Time for Capsules

I had seen the capsule brothers long time ago, nearly 6 months ago as i remember, but at that time i found better opportunities and hence decided against putting the money in these companies. I call these companies as brothers because both have exactly the same capacity, but one is a case of pathetic capital allocation while the other is a case of good capital allocation. Both the companies have a total capacity to manufacture 3.5Bn capsules a year, i guess this should be the critical mass required to set up a manufacturing unit as it is really difficult to find exact capacity among competitors. I will present a small comparison of the two brothers below.

1. The companies have starkingly different RoE, Medi-caps has an effective RoE of 6-7% while Natural capsules has an RoE of 18%. Thats a huge difference!! And as it turns out, the difference is partly about operational efficiency but majority cane be attributed to capital allocation. Medi-caps has Rs.44cr of its assets invested in mutual funds out of a total asset base of Rs.57cr and the best part is the market value of these investments is only Rs.27cr but the company refuses to mark it to market as it believes the fall is temporary in nature and hence is carrying it at cost price. Which essentially means the company is never going to give this money back to the shareholders and is going to put the free cash it generates in more such stupid mindless capital allocation activities.
2. The EBITDA margins of the companies have a difference of nearly 6ppt. Natural capsules reports an EBITDA of 27% while medi-caps has that number at 23%. A further look at the number reveals that both the companies in 2010, earned a gross margin of 4443 and 4487 per lac of capsules sold respectively. So no major difference here, the difference stems from the fact that the employees in medi-caps are paid much more higher than those in natural capsules. For every lac capsules sold, medi-caps pays Rs. 897 while natural capsules pays only Rs.567.
3. Similar is the case with power and fuel expenses, natural caps uses only Rs.537/Lac capsules while medi-caps uses Rs.639/Lac Capsules.
4. On an asset turnover comparison, both the companies generate 1.2 times the gross fixed assets, but the story changes at the net fixed asset level where in Medi-caps due to its 70% depreciated assets is able to show a higher net fixed asset turnover as compared to natural capsules. On the working capital front, Natural capsules scores a strong upper hand than medicaps, the company has been able to bring down its net working capital cycle to a negative region while for medi-caps it stands at nearly 40 days.
5. The best is the fact that Medicaps has shown a 6% CAGR over Fy08-10 in revenues and (-12%) CAGR over the same period in profits while Natural capsules has shown a revenue and a profit CAGR of 20% over the same time period.
6. One more sweetener to the entire thing is the fact that Natural capsules is planning to double its capacity over this financial year to 7.35Bn capsules while medi-caps still decides to put its money in mutual funds.
7. Both the companies are almost debt free with natural capsules having a leverage of 1.2 while medi-caps being completely debt free.

I believe in comparison to medicaps, natural capsules is a far far better company and is still cheap despite its recent run-up today of nearly 17-18%.

AlphaGeo

This one is the most wierd result, that I have seen till now, I have seen profits doubling, quadrupling, margins expanding, revenues falling but revenues falling to zero is truly amazing, how can a company not have any revenues in a quarter i.e. 90 days. Well the company i am talking about Alphageo, just reported some crazy numbers, they reported zero sales and hence a total loss of -5.4cr. The company is into collection of seismic data for exploration and drilling purposes. The comapny during January 11, 2008 was quoting at a price of 901 and PE multiple of 50!!! and P/B of 12!! and as it stands today the company is at a PE of ~11. I really would want to see how the market reacts to the zero revenue. As of today the price was up 2% and the stock was quoting at 202.

IPO Gradings and Market Performance

Mr. Buffett had once said, a company might be a brilliant company, but a bad investment which I believe is very true. The fundamentals of the company might be pretty strong, the company might generate a loads of cahs, have high returns on invested capital, low debt on books and a leader in its field of operations. But that does not make it a good investment. The above criterias just satisfies one of the three things that Graham had mentioned, i.e. thorough analysis. The other two criteria, namely the adequate returns and safety of principal are both guaranteed by the valuations at which the stock is being offered.

And the IPO gradings only take care of the first criteria, they leave out the other two parameters on valuations. That is the sole reason why there cannot be a correlation between the investment performance and the company performance. The very act of coming out with an IPO is akin to a bride getting ready for the marriage, she would obviously dress herself in the best possible way after all she is the bride. Similar is the case with the owners who come out with an IPO, they would want the best value for their shares, would dress the IPO nicely, will promote with all the rigor. The valuations of IPOs are generally on the higher end.

For example consider the company Aster silicates, whose price went from somewhere to nowhere. It came out with an IPO price band of Rs.112-118, went on to reach a high of Rs.255 and presently trades at around Rs.48/share. At the offer price band and post issue equity, the company had and PE of 37.7-39.7. The company is a commodity space with no entry barriers, and neither did the company had high Returns to justify such a high PE. The valuation grading commented nothing on this, and it is not supposed to comment. The valuation part is something what the brokerages had to take care of and most of them did it correctly.

I would have been more surprised had the results of the study thrown some correlation, because then SEBI would have come out and said, IPOs with high gradings have performed well. This would have given further leeway to companies to come out with higher valuations as the subscribers to the issue would obviously have something at the back of their mind which would jingle like "High grading=high fundamentals=Good stock performance".

If sebi is so interested in correlations, would it not make more sense to do a correlation between IPO gradings, brokerage recommendations and the stock performance as it would capture the true definition of investment.

For the article that prompted this post refer the link below

Sebi study finds IPO grading futile
http://www.business-standard.com/india/news/sebi-study-finds-ipo-grading-futile/412080/

Seasons Or Quarters

Today morning I received a forward from one my colleague, I could not help locate the similarities between the images in the mail and the quarterly results of the companies.

One Picture taken at different seasons!!
Lessons on Life




You cannot judge a tree, or a person, by only one season,
and the essence of who they are and the pleasure, joy and love that come
from that life can only be measured at the end, when all the seasons are up.

If you give up when it's winter, you will miss the promise of your spring,
the beauty of your summer, and fulfillment of your fall
Moral
Don't let the pain of one season destroy the joy of all the rest.
Don't judge life by one difficult season

I reproduce the last paragraph of the forward with certain modifications

You cannot judge a company, its management, by only one quarter,
and the essence of who they are and the returns, dividends and wonder that come
from that company can only be measured at the end, when all the quarters are up.

If you give up when its Q1, you will miss the promise of Q2,
the beauty of Q3, and the fulfillment in Q4.
Moral
Don't let the pain of one quarter, destroy the joy of all the rest.
Don't Judge company by one difficult quarter

I guess nothing summarizes value investment better than the above description of nature, buy when the market sees a fall and winter in the results to reap the benefits in summer and spring.

The Gods of the Copybook Headings

The Gods of the Copybook Headings - Rudyard Kipling

Kipling wrote this poem after his son was killed in World War I, a war that many Britons blamed on the greed of the bigwig industrialists whose factories profited from the war effort while in high-flown patriotic prose they promised a glorious victory and a paradisaical future to the men who went off to be slaughtered in the trenches. In this poem Kipling criticizes those who suspended their judgment and common sense and followed suit with idiotic policy because of such rosy promises of prosperity.

How similar is this poem to the present day markets... (Read the link after going through the poem)

AS I PASS through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.

We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."

On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

Some Notes:

“They denied that the Moon was Stilton; they denied she was even Dutch.” Stilton is a British cheese. The Dutch are famous for their cheeses.

“The Cambrian measures” are a part of the ocean off Britain that now separates it from Europe.

“Feminian Sandstones” are a building material used to construct medieval churches and, earlier, pagan temples.

“The Carboniferous Epoch” is an era of geological change that formed many of the mountain ranges of the world.

Parichay Investments - A Misinvestment

I came across a company recently called Parichay Investments as it has been new highs daily. So i got inquisitive as to what the business model is and what doest the company do. Well the first thing that came to my notice was the horrendous P/E of 533.46. I agree to the fact that Investment companies should not be looked on a P/E basis for valuation but on a P/B or market cap of investments. But on checking the balance sheet to my amazement, the company had no investments but all the funds raised were simply in loans and advances. The company still trades at a P/B of 6 which is very very high given the company has no fixed assets and nothing to say in terms of working capital. Now comes the most astonishing part. As of June 2010, the promoter holding was 74.94% out of a total shareholding of 12Lakh shares which would ~9Lakh shares. The promoters Omni Bagadiya has been selling shares in the open market crazily. Every day there is some disclosure on the company stating X no of shares sold. I wonder, why the promoter selling so heavily has not been taken as a negative or bad sign. To put things in perspective Omi Bagadiay had a holding of 8,10,730 shares which is ~67.56%. Now according to the latest disclosure available on BSE, he has only 57580 shares with him which means out of his 67.56% his shareholding is down only to 4.80% and this selling has been across the board with other promoters also selling a chunk of their shares, read as Anurag Agarwal and Ritu Agarwal.

How close eyed can the person buying the shares be. I would not blame the management as the person buying the shares is neglecting all the information available to him and betting on something totally virtual. When the capital gets eroded which certainly would, he would justify his stance by saying "The management were frauds and cheaters" but never will he say " I was blind", well that is how the human brain works, External Locus of Control. We tend to attribute things outside our own control as the reason for our problems.

Note: Instead of saying the investor I have used the word "Person buying the share" primarily because a person buying these shares is clearly neglecting the three requesite qualities for a purchase to classify as an investment and him as an investor, as highlighted by Mr. Graham

1. Thorough Analysis

2. Safety of principle

3. Guaranteed return

As is said, "Return of capital" is more important than "Return on Capital"

Cenlub Industries

Its been sometime since I posted something on the blog. Recently I came across this company called Cenlub industries.I will give some of the quick financials about the company over the period FY06-10

1. The company's revenue has grown by 17% CAGR over the time period, PAT at a CAGR of 14.59%, EBITDA at a CAGR of 18.92%. 
2. The margins were 12% in FY06 and now stand at 14% in FY10.
3. The PAT margins have remained almost flat at 7% over the period. 
4. The RoE of the company has also remained stable at 13-14% with the decrease in asset turnover being compensated by the leverage. 
5. The D/E ratio of the company stands at 44%. The leverage has increased from 1.1 to 1.4.
6. The company has reduced its working capital cycle from 2.6months to 1.9 months
7. Now a thing that strikes when we see the working capital cycle going down, PAT increasing, leverage increasing is why has the return on equity remained stable. The only reason being that the equity is not being deployed in business or part of the equity deployed, is not in productive resources as the business itself. A closer look at the balance sheet reveals the same. The % of assets in cash and bank balance, investments and loans and advances has increased from 25% in FY06 to 49% in FY10. 
8. The book value has grown from 1.31 in FY06 to 5.38 in FY10, registering a CAGR of 42% while the total assets has grown by 22% over the same period.The per share book value has increased from 13.18 in FY06 to 23.05 in FY10.
9. Over the past one year i.e over June 2009 to June 2010, the promoters have increased their shareholding from 31.09% to 35.45% and the promoters have purchased the shares at a price range of Rs. 19-21.

Valuation Parameters

1. The EV/EBITDA for the company stands at 4.72 at the market price of Rs. 27/share. 
2. The cash on books per share is Rs. 7.3 and including some listed and unlisted investments the value per share of cash and investments comes to Rs. 10.78/share.
3. The TTM P/E of the company stands at 9.55

Ok financial data is fine!! what does the company do? Its all in the name, Cenlub - central lubrication systems i.e exactly what the company does. As the plants and machines become more sophisticated and automatic to attain wider performance and better efficiency, it becomes absolutely necessary to go  for central lubrication system. These lubrication systems are supplied to power plants, steel plants and refineries. The company has also bagged good amount of order from public sector like BHEL and other private sector making turbines.

On the day I am writing this there is one more announcement, the promoters have bought another 4000 shares. As Mr. Lynch says.. promoters buying is always a good sign but promoter selling is not always a bad sign. The reason i got excited was not only because of the promoter interest, very good valuations but the fact that this company operates in the capital good space supplying its products to the power sector and has tremendous opportunity to grow given the massive power generation capacities that India plans to add over the next years.

Disclaimer: I have investment in the company.

Warren Buffett Second letter to Investors

The second letter from Warren Buffett.

Gas price computation

Quotes

Globally, coal began to supply more than 5% of all fuel energies around 1840, more than 10% in the early 1850s, more than a quarter of the total by the late 1870s, and one half by the beginning of the twentieth century…

The inertia of existing massive and expensive energy infrastructures and prime movers and the time and capital investment needed for putting in place new convertors and new networks make it inevitable that the primary energy supply of most modern nations will contain a significant component of fossil fuels for decades to come.

http://europe.theoildrum.com/node/6828#more

A barrel of oil contains 5.8 million BTU and can be purchased today for $77.00. But in natural gas, using today's price of $4.80 per million BTU, you can obtain the same quantity of energy for $27.85.

http://gregor.us/transition/cheap-is-nice-but-its-not-everything-natural-gas/#comments

Subsidy rates benchmark

But for arriving at the per kg NBS rates, the Department had benchmarked them to the IPPs of urea (for 'N'), DAP (for 'P'), MOP (for 'K') and sulphur (for 'S'), which were taken at $310, $500, $370 and $190 a tonne respectively at Rs 46-to-the-dollar.

Buffers (physical ones) are expensive to create and manage, and it is difficult to gauge how much

of a buffer should be carried. Buffers should be carried for supply disruptions rather than market

risk; market risk should be managed through other methods like long-term contracts and options,

etc. Oil pool (financial buffer) was prevalent earlier when prices were moving in a narrow range

and the Govt. was trying to manage retail prices, but it would be less prudent to leave this to the

Govt (and better to let market forces of supply-demand manage it).

The WPI index which is used as a measure of inflation in the country. The weightage of petrol and diesel in them is as follows 

Gasoline  - 89bps

Diesel   - 202bps 

Interesting articles on Shale Gas and future

http://www.consumerenergyreport.com/2009/06/19/how-much-natural-gas-to-replace-gasoline/

http://www.aspousa.org/index.php/2009/11/facts-are-stubborn-things-arthur-e-berman-november-2009/

Brokerage charges and Effective BUY SELL price

The following sheet is useful in determining the price at which one should exit a particular scrip in order to realize the effective rate as entered. What I mean essentially is when we buy a scrip there are charges we pay because of which the effective buy price goes up and when we sell the effective sell price goes down. In order to calculate the effective sell price, you should enter the desired rate in cell C5 and press the Calculate button.

The brokerage charges that I have accounted for in the sheet are as follows

1. Brokerage at 0.3% on value of trade [Change cell C4]
2. Service tax at 10% on brokerage charged [Change cell C12]
3. Education cess +other tax at 3% on service tax [Change cell C13]
4. Exchange levy charges @.00357% of value [Change cell C14]
5. Transaction tax @ 0.125% on value rounded to nearest integer [Change cell C15]
6. Stamp duty @.01% on value [Change cell C16]
7. Demat Debit charges [Change cell C32]

The Cell E10 will give you the effective sell price in order to realize the effective desired rate of return.

Cell E13 gives the nominal price exclusive of brokerage at which you should cell to realize the desired rate of return.

You can view the excel file Here

Hope the sheet helps you!!

Retail cost of opening a new store

The investment per hypermarket would be around Rs 16 crore, while it would be Rs 40 lakh per supermarket, Varghese said.

White certificates to trade energy

http://www.thehindubusinessline.com/2010/05/03/stories/2010050351900100.htm

fertlizer

http://www.jstor.org/pss/4397732

Fertilizer pricing

http://expenditurereforms.nic.in/fersub.pdf

 

fertlizer link

http://www.iffco.nic.in/applications/iffcowebr5.nsf/0/550d337ca0f21a1065256aa50039039d/$FILE/ltpolicy.htm

Concept of Capacity Index

The concept of Capacity Index ensures use of storage type hydro generating stations during peak hours and discourages spillage of water in case of run of the river hydro generating stations.

The notional variable charge for the hydro generating station is the average least variable cost of the thermal generating stations in the region. This facilitates full despatch of hydro generating stations in merit order.

Under the current tariff system, actual operation of the plant is necessary to recover a capacity charge, whereas under the previous tariff, availability of capacity was used to determine the capacity charge. This meant that, under the previous system, the capacity charge recovered by a power generating station was tied to the amount of capacity available rather than based on the
actual operation of the plant. As such, even if there was insufficient water to enable a power station to operate at maximum capacity, the power station could still recover a capacity charge commensurate with the amount of energy that it would have been able to generate through operation had there been a sufficient water supply.

With NAPAF being used to determine the capacity charge under the current system, availability of capacity will no longer have the same impact on capacity charge. Instead, actual production will affect the capacity charge.

The Commission has decided to implement the concept of Capacity Index in place of 'Availability'. The basic criteria for Capacity index are :
a) Water spillage must be minimized
b) As far as possible, the peak capAvailability of a hydro station for any period shall be based on the
Capacity Index (CI) declared for the day. It is defined as follows :
Declared Capacity (MW)
Capacity Index = ------------------------------------------------ x 100
Maximum Available Capacity (MW)acity of each plant must be available when most required by the system.

http://cercind.gov.in/2612/operational.pdf

LNG Vs RIL - A good article

Poor infrastructure -- that bane of existence for most Indians and perpetually the weakest link in the country's chain of progress and development -- looks all set to also cut short its honeymoon with natural gas.

While the past year has been kind to the country's gas consumers, thanks to major new pipeline flows from Reliance's D6 block at agreeable rates and spot LNG prices falling back to the ground from their brief perch above $20/MMBtu in the winter of 2008/2009, disaster might be lurking just round the corner.

Why, you would ask, should the country be wanting for gas in today's global supply glut? The answer is simple: its pipeline network is maxed out.

Sure, some new transmission capacity will come up in 2011 with the addition of compressors and a parallel pipeline along the Hazira-Vijaipur-Jagdishpur arterial route serving the west and the north, but all of that is expected to be swallowed up by incremental flows from D6.

And sure, there is lots of new transmission capacity planned with billions of dollars in investment over the coming years. But nobody is holding his breath for it, what with the lack of clear policy on a national gas grid, in addition to regulatory opacity and financing hurdles.

D6 output, currently restricted to around 60 million cu m/day, is only waiting for next year's transmission capacity creep to leap to 90 or even 120 million cu m/day, according to sources. Yes, that's far higher than the 80 million cu m/day "peak" rate Reliance has been talking about.

There is talk of a game plan by the producer to flood and capture the market with its gas, even if that means a reduced plateau period and faster reservoir depletion. The government mandating fertilizer producers to move away from imported LNG to D6 gas helps, no doubt.

News reports mid-March of India courting its old friend Qatar and asking for up to 4 million mt/year of additional term supplies by 2013 over the current 7.5 million mt/year look very well on paper. The reality on the ground is there will be no pipeline capacity to evacuate that amount of gas.

Certainly not if Reliance gas continues to be available until 2014 for under $7/MMBtu at customer gate. Can term LNG, benchmarked to world crude prices, compete with freight, import taxes and regas costs stacked on?

No matter how much surplus Qatar has. Will it sell term cargoes at $5/MMBtu FOB to enable importers to compete with D6, notwithstanding the songs of friendship sung during oil minister Attiyah's March visit to India?

Probably not. So here's what we might see 5-6 years down the line: D6 is exhausted, there are no major new domestic gas sources on the horizon, the country's LNG importers have been all but snuffed out, and new import terminal projects have fallen by the wayside. Worse, world oil and gas markets have resumed their ascent to historic highs, while India is still struggling to accept market pricing for gas. Scary. And potentially disastrous.

The author is Asia News Director – Oil & Gas, Platts, a McGraw-Hill company. 

Vandana Hari article from Business standard

Punj Llyod exits Pipavav shipyard

"Interestingly, Punj is exiting at a price (Rs 50) lower than the IPO price of Rs 58. Yet it is also making a huge profit as it invested at Rs 27 a share, a merchant banker said. Punj shares closed at Rs 178.05 on the BSE, down by 3.86 per cent."

LNG

Natural gas is a colorless odorless liquid that burns cleaner and is used for heating, cooling and electricity apart from fertilizers and petrochemicals. The components of natural gas vary depending on the field, although regarded as a combustible fuel, NG in its natural occuring form is a complex hydrocarbon vapor which can be seperated by fractional distillation. The principal constituents on natural gas are as follows

C1 Methane, used for fueld and feedstock in power and fertilizer plants

C2 Ethane, Production of petrochemcials

C3 Proapne, Production of petrochemicals, LPG and industrial fuel

C4 Butane, Production of LPG

C5 Pentane and higher, prodcution of solvents

In India, the C3 and C4 fractions of natural gas are usually extracted in a Liquefied Petroleum Gas (LPG) extraction plant for making LPG. Typically, a 1:1 Propane-Butane mix is used for making LPG in India. After the extraction of the Propane and Butane streams (the process is called shrinkage of gas), the stream of gas (known as lean gas) is returned to the pipeline system.

However, at this point the calorific value of the gas is lower and could be as low as 8300 Kcal/ scm. The lean gas is rich in methane and accordingly used by fertilizer plants for producing ammonia from methane. While all fractions of the rich gas can be used by fertilizer and power plants, the value added to the C2, C3, C4, C5 and heavier fractions is greater when they are used for the production of LPG or when C2 and C3 is used for the production of petrochemicals

Natural gas may also contain moisture, hydrogen sulfide, carbon dioxide, nitrogen, helium, or other components that may be diluents and/ or contaminants. In any case, natural gas as produced is rarely suitable for pipeline transportation or commercial use. Natural gas in commercial distribution systems is composed almost entirely of methane and ethane, with moisture and other contaminants removed to very low concentrations. Although, internationally, there are no industry specifications for pipeline quality gas, each pipeline quality gas may impose other specifications parameters, depending on its system requirements.

Petronet LNG has tied up with quatar gas, for supply of additional 2.5mt of LNG at its Dahej terminal. I just wanted to understand what it means in terms of volumes of gas being transported. The conversion goes as follows

1 tonne of LNG = 2.17 metric cube of gas

2.5 million tonne of LNG =5425000 metric cube

Each carrier has a capaicty of 154800 per metric cube

which implies that to carry 2.5million tonnes the carrier has to take roughly 35 rounds.

The pricing of LNG is done as follows, japan is the major importer of LNG and hence the contracts are based on the pricing formula used by them for their contracts. The japnese LNG prices are based on the price of Japanese crude cocktail. Since India being a relatively undeveloped market, the contract that was negoitated was for a price of $2.53 based on the JCC price of $20/bbl, but from 1 Jan 2009, the price has been indexed to the actual JCC.

So the pricing works like this

JCC price : $20.bbl

FOB price of LNG: 2.53

Shipping charges:

Petronet LNG has contracted two ships of 138,000m3 for transport of LNG from quatar

Now 1tonne of LNG = 2.17m3 of LNG

Therefore 138,000m3 of LNG = 138000/2.17/10^6 mt of LNG = .063954 mmtpa

Now 1 mmtpa of LNG =50.9832tbtu (trillion btu)

so .063954mmtpa = .063954*50.9832*10^6 million btu

=3242377million btu

The charter rates for petronet LNG is $57900 per day and the route from quatar to india takes close to 15 days. Therfore the cost of 57900*12.5=$723750

hence the cost per mmtbu =723750/3242377 = 0.22/mmbtu

Port loading charges: .04/mmbtu

Transit insurance: zero

CIF price = 2.79/mmbtu

customs duty = 5.1% = 0.14/mmbtu

Regassifiacation charges: 0.57/mmbtu

Price ex-dahej :3.51

VAT@12.5% = 0.44/mmbtu

Markeing margin: .05/mmbtu

Pipeline tariff: 0.53/mmbtu

Service tax@10.3%=0.054/mmbtu

Regassification are the charges that are used by the company to cover for the debt service capabilities, fund O&m, income tax and provide returns to the equity investors with a provision to raise the charges by 5% every year. The company has port operation service contract with a singapore consortium. PLNG has signed offtake agreements with GAIL and IOC. GAIL has a diversified customer base with a large number of consumers spread across the glass, ceramics, chemicals, automotives, textiles, and steel industries, besides the power and fertilizer sectors—traditionally the largest consumers of natural gas in India. IOC has limited but high volume customers, with the company also consuming around 11% of its commitment under GSPC at its Koyali and Mathura refineries.The offtakers have been able to contract the gas with their customers only for a period of 10 years as opposed to their take or pay obligation of 25 years. Thus the offtaker faces the risk of non renewal of GSA beyond the contract period.

The joint payment service mechanism;

PLL and Ras gas have agreed upon a PSM, which envisages that the payments received from the offtakers would be divided into two accounts

· Fuel payment trust and retention account (FPTRA)

· Subaccount1: LNG charge account

· Subaccount2: Charter hire account

· PLL onshore trust and retention account (POTRA)

· Make statuary payments

· Meet o&M expenses

· Residual amount to be transferred to debt service account

· Residual cash would be available for appropriation.

With capacity utilisation of PLL’s plant being low in 2004-05, it could not absorb the high fixed costs of interest, depreciation and O&M, and posted a book loss. In 2005-06 however, as capacity utilisation improved, the company’s contribution, operating profit and net profit showed a significant improvement; this continues in the current fiscal. At its existing plant, PLL has a cushion to go up to an output of 6.3 MMTPA, considering its available regassification capacity (22.5 MMSCMD). To utilise its spare capacity, PLL has made its plant available on a tolling basis to offtakers for regassifying the LNG bought on the spot market. During the first quarter of 2006- 07, PLL handled one shipload of spot LNG, and subsequently, it has handled two more shiploads. The company earns regassification revenues of around Rs. 83.5 million for every shipload of spot LNG of volume 1,35,000 m3, which directly adds toThe company is in talks with Qatar, Oman, Egypt, Malaysia, Australia and Abu Dhabi in the United

Arab Emirates (UAE) for spot purchases its bottomline as the variable costs for tolling are negligible and the fixed costs are recovered through the existing regassification charges for 5mtpa

'The success in selling the entire stock of the first spot cargo bought by the company from Algeria has given us the confidence to go ahead with plans to purchase more spot cargoes of LNG,'company sources told IANS

Normally, countries inform one month in advance if any LNG cargo of three trillion British thermal unit (Btu), or equivalent of 80 million standard cubic metre (MMSCM) of natural gas, is likely to become available. On the basis of competitive bids, the spot cargo is sold.

West Coast: Qatar, Oman, Iran, Yemen
East Coast: Malaysia, Indonesia, Australia
Middle East is the preferred supply centre on the West Coast due to:

1. Large gas reserves
2. Transportation advantage
3. Existing markets
4. Pipeline and marketing infrastructure
5. Expansion potential

Producer prices payable to ONGC/Oil India Ltd (OIL) are fixed by the government, based on the principle of 15 per cent post tax return on capital employed.

Nice article on affordability of gas pricing

http://groups.google.com/group/oil-and-gas-india/web/different-gas-prices-in-sync-with-the-affordability-of-various-gas-consuming-industries-a-practical-approach-to-gas-pricing-in-india

ROE of S&P

http://www.pzena.com/uploads/images/2Q09/Figure-4-C.png

The annual rise and fall of railway stocks

As in each year, the share prices of companies whose business is related to the railways have started moving up, ahead of the latter's budget, to be presented on February 24.

The share prices of Kalindee Rail Nirman Engineers, Simplex Casting, Kernex Microsystems, Titagarh Wagons, Texmaco, Stone India and Hind Rectifiers witnessed a sharp rise of between five to 20 per cent in today's trading. Those of public sector companies like Container Corporation, BEML and Bharat Heavy Electricals witnessed modest gains: these, too, make products for the railways.

GATHERING STEAM SHARE PRICE ON BSE IN RS
Company	Price	% Rise
Hind Rectifiers	70.00	20.00
Titagarh Wagon	463.50	16.19
Texmaco	162.55	12.70
Stone India	71.90	10.00
Simplex Casting	88.05	9.20
Kalindee Rail	208.00	5.00
Kernex Micro	181.15	5.00
Price rise over Feb 10

"Over the past few years, there have been no negative surprises in the Railway Budget and expectations are high. Prior to the Budget, these stocks are safe bets, as only these companies get all the railway-related orders for whatever initiatives are announced in the Budget," said equity advisor S P Tulsian.

He said these stocks generally witness a sharp run-up ahead of the Budget and fall significantly after the announcements.

There was an up move of five to 28 per cent in these stocks in three trading sessions after June 20 last year, before minister Mamata Banarjee was to present her first budget on July 3, following the victory of the United Progressive Alliance in Parliament elections. The stocks cooled off significantly after the budget.

Kalindee Rail, involved in installation of signalling and telecommunication projects and execution of gauge conversion, gained nearly 30 per cent in 10 trading sessions and was trading at over Rs 500 a share, before then railway minister Lalu Prasad was to present the Budget in 2008. The stock, however, slipped to around Rs 350 within the next few days, post-Budget.

In 2008, Kernex Micro, involved in monopoly business of train anti-collusion dividers, gained around 45 per cent in 10 trading sessions from a level of Rs 160 to Rs 230. In the 10 trading sessions, post-budget, the stock slipped back to around Rs 155.

Prior to the 2007 Railway Budget, Kernex Micro had gained 17 per cent in the five trading sessions from Rs 145, and post-Budget, the stock was back to the same level. In 2007, Kalindee Rail had gained 23 per cent in 10 trading sessions from Rs 160 prior to the Budget announcements. The stock was again traded at around Rs 160 in the next three trading sessions. A similar pattern was witnessed in 2006 as well and stocks which had gained significantly prior to the Budget fell sharply.

Tulsian said the government had said it would spend Rs 3,500 crore on anti-train collision devices. But, a majority of the money is still unused and Kernex Microsystems is the only listed company in the country involved in this business. The cost rises over three-fold if these devices are imported.

Usage of Pipes in Drilling

Source: Edelweiss Research