Shares of Indian companies with key markets in Europe such as Tata Steel, Tata Motors, Bharat Forge, Motherson Sumi and Crompton Greaves have crashed by as much as 19% since mid-September on concerns their earnings may get adversely affected by the slowdown in the region.
However, analysts say investors should buy some of these stocks. “We are positive on companies such as Tata Motors, Bharat Forge and Motherson Sumi,” said Devang Mehta, senior vice-president and head of equity sales at Anand Rathi Financial Services. “We would like to advise investors to buy these companies on declines as they have been showing consistent earnings performance over the past few quarters and are expected to maintain so, going ahead.” Shares of companies like Tata Steel, Bharat Forge dip on backdrop of slowdown in European markets Mehta said more clarity is needed on how companies such as Tata Steel and Crompton Greaves are reducing their debt. The Crompton Greaves stock has slumped about 19% since mid-September and has underperformed the BSE capital goods index,which was unchanged over this period. The company generates about 20% of its consolidated revenue from Europe. Tata Steel, with one of the highest exposures to the European region, has cracked 11% compared with an 8% drop in the BSE metal index.
The company’s UK subsidiary, Corus, contributes 57% to the topline and 20% to operating profit. While Bharat Forge has plunged 14% and Motherson Sumi over 7%, the BSE auto index has remained unchanged. Bharat Forge gets 16-18% of its consolidated revenue from Europe. “Companies which have high earnings exposure to the European region have come under pressure of late as the dollar has appreciated significantly against the euro and many of these companies have dollar-denominated contracts,” said Pankaj Pandey, head of research at ICICI Direct.
“However, we have ‘buy’ rating on Tata Motors and have a positive stance on Motherson Sumi as these companies are likely to benefit from domestic recovery, while we have neutral rating on Tata Steel.”
Global investors are betting that the European Central Bank will soon announce a stimulus package to revive economic growth in the region, which can be a positive for Indian companies. “There is softness in the European economy, but there is talk of a stimulus package by the European Central Bank, which can dramatically change the situation and stocks can bounce back sharply,” said Dipen Shah, head – private client group research at Kotak Securities.
“Investors should wait for some more time before taking a call on these stocks and one should also remember that the Indian economy is showing signs of a pick-up, which may contribute to the earnings of these companies,” Shah added.
Analysts said investors should take company specific stances while making investment decisions because not all of Europe is slowing down. “One should not paint all the companies that have European exposure with the same brush as the slowdown in southern Europe is more pronounced compared with the northern region. The United Kingdom is still growing,” said Ajay Bodke, head of investment strategy & advisory at Prabhudas Lilladher.
(Source: The Economic Times, October 28, 2014)
NO PREFERENCE FOR LOCAL COMPANIES IN OIL PSU CONTRACTS
NEW DELHI: In a big boost to managing costs and bringing latest technology in projects of state firms, the oil ministry has abolished the decades-old system in which domestic suppliers would win contracts even if their price bid was up to 10% higher than a competing foreign offer.
The change in the policy, which was implemented to help domestic supplier grow, will have a direct bearing on planned expenditure of Rs 421,229 crore on various projects of state-run oil and gas firms between 2012 and 2017, officials said. The government thinks that the policy of “price preference” has served its purpose as domestic suppliers have had adequate exposure to international competition, and they should now stand on their own feet.
This move is in continuation of recent policy reforms announced in oil and gas sector to global private investments that included deregulation of diesel prices and raising the price of domestic gas, government and industry sources said.
The policy of price preference was formulated in May 1984 and continued in one form or other despite stiff resistance by state oil companies, sources said.
Companies, particularly ONGC, Gail India and Oil India were against allowing price preference to domestic vendors to ensure level playing fields, sources said.
The oil ministry has taken a “considered decision” to do away with the existing price preference policy after a wider consultation, an oil ministry official said. The oil ministry also took the opinion of the finance ministry, which said that “the current formulation of price preference is not conducive to a competitive and efficient bidding environment”, the official said.
“It has been ONGC’s experience that due to price preference policy to domestic bidder’s, participation by foreign bidders in ONGC’s International competitive biddings has reduced considerably, leading to restricted competition resulting in higher costs to ONGC,” a company executive said.
State oil firms’ investment outlay for 2012-17 is over Rs 421,229 crore and 67% of the amount is proposed to be spent for exploration and production of oil and gas. ONGC, which is India’s biggest energy explorer, is the biggest executor of oil and gas sector projects.
A GAIL India spokesperson said the company has discontinued the practice of giving price preference to domestic vendors over the global companies. “As far as its implications is concerned, the number of serious bidders will increase and it will generate better competition in the process,” the spokesperson said. The government had initially thought that the Indian industry required protection against the foreign giants. “It is felt that Indian industry now has a fair exposure of global environment and should be able to compete with their foreign counterparts successfully, without any further protection,” a government official said.
The scheme of price preference was formulated and renewed from time to time, when oil industry was under administrative price mechanism (APM). Though, even at that time, the policy of price preference resulted in additional costs to the oil companies, there was not much concern since the increased cost was being reimbursed to the oil companies under APM, the official said.
As APM is dismantled and market pricing is introduced for most of the petroleum products, there is no such reimbursement to the oil companies. State oil firms absorb increase the cost due to price preference policy, which often leads to cost overrun, the official said.
Executives in public sector companies said that some domestic companies took advantage of the price preference to bag contracts, but lack of competition discouraged them from completing their contracts on time, that led to project delays. ONGC strongly lobbied with the government to abolish the system.
“Under the new exploration licensing policy (Nelp), ONGC has to compete with other oil companies; domestic and international, to secure blocks for exploration. It will not be possible for ONGC to compete effectively with other E&P companies in the Nelp bidding process if it continues to provide price preference to domestic bidders,” an industry source said.
(Source: The Economic Times, October 28, 2014)
GOVERNMENT GEARING UP TO BRING IN BILL TO OPEN COAL SECTOR
NEW DELHI: The government is working overtime to start the auction of coal blocks and introduce a bill in Parliament by December as a follow-up to the ordinance that facilitates the sale and allows the coal sector to be opened up.
Guidelines for the auction will be framed by November and an inter-ministerial panel will be set up to do the groundwork, which follows the Supreme Court’s order scrapping coal blocks awarded to companies since 1993. The panel’s tasks will include identifying mines, segregating them for various sectors and appointing an official liquidator and a commissioner of payments.
The committee will have senior officials from the Ministry of Coal, the Central Mine Planning & Design Institute and the ministries of power and steel, a senior government official said. The government also plans to set up a Directorate General of Coal, on the lines of the Directorate General of Hydrocarbons for the petroleum sector, which will conduct the auction of coal blocks in a fair and transparent manner.
The Supreme Court last month cancelled the allocation of coal blocks, including those that have started production, after declaring them illegal. In 2012, the Comptroller and Auditor General of India had passed adverse comments against the allotments.
The official said the coal ministry will seek advice from the law ministry on the proposed amendments to two laws governing coal mining in the country — the Coal Mines (Nationalisation) Act of 1973 and the Mines and Minerals (Development & Regulation) Amendment Act of 1957.
The October 21 ordinance allowing commercial mining by private companies and the auction of coal blocks has to be converted into legislation in the winter session of Parliament, likely to start from November 24.The coal ministry has asked companies whose captive coal blocks were cancelled for details on the cost of land acquired by them and the machinery employed at mines.
If the companies fail to provide the information within a fortnight, the government will presume no cost has been incurred towards land and mine infrastructure.
According to the ordinance, the government will ‘e-auction’ all 204 cancelled captive coal blocks and 74 mines are expected to be put up for sale in the first round, likely in December.
(Source: The Economic Times, October 28, 2014)
CENTRE CANCELS SELECTION OF 6 GOVT BANK CHIEFS BY UPA
NEW DELHI: The National Democratic Alliance (NDA) government on Monday scrapped the selection of six chiefs of public sector banks, recommended under the United Progressive Alliance (UPA) regime, following a high-level panel finding irregularities in the process followed.
The probe into selections for banks such as Bank of Baroda and Canara Bank followed the arrest of tainted Syndicate Bank Chairman and Managing Director (CMD) S K Jain for alleged graft.
Earlier, the government had constituted a committee comprising Raghuram Rajan, governor of the Reserve Bank of India (RBI); expenditure secretary Ratan Watal; and the secretary for school education and literacy in this regard. “After the receipt of the report of the committee, the government decided to cancel the current selection process of CMDs and EDs (executive directors) of public sector banks. As a result, eight CMD posts and 14 posts of EDs will have to be filled up de novo,” said a statement by the finance ministry.
During the UPA regime, a panel headed by the RBI governor and including the financial services secretary had shortlisted CMDs for Bank of Baroda, Canara Bank, Indian Overseas Bank, Oriental Bank of Commerce, United Bank and Vijaya Bank. The names selected by the panel had been sent to the finance ministry for ratification by the Appointments Committee of the Cabinet.
But the government decided to scrap the entire selection process and fill these vacancies, as well as two others, through a fresh selection process.
Though the vacancy for Vijaya Bank is to come up in December, the selection was made in advance. Besides, the post of Syndicate Bank CMD fell vacant, after the arrest and termination of Jain over charges of corruption. The post of Punjab National Bank CMD is also likely to be vacant later this year.
Earlier, Finance Minister Arun Jaitley had written on this issue to both Rajan, who heads the appointment board that selects state-run bank chiefs, and Cabinet Secretary Ajit Seth, whose office processes all papers for the Appointments Committee of the Cabinet.
It was alleged some of the appointments processed towards the end of the UPA government’s term were questionable. In a letter to the finance ministry, Central Bureau of Investigation chief Ranjit Sinha had pointed to irregularities during the agency’s probe of irregularities at Syndicate Bank, sources said.
Sinha had apparently said Jain was appointed despite having “poor” appraisals in his confidential reports.
Candidates for such posts are selected on the basis of an appraisal of the confidential reports, followed by an interview (the marks for these are in the ration 70:30).
Earlier this year, the Central Vigilance Commission had refused to clear the latest list of EDs till it was provided a government clarification on the names.
(Source: Business Standard, October 28, 2014)
GOVT CHALKS OUT PLANS FOR MASSIVE SOLAR POWER PUSH
NEW DELHI: India is about to witness a massive scaling up of solar power capacity to 100,000 Mw, with Prime Minister Narendra Modi asking the ministry of new and renewable energy (MNRE) to prepare an action plan by November first week.
Aiming to reach this target in five years, before the next general elections, the government is expediting the work by directing states to identify suitable locations across terrains – deserts, wastelands, national highways, river banks and even over canals (as was done in Gujarat).
With Modi at the helm, as the chief minister of Gujarat, the state had become one of the largest contributors in the cumulative renewable energy mix of the country. At 900 Mw, Gujarat is still the largest contributor to the country’s total installed solar power capacity of 2,600 Mw.
The Bharatiya Janata Party’s election manifesto has also promised a considerable push to clean energy.
The target is five times the target designated under the Jawaharlal Nehru National Solar Mission (JNNSM), one of the key programmes of the earlier United Progressive Alliance government. Large solar projects similar to coal-based ultra mega power projects, solar parks, micro grids and solar rooftops – all would be a part of the project.
MNRE recently announced a draft proposal on bidding for solar projects worth 3,000 Mw – double the original target in JNNSM.
Officials said the total projected amount for this mega plan is Rs 1,00,000 crore for five years, with the per year amount falling to Rs 20,000 crore in two-three years when the price of solar power inches towards grid parity.
“The cost of gas-based power plants has gone up and with coal looking at fresh auctions; thermal power prices would also go up. The current price of solar power production is Rs 6.5 crore per Mw. So, with a viability gap funding (VGF) support of Rs 1 crore per Mw, solar is looking at parity with coal very soon,” said a senior government official.
The government, though, would look at all possible models – VGF, power bundling, state support – according to size and type of project.
The average cost of setting up a coal-based power plant is about Rs 3.5-4 crore per Mw and a gas-based plant Rs 5.5 crore per Mw.
MNRE is also setting up a single-window clearance agency to promote investment in solar power. “We have written to major banks in the country to increase their credit limit for the solar power sector. Also, multilateral agencies are also on board to design an investment road map for the 100,000 Mw target,” said a senior MNRE official.
MNRE has joined hands with PwC to prepare a report on the execution of the programme, which is likely to be presented to the clean energy enthusiast prime minister by November 4 or 5.
Government officials said agencies such as ADB, KfW, World Bank and US Exim Bank are already a part of the action plan.
Following the directions from the Minister of State for Coal, Power and Renewable Energy Piyush Goyal, the ministry of new and renewable energy is also approaching top 500 private companies and 50 public sector companies, to sign commitment for developing solar power and set a trend for the sector.
(Source: Business Standard, October 28, 2014)