Friday, December 23, 2011

>INDIA UTILITIES: Key Highlights from the Shunglu Committee Report on SEBs

■ Effectiveness lies in implementation: Most of the committee’s recommendations to improve the future performance of distribution companies are intuitive – but their effectiveness would lie in their implementation. In 2001-03 the discoms were similarly bailed out with the proviso that they would improve their performance, which has clearly not happened. In our view, the committee has proposed another bailout through the SPV, but it remains to be seen whether RBI would be willing to be a party to this.

■ The Committee submitted its report on December 15… In July 2010, the Planning Commission set up a High Level Panel (Shunglu Committee) to look into the financial problems of the SEBs and identify corrective steps. The committee has found the accounts of many of the discoms to be in a less than desirable state. It estimates that the losses of discoms (post subsidy) of Rs270 bn in F2010 could come down to Rs221 bn by F2017 provided the discoms actively correct course.

…making certain key recommendations for discoms to correct their course:

• Creation of a SPV, with a line of credit from RBI, to buy distressed loans of discoms
• Improving the quality of accounts via computerization and rationalization of outstanding receivables
• Use of pre-paid meters for defaulting consumers
• Introduction of a zone-based loss surcharge, linked to the zone’s loss levels, in bills
• Improving independence of the SERCs by changing the method of appointing members
• Monitoring of SERCs’ performance in terms of regular and if required suo-moto tariff hike implementation by the SERCs

Recommendations by the committee:
• Physical verification and preparation of fixed asset register
• A program of stock reconciliation and physical verification
• Inter-unit reconciliation of accounts
• Review of the receivables outstanding with a view to enumerating what is recoverable and what is not
• Systematic and comprehensive computerization

To read the full report: INDIA UTILITIES

>SWITCH STRATEGY: Gujarat State Petronet Limited to Petronet LNG

 Indian market starved of natural gas
The Indian market has always suffered from a chronic shortage of natural gas supplies. While a study by Mercados shows that natural gas demand is expected to grow at CAGR of 21% from 179 mmscmd in FY11 to 381 mmscmd in FY15, DGH estimates that supply will grow at CAGR of only 8.6% from 146 mmscmd in FY11 to 203 mmscmd in FY15. This is due to limited domestic gas supplies, gas pricing & customer allocation being the prerogative of the Govt. and inadequate transmission infrastructure in the country. The producing fields of ONGC and OIL are highly mature and positive production surprises are not expected in the near term. KG D6, which was expected to ramp up to 80 mmscmd, is languishing at ~40 mmscmd currently.

■ Transmission volumes to suffer consequently – GSPL remains vulnerable
The KG D6 block, from which 58% of GSPL’s transmission volume was sourced in FY11, is in natural decline with the latest production figure at 39.8 mmscmd, compared to 46.6 mmscmd & 55.9 mmscmd in H1 FY12 & FY11 respectively. With the KG D6 block stuck in a political quagmire, output is set to decline further resulting in lower D6 volumes for GSPL. As PLNG’s Dahej terminal is already operating above its rated capacity, further upside to LNG volumes appears less likely.

■ Reduction of transmission tariff looms large
Along with falling volumes, the spectre of tariff cut also is looming large. GSPL charged transmission tariff of Rs 0.79/scm & Rs 0.82/ scm in FY11 & H1 FY12 respectively and correspondingly generated ROCE of 26% & 28%. This is much higher than the normative ROCE of 18% allowed by the regulator. Hence, we expect the tariff to be revised downward to Rs 0.75/scm from FY13 onwards.

■ Imported LNG the only bright spot – PLNG best positioned
Significant shortfall in domestic gas supply, active sourcing of LNG contracts and first mover advantage combine to position Petronet LNG as an attractive investment opportunity. It enjoys the first mover advantage with its 10 MMTPA LNG terminal at Dahej. The company is taking advantage of the favorable economics of this industry by doubling its capacity to 20 MMTPA by end-FY15. In light of limited supplies of cheap domestic gas being earmarked for the priority sector’s growing needs, we expect companies operating in the steel, refinery/petchem, sponge iron etc. to increasingly turn to R-LNG. Moreover, R-LNG is environment-friendly and cheaper than its competing fuels, namely, naphtha, diesel and fuel oil.

■ Valuation
We rate GSPL as UNDERPERFORMER and assign a target price of Rs 77 (1 yr fwd P/E: 10x) which translates into downside of 12%. We reiterate BUY on Petronet LNG and assign a target price of Rs 204 which translates into upside of 28%.

To read the full report: SWITCH STRATEGY

>Muthoot Finance Limited Non Convertible Debentures Series II (Issue details)


 Issuer            Muthoot Finance Limited

■ Issue            Public Issue of Secured, Redeemable, Non Convertible Debentures (NCD‟s) of upto Rs. 3,000 million with an option to retain oversubscription upto Rs. 3,000 million for issuance of additional NCDs , aggregating to a total of upto Rs. 6,000 million

■ Rating            CRISIL AA- /stable & [ICRA] AA-(stable)

■ Issue Schedule
  • Issue Opening Date :- Thursday - December 22, 2011
  • Issue Closing Date :- Saturday – January 7, 2012
■ Allocation
  • Institutional Portion ( Category I) :upto 20%
  • Non-Institutional Portion ( Category II) : upto 40%
  • Retail Portion (Category III) :upto 40%
Listing                    BSE Ltd is the Designated Stock Exchange.

  Company Overview

  Company History

  Key Highlights
  1. De-risked Industry with Untapped Opportunity and High Growth Potential 
  2. Largest Non-Banking Finance Company in Gold Loan Business in India
  3. Pan-India Reach and Branch Network 
  4. Strong Brand with an Unique Business Model 
  5. Robust Operating System 
  6. Sound Financial Standing 
  7. Experienced and Respected Management
  Key Financials & Operating Ratios
  Issue Structure

  Issue Size : Rs.300 Cr + Rs.300 Cr. Green Shoe Option

  Period : 2, 3 and 5 years

■ Interest Rates
  • Annual Option : 13%, 13.25% and 13.25% for 2, 3 and 5 years respectively
  • Cumulative Option : Double in 5 ½ Years
  • Minimum Investment : Rs.5000 and multiples of Rs.1000 thereafter
To see full presentation: MUTHOOT FINANCE