>Railway Budget 2012-2013 by DINESH TRIVEDI (Minister of Railways), 14th March 2012

Madam Speaker,
1. I rise to present the Railway Budget for 2012-13.
2. I consider it a great privilege for me to head the strong and vibrant railway family and present my maiden Railway Budget which is also the first year of the 12th Five Year Plan. I am grateful to the Hon'ble Prime Minister for his inspiring guidance and support in formulating the Budget.
3. I am also grateful to the Hon’ble Finance Minister and the UPA Chairperson, Smt. Sonia Gandhi for their support. It would not have been possible for me to present this budget had I not received the support and confidence of my party, All India Trinamool Congress, and its chairperson, Mamata Banerjee, to whom I shall always remain grateful. Above all, I am grateful to

as it is only because of their blessings that I have been able to make it to this Parliament.

4. Madam Speaker, when I look at the list of illustrious leaders of this country who had donned the mantle of Indian Railways right from Sh. Asaf Ali to Sh. Lal Bahadur Shastri, to Sh. Jagjivan Ram ji, to Sh. Gulzari Lal Nanda, Sh. Kamalapati Tripathi, Sh. Madhu Dandavate to Mamata Banerjee, I find myself nowhere near their stature. But I have certainly tried to take lessons from the pages of history and from their contribution to this great institution. I am grateful to Mamata Banerjee for giving vision to railways in her Vision 2020 document, which has guided me immensely in framing the roadmap for carrying forward the task.

5. I am grateful to each and every member of 14 lakh strong Rail Parivar which has not only given confidence to me but has also shown the direction. It is through their dedication, hardwork, loyalty and sacrifice that the railways have scaled great heights. No other 

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organization can perhaps draw a parallel with Indian Railways. Right from the Board Members to the gangman, it is only this unity which has overcome various challenges and has made the country proud. Therefore, I dedicate to them all the achievements of the railways so far.

1) Extension of Trains
2) List of new Express Trains, Passenger Trains, MEMU, DEMU, Extension of run and increase in frequency of trains:- 

• Express Trains
• Passenger Trains
• MEMU
• DEMU

3) List of 84 Adarsh Stations to be taken up in 2012-13
4) List of 31 Projects being executed with State Cooperation (STATEWISE)
5) List of 20 new Railway Electrification Surveys sanctioned in 2012-13
6) List of 10 new Railway Electrification Projects sanctioned in 2012-13
7) List of 21 new Surveys for Doubling Projects sanctioned in 2012-13
8) List of 4 new projects of Doubling sent to Planning Commission for appraisal
9) List of 67 Doubling Works for completion during 2012-13
10) List of new Gauge Conversion Projects sanctioned in 2012-13


click on RAIL BUDGET to get detailed information
 RISH TRADER

>LIBERTY PHOSPHATE: Subsidy payout on fertilizers i.e. Single Sulphur Phosphate(SSP), Murite of Potash (MOP) & Dai ammonium phosphate (DAP)

We have interacted with the management of Liberty Phosphate to understand the impact of reduction in subsidy payout rates on non urea fertilisers and its fallout on the demand environment.


■ Subsidy cut may lead to increase in price of SSP: The government has decided to reduce subsidy payout on nutrients in complex fertilisers on the back of a decrease in the prices of raw materials in international markets. The government has decreased the subsidy on phosphorous by 32.6% to Rs21.8 while that on sulphur remains unchanged. Single Sulphur Phosphate (SSP) contains 16% phosphorous and 12% sulphur. So a decline in the subsidy on phosphorous will reduce the subsidy payout on SSP by 31.4% to Rs3,690 per tonne. A decrease in subsidy on SSP will restrict the company from decreasing the maximum retail price (MRP) from the current level of Rs5,000 per tonne. As per our interaction with the management, the price of SSP can be increased by Rs1,000 per tonne to Rs6,000 per tonne if the government reduces subsidy in the forthcoming budget.



■ Demand to remain intact for SSP even if price increases: We expect the demand for SSP to remain strong in spite of a likely price hike as it will find preference as a substitute to diammonium phosphate (DAP). The price of DAP has run up sharply in the last one year from Rs9,400 to Rs19,000 per tonne. Farmers, as a result, have been forced to look for a substitute. A special initiative taken by the government to use more of indigenously manufactured fertilisers in order to restrict subsidy will provide support to SSP manufacturing as a substitute to DAP in the long term. As stated earlier, the use of SSP in place of DAP may provide an additional growth opportunity to the company.


■ Margin may remain at current levels in spite of decrease in raw material prices: The prices of key raw materials have seen a declining trend on the back of lower demand in the international markets. The price of rock phosphate, after reaching a peak level of Rs10,000 per tonne during the current fiscal, has corrected to Rs8,000 per tonne. The same may further decline to Rs7,000 per tonne. In addition to this, the price of sulphuric acid has also corrected down and is presently quoting at Rs2,500 per tonne. The same may stabilise at the current levels. However the positive impact of decrease in the prices of raw materials will be offset by a decrease in subsidies and hence the margin is likely to remain at the current level.

 ■ Outlook and valuation: Liberty Phosphate is one of the largest SSP manufacturers which can grow by capitalising on its brand name and distribution network. Given the aggressive expansion of its manufacturing capacities the company can potentially grow at a compounded annual growth rate (CAGR) of around 28.6% over the next two years. In terms of valuation, the stock trades at around 1.7x FY2013 rough estimates. This makes it one of the cheapest stocks in the complex fertiliser space. Liberty Phosphate has appreciated by over 22% since we introduced the stock with a positive bias in the “viewpoint” section of our daily online publication “Investor’s Eye” on September 7, 2011. We maintain our positive bias on the stock.

RISH TRADER

>RELIANCE INDUSTRIES: Singapore Complex GRM corrects sharply (MARCH 2012)

Singapore Complex GRM corrects sharply: The gross refining margin (GRM) of the Singapore Complex has fallen sharply to around $2.4 per barrel from $5.6 per barrel at the end of Q3FY2012. The correction in the Singapore GRM was on account of contraction in the gasoil crack. Reliance Industries Ltd (RIL) has reported a GRM of $6.8 per barrel for Q3FY2012. Its GRM was expected to improve in Q4FY2012. However, looking at the severe drop in the Singapore Complex’ GRM we believe RIL may post a sequential drop in the GRM in its Q4FY2012 report card. We have factored GRMs of $7.5 and $8 par barrel for FY2012 and FY2013 respectively. With a drop of every $1 per barrel in the GRM, our earnings estimates for FY2012 and FY2013 carry a downside risk of 3-4% for RIL.


Gas output at KG basin falling continuously; likely to reach 27mmscmd by FY2013: The gas output at the Krishna Godavari (KG) D6 oil field has been declining for more than a year now and the field is currently producing 34.5 million standard cubic metre of gas per day (mmscmd) compared to 53-54mmscmd a year ago. According to the field development plan, the production was to touch 80mmscmd by April 2012 after all the 31 wells envisaged in the development plan are drilled and brought to production. However, RIL has so far drilled 22 wells on D-1 and 3, two of the 18 gas finds in the KG-D6
block that have been brought to production, but only 18 have been put-on production. Of these 18, five have ceased due to water/sand ingress. According to the management guidance in the media reports, the gas output at the KG basin is further expected to slide to an all-time low of 27mmscmd by April-May this year due to issues with the reservoir and to about 22mmscmd by FY2014. In our estimates for FY2012 and FY2013 we have factored in gas output of around 40mmscmd. Hence with the likely drop in the gas output to around 27mmscmd in FY2013 there is a downside risk of around 3% to our FY2013 earnings estimate.

RIL demanding upward revision in the gas price: The managements of RIL and BP have sought import parity for the gas produced from KG-D6 fields in the Bay of Bengal. It means a minimum of three-fold increase compared to the current price of $4.2 per million British thermal units. However, the oil ministry has rejected the proposal stating that the price of 4.2 per mmbtu is fixed till FY2014 and could not be revised before the due date. We believe any upward revision in the gas price from $4.2 per mmbtu in the near term augurs well for the company and could support the earnings of its exploration and production (E&P) division.


Petchem margin under pressure with increase in naphtha price: The petrochemical (petchem) business, which accounts for 20% of the revenue and over 35% of the EBIT, is facing severe margin pressure. For M9FY2012 the company has posted over 360-basis-point contraction in its EBIT margin from the petrochemical division. Further, with the increase in the naphtha price (up 18% in the past two months) due to an increase in the crude oil price and a lower than expected demand the margin pressure of the petrochemical division is likely to increase. Hence, a likely drop in the petrochemical margin in the coming quarters could be a downside risk to our earnings estimates for FY2012 and FY2013.


We maintain our earnings estimates and would revise them after Q4FY2012 results of RIL: A few negative developments like the fall in the GRM, the lower than expected output from the KG basin and the margin pressure in the petrochemical division could be downside risk to our earnings estimate for FY2012 and FY2013. However, we maintain our earnings estimates for FY2012 and FY2013 and would revise them after the announcement of the Q4FY2012 results of the company. Further, in this note we are also introducing our FY2014 estimates with the earnings per share (EPS) estimate at Rs71.4.


Outlook
In order to factor in the recent negative developments of falling GRM, lower than expected output from the KG basin and margin pressure in the petrochemical division, we are downgrading our valuation multiple in case of its refining and petrochemical businesses. We thus arrive at a revised price target of Rs890. However, we believe the ongoing buy-back programme to provide support to the stock price and any positive development in terms of an improvement in the GRM and the petrochemical margin could be positive triggers for the company. Currently, the RIL stock is trading at 12.8x and 11.6x of FY2012 and FY2013 estimated earnings respectively. We maintain our Buy rating on RIL with a revised price target of Rs890 (based on the sum-of-the-parts valuation method).

RISH TRADER

>Do the "fundamentals" really exist? The case of equities

Investors like to refer to the "fundamental value" of a financial asset. We shall take the example of equities. The fundamental value of a share is the discounted sum of the company's future earnings. But can it be calculated?


- There is of course uncertainty regarding future growth and future profitability, but this uncertainty is natural.
- The fundamental value of equities is calculated applying a risk premium; however, the equity risk premium has varied significantly over time. Does it have a standard value, or else does it have a conventional value which
may be different at each period?
- What discount rate should be used for future earnings? The current longterm interest rate could be built on the basis of irrational expectations of future interest rates, or it could be distorted by central bank intervention
and by risk aversion.


Perhaps the concept of fundamental value (in this case of a share) is so vague that it is unusable.



A distinction is generally made between "fundamental" investors and others ("chartists", etc.). Fundamental investors refer to the "fundamental value" of the asset they buy.


In this Flash we shall consider the case of equities.


To read full report: Do the "fundamentals" really exist?