Market to rally on govt confidence vote win

Market to rally on govt confidence vote win
23 Jul, 2008, 0600 hrs IST, REUTERS

Rupee and stock markets are expected to rise on Wednesday after the government won the confidence vote ensuring its immediate survival, with analysts expecting it could revive some of its stalled economic reforms. But economists expected rallies to be short-lived as concerns about inflation nearing 12 percent, high oil prices, slowing economic growth and rising interest rates are likely to return to the fore now the political uncertainty had faded.

"The markets will be relieved, and now that there is no uncertainty, investors will turn to the fundamentals, like inflation and oil and the global markets. Foreign investors will look at how further reforms take place," said Andrew Holland, head of the strategic risk group at DSP Merrill Lynch in Mumbai. "The stock market is likely to go up by 1-2 percent in the morning, then we will go back to the fundamentals, locally and globally." Ahead of the vote on Tuesday, which the government won by 275 votes to 256, the rupee ended at 42.73/74 per dollar, weaker than Monday's close at 42.68/69, but the 30-share index closed 1.84 percent higher at 14,104.20 points.

The stock market had climbed in anticipation of a government win for four days in a row ahead of the vote, rising off a recent 15-month trough of 12,514.02. American depositary receipts also rose sharply after the vote. The Congress-party led coalition won the confidence vote late on Tuesday with the help of regional parties, after splitting with its communist allies of four years, who pulled their support in protest at a nuclear energy deal with the United States. Analysts said the government should now survive until the end of its term, with elections due by next May, although its joy at the victory was tempered by opposition lawmakers saying they were offered bribes to abstain.

REFORMS

Analysts said the government could now try to sell stakes in some state-run companies to boost revenues as its finances worsen due to oil and food subsidies. Finance Minister Palaniappan Chidambaram said it would work with other parties to take reforms forward. The currency was also likely to gain with the political uncertainty out of the way and a revived reform agenda potentially bringing in foreign investment, economists said. "There will be a knee-jerk positive reaction in the currency market and the rupee may open at today's high of around 42.58 per dollar and may even test 42.50," said Agam Gupta, head of trading at Standard Chartered Bank. The rupee touched a 15-month low earlier in July of 43.50 per dollar, under pressure from a rising trade and current account deficit due to record oil prices. The benchmark 10-year bond yield ended at 9.12 percent on Tuesday, above Monday's close of 9.06 percent. It hit a seven-year high of 9.55 percent this month on concerns about inflation and a rising oil subsidy bill.
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Indian ADRs jump after govt wins confidence vote
US stocks jump as crude drops by $3
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Coverage

UPA wins: 275 for, 256 against

15 MPs cross-vote; BJP leads the pack

JD-S MP speaks: Why I cross-voted

Source: Rediff, ET

Economic Reforms: India Inc's wish list

Economic Reforms: India Inc's wish list


Following are some of the key components of economic reforms which India Inc will now hope the United Progressive Alliance (UPA) will address, having won the trust motion in parliament on Tuesday:

- Divestment of government equity in public sector undertakings
- Privatisation of state-run companies
- Liberal labour policies for corporate sector

- Foreign equity in multi-brand retailing
- Higher equity for foreign companies in single-brand retailing
- Higher foreign equity for foreign companies in insurance sector

- Development of a vibrant corporate bond market
- Easier norms for foreign banks to set up operations in India
- Removal of 10 percent cap on voting rights for investors in non-state banks

- Relaxation of land ceiling for foreign realty developers
- Easier entry norms for credit rating companies
- Higher foreign equity in asset reconstruction companies

- Higher equity for foreign firms in state-run refining projects
- Higher foreign equity in newspapers and current affairs periodicals
- Permission for news and current affairs programming on FM radio
- More liberal policies for foreign equity in commodity exchanges

Source:ET

Singh is King: UPA govt wins confidence vote

Singh is King: UPA govt wins confidence vote

Indian Prime Minister Manmohan Singh's government won a vote of confidence in parliament on Tuesday, ensuring the immediate survival of the ruling coalition and a civilian nuclear deal with the United States. Earlier the opposition demanded the resignation of the prime minister anyway after three of its lawmakers said they had been bribed to abstain.

The government won 275 votes against 256 for the opposition, the parliamentary speaker Somnath Chatterjee announced. The session was angry and chaotic. The debate was briefly adjourned when opposition lawmakers interrupted the debate to wave wads of cash they said were offered as bribes by the government to abstain.

The vote pitted the Congress-led coalition that negotiated the civilian nuclear deal against its former communist allies and opposition parties led by the Hindu-nationalist Bharatiya Janata Party (BJP). With the vote very close, several MPs who are ill were flown or wheeled in from hospital, and others, in jail for crimes such as murder and extortion, were granted temporary release.

The win means the four-year-old, left-of-centre government will, for the moment, stay in power. It will try and move ahead with a civilian nuclear deal, seen as one of the few legacies of the prime minister. The deal would draw India closer to the West and allow the Asian giant access to foreign civilian nuclear fuel and technology, despite not signing the Non-Proliferation Treaty and conducting nuclear tests in 1974 and 1998.

It could unlock $40 billion in investment over the next 15 years, according to an Indian business lobby group, as India seeks new energy sources to tap its booming, trillion-dollar economy. But it is unclear whether the prime minister will be able to stay in power until elections scheduled by May, 2009, especially if the bribery scandal spirals and involves top government officials.

Investors had hoped the victory would give the government time to battle rising inflation, which has hit the pockets of millions of poor voters, as well as passing some economic reforms in sectors like insurance and pensions. Investors had expected a narrow win for the government, and said the victory could boost markets. The main share index has risen by more than 12 percent in the last four sessions.

The confidence vote was sparked by the withdrawal of the government's communist allies to protest the nuclear deal, which they say will make India's security and energy policies dependent on the United States. Finance Minister Palaniappan Chidambaram, in a speech frequently interrupted by shouting from the opposition benches, defended the government's record and said nuclear power was vital if the country was to emulate the economic success of China. "This government under Dr Manmohan Singh's leadership is charting out a new path which will end India's nuclear isolation, which will pave the way for India becoming an economic superpower," he said. Despite the parliamentary victory, it is still unclear whether there is enough time for the deal to be passed by US.

Congress under the Bush administration. The agreement needs clearance from the governors of the UN atomic watchdog and a 45-nation group that controls sensitive nuclear trade. The government helped secure a parliamentary majority with the support of the regional Samajwadi Party (SP), which replaced the communists as its parliamentary support. The SP will now effectively hold the balance of power in India and the party is expected to give the government more room than the communists to pass economic reforms.
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Manmohan 7th PM to win trust vote in three decades
India Inc, investors hail UPA victory
India to check inflation without hurting growth: PM
'N-deal will open opportunities for 400 companies'
After trust win, Kamal Nath heads for Geneva

Cabinet reshuffle on cards?
India Inc relieved as government wins trust vote
PM proves mettle, wins confidence vote
10 horses bolt from BJP stable
The dream team of Congress

You may not love him, but you can't ignore him
FM rubs it in, Left and Right
Cash-on-table a first in Lok Sabha history
Lalu banks on Bollywood songs to score points
Life after the trust vote

'Whistle blowers can face action'

Results:Lupin, Siemens,Jstain,AsianPaints,IDBI, Hanung etc

Siemens net profit rises 107.15% in the June 2008 quarter

Net profit of Siemens rose 107.15% to Rs 169.43 crore in the quarter ended June 2008 as against Rs 81.79 crore during the previous quarter ended June 2007. Sales rose 1.54% to Rs 1809.68 crore in the quarter ended June 2008 as against Rs 1782.27 crore during the previous quarter ended June 2007

Jindal Stainless net profit declines 65.59% in the June 2008 quarter
Net profit of Jindal Stainless declined 65.59% to Rs 28.42 crore in the quarter ended June 2008 as against Rs 82.60 crore during the previous quarter ended June 2007. Sales rose 31.80% to Rs 1577.43 crore in the quarter ended June 2008 as against Rs 1196.82 crore during the previous quarter ended June 2007

Asian Paints net profit rises 32.02% in the June 2008 quarter
Net profit of Asian Paints rose 32.02% to Rs 98.00 crore in the quarter ended June 2008 as against Rs 74.23 crore during the previous quarter ended June 2007. Sales rose 34.45% to Rs 995.24 crore in the quarter ended June 2008 as against Rs 740.21 crore during the previous quarter ended June 2007

Alfa-Laval India net profit rises 28.96% in the June 2008 quarter
Net profit of Alfa-Laval India rose 28.96% to Rs 25.92 crore in the quarter ended June 2008 as against Rs 20.10 crore during the previous quarter ended June 2007. Sales rose 31.15% to Rs 194.23 crore in the quarter ended June 2008 as against Rs 148.10 crore during the previous quarter ended June 2007

Strides Arcolab reports net loss of Rs 55.96 crore in the June 2008 quarter
Grindwell Norton net profit rises 17.60% in the June 2008 quarter
NOCIL net profit rises 473.40% in the June 2008 quarter
Bellary Steels & Alloys reports net loss of Rs 34.37 crore in the June 2008 quarter
Vimal Oil and Foods net profit rises 21.43% in the June 2008 quarter

Indraprastha Gas net profit rises 13.69% in the June 2008 quarter
Net profit of Indraprastha Gas rose 13.69% to Rs 43.68 crore in the quarter ended June 2008 as against Rs 38.42 crore during the previous quarter ended June 2007. Sales rose 17.92% to Rs 190.74 crore in the quarter ended June 2008 as against Rs 161.75 crore during the previous quarter ended June 2007

Coromandel Fertilisers net profit rises 1394.68% in the June 2008 quarter
Net profit of Coromandel Fertilisers rose 1394.68% to Rs 193.86 crore in the quarter ended June 2008 as against Rs 12.97 crore during the previous quarter ended June 2007. Sales rose 462.90% to Rs 1400.39 crore in the quarter ended June 2008 as against Rs 248.78 crore during the previous quarter ended June 2007.

EMCO net profit rises 11.54% in the June 2008 quarter
Net profit of EMCO rose 11.54% to Rs 10.05 crore in the quarter ended June 2008 as against Rs 9.01 crore during the previous quarter ended June 2007. Sales rose 18.81% to Rs 183.35 crore in the quarter ended June 2008 as against Rs 154.32 crore during the previous quarter ended June 2007

NIIT Technologies net profit declines 15.34% in the June 2008 quarter
Net profit of NIIT Technologies declined 15.34% to Rs 24.44 crore in the quarter ended June 2008 as against Rs 28.87 crore during the previous quarter ended June 2007. Sales rose 46.22% to Rs 124.26 crore in the quarter ended June 2008 as against Rs 84.98 crore during the previous quarter ended June 2007.

Bank of Rajasthan net profit rises 2.49% in the June 2008 quarter

IDBI Bank net profit rises 4.34% in the June 2008 quarter
Net profit of IDBI Bank rose 4.34% to Rs 159.76 crore in the quarter ended June 2008 as against Rs 153.12 crore during the previous quarter ended June 2007. Total operating income rose 34.85% to Rs 2417.64 crore in the quarter ended June 2008 as against Rs 1792.79 crore during the previous quarter ended June 2007.

Lupin net profit rises 38.45% in the June 2008 quarter
Net profit of Lupin rose 38.45% to Rs 108.52 crore in the quarter ended June 2008 as against Rs 78.38 crore during the previous quarter ended June 2007. Sales rose 18.39% to Rs 712.42 crore in the quarter ended June 2008 as against Rs 601.75 crore during the previous quarter ended June 2007

OCL India net profit rises 7.95% in the June 2008 quarter
Century Textiles & Industries net profit declines 42.08% in the June 2008 quarter
Jindal Drilling & Industries net profit rises 1.31% in the June 2008 quarter
Tata Elxsi net profit declines 41.24% in the June 2008 quarter
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Bank of Rajasthan Q1 net profit at Rs 30.9 cr
IDBI Bank Q1 net up 3.84% at Rs 159 cr
Century Textiles Q1 net profit at Rs 62.5 cr
Lupin Q1 cons net profit at Rs 112 cr
NIIT Tech Q1 net profit at Rs 24.4 cr

Hanung Toys Q1 net profit at Rs 18.6 cr
Tata Elxsi Q1 cons net sales at Rs 97.4 cr
Thermax Q1 cons net profit at Rs 58.4 cr
Madras Fert Q1 net loss at Rs 30 cr
Tata Coffee Q1 net profit at Rs 3.9 cr
Peninsula Land Q1 net profit at Rs 31.24 cr


Source: Indiaearnings, Capitalmarket

Deadpresident blog reports

Ultratech Cement
Today's Pick - Indian Bank
Technicals - July 22 2008

India Infrastructure
Daily Technicals - July 22 2008
Maruti Suzuki, ICICI Bank, Infosys, Bharti Airtel,...

Eveninger - July 21 2008
Property prices down
Bullion metals register gains

Crude rises for first time in five sessions
RCom July 2008 futures at premium
PFC

Source: Deadpresident blog

10 trends for IT cos

10 trends for IT cos

The last ten years were years of numbers and figures for the Indian IT services industry. And as the National Association of Software and Services Companies (Nasscom) President Som Mittal will tell you, they were years to project numbers and weave a strategy to get to those numbers. “But the next decade will be structurally different.

It will be more about making a change rather than following a change,” he says. With the change in business and economic landscape, IT companies will need a different tool-kit to retain the edge from here on.

Indian players can never forget that out of the total addressable offshoring market of $380 billion, less than 15 per cent has been penetrated. What are the trends that the Indian IT industry needs to catch in order to ride the next decade of growth for the software services market? Read on...... 10 trends for IT cos

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Expect a short-term rally, and that's it
Most CEOs expect govt to win trust vote: ASSOCHAM survey
Latest on trust vote
Has Indian coalition politics gone bankrupt?
UTVi outlook for the day
India Inc backs N-deal, govt

Results: BHEL, Maruti,Dr.Reddy,Indian Bk, SAIL,Wels.Guj, Petronet, Techmahindra, HDIL etc

BHEL Q1 net profit up at Rs 384.41 cr

BHEL has aanounced its first quarter results. The company's standalone net profit was up at Rs 384.41 crore versus Rs 288.91 crore, (YoY).
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ING Vysya Bank Q1 net profit up at Rs 40.63 cr

ING Vysya Bank has announced its first quarter results. The company's Q1 sandalone net profit was up at Rs 40.63 crore versus Rs 25.32 crore, (YoY).

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Aban Offshore Q1 net profit at Rs 71.51 cr 21st-Jul-2008

Aban Offshore has announced its first quarter numbers. Its standalone net profit was up at Rs 71.51 crore for the quarter ended June 2008 as against Rs 28.38 crore in same period of last year. Net sales stood at Rs 246.95 crore versus Rs 127.61 crore.

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Maruti Suzuki Q1 net profit at Rs 465 cr 21st-Jul-2008

Maruti Suzuki India has declared its first quarter results. The company's Q1 net profit was down 6.8% at Rs 465 crore versus Rs 499 crore.

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Voltas Q1 net profit up at Rs 85.1 cr 21st-Jul-2008

Voltas has announced its first quarter results. The company's standalone net profit was up at Rs 85.1 crore versus Rs 52.2 crore (YoY).

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Tech Mahindra Q1 cons net profit at Rs 258.54 cr 21st-Jul-2008

Tech Mahindra has declared its consolidated results for the quarter ended June 2008 (Q1). The company's consolidated net profit was at Rs 258.54 crore versus net loss of Rs 221.1 crore on QoQ basis.

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SAIL Q1 net profit up 20% at Rs 1835 cr 21st-Jul-2008

SAIL has announced its first quarter numbers. Its standalone net profit has increased by 20.33% at Rs 1835.19 crore for first quarter of FY09 as against Rs 1525.12 crore in same period of last year.

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Bartronics Q1 cons net profit at Rs 23.5 cr 21st-Jul-2008

Bartronics India has announced its first quarter results. The company's Q1 consolidated net profit was at Rs 23.5 crore versus Rs 20.2 crore.

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Dr Reddys Labs Q1 net profit at Rs 135 cr view table 21st-Jul-2008

Dr Reddys Laboratories has decalred its Q1 results. The company's Q1 net profit at Rs 134.6 crore versus Rs 182.5 crore.

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Welspun Gujarat Q1 net profit at Rs 71.1 cr view table 21st-Jul-2008

Welspun Gujarat Stahl Roh has declared its first quarter results. The company's Q1 net profit at Rs 71.1 crore.

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Punjab Tractors Q1 net profit at Rs 22.4 cr view table 21st-Jul-2008

Punjab Tractors has announced its first quarter results. It has reported net profit of Rs 22.4 crore for first quarter of FY09 as against Rs 3.3 crore in same period of last year.

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LIC Hsg Fin Q1 net profit at Rs 104.7 cr view table 21st-Jul-2008

LIC Housing Finance has come out with first quarter numbers. Its Q1 net profit increased at Rs 104.7 crore from Rs 46.7 crore and total income went up at Rs 622 crore versus Rs 461.8 crore YoY.

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Canara Bank Q1 net profit at Rs 122.7 cr view table 21st-Jul-2008

Canara Bank has declared its first quarter results. The company's Q1 standalone net profit was down at Rs 122.7 crore versus Rs 240.6 crore.

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IL&FS Invst Mngrs Q1 net profit at Rs 13 cr view table 21st-Jul-2008

ILandFS Investment Managers has announced its first quarter numbers. It has reported net profit of Rs 13 crore for first quarter of FY09 as against Rs 9.8 crore in earlier quarter.
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Petronet LNG Q1 net profit at Rs 106 cr view table 21st-Jul-2008

Petronet LNG has declared its first quarter numbers of FY09. Its net profit declined at Rs 106 crore for quarter ended June 2008 as against Rs 108 crore in same period of last year. Net sales was up at Rs 1646 crore from Rs 1551 crore.

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HDIL Q1 net profit at Rs 317.9 cr view table 21st-Jul-2008

Housing Development and Infrastructure (HDIL) has announced its first quarter numbers. It has posted net profit of Rs 317.9 crore for quarted ended June 2008 as against Rs 202.7 crore in same period of last year.
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Indian Bank Q1 net profit at Rs 217.6 cr view table 21st-Jul-2008

Indian Bank has announced its results for the quarter ended June 2008 (Q1). The bank's Q1 net profit was up by 3% at Rs 217.6 crore versus Rs 212.03 crore.
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United Spirits net profit rises 33.74% in the June 2008 quarter

Net profit of United Spirits rose 33.74% to Rs 117.13 crore in the quarter ended June 2008 as against Rs 87.58 crore during the previous quarter ended June 2007. Sales rose 32.35% to Rs 1013.39 crore in the quarter ended June 2008 as against Rs 765.71 crore during the previous quarter ended June 2007.
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Bharat Heavy Electricals net profit rises 33.06% in the June 2008 quarter
Maruti Suzuki India net profit declines 6.76% in the June 2008 quarter
IL & FS Investsmart net profit declines 55.83% in the June 2008 quarter
Tech Mahindra net profit rises 47.97% in the June 2008 quarter
JK Paper net profit declines 16.88% in the June 2008 quarter
ING Vysya Bank net profit rises 60.47% in the June 2008 quarter

Electrosteel Castings net profit declines 48.27% in the June 2008 quarter
Aban Offshore net profit rises 151.97% in the June 2008 quarter
Steel Authority of India net profit rises 20.33% in the June 2008 quarter
Welspun Gujarat Stahl Rohren net profit rises 2.66% in the June 2008 quarter
Punjab Tractors net profit rises 580.00% in the June 2008 quarter

LIC Housing Finance net profit rises 124.16% in the June 2008 quarter
Canara Bank net profit declines 49.00% in the June 2008 quarter
Housing Development & Infrastructure net profit rises 56.86% in the June 2008 quarter
Petronet LNG net profit declines 2.20% in the June 2008 quarter
Nucleus Software Exports net profit declines 63.41% in the June 2008 quarter

Source: Indiaearnings.com, Capitalmarket.com

Sensex ends 215 pts, top stories from ET

Sensex vaults 215 pts on heavy buying

The bulls, despite some uncertain moments during the course of the day, had things going their way for the third successive session on the major Indian bourses today. Though US markets had closed on a mixed note after a choppy session last Friday, a firm trend on the Asian bourses aided the sentiment to an extent this morning.

However, after opening with a strong positive gap, the market declined sharply into the red this morning. But then, it did not stay long in the negative zone as hectic buying in bank, FMCG and a few other blue chip stocks lifted it up into the positive territory in a flash.

After moving in a volatile manner, the market did slip into the red again in early afternoon trade, but only for a short while. Frenzied buying at several front line counters saw the market gaining significant ground in the positive territory in late afternoon trade. A fairly good set of results from India Inc contributed to the buoyant mood this afternoon. Cipla, Dr. Reddy's Laboratories, SAIL, LIC Housing Finance, Punjab Tractors, HDIL and Indian Bank reported a sharp surge in their quarterly earnings. A fairly steady trend on the European markets also aided the bulls in afternoon trade.

Though the market appeared a bit slippery at times due to some cautious moves by the investors ahead of the crucial trust vote in parliament, good corporate earnings, a few big order wins reported by some top notch companies and short-covering kept the market in the positive territory for a considerable length of time today.

So sharp were the gains posted by blue chip stocks that the Sensex signed off with a handsome gain of 214.64 points or 1.57% at 13,850.04 today. In intra-day trades, the barometer touched a low of 13,581.19 and a high of 13,878.88. The Nifty, which swung in a range of around 95 points - it hit a high of 4168.15 and a low of 4072.75 in intra-day trades - closed with a gain of 67.25 points or 1.64% at 4159.50.

Bank and pharma stocks were among the biggest gainers today. Reflecting investor interest for stocks from these sectors, the Bankex and HC indices moved up by 3.88% and 3.03% respectively. Realty stocks bounced back after a mild setback in morning trade and mirroring the gains posted by key stocks in that space, the BSE Realty index advanced by 2.44%. The Auto, FMCG, PSU and Power indices moved up by 1% - 1.75%. Select metal and oil stocks edged higher. IT stocks turned easy after a fairly good show early on. Capital goods stocks found support elusive.

Pharma majors Cipla and Ranbaxy Laboratories ended stronger by 5.2% and 4.75% respectively. HDFC Bank (4.8%), ICICI Bank (4.3%) and State Bank of India (3.7%) remained firm right through the session.

NTPC shot up by 4.7%. Maruti Suzuki gained nearly 4%. Hindustan Unilever (3.8%), Jaiprakash Associates (3.75%), Reliance Communications (2.65%), Tata Consultancy Services (2.35%) also ended with impressive gains. Wipro, Reliance Industries, ITC, Mahindra & Mahindra, DLF, ONGC and Tata Steel gained 1% - 2%. Infosys Technologies, HDFC, ACC and Reliance Infrastructure finished with modest gains.
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Rupee up against dollar, gold recovers by Rs 60
Stocks rise ahead of trust vote
Max takes control in life insurance JV
Nuclear deal could benefit over 400 companies
Bombay High Court to hear RIL-RNRL gas dispute

UPA banks on 10 NDA abstentions
PEs, FIIs ready for big realty plunge
ExPolitical executive & corporate feuds

As good as it gets: Rel Petroluem

As good as it gets: Rel Petro

Despite a decline in investors’ confidence in the stock market and the turmoil in global financial markets over the past six months, there remain a few events which are eagerly awaited by all. One such event is the commissioning of Reliance Petroleum (RPL)’s refinery in Jamnagar special economic zone (SEZ) — which is being tracked not just by its 2 million shareholders and stock market experts, but by global energy analysts as well.

The project is expected to serve as an example for its speed of execution, low capital cost and high complexity. However, the strength in global gross refining margins (GRMs) is unlikely to persist going forward, due to rising refinery capacity across the world. Though the positives associated with RPL’s refinery are obvious, we believe its current valuations have limited upside left.

ADVANTAGES GALORE Low Capital Cost:
RPL is being set up at a capital cost of only Rs 27,000 crore, i.e. around $6.5 billion, but a similar-sized refinery will currently require almost twice this amount. This is due to the fact that over the past three years, a number of refinery projects have been launched across the world, resulting in higher costs of equipment and engineering services.

Fast Project Execution:
The project was originally scheduled to be completed in 36 months by September ’08, with commercial production due to start in December ’08. However, the company intends to prepone the deadlines. It has already completed more than 90% of the work and the pre-commissioning activities in the main process units are progressing rapidly. In fact, Mukesh Ambani assured shareholders at the company’s annual general meeting (AGM) last month that “the refinery is expected to be completed ahead of schedule.”

Ability To Earn Higher GRMs:
RPL’s refinery will have the ability to handle very heavy and high sulphur crude to produce the best quality products. Similarly, its product slate will be better, thanks to its ability to totally eliminate lowvalue products such as fuel oil. Considering that the heavy-light differential in crude prices has reached $20 a barrel, RPL will be able to earn higher GRMs compared to its peers.

Tax Sops:
The SEZ location and focus on exports will exempt RPL’s profits from income tax (IT) fully for the first five years. The I-T exemption will be 50% for the next five years.

LIMITED UPSIDE
After enjoying a high tide in the past few months, Asian GRMs are now weakening. The International Energy Agency (IEA) in its monthly report for June ’08 elaborated on this fact. “While diesel remains highly profitable, gasoline cracks remain subdued and fuel oil cracks have reached record lows.” Even production of naphtha is generating losses. When overall GRMs turn weak, it is feared that commissioning of RPL’s refinery will lead to a glut situation, thereby further bringing down GRMs. The supply from RPL’s new refinery will represent almost 50% of the estimated incremental global oil demand in ’09. Nearly 2 million bpd of global refining capacity (including RPL) is expected to commence in ’09, which will weigh heavily on the GRMs. RPL operates in a business where there is little scope for volume-led growth compensating for a fall in margins. Hence, if GRMs turn weak from the current levels, the company’s bottomline may shrink.

VALUATIONS
We estimate the refinery will earn a premium of around $9 per barrel over Singapore benchmark complex refining margins, which are expected to remain at around $8 per barrel during FY10. Considering interest and depreciation charges, the company’s full-year net profit at 85% capacity level will stand at Rs 6,365 crore. This translates into a price-to-earnings (P/E) multiple of 10.9 on the current market price of Rs 154. Since petroleum refining is a capital-intensive cyclical business, it has traditionally commanded a single-digit P/E globally. Another way of looking at valuations , is the replacement cost of the refinery. RPL’s current market capitalisation of Rs 69,300 crore is around 38% higher than the estimated cost of setting up a similar refinery. Similarly, at current m-cap , RPL’s enterprise value (EV) is 8.5 times its estimated EBIDTA for FY10, which is slightly on the higher side compared to the global average. Hence, we believe that the upside in RPL’s scrip is limited in the short run.

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Source: ET