Tuesday, January 3, 2012

>Gold price may rise after the fall in 2012 – China’s Precious Metals Industry Report in 2012 (PHILLIP CAPITAL)

Precious Metals prices have spiraled up in 2011

Looking back to 2011, international gold price has kept spiraling up with three stages. First, gold price increased 5.5% in 1H11 from US$1421.55/Oz at the end of 2010 to about US$1500/Oz in late June, which is mainly attributable to the USD depreciated for the QE2 and worsening European sovereign debt crisis. Second, as we expected in 2H11 report, gold price had speeded up since July and recorded a new high of US$1920.38/Oz, because the rating for the U.S. was downgraded and European sovereign debt crisis spread to core economies. Last, gold price has plumped since September and the trend has gone down to the end of this year, when the price has fallen down US$1600. In sum, gold price has advanced around 8% in the whole year.

In our view, recent decline has been mainly caused by the tightening liquidity for the Sovereign debt crisis. According to LBMA, the gold lease rate stands at the low level compared to that in past ten years. While the US dollar is in shortage, banks may borrow the dollar but lend their gold, then the gold lease volume ramped temporarily, so the gold supply becomes bigger, which let the lease rate hit maintain low. Therefore, the hedging attribute of the gold is ignored temporarily.

Gold price may rise after the fall in 2012

■ Tightening or loosening monetary policies?
Flooded liquidity has been the main reason for the bullish gold since 2000. Within ten years, major economies like the US and China has printed money as much as or more than that printed in previous decades or hundreds of years. When economic growth slows down or even falls into depression because of the European sovereign debt crisis, major economies have begun loosening their monetary policies. For example, Brazil, Australia and the ECB have adjusted downwards the benchmark interest rate, other smaller economies like Indonesia have even cut down the rate more often. Moreover, because of the high inflation, many economies have fallen into negative real interest, so the opportunity cost for gold is very low. Historically, easing monetary policies normally benefited the gold price. 

■ Investment demand keeps growing
The world has suffered consecutive economic and financial crisis in past years and faced more aggravated social turmoil, the investment demand for gold becomes a main cause for its bullish trend. From 2000 to 2010, the proportion of the demand has risen from 5% to nearly 40%. In 3Q11, global total demand for gold reached 1053.9 tons, with the increase of 6%, among which the investment demand even rose 33% to 468.1 tons and accounted for nearly 50%. Apparently, the demand structure of gold has changed materially and the investment demand has become the important or even the major factor.

■ Reserve demand is enlarging
It is well known that international central banks’ transferring from net seller to net buyer is also the main reason of higher gold price in past two years. Nowadays international monetary system is virtually the dollar standard system, meanwhile the euro, the pound sterling, Japanese Yen and others also help building up the structure. The foundation of the system lies in the firm and long-term trust on main international currencies by countries with non-international currency. Once significant change turns out in major countries, other economies maybe adjust their financial assets. Especially when the basis for the whole system is vacillated like the breakdown of the Bretton Woods System and the dollar crisis, the hedging tools including the gold may become the main choice of assets adjustment.

To read the full report: GOLD

>IPO NOTE: GOODWILL HOSPITAL & RESEARCH CENTER LIMITED(GHRCL) - Issue opens: January 30, 2012 & Closes January 09, 2012

Goodwill Hospital & Research Centre Ltd was incorporated on June 26, 2000 and the construction of the hospital was commenced in 2002. The medical consultancy commends on small scale in 2004 and in-patient department started in 2005. In December 2007 the management of the company was taken over by the Ojjus Medicare Pvt Ltd. Subsequently, the new management revamped operations of the hospital by adding super specialty services in Neurology and Cardiology etc., adding bed capacity and installation of high-end medical equipments.

Presently, GHRCL is engaged in the business of running a multi-specialty hospital at Noida called Ojjus Medicare, with focus on areas such as Neurology and Neuro surgery, Cardiology and Cardiac Surgery and Orthopaedics. Other Healthcare Services offered include mother & child care, Oncology, Gynaecology, Nephrology, Dermatology, Dental and Eye Care etc. It has 220 beds, Surgical ICU and Medical ICU, four state-of-the-art Operation Theatres and state-of-the-art Imaging facility with automatic laboratory support. Also, it is on the panel of various Government and large organizations for treatment of their employees.

The GHRCL has installed “Perfexion” Gamma Knife machine for non-invasive treatment of brain tumors, vascular malformations and functional diseases like Parkinson’s disease, trigeminal neuralgia and psychiatric disorders using highly prĂ©cised focused gamma rays. The Hospital is amongst a few private centres in South and South East Asia to install Perfexion Gamma rays.

Goodwill Hospital and Research Centre Ltd plans to raise INR 620 Mln through this issue. The utilization of the funds would be as follows:

The company offers to issue warrants with every share offered which will be converted within 13 months into equity share at a 20% discount to the price prevailing at that time.


■ Robust Industry Growth:
The Health Industry is emerging to be the largest service sector industry in India with estimated revenues of USD 35 Bln and constituting approximately 5.2% of the GDP. It is expected to grow at 15% per annum to reach USD 78.6 Bln by 2012. Over 40 Mln new jobs and USD 200 Bln increased revenues are expected to be generated by the Indian Healthcare Sector by 2020. Seeing this growth we believe that GHCL is well poised to benefit in the future.

■ Experienced Team of Skilled Doctors:
The success of a hospital significantly depends upon ability to attract, develop and retain highly skilled doctors, nurses and other personnel at the hospital. GHRCL has a team of 32 full time doctors highly qualified and have received advanced training at leading hospitals in India and overseas complemented by 72 nurses and 46 other medical personnel. It has prominent specialists in various fields of medical sciences as consultants on its panel. The team is also dedicated to Clinical Research and has published studies on topics including neurology and neuro-surgery cardiology, cardiac surgery etc.

■ Quality Patient Care:
GHRCL has been designed to offer quality care to the patients. The layouts at the facilities provide for a patient friendly environment, and include attractive architecture and design features, the use of special lighting and color, and the reduction of “hospital odors” enhance the patient experience. The management has upgraded the hospital as per the standards prescribed by NABH and NABL and applied for NABL and NABH accreditation. The Hospital is also empanelled with CGHS with effect from May 04, 2011.

■ Specialty focus:
The focus of the GHRCL is on highly specialized areas such as neurology along with Cardiology and Cardiac Surgery, Orthopaedics, urology, nephrology and critical care. The Hospital has installed “Perfexion” Gamma Knife Machine for the treatment of brain tumor. It is amongst the few hospitals in South and South East Asia to have this facility. The Company performed 435 Gamma Knife procedures, Neurosurgeries & Neuro Interventions, 335 Cardiac Surgeries & Cardiac Interventions and 979 Orthopedics, General Surgeries and Gynae procedures in FY 2010-11.

■ Riding on the successful business model to fuel future growth:
The company plans to replicate the growth achieved in the recent past that was possible due to super specialty services in Neurology and Cardiology etc., along with installation of high-end medical equipments. Part of the proceeds would be used for the setting up of a Diagnostic Centre at Faridabad along with the establishment of one polyclinic each in Muzaffarnagar, Bulandshahar, Meerut, Saharanpur, Hapur and Moradabad by FY 2012-13.

To read the full report: GHRCL

>YEAR 2012: Where do we go? “Panic - Consolidation - Rally”


2011 been a rather difficult year for the investors.
■ A volatile year domestically and globally as well.
On global platform - From Tsunami in Japan, unrest in Middle east, concerns on slowing US economy and emerging market growth to survival of the Euro region. Along with sharper than expected rise in inflation in the emerging markets prompting higher interest rates.
 ■ On domestic front India has its own concerns which made it one of the worst performing economy. Concerns like a) inflationary pressures b) sharp rise in interest rates c) policy inaction by the government d) decline in Indian rupee e) widening fiscal deficit f) corporate governance concerns g) slowing demand and growth h) corruption issues.
Our markets have corrected almost 25% from the yearly high of 6181 levels in Jan 2011.
■  Emerging markets saw $47 bn outflow in 12 months. For BRIC countries the decade ends with a record outflows of $ 15bn.
■ Break down of Euro currency which is currently trading at its yearly low is a concern.

2012 – A year of Dawn or Dusk..??
Beginning of 2012, a challenging year for global as well the domestic economy. The start for the year, first 3 months will see lot of events lined up.
■ To start with most of the rating agencies will declare their rating for European countries. The biggest event to be watched for.
On domestic front the elections lined up in 5 states will come up in Feb- Mar-2012 which will set the tone for further step by the government.
■  Elections will be followed by Budget 2012 which is expected to be a populist one as it would be the last budget before the 2013 elections. As 2013 budget will be mainly on election expectations and results.
 ■ Q3 results also will start off from Jan 2012 and with other events like budget and election, reforms will take a back seat.
Lack of reforms and initiative from the government will continue to hamper the overall growth for the economy.
More downgrades from the brokerages may be witnessed.

To read the full report: YEAR 2012


>SESA GOA: Government raises export duty

■ Government raises export duty on iron ore: The government has raised export duty on iron ore to ad valorem 30% on lumps and fines, with effect from December 30, 2011, compared to 20% earlier. Iron ore exports from India have already declined by 25.2% to 35.4mn tonnes from April-October 2011 on account of export ban in Karnataka, stringent measures in issuing export permits in Odisha, a sharp decline in international iron ore price and increased export duty. Post the export duty hike, rise in rail freight and the recent decline in iron ore price are expected to severely affect iron ore exports from India. Before the export duty hike (as per Federation of Indian Mineral Industries), total iron ore exports during FY2012 were estimated to be 60mn tonnes compared to its previous estimate of 75.0mn tonnes. We now expect iron ore exports to be lower than 60mn tonnes during FY2012. While Sesa Goa’s profits are expected to be affected adversely, we do not expect any impact on NMDC’s financials as we do not expect any export of iron ore by NMDC during FY2012 and FY2013.

■ Higher export duty to affect Sesa Goa’s profitability: Sesa Goa generates ~90% of its net sales from iron ore exports. Hence, the export duty hike would increase the company’s export duty expenses without any corresponding increase in iron ore prices. Accordingly, we have raised our export duty expenses for Sesa Goa to `1,681cr (previous estimate – `1,390cr) for FY2012 and to `1,932cr (previous estimate – `1,546cr) for FY2013. Also, we now believe some of the Karnataka iron ore would now be sold domestically, as EBITDA/tonne may not favor exports anymore. Our EBITDA estimates for FY2012 and FY2013 stand pruned by 8.1% and 9.1% to `3,314cr and `3,712cr, respectively.

Outlook and valuation
Despite the recent correction in spot iron ore prices, we expect international iron ore prices to remain firm in the medium term, as we expect additional meaningful supplies to hit the sea-borne market only from CY2014. We believe the current stock price discounts negatives such as acquisition of a minority stake in the unrelated oil business via acquisition of Cairn India’s stake, increased export duty, higher railway freight and lower volumes from Goa mines. We recommend Buy on the stock with an SOTP-based target price of `195 (`213 earlier).

To read the full report: SESA GOA