Investment Advice for Stocks (Share), MF and Personal Finance » RNRL

Improved refining margins, KG basin gas output may boost RIL

free stock tips — Fri, 09 Jul 2010 06:16:00 +0000

India’s most valuable company, Reliance Industries Ltd (RIL), is expected to post higher revenue and profit for the quarter ended March, benefiting from improved crude refining margins and gas output from the Krishna-Godavari (KG) basin.

Net profit is likely to increase 31% from a year earlier to Rs5,078.17 crore in the January-March period, according to the average of estimates by seven brokerages polled by Mint.

Revenue is estimated to more than double to Rs59,780 crore.

The Mukesh Ambani -led company, which has interests in sectors as diverse as oil, yarn and organized retail, will announce its earnings on Friday.

Net profit is likely to grow 31% from a year earlier to Rs5,078 crore in the January-March period, say analysts

The company’s gross refining margin (GRM)—earnings from turning crude into a variety of fuels—in the March quarter is estimated at $8.13 a barrel, sustaining the company’s lead over the Asian benchmark Singapore GRM, which averaged $4.9 (around Rs361) per barrel in the same period.

“Sequential improvement in global GRMs is expected to have an amplified effect on RIL’s GRMs and refining segment profitability..,” wrote Rohit Nagraj, an analyst for domestic brokerage Prabhudas Lilladher Pvt. Ltd, in a 6 April research note.

Average KG basin gas volumes estimated at about 60 million cubic metres a day (mmcmd) would boost profitability further, Nagraj wrote.

During the January-March quarter last year, RIL had neither started gas production nor was its 580,000-barrels-a-day Jamnagar refinery fully operational.

In a 31 March note, Macquarie Research’s Jal Irani and Abhishek Agarwal wrote that they anticipate a strong March quarter for RIL “as it benefits from the upswing in GRMs” due to its refining facilities, which have doubled in capacity and improved quality of refining.

The world’s largest refining complex in Jamnagar is capable of refining the lowest grades of crude to produce a high proportion of light and middle distillates such as diesel.

On 13 April, rating agency Standard & Poor’s upgraded its outlook on the company from “negative” to “stable”, saying it reflected its “expectation of an improvement in RIL’s financial metrics”.

The improvement over the past year is “sustainable”, it said.

During Q4 of FY10, crude prices firmed in the range of $71-83 per barrel, after swinging from an all-time high of $147 a barrel in July 2008 to $30 levels by December of the same year.

Still, the company’s shares underperformed the Bombay Stock Exchange’s benchmark Sensex index by 22% in the fiscal ended March—the first dip in five years and the largest this decade.

Eroding refining margins and an ongoing legal tussle with an Anil Dhirubhai Ambani Group-owned company as well as with NTPC Ltd tempered investor sentiment.

Anil Sharma and Ravikumar Adukia, analysts with Nomura Financial Advisory and Securities (India) Pvt. Ltd, said in a 5 April note that the stock slide followed “four straight years of outperformance ranging from 8% to 49% (an average of 26% for the last four years)”.

RIL has been engaged in a nearly four-year-old legal fight with Reliance Natural Resources Ltd (RNRL) controlled by Anil Ambani the estranged younger brother of Mukesh Ambani, over 28 mmcmd of gas that RNRL wants from RIL’s KG D6 block at a price that is 44% lower than a government-set price.

The Supreme Court verdict—one of the key overhangs on the share price last year—on the case is expected soon.

Since the beginning of 2010, the company has seen two of its acquisition bids fail—for Netherlands-based LyondellBasell Industries AF, and debt-strapped Value Creation Inc. of Canada—but finally signed a joint venture in early April with Atlas Energy Inc. for the latter’s shale assets in a deal that will cost $5.2 billion.

Macquarie’s Irani and Agarwal wrote in another 12 April note that the benefits to RIL from the large shale field, especially in a lucrative and nearby market like the US, could be substantial.

“With RIL’s core existing refining business looking up…and incremental volume growth from the KG basin…,” they wrote, “we believe that the current transaction is the icing on the cake.”

Source : Live Mint

Improved refining margins, KG basin gas output may boost RIL is a post from: Indian Stock Market Tips

How experts view Reliance Power-RNRL merger?

free stock tips — Mon, 05 Jul 2010 10:37:10 +0000

In a mega Rs 500 billion deal, Anil Ambani group Sunday announced merger of RNRL with another group firm Reliance Power, which would now become a direct beneficiary of the gas deal signed with Mukesh Ambani-led Reliance Industries.

As part of the all-stock deal, Reliance Power will give one of its shares for every four held in RNRL.

RNRL shareholders, including the promoters, would get Reliance Power shares worth about Rs 71.50 billion, as per the current market prices. Out of these, promoters would get shares worth over Rs 36 billion.

Myiris.com discussed with its panel of experts viz Nayan Mehta – head of research, 21st Century Shares and Stocks and Alex Mathews, head of research, Research head, Geojit BNP Paribas Financial Services, the impact of the merger and its relative effect on the market and the ADAG group of stocks.

How do you view the merger announcement?

Nayan Mehta: The merger announcement doesn`t come as a surprise as it was expected as it is the only resort for RNRL and is a move towards consolation for the ADAG group. The merger, possibly through a share swap deal, would be considered done on stock price or book value basis. Market worth of the combined entity at today`s price would be Rs 500 billion. For Reliance Industries, it does not make difference what happens to RNRL as a standalone or a merged entity since the gas agreement was with R-Power. Also R-Power`s gas based plants will require supplies when they become operational may be in the next 2-3 years. Moreover, the new contract does not mention the volume, tenure or price of gas, but only lists the requirement of gas at ADAG`s proposed units, including the 7,800-MW Dadri plant near here and the Shahapur plant in Maharashtra.

Alex Mathews: The move is good positive for both the companies, especially for Reliance Power .

How will the news impact the markets and the stocks on Monday?

Nayan Mehta: The reaction on individual stock prices would be limited till the details of the swap/merger ratio are unfolded. The stocks of RNRL, R-Power already had a significant run over the past one month and it may not have a meaningful impact when the markets open on Monday.

Alex Mathews: The news is positive for Reliance Power. It witnessed huge buying momentum and a lot of buying on Friday. The stock is currently trading around Rs 175 and is likely to shoot up to Rs 185, an upside of nearly 5.71%.

On Friday, the 30 share index, Sensex lost 113.58 points, or 0.65%, to 17,460.95 in the week ended July.02, 2010. On the other hand, the broad based NSE Nifty dropped 31.95 points, or 0.61%, to 5,237.10 in the same period. Shares of Reliance Power gained Rs 5.65, or 3.33%, to end at Rs 175.15. The total volume of shares traded was 5,261,908 at the BSE. Meanwhile, that of Reliance Natural Resources declined Rs 1.25, or 1.93%, to end at Rs 63.65. The total volume of shares traded was 17,529,413 at the BSE.

Source : my Irish

How experts view Reliance Power-RNRL merger? is a post from: Indian Stock Market Tips

RNRL, R-Power agree to merge : Ration 1:4

free stock tips — Mon, 05 Jul 2010 06:06:03 +0000

Analysts say that the swap ratio may lead to a downside in RNRL’s stocks when trade opens on Monday

Reliance Natural Resources Ltd (RNRL), the gas trading arm of the Reliance-Anil Dhirubhai Ambani Group (R-Adag) will be merged with Reliance Power Ltd (R-Power), with shareholders of the former receiving one share of R-Power for every four shares of RNRL. At the current market value of the two companies, the merged entity could have a market capitalization of at least Rs50,000 crore, though this depends on how the market reacts to the news on Monday.

The boards of RNRL and R-Power met on Sunday to approve a scheme of amalgamation. According to a statement issued by R-Adag immediately after the board meeting, the 4:1 swap ratio was based on independent valuations of both companies done by audit and consulting firm, KMPG.

Analysts say the deal doesn’t benefit RNRL shareholders much, although they admit that this is purely from the mathematical point of view. They add that the company really didn’t have a future after the government announced a gas utilization policy that doesn’t favour trading companies, and the Supreme Court ruled in favour of Reliance Industries Ltd in a fight between it and RNRL over the supply of gas from the former’s fields in the Krishna-Godavari (KG) basin at a preferential rate.

The merger will expand the equity base of R-Power by 14.6% and reduce the holding of the promoters in the company by 4.36 percentage points to 80.42%.

The dilution in promoters’ equity in R-Power implies that the promoter group led by Anil Ambani need to offload only half of what it needed to before the merger to meet the new listing guidelines issued by stock market regulator Securities and Exchange Board of India. The regulator has mandated that public shareholding in any listed company should not be below 25%.

“The dilution in equity would be compensated by the value that RNRL brings into the company,” a R-Adag official said, speaking on condition of anonymity.

News of the merger has been in the air for some time and on Friday, R-Adag told the Bombay Stock Exchange that the matter was on the agenda for a Sunday meeting of the boards of the two companies. On the same day, shares of R-Power closed at Rs175.15 each and those of RNRL at Rs63.65 apiece. At these levels, RNRL and R-Power had market capitalizations of Rs10,394 crore of Rs41,979 crore, respectively.

Analysts say that the swap ratio may lead to a downside in RNRL’s stocks when trade opens on Monday.

“The current share swap ratio does not give any benefit to RNRL shareholders. If the share price of R-Power does not move beyond Rs175, RNRL’s market capitalization could see an erosion of Rs3,200 crore,” said Rupesh Sankhe, power sector analyst at Angel Broking Ltd.

Sankhe’s views were echoed by V.K. Sharma, head of private broking and wealth management, HDFC Securities Ltd who said that he expected RNRL’s shares to fall by around Rs20 when trading opens on Monday.

“However, the merger was necessary as the government’s gas utilization policy had made it clear that a gas trading company would not be favoured while allocating gas, and the entity receiving the gas should have power generation capacities, which R-Power has,” Sharma added.

The merger will help R-Power’s net worth improve by Rs1,900 crore to at least Rs16,000 crore.

The R-Adag statement also added that R-Power is likely to benefit from RNRL’s equity interests in four coal bed methane blocks and an oil and gas block in Mizoram, though Sankhe said that the benefit would be only marginal.

The proposed amalgamation would facilitate the accelerated implementation of R-Power’s plans for setting up at least 8,000MW of gas-based power generation capacity with gas coming into the company through RNRL’s gas supply master agreement with RIL, the statement added.

The R-Adag official quoted earlier said that R-Power might not have to sign a new agreement with RIL, as the benefits of the agreement signed by RNRL is likely to flow naturally to the company.

The proposed merger is widely seen as a result of a Supreme Court ruling passed on 7 May that overruled a family agreement between the Ambani brothers giving RNRL access to gas from RIL’s KG basin at lower price than what was subsequently fixed by the government. The two companies subsequently revised the agreement and submitted it to the Bombay high court for approval on 30 June.

Source : Live Mint

RNRL, R-Power agree to merge : Ration 1:4 is a post from: Indian Stock Market Tips

RNRL, Rel Power merger on cards?

free stock tips — Sat, 03 Jul 2010 15:38:25 +0000

The gas-based energy resulting company Reliance Natural Resources (RNRL) and its other group companies controlled by billionaire Anil Ambani have been in news since the end of a high-profile gas supply dispute with his brother.
CNBC-TV18 now learns that Reliance Power and RNRL will consider a merger in a share swap deal on Sunday. It is also being leant that the government will allocate gas only post merger, which is likely to be announced soon.

Sources also inform that Reliance Industries is likely sign gas sales and purchase agreements (GSPAs) with Reliance Power upon merger and may even pick up small stake as a ‘fuel supplier’ in the company post merger.
However, it is also being learnt that the entity will be valuated prior to the stake sale.

Why is the merger essential?
The merger, sources say is necessary to ease gas allocation and for signing power purchase agreements (PPAs) with state governments. “State governments are unlikely to allow RNRL to charge marketing margins.”
RNRL is not the final entity that is going to use gas. So it will be difficult for the government to allocate gas to an entity which does not use gas. Once RNRL gets merged into Reliance Power, which recently acquired three power plants from Rel Infra in which R Power was a bit of a beneficiary. The skew was towards R Power. It gets these three plants which it has brown field expansion plans lined up for. So the government can then go ahead if RNRL it merges with R Power, allocate gas to an entity which has a brown field expansion on the line.
Samalkot Goa or the Kochi plant that recently got into R Power will be the plants that ADAG group will put forward to the government. That okay we have these three power plants we are going to expand the capacity by a thousand megawatt each in these plants and so we need gas for that. The government can then say okay we can allocate gas to you because we have heard these discussions in the media that the government is not too keen on allocating gas to green field expansions. The power plant which are not in existence right now so brown field expansions could be allocated gas which is the rational which is why power plants are transferred from Reliance Infra into R Power. So this is the whole story. It is much of a logical next step. It is likely to happen soon that is the what we are telling you. Joker in the pack is the share swap deal. You saw RNRL collapse some indication that the skew maybe towards R Power the entity which will now exist, RNRL becomes an non-existing entity so it could be skew towards R Power that is logical but you never know there could be a surprise. So let us watch for the share swap deal and when it happens.

source : Money Control

RNRL, Rel Power merger on cards? is a post from: Indian Stock Market Tips

RIL –Buy- Angel Securities

free stock tips — Tue, 29 Jun 2010 03:49:00 +0000

Reliance Industries (RIL) and Reliance Natural Resources (RNRL) have entered into a new gas supply agreement, as directed by the Supreme Court. The Supreme Court had ordered the two companies to renegotiate the Gas Supply Master Agreement, which was signed between the Ambani brothers as part of the business de-merger in 2005.

While the companies have not disclosed the details of the agreement, however, speculation is that RIL will supply 28 million mmscmd (metric standard cubic metres) to RNRL for 17 years at the government fixed price of $ 4.2/mmbtu. The quantity and the term of the supply are likely to be determined by the EGoM. With the gas supply agreement in place, the ADAG Group will now speed up its power generation projects.

It may take 3–4 years for creating a gas-based generating capacity of 8,400 MW, including its existing projects and the upcoming one in Dadri, Uttar Pradesh. The move improves the project visibility for upcoming power projects of ADAG. However, it does not have much implication on RIL. We continue to maintain BUY on RIL with a target price of Rs1,260.

RIL –Buy- Angel Securities is a post from: Indian Stock Market Tips

Anil Dhirubhai Amabani Group (ADAG) Stocks: Which ones are experts betting on?

admin — Thu, 17 Jun 2010 10:06:22 +0000

Anil Dhirubhai Ambani Group (ADAG) stocks have been fire for the last couple of sessions. In an exclusive interview with CNBC-TV18, Deven Choksey, MD, KR Choksey Securities and SP Tulsian, sptulsian.com, talk about which ones you should be betting on and which ones fundamentally appear attractive from that pack.

Q: Let us start with Reliance Communications, there has been a lot of talk about tower stake sell etc, what do you think is the most likely transaction? Would you still buy it after the recent rally?

Choksey: I think to me the transaction would be in two parts. First transaction would be for Reliance Infratel, wherein I think they would be possibly selling a majority stake in this particular company and in turn even in the minority stake in order to facilitate the new tenants for the towers, going forward. At the same time, I think this particular transaction is going to probably reduce that debt, which is there in the books of Reliance Infra at this point in time. That would possibly going to go a little bit more positive, going forward.

The second part of the transaction, which should happen, would be with RCOM, wherein they would probably in their own books and also to fund the rollout of 3G, I think probably they would be selling 26% stake in this company, which would ultimately end up realising for them around close to Rs 15,000-16,000 crore. So that would possibly going to be the second transaction.

Both these transactions put together, I think the company, which would be a little bit more attractive hereafter, would be Reliance Communications because I think the kind of valuation at which it is at this point of time traded, probably those dark clouds would go away once the debt starts disappearing, though the equity would probably get diluted in the interim period. But still with the kind of better process emerging thereafter, I think Reliance Communications should get re-rated from current levels. The viewpoint is that the stock should be trading somewhere between Rs 205 and Rs 225 levels, should this transaction take place.

Q: There has been a lot of talk around Reliance Media Works as well on whether they will buyout star stake in Balaji, all unconfirmed right now. But do you expect any significant re-rating or corporate moves in that company?

Choksey: Possible and at the same time, I think slightly difficult. Difficult more from the point of view that this entertainment business is so far not generating the bottom-line for the company and you end up acquiring one after another company which are not still making profits, I think that gives you the discomfort that we are talking about.

Possible more from the point of view, yes, I think it is a financial transaction. You have the wherewithal to handle that kind of a transaction, so it could be possible. In my viewpoint, the consolidation at this point of time in ADAG pack in the media space is more required than additional buying of this sort.

Q: There has been a lot of talk that next week we could see the signing of the gas pact between the two parties and a hint of that might come in the Reliance AGM as well on Friday, what are your expectations?

Tulsian: Definitely it is likely because we are approaching the timeline set by the Supreme Court. But I think it will more be in the recommendatory form where I have been maintaining my view that it will be the direct agreement by the Reliance Industries with the ultimate user of the ADAG, which would be Reliance Power. That recommendation will be sent by Reliance Industries to the government for their final approval. But till you have the policies getting changed by the government for the greenfield gas based power projects, I don’t think that those can be taken as the conclusive agreements, having reached between both the parties because that still remains on the table as having agreed between the parties, which needs a final approval by the government.

So, I don’t think that reference of that will be made or will be seen in the AGM, which will be held on this Friday. There could just be a reference that, yes, the things will all be moving in the coordinated manner and everything will get settled and sorted out. But I don’t think that the specific reference of gas pact having signed between ADAG and Reliance Industries will be made in the AGM.

Q: Do you expect to hear any positive triggers at all, at the AGM in terms of either reference to telecom or closely working with the ADAG, do you think any such reference will be there in the speech?

Tulsian: I think a lot of the reference or focus will be made on the telecom venture because the management will justify their venturing into the broadband wireless. Probably one could read between the lines that the eventual plans of Reliance Industries could become an integrated or complete telephony company and by having the voice telephony also in their fold. But I don’t think even the power, which is the next big area for Reliance Industries, will have any reference.

I don’t think that the ADAG will have any specific reference because Reliance Industries will still be keeping their distance because at no point of time or at none of the platform, there will be lauding the role of the ADAG. But the references will all come that the judgement of the Supreme Court has set at the rest the whole dispute. Now, in view of the non-compete clause having dismantled, the Reliance Industries has plans of going into the telecom venture. So instead of giving any reference to the ADAG, the AGM will be more focused on the dismantling of the non-compete clause and the foray and the prospects and the growth potentials in the telecom sectors, which Reliance Industries is seeing in the time to come.

Q: What could the potential signing of the gas pact as early as next week mean for RNRL as a stock because that has zoomed to nearly Rs 68-70?

Choksey: Important aspect is that once the gas pact is signed my reading says that RNRL as a company whether they would continue to hold the trading rights for gas, that is something, which is a question mark. In my view point, till this particular announcement is out it would be speculative to say anything for or against how exactly this business would move.

But assuming this judgement, which will be government’s dictate I would believe that, I think the gas would be sold to those players who are end users and in such situation though middle party would be allowed. In such situation, I think RNRL as a company for the gas trading purpose would not assume a further business model that is my view point. But then we will have to wait for lot of clarity before it is made a rule as far as RNRL is concerned.

Q: Do you agree because the market is very excited about RNRL, but that is one risk that RNRL gets cut out in terms of the gas supply agreement, which is done directly between RIL and Reliance Power and Reliance Infra, RNRL doesn’t come into the picture as a middle party? What do you think?

Tulsian: I have been maintaining the view that there is no necessity of RNRL now to exist between these supply agreements, which will get concluded eventually between Rel Power and RIL post Supreme Court judgment. If you see there is one more point in this, I am not prepared to accept that there has not been any consideration payment by Mukesh Ambani Group to Anil Ambani Group and obviously that consideration amount is unknown to anyone. But part of that can get satisfied by taking over RNRL, which has been in the news couple of months back also when the litigation was on or maybe six months back when the litigation was all going on. So, probably because RNRL has the assets like coal bed methane, they have one oil exploration blocks, so one can always conclude that takeover of this company will give growth potential for RIL to expand in these areas and in pursuance to that this company is being taken over.

The ultimate aim of both the groups would be to retain the valuation of the company because RNRL today is enjoying a valuation of Rs 8,000-8,500 crore and no group would be interested to see the value getting eroded, which will largely be impacting about 2.5 million shareholders because 45% stake of that is held by those companies and that will really be a big dampener to the reputation of both the group. So ultimate aim is to preserve the market capitalisation and to achieve that objective, probably RIL I won’t be surprised to be taking over RNRL. But if you try to derive some value with gas rights, which presently are held by RNRL, I won’t be giving any consideration or valuation on that aspect or on that point to RNRL.

Q: What about Reliance Capital that is up about 15% since the new MoU, how do you value that?

Choksey: I think the important aspect is and I would strictly go with re-rating sentiments, which are happening into the market. Now, the investors are more comfortable because they believe now the managements of these companies are a little bit more free to look at business per se.

For Reliance Capital, looking at the fundamentals, I think the growth prospects are emerging a little brighter. Few of the things, first out of lot would be the insurance business, at some point of time you should be seeing the unlocking of this particular business happening. That is where the market up till now which was skeptical because of the management time not available for this kind of activity is now more looking positively and that is why you are seeing some kind of re-rating. We do believe that going forward in each of their areas of business in financial companies, I think would start getting better attention and that is why markets are seeing some better hopes and this re-rating. Otherwise, fundamentals are expected to follow in the businesses in which they are operating.

Q: What about Reliance Industrial Infra, it has gone up 40% since the new MoU came in, what is driving that stock?

Tulsian: Amongst both the group this company has shown the highest appreciation as you have rightly said, it has appreciated by about 35-40%, especially in last three-four days. I won’t be attributing this rise since the dismantling of the non compete clause, infact that has happened couple of weeks back, but the rise has happened only in the last four days. This company has a marketcap of just Rs 1,500 crore and you cannot expect any company from Mukesh Ambani Group to remain at such a low level, such a low marketcap. Now, people have started talking that the old expectations that probably the gas transportation infrastructure, which are held by Mukesh Ambani in his personal capacity could get pooled into this company. Presently, this company only has a Chembur Patalganga pipeline, which transports crude from BPCL refinery to Patalganaga of about 60 kms, so this fits into the object of the company. 46% stake is held by RIL in RIIL and if the gas transportation infrastructure network is pooled into this company promoters, along with Mukesh Ambani, can increase their stake in the company to about 90% and further dilution can happen and huge amount can get mobilised.

Second talk, which has started happening from last couple of days, that probably Infotel broadband can also come in this company. So this is largely on the hopes of a massive restructuring likely to happen in RIIL by putting in some existing projects, which will increase the size of the company maybe by 10-20 folds.

Source : Money Control

Anil Dhirubhai Amabani Group (ADAG) Stocks: Which ones are experts betting on? is a post from: Indian Stock Market Tips

SP Tulsian’s views on BoR-ICICI Bk merger, RIL-RNRL talks

free stock tips — Wed, 19 May 2010 17:41:37 +0000

The Bank of Rajasthan board has given an in-principle nod for merger with ICICI Bank. The promoters of Bank of Rajasthan (BoR) have agreed to merge with ICICI Bank. Both have agreed to a share swap of 1:4.72. In terms of quantity, every 118 shares of BoR will get 25 shares of ICICI Bank.

Commenting on the same, SP Tulsian, sptulsian.com, says Bank of Rajasthan will head towards Rs 165-170. He further says, the move made by ICICI Bank is positive. However, he is concerned over the regulatory issues.

Speaking on the initial talks between Reliance Industries (RIL) - Reliance Natural Resources (RNRL), he says, initially RIL will be taking the definitive requirement from ADAG (Anil Dhirubhai Ambani Group) and then examine the same. “I think this process will take about two weeks time”

Below is a verbatim transcript of the interview.

Q: You probably won’t get a chance to buy Bank of Rajasthan (BoR) stock this morning, it might circuit up. How do you approach trading in this counter now?

A: I expect the stock to hit upper circuit and maybe it will go to somewhere between Rs 165-170 because we have got an indicative swap ratio of 25 to 118 and based on that I don’t think the share will really open. Yesterday, since it has hit the upper circuit of 20%, maybe two upper circuit of 20% and then we will be having 10% circuit, unless and until exchanges opt to reset the price band, which I think is unlikely. So we will be seeing the stock hitting upper circuit today and tomorrow.

Q: There were some rumblings yesterday of both the Reliance sides beginning some kind of conversation with early indications of what the ADAG (Anil Dhirubhai Ambani Group) wants. What did you make of it and what could it mean for Reliance Natural Resources (RNRL) stock?

A: I think this is the initiation of the process of the re-negotiations, which has been directed by the Supreme Court (SC) in its judgment and in pursuance, this is just the meetings of the officials or the key executives of both the companies. So maybe Reliance Industries will be taking the definitive requirement of RNRL or maybe of the ADAG Group with the expected power generation capacity they wish to because in most probability creation of 700 MW at one location at Dadri seems to be getting ruled out. So in that case, ADAG may break the generation capacity in two-three locations, maybe in the closer to the power generation point and there is talk that maybe it could be in the State of Andhra Pradesh.

So they will be taking the definitive requirement from ADAG group that, ‘what is your gas requirement, give us period wise’ and then maybe even the tenure because RNRL have asked gas from other sources as well and not merely confining to KG D6. So maybe they will be asking for a period of 17 years, which will all get collated, which will all examined by Reliance Industries Ltd and then those things will get forwarded to the government for the final approval.

I think this is a process which will take about two weeks time to obtain the requirement, to collate that and then a proposal maybe forwarded to the Government of India.

Q: Is there clarity on the BoR shareholding structure, there are varying reports of what exactly the Tayal group holds, how much is publicly held, do we know how much is up for offer here?

A: This is the biggest mystery in the whole deal. Here the dominant shareholders have entered into a deal with ICICI Bank, which is the Tayal Group. So we have to see what percentage of holding they will be showing to ICICI Bank because they say that officially they are holding close to 28% while Sebi, in their investigation, have found that they are holding close to 55% plus through the Benami Holdings also. So, one has to see the shareholding agreement finally concluded by the Tayal family with ICICI Bank.

There is talk that probably it will only be for 28% and maybe the remaining 27% will get offloaded by the Tayal family in due course of time before the completion or implementation of the merger formality happens. If it happens at about 28%, then in fact it is a serious case of corporate governance that where SEBI (Securities and Exchange Board of India) has established that there has been existing Benami holding and in spite of that such a big bank with market cap of Rs 3,000 crore have been taken over without having examined anything in respect to the shareholding pattern. SEBI also will be looking while giving the consent for this merger on this issue because they have already been investigating this matter. So this is serious matter, and it should not act as precedent for other companies that anything can just go scot-free.

Q: How would you approach Mandhana, the stock which lists this morning?

A: The company had forex losses of about Rs 18 crore in FY10 and that will bring down their EPS (earning per share) considerably. But if you take a call for FY11, I think they should be able to have a topline of close to about Rs 675-680 crore. On the expanded equity of about Rs 34 crore, they should be able to post an EPS of Rs 20, that seems to be on the practical side.

If I go by the present PE Multiple, maybe of about 6.5 to 7 times because traditionally these textile stocks have been ruling at those kind of multiples only and since this is a new entrant, so if I apply at 7 PE multiple it translates into a value of about Rs 140 and if I give a multiple of 6.5 it works out at Rs 130. So Rs 130-140 seems to be the price at which it should list and it should rule and since company has issued share at Rs 130, if we take average of that, maybe a nominal premium of Rs 2-4.

Q: Is the worst over for sugar or would you use bounces to still exit?

A: No, I don’t think that worst is over because this season’ 10-11 will really be the deciding factor where we need to see in case of the production, which is likely to be at least about 25 million tonne, which can go as high as 28 million tonne. I am counting that to be 25 million tonne and what sugarcane price needs to be paid because we have seen SAP of Rs 165 for UP while it was paid to the extent of Rs 260. So unless and until mills are required to pay only upto Rs 160 or 170, the viability remains for these companies and in fact the UP based sugar mills are more in a vulnerable situation. So I won’t be using any dips as a buying opportunity.

Q: It is almost down about 4% for ICICI Bank, is it the costs of the buy or the regulatory issues that are looking like an over hang on the stock today?

A: I don’t think this is the cost because all analysts have discussed that this is looking quite reasonable cost or price tag, which ICICI Bank will be paying for acquiring this bank. Honestly, I am more concerned for the regulatory issues.

Firstly, I am surprised to see ICICI Bank correcting because in my view this is definitely a positive move. If they can ram up their present branch capacity by 25% with a dilution of just 3%, at least share should not have corrected. I was expecting maybe a mild positive, but maybe the regulatory overhang is taking a hit on the stock price. I am not prepared to accept the fall, which we have been seeing, in ICICI Bank. Even if you see the regulatory issues, probably the deal may get off, but again the possibility of that is hardly 5%. So if you examine from any angle, I am unable to accept the price behaviour of ICICI Bank.

Source : Money Control

SP Tulsian’s views on BoR-ICICI Bk merger, RIL-RNRL talks is a post from: Indian Stock Market Tips

RNRL’s FY10 net grows 4.94%

free stock tips — Mon, 17 May 2010 13:28:08 +0000

Anil Dhirubhai Ambani (ADAG) led Reliance Natural Resources (RNRL) has announced its financial results for the year ended March 31, 2010.

The company’s net profit for FY10 has gone up by 4.94% to Rs 73.32 crore from Rs 69.87 crore for FY09. The total income during 2009-10 fiscal stood at Rs 466.02 crore against Rs 416.79 crore for 2008-09 fiscal, up 11.81%.

On consolidated basis, the group has reported a net profit of Rs 90.75 crore for the year ended March 31, 2010, up 26.83% over Rs 71.55 crore for the year ended March 31, 2009.

RNRL’s FY10 net grows 4.94% is a post from: Indian Stock Market Tips

RNRL may slip to Rs 40: Thacker

free stock tips — Mon, 10 May 2010 14:50:52 +0000

Technical Analyst, Mitesh Thacker is of the view that Reliance Natural Resources (RNRL) may slip to Rs 40.

Thacker told CNBC-TV18, “I think the stock has taken a lot of hit with the kind of news flow we have seen. It has broken below the Rs 61 mark where the stock had spent a lot of time. Very clearly with the kind of massive fall it is also pull down its momentum indicators. I think this declining movement will stay for some time. Looking for targets around Rs 40 to Rs 38, which is also the low which the stock made in the first quarter of 2009. A retest looks very likely on cards. The only thing is that the stock is now getting over sold so it might stabilize in a day or two give a kind of a pull back. But overall if you just look at the price movement difficult to get beyond Rs 56-57 mark and heading towards Rs 40.”

RNRL may slip to Rs 40: Thacker is a post from: Indian Stock Market Tips

RIL-RNRL: How do legal, sector experts read the verdict?

free stock tips — Sat, 08 May 2010 05:17:32 +0000

In a severe blow to the Anil Ambani group seeking cheap gas from Reliance Industries, the Supreme Court ruled that the government will have the last word on pricing.The three-judge bench of the apex court, headed by Chief Justice KG Balakrishnan, ruled in favour of Reliance Industries. The court held that the government’s production sharing contract (PSC) was supreme and hence the Ambani family MoU was not binding.

The court also directed Reliance Industries Limited (RIL) to initiate negotiations with Reliance Natural Resources Limited (RNRL) within six weeks to arrive at a sale agreement within the framework of government policy. The PSC dictates a price of USD 4.2 per mmBtu while RNRL wanted gas at USD 2.34 per mmBtu.

In an interview with CNBC-TV18, Hitesh Jain, Partner, ALMT Legal; Pradip Baijal, Former Disinvestment Secretary and Former Power Secretary; RS Pandey, Former Petroleum Secretary gave their perspective on the Supreme Court’s judgement.

Here is a verbatim transcript of the interview.

Q: This is much as you expected that the Supreme Court will uphold the gas utilization policy will uphold the production sharing contract and that will win Supreme Court so pretty much according to expected lines as far as your are concerned?

Jain: As I am reading the judgement in greater detail it is on expected lines. The legal position as regards binding efficacy of the MOU was very clear. There was a previous judgement of the Supreme Court which the Supreme Court has relied in the Rangarajan case that private arrangements arrived between the shareholders are not binding upon the company. So that is also on expected lines.

As regards NTPC, also this judgement is not going to affect because that has been left to the EGoM and the government. So the judgement according to me is on the expected lines.

Q: The Supreme Court has asked both parties to actually to go back and renegotiate and come back within a period of 6-8 weeks and put together a new re-negotiated pact. The Supreme Court in its order says the tenure of such contracts cannot be such that it initiates a development plan as approved by the government therefore the GSMA and the GSPA entered into with RNRL should fix the price, quantity and tenure in accordance with the production sharing contract. So what room really then is there for renegotiation how do you see this re-negotiation roadmap because Harish Salve the Reliance counsel himself is unsure?

Jain: The guidelines have been laid down by the Supreme Court. As far as RNRL is concerned they would look at two guidelines which has been observed by the Supreme Court.

First is interest of RNRL shareholders as reflected in the MoU and the second is overriding public interest.

It is possible on the ground that to promote the industry, to promote the power sector – some concession has to be made in terms of price and if the parties arrive at a unanimous decision and the government feels that it is in the overall public interest that the industry has to promote it then there can be some room of manoeuvering. There are so many grounds on which as enumerated one can really look at the negotiating table.

Q: What have you made of the verdict particularly that it restores the sanctity of the fact that the government is the sole owner of the gas and that government policy overrides any private contract?

Baijal: It’s a very powerful judgment which says that private arrangement or a family arrangement or a MOU cannot overtake public policy.

It is very important that public policy rules over such arrangements.

Q: Has the verdict in that sense brought in the much needed clarity that the government is not just the owner of the gas but also has the power to decide on pricing? Do you think the government stands vindicated today at the end of this battle?

Pandey: Yes. The honorable Supreme Court after saying that the government is the owner of the gas, they have also said that the production sharing contract overrides all other private arrangements including the MoU which was the subject matter of the case.

Under the PSC, the government has the right to fix a pricing formula, government has the right to have a gas utilization policy and all these have been upheld by the court. So this clarifies doubts, if there had been any, in the government’s mind there was no doubt at all, but there were lurking doubts here and there. So that has been set at rest and the position is very clear.

Q: Mohan Parasaran has said that the case as far as NTPC is concerned is different. This is what we were discussing even yesterday on how this judgment is actually going to impact the current battle thats on in the Bombay High Court between Reliance and NTPCL, what Parasaran clearly suggesting that the yard stick there is different because NTPC is in instrumentality of the state. The profits will actually go to the government and hence this should be treated differently. What are your comments on that?

Jain: NTPC can derive a support from the judgment because the judgment clearly states it is the government who is the owner of the property. Now NTPC being a government arm, it gives a right to the government to discriminate and give a concession to NTPC. The government can justify such concessions, the government can justify that this is not a discrimination and NTPC being an own entity, the government can say that if we are selling to our own arm, we are entitled in public interest to sell at a reduced price also.

So even if the government fix that for the private purchasers, the price will be x and for the government entities it will be lesser, the government will be right in doing so.

Q: Could a different set of yardsticks be used as far as the issue with NTPC is concerned and from a government’s stand point what could be the changed situation?

Baijal: It is absolutely correct that the instrumentality of the government can be charged a concessional price. But it creates a plethora of problems in regulation. After all when you liberalized the private sector companies which entered the telecom network or the gas network, they have to have a level playing field with the public sector company.

So if you come up with a thesis later that the public sector companies have to be given a concession in the price then it will lead to a number of questions and perhaps a determination later. And their par price will also be different if they get the sources cheaper. That will be a very difficult arrangement to sustain in the long run.

Q: Just a point about what the Supreme Court has asked the brothers to do. It has asked them to go back and renegotiate the contract. To your mind what could be the scope for renegotiation?

Pandey: We have really not applied our mind to that. We were not really concerned about what the two private corporates would be doing amongst themselves. But it’s a good thing if they could sort out their dispute through renegotiation then there is nothing like that.

In fact this was one of the options given by the Bombay High court also. If you look at it carefully there were four options and the last two options were about having a new set of agreements or asking for damages etc.

So I really do not know how the renegotiation will be done because I have not gone into the entire dispute. But this is a window through which they can sort out their differences and that is welcome.

Q: We have already heard Anil Ambani saying that they are not looking at filing an review petition at least at this point in time. But what is their thinking going to be to your mind because clearly the family MoU was the basis, the foundation of the division of assets between the 2 brothers. Clearly the gas agreement between the 2 as part of that family MOU was done at a certain valuation. Now that does not stand any more. It puts into question the division of assets per say so. What would you think could be the thinking as we enter into this renegotiation as part of this larger family MoU which even Harish Salve says the court is up held could perhaps be the guiding principles?

Jain: As one reads the judgment in detail, it becomes clearer and clearer. The judgment explicitly states that the court cannot rewrite the scheme of merger again and that the court cannot rewrite the MoU.

Secondly, the Supreme Court in expressed word has also observed that it is the discretion of the EGoM and under the PSC for the government to decide the pricing issue. So one thing the Supreme Court has clearly left that no courts in future can get into this aspect of fixing the price because the Supreme Court said that we do not have an expertise to come to a suitable arrangement or fix the price. It is the prerogative of the government.

With these two clear guidelines when they sit on the negotiating table, one is clearly aware about what his rights are there in the future. Therefore one can see that the Supreme Court has paved the way for parties to sit together and come to the negotiating table.

Q: What the court has also said is that it is high time that the government actually puts a suitable utilization policy, a suitable gas policy in place. Now Mr Jain has already talking about the fact that the court doesn’t want to intervene in future it’s going to be left to the government, its going to be left to the Empowered Group of Ministers. There was a question on whether it should be retrospective or not retrospective, the court has clearly delivered its verdict on that front. We have already heard from our sources that in the past fortnight or so Reliance Industries has asked the government or stated that even USD 4.32 or even USD 6 is not viable anymore. So how do you actually expect now the government to approach the entire issue of pricing a national asset like gas?

Baijal: These are very complex issues. The prices of gas change the world over. We import gas, we import other sources of energy, we import naphtha. Now to say that the Indian indigenous price for some reason will be very different is not sustainable. You can’t have a very low indigenous price and a high import price because that would lead to a situation where the importers will get a much higher price and the indigenous producer will get a smaller price, which will inhibit his ability to invest further in getting resources in India.

And that is very important that the price should be fixed by the government. But the production sharing contract very clearly says that it should be based on commercial principles, and that is what the government has done.

Now as the volatility increases or as the problems increase or as you find resources which are very expensive to explore but yet you see that the world prices have gone up maybe the government will have to take a view. That is precisely what the honorable Supreme Court has said that we leave it in the area of government and the government and the experts will sit down together and decide on these issues. These issues cannot be sorted out very quickly they will need a lot of deliberation.

Q: There is a stipulated period between which these two brothers have to actually arrive at a renegotiative pact. This is only in the well known speculation. If in deep they cannot arrive at a renegotiative pact by that time what then is the future course of action or what then happens really to where things stand?

Jain: According to me, six or eight weeks cannot be sacrosanct if the parties need 12 weeks or 2 months or 3 months and if the parties think that they are closer to the settlement, they can try and explore in the extended time.

In view of the guidelines, the parties would try to achieve the settlement as expeditiously as possible or wait for the settlement. If the settlement is not possible then the court said that you have to come with a suitable arrangement and go back to the company court. So then the parties will be back to the courts.

Source : Money Control

RIL-RNRL: How do legal, sector experts read the verdict? is a post from: Indian Stock Market Tips