N-powering India - Wait & Watch

India needs more power. The country's peak time power shortfall is 14.8% of demand
and this gap is expected to widen. Currently, India's total power generation stands at 124 GW. Of that, coal comprises 55%, hydroelectric 26%, natural gas 10%, renewable
5% and nuclear energy only 3%.

Background of the India-US nuclear deal

The primary reason for India's poor nuclear power production has been chronic
uranium shortage, which incidentally was the main driving force for the India-US
nuclear deal. India won the right to buy nuclear energy supplies after the 45-country
Nuclear Suppliers Group granted a waiver for sales to the country outside the nuclear Non-Proliferation Treaty on Sept. 6, 2008. This deal ends a 34-year embargo and gives India the right to buy nuclear reactors from abroad and access nuclear fuel from the global market.

Estimated market size

According to a recent McKinsey report, the demand for power is likely to rise from the current ~120 GW to ~360 GW by 2017. The total power generation capacity will have to be pushed up by ~240 GW. Assuming that the share of nuclear energy grows to 7% (as estimated by many analysts), India would need nuclear power generation of ~25,000 MW. Also, if we assume that all nuclear power reactors are of 1000 MW size, with each costing ~USD 4 billion, the total market size, in terms of value, would be ~USD 100 billion.

Market structure and players

The nuclear power generation business is capital-intensive. A nuclear power plant costs Rs. 18-19 crore per MW capacity to build, against Rs 4-5 crore for a coal-fired plant or Rs 3-4 crore for one running on gas. So, the ensuing market structure is likely to omprise of many large sized players and still be fragmented in nature. For instance, USD 1.2 billion GVK group, BHEL, L&T, Tata Power, Jindal and Videocon are among the 40 companies in contention for contracts to build nuclear reactors and ancillary infrastructure. This fragmented market structure may result in priceundercutting and lower returns on investment (ROI) initially for all players. Currently, only one player, Nuclear Power Corporation of India Ltd (NPCIL), with an installed capacity of 6,500 MW, operates in the market. NPCIL operates only 40% of its capacity, mainly on account of lack of uranium supplies.

Drivers

Huge market size: The opportunity worth USD 100 billion is the prime driver for the market. Almost 40 domestic companies were vying to enter the market even before the US Congress cleared the deal. Cost structure of the business: In a conventional plant, fuel costs constitute 50% of the total cost and capital expenditure constitutes the remaining 50%. In a nuclear plant, the capital expenditure makes up for 80% of the total cost while fuel costs account for only 20% of the total cost. In the long term, a nuclear plant becomes cheaper to run than a conventional unit. This implies that the business will be of a fixed cost nature and will not be subject to the vagaries of raw material prices.

Entry Barriers

India's Atomic Energy Act of 1962 allows only government-owned companies i.e. with at least a 51% GOI (Government of India) stake, to enter the market. However, this will be amended soon to allow private players to enter the market.

Lack of a public-private partnership (PPP) model: This model is needed to sort out issues like power purchase agreements, tariffs, taxes and liabilities in the event of an accident. Currently, the GOI bears the liability for the cost of damages, in case of an accident. Long gestation period and high initial costs: A nuclear plant takes 3-5 years to build as against 2-3 years for a conventional thermal plant. Also, in the initial stages, electricity from a nuclear plant costs Rs 6.5 per unit as against Rs 2.5-3.0 from conventional units. All of these may result in component supply contracts encashment only after the plant becomes operational and starts generating cash inflows. The long gestation period and low initial returns may dissuade small players from entering the market.

Opportunities

The recent financial crisis in the US is estimated to be ~USD 2 trillion in size. To fill out this void, the US government will try to increase the GDP as fast as possible. This may lead to increased sale of nuclear power technology and wares to India. The ease of availability of technology and wares may attract more players and increase the total market size. The above-mentioned opportunity may also help India to wrest the deal along with fuel supply agreements from US vendors. This will also increase competition among all foreign vendors (for instance France) and will help Indian companies in clinching better deals.

Threats

Dependence on foreign fuel supplies: This has been a threat in the past too. Although fuel supply agreements may be incorporated in the deal, there is a lack of assured indigenous supply. India's uranium mines are mainly in Jharkhand, Andhra Pradesh and Madhya Pradesh, which are Naxalite (terrorist) infested territories, and much of these mines are thus out of bounds for exploration. Another uranium ore site in Meghalaya faces serious environmental objections. There has been a good find in Domiasiat near the Bangladesh border, but that too is subject to security issues. Also, Indian uranium is poor in quality. The ore concentrations are only 300 parts per million (ppm) as against optimally required 600-700 ppm. Going forward, this will be a threat, as any consolidation among suppliers will lead to disruption of supplies and losses in the business.

Conclusion

Given the long gestation period, the earnings stream will be visible after a long time. Investors can follow a wait and watch policy for entering this market.
Credit: www.ghallabhansali.com

GDR thumbs up for Hindalco Rights

MUMBAI, October 1, 2008: The right offer to the company's GDR holders is subscribed to the extent of 99.30%.

The GDR entitlement was to the tune of 56.42 million shares, against which the subscriptions came in for 56.03 million shares.
• India's largest rights issue by Kumar Mangalam Birla promoted Hindalco is all set to sail through with the merchant bankers and FIs committing to subscribe.
• Market sources say the merchant bankers have committed to pick up 40% while FIs – LIC and GIC – agreed to pick up 15%. The promoters have already decided to buy 50% of the rights issue shares.
• Hindalco has come out with 525,802,403 equity hares with a face value of Re 1 each at a premium of Rs 95 per equity share.
• The issue size works out to Rs 5047.7 crores.
• Issue opened on September 22 and will close on October 10.
• The lead managers to the issue are: ABM AMRO Securities (India) Private Ltd, Citigroup Global Markets India Private Ltd, Deutsche Equities India Private Ltd, DSP Merrill Lynch, and SBI Capital Markets Ltd.
• Heavy demand of the Renunciation of the Rights – volume in excess of 14 million as of yesterday

Corporate blog is born

A blog dedidated to update bloggers and surfers on corporate developments in India has just been floated.
The blog has already begun to post the latest develioments on various sectors like infrastructure, IPO, housing (covering Puravankara plans), corporate battles like the one brewing on Zandu and Emami front, IPO market scan with NHPC filing its DRHP with SEBI, apart from the updates on Reliance Money, NMCE and commodity markets
Pl check: - http://corporateradar.blogspot.com/

Rickshaw loan with free mobile from SE Investments

Mumbai: S.E. Investments Ltd., a leading financial services company with particular stress on micro credit, has announced asset-based loans for rickshaw pullers, full and timely repayment of which will result in ownership. 50,000 rickshaw pullers under the scheme are targeted over the next one year, with a cumulative disbursement to the tune of Rs 45 crores.

The total loan amount of Rs 9,000 will include Rs 1,500 towards a mobile connection (lifetime incoming free) and Rs 500 towards insurance. A comprehensive scheme based on daily repayment over 400 days (with one weekly off ), it covers not only the eventual ownership of the rickshaw, but also a mobile connection, social security in terms of membership deposit, accidental insurance, repairs, maintenance, and related financial training.

Elaborating on the scheme, Mr. Sunil Agarwal, Managing Director of S.E. Investments Ltd. said, “Our concept is in happy contradiction to the existing practice in which an equivalent amount of a daily rental fee is paid to rent the vehicle, possibly for the lifetime of activity, with no scope for ownership. This is a unique style of service delivery that addresses underlying causes of poverty through asset-based entrepreneurship development.”

All the loans will be extended to the beneficiaries through trusts. The scheme will be operational through a structure managed by individual manager trustees linking about 200-250 rickshaw pullers to SEIL. The manager trustee shall oversee the functioning of the service centers; envisaged as units for provision of first aid, repairs, refreshments, restrooms and welfare activities for the rickshaw pullers availing loans under the scheme.

SEIL provides the target community with the loan to own an income-generating asset, and allied services, thereby, promoting micro entrepreneurship among urban poor and rural migrants.

About S.E. Investments Ltd.

Headquartered in Uttar Pradesh, S.E. Investments Ltd. is an upcoming financial services company that emphasizes on micro credit. SEIL promotes microcredit to women and Self Help Groups (SHGs) in both urban and rural areas. By enhancing the employability and income of women, SHIL is alleviating the poverty and living conditions of people at both macro and micro levels. To fund its operations, SEIL has tied up with leading financial institutions of the country. Credit facilities are enjoyed from Punjab National bank, ICICI Bank, Small Industries Development Bank of India, IREDA and HDFC Bank.

The company has also invested in alternate energy in Karnataka and Rajasthan. It has installed a 2.4 MW Enercon make WEG at Chitradurga, Karnataka. Another 0.8 MW Enercon make WEG is set up near Jaisalmer in Rajasthan

Birla Fin ropes in COO from HDFC Bank

MUMBAI: Continuing its key hirings, the one-billion-dollar Aditya Birla Financial Services Group (ABFSG), has appointed Mr G.V. Gopalakrishnan as its Chief Operating Officer.

At ABFSG he will oversee the operations and the technology functions for and across the Financial Service Businesses.

Mr Gopalakrishnan’s appointment is part of the ‘People First’ strategy adopted by the ABFSG, to attract key leadership, to partner its vision for growth.

Mr Ajay Srinivasan, Chief Executive, Financial Services, Aditya Birla Group, said: “We would like to believe that our journey has just begun. Our vision is to be a role-model across our businesses. And our customer’s preferred choice. Right now we are concentrating on building a firm foundation, with the help of our strong and committed team.”

Welcoming Mr Gopalakrishnan aboard, Mr Srinivasan, said: “We are very happy to have Mr. Gopalakrishnan join our leadership team. He comes with rich experience that will help us prepare a strong foundation in operations and technology, across our financial businesses, commensurate with our vision.”

Mr Gopalakrishnan said: “I am excited with the opportunity to partner Team ABFSG in their vision to become a financial conglomerate.”

Mr Gopalakrishnan was till recently the Executive Vice President- Information Technology at HDFC Bank. His experience at HDFC Bank was diverse across retail technology, retail assets, credit cards, corporate internet banking, wholesale, capital markets, and various strategic initiatives.

Mr Gopalakrishnan has a proven track record in technology with about 26 years of experience. He has spent 15 years with the Banking sector, including eight years with HDFC Bank.

Prior to HDFC Bank, Mr Gopalakrishnan was Regional Head of Information Systems, for the Middle East and South Asia in Standard Chartered Bank where he spearheaded the banking applications across the bank’s various businesses in MESA countries - UAE, Bahrain, Qatar, Oman, Sri Lanka, Pakistan and Bangladesh.

Mr Gopalakrishnan is a commerce graduate with a post graduation in management from Anna Institute of Management, Chennai.


About Aditya Birla Financial Services Group:

The Aditya Birla Group has a strong presence across various financial verticals that include life insurance, asset management, distribution and wealth management, security based lending, insurance broking & advisory services and private equity. The companies that comprise the Aditya Birla Financial Services Group (ABFSG) are: Birla Sun Life Insurance Company, Birla Sun Life Asset Management Company, Birla Sun Life Distribution Company, Birla Global Finance Company, Birla Insurance Advisory & Broking Services and Aditya Birla Capital Advisors. The consolidated revenues from these businesses crossed the one billion dollar mark, in 2007-08.

About Aditya Birla Group

The Aditya Birla Group (www.adityabirla.com) is a US $24 billion conglomerate with a market capitalization of US $31.5 billion (as on 31st December 2007) and is one of the largest business houses in India. It enjoys a leadership position in all the sectors in which it operates. It is anchored by a force of 100,000 employees, belonging to 25 nationalities. Its operations span 20 countries across six continents and is reckoned as India's first multinational corporation. Headquartered in Mumbai, India, over 50 per cent of the Group's revenues flow from our overseas operations. The Group nurtures a work culture where success is built on learning and innovation. The Aditya Birla Group has been adjudged "The Best Employer in India and among the top 20 in Asia" by the Hewitt, Economic Times and Wall Street Journal Study 2007.

Battle for Zandu: Investor group hails Emami entry

A group of investors from Zandu Pharmaceutical have questioned the propriety of Zandu management in declining management partnership to Emami Limited which has bought over about 24% in the former.

The investors, under the umbrella of All Gujarat Investor Protection Trust have wholeheartedly supported the Emami claim to the management partnership in Zandu.

In a communiqué to shareholders, Mr. Hemantsingh Jhala, Chairman of All Gujarat Investor Protection Trust, said the entry of Emami into the management would definitely bring the much needed fillip to Zandu and create value for the Zandu shareholders. Just the interest evinced by Emami, has more than doubled the prices of the Zandu stock thereby benefitting all the stakeholder as well as protecting the interests of the minority shareholders.

The communique explaining the stagnancy of the Zandu brand read.

The brand Zandu is more than 100 years old, but because of various reasons has not been able to sustain the growth that is required. The growth has not been outstanding by any standards, despite tremendous opportunities. In fact, Zandu’s is a typical case of missed opportunities.The financials of both the companies speak for themselves:

• Its stand alone sales of Zandu at Rs 136.98 crs for the year ended march 2008 have grown from Rs 108.67 crs in the last nine years at a CAGR of 2.61 %.
• Its EBIDTA has grown from Rs 15.10 crs to Rs 27.33 crs at a CAGR of 6.81%, while its net profit has grown from Rs 6.04 to Rs 16.41 crs at a CAGR of 11.75 %.
• The company has not launched any new product of significant value in the last 5 years.

Emami has been growing consistently at a CAGR of 20.62% over the last nine year from Rs 108 crs to Rs 583.71 crs, EBIDTA has grown at a CAGR of 25.68% from 12.61 crs to Rs 98.68 crs, which PAT has grown at a CAGR of 28.19% from Rs 9.92 crs to Rs 92.75 crs.

Zandu clearly needs a strong tonic to grow and Emami can represent that tonic.

Puravankara takes big leap

MUMBAI: Taking a big leap into affordable premium housing and targeting the middle classes including the first time home buyer, real estate major Puravankara Projects Limited today announced the launch of its 100% owned subsidiary, Provident Housing and infrastructure Limited.

Under Phase I alone, the affordable housing project will cover Bangalore, Chennai, Hyderabad, Coimbatore, and Mysore where 64,500 homes with a total built up area of 59.80 million sq ft will be constructed over the next five years at a cost of about Rs 8,000 crores. The funding for these Phase I projects will be through construction debt and customer advances amounting to Rs 6,500 crores, with internal accruals and equity sourcing the remaining Rs 1,500 crores which will be utilized for land acquisitions.

In Phase II, Provident’s foot print will also cover cities like Delhi, Kolkata, Kochi, Jaipur, Pune and Nagpur.

The prices of Provident homes which are to be developed in a phased manner, are presently priced at Rs 10 lakhs, Rs 15 lakhs and Rs 20 lakhs and comprise of one, two and three bedroom homes.

The first three projects of Provident in Bangalore and Mysore of over 19,000 homes covering an area of 17.10 million sq ft are in the advanced stages of plan sanction with the first project in North Bangalore of 4.50 million sq ft comprising some 5,100 homes ready for launch in the next few months.

Mr Jayakar Jerome, a former IAS officer, who is credited with resurrecting the Bangalore Development Authority and taking up a slew of infrastructure projects in Bangalore City, will be the Managing Director of Provident Housing and Infrastructure Limited, while the Puravankara Group head, Mr Ravi Puravankara, will be the Chairman of the Company.

“Provident will target middle-class families and first time home buyers with the objective of meeting the ever increasing demand in this space.” said Mr Jayakar Jerome. “We will provide affordable premium homes which will cater to a largely under serviced market in the Country,” he said.


Provident has been established as an independent stand-alone entity with its own budget, offices and staff. Modern technology based methods are being used to achieve scalability at an affordable price. Provident Housing and Infrastructure Limited will function under the supervision of the Puravankara Group which is known for its premium, world class quality construction standards.

Apart from homes Provident will also develop and sell large plotted development townships for affordable housing supported by facilities like hospitals, schools and playgrounds.

With rising income levels and aspirations and the emergence of a new salaried class in the Country, the demand for homes has far out-paced supply. According an estimate, India’s housing shortage has increased from 19.4 million units in 2004 to 22.4 million in 2005-06 and this figure has since only kept rising.

The Puravankara Group with over 33 years of excellence in the upper end of the housing sector across various regions of the Country has projects in Bangalore, Chennai, Kochi, Coimbatore, Hyderabad, Mysore and Colombo. The Group also has an important presence in Dubai in the UAE and business representatives in the United Kingdom and the United States. With a land bank of over 125 million sq ft, the Group has above 20 million sq ft of residential and commercial space currently under construction. Included in this are on-going residential projects amounting to 18.30 million sq ft comprising 11,010 homes.

Contact: B N Kumar, Concept PR: 93210 48332/ 93200 48332