Fundamentals February 19, 2013

Nik's Diary

The Indian market opened flat to positive, mirroring SGX Nifty which is trading marginally higher in the opening trades. The major Asian indices are trading on a mixed note after the minutes of last month’s Bank of Japan meeting indicated that Japan’s economy remains relatively weak. The US markets were closed on Monday following the President's Day holiday. The European markets traded mostly lower, amid no major announcement on the earnings or economic data front. Back home in India, the domestic market moved in a narrow range before ending modestly higher. Stocks pared early gains, tracking mixed European cues and weak industrial metal prices. However, the underlying sentiment remained slightly cautious as global ratings agency Moody's warned that a continued rise in India's current-account deficit is ‘credit negative’ for the country. It also stated that the rising current account deficit and external debt may impact the nation's credit risk profile. Going ahead, the domestic  investors would be watchful of the developments on the Union Budget front. The market participants would also keep an eye on US economic data that is  scheduled to be released in the week, including reports on housing starts, existing home sales, and consumer and producer price inflation. 

Telecom Commission allows 4G airwave holders to offer voice services

India will allow wireless broadband airwave holders to provide voice services if they pay an additional $306 million, a senior government official said on Monday, a move likely to boost billionaire Mukesh Ambani’s Reliance Industries. Reliance Industries, controlled by India’s richest man, is the only company with nationwide fourth-generation (4G) broadband airwaves. The company re-entered the fiercely competitive sector by buying airwaves in a 2010 auction and has so far invested at least $3.5 billion. Firms which own the broadband wireless access (BWA) airwaves can provide voice services along with high-speed Internet if they pay a fee of Rs 1658 crore, R Chandrashekhar, the top bureaucrat at the telecommunications ministry, told reporters. “There is no restriction on the technology that is being used (to provide voice services),” he said. A move by Reliance Industries, which is still preparing to launch high-speed 4G Internet services, into the voice market would intensify competition and hurt rivals such as Bharti Airtel and the Indian unit of Vodafone Group. Reliance Industries shares extended gains to as much as 1 percent after the news, while shares in Bharti Airtel, the country’s top telecommunications carrier, were down nearly 1 percent at 2.50 pm. The Telecom Commission, the highest decision-making body within the ministry, approved the move on Monday, but it must to be formally signed off by the Telecommunications Minister, Chandrashekhar said. Voice accounts for almost 85 percent of Indian carriers’ revenues, while data is still at a nascent stage. Data services contribute just about 5-6 percent of the total mobile services revenues as fewer people browse the Internet on phones. Reliance Industries was not immediately available for a comment. Separately, the Telecom Commission deferred a plan to bring tower companies under the Unified Licensing regime, which is positive for companies such as Bharti Infratel . If brought under the regime, the tower companies would have to pay an annual licence fee of 8 percent of their revenue and would be required to cut foreign shareholding to 74 percent. Currently the companies pay no licence fee and a foreign shareholder can own as much as 100 percent of their equity. Source: Firstpost

CEC recommends mining to restart in Karnataka

Taking into account the acute shortage of iron ore, the Central Empowered Committee (CEC) has recommended to the Supreme Court to consider permitting resumption of operations in all “Category-A” mining leases in Karnataka where mining has been suspended. The CEC also said the court “may consider permitting resumption of mining in ‘Category-B’ leases subject to the conditions as applicable for resumption of operations in the ‘Category-A’ leases and compliance with certain additional conditions.” It said: “in compliance with this court’s order dated September 28, 2012, the lessees will be required to pay, if not already done so; compensation for the area under illegal mining pits, illegal overburden dumps, roads, offices etc; undertake to pay the additional compensatory amounts, if held liable; guarantee money for implementation of the Relief and Rehabilitation (R&R) plans and deposit 15% of the sale proceeds of the existing iron ore sold by the monitoring committee.” Further, the CEC said that before starting mining operations they must implement the R&R plans for the areas found under illegal mining pits, and complete illegal overburden dumps, etc. to the satisfaction of the monitoring committee. It said: “The CEC / monitoring committee may be authorised to remove and sell through e-auction the sub-grade iron ore available in the existing overburden dumps in and around the lease areas, subject to the condition that such removal and sale is not likely to have significant adverse impact on the existing tree growth/ vegetation and /or stability of the overburden dumps. The monitoring committee may be authorised to retain the entire sale proceeds in respect of the dumps located outside the sanctioned and presently valid lease areas for the purpose of transfer to the Special Purpose Vehicle for the implementation of the Comprehensive Environment Plan for Mining Impact Zone (CEPMIZ).” The CEC made this recommendation after considering the progress of the lease-wise R&R plans and the inadequate availability of ore for the steel and allied industries. “In view of the acute shortage with regard to the availability of the iron ore for the steel and allied industry, this court may consider permitting sale of sub grade iron ore from the existing overburden dumps provided (a) the iron ore is of 45% Fe and above and (b) the extraction of sub-grade iron ore will not have significant adverse impact on the stability of overburden dumps and /or the vegetation.” Source: TheHindu

Petrol prices hiked by `1.50/litre, diesel `0.45/litre

Shares of oil marketing companies (OMCs) gained momentum in early trade on Monday after the petrol and diesel prices were hiked by Rs 1.50 per litre and 45 paise respectively last week. The first hike in petrol price in over three-and-a-half months and the second rise in diesel rates in one month exclude local sales tax or VAT and the increase for consumers at petrol pumps would be higher. According to reports, even after hike in last two months, the OMCs will continue to lose Rs 10.27 a litre on diesel as cost of raw material has risen by 4 per cent to $113.24 per barrel. "The hike in diesel price was in line with our expectations as government had permitted OMCs to make small price hikes in prices of diesel. Going forward, we expect the government to progressively raise diesel prices during CY2013 and CY2014, which is expected to result in lower subsidy burden for OMCs and upstream oil companies," said Angel Broking note. "The petrol price hike is not expected to have any impact on under-recoveries. We maintain our Accumulate rating on ONGC with a target price of Rs 357." At 09:35 a.m.; the HPCL was at Rs 315.60, up 1.77 per cent, the BPCL was at Rs 385.10, up 1.30 per cent and IOC gained 1.62 per cent to Rs 320 in a lackluster trade.  The Sensex was at 19,486.46, up 18.31 points or 0.09 per cent. It touched a high of 19,512.44 and a low of 19,462.92 in early trade. Source: Business Times

Mahindra Satyam buys 51% stake in Brazilian firm Complex IT

IT services firm Mahindra Satyam (MSat) has acquired 51 per cent stake in Brazilian SAP consulting firm Complex IT for an estimated $23 million. The deal is expected to be closed by next month. Sources said, MSat is likely to make an upfront payment of $6.5 million in cash and the total payout may go up to $23 million, based on Complex’s earnings over the next 18 months. Brazil is the second-fastest growing geography globally for SAP. Software revenues from SAP AG grew 20% last year. As per estimates, the current IT spend in Brazil is approximately $70 billion, with $36 billion being spent on services and software. Following the acquisition, both MSat and Complex will be going to market with proprietary solutions for large manufacturing, financial and consumer services companies. Complex IT’s turnover stood at $50 million last year . “This combination of Complex and MSat strengthens our commitment to the Brazilian market, which is one of the fastest growing enterprise solutions markets. We look forward to expanding our market presence and offer global delivery capabilities to our customers,” said Arvind Malhotra, Global Head, Latin America & Strategic Accounts, MSat. As Brazil is gearing up to host FIFA 2014 and Olympics 2016, it is likely to give impetus to an already rapidly growing IT services market. “The BRICS countries have the potential to achieve a leadership position in the global economy and we believe that MSat and Complex will contribute significantly to this strategic vision,” said Antonio Rossi, Chairman & Chief Executive Officer, Complex IT. Source: Newindiaexpress

KEC wins orders worth `646cr 

PTI reported that Engineering and construction firm KEC International said that it has bagged orders worth INR 646 crore for its transmission and cable businesses. REC said that “The RPG Group company has bagged orders worth INR 559 crore in the transmission business both in domestic and international markets. The remaining INR 87 crore contract is in the cable business here.” The company bagged 2 orders from Power Grid Corporation in the transmission business aggregating to INR 291 crore. The first order worth INR 173 crore includes supplying and erecting of 765 kV single circuit transmission line between Varanasi Balia in Uttar Pradesh on turnkey basis. The scope of the second contract involves supply and erection of 220 kV and 132 kV transmission lines in Jharkhand. The company has secured INR 189 crore order for supply and erection of 400 kV double circuit transmission line from Rangampet to Gajwel in Andhra Pradesh on turnkey basis from state-run transmission firm APTransco. KEC’s overseas subsidiary SAE Towers has secured a contract of INR 79 crore for supplying lattice towers and poles to the United States, Mexico and Brazil. In its cables business KEC has bagged INR 87 crore orders for supplying power and telecom cables. Source: Steelguru