Havells

http://www.thehindubusinessline.com/features/weekend-life/the-shocking-rise-of-havells/article4171177.ece

Fun in Raising Prices???

Q. Being a government company and the biggest in the sector, are you in a better position to get coal compared to other power companies.
We always get much less than what we require. But our supply has grown. Our requirement for the current year is 160 MT. The CIL Chairman has assured us that NTPC will get 10% more coal over last year's supply. Fuel Supply Agreements (FSAs) are in place for meeting this coal requirement. We have no dispute with Coal India on the issue of FSAs. But the fact remains that India is producing around half a billion tonne of coal every year and we need to double our production. What is the fun in increasing profitability by raising prices? Productivity must be increased if business is to be done.

Arup Roy Choudhury, Chairman and Managing Director (CMD) of the country's largest electricity producer NTPC

If you have bargaining power, it is definitely a lot of fun to raise prices. The productivity enhancements can be the kickers. Growth has to come from both volume and pricing power.

CIBIL Report - what it contains

In your credit report, here are a few areas lenders focus on.

Payment History: This appears in the Account(s) section of your CIBIL credit report.

There are two parts to this information: the Days Past Due (DPD), and the month and year of payment. The DPD indicates how many days the payment is late that month. Obviously, anything other than "000" is considered negative.

Up to 36 months of this payment history (with the most recent month displayed first) is provided in this section.

Current Balances: Also appearing in the Account(s) section of your credit report, the current balances on various loans indicate the depth of your debt. The sum of your current balances helps determine your strength to take on additional debt in relation to your current income.

Naturally, lower the current balance, better the chance of your loan getting approved.

New credit facilities: If a loan provider observes that you have recently been sanctioned a number of new credit facilities, it would mean that your monthly outflow in terms of loan repayments is likely to have increased. Hence, it may be viewed negatively.

Number of new enquiries: If you have applied for a number of loans in the recent past, the chances of your loan getting approved are likely to suffer. Simply because such credit behaviour indicates that you are 'credit hungry' and are in urgent need of money.

By understanding how banks think, you can not only complete a lending application that will showcase your strengths better but you can also pre-qualify for loans by lenders based on their lending criteria.

This will reduce the number of attempts you make to qualify. Fewer attempts at the doors of various lenders for getting loans reduce the short-term damage to your credit prospects.

Ensuring that your 'reputation collateral' is reflected accurately will provide you with access to credit faster and on better terms.

Why FDs rated hgiher than NCDs

http://www.thehindubusinessline.com/features/investment-world/money-wise/article3901228.ece

If you are investing in a debt instrument, you need to check not just the interest rate but the credit rating too. But did you know that fixed deposits (FDs) and non-convertible debentures (NCDs) issued by the same company may have a different risk rating? Rating agencies may give a higher rating to an FD scheme from a company, despite its NCD being rated a notch lower or vice-versa.

But, why is it so? Well, industry and company specific risks hold good for all investors, irrespective of the instrument. That said, there are few factors that could lead to the differing ratings.

Time factor

The first one is tenure. Given that all businesses can go through cycles, risks for the same company may vary across time. If a rating agency thinks a business has higher uncertainties over the medium or long term, ratings for longer term instruments may be different from short term ones.

For instance, if the medium term outlook for a company looks promising, then rating agencies may consider a higher rating for FDs. However, assuming that uncertainties loom large for the company over the longer time frame, rating agencies may take a cautious stance while assessing long-term instruments such as NCDs and bonds.

Two, there can also be differences between credit ratings on instruments with the same tenure. The underlying security is one factor here. Instruments backed by collateral may have a better rating, when compared to unsecured ones. This is because the risk of default is hedged to the extent of the underlying security.

security

But mere collateral may not suffice. Quality of the security also matters. For instance, fixed deposit issues by NBFCs are backed by investment in government securities to the extent of 15 per cent of the receipts. In contrast, NCDs are usually secured by the company's receivables. Though secured, you may still run the risk of bad debt with receivables. Hence, rating agencies may give higher weight to the fixed deposit scheme by an NBFC than its NCD.

Instances of such divergent ratings across instruments are common with NBFCs. Sundaram Finance is a classic example. The company's FD has been rated as FAAA by Crisil, a leading rating agency, while its NCD has been rated one notch lower at AA+ (plus). Other NBFCs with a similar trend include Mahindra & Mahindra financial services (MMFS) and Shriram City Union Finance (Shriram).

MMFS's FD has been rated as FAAA by Crisil, while its NCD has been rated at a lower grade AA+ (plus). In the case of Shriram, its FD carries a FAA rating, higher than its NCD rating of AA – (minus).

According to Crisil, FD issues are rated better as they attract higher retail participation. Being retail in nature, the ticket size of the issue may be relatively small, unlike NCDs. This may cushion the issuing company from the refinancing pressure, at the time of maturity. Simply put, all the investors are unlikely to pull out at the same time.

This is in contrast to NCDs, which as a category are largely aimed at institutional investors.

In Crisil's view, a fair amount of fixed deposits get renewed and this strengthens the case for a better rating. However, given the medium-term rating scale for these instruments, it makes sense for you to look at the NCD rating for the issuing company too. This can throw light on the long-term concerns that the rating agency has for the company you invested in.

Luminous - Lack of management bandwidth leading to lower margin - A real risk

The revision in outlook underlines the Luminous group's lower-than-expected profitability estimated in 2011-12 (refers to financial year, April 1 to March 31) because of writing of an extraordinary expense of Rs.650 million as a one-time adjustment done in the books of account. In 2011-12, the group has incurred an estimated net loss of around Rs.283 million as against CRISIL's expectation of a healthy profitability. The Luminous group's operating margin in 2011-12 is also estimated at weaker-than-expected levels; the group's operating profitability is estimated at around 5.8 per cent in 2011-12, lower than the operating margin of around 9.4 per cent in 2010-11. This is because of the decline in the Luminous group's market share in the first half of 2011-12 because of limited management bandwidth available in the first quarter of 2011-12 as the acquisition by Schneider Electric South East Asia (HQ) Pte Ltd (Schneider) was underway, and also because of the relatively cooler summer season leading to a fall in the overall demand.

More power woes

Hyderabad April 30: 

The Rs 1,500-crore ferro alloy industry in Andhra Pradesh, which accounts for 30 per cent of the country's total production, has slashed production by almost 40 per cent, impacting steel makers in this region.

This comes in the wake of a hike in power tariff by the State Government and prolonged power cuts in the last few days.

The AP Electricity Regulatory Commission has effected a nearly 50 per cent hike in tariff, increasing it from Rs 2.65 a unit to Rs. 3.65 for the ferro alloys sector with effect from April 1.

The ferro alloy producers will be meeting in Hyderabad on May 9 to decide on whether to appeal before the appellate authority of the commission. In the meantime, the production cut will continue, industry sources said.

There are 30-odd companies in the State producing 2.5 lakh tonnes of ferro alloys, a bulk of which are located in Visakhapatnam and Vizianagaram districts.

The 50 per cent hike in power tariff has increased production cost by Rs 4,000 a tonne for ferro chrome and ferro manganese and Rs 9,000 for ferro silicon.

Production of ferro alloys, a vital input for the steel industry, is power-intensive, with energy constituting between 40 per cent and 70 per cent of the production cost. Power consumption is about 4,000 kwh per tonne for ferro chrome and silico manganese and 9,000 kwh for ferro silicon.

"We could have taken a 20-25 per cent hike, but this increase makes the industry unviable, as we have to compete with suppliers from other States that enjoy cheaper power," Mr R.K. Saraf, CMD of Facor Alloys Ltd, and President of AP Ferro Alloys Producers Association, told Business Line.

This development could discourage the proposed investments of Rs 5,000 crore by this sector in Andhra Pradesh, involving a new capacity of 2.5 lakh tonnes.

Production cost is also high as 95 per cent of their raw materials has to be sourced from outside the State. "For one tonne of ferro chrome, we need 2.5 tonnes of chrome ore. Transportation cost of the raw material alone is Rs 5,000 a tonne," Mr Saraf pointed out.

Impact of Power Cuts

Hindu Business Line Hyderabad, May 6: 

Restile Ceramics Ltd, a manufacturer of ceramic tiles, has announced closure of its factory due to inadequate power supply.

In a statement to the stock exchanges, the company mentioned that it was forced to take this extreme step due to erratic and inadequate supply of power.

While the company has made representations for better power supply, there has been no exemption from power cuts.

In the BSE statement , Restile said: "Central Power Distribution Company of A.P. Ltd has imposed compulsory power holiday for two to three days in a week. This is in addition to three hours of power cut on daily basis for the rest of the week days."

The company representations to the Distribution Company to exempt it from compulsory power holiday citing the ceramics industry's need for continuous power, have not been successful.

Due to the precarious power supply situation, the distribution company was not in a position to exempt the company from power cuts.

Under the circumstances, the company management stated that it had no other option but to declare a layoff with effect from April 12.

Consequent to this layoff, the company stated that the workers were not allowing dispatches of existing stocks available in the company. Due to these developments, the company has temporarily declared lock out with effect from April 23.

The plant, with a capacity of 12,000 tonnes a year, is located in Medak district .

vrishi@thehindu.co.in

Nice Thoughts

"The danger of Board management, against which
one has to be on one's guard, is lest one should succeed in persuading the Board
rather against its better judgement in the first instance, and then have to suffer the
penalty of their faint-heartedness at a later date, just when the virtues of continuity
of mind are most required if one is to be successful in the long run"

Credit cycling means
in practice selling market leaders on a falling market and buying them on a rising
one and, allowing for expenses and loss of interest, it needs phenomenal skill to
make much out of it

As time goes on, I get more and
more convinced that the right method in investment is to put fairly large sums into
enterprises which one thinks one knows something about and in the management
of which one thoroughly believes

Keynes also thought in a novel way about equity valuation. For example, he
estimated the value of Austin Motor shares in terms not only of earnings yield but
also of market capitalisation per car produced and estimated that Austin traded at a
67% discount to General Motors in October 1933

"Buying is forward-looking and selling is backwardlooking.
We tend to consider what a new stock will do for the portfolio and what a
current holding has done. This makes buying a more hopeful activity, focusing on
the future and what good might come from owning a stock, whereas selling can be
full of regret as we ponder the poor choice we made or that we held on too long"

when buying, investors consider the past
only inasmuch as they believe it is informative about the future, but when it comes
to selling their focus is heavily on the past and many investors, seeking to minimize
regret, sell winners too early and hold on to their losers

Tea - Economics

http://www.thehindubusinessline.com/companies/article3317925.ece

I never understood what power factor was finally I did - simply its pure wastage :)

The effects of power factor.

 
Consider a canal boat being pulled by a horse. If the horse could walk on water then the angle (Phi) Ø would be zero and COSINE Ø=1. Meaning all the horse power is being used to pull the load.
However the relative position of the horse influences the power. As the horse gets closer to the barge, angle Ø1 increases and power is wasted, but, as the horse is positioned further away, then angle Ø2 gets closer to zero and less power is wasted

Ceramic tiles - nice article

anuary 30, 2012:  

Recent labour troubles dogging Regency Ceramics have brought to light the divergence in performance between listed tile companies. Kajaria Ceramics, with a 58 per cent gain in its stock price in one year, is among the top performing stocks in the listed space. But Regency Ceramics has lost 37 per cent to languish at Rs 4.2. Why the difference?

Their underlying financials provide some explanation. Kajaria Ceramics has delivered a 34 per cent increase in its net profits in the nine months ended December 2011, while recording an operating profit margin of 15.4 per cent, on sales that were up 40 per cent. Regency Ceramics continued making net losses in the first six months of this fiscal, with operating profit margins at 2.5 per cent.

So, what has contributed to the big difference in fortunes for tile makers?

Ceramic vs vitrified

A primary factor has been the player's sales mix — whether it consists of ceramic or vitrified tiles. While growth in ceramic tiles has been lacklustre, vitrified tiles have recorded a strong growth in demand as well as realisations.

Of the major categories in flooring options for buildings — vitrified, ceramic and marble — vitrified tiles is the category that witnessed the highest demand growth in the last five years. Demand here has grown at a compound rate of 16 per cent annually. Higher durability and easier maintenance compared to both cheaper options such as ceramic tiles and dearer ones such as marble have helped this category cash in on the steady demand for construction material. The cheaper ceramic tiles have seen demand grow at only 8 per cent annually in the last five years.

Better demand, price

Players who entered vitrified tile manufacturing or expanded their presence in this space through expansions or acquisitions over the last three years have benefitted the most from this trend. Kajaria Ceramics (10 million square metre since 2010), Asian Granito (addition of 5.11 million square metre since 2007) and Somany Ceramics (2.45 million square metre in 2010-11) are the instances. These players have grown their sales at 20-30 per cent annually in the period, much higher than the industry average. Smaller manufacturers such as Bell Ceramics and Regency Ceramics who grappled with capacity constraints and were unable to add vitrified tile capacity, lost out on growth opportunities.

Presence in the vitrified tiles segment supported sales growth through increased realisations too. Nitco Tiles, a key player in the vitrified tiles market, has seen its realisation in this segment jump by 28 per cent in 2010-11. In ceramic tiles, the realisation increase was only 2 per cent; while marble tiles saw a realisation drop of 14 per cent.

Trading trims margins

A second big differentiator which decided profit margins of players was the proportion of own manufacture to trading.

Of the number of players who sell vitrified tiles in the Indian market, only a few own manufacturing facilities; others import products from China and simply market them. Apart from the import price, traders cough up customs duty at 10 per cent and anti-dumping duty at Rs 137/square metre. A weak rupee obviously adds to costs.

Sample this: Both Nitco Tiles and Kajaria Ceramics sell vitrified tiles. However, while Nitco relies, to a significant extent, on imports from China, Kajaria Ceramics manufactures a significant portion in-house. The operating level profit margin of Nitco Tiles is 8 per cent while that of Kajaria Ceramics' is 13 per cent.

Operating profit margins vary between 4 per cent and 18 per cent between players in the industry. While proportion of trading income in sales is a key determinant of profit margins, other inputs used in manufacture — domestic or imported and the fuel used (propane or natural gas) — alters margins. Kajaria Ceramics replaced high-cost fuel propane with natural gas at its Galipur unit in Rajasthan in May 2010 and has since seen a jump in profitability.

Regency Ceramics, on the other hand, has been facing cost pressures on two counts — the higher cost of imported vitrified tiles and the increasing cost of fuel in its manufacturing operations.

some interesting news

Interesting Sandwich
http://www.thehindubusinessline.com/companies/article2806045.ece
"We are under pressure from both the depreciating rupee (imports) and an appreciating yen(exports). This is the third time prices have been raised in 2011-12 — April, October and now January," Mr Sandeep Singh, Deputy Managing Director for Marketing, Toyota Kirloskar said
- Low market sentiments, cant raise the end product prices to keep in line with RM costs
- Localization on the diesel engine front
- For instance in India, we have an FTA with Thailand and components come at zero per cent import duty. Hence, localisation is not encouraged. Companies resist localisation as long as import duty is low

Race to buy BG stake in Gujarat Gas
http://www.thehindubusinessline.com/companies/article2811672.ece

Gail has exited due to valuation concerns, now only Adani and GSPC for Gujarat Gas stake, however the exit of state owned GAIL and IOCL from the bidding race, would also put pressure on GSPC to take an exit due to valuation reasons. So Adani is the only strong player left. But the biggest gainer in the entire process is British Gas which has maid 19 times returns (on an investment of INR170cr valued now at INR3250cr) in 1997, a CAGR of 22%, quite amazing. But at that time who would have though of city gas distribution to be such a good economic business. Well BG did think and has made strong returns.
I think the business enjoyed certain advantages till the gas was suffciciently available which were as follows
1. Cheapness as compared to petrol and diesel
2. Domestic gas was easily available and even RIL gas was there and lower dependence on imported costly LNG
3. Network exclusivity and marketing exclusivisity provided near monopoly
4. Preference for people to opt for diesel cars as the differential between the diesel prices and CNG prices have continued to narrow down
5. I personally would not want to stand in queues at filling stations which is normally the case with CNG stations, i would rather prefer to get a diesel car and get it filled immediately.

But as the domestic gas becomes less easily available, the margins are under increasing pressure and would be until cheap domestic gas finds its way, which seems difficult given the fact that Reliance is contesting for higher gas prices and ONGC on new discoveries is allowed to market determined rates. The lowering price differential between diesel and CNG, all make a strong case for BG to exit, but why Adani wants to buy the stock at current valuations which seem rich is a question mark?

Long term thinking always helps
http://www.thehindubusinessline.com/industry-and-economy/article2811737.ece

Fuel availability emerged the biggest risk faced by thermal power projects in India. Coal production has not kept pace with capacity addition and developers have been forced to import at a time when international coal prices have soared. The domestic power supply situation has deteriorated significantly and nearly 51 per cent of the coal-based projects are operating with less than seven days' stocks.

I was just going through past articles on coal shortages, the momentum of coal shortage gaining media space gained pace after coal India IPO particularly, because until then the coal Indai production numbers and managemnet was not accessible and hence everyone believed that we had sufficient coal reserves so mining it out should not be a problem. The other problem was the no-go classification which hampered mine development. So all within a span of 2 years, a problem which was not widely discussed in the media or at the government level, becomes so chronic that it is now touted as the major problem.

Why this Gas Merchant Power Plants Why this Gas Merchant Power Plants di?
The govt. has always come hard on merchant power developers, now in a recent meeting, it was mooted that gas supplies to merchant power producers should be stopped if they are not on long term basis. That generally happens when you have a scare resource, the benefit of which should be passed on to the end consumer. But this resrouce was not so scarce till FY11 since RL had not led the investors know that production would decline substantially due to "Reservoir Complexities" - a pseudonym for saying "We wont produce until you raise prices"

Sukam Joins Hands for Diesel Gensets
http://www.thehindubusinessline.com/companies/article2798740.ece

Finally something on subsidy sharing

http://business-standard.com/india/news/crude-price-cap-for-ongc-oil-mooted/462276/

I think its a great step from a valuation perspective because modelling would be far more easier. I think it is only fair to cap the realizations at $60/bbl because the average realizations have been in this range for ONGC over the past 4 years.