Sunday, December 6, 2009

>Crude oil inches lower; US payrolls data eyed

London - Crude futures fall slightly amid cautious sentiment ahead of key US nonfarm payrolls data due 1330 GMT. "The nonfarm payrolls number will most likely have much influence in determining the dollar's short-term direction, with a stronger than expected number bolstering the dollar's fortunes," says Edward Meir of MF Global. Adds a rebound in the dollar would bring "more lasting damage" to oil prices. Economists surveyed by Dow Jones Newswires expect the payrolls data to show the U.S. economy lost 125,000 jobs in November, compared with 190,000 in October. ICE January Brent -44c at USD77.92/bbl, Nymex January light, sweet -58c at USD75.88/bbl.

Crude tad lower in Asia ahead of U.S. jobs report
Singapore - Crude oil futures were slightly lower in Asian trade Friday, as high inventories continued to weigh amid doubts about global economic recovery.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in January traded at $76.17 a barrel at 0650 GMT, down 29 cents in the Globex electronic session. January Brent crude on London's ICE Futures exchange fell 21 cents to $78.15 a barrel.

"As far as today goes, all eyes will be on November's unemployment rate, which the crowd forecasts at unchanged, 10.2%," said Stephen Schork in The Schork Report.

Recent data from the U.S. continued to reflect weak demand in the world's largest energy consumer, and a widening crude futures contango makes increased crude storage very likely.

Normally, an expanding contango would drive outright crude values sharply lower, possibly into the $65-$70-a-barrel zone, but with supporting financial factors, "sustaining downside crude price moves in the face of aggressive hedge fund buying interest is proving to be an arduous process," said Jim Ritterbusch of Ritterbusch and Associates.

The oil market was also pressured by the Institute for Supply Management report yesterday that said its service industry index for November fell to 48.7, from 50.6 in October, indicating a contraction in the industry--in contrast to an expansion predicted by economists.

Crude remains rangebound between $75 and $80 a barrel, but analysts say charts indicate a bearish scenario.

The latest U.S. inventories data wasn't good enough to say with confidence that economic recovery is gaining steam, said Phil Flynn of with PFGBest. "In fact they say we may be going back in the other direction." Unless demand picks up quickly, "I would say these numbers indicate that the economy has hit a plateau and runs a real risk of contracting again," he said.

Nymex reformulated gasoline blendstock for January fell 32 points to 198.98 cents a gallon, while January heating oil traded at 204.40 cents, 55 points lower.

ICE gasoil for December changed hands at $619.50 a metric ton, down $0.75 from yesterday's settlement.



• The ‘myopia of the mature economies’ has set in – surely the global economy must see slower growth since the epicenter of the global economy as it is currently constituted will slow as mature, advanced markets age?

• But this change will coincide with the ongoing coming of age in emerging markets.

• Two decades ago, emerging markets accounted for only onethird of the global economy.

• Because of their rapid rate of economic growth and an interdependent virtuous cycle, emerging markets are likely to constitute two-thirds of the global economy within two decades.

• This is likely to cause the global economy to actually speed up during this time, not slow down.

• But transitions of this ilk are rarely seamless, so be prepared for EMs to increasingly test their
economic muscle, for EM policymakers to test the boundaries of orthodox economic management, and for more mistakes like the Dubai debt standstill to happen along the way.

To read the full report: GLOBAL ECONOMY


JSW Energy (JSWE), a part of JSW Group, is coming with a public issue of shares of Rs10 each. The company will be raising a maximum amount of Rs2,700 crore including Rs492 crore from anchor investors in the process. The company also proposes to offer retail applicants a discount of Rs5 to the issue price, which will be determined after the book building process.

Object of the issue
The net proceeds of the issue is proposed to be used to
Part finance the construction and development of identified projects aggregating to 2,790MW capacity; 400KV transmission project and mining venture;
Repayment of corporate debt; and
General corporate purposes.

Company background
JSWE is a part of JSW Group headed by Sajjan Jindal, which in turn is a part of OP Jindal Group. JSW Group has presence in steel, power, cement, software and infrastructure sectors with revenue in excess of Rs168,00 crore for the year ended March 31, 2009. JSWE was incorporated in 1994 with the objective to develop, construct and operate power plants. The company has been in the business of power generation since 2000 and its consolidated revenue increased from Rs1,326 crore in FY2008 to Rs1,852 crore in FY2009. The company is also involved in power transmission and plans to foray into power distribution space.

Power generation business
The company currently has 995MW of operational power generation capacity, with 2,655MW of generating capacity in construction/implementation phase. In addition, JSWE has power generation projects at early stages of development with proposed combined installed capacity of 7,740MW. The company sells power to state-owned utilities, power trading companies and some industrial consumers through power exchanges on a combination of long-term and short-term
power purchase arrangements (PPAs).

Power trading business
JSWE’s power trading business involves selling the power purchased from external power plants to the users and the company has been engaged in power trading activities since June 2006. The Central Electricity Regulatory Commission (CERC) has granted the company “Category F” license, the highest licence category, to trade power in India. Under applicable law, power trading companies in India are permitted to make profit of up to Rs0.04 per unit. JSWE purchased and sold 813.49 million units of externally generated power for the year ended March 31, 2009.

Sale of CERs
JSWE has already generated and realised 3.97 million certified emission reduction (CER) for its dual-fuel power plant at Toranagallu, Karnataka. The company also expects itself to be eligible for CER benefits for some of its projects, such as the 240-MW hydroelectric power plant at Kutehr and from the use of super critical technology at its projects under development. The company derived revenue of Rs327.6 crore from the sale of CERs during FY2008 on the CERS received for its operations during FY2001-06. The income statement has been restated to allocate the revenue from the sale of CERs to the respective years to which they relate.

Operation and maintenance services
JSWE also renders operation and maintenance services to Jindal Steel Works Steel Ltd (JSWSL)’s two captive power plants with installed capacity of 230MW under an operation and maintenance agreement. The five-year agreements for the plants came into affect in April 1, 2006 and is subject to extension by mutual agreement. The present fee payable under these two agreements for FY2010 is Rs77,990 per MW per month. The agreements provide for an increase in the fee at the rate of 4% per year. As performance incentive, JSWE is entitled to an incentive fee if the availability factor of the power plants exceeds 85%. The incentive fee is 25% of the percentage by which the actual availability factor exceeds 85%, which is then applied to the operator fee.

To read the full report: JSW ENERGY

>Emerging Asia's growth outlook may get clipped on rice rally

New York - By and large, emerging Asia investors aren't paying much attention to the rising price of rice. Perhaps they should start.

Rice prices have recently surged, nearing the record highs of 2008 as India appears set to become a net importer for the first time in more than 20 years on the weakest monsoon season in 37 years. The government expects its summer-sown rice output to fall 18%.

The Philippines, one of the largest global rice importers, has also suffered production shortages this year that could increase the country's demand. On Thursday, prices prompted the Philippines to raise its budget by 21%. Meanwhile, rice futures traded in the U.S. have increased by about 25% in recent months.

The director general of the International Rice Research Institute Global, Robert Zeigler, underlined the concerns last week in announcing a campaign to raise $300 million over the next five years to finance research for increasing rice output.

If the cost of rice, the food mainstay of most of Asia, continues to rise relative to other goods and services, the impact on growth in emerging-market Asia, which is expected to lead the world next year, could be crimped.

Higher prices would give people less disposable income, and could effect political and social stability. Food security has become as a major socio-political issue in Asia in recent years due to demand-supply imbalances--a problem expected to grow with increasing populations and potential climate change.

And rice is not alone. Prices of other food stuffs including sugar, cocoa, tea and Chinese garlic, have been gaining, too.

"Asia's current recovery is still driven to a large extent by domestic demand and especially household spending," according to a research report by Frederic Neumann, senior Asia economist at HSBC in Hong Kong. "But, rising food (read: rice) prices could conceivably put such a consumption recovery at risk."

Aggregate consumption, after all, stalled in 2008 when rice prices soared.

Neumann found that the weight of rice on consumer prices even exceeds the impact of energy in some Asian markets. But a concurrent rise in energy prices could increase the growth impact from rice prices.

Several economists and money managers aren't yet concerned.

"A rise in rice prices might make me mark down expectations in growth," said Carl Weinberg, chief economist at High Frequency Economics. "For the moment, that's not high on my list."

Simona Mocuta, a senior economist for Asia at Global Insight in Lexington, Mass, added, "By and large, we don't see the same type of inflationary pressures that we saw in the early part of 2008."

But Neumann says it pays to at least keep watch now to avoid the costs some investors felt in 2008.

"Most at risk in Asia to rising food price inflation are Sri Lanka, India, the Philippines, Indonesia, Thailand, as well as Vietnam," he said.



Company Background
The Company is an innovator in software products focused on Information, Communication and Entertainment for mobile phones and desktop computers under the 'Mundu' brand name for the retail segment. Geodesic Limited derives a major portion of its revenues in the enterprise segment from the integrated content, Customer Alignment and Relationship Management (CARM), real-time communication and collaboration suite. Geodesic offers a variety of services like Instant Messenger (IM), Internet Radio, and Voice over Internet Protocol (VoIP), remote desktop, etc., on the smart phone. The company has subsidiaries in USA, Hong Kong, Sweden and Singapore in addition to Indian Subsidiary ChandaMama Ltd.

Investment Rationale
Continuous Top line and Bottom-line growth: - The Company has reported a topline and bottom-line growth of over 95% in the last five years. The topline increased at CAGR of nearly 100% from Rs 40Cr in FY 05 to Rs 642 Cr in FY09. Bottom-line has grown from Rs 19.09 Cr to Rs 282 Cr at a CAGR of 96%. With a niche product line we believe that the company would continue to post a growth in topline in the coming years. The company had acquired 8 new clients in the last quarter. However, due to pricing pressures the sales and bottom-line to remain flat for FY10 but a significant uptick in both topline and bottomline from FY11 onwards is expected as pricing parity is restored.

Focus on developing economy to yield growth in topline: - India is adding close to 8-10 Million subscribers in the telecom Sector every month. At present, India has close to 1.6 Cr internet enabled cell phone user. Tele density is increasing at a fast pace and so is the mobile device Industry. Similar trend exists in other developing economies such as China, Africa, Latin America and Middle East. Company is actively involved in increasing its presence in these economies. The company in last quarter had bagged clients in Latin America. The company plans to intensify focus on these geographies as it believes that these areas would give company incremental growth in the coming years.

Technology Convergence between IP, GSM and CDMA channels:- A constraint on spectrum would push GSM and CDMA companies to adopt IP based telephony. More over, to serve the ever increasing subscriber base, particularly in India, Africa and Latin America . VOIP,which is still awaiting approval, would provide the necessary impetus for the company’s growth

Constant product Research, Development and Launch: - The Company has been constantly developing new products. The company was the first to come out with IM for I-Phone, the Instant Manager (IM) was well received. The company has constantly upgrading its products and launching new products. The company is launching SPOKN, a completely new branded retail VOIP service in the month of September and this is expected to be a major revenue earner for Geodesic going forward.

Planned Capex ahead and acquisition in the offing- The Company plans to set up a facility for Simputer and push forward for acquiring new products. The management has stated that it is in talks to acquire a company in Europe for a consideration of USD 15-16 Mn. The targeted company is in the social networking space. The deal is expected to close down by Dec in Q3FY10.

Inorganic growth from FCCB proceeds worth Rs 500 Cr for Acquisition: - The Company had raised USD 125 Mn through FCCB in Jan 2008 for acquisitions abroad. It had also bought back FCCB worth 8.5 Mn at a discount. The company has USD 113.5 Mn worth of FCCB outstanding conversion in 2013 at a price of Rs 256 per FFCB and a maturity yield of 6.6%. Geodesic has a past track record of acquiring companies, like E-dot, Picopeta and Chandamama, and improving their performance substantially, post-acquisition. Company has utilized some of these funds for investment in Subsidiaries and product marketing. Going forward, we expect the company to scout and acquire companies abroad. This would aid the company in reporting a growth in topline and Bottomline.

Dividend history: - The management has stated that it proposes to step up the dividend payout to 10% from 5% at present.

Cash and Bank Balance:-Company has cash and bank balance worth Rs 84 per share. If cash from proceeds of FCCB are not considered, Company has nearly Rs 30 per share of cash on its books.

To read the full report: GEODESIC LIMITED


The Story.... The auction of 3G & Broadband Wireless Access (BWA) services in India is finally expected to see the light of the day, following the resolution of issues between the Department of Telecom (DoT) and Ministry of Defence (MoD). MoD has agreed to release 25 Mhz of 3G spectrum for provisioning of 3G services in exchange of deployment of an exclusive optical fibre communications network for defence forces by ministry of telecom. The defence spectrum will be available for commercial usage by June 2010, after which the telecom circles will have spectrum ranging between 25 MHz and 60 MHz. The availability of four 3G slots for auction in all circles, especially in the high ARPU generating circles of Delhi and Gujarat, will result in rational bidding for these circles, as well as provide end users more options to choose from. It will also encourage more players, including global telecom service providers to participate in the bidding. The bidding multiple is expected to be much higher in the more lucrative sectors of the metro and ‘A’ regions than for the ‘B’ and ‘C’ circles, as the former have greater potential for the growth of data services. DoT is also expected to resolve issues related to additional 2G spectrum allocation before 3G spectrum auctions, in order to give service providers greater clarity before planning their bids for 3G spectrum. The impact on the financials of the service providers can be quantified when the bidding prices are ascertained. Service providers can now look forward to 3G auctions as an opportunity to support their declining ARPUs, as well as improve the quality of their voice services by using 3G spectrum to compensate for the scarcity of 2G spectrum.

Department of Telecom (DoT) & Ministry of Defence (MoD) finally resolve issues related to vacating of 3G spectrum to clear the road for auction of 3G & Broadband Wireless Access (BWA)
services in India…

Availability of four slots in all circles to result in more rational bidding & provide end users more options to choose from…

Action plan & policy for 3G/BWA spectrum auction: The agreement between DoT and MoD over the vacating of 3G spectrum by the latter has ensured that the auctions will be held as per schedule. The DoT now has clarity over the frequency bands that will be available for auction and the details of the same will be provided to service providers on December 8, 2009. Without the release of 3G spectrum by the MoD, there would have been less than four slots available in a few circles. The agreement between the DoT and MoD will now do away with the scarcity premium in these circles, which would have been detrimental to the interests of end users in these regions. A few issues of concern that still remain are policies relating to 2G spectrum allocation to successful 3G bidders as they will get Unified Access Service (UAS) license to provide both 3G and 2G services in India. No consensus has also been achieved on additional 2G spectrum allocation policy. The decision on both these policies will impact the bidding for 3G spectrum and clarity by DoT on these issues will aid service providers to plan their strategy for 3G auctions. The key features regarding the 3G & BWA spectrum auction are as follows:

• Four blocks of 3G spectrum (excluding one block for BSNL/MTNL in each circle) will be available for auction across all the 22 circles. In case of BWA auctions, two blocks per circle will be available for auction in the 2.3 GHz band.

• The base price reserved for the pan India 3G spectrum is Rs.35 bn and Rs.17.5 bn for the pan
India BWA spectrum.

• Auction for 3G services will be held from January 14, 2010, which will be followed by the auction for BWA services.

• The telecom department will be responsible for obtaining clearance for the optic fibre network, an Rs.100 bn project, from the Cabinet Committee of Economic Affairs (CCEA) by December 3, 2009 and will complete the setting up of the fibre network by December 2012.

• The MoD will sign an agreement for releasing 25 MHz of 3G spectrum on December 7, 2009, which will become available for commercial usage only by June 2010, due to the time required by the ministry to shift the operations of its equipment from these (spectrum) bands.

• After the defence spectrum is made available, the telecom circles will have spectrum ranging
between 25 MHz and 60 MHz.

To read the full report: TELECOM SECTOR