the policymakers to accelerate decision making and remove hindrances faced by overseas businesses operating in India. The group of companies operate in 50 countries including India. In India, the group has four businesses — Voith Turbo, Voith Paper, Voith Hydro and Voith Industrial Services. The company has been present in India since 1968 when it set up its paper business. Businessworld's Chhavi Tyagi spoke to Dr. Hubert Lienhard, Chief Executive Officer and President, Voith GmbH.Which policies of the Indian government affect Voith the most?If we compare the power sector of India with those of other nations like the US or Europe or Latin America there is a huge difference in the fundamental structure of the industry. The power plants in all these countries are built by the federal government.In India, a lot of power has been given to the states and basically the structure hasn't worked. There is a lack of execution here. The biggest example of this hitch are the Ultra Mega Power Projects (UMPP) — only Tata Power has managed to get their project going, the rest are stuck at some or the other level. The chair of NHPC was lying vacant for two years and it is things like this which makes a huge difference. The government has to take leadership in this and not keep it to states. I believe that strengthening of organisations like NTPC by giving them more money, more power and more people will help us because this is one organisation which has shown that they can execute.So would you prefer doing business with public enterprises over private companies?Yes, specifically in power. I believe that one can run public companies with the same governance as private companies. In Germany, Deutsche Bahn AG is a public owned company and a very effective one at that. I am not saying that there should be no private money but the basic infrastructure should be with the government. Our experience of working with NTPC exemplified all these. We have had very successful projects completed on schedule. All this can be achieved with the right governance and the right management. The problem with a lot of private companies is that they are facing funding problems. Most of them are in high debt and therefore don't have a better rating than the government companies. How has slowdown impacted your business?Things are slowing down everywhere. India has already slowed down and China is also not really growing anymore. We see some growth in the US and in Brazil. This has affected our topline growth. We have been experiencing significant problems in our paper business which has been affected by the developments in technology. This has necessitated a restructuring of our approach and we have changed our business model for Voith Paper. We are now meeting the demands of the packaging tissues market, special papers, etc. For instance, we have a large demand for bank notes in India. However, the outlook is not as good as it was over a year ago.Has it also impacted your sales volume? We have seen a downturn in our sales in India and this is again because we could not meet our goals set for hydro power. Our paper business has seen the biggest numbers even though power and hydro have the biggest potential. We have establishments in Faridabad, Hyderabad, Pune, Noida and Kolkata and the business is self sustaining at the moment. We are making good earnings but it is a boring growth. I have been coming to India since 1987 and I see a humongous potential in this country with skilled and educated people but it is high time that this gets going. Which sector in India has the most potential for your products/services?Hydro power has a potential of 800,000 MW in this country but nothing happens in this segment. I would say that the current investment climate in India is not conducive for big investments.Does the recent imposition of import duty on foreign equipment affect Voith?It doesn't affect us much because we produce much of our products in the country itself. That is our philosophy and we try to implement it where we can. We produce for Europe in Europe, in Asia for Asia and in America for America. We don't have a single expat in our management here and we are as good as an Indian company. For some product, we do import as the volume is too small to open a production unit here but as soon as the volume will pick up, we will start local production like we do in China. How is your business in India faring as compared to European countries? We had a good run last year as far as Voith Toubro is concerned but our hydro business did not come up to the expectations. Our hydro division, Voith Hydro is really down and nothing much is happening in that. Other than Voith Toubro, our two other segments - Voith Paper and Voith Services - are also doing well. Our paper business is well supported by the number of projects we have in hand and we expect our services division to grow by 50 percent this year. So, we present a very mixed picture right now. How much does India contribute to the Voith's overall revenue? Which segment in India generates the most? Our total revenue from India is around 100 million euro which is a fairly small amount when you compare it to the size of the country. Also, it seems very small when we compare it to our business in the neighbouring country China where the size of our business is more than tenfold. However, India has been a profitable business but the impact of the slowdown in our orders and sales can be clearly seen when compared to what we had planned. But we are not a company which moves out in case the volumes are low. We have long term plans for India and we are hopeful that given the number of people we will see more business soon. Giving us further hope is the recent change in the Cabinet and with Mr. Chidambaram heading the finance ministry we have hopes of India returning to the eight percent growth. Since we supply to the infrastructure companies, there has to be a growth in the infrastructure for us to grow. In case things remain as they are, we see only our services division growing. We do want to expand as much as we can in India. Although we are very small when it comes to volume in services, we are hopeful of growing by 50 per cent this year. How much of investments have you planned for India? Which business segment and region will get the majority if it? We have postponed all investment plans at present because there is hardly any growth in the volume. Whatever small investments are required can be made with the earnings in the country. However, all major expenditure is presently stalled in India. For instance, we want to buy a big land area in Hyderabad but we have been forced to postpone it because at the moment it doesn't make sense. The group does not have any net debt. We have the money and we do want to invest but the current conditions don't allow us to.What are your future plans for India?We believe we have a structure here which is capable of growing at any time when the demand presents itself. We are ready to invest the moment demand picks up. We actually have money sitting in the country to invest but the opportunity has to present itself.
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India's boldest attempt in two decades to sweep away the remnants of the "License Raj" permit system that has crippled infrastructure development has fallen victim to the very scourge it was designed to defeat. A proposal for a government panel chaired by Prime Minister Manmohan Singh to fast-track major infrastructure projects and boost a flagging economy seems to have stalled amid bickering between the finance and environment ministries over its powers, and an apparent reluctance to proceed without consensus. The dispute underscores the fears of investors and business leaders that New Delhi's new-found reformist zeal could be undone by a lack of governance and political will to drive further economic liberalisation. The brainchild of Finance Minister P. Chidambaram the proposed National Investment Board (NIB) was expected to win swift passage through the cabinet last month. But it has yet to make it on to the weekly agenda. Investors and economists say the NIB should be a top priority for the government given the regulatory delays holding up projects worth nearly 2 trillion rupees in the road, power, coal and mining sectors alone. "NIB, NIB, NIB," Rajiv Lall, managing director of infrastructure financing firm IDFC Ltd told Reuters on the sidelines of a World Economic Forum meeting last week, when asked what reforms the government needed to carry out next. The NIB aims to provide a single-window clearance for large projects that today are bounced from one ministry to another for various approvals, a process that can some times take years. However, the Environment Ministry opposes the NIB, fearing that it will not only undermine its authority but also weaken the system of checks and balances within the government. "This current proposal is completely unacceptable as it will decimate the role of individual ministries in taking responsible decisions," Environment Minister Jayanthi Natrajan said in a letter to the prime minister that was leaked to media. The ministry has blocked several high-profile industrial and infrastructure development projects. Natrajan's influence comes from her perceived closeness to Sonia Gandhi, the powerful chief of the ruling Congress party, who favours populist policies. The tussle reflects India's struggle to balance the need to foster economic growth with a desire to protect the environment. Poor infrastructure is often cited by economists as one of the biggest obstacles to more robust economic growth. Turf WarA typical infrastructure project requires clearances from 19 federal ministries and on an average 56 permissions on issues ranging from the environment to defence. The whole process takes up to 24 months. Now, the NIB faces a similar set of bureaucratic hurdles. "Any decision to take place which has implications for a very large number of ministries, you need to have inter-ministerial discussions and create a consensus," said Arvind Mayaram, economic affairs secretary at the Finance Ministry. He said a decision could be taken within three weeks. Government officials said the prime minister's office had asked the Finance Ministry to revise the proposal after failing to broker a compromise between the two ministries. "We are hopeful that it will eventually get resolved. They (the Environment Ministry) seem to have misunderstood the structure," said a Finance Ministry official, declining to be named. "They should understand that the interests of the country are far more important than the concerns for their turf." The Environment Ministry declined to comment. The turf war between two ministries reinforces a frequent criticism of Singh - that he has poor control over his ministers. Such squabbles in the past forced him to defer important decisions related to the economy and national security. "I hope the same fate does not fall to my proposal for a National investment Board," Chidambaram lamented recently.(Reuters)
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Strategic Energy Technology Systems Private Limited (SETSPL), a joint venture between a consortium of Tata companies and Sasol of South Africa, clarifies that it was allocated a coal block for its coal-to-liquids (CTL) project in a structured process based on predetermined criteria. The joint venture was not meted out any extraordinary treatment, as has been reported in sections of the media in the recent past.With India importing 80 per cent of its crude oil, posing increasing threat to energy security and ever increasing outflow of foreign exchange, the Coal Mines (Nationalisation) Act, 1973, was amended in July 2007 to include CTL industry as an end-user for allocation of captive coal blocks so that low-rank high-ash coal, abundantly found in India, can be converted to environmentally friendly liquid fuels. With CTL projects being highly capital-intensive, they are viable only with captive coal blocks allocated on nomination basis.An Inter-Ministerial Group (IMG) was constituted by the government of India to examine the proposals. The IMG consisted of the secretaries to various ministries and members of the Planning Commission. The applicants were invited to make presentations as per the prescribed guidelines before the IMG in September/October 2008.SETSPL was among the 22 applicants which made presentations.Sasol, the joint venture partner in SETSPL, has more than 50 years’ commercial experience in CTL and a well-proven technology.SETSPL was allocated North of Arkhapal and Srirampur coal block in the Talcher region of Odisha in February 2009.Though the block was allocated in February 2009, the Prospecting Licence (PL) order was issued by the government of Odisha only on 15 March, 2012. The execution of the PL deed is still pending, without which exploration cannot proceed.Actual exploration is required to determine if the block has appropriate quantity and quality of coal reserves for the CTL project. In the event that the block has insufficient reserves of the appropriate quality for CTL, then the block will be returned to the government.
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Reliance Industries falls 1.6 per cent after its share prices rose above the maximum buyback price of 870 rupees per share for the first time since the offering was announced on January 20.Reliance has surged 10.5 per cent over the previous four sessions, riding a rally in cyclical stocks on the back of India's reform measures and the Fed's QE3.The gains have allowed Reliance to regain its status as the BSE Sensex's biggest market cap from Tata Consultancy Services.Reliance has bought back a cumulative 39 million of its own shares as of September 11, as per BSE data.The board of the energy conglomerate approved a buyback of up to 120 million shares, for an aggregate amount not to exceed Rs 10,440 crore.(Reuters)
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