Power Grid Corporation is a great proxy to India's power sector. Long-term investors can subscribe to its IPO.One of the best depictions of India's power shortage was in the movie Swades. The residents of a village, who didn't know what electricity was, assist actor Shah Rukh Khan to create a small power generation unit. The expression of curiosity on the old lady's face before the bulb is lit and the 100-watt gleam on her face after the illumination is something that still needs to reach many parts of the country.
This is better understood with statistics-we have one of the lowest per capita consumption of power. Besides domestic electrification, there is a huge demand for power from the industrial sector. And that is why the government is investing directly or encouraging private sector investments in power generation capacities.
Power transmission is the next step after generation, as the power needs to reach consumers. If new generation capacity is being set up, there is a need to transmit and distribute that capacity. Thus, companies operating in the generation sector will benefit.
The IPO
Power Grid Corporation of India, the largest player in the power transmission sector, is coming out with an initial public offer of Rs 2,525-2,984 crore at a price band of Rs 44-52 per share. Like NTPC, Power Grid is a great proxy to India's growing power sector. Its strong business model, operational efficiency and tariff based on assured returns on equity provide stable revenues and low risk. Besides, its huge future investment in the transmission sector will ensure long-term earnings growth.
"We think it is a good play on the growing power sector. The company is building about 31,000 km of transmission lines over the next five years. Compare this to the 68,000 km built over the last 60 years, and the number appears huge," says Jigar Shah, director, KR Choksey.
Power generated at a plant is transmitted to a sub-station near a populated area. Due to the large amount of power involved, transmission normally takes place at high voltage (132 kV or above). Over a long distance, electricity is usually transmitted through overhead power transmission lines.
The company was incorporated in 1989 as a result of a government decision to form a national power grid. It managed the transmission assets of NTPC, National Hydro Electric, North-Eastern Electric and Neyveli Lignite till 1993, when these assets were transferred to Power Grid. Today, it owns and operates most of India's inter-state and inter-regional electric power transmission networks--i.e from power plants to substations.
Power Grid generates about 90 per cent of its total income from transmission business. The company owns and operates 61,875 circuit km (ckm) of electrical transmission lines and 106 sub-stations. During FY07, the company transmitted about 298 billion units of electricity, representing about 45 per cent of all the power generated in India.
Sound business model
Power Grid has a strong business model with its transmission business providing stable returns with low risks. Central Electricity Regulatory Commission (CERC), which determines the tariff for the company, has stipulated an assured cost-plus-14 per cent return on equity. Besides, on the operational front, Power Grid has maintained an average system availability of above 99 per cent since FY02, leading to higher income under the incentive-based tariff structure.
Around 80 per cent of its revenue comes from the public sector state utilities, many of which have defaulted in the past. The company says about 105 per cent of the receivables are backed by letters of credit, and says that it manages to collect 100 per cent of receivables on a timely basis at present. Despite these measures, if state electricity boards default in future, the company could lose some money. Also, state electricity boards are in better financial health than in the past, so this risk is not too different today than in any other business.
Power-packed growth
With a large share in the transmission industry coupled with the expertise and operational efficiency, Power Grid has an important role to play in India's growing power sector. Considering the growing economy this gap is further widening.
India's power generation capacity increased from 105,046 MW in FY02 to 132,329 MW during FY07 and is expected to reach 219,992 MW by FY12. This will also require large investments in power transmission for laying transmission lines across the country and inter-regional lines to facilitate distribution and ultimately providing power to consumers.
Mega expansion
Over the past four years, Power Grid has made a capital expenditure of Rs 18,248 crore. As on June 2007, the company had 45 transmission projects at various stages of development totaling to an investment of Rs 27,291 crore. These projects involve 30,536 ckm of transmission lines, which is 50 per cent higher than its existing capacity, as well as new substation capacities. The ongoing projects are scheduled to be completed by June 2009.
The successful implementation of these projects on schedule will translate into a total transformation capacity of 90,727 MVA (mega volt-ampere) by June 2009. Considering the FY07 realisation of about Rs 5.46 lakh per transmission MVA, the increased capacity has the potential of providing revenues of Rs 4,959 crore on completion, or 43.5 per cent higher than FY07 transmission revenues.
Consulting gain
Besides, the company is also leveraging its capability and understanding of the transmission industry to diversify into the consultancy business. This accounted for 6 per cent of its FY07 total income and grew 46 per cent over previous year. Since 1995, this division has provided transmission-related consultancy services to over 90 clients involving about 200 domestic and international projects.
The company also facilitates the implementation of various government-funded projects for the distribution of electricity to end-users, such as the Accelerated Power Development and Reform Programme (APDRP) in urban and semi-urban areas and the Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY) in rural areas.
Telecom
With its own overhead transmission infrastructure in place, the next logical step for Power Grid was to create a fibre optic cable network on this backbone. The company owns and operates a fibre optic cable network of over 19,000 km and connects over 60 Indian cities.
The company leases bandwidth on this network to more than 60 customers, including major telecom operators such as BSNL, VSNL, Tata Teleservices, Reliance Communications and Bharti Airtel. This is the fastest growing business; it grew 106 per cent in FY07 y-o-y to Rs 77 crore. Since this business is new, it made losses till FY07 but has good potential. "We expect the trend to change from FY08 as the initial investment stage is over," says, Misal Singh, analyst, Edelweiss Securities
Valuations
At the lower end of the price band of Rs 44, Power Grid is priced at 1.3 times estimated FY08 book value and 1.2 times FY09 book value. At the upper end of Rs 52, the issue will be priced at 1.55 times estimated FY08 book value and 1.5 times FY09 book value.
Compared with the price-book value ratios of NTPC, Tata Power and Reliance Energy, which are trading at well above two times FY08E book value, Power Grid is cheaper. While valuing the company, some analysts also use the discounted cash flow approach.
"We have a DCF value of Rs 62, which is 20 per cent higher then the price at the upper band" adds Edelweiss Securities' Singh. Based on the price-earnings multiple, the issue is priced at 13-15 times FY08 and 9-11 times FY09 fully diluted estimated earnings. Power Grid provides a good opportunity for investors to capitalise on the infrastructure growth story.
Wednesday, September 19, 2007
IFCI ( Anybody's Guess )
It isreported on 14/Aug that Goldman acquired 20 lakh shares of IFCI inopen market operation (at prices above Rs 60 per shares). The current holding is around 5.21 %.
If IFCI sells the stake of 26% by issue of new shares, total stakewill be around 31%. If they are forced to make general offer for atleast 20% of remaining shares, and if it succeeds, it may getcontrolling stake of 51%. It is possible; IDBI (5%) and LIC (8%) maysell into 20% general offers. In short, they will have about 405Millions shares (out of 804 Millions shares, including issue of 165Millions of new shares)
If this happens, then following scenario may be noted:
1. Goldman is perhaps the largest security firm in the world withclosest connection with US establishment (White House and FED). IFCIacquisition will be very miniscule investment for them. 5% investmentmight cost them Rs 153 crores (5% of 638 Mln shares x Rs 48 averageprice) Remaining 26% may cost them Rs 1600 crores (16 crore extrashares x Rs 105 rumored price). General offers for 20% will cost them1200 crores. In short, 51% will cost them Rs 3000 crores appx. Or US$750 Millions
2. Goldman will have instant access to Loans and Advances of over Rs13500 crores or US$ 3.5 Billions. It will help identify the leadingborrowers for its investment banking side, and may raise IPO for suchcompanies.
3. Goldman will also identify the NPA (already written off) companies,and may nurse them back to health by bringing them to market and raiseIPO or make secondary offers. Thus, old written off debts might berecovered substantially (almost 100% in some cases) that may addstraight to bottom lines.
4. Thus, in a matter of just 2 years, the EPS of IFCI may rise to overRs 60 per shares as under: (I mentioned part of it in my previous postwhen I had shown target to Rs 300 to Rs 500 for IFCI without takinginto account of it being taken over by foreign entity)
a. Regular Earning = Rs 625 crores (5% Interest spread of Rs 13500crores Advance - Operative expenses) = Rs 7.80 EPS
b. Investment Earning = Rs 800 crores per year (from existing Equityand debt holding) = Rs 10 per share
c. Recovery earning = Rs 1600 crores per year (from debt tribunalsetc) = Rs 20 per shared.
d.New Investment Banking income from IPO's promoted by Goldmanmanagement - (Expected flow will be Rs 16000 crores per year or 5%fees/green shoes of such Gross Proceeds = Rs 800 crores or Rs 10 persharee.
e.The expected EPS for next 3 years at least will be sum of a,b,c,d =Rs 7.80 (a) + Rs 10 (b) + Rs 20 (c) and + Rs 10 (d) = Rs 47.50 pershare
f. Presenting growth P/E ratio of at least 15 times (generally over 20times), the stock price may zoom to Rs 712 in less than 18 months5.
However the above target has following caveats or Assumptions:
a. IFCI is really bought by Goldman. If they don't buy, everythingwill fall, and the price target may come down to modest Rs 150 (in 12months) and Rs 300 (in 2 years)
b. GOI does allow Goldman to change the name from IFCI and repeal IFCIAct, so that the company is fully privatized and no longer a GOI company
c. Goldman does not go bust in the present sub-prime scenario. It isalready in trouble to the extent of over US$ 30 Billions (includingCDOs of Chrysler and Alliance Boots)
Following scenario may emerge as result
a. IFCI may be turned into full fledged Investment Banking and TermLending Institutions. It is possible, after 2 years, both activitiesmay be separated and listed separately. There may be spin off
b. It is also possible that Goldman may consolidate shares in theratio of 2: 1 or existing 2 shares may be converted into 1 share(reverse split) to enhance the share value in absolute terms. (Goldmanis US brokers with access to major pension funds. These funds usuallybuy stock having denominated value of US$ 15 or more).
c. IFCI may come out with ADR issue to be traded on NYSEd.
IFCI has Long Term Prospect of trading at Rs 700 or above in about2 years from take over date
If IFCI sells the stake of 26% by issue of new shares, total stakewill be around 31%. If they are forced to make general offer for atleast 20% of remaining shares, and if it succeeds, it may getcontrolling stake of 51%. It is possible; IDBI (5%) and LIC (8%) maysell into 20% general offers. In short, they will have about 405Millions shares (out of 804 Millions shares, including issue of 165Millions of new shares)
If this happens, then following scenario may be noted:
1. Goldman is perhaps the largest security firm in the world withclosest connection with US establishment (White House and FED). IFCIacquisition will be very miniscule investment for them. 5% investmentmight cost them Rs 153 crores (5% of 638 Mln shares x Rs 48 averageprice) Remaining 26% may cost them Rs 1600 crores (16 crore extrashares x Rs 105 rumored price). General offers for 20% will cost them1200 crores. In short, 51% will cost them Rs 3000 crores appx. Or US$750 Millions
2. Goldman will have instant access to Loans and Advances of over Rs13500 crores or US$ 3.5 Billions. It will help identify the leadingborrowers for its investment banking side, and may raise IPO for suchcompanies.
3. Goldman will also identify the NPA (already written off) companies,and may nurse them back to health by bringing them to market and raiseIPO or make secondary offers. Thus, old written off debts might berecovered substantially (almost 100% in some cases) that may addstraight to bottom lines.
4. Thus, in a matter of just 2 years, the EPS of IFCI may rise to overRs 60 per shares as under: (I mentioned part of it in my previous postwhen I had shown target to Rs 300 to Rs 500 for IFCI without takinginto account of it being taken over by foreign entity)
a. Regular Earning = Rs 625 crores (5% Interest spread of Rs 13500crores Advance - Operative expenses) = Rs 7.80 EPS
b. Investment Earning = Rs 800 crores per year (from existing Equityand debt holding) = Rs 10 per share
c. Recovery earning = Rs 1600 crores per year (from debt tribunalsetc) = Rs 20 per shared.
d.New Investment Banking income from IPO's promoted by Goldmanmanagement - (Expected flow will be Rs 16000 crores per year or 5%fees/green shoes of such Gross Proceeds = Rs 800 crores or Rs 10 persharee.
e.The expected EPS for next 3 years at least will be sum of a,b,c,d =Rs 7.80 (a) + Rs 10 (b) + Rs 20 (c) and + Rs 10 (d) = Rs 47.50 pershare
f. Presenting growth P/E ratio of at least 15 times (generally over 20times), the stock price may zoom to Rs 712 in less than 18 months5.
However the above target has following caveats or Assumptions:
a. IFCI is really bought by Goldman. If they don't buy, everythingwill fall, and the price target may come down to modest Rs 150 (in 12months) and Rs 300 (in 2 years)
b. GOI does allow Goldman to change the name from IFCI and repeal IFCIAct, so that the company is fully privatized and no longer a GOI company
c. Goldman does not go bust in the present sub-prime scenario. It isalready in trouble to the extent of over US$ 30 Billions (includingCDOs of Chrysler and Alliance Boots)
Following scenario may emerge as result
a. IFCI may be turned into full fledged Investment Banking and TermLending Institutions. It is possible, after 2 years, both activitiesmay be separated and listed separately. There may be spin off
b. It is also possible that Goldman may consolidate shares in theratio of 2: 1 or existing 2 shares may be converted into 1 share(reverse split) to enhance the share value in absolute terms. (Goldmanis US brokers with access to major pension funds. These funds usuallybuy stock having denominated value of US$ 15 or more).
c. IFCI may come out with ADR issue to be traded on NYSEd.
IFCI has Long Term Prospect of trading at Rs 700 or above in about2 years from take over date
Shouldn't we BUY the companies that own Crude Oil ?
Luke Oil reported today a staggering increase in its profits. What could happen should Crude prices jump to $ 90 plus per barrel?
If you think oil prices are high now, you ain't seen nothin' yet. The good news is that you can profit from oil's next move. That should help you pay your soaring bills when gasoline accelerates past $4 a gallon. More on that in a moment. First, let's talk about why energy prices are on the move.
About a month ago, I gave you "Three Triggers for Higher Oil Prices." Just to refresh your memory, they are: 1. the potential for monster hurricanes in the Gulf of Mexico, 2. spreading violence in the Persian Gulf, and 3. a potential al Qaeda attack on U.S. oil facilities.
Since then, oil prices catapulted from $66.26 to as high as $75 a barrel yesterday. And guess what? None of those three things I warned you about have even happened yet!
Mind you, I think these scenarios are only getting more likely. For example, we haven't seen any hurricanes in July, but we usually don't. Historically speaking, August, September and October are the busiest months for tropical storms.
You're probably wondering why oil prices have been rising even without these catalysts. The reason is simple: The supply/demand picture for oil is tight and getting tighter.
In fact, I'm here to tell you that even if NONE of those big three things happen, we could still see $90-per-barrel oil this year! And if one or more of those dire events I warned of actually happens, prices could spike even higher.
Let me explain ...
Oil Prices Are Riding the Wave of Global Expansion
Why is oil going higher? Simple -- the global economy is growing, business from Brazil to Singapore is booming, the world's population is trading in bicycles for cars, and global oil demand can't keep up.
Some critical facts ...
The global economy is growing at about 4.5% per year.
As a result, The International Energy Agency (IEA) projects in its Medium Term Oil Market Report that global oil demand will grow 2.2% a year, on average. By 2012, it should reach 95.8 million barrels per day (bpd) vs. 86 million bpd this year.
At the same time, spare capacity -- almost all of which is in Saudi Arabia -- is going to approach the vanishing point.
Even worse, the IEA expects supply increases from non-OPEC oil producers and biofuel producers to start dwindling even earlier -- around 2009.
All that boils down to an ugly picture from the IEA ...
As you can see, even with moderate GDP growth, the world's oil demand growth is going to start outpacing supply growth by 2010!
And even if the global economy slows down, global oil demand growth will start outpacing supply in 2011.
In other words, the "Big Squeeze" will start within four years ... regardless of what economic scenario you believe in.
Plus, the IEA has more gloomy news for us:
We're getting between 3% and 4% LESS out of existing oilfields every year.
Mature producing areas and many recent deepwater projects are declining at even sharper rates -- 15% to 20% annually!
All told, the oil industry needs to add three million bpd of new supply each year just to offset declines in existing fields.
Yet the oil majors are having trouble finding oil. For example, last year was the first time -- EVER -- that Exxon didn't replace its reserves through its own drilling, according to Oppenheimer research.
The situation is complicated by another fact: More and more of the world's oil reserves are under the thumbs of national oil companies, such as Saudi Arabia's Aramco, Mexico's Pemex, and Venezuela's PDVSA.
These companies aren't as efficient as Western majors at finding oil, and the countries that have the remaining large oil deposits often scare off or even forbid outside investment.
Sounds bad, right? It is. However ...
The IEA Is Probably Being Too Optimistic About Global Oil Supplies!
If anything, the Big Squeeze might come sooner than the International Energy Agency's 2010-2011 forecast. Here's why ...
The IEA is expecting OPEC to ramp up production by about 600,000 bpd next year to 32 million bpd.
But OPEC's latest report reveals that the cartel's production is actually FALLING -- down to 30.06 million barrels a day in June. That's a drop of 96,600 bpd from May.
What's more, according to the IEA's own chief economist, Fatih Birol,
"If Iraqi production does not rise exponentially by 2015, we have a very big problem, even if Saudi Arabia fulfills all its promises. The numbers are very simple, there's no need to be an expert."
Well, the latest OPEC report shows that Iraq's production is falling the fastest of any of the cartel members -- a drop of 78,000 barrels per day in June.
You know what the situation in Iraq is like. Civil war ... chaos ... madness! Do you think Iraq will experience "exponential" growth in its oil production anytime soon? No way!
And Iraq isn't the only OPEC member with declining production. In June, Kuwait and Venezuela saw declines of 38,300 and 34,000 bpd, respectively. Saudi Arabian production also fell -- by 33,300 bpd. The Saudis say they can turn the spigots back on. Let's hope that's true.
Meanwhile, oil production is declining in some non-OPEC countries, too.
I'm talking about places like the U.K., Norway, and Mexico.
Goldman Sachs Group Inc. said in a report on Monday that Saudi Arabia, the United Arab Emirates, and Kuwait must increase production by the end of this summer.
According to the Wall Street firm, this production increase is "critical" to avoid prices surging above $90 a barrel in the fourth quarter of this year.
If you think oil prices are high now, you ain't seen nothin' yet. The good news is that you can profit from oil's next move. That should help you pay your soaring bills when gasoline accelerates past $4 a gallon. More on that in a moment. First, let's talk about why energy prices are on the move.
About a month ago, I gave you "Three Triggers for Higher Oil Prices." Just to refresh your memory, they are: 1. the potential for monster hurricanes in the Gulf of Mexico, 2. spreading violence in the Persian Gulf, and 3. a potential al Qaeda attack on U.S. oil facilities.
Since then, oil prices catapulted from $66.26 to as high as $75 a barrel yesterday. And guess what? None of those three things I warned you about have even happened yet!
Mind you, I think these scenarios are only getting more likely. For example, we haven't seen any hurricanes in July, but we usually don't. Historically speaking, August, September and October are the busiest months for tropical storms.
You're probably wondering why oil prices have been rising even without these catalysts. The reason is simple: The supply/demand picture for oil is tight and getting tighter.
In fact, I'm here to tell you that even if NONE of those big three things happen, we could still see $90-per-barrel oil this year! And if one or more of those dire events I warned of actually happens, prices could spike even higher.
Let me explain ...
Oil Prices Are Riding the Wave of Global Expansion
Why is oil going higher? Simple -- the global economy is growing, business from Brazil to Singapore is booming, the world's population is trading in bicycles for cars, and global oil demand can't keep up.
Some critical facts ...
The global economy is growing at about 4.5% per year.
As a result, The International Energy Agency (IEA) projects in its Medium Term Oil Market Report that global oil demand will grow 2.2% a year, on average. By 2012, it should reach 95.8 million barrels per day (bpd) vs. 86 million bpd this year.
At the same time, spare capacity -- almost all of which is in Saudi Arabia -- is going to approach the vanishing point.
Even worse, the IEA expects supply increases from non-OPEC oil producers and biofuel producers to start dwindling even earlier -- around 2009.
All that boils down to an ugly picture from the IEA ...
As you can see, even with moderate GDP growth, the world's oil demand growth is going to start outpacing supply growth by 2010!
And even if the global economy slows down, global oil demand growth will start outpacing supply in 2011.
In other words, the "Big Squeeze" will start within four years ... regardless of what economic scenario you believe in.
Plus, the IEA has more gloomy news for us:
We're getting between 3% and 4% LESS out of existing oilfields every year.
Mature producing areas and many recent deepwater projects are declining at even sharper rates -- 15% to 20% annually!
All told, the oil industry needs to add three million bpd of new supply each year just to offset declines in existing fields.
Yet the oil majors are having trouble finding oil. For example, last year was the first time -- EVER -- that Exxon didn't replace its reserves through its own drilling, according to Oppenheimer research.
The situation is complicated by another fact: More and more of the world's oil reserves are under the thumbs of national oil companies, such as Saudi Arabia's Aramco, Mexico's Pemex, and Venezuela's PDVSA.
These companies aren't as efficient as Western majors at finding oil, and the countries that have the remaining large oil deposits often scare off or even forbid outside investment.
Sounds bad, right? It is. However ...
The IEA Is Probably Being Too Optimistic About Global Oil Supplies!
If anything, the Big Squeeze might come sooner than the International Energy Agency's 2010-2011 forecast. Here's why ...
The IEA is expecting OPEC to ramp up production by about 600,000 bpd next year to 32 million bpd.
But OPEC's latest report reveals that the cartel's production is actually FALLING -- down to 30.06 million barrels a day in June. That's a drop of 96,600 bpd from May.
What's more, according to the IEA's own chief economist, Fatih Birol,
"If Iraqi production does not rise exponentially by 2015, we have a very big problem, even if Saudi Arabia fulfills all its promises. The numbers are very simple, there's no need to be an expert."
Well, the latest OPEC report shows that Iraq's production is falling the fastest of any of the cartel members -- a drop of 78,000 barrels per day in June.
You know what the situation in Iraq is like. Civil war ... chaos ... madness! Do you think Iraq will experience "exponential" growth in its oil production anytime soon? No way!
And Iraq isn't the only OPEC member with declining production. In June, Kuwait and Venezuela saw declines of 38,300 and 34,000 bpd, respectively. Saudi Arabian production also fell -- by 33,300 bpd. The Saudis say they can turn the spigots back on. Let's hope that's true.
Meanwhile, oil production is declining in some non-OPEC countries, too.
I'm talking about places like the U.K., Norway, and Mexico.
Goldman Sachs Group Inc. said in a report on Monday that Saudi Arabia, the United Arab Emirates, and Kuwait must increase production by the end of this summer.
According to the Wall Street firm, this production increase is "critical" to avoid prices surging above $90 a barrel in the fourth quarter of this year.
Jindal Photo-Power Play
BSE 532624; CMP Rs 165
The Central Governments new Power Policy inviting merchant producers to install and generate power is bringing in a horde of new investors. The Rs 400 crore photographic equipment and imaging films manufacturer Jindal Photo has moved off the block in a rapid pace.
-It has announced the setting up of a 250 MW Thermal Power Plant in the State of Orissa, costing close to Rs 1100 crore.
-The corporation has been allotted a dedicated Coal Block by the State/Central Governments to enable unhindered power generation. The development of these mines spread over 3 years will cost an additional Rs 200-300 crore, bringing the size of Jindal's expansion plan to Rs 1500 crore.
-Conservative profits on a thermal power plant work to Rs 1 crore per Megawatt produced per annum, thus in 3 years from now Jindal Photo could be adding as much as Rs 200 crore to its tax free bottomline, making the current price an attractive point to enter the stock.
-The new merchant power policy allows tax free benefits for 10 years under the Income Tax Act and numerous other concessions in the State taxes.
-Current operations of Jindal Photo, based as they are in the tax haven of Goa are lucrative.
-For Financial 07, Revenues were placed at Rs 412 crore with after tax profits at Rs 27 crore. The FY07 EPS worked out to Rs 27 per share on a small Equity of Rs 10 crore.
-For Q1 08, while Revenues have been flat at Rs 114 crore, the after tax profits moved up a sizzling 49 per cent to Rs 13 crore ( 8.7 crore) turning in a non annualised EPS of Rs 12.
-The promoter holding is a massive 72 per cent, and very conservative valuations should carry the scrip closer to a price target of Rs 270 to Rs 300.
Tuesday, September 18, 2007
Neyveli Lignite: A Powerful Story Re-told
After PTC, PFC, PGCIL is it the turn of Neyveli Lignite to raise massive resources through an Equity Offering to finance its proposed Rs 50,000 crore ($ 12.5 bn expansion)?
Opportunities & OutlookThe Power Sector is all set to grow at a faster pace with massive capacity additions in the next 10 years. The new and liberalized policy initiatives of the Government of India, are designed to welcome large scale new investments and new combines of entrepreneurship.
NLC has proven experience in lignite mining and power generation and has the required people with expertise to take up new power projects. Developments taking place in the coal and power sector do offer enormous growth opportunities for your Company to spread its wings outside Neyveli and Tamil Nadu.
NLC has submitted new project proposals, as outlined above, for the XI and XII Five Year Plan periods entailing an investment outlay of about Rs 50,000 crore. All the new projects are expected to have the latest technology, the lowest possible cost structure and the shortest time schedule. With due attention to cost, technology and environment parameters, the time ahead for your Company is promising and rewarding and I am sure, NLC can encash this opportunity
Performance Highlights 2006-07
Physical
The lignite production for the year 2006-07 was 210.14 Lakh Tonnes (LT) (previous year 204.35 LT) and the power generation was 15786.58 Million Units (MU) (previous year 16242.42 MU).
- The lignite production from Mine-I was 105.48 LI (previous year 102.72 LT). This was the highest production from Mine-I in any year since inception exceeding the installed capacity of 105 LT.
- The lignite production of 38.04 LT from Mine-IA during the year 2005-07 (previous year 37.35 LT) was the highest ever from this Mine since inception, and for the third year in succession, the production exceeded the installed capacity of 30 LT.
- The overburden removal from all the mines for the year 2006-07 was 1280.70 Lakh Cubic Metres (LM3) (previous year 1196.59 LM3) and the highest in any year since inception.- Thermal Power Station-I Expansion Plant achieved a Plant Load Factor (PLF) of 88.76% which is the highest since inception of this project and the PLF of this station has crossed the 80% mark for the 3rd successive year.
Financials
For the year 2006-07 your Company recorded a Sales turnover of Rs 2108.11 crore (previous year Rs 2201.41 crore). The profit before tax for the year ended March 31, 2007 was Rs 874.66 crore (previous year Rs 987.39 crore) while the net profit after tax was Rs 566.78 crore (previous year Rs 702.35 crore).
Performance in 2007-08
NLC has kept up its impressive performance in the first quarter of the current year. Overburden removal from Mine-IA, power generation from TPS-II and total power generation for the Company as a whole, achieved during the first quarter of the current year, were the highest for any quarter since inception. The lignite production during the first four months ended July 31, 2007 was 74.96 LT (corresponding period in the previous year 65.48 LT), recording an increase of 14.48%. Generation and export of power for the four months of the current financial year were 6499.17 MU and 5545.19 MU respectively as compared to 5266.23 MU and 4447.24 MU respectively recorded during the same period in the last financial year. The Company recorded a PLF of 89% in the first four months of the current year (corresponding period of previous year 72%).
During the current financial year 2007-08, for the four months ended July 31, 2007, your Company has recorded a sales turnover of Rs 1025.11 crore (corresponding period in the previous year Rs 850.78 crore).
The profit before tax for the four months ended July 31, 2007 was Rs 512.59 crore (corresponding period in the previous year Rs 404.73 crore) while the net profit after tax for the said period in the current year is Rs 346.58 crore as compared to Rs 293.22 crore, for the same period in the financial year 2006-07.
Expansion Programme
NLC has chalked out ambitious expansion plans for adding up its mining as well as power generation capacity. By the end of XII Plan, the lignite mining capacity has been proposed to be expanded to 61.9 MTPA (from 24 MTPA) and the power generation capacity to 11990 MW (from 2490 MW) at present.The proposed capacity addition will be from projects under implementation and through projects under formulation and I would like to dwelve briefly on these projects.
Projects Under Implementation:
a. Mine-II Expansion (10.5 MTPA to 15.0 MTPA) linked to Thermal Power Station-IT Expansion (1470 MW to 1970 MW)This mining project, now under implementation at a capital cost of Rs 2161.28 crore, is expected to attain full capacity by June 2009. The first overburden system is expected to be commissioned by December 2007 / January 2008. This lignite mine will be the fuel source for the Thermal Power Station-II Expansion Project, now under implementation at a capital cost of Rs 2030.78 crore
Erection of major inning equipments is in progress while erection of few of the major equipments have already been completed as per the project schedule. BHEL has been awarded the main plant package for the thermal project and orders have also been placed for other packages. Civil works are in progress for all packages. The first unit is scheduled to be commissioned by February 2009 and the second unit by June 2009.
b. Barsingsar Mine Project (2.1 MTPA) linked to Barsingsar Thermal Power Project (250 MW)The Barsingsar Mine Project is being implemented by your Company at a capital cost of Rs 254.07 crore. This mine is scheduled to attain full capacity by June 2009. The linked thermal power project which is also under implementation at Barsingsar, at a cost of Rs 1114.18 crore, is progressing well. The first unit of the power plant is expected to be commissioned at the end of December 2008 and the second unit by June 2009.The overburden removal at Barsingsar Mine Project till July 2007 was 41.65 LM3 against the target of 33.68 LM3. Civil works are in progress in respect of all packages. Turbine structural erection is in progress and lifting of boiler drum for Unit-I has been completed.Upon commissioning of the above projects, the total lignite mining capacity of your Company would increase from the present 24.0 MTPA to 30.6 MTPA and the power generation capacity from the present 2490 MW to 3240 MW
New Projects:
The projects under consideration by your Company are as under;a. Coal based Thermal Power Plant at Tuticorin (2x500 MW) As Members may be aware, your Company has entered into a Joint Venture Agreement with Tamil Nadu Electricity Board (TNEB) and floated the Joint Venture Company, NLC Tamil Nadu Power Ltd, for setting up of 1000 MW coal based thermal power plant at Tuticorin, in the State of Tamil Nadu, at an estimated cost of about Rs 4909.54 crore, for supply of power to Southern Regional States.
The Public Investment Board (PIB) has already considered the project for sanction by Government of India (GOI). Approval of the GOI for the project is expected shortly. The project is expected to be commissioned within 48 months from the date of approval by GOI.
b. Jayamkondam Mine (9 MTPA)-cum-Thermal Power Project (1000 MW)NLC has proposed to implement a lignite mine-cum-power project at Jayamkondam in the State of Tamil Nadu at a total estimated cost of Rs 6300 crore. Preparation of Feasibility Report and Environment study for both Mine and Thermal projects are in progress
C. Barsingsar Thermal Power Project Extension (250 MW) with linked Mine (2.1 MTPA) at Bithnok & Hadla in Rajasthan
NLC has proposed to set up a Mine-cum-Thermal Power project at Bithnok, at an estimated cost of Rs 1690 crore. Preparation of Mining plan and Mine project Feasibility Report are under process. Draft Feasibility Report for thermal power project, has been received and the same is under consideration. Preparation of feasibility report for Hadla block will be taken up separately in due course
d. Power Plant (500 MW) with linked Lignite Mine (4.2 MTPA) at Riri in RajasthanA power plant and lignite mine at Riri in the State of Rajasthan has also been proposed to be set up by your Company, at an estimated cost of Rs 3060 crore. Detailed exploration is being carried out by Mineral Exploration Corporation Ltd (MECL). Feasibility Report for the mine project is under preparation. After the completion of exploration by MECL, the Feasibility Report for the Thermal Power project will be prepared
e. Coal based Thermal Power Plant at Orissa (4x500 MW)A coal based power plant, at an estimated capital cost of Rs 8000 crore has been proposed by NLC to be set up at Orissa. The coal for this project will be supplied by Mahanadi Coalfields Ltd (MCL). Draft Feasibility Study and Environment Study have been received and the same are under consideration. A joint Venture Agreement with MCL and Hindalco has been executed for setting up a Joint Venture Company for mining coal from Talabira II & III blocks and your Company's share of coal mined by the JV Company will also be used for power generation.
f. Gujarat Power Project (1000 MW) with linked Lignite Mine (8 MTPA)NLC in joint venture with Gujarat Power Corporation Ltd has plans to set up a Mine project in the State of Gujarat, at an estimated cost of Rs 5640 crore Feasibility Reports for the mine and thermal power projects are under preparation. g. Mine-III (8 MIPA) & Thermal Power Station-III (2x500 MW) at Neyveli
With a view to bring down the lignite mining cost and making the project viable, your Company is exploring alternative liming technology for Mine III. Members may be aware, the US Trade and Development Agency (USTDA) has given a grant of US $ 360,000 for preparation of Feasibility Report for the mining project with alternative mining technology.
Preparation of Feasibility Report with alternative mining technology option has been entrusted to a Consultant and the final report is expelled shortly. The Feasibility Report for the Power project will be finalized after firming up the frame work for Feasibility Report for the Mine.
NLC is also co-ordinating with Northern Coal Fields Ltd, Central Coal Fields Ltd and South Eastern Coal Fields Ltd, the subsidiary Companies of Coal India Ltd, for setting up of coal mine / power projects, as Joint Ventures. In addition to the above projects planned, NLC also intends to develop Underground Coal Gasification (UCG) projects, in order to tap deep seated as well as the shallow lignite deposits which are not amenable to conventional mining. For this purpose an agreement has been entered into with ONGC and suitable lignite blocks have also been identified for development of this project
Opportunities & OutlookThe Power Sector is all set to grow at a faster pace with massive capacity additions in the next 10 years. The new and liberalized policy initiatives of the Government of India, are designed to welcome large scale new investments and new combines of entrepreneurship.
NLC has proven experience in lignite mining and power generation and has the required people with expertise to take up new power projects. Developments taking place in the coal and power sector do offer enormous growth opportunities for your Company to spread its wings outside Neyveli and Tamil Nadu.
NLC has submitted new project proposals, as outlined above, for the XI and XII Five Year Plan periods entailing an investment outlay of about Rs 50,000 crore. All the new projects are expected to have the latest technology, the lowest possible cost structure and the shortest time schedule. With due attention to cost, technology and environment parameters, the time ahead for your Company is promising and rewarding and I am sure, NLC can encash this opportunity
Performance Highlights 2006-07
Physical
The lignite production for the year 2006-07 was 210.14 Lakh Tonnes (LT) (previous year 204.35 LT) and the power generation was 15786.58 Million Units (MU) (previous year 16242.42 MU).
- The lignite production from Mine-I was 105.48 LI (previous year 102.72 LT). This was the highest production from Mine-I in any year since inception exceeding the installed capacity of 105 LT.
- The lignite production of 38.04 LT from Mine-IA during the year 2005-07 (previous year 37.35 LT) was the highest ever from this Mine since inception, and for the third year in succession, the production exceeded the installed capacity of 30 LT.
- The overburden removal from all the mines for the year 2006-07 was 1280.70 Lakh Cubic Metres (LM3) (previous year 1196.59 LM3) and the highest in any year since inception.- Thermal Power Station-I Expansion Plant achieved a Plant Load Factor (PLF) of 88.76% which is the highest since inception of this project and the PLF of this station has crossed the 80% mark for the 3rd successive year.
Financials
For the year 2006-07 your Company recorded a Sales turnover of Rs 2108.11 crore (previous year Rs 2201.41 crore). The profit before tax for the year ended March 31, 2007 was Rs 874.66 crore (previous year Rs 987.39 crore) while the net profit after tax was Rs 566.78 crore (previous year Rs 702.35 crore).
Performance in 2007-08
NLC has kept up its impressive performance in the first quarter of the current year. Overburden removal from Mine-IA, power generation from TPS-II and total power generation for the Company as a whole, achieved during the first quarter of the current year, were the highest for any quarter since inception. The lignite production during the first four months ended July 31, 2007 was 74.96 LT (corresponding period in the previous year 65.48 LT), recording an increase of 14.48%. Generation and export of power for the four months of the current financial year were 6499.17 MU and 5545.19 MU respectively as compared to 5266.23 MU and 4447.24 MU respectively recorded during the same period in the last financial year. The Company recorded a PLF of 89% in the first four months of the current year (corresponding period of previous year 72%).
During the current financial year 2007-08, for the four months ended July 31, 2007, your Company has recorded a sales turnover of Rs 1025.11 crore (corresponding period in the previous year Rs 850.78 crore).
The profit before tax for the four months ended July 31, 2007 was Rs 512.59 crore (corresponding period in the previous year Rs 404.73 crore) while the net profit after tax for the said period in the current year is Rs 346.58 crore as compared to Rs 293.22 crore, for the same period in the financial year 2006-07.
Expansion Programme
NLC has chalked out ambitious expansion plans for adding up its mining as well as power generation capacity. By the end of XII Plan, the lignite mining capacity has been proposed to be expanded to 61.9 MTPA (from 24 MTPA) and the power generation capacity to 11990 MW (from 2490 MW) at present.The proposed capacity addition will be from projects under implementation and through projects under formulation and I would like to dwelve briefly on these projects.
Projects Under Implementation:
a. Mine-II Expansion (10.5 MTPA to 15.0 MTPA) linked to Thermal Power Station-IT Expansion (1470 MW to 1970 MW)This mining project, now under implementation at a capital cost of Rs 2161.28 crore, is expected to attain full capacity by June 2009. The first overburden system is expected to be commissioned by December 2007 / January 2008. This lignite mine will be the fuel source for the Thermal Power Station-II Expansion Project, now under implementation at a capital cost of Rs 2030.78 crore
Erection of major inning equipments is in progress while erection of few of the major equipments have already been completed as per the project schedule. BHEL has been awarded the main plant package for the thermal project and orders have also been placed for other packages. Civil works are in progress for all packages. The first unit is scheduled to be commissioned by February 2009 and the second unit by June 2009.
b. Barsingsar Mine Project (2.1 MTPA) linked to Barsingsar Thermal Power Project (250 MW)The Barsingsar Mine Project is being implemented by your Company at a capital cost of Rs 254.07 crore. This mine is scheduled to attain full capacity by June 2009. The linked thermal power project which is also under implementation at Barsingsar, at a cost of Rs 1114.18 crore, is progressing well. The first unit of the power plant is expected to be commissioned at the end of December 2008 and the second unit by June 2009.The overburden removal at Barsingsar Mine Project till July 2007 was 41.65 LM3 against the target of 33.68 LM3. Civil works are in progress in respect of all packages. Turbine structural erection is in progress and lifting of boiler drum for Unit-I has been completed.Upon commissioning of the above projects, the total lignite mining capacity of your Company would increase from the present 24.0 MTPA to 30.6 MTPA and the power generation capacity from the present 2490 MW to 3240 MW
New Projects:
The projects under consideration by your Company are as under;a. Coal based Thermal Power Plant at Tuticorin (2x500 MW) As Members may be aware, your Company has entered into a Joint Venture Agreement with Tamil Nadu Electricity Board (TNEB) and floated the Joint Venture Company, NLC Tamil Nadu Power Ltd, for setting up of 1000 MW coal based thermal power plant at Tuticorin, in the State of Tamil Nadu, at an estimated cost of about Rs 4909.54 crore, for supply of power to Southern Regional States.
The Public Investment Board (PIB) has already considered the project for sanction by Government of India (GOI). Approval of the GOI for the project is expected shortly. The project is expected to be commissioned within 48 months from the date of approval by GOI.
b. Jayamkondam Mine (9 MTPA)-cum-Thermal Power Project (1000 MW)NLC has proposed to implement a lignite mine-cum-power project at Jayamkondam in the State of Tamil Nadu at a total estimated cost of Rs 6300 crore. Preparation of Feasibility Report and Environment study for both Mine and Thermal projects are in progress
C. Barsingsar Thermal Power Project Extension (250 MW) with linked Mine (2.1 MTPA) at Bithnok & Hadla in Rajasthan
NLC has proposed to set up a Mine-cum-Thermal Power project at Bithnok, at an estimated cost of Rs 1690 crore. Preparation of Mining plan and Mine project Feasibility Report are under process. Draft Feasibility Report for thermal power project, has been received and the same is under consideration. Preparation of feasibility report for Hadla block will be taken up separately in due course
d. Power Plant (500 MW) with linked Lignite Mine (4.2 MTPA) at Riri in RajasthanA power plant and lignite mine at Riri in the State of Rajasthan has also been proposed to be set up by your Company, at an estimated cost of Rs 3060 crore. Detailed exploration is being carried out by Mineral Exploration Corporation Ltd (MECL). Feasibility Report for the mine project is under preparation. After the completion of exploration by MECL, the Feasibility Report for the Thermal Power project will be prepared
e. Coal based Thermal Power Plant at Orissa (4x500 MW)A coal based power plant, at an estimated capital cost of Rs 8000 crore has been proposed by NLC to be set up at Orissa. The coal for this project will be supplied by Mahanadi Coalfields Ltd (MCL). Draft Feasibility Study and Environment Study have been received and the same are under consideration. A joint Venture Agreement with MCL and Hindalco has been executed for setting up a Joint Venture Company for mining coal from Talabira II & III blocks and your Company's share of coal mined by the JV Company will also be used for power generation.
f. Gujarat Power Project (1000 MW) with linked Lignite Mine (8 MTPA)NLC in joint venture with Gujarat Power Corporation Ltd has plans to set up a Mine project in the State of Gujarat, at an estimated cost of Rs 5640 crore Feasibility Reports for the mine and thermal power projects are under preparation. g. Mine-III (8 MIPA) & Thermal Power Station-III (2x500 MW) at Neyveli
With a view to bring down the lignite mining cost and making the project viable, your Company is exploring alternative liming technology for Mine III. Members may be aware, the US Trade and Development Agency (USTDA) has given a grant of US $ 360,000 for preparation of Feasibility Report for the mining project with alternative mining technology.
Preparation of Feasibility Report with alternative mining technology option has been entrusted to a Consultant and the final report is expelled shortly. The Feasibility Report for the Power project will be finalized after firming up the frame work for Feasibility Report for the Mine.
NLC is also co-ordinating with Northern Coal Fields Ltd, Central Coal Fields Ltd and South Eastern Coal Fields Ltd, the subsidiary Companies of Coal India Ltd, for setting up of coal mine / power projects, as Joint Ventures. In addition to the above projects planned, NLC also intends to develop Underground Coal Gasification (UCG) projects, in order to tap deep seated as well as the shallow lignite deposits which are not amenable to conventional mining. For this purpose an agreement has been entered into with ONGC and suitable lignite blocks have also been identified for development of this project
Neyveli Lignite: Time to Stock Up
Every investor needs to understand--and invest maybe just a little--in alternative energy. This might mean wind power (Suzlon Energy, with its turbines, is the way to go here), bio-refineries or ethanol.
But my money's on Lignite. Yes--Lignite.
A new process takes low-grade, water-logged, $6-a-ton Tamil Nadu or Gujarat coast Lignite, and converts into a clean liquid fuel worth the equivalent of $ 77 a barrel.
The process is expensive but several factors make K-fuel, as it's called, work:
It cuts our dependency.
The West Coast especially Gujarat and the South Eastern state of Tamil Nadu with the Neyveli Lignite mines sit atop a larger store of energy than Saudi Arabia. It's simply in the form of Lignite, not oil.
Unfortunately, lignite is a poor cousin of Coal but this is where you should invest. No less than 140 new Lignite/Coal-fired power plants are about to be built over the next 5 years.
This is more than at any time since the 1950s. Lignite is the new favorite alternative to oil.
The biggest advantages with Neyveli Lignite are technical.
-After NTPC it is the largest power generating company in the listed domain.
-95 per cent of the Equity is with the GOI.
-2.8 per cent of the Equity is held by LIC.
-The Lignite Deposits in Tamil Nadu State can last another 130 years.
-Neyveli already produces close to 10 Mn Tonnes of Lignite a year and 1500 MW of Power.
-At a cost of Rs 5500 crore, the Mine capacities are to be doubled and Power capacities raised to 2500 MW over the next 3-5 years.
-The Corporate has tied-up with Private Sector concerns to tap the potential of Coal Bed Methane gas.
-It has undertaken mining leases in Gujarat, another State that has Lignite reserves that could last another 40 to 50 years.
-More importantly, Neyveli Lignite has entered into a JV with the Coal India subsidiary Mahanadi Coal Fields to open up new Coal mines in Orissa, where Neyveli will own a 30 per cent stake.
-Top it all, with converting Lignite into Diesel.
The biggest advantage of all, is the fact that Lignite is clean.
Lignite's big drawback has always been that it burns dirty. Clean it up, convert it into liquid diesel, and you've turned low-grade coal you'd otherwise discard in slag heaps into a $4-a-gallon at the pump high-test. Pure alchemy.
It's making early investors rich.
Call it the Spindletop Effect. The U.S. company that has lead the K-fuel revolution is up 73% in the last three years. Sooner or later both Neyveli Lignite and Gujarat Mineral Development should be tying up with the American Corporation for converting Lignite into Oil. The last three years prove that the technology is viable and can be replicated elsewhere.
Oil is at $ 77 for starters. And Sasol, the South African blue chip, has created a $20 billion business out of converting low-grade coal to diesel.
The fact that Sasol is also up 167% in three years tells you: the clean coal solution is for real.
Sasol signed a joint-venture with ChevronTexaco to produce a gas-to-liquid plant and GE has teamed up with American Electric Power to produce gas from coal by 2010.
More and more, it looks like coal--and especially clean coal--needs to be in your portfolio. GMDC has had its day in the sun, now topping Rs 1000 per share but Neyveli has been stuck in the Rs 54 to Rs 80 range for the last four years.
Time for Investors to stock up.
But my money's on Lignite. Yes--Lignite.
A new process takes low-grade, water-logged, $6-a-ton Tamil Nadu or Gujarat coast Lignite, and converts into a clean liquid fuel worth the equivalent of $ 77 a barrel.
The process is expensive but several factors make K-fuel, as it's called, work:
It cuts our dependency.
The West Coast especially Gujarat and the South Eastern state of Tamil Nadu with the Neyveli Lignite mines sit atop a larger store of energy than Saudi Arabia. It's simply in the form of Lignite, not oil.
Unfortunately, lignite is a poor cousin of Coal but this is where you should invest. No less than 140 new Lignite/Coal-fired power plants are about to be built over the next 5 years.
This is more than at any time since the 1950s. Lignite is the new favorite alternative to oil.
The biggest advantages with Neyveli Lignite are technical.
-After NTPC it is the largest power generating company in the listed domain.
-95 per cent of the Equity is with the GOI.
-2.8 per cent of the Equity is held by LIC.
-The Lignite Deposits in Tamil Nadu State can last another 130 years.
-Neyveli already produces close to 10 Mn Tonnes of Lignite a year and 1500 MW of Power.
-At a cost of Rs 5500 crore, the Mine capacities are to be doubled and Power capacities raised to 2500 MW over the next 3-5 years.
-The Corporate has tied-up with Private Sector concerns to tap the potential of Coal Bed Methane gas.
-It has undertaken mining leases in Gujarat, another State that has Lignite reserves that could last another 40 to 50 years.
-More importantly, Neyveli Lignite has entered into a JV with the Coal India subsidiary Mahanadi Coal Fields to open up new Coal mines in Orissa, where Neyveli will own a 30 per cent stake.
-Top it all, with converting Lignite into Diesel.
The biggest advantage of all, is the fact that Lignite is clean.
Lignite's big drawback has always been that it burns dirty. Clean it up, convert it into liquid diesel, and you've turned low-grade coal you'd otherwise discard in slag heaps into a $4-a-gallon at the pump high-test. Pure alchemy.
It's making early investors rich.
Call it the Spindletop Effect. The U.S. company that has lead the K-fuel revolution is up 73% in the last three years. Sooner or later both Neyveli Lignite and Gujarat Mineral Development should be tying up with the American Corporation for converting Lignite into Oil. The last three years prove that the technology is viable and can be replicated elsewhere.
Oil is at $ 77 for starters. And Sasol, the South African blue chip, has created a $20 billion business out of converting low-grade coal to diesel.
The fact that Sasol is also up 167% in three years tells you: the clean coal solution is for real.
Sasol signed a joint-venture with ChevronTexaco to produce a gas-to-liquid plant and GE has teamed up with American Electric Power to produce gas from coal by 2010.
More and more, it looks like coal--and especially clean coal--needs to be in your portfolio. GMDC has had its day in the sun, now topping Rs 1000 per share but Neyveli has been stuck in the Rs 54 to Rs 80 range for the last four years.
Time for Investors to stock up.
Rakesh Jhunjhunwala
It is 12.30 pm at RaRe Enterprises, Nariman Bhavan. There are five monitors showing more red than blue. The market is facing a blood bath. The Sensex is falling. In the thick of the action, Rakesh Jhunjhunwala turns from these screens, he is unruffled.
There is a massacre happening as investors lose wealth but Mr Jhunjhunwala looks at you almost bored and says "lets not discuss the markets". The biggest investor in India is chewing paan as he loses wealth on his screens. He lights a cigarette. He loosens his white shirt. He has not worn a tie for the last five years.
"I know I am losing wealth but should I let this bother me? I don't think so. I would be crazy to look at my wealth like this. I believe that India stands on strong fundamental grounds and over a period things are only positive. But please do not interpret this as Rakesh Jhunjunwalla is saying that the Sensex is going to touch 40000. Some day it may touch. But who knows when?"
For a man who purchased Tata Tea for Rs 5000 when he was only fifteen years old, Rakesh Jhunjhunwala has a total networth of ap-proximately Rs 6000 crore along with his wife Rekha Jhunjhunwala. The exact value of the portfolio is something he doesn't like to talk about.
He doesn't have any rules for his science of investing. But his ap-proach is fundamental and takes a long-term view thus he is also re-ferred as the Warren Buffet of India. Jhunjhunwala has never met Warren Buffet but admires and even follows his style of investment.
"Don't insult the great man by comparing me to him. I am young and I'm constantly learning. There is so much to learn from others." He pauses and refuses a phone call from a big corporate house in India. "But at the end of the day I want to be only Rakesh Jhunjhunwala and nobody else", he says.
Retail investors, analysts and fund managers always want to know what he is buying. Everybody wants to be a part of Rakesh's stocks. He knows that. He leans back and looks at you and tells you that he is not an advisor or a fund manager.
He and his wife came into the limelight with Crisil Limited. At the end of April 2005 he was holding 14.26% of the company, accounting for Rs 70 crore. In the same year the couple made Rs 27 crore after they sold out to the S&P open offer at Rs 775 per share. Today his in-vestment in Crisil is worth more than 200 crore and the holding accounts for 7.63% of the entire company. In all the companies that he has invested, it is this investment that has given him his famed mo-ments.
In India, bull runs have been associated with certain individuals. In the nineties it was Harshad Mehta and in early 2000 it was Ketan Parekh. But Jhunjhunwala does not like to be associated with any booms. He believes that the market is above individuals. Individuals can be associated to excesses in the markets, but not to the phase of the markets itself, he believes. It is like if the market is at a P/E multiple of 20, an individual might just make investors believe that the P/E should be 22. He thinks that individuals who believe that they are bigger than the markets do not last for a long time.
"The market is rational. An individual can never be smarter than the market", he says and his phone rings. Someone wants to sell him a credit card or personal loans. He politely refuses and drags on his cigarette.
"The market is about greed and fear. Sometimes there is too much greed and sometimes there is too much fear. It has a lot to do with the psychology of the market. You have to sometimes read the market like you read an individual", he adds.
But Mr Jhunjhunwala has not taken any courses in psychology or behaviorial finance to understand the psychology of the market. He has always believed that psychology cannot be learnt in classrooms. He has learnt his lessons in finance by practicing them and never believed in borrowed wisdom. He has liked his experience first hand. "I have experienced the markets from its core. You know I was there during the day of the bomb blasts when it happened. I have seen ups and downs so my understanding of the market is from being in there".
That is probably why international fund managers like to spend time with him to understand the Indian equity market. He meets at-least two international fund managers a week. Probably that is where he markets or tries to sell the India story to the global equity fund managers. He doesn't like it when he is referred in this context.
"How can you sell the Indian equity to the global fund manager? Is it an FMCG product like toothpaste or a shampoo? These fund managers are here because they believe in the fundamentals of the country. Not because a Rakesh Jhunjhunwala wants them to buy Indian equity". He gets slightly excited.
Incidentally, foreign investors are selling Indian equity as global markets are facing a liquidity crisis. Those who have purchased the India story are jittery. Highly leveraged funds that invest into global markets based on borrowed money are facing the heat. They have purchased assets that they are not able to value. They don't even un-derstand the nature of these assets.
As the ground beneath their feet starts to shake, Rakesh Jhunjhunwala sits firm. He was in Lonavala watching movies when the crisis was very severe. He is patient and knows that this shall also pass. The red on the screen will turn to blue. The market will once again be the winner. Mr Jhunjhunwala will remember this. His greatest fear - he might fall prey to his own philosophy. The market will remain above all individuals.
At a time when the market is going through volatility and an uncertain phase, Jhunjhunwala has no advice for the investors. "I don't advice anybody. I don't manage anybody's money. I manage my wife's money because I don't have a choice." He smiles and stubs his cigarette
There is a massacre happening as investors lose wealth but Mr Jhunjhunwala looks at you almost bored and says "lets not discuss the markets". The biggest investor in India is chewing paan as he loses wealth on his screens. He lights a cigarette. He loosens his white shirt. He has not worn a tie for the last five years.
"I know I am losing wealth but should I let this bother me? I don't think so. I would be crazy to look at my wealth like this. I believe that India stands on strong fundamental grounds and over a period things are only positive. But please do not interpret this as Rakesh Jhunjunwalla is saying that the Sensex is going to touch 40000. Some day it may touch. But who knows when?"
For a man who purchased Tata Tea for Rs 5000 when he was only fifteen years old, Rakesh Jhunjhunwala has a total networth of ap-proximately Rs 6000 crore along with his wife Rekha Jhunjhunwala. The exact value of the portfolio is something he doesn't like to talk about.
He doesn't have any rules for his science of investing. But his ap-proach is fundamental and takes a long-term view thus he is also re-ferred as the Warren Buffet of India. Jhunjhunwala has never met Warren Buffet but admires and even follows his style of investment.
"Don't insult the great man by comparing me to him. I am young and I'm constantly learning. There is so much to learn from others." He pauses and refuses a phone call from a big corporate house in India. "But at the end of the day I want to be only Rakesh Jhunjhunwala and nobody else", he says.
Retail investors, analysts and fund managers always want to know what he is buying. Everybody wants to be a part of Rakesh's stocks. He knows that. He leans back and looks at you and tells you that he is not an advisor or a fund manager.
He and his wife came into the limelight with Crisil Limited. At the end of April 2005 he was holding 14.26% of the company, accounting for Rs 70 crore. In the same year the couple made Rs 27 crore after they sold out to the S&P open offer at Rs 775 per share. Today his in-vestment in Crisil is worth more than 200 crore and the holding accounts for 7.63% of the entire company. In all the companies that he has invested, it is this investment that has given him his famed mo-ments.
In India, bull runs have been associated with certain individuals. In the nineties it was Harshad Mehta and in early 2000 it was Ketan Parekh. But Jhunjhunwala does not like to be associated with any booms. He believes that the market is above individuals. Individuals can be associated to excesses in the markets, but not to the phase of the markets itself, he believes. It is like if the market is at a P/E multiple of 20, an individual might just make investors believe that the P/E should be 22. He thinks that individuals who believe that they are bigger than the markets do not last for a long time.
"The market is rational. An individual can never be smarter than the market", he says and his phone rings. Someone wants to sell him a credit card or personal loans. He politely refuses and drags on his cigarette.
"The market is about greed and fear. Sometimes there is too much greed and sometimes there is too much fear. It has a lot to do with the psychology of the market. You have to sometimes read the market like you read an individual", he adds.
But Mr Jhunjhunwala has not taken any courses in psychology or behaviorial finance to understand the psychology of the market. He has always believed that psychology cannot be learnt in classrooms. He has learnt his lessons in finance by practicing them and never believed in borrowed wisdom. He has liked his experience first hand. "I have experienced the markets from its core. You know I was there during the day of the bomb blasts when it happened. I have seen ups and downs so my understanding of the market is from being in there".
That is probably why international fund managers like to spend time with him to understand the Indian equity market. He meets at-least two international fund managers a week. Probably that is where he markets or tries to sell the India story to the global equity fund managers. He doesn't like it when he is referred in this context.
"How can you sell the Indian equity to the global fund manager? Is it an FMCG product like toothpaste or a shampoo? These fund managers are here because they believe in the fundamentals of the country. Not because a Rakesh Jhunjhunwala wants them to buy Indian equity". He gets slightly excited.
Incidentally, foreign investors are selling Indian equity as global markets are facing a liquidity crisis. Those who have purchased the India story are jittery. Highly leveraged funds that invest into global markets based on borrowed money are facing the heat. They have purchased assets that they are not able to value. They don't even un-derstand the nature of these assets.
As the ground beneath their feet starts to shake, Rakesh Jhunjhunwala sits firm. He was in Lonavala watching movies when the crisis was very severe. He is patient and knows that this shall also pass. The red on the screen will turn to blue. The market will once again be the winner. Mr Jhunjhunwala will remember this. His greatest fear - he might fall prey to his own philosophy. The market will remain above all individuals.
At a time when the market is going through volatility and an uncertain phase, Jhunjhunwala has no advice for the investors. "I don't advice anybody. I don't manage anybody's money. I manage my wife's money because I don't have a choice." He smiles and stubs his cigarette
Electrosteel Castings : Making Water Move
Electrosteel Castings: Making Water Move
BSE 500128; CMP Rs 54
The biggest spun pipe manufacturer in the country-Electrosteel Castings is entering a new era of exciting growth, which will propel the corporate into the big league of Integrated Steel producers like Tata Steel and Jindals.
For nearly 5 decades Electrosteel has made a name for itself in manufacturing Steel Spun pipes which are used for Civilian Water works across the country. Infact, the Electrosteel name is synonymous with the phrase "Making Water Move".
Some of the biggest water supply pipelines in the arid regions of Andhra Pradesh, Tamil Nadu and Karnataka have Electrosteel's spun pipes as the backbone. The corporate has also established its manufacturing footprint in parts of Asia and Europe, to serve local markets and meeting out the threat of import sanctions on third world imports.
The successful business strategy deployed by Electrosteel Castings is handed out as standard course material to budding management students at the HarvardBusinessSchool.
The financials speak for themselves. The corporate recorded a 18 per cent jump in Revenues at Rs 1123 crore in FY07, with after tax profits of Rs 106 crore (Rs 76 crore), a jump of 40 per cent.
FY07 EPS was placed at Rs 5 per share (Rs 3.7 per share), and Electrosteel paid out a record dividend of Rs 12.5 per share.
The promoter interest is close to 53 per cent and the FII/FI/MF holding is another 20 per cent. Leaving a small float with the public.
Electrosteel is now ready for its second leg of expansion worth Rs 10000 crore, which will be invested over the next 36 months.
This will include a 1 million tonne integrated steel plant with dedicated iron ore and coal mines to be set up under a new entity by the name of Electrosteel Integrated.
Electrosteel Castings will be investing Rs 500 crore as Equity into the project, with the promoters providing as much as Rs 100 crore by taking a preferential allotment of 20 lakh shares as per the Sebi pricing formula for preferential offers.
BSE 500128; CMP Rs 54
The biggest spun pipe manufacturer in the country-Electrosteel Castings is entering a new era of exciting growth, which will propel the corporate into the big league of Integrated Steel producers like Tata Steel and Jindals.
For nearly 5 decades Electrosteel has made a name for itself in manufacturing Steel Spun pipes which are used for Civilian Water works across the country. Infact, the Electrosteel name is synonymous with the phrase "Making Water Move".
Some of the biggest water supply pipelines in the arid regions of Andhra Pradesh, Tamil Nadu and Karnataka have Electrosteel's spun pipes as the backbone. The corporate has also established its manufacturing footprint in parts of Asia and Europe, to serve local markets and meeting out the threat of import sanctions on third world imports.
The successful business strategy deployed by Electrosteel Castings is handed out as standard course material to budding management students at the HarvardBusinessSchool.
The financials speak for themselves. The corporate recorded a 18 per cent jump in Revenues at Rs 1123 crore in FY07, with after tax profits of Rs 106 crore (Rs 76 crore), a jump of 40 per cent.
FY07 EPS was placed at Rs 5 per share (Rs 3.7 per share), and Electrosteel paid out a record dividend of Rs 12.5 per share.
The promoter interest is close to 53 per cent and the FII/FI/MF holding is another 20 per cent. Leaving a small float with the public.
Electrosteel is now ready for its second leg of expansion worth Rs 10000 crore, which will be invested over the next 36 months.
This will include a 1 million tonne integrated steel plant with dedicated iron ore and coal mines to be set up under a new entity by the name of Electrosteel Integrated.
Electrosteel Castings will be investing Rs 500 crore as Equity into the project, with the promoters providing as much as Rs 100 crore by taking a preferential allotment of 20 lakh shares as per the Sebi pricing formula for preferential offers.
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