INDUSTRY UPDATES ON 09.05.2013

Adani Power's future hinges on outcome of legal issues

The lack of provision to pass on high fuel costs to end users is limiting Adani Power's ability to reap benefits from its expanded power capacity. As a result, Gujarat based thermal power company reported net loss for the March 2013 quarter, its sixth consecutive quarterly loss. 

The company's aggregate loss has now increased to Rs 3000 crore over the last six quarters and its future earnings hinge on the outcome of the legal events related to revision of power purchase agreements with Gujarat and Haryana state electricity boards. 

In the March quarter, though the company's generation increased by 80% year-on-year and average realization by 12%, its net margin was impacted due to higher depreciation and interest expense from 140% higher capacity year on year. Given this, the loss doubled to Rs 586 crore. 

The company has been facing loss after the coal cost rose due to regulatory changes in Indonesia, two years ago. It currently has operational capacity of around 6000 MW. Most of this capacity runs on imported coal sourced from Indonesia 

The losses are likely to continue until the tariffs are revised upwards by the Gujarat and Haryana state electricity boards. The rising loss is eroding the company's networth, while the debt continues to remain high. At present, the company's total debt is around Rs 37,600 crore and its equity is around Rs 8,600. 

Its debt to equity is 4.4, which is on the higher side. In the likely situation that the company continues to make loss in the current fiscal, this ratio is likely to deteriorate further. Considering this, tariff revisions by the end of the June quarter for its Mundra plantis of utmost importance to the company.

Higher cost may reduce power cos coal imports via CIL

Higher costs may dampen the response from state power utilities to buy coal imported through Coal India, with only less than 10 per cent of the expected 36,000 MW capacity projects likely to secure the fuel from the coal major.
“Out of the 36,000 MW capacity projects for which the government has mandated Coal India to import coal on cost plus basis, less than 10 per cent are willing to import coal through the utility,” said a Power Ministry official.
Coal India has proposed to import coal for the power utilities at cost plus basis wherein the cost of imported fuel in addition to the transportation cost and other taxes will have to be paid by the power firms.
“Around 3,000 MW capacity projects have evinced interest in allowing Coal India to import on their behalf while the remaining are keen to do it themselves as they feel it is an economical proposition,” the official said.
The government, last month, said that the power projects commissioned before 2009 aggregating a capacity of 65,185 MW will get coal at domestic prices, whereas post 2009 projects, with a capacity of 36,000 MW, which have signed Power Purchase Agreements (PPAs) with the procurers, will get the dry fuel at cost plus basis.
Cost plus basis may lead to increase in electricity tariffs if the generation companies pass the rise in cost to the consumers.
The government is yet to finalise the mechanism for securing coal for the 24,000 MW projects which have tariff based linkages, have no PPAs or have tapering linkage.
Tapering Linkage is the short—term linkage which is provided to those coal consumers who have already been allocated captive coal blocks for meeting the coal requirements of their linked end use plants (EUPs).

Basmati acreage seen rising on hopes of higher returns

Basmati acreage is set to increase by at least a tenth this kharif season as expectation of higher returns may prompt farmers in northern States to plant more area under the aromatic rice variety.
“The area under basmati will definitely go up at least by 50-60 per cent over last year…It could be even 100 per cent,” said Anil Mittal, Chairman of KRBL Ltd, which owns the India Gate basmati brand and is the country’s largest exporter.
Basmati prices had almost doubled last year over the previous year on an estimated 30 per cent shortfall in crop size and rising demand from both domestic and overseas markets.
The prices of Pusa 1121, a paddy variety that now accounts for almost 80 per cent of the produce, were quoting around Rs 40,000 a tonne against around Rs 21,000 at the beginning of the harvest season in October last year.
“There should be at least a 10 per cent increase in area, similar to that of last year,” said R. Sundaresan, Executive Director, All-India Rice Exporters Association, striking a conservative note.

acreage

Basmati acreage in 2012-13 stood at 1.85 million hectares, an increase of 32,000 hectares over the previous year.
The transplanting of basmati planting normally starts in July every year, but the nurseries for transplantation are raised during June.
Based on the trend in sales of seeds in Punjab, Haryana and Uttar Pradesh, trade sources see farmers switching over to basmati from the other rice varieties and cotton to some extent eyeing better returns.
“Things are very conducive for an increase in basmati area and the way the seeds are being sold, the acreage is poised to double especially for Pusa 1121 variety,” said Vijay Setia, Director, Chamal Lal Setia Exports Ltd.
Interestingly, seed retailers in Punjab and Haryana are seeing higher demand for super fine rice variety PR 14, which is used for blending with basmati mainly for the Iran market to keep the prices under control, sources said.
Basmati exports jumped around 10 per cent to 3.5 million tonnes valued at over Rs 17,000 crore in fiscal 2012-13 on rise in global demand led by major customers such as Iran and other West Asian nations.

exports

Non-basmati rice shipments during the fiscal registered an increase of 58 per cent at around 6.5 mt against last year’s 4.09 mt.
This quantum jump in non-basmati rice shipments was mainly on account of huge demand from African countries, such as Nigeria and Ghana and also from Indonesia.

Sugar rules flat

Sugar market’s indefinite strike against local body tax (LBT) entered on eighth day on Wednesday.
Physical sugar prices at mill level ruled unchanged on Wednesday as most of the wholesale markets of Maharashtra were closed in protest of LBT and slack demand in middle-month.
Heavy short covering by speculators pushed up May futures by Rs 42 till noon.
In the Vashi wholesale market, due to strike there were no arrivals or local dispatches.
On Tuesday evening, 15-16 mills offered tenders and sold 38,000 – 40,000 bags at Rs 2,920-3,000 (Rs 2,920-3,000) for S-grade and Rs 3,000-3,060 (Rs 3,000-3,060) for M-grade. Mumbai, Pune, Nagpur, Chinchwad’s market was closed.
On the National Commodities and Derivatives Exchange, sugar June futures was higher by Rs 8 to Rs 2,964, July increased by Rs 6 to Rs 3,001 and August by Rs 14 to Rs 3,041 till noon.

RINL aims at 16000 crore turnover in 2013-14



The sluggishness in the steel industry notwithstanding, Rashtriya Ispat Nigam Limited, the corporate entity of Visakhapatnam Steel Plant, is aiming at achieving the highest-ever turnover of over INR 16,000 crore during 2013-14. 

This was disclosed by Director (commercial) Mr TK Chand during extensive interactions held with the unions and associations of VSP. At the meetings, the unions, Steel Executive Association, SC and ST Welfare Association and others pledged their full support to improve the financial health of the Navratna company.

Mr Chand in his address said that in first quarter of this fiscal, RINL would step up its sales by 10% over last year and sought the support of the workforce to push up sales through innovative and aggressive marketing strategies.

According to a release, some of the union and association leaders, who attended the meeting, expressed their anguish at criticism by some quarters that the discounts and credit being offered to some dealers as part of strategy to overcome the market sluggishness and sought legal action to counter the campaign to tarnish the image of RINL.

Mr G Jogeswara Rao General Manager (marketing) in his presentation justified discount policy and said other competitors like SAIL, JSW, JSPL and TATA were also offering such incentives. DGM (marketing) Mr MV Chary gave a detailed presentation on prevailing economic environment, sluggish market conditions and performance during 2012-13.

RINL revenue dipped to 5.8% at INR 13,650 crore in 2012-13 as against the MoU target of INR 15,000 crore. It clocked a turnover of INR 14,426 crore the previous year.

JSW Steel updates on scheme of amalgamation and arrangement

JSW Steel Ltd has informed BSE that high court of Judicature at Bombay has sanctioned the Composite Scheme of Amalgamation and Arrangement amongst JSW ISPAT Steel Limited and
JSW Building Systems Limited and JSW Steel Coated Products Limited and JSW Steel Limited and their respective shareholders and creditors on May 03, 2013.

The Order sanctioning the Scheme has been uploaded on the website of the Hon'ble High Court, Bombay on May 07, 2013.The certified copy of the Order sanctioning the Scheme is awaited. The Scheme will become effective only upon receipt of the certified copy of the order of the High Court and on compliance with the requisite formalities.

Lower Europe demand and iron ore price weigh on ArcelorMittal

Reuters reported that the world's largest steelmaker ArcelorMittal suffered in the first quarter from very weak demand in Europe and falling iron ore prices

Mr Lakshmi Mittal told Reuters on the sidelines of the company's annual shareholder meeting that "We are seeing it could be more minus 1.5 than minus 0.5 because the first quarter has been very weak. It started well, but as we entered it, it looks weak.”

Mr Mittal said that "Peugeot and Renault, their demand has dropped by 20 to 30% in the first quarter.”

The ArcelorMittal chief said he still believed the European market would show signs of recovery in the second half.

Mr Mittal further said iron ore prices had dropped to around USD 128 per tonne from some USD 157 to USD 158 earlier in the quarter. Some 24 percent of ArcelorMittal's core profit in 2012 came from mining, principally of iron ore.

He said Chinese steel demand would probably grow by between 2.5 and 3% this year. In February, the company had forecast a 3% expansion.

Mr Mittal said that "It is strong in auto and construction, but recently there has been some credit squeeze and we are seeing some softening of the overall demand.”

In the United States, both the auto and construction sectors were strong, Mittal said. But the energy and mining equipments markets were weaker in the first half.

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