Saturday, October 29, 2011
Saving Deposits Rates may go up
, On Friday 28 October 2011, 11:28 AM
source: Yahoo
In a new notification, the RBI has provided for a complete savings bank rate deregulation, in which banks are allowed to set their own rates for savings bank deposits.
A savings bank (SB) deposit is what is called a checking account abroad, which you can write cheques against, and where money is withdrawable "on demand". Current accounts are similar, except they don't pay any interest. SBs have traditionally been a big source of bank funding — from 1970, which is when early data is available, SB accounts have constituted between 20 and 29 percent of all deposits:
Of the total bank deposits of 56 lakh crores, nearly 14 lakh crores were in savings bank deposits. (2011 March)SB accounts are an incredibly low cost of funds for banks, who used to pay just 4% as interest. Consider a bank like ICICI which has 29% of its deposits from savings bank accounts, and another 13% from current accounts (paying 0% interest). Even if they paid 10% on the remaining, their overall cost of funds will only be 6.96%.
If a bank lends at a rate of 12% (average) they will make a spread of 5%, a reasonably high number. These spreads are offset by costs — of setting up branches, of printing chequebooks, of validating and clearing cheques, of paying out money on demand. Banks like State Bank of India, Punjab National Bank, HDFC Bank and ICICI Bank have a big branch network, which helps them gather such funds and with a capital cost spread over a large amount, the cost impact on margins is also low. Effectively, these banks have been making reasonable profits on the back of low-cost savings deposits.
But the distribution of savings bank deposits is skewed. SBI owns about 25%, or one-fourth, of the total savings bank deposits in India. The top 10 banks account for 60 to 65% of all deposits in India. Smaller banks like Yes Bank and Indusind Bank, whose deposits are just 2 to 10% of their total borrowings, will want to attract the lower comparative cost of deposits by raising their own savings bank deposit rate. Yes bank has already announced a 2% increase; they now offer 6% on all savings bank accounts.
It is broadly estimated that all banks will have to follow suit, and the cost of funds could go up as much as 1% for savings accounts. This involves a payout of Rs. 14,000 crores as interest, and that will dent profits substantially; by upto 20%.
I doubt the large banks are in any hurry to raise savings bank rates. If anything, they'll look at ways to cut it down now, largely because their customers are a bunch of lazy, financially illiterate people who won't shift away easily.
Consider that:
1) Even before this announcement, people could easily have placed their money in a fixed deposit account — yields are 9-10% - and move money back when required. To facilitate this process, "sweep-in" FDs were provided, where money was automatically moved to your account if you overshot.
2) The most efficient way would be to place your money in a liquid mutual fund — which have provided 8% to 8.5% returns. Some liquid funds also provide ATM and debit cards to spend directly from the fund.
Yet, evidently, customers preferred to use savings accounts rather than the above, rational alternatives.
The reasons are many. For one, the average savings deposit in India is very small; with around 100 crore accounts, the average savings account balance is R.s 14,000 — which means an additional 4% a year might save them Rs. 560 — not substantial enough to switch.
Secondly, the cost of switching can be a deterrent. If you have a brokerage account or a mutual fund investment, those are linked to bank accounts that you gave when creating them; changing them involves more paperwork. Certain banks may not have all required features when using their online banking services, which means more trips to the bank. In all, you incur a cost when you switch SB accounts, and for that miniscule benefit it may not make sense.
Thirdly, restrictions on usage may continue. Corporate salary accounts might dictate what you use because they want to transfer salaries using a bank's online' service rather than to use cheques. This means you will need to have an account at the bank which your company deals with, and then transfer money to wherever your operational account is. The additional hassle may not be worth it. If you have paid rent through post dated cheques or are paying an EMI through a bank's electronic clearing service, you will find yourself unable to change accounts easily.
Finally, people aren't rational. None of the factors above are so cumbersome that they can't be done. Nowadays all it takes is a phone call and a few clicks of the mouse. Yet, even if you demonstrated to people how they could have made X rupees more by going with an FD/Liquid fund approach, they could nod their heads and still leave the money in the savings account. Someone I know has more than 10 lakhs in an SB account which they don't even use; but they are too lazy to go move it to Fixed Deposits.
So banks might not need to increase rates on the upside. On the other hand, if rates come down, you can be sure that SB rates will go down like everything else.
Let's assume that to maintain competitiveness, banks do increase rates on savings accounts. They will then try to nickel-and-dime you on charges that you normally wouldn't pay for. Internet banking remains free today, as do ATM usage or cheque-books. But slowly, over the past few years, charges on account usage have appeared — want an extra cheque-book? We'll charge you. Want a bank statement going back one year? We'll charge you. Want a debit card? We'll charge you. Charges now exist if you visit a bank or deposit cash or for cheque returns. Banks earlier had threatened that service fees for banking would go up if savings rates were deregulated — it appears now that service fees have been going up surreptitiously anyway.
RBI is looking to issue new banking licenses, which should take the number of scheduled commercial banks up from the current 80. We should have hundreds of banks, and eventually have enough competition that any petty fee charging would instantly cause us to move.
Also, the importance of a particular bank's savings account is starting to come down. Service levels in all banks are rapidly converging. Usage is going electronic and faceless. Already, I issue just two cheques a month — a rent cheque and one to the local society for maintenance. For everything else — phone bills, petrol, supermarket, broadband, even coffee - I use a credit card, and I make an online transfer to pay the card bill. I can quite easily manage this through any bank account today; I don't really care about their relationship managers who only try to sell me insurance. If I opened a new account that gives me 2% more, I can retain my old account and operate from the new one in less than a day, moving money between each other whenever needed; and I'll feel little pain.
While I don't think this measure itself will cause people to move accounts, it could be individual bank behaviour that prompts an exodus. As the larger banks attach fees to what we have always got for free, we will decide to move, and due to the competitive nature, new banks will make it easy for us. However, this dynamic will take some time to play out, as banks battle out interest rates against ridiculous fees. Eventually, the larger banks will have to give up a little profitability from the deregulation, but they'll profit when rates crash as well. The system is better with unregulated rates than otherwise.
Deepak Shenoy is co-founder at MarketVision, a financial knowledge company and writes at Capital Mind. You can reach him at deepakshenoy@gmail.com or @deepakshenoy.
1,012-kg gold coin unveiled in Australia
source:PTI/ANI
AFP The world's biggest and heaviest gold coin displayed at the Commonwealth Heads of Government Meeting (CHOGM) in Perth on Thursday.
The world's biggest, heaviest and inherently most valuable gold coin, worth just under 54 million Australian dollars, was unveiled by the Perth Mint on Friday to mark the visit of Queen Elizabeth II.
The 1,012-kg coin has more than one tonne of 99.99 per cent pure gold, according to The Herald Sun.
It features a bounding red kangaroo on one side, and the Queen's motif on the other. It is nearly 80cm in diameter and 12cm thick.
“The giant coin is a magnificent Australian icon symbolising one of the most extraordinary accomplishments in its 112-year history,” a statement on the Mint's website said.
Friday, October 28, 2011
Judicial delay may become a thing of the past
source: The Hindu
The Hindu In this January 2011 file photo, Union Minister for Law and Justice Veerappa Moily addresses the media to announce the National Mission for delivery of justice and legal reforms, in New Delhi. Photo: V. Sudershan
The National Mission to improve the delivery of justice is at work.
In October 2009, on the basis of a Vision Document adopted at a judicial conference in New Delhi, the Government of India approved in principle a National Mission to reduce pendency and delays in the judicial system and enhance accountability through structural changes, higher performance standards and capacity-building. Many past attempts to achieve the goals did not yield results because of lack of institutional capacities, inadequate funding and want of a political will.
When it was realised that without judicial reform the development agenda cannot be carried forward, the 13th Finance Commission made specific recommendations for the grant of funds to improve justice delivery. The Union government announced a series of policy initiatives aimed at reducing pendency from an average of 15 years to three years — within a three year period. It was considered by many as too ambitious for a system used to chronic delays, outmoded procedures and indifferent management. With the money made available and strategies and plans worked out, the government has now come up with a National Mission to accomplish the goal within five years, coinciding with the period of the 12th Five Year Plan. This is a look at the Mission Goals, analysing the components of the Action Plan, examining the strategies proposed and evaluating the prospects, given the conditions on the ground and the constraints.
The catalyst
For a long time, the judiciary was outside the radar of the Planning Commission which distributed development grants. And when the Commission started providing funds, it turned out to be too meagre to make any capacity improvement. The State governments did not increase the number of courts required to handle the mounting number of cases, and the existing ones did not get the needed infrastructure. The judiciary is still to acquire information and communication technology (ICT) support systems to modernise processes, and continues to labour under the weight of over three crore pending cases.
Setting a condition that the government, the single largest litigant, frame a litigation policy aimed at reducing avoidable and unnecessary litigation, the Finance Commission recommended a grant of Rs. 5,000 crore to improve judicial outcomes through six strategic initiatives. These included increasing the number of court working hours, using the existing infrastructure but conducting proceedings in morning/evening hours under a shift system. Other measures involved increased use of Lok Adalats to ease pressure on courts, promotion of Alternative Dispute Resolution methods, training of judicial officers and public prosecutors to enhance capacities, addition of facilities in judicial academies, and the creation of posts of Court Managers in every judicial district to assist in administrative functions. The Central government issued a series of orders sanctioning funds and providing guidelines for the utilisation of the grants. The State governments have started issuing orders for utilisation.
Strategic initiatives
The Department of Justice, now headed by an independent Secretary-level officer under the Ministry of Law and Justice, has assumed the role of the Mission Directorate with the Secretary to Government as Mission Leader. Judicial reform is now as much a function of the government as it is of the judiciary. The Planning Commission has constituted a Working Group on Justice to prepare the demands of the justice system under the 12th Plan, and one can expect continued support, besides the Finance Commission allocations, for the Justice Department's Mission initiatives. The time is opportune for a breakthrough in the delivery of justice through the National Mission. The first step is to understand the implications of the Strategic Initiatives of the Action Plan and respond to the role and responsibilities envisaged under it. The Action Plan contemplates five strategic initiatives: policy changes, re-engineering procedures, human resource development, leveraging ICT and improving the infrastructure of the subordinate judiciary.
Among policy initiatives, the government has moved legislation proposing to increase High Court judges' retirement age and enhance judicial standards and accountability. National and State litigation policies are in the process of implementation as part of the National Mission. The All India Judicial Service is being taken up for Parliament's consideration. Improving the capacities of the judiciary proportionate to the workload is under way through judicial impact assessment as part of the legislative process. To improve human resources, legal education reforms are being considered.
Re-engineering of processes by removing bottlenecks and fast-tracking procedures constitute a major strategy to reduce delays. This may require amendments to statutes and rules; the Law Commission is being asked to work on it. Together with Lok Adalats, mediation, plea bargaining and negotiated settlements, a large part of pending cases is expected to be resolved. Clubbing similar kinds of cases, leaving administrative functions to Court Managers, introducing modern management tools and systems for docket and case management and so on, are other strategies mooted. In 2007, the e-courts project was initiated at a cost of Rs.440 crore (now revised to Rs.935 crore) to provide ICT infrastructure in district and subordinate courts and to computerise judicial records. This is scheduled for completion by 2014, enabling the National Arrears Grid to be operational for integration with the Mission Plan. With the introduction of e-courts, along with video-conferencing, e-filing and related ICT-enabled services, the justice delivery system can be transformed to become people-friendly, less expensive and expeditious.
The human resource component will still be critical, and as such the Mission proposes not only to fill up judicial vacancies but also strengthen training through judicial academies. Efforts to provide continuing education and training for lawyers and public prosecutors are under way with the involvement of Bar Councils and law schools. Many of the shortcomings in the institutions and procedures can be overcome if motivated, competent personnel are available in adequate numbers.
Another component of the Mission involves the development of infrastructure in district and subordinate courts. During the 12th Plan period, all the 15,000 courts are expected to have buildings and equipment for them to be able to operate with efficiency. For this, substantial funds are sought to be provided by the Union government on 75:25 sharing basis. States have been asked to develop the design of modern court complexes in every district and estimate fund requirements. Hopefully, the judicial architecture will soon see a decisive change in terms of efficiency and towards a litigant-friendly atmosphere. Gram Nyayalayas to help rural folk access inexpensive justice at their doorsteps is another step envisaged. Again, with police modernisation, forensic science development, criminal tracking network system and similar initiatives being implemented, it is hoped that criminal justice will soon have a human face.
Popular support
The plan is ready and the funds have been made available. Now what is needed is time-bound implementation in mission mode by the functionaries, and popular support to sustain the momentum. Unfortunately, even informed sections do not believe that pendency and arrears can be controlled given the prevailing mindset of those in charge of the systems, and the undue benefits the vested interests enjoy by keeping the systems as they are. The litigant public seems to be reconciled to their fate and the powerful among them are increasingly using extra-judicial methods to get their due.
Of course, this was the sentiment in the early-1990s about the economy as well. A decisive leadership took the risk and made the change possible, which the people welcomed in due course. Can such a thing happen in the judicial sector in the present context when the political will seems to be forthcoming and the funds have been provided? Let there be a campaign for judicial reform among the public to get the actors motivated by the leadership to take the Mission seriously for the cause of justice and development.
(Dr. Madhava Menon is a former Vice-Chancellor of the National Law Schools in Bangalore and Kolkata, and a member of the Advisory Council of National Mission for Justice Delivery and Legal Reforms set up by the Government of India.)
Wednesday, October 26, 2011
Tuesday, October 25, 2011
INDIA- ABOUNDS IN INFRASTRUCTURE PROJECTS FOR WORLD COMPANIES
Dr. C.P. Joshi Addresses 2nd ASEM Transport Minister’s Meeting & Transport Development Forum at Chengdu, China
Dr. C.P. Joshi, the Union Minister for Road Transport & Highways has said that India’s economy is one of the fastest growing in the world. The ambitious National Highways Building Programme envisages investment of about US Dollars 70 Billion in next 5 years with a major share by way of Public Private Partnership(PPP) i.e. Build Operate Transfer (Toll) on Design Build Finance Operate and Transfer concept. The Government proposes to take the balance programme on Build Operate Transfer (Annuity) mode and Engineering Procurement Construction mode. Addressing at the “2nd ASEM Transport Minister’s Meeting & Transport Development Forum” at Chengdu, China today, he has said that the Incentives provided by Govt. of India for implementation of projects through PPP mode include grant of 40% Viability Gap Funding, allowing 100% Foreign Direct Investment, Tax concessions, and duty free imports on road construction equipments. The government intends to take up mega projects of about 400-500 km estimated to cost about US 1 billion dollars each and would welcome international investors, contractors, and concessionaires to participate in this programme.
He has said that India has evolved a very open and transparent bidding procedure and has formulated standard documents like Request For Qualification, Request For Proposal and Model Concession Agreement which clearly cover the obligations and responsibilities of the concessionaires and the Government. It has also put in place a well defined Dispute Resolution Mechanism in the Highways sector. It intend to incorporate and encourage use of new materials / technologies for road construction to reduce greenhouse gas emission. The government is open to and rather keen on collaborative ventures in research that covers the above mentioned core areas as it would mutually benefit the economy at a macro level.
Referring to the concept of Green Highway i.e. self-sustainable highway growing in the developing countries for quite some time, he has informed that India is also participating in the Green Highway Campaign. The main focus of it’s planning includes preservation of natural resources, storm water and waste management, energy conservation; reduce strain on local infrastructure and optimization of life cycle, innovations in the field of highway construction, operation and maintenance.
The Minister has said that India is in the process of modernizing Toll Collection Systems by introducing Electronic Toll Collection and Introduction of Smart Tags / Cards on an extensive basis so that Road User’s can pass through various Toll Plazas without any hassles. The National Road Safety Policy and the decadal action plan for Road Safety are in the process of being finalized. Short term, medium term and long term activities that are based on the outcomes of reducing accidents and fatalities are envisaged to be a part of the Decadal Action Plan. The government’s emphasis is on 4 Es of Road Safety – Education, Enforcement, Engineering and Emergency care and Making Road Safety Audit an integral part of highways projects.
Dr. Joshi warmly invited Companies and Investors to participate in India’s Infrastructure Development Programme in the Road Sector. We are ready to provide all necessary support. At present 40 road construction projects are being constructed with participation of Companies from China, Russia, U.K., Dubai, Singapore, Italy, South Korea, Malaysia, Spain and Thailand. 64 road projects of 3463 kms worth US Dollars 35.91 billion have been completed and 40 projects are under implementation for 3810 kms worth US Dollars 63.82 billion.
The theme of this meeting is “Asia-Europe Connect: Green, Secure and Efficient”. The objective is to establish an integrated transport system for the facilitation of trade and people-to-people contact between Asia and Europe. Following the Hanoi Declaration on the closer ASEM partnership adopted in 2004, the ASEM-Member countries have committed themselves to establish the ASEM Transport Cooperation Framework and explore common policy solutions. ASEM Transport Minister’s Meeting is a high-level dialogue between the Transport Sectors of Partners in the two continents under the framework of ASEM. It is of far-reaching significance to the materialization of the initiatives put forward by the leaders, deepen the transport cooperation among Asian and European countries, and the common development and prosperity of the two continents.
Following is the text of Dr. C.P. Joshi’s address :
"I thank the host and the organizers, Government of China and Ministry of Transport for this wonderful opportunity to interact and exchange the experience and expertise in the Transport Sector, focused on developing the Asia-Europe Transport Connectivity through adoption of Green Technology and ensuring Transport Safety and Security.
Honourable friends, as we together deliberate on a landmark Asia-Europe Corridor, I propose to take a leap in the distant past and invoke those golden days of the ‘Silk-Route’, essentially a trade-network that facilitated an inter-civilizational exchange of innovation, information and resources. The reference is not coincidental, for the venue of the summit, Chengdu, makes it imperative that the echoes of ‘silk route’ reverberate as a context through the deliberations; our host city being one of the key hubs of the chosen metaphor.
India’s economy is one of the fastest growing in the world. Our ambitious National Highways Building Programme envisages investment of about US Dollars 70 Billion in next 5 years with a major share by way of Public Private Partnership(PPP) i.e. Build Operate Transfer (Toll) on Design Build Finance Operate and Transfer concept. We propose to take the balance programme on Build Operate Transfer (Annuity) mode and Engineering Procurement Construction mode.
Incentives provided by Govt. of India for implementation of projects through PPP mode include grant of 40% Viability Gap Funding, allowing 100% Foreign Direct Investment, Tax concessions, and duty free imports on road construction equipments. We intend to take up mega projects of about 400-500 km estimated to cost about US 1 billion dollars each and would welcome international investors, contractors, and concessionaires to participate in this programme.
India has evolved a very open and transparent bidding procedure. We have formulated standard documents like Request For Qualification, Request For Proposal and Model Concession Agreement which clearly cover the obligations and responsibilities of the concessionaires and the Government. We have also put in place a well defined Dispute Resolution Mechanism in the Highways sector.
Ladies and Gentlemen, we intend to incorporate and encourage use of new materials / technologies for road construction to reduce greenhouse gas emission. We are open to and rather keen on collaborative ventures in research that covers the above mentioned core areas as it would mutually benefit the economy at a macro level.
The concept of Green Highway i.e. self-sustainable highway has been growing in the developing countries for quite some time and India is also participating in the Green Highway Campaign. The main focus of our planning includes preservation of natural resources, storm water and waste management, energy conservation; reduce strain on local infrastructure and optimization of life cycle, innovations in the field of highway construction, operation and maintenance.
India is in the process of modernizing Toll Collection Systems by introducing Electronic Toll Collection and Introduction of Smart Tags / Cards on an extensive basis so that Road User’s can pass through various Toll Plazas without any hassles.
The National Road Safety Policy and the decadal action plan for Road Safety are in the process of being finalized. Short term, medium term and long term activities that are based on the outcomes of reducing accidents and fatalities are envisaged to be a part of the Decadal Action Plan.
Our emphasis is on 4 Es of Road Safety – Education, Enforcement, Engineering and Emergency care and Making Road Safety Audit an integral part of highways projects.
I warmly invite Companies and Investors to participate in India’s Infrastructure Development Programme in the Road Sector. We are ready to provide all necessary support.
At present 40 road construction projects are being constructed with participation of Companies from China, Russia, U.K., Dubai, Singapore, Italy, South Korea, Malaysia, Spain and Thailand. 64 road projects of 3463 kms worth US Dollars 35.91 billion have been completed and 40 projects are under implementation for 3810 kms worth US Dollars 63.82 billion.
I am sure that during the interaction at this platform many fruitful and essentially constructive developments in this sector will be realized. I wish all the success to the host country and the organizers and my colleagues from other participant member countries and look forward to extensive cooperation amongst all of us.
Friends, as we resolve to build corridors of cooperation, I sincerely wish and have faith that these yet ‘untrodden roads’ would be ‘Green, Secure and Efficient’ and would make all the difference for the generations to come!”
Dr. C.P. Joshi, the Union Minister for Road Transport & Highways has said that India’s economy is one of the fastest growing in the world. The ambitious National Highways Building Programme envisages investment of about US Dollars 70 Billion in next 5 years with a major share by way of Public Private Partnership(PPP) i.e. Build Operate Transfer (Toll) on Design Build Finance Operate and Transfer concept. The Government proposes to take the balance programme on Build Operate Transfer (Annuity) mode and Engineering Procurement Construction mode. Addressing at the “2nd ASEM Transport Minister’s Meeting & Transport Development Forum” at Chengdu, China today, he has said that the Incentives provided by Govt. of India for implementation of projects through PPP mode include grant of 40% Viability Gap Funding, allowing 100% Foreign Direct Investment, Tax concessions, and duty free imports on road construction equipments. The government intends to take up mega projects of about 400-500 km estimated to cost about US 1 billion dollars each and would welcome international investors, contractors, and concessionaires to participate in this programme.
He has said that India has evolved a very open and transparent bidding procedure and has formulated standard documents like Request For Qualification, Request For Proposal and Model Concession Agreement which clearly cover the obligations and responsibilities of the concessionaires and the Government. It has also put in place a well defined Dispute Resolution Mechanism in the Highways sector. It intend to incorporate and encourage use of new materials / technologies for road construction to reduce greenhouse gas emission. The government is open to and rather keen on collaborative ventures in research that covers the above mentioned core areas as it would mutually benefit the economy at a macro level.
Referring to the concept of Green Highway i.e. self-sustainable highway growing in the developing countries for quite some time, he has informed that India is also participating in the Green Highway Campaign. The main focus of it’s planning includes preservation of natural resources, storm water and waste management, energy conservation; reduce strain on local infrastructure and optimization of life cycle, innovations in the field of highway construction, operation and maintenance.
The Minister has said that India is in the process of modernizing Toll Collection Systems by introducing Electronic Toll Collection and Introduction of Smart Tags / Cards on an extensive basis so that Road User’s can pass through various Toll Plazas without any hassles. The National Road Safety Policy and the decadal action plan for Road Safety are in the process of being finalized. Short term, medium term and long term activities that are based on the outcomes of reducing accidents and fatalities are envisaged to be a part of the Decadal Action Plan. The government’s emphasis is on 4 Es of Road Safety – Education, Enforcement, Engineering and Emergency care and Making Road Safety Audit an integral part of highways projects.
Dr. Joshi warmly invited Companies and Investors to participate in India’s Infrastructure Development Programme in the Road Sector. We are ready to provide all necessary support. At present 40 road construction projects are being constructed with participation of Companies from China, Russia, U.K., Dubai, Singapore, Italy, South Korea, Malaysia, Spain and Thailand. 64 road projects of 3463 kms worth US Dollars 35.91 billion have been completed and 40 projects are under implementation for 3810 kms worth US Dollars 63.82 billion.
The theme of this meeting is “Asia-Europe Connect: Green, Secure and Efficient”. The objective is to establish an integrated transport system for the facilitation of trade and people-to-people contact between Asia and Europe. Following the Hanoi Declaration on the closer ASEM partnership adopted in 2004, the ASEM-Member countries have committed themselves to establish the ASEM Transport Cooperation Framework and explore common policy solutions. ASEM Transport Minister’s Meeting is a high-level dialogue between the Transport Sectors of Partners in the two continents under the framework of ASEM. It is of far-reaching significance to the materialization of the initiatives put forward by the leaders, deepen the transport cooperation among Asian and European countries, and the common development and prosperity of the two continents.
Following is the text of Dr. C.P. Joshi’s address :
"I thank the host and the organizers, Government of China and Ministry of Transport for this wonderful opportunity to interact and exchange the experience and expertise in the Transport Sector, focused on developing the Asia-Europe Transport Connectivity through adoption of Green Technology and ensuring Transport Safety and Security.
Honourable friends, as we together deliberate on a landmark Asia-Europe Corridor, I propose to take a leap in the distant past and invoke those golden days of the ‘Silk-Route’, essentially a trade-network that facilitated an inter-civilizational exchange of innovation, information and resources. The reference is not coincidental, for the venue of the summit, Chengdu, makes it imperative that the echoes of ‘silk route’ reverberate as a context through the deliberations; our host city being one of the key hubs of the chosen metaphor.
India’s economy is one of the fastest growing in the world. Our ambitious National Highways Building Programme envisages investment of about US Dollars 70 Billion in next 5 years with a major share by way of Public Private Partnership(PPP) i.e. Build Operate Transfer (Toll) on Design Build Finance Operate and Transfer concept. We propose to take the balance programme on Build Operate Transfer (Annuity) mode and Engineering Procurement Construction mode.
Incentives provided by Govt. of India for implementation of projects through PPP mode include grant of 40% Viability Gap Funding, allowing 100% Foreign Direct Investment, Tax concessions, and duty free imports on road construction equipments. We intend to take up mega projects of about 400-500 km estimated to cost about US 1 billion dollars each and would welcome international investors, contractors, and concessionaires to participate in this programme.
India has evolved a very open and transparent bidding procedure. We have formulated standard documents like Request For Qualification, Request For Proposal and Model Concession Agreement which clearly cover the obligations and responsibilities of the concessionaires and the Government. We have also put in place a well defined Dispute Resolution Mechanism in the Highways sector.
Ladies and Gentlemen, we intend to incorporate and encourage use of new materials / technologies for road construction to reduce greenhouse gas emission. We are open to and rather keen on collaborative ventures in research that covers the above mentioned core areas as it would mutually benefit the economy at a macro level.
The concept of Green Highway i.e. self-sustainable highway has been growing in the developing countries for quite some time and India is also participating in the Green Highway Campaign. The main focus of our planning includes preservation of natural resources, storm water and waste management, energy conservation; reduce strain on local infrastructure and optimization of life cycle, innovations in the field of highway construction, operation and maintenance.
India is in the process of modernizing Toll Collection Systems by introducing Electronic Toll Collection and Introduction of Smart Tags / Cards on an extensive basis so that Road User’s can pass through various Toll Plazas without any hassles.
The National Road Safety Policy and the decadal action plan for Road Safety are in the process of being finalized. Short term, medium term and long term activities that are based on the outcomes of reducing accidents and fatalities are envisaged to be a part of the Decadal Action Plan.
Our emphasis is on 4 Es of Road Safety – Education, Enforcement, Engineering and Emergency care and Making Road Safety Audit an integral part of highways projects.
I warmly invite Companies and Investors to participate in India’s Infrastructure Development Programme in the Road Sector. We are ready to provide all necessary support.
At present 40 road construction projects are being constructed with participation of Companies from China, Russia, U.K., Dubai, Singapore, Italy, South Korea, Malaysia, Spain and Thailand. 64 road projects of 3463 kms worth US Dollars 35.91 billion have been completed and 40 projects are under implementation for 3810 kms worth US Dollars 63.82 billion.
I am sure that during the interaction at this platform many fruitful and essentially constructive developments in this sector will be realized. I wish all the success to the host country and the organizers and my colleagues from other participant member countries and look forward to extensive cooperation amongst all of us.
Friends, as we resolve to build corridors of cooperation, I sincerely wish and have faith that these yet ‘untrodden roads’ would be ‘Green, Secure and Efficient’ and would make all the difference for the generations to come!”
Monday, October 24, 2011
Sikkim CM attends National Development Council meet
October 23, 2011
IPR
Sikkim CM proposes setting up of Centre for Seismic Studies in Sikkim; recommends CATCH and organic state concepts into the 12th FYP document for the Country; commits Sikkim’s contribution through hydropower towards fulfilling national goal of energy security
New Delhi, October 22, 2011: Sikkim Chief Minister Dr. Pawan Chamling on Sunday took part in the meeting of National Development Council. The meeting is being chaired by Prime Minister, Dr. Manmohan Singh here at Vigyan Bhawan. The Prime Minister while addressing the august body said that the pace of development in the industrial countries is slowing down whereas the Asian economy is growing impressively. As the world is changing globally, India is expected to play a more dominant role, the Prime Minister said.
While acknowledging that this is the second consecutive five year plan, being made under the able guidance and leadership of Prime Minister, the Chief Minister endorsed the growth projections envisaged by the Planning Commission and the development strategies, adopted for growth in agriculture, rural development, energy, transport, health, education and skill development, science & technology, tourism, hospitality, building of economic infrastructure and good governance.
The Chief Minister emphasized on the urgent need to provide more physical, socio-economic development and creation of more infrastructure in the North East Region in general, and Sikkim in particular during the 12th Plan period. In Sikkim, we have small sized villages, which are scattered throughout the State, therefore the cost of providing physical and social infrastructure like roads and electricity etc. is very high, said the Chief Minister.
Dr. Chamling also reiterated the problem being faced by Sikkim due to its landlockedness and locational disadvantage, making endeavour all the more difficult. Besides, due to long spell of monsoon during Summer and freezing cold during Winter, our working hour dedicated to development works is severely curtailed, he further added.
Saying that the power sector is of vital importance to the State of Sikkim, Shri Chamling said that the State Government through hydropower generation shall endeavour to contribute towards the national program of the Central Government to achieve energy security and self-sufficiency in power.
Emphasizing on the need for infrastructure building and connectivity for the region of the North East states, the Chief Minister reiterated early commencement and completion of alternative route to Siliguri via Chalsa in West Bengal, as part of the strategic border road. The Chief Minister also made suggestion for use of channels while constructing roads in mountain regions. make use of tunnels. Given the fragile landmass in the mountain states, this will minimize environmental impact over ground and also reduce time taken for travelling to different destinations
The Chief Minister lauded the Planning Commission for forming the working group on mountains, which the Chief Minister said would institutionalise more holistic and appropriate developmental planning.
Informing the august body, the Chief Minister said that the State Government has launched the Chief Minister’s Comprehensive Annual & Total Checkup for Healthy Sikkim (CATCH) campaign under Health Sector and suggested the august body for incorporating it in the 12th Plan Document for the Country. “I may also recommend that the whole of North East region be declared as organic region with comprehensive time-bound support coverage, from the Central Government”, said the Chief Minister further.
Referring to the recent earthquake in Sikkim, the Chief Minister apprised the august body that the State Government has launched rebuilding efforts and sought of Central Government, the Geological Survey of India and all related institutions across the country and he further demanded that the Centre consider setting up of, Centre for Seismic Studies in Sikkim for the Himalayan and the North Eastern region.
The Chief Minister said that owing to the devastating earthquake, development tempo in Sikkim has been pushed back by 5-7 years and requested the Central Government to consider for a Special Central Assistance during the 12th Five Year Plan period.
Besides all the supports, the Chief Minister also sought help and assistance of Government of India for the involvement of multi-lateral funding agencies such as the World Bank and Asian Development Bank for providing financial assistance to the earthquake devastated State, so that the world’s best expertise can be made available to Sikkim. I, therefore, seek the help and assistance from this August Council to facilitate this.
The Chief Minister said that Sikkim would like to be in the forefront of the national campaign for adequate livelihoods and good governance in a high growth regime.
The Chief Minister thanked the Hon’ble Prime Minister, Hon’ble Home Minister and all other central leaders for their recent visit to Sikkim and for their support. The Chief Minister also thanked the Chief Ministers of Maharashtra, Karnataka, Bihar, Uttarakhand, Gujarat, Himachal Pradesh, West Bengal, Assam, Arunachal Pradesh, Tripura and Nagaland for the support and assistance extended to the State Government of Sikkim during the recent crisis.
On behalf of the people of Sikkim, the Chief Minister also thanked the Armed Forces and the Paramilitary Forces for conducting the rescue operation and extending their humanitarian effort, on all the rehabilitation process. (Complete text of CM’s Speech attached separately for reference)
Earlier on the Union Home Minister and Deputy Chairman Planning Commission and also addressed the gathering. The Chief Minister was accompanied by the Member of Parliament, Lok Sabha Shri PD Rai, Chief Secretary Shri Karma Gyatso, Additional Chief Secretary, Smt. R. Ongmu, Principal Secretary to Chief Minister, Shri RS Basnet, Principal Resident Commissioner, Sikkim House, Shri Arvind Kumar and other Government Officials from the State Government
October 23, 2011
IPR
Sikkim CM proposes setting up of Centre for Seismic Studies in Sikkim; recommends CATCH and organic state concepts into the 12th FYP document for the Country; commits Sikkim’s contribution through hydropower towards fulfilling national goal of energy security
New Delhi, October 22, 2011: Sikkim Chief Minister Dr. Pawan Chamling on Sunday took part in the meeting of National Development Council. The meeting is being chaired by Prime Minister, Dr. Manmohan Singh here at Vigyan Bhawan. The Prime Minister while addressing the august body said that the pace of development in the industrial countries is slowing down whereas the Asian economy is growing impressively. As the world is changing globally, India is expected to play a more dominant role, the Prime Minister said.
While acknowledging that this is the second consecutive five year plan, being made under the able guidance and leadership of Prime Minister, the Chief Minister endorsed the growth projections envisaged by the Planning Commission and the development strategies, adopted for growth in agriculture, rural development, energy, transport, health, education and skill development, science & technology, tourism, hospitality, building of economic infrastructure and good governance.
The Chief Minister emphasized on the urgent need to provide more physical, socio-economic development and creation of more infrastructure in the North East Region in general, and Sikkim in particular during the 12th Plan period. In Sikkim, we have small sized villages, which are scattered throughout the State, therefore the cost of providing physical and social infrastructure like roads and electricity etc. is very high, said the Chief Minister.
Dr. Chamling also reiterated the problem being faced by Sikkim due to its landlockedness and locational disadvantage, making endeavour all the more difficult. Besides, due to long spell of monsoon during Summer and freezing cold during Winter, our working hour dedicated to development works is severely curtailed, he further added.
Saying that the power sector is of vital importance to the State of Sikkim, Shri Chamling said that the State Government through hydropower generation shall endeavour to contribute towards the national program of the Central Government to achieve energy security and self-sufficiency in power.
Emphasizing on the need for infrastructure building and connectivity for the region of the North East states, the Chief Minister reiterated early commencement and completion of alternative route to Siliguri via Chalsa in West Bengal, as part of the strategic border road. The Chief Minister also made suggestion for use of channels while constructing roads in mountain regions. make use of tunnels. Given the fragile landmass in the mountain states, this will minimize environmental impact over ground and also reduce time taken for travelling to different destinations
The Chief Minister lauded the Planning Commission for forming the working group on mountains, which the Chief Minister said would institutionalise more holistic and appropriate developmental planning.
Informing the august body, the Chief Minister said that the State Government has launched the Chief Minister’s Comprehensive Annual & Total Checkup for Healthy Sikkim (CATCH) campaign under Health Sector and suggested the august body for incorporating it in the 12th Plan Document for the Country. “I may also recommend that the whole of North East region be declared as organic region with comprehensive time-bound support coverage, from the Central Government”, said the Chief Minister further.
Referring to the recent earthquake in Sikkim, the Chief Minister apprised the august body that the State Government has launched rebuilding efforts and sought of Central Government, the Geological Survey of India and all related institutions across the country and he further demanded that the Centre consider setting up of, Centre for Seismic Studies in Sikkim for the Himalayan and the North Eastern region.
The Chief Minister said that owing to the devastating earthquake, development tempo in Sikkim has been pushed back by 5-7 years and requested the Central Government to consider for a Special Central Assistance during the 12th Five Year Plan period.
Besides all the supports, the Chief Minister also sought help and assistance of Government of India for the involvement of multi-lateral funding agencies such as the World Bank and Asian Development Bank for providing financial assistance to the earthquake devastated State, so that the world’s best expertise can be made available to Sikkim. I, therefore, seek the help and assistance from this August Council to facilitate this.
The Chief Minister said that Sikkim would like to be in the forefront of the national campaign for adequate livelihoods and good governance in a high growth regime.
The Chief Minister thanked the Hon’ble Prime Minister, Hon’ble Home Minister and all other central leaders for their recent visit to Sikkim and for their support. The Chief Minister also thanked the Chief Ministers of Maharashtra, Karnataka, Bihar, Uttarakhand, Gujarat, Himachal Pradesh, West Bengal, Assam, Arunachal Pradesh, Tripura and Nagaland for the support and assistance extended to the State Government of Sikkim during the recent crisis.
On behalf of the people of Sikkim, the Chief Minister also thanked the Armed Forces and the Paramilitary Forces for conducting the rescue operation and extending their humanitarian effort, on all the rehabilitation process. (Complete text of CM’s Speech attached separately for reference)
Earlier on the Union Home Minister and Deputy Chairman Planning Commission and also addressed the gathering. The Chief Minister was accompanied by the Member of Parliament, Lok Sabha Shri PD Rai, Chief Secretary Shri Karma Gyatso, Additional Chief Secretary, Smt. R. Ongmu, Principal Secretary to Chief Minister, Shri RS Basnet, Principal Resident Commissioner, Sikkim House, Shri Arvind Kumar and other Government Officials from the State Government
Sunday, October 23, 2011
TATA STEEL
Je Ne Comprends Pas
By Sanjeev Pandiya | Oct 22, 2011
Regular readers know that I mostly write philosophically, trying to derive principles that drive action, rather than recommending specific actions for our readers. Rarely, I speak about a specific company/ event/ trend, except to deal with a macro-trend. Today, here are some disconnected thoughts that slip through my mind as news/ events/ trends roll along in fast forward…
# So S&P downgraded the US and everyone panicked. It wasn’t really news, even from S&P; but I suppose once people start running, nobody knows why they are running.
The same day, S&P upgraded Tata Steel, which then proceeded to drop like a brick, till it reached a whopping 20 per cent discount to Book Value. The debt has come down to 2x consolidated EBIDTA, well under control. Corus has mostly turned around and cost synergies (estimated at $400 million) have started to flow. The closure of illegal mining in Bellary will indirectly benefit Tata Steel to maintain its 20 per cent topline growth, both in India and globally. At Rs 130 EPS (including one-time capital gains), you are buying the company at 3.7x earnings and 4x EBIDTA. This is even better than Bharti, my last recommendation…
# The company has a Return on Net Worth of 13 per cent, but the stock is available at a 10 per cent discount to its CURRENT Net Worth of Rs 490 per share; since you would mostly be investing with a horizon of one year, that would be a 25 per cent discount to its expected Net Worth (of Rs 550 per share) one year hence. In short, you get a 21 per cent post-tax (31% pre-tax) return if you hold the stock forever. This is the kind of once-in-a-lifetime investment that Charlie Munger and Warren Buffet talk about. If you have bought the stock at the right price, and it is compounding steadily, the right time to sell it is …..never.
# Let us take a look at how this has come about, and what are the canards floating about in the market/ media/ analyst community that have beaten down the stock to such deep value. In these chaotic times, the media is full of misleading stories, sometimes orchestrated by the analyst community, who will change their tune the moment the stock has reached the right hands. I think this is a bigger and more systematic scam than 2G, CWG and Bellary combined. It is just unfortunate that Anna and his team don’t have the eyes to see it.
The Bharti saga
Don’t believe me?! For those of you who remember my columns while the Bharti story was unfolding, take a look at the sequence of events while the orchestrated beating down of the stock was taking place:
# The first phase was when the tariff wars started and the stock was marked down on a huge selloff by mutual funds from 457 to 320 (October 1 - 14, 2009; look up the technical charts to follow my story). As a natural contrarian, this attracted my attention.
# Tired bulls capitulated end-November 2009 (near the expiry) and there was a short-covering rally by mid-December to 342. This ended Phase I of my story.
# Now starts the co-ordinated ‘story-spreading’. In January-February 2010, the Zain story broke and an ‘analysts’ consensus’ was worked out, saying the acquisition was ‘value dilutive’ for Bharti, because it was a premium (about 20% per subscriber) to Bharti’s own beaten-down valuations. Look around now, and tell me where those concerns are. Bharti is up 60 per cent from those days, even though the market is down 20 per cent. Anyway, in the week February 10-16, 2010, the stock was marked down from 315 to 271. Thereafter, it trundled along over March and April, recovering as more information about Zain trickled in. In February 2010, I wrote the first of my columns on Bharti, angry at the disinformation being spread about Bharti.
# At just this time, I called up an analyst in a leading foreign brokerage who was covering Bharti. I challenged her downbeat view on the sector, finding that she agrees with all my counter-arguments about Bharti being a sector outperformer and a relative value argument, etc. She agreed with everything, but maintained the ‘party line’. i.e. the stock is down from 271 with a target of 210. Recently, she has revised he price target to 504. I can’t believe that she did not know what she was doing; her ‘party line’ was to talk down the stock, put out ‘public research reports’ which are duly headlined by the leading papers (more money is made by this process than Kalmadi could ever imagine; in respectable Indian society, this is even called a ‘business’ and gets you market cap in dollars).
# But back to my story. After the Zain fracas died down, the 2G scam broke out, circa late April 2010. It had a limited effect on the already beaten-down Bharti stock, except when a bombshell of a story was headlined, obviously (surprise!!!) in the pink papers: the TRAI recommendations about the sector, especially one recommending a whopping Rs 14,000 crore licence renewal fee. These ‘recommendations’ were duly headlined as fact and repeated ad nauseam. I wrote an angry column ‘TRAI-ing to Fail’, which should be read now in the archives, to see how right I was:
click here
The stock dropped below 260 and stayed there for two months, during which almost everyone I knew dropped out of Bharti. The stock they sold was picked up by some of the smartest investors in the country (including the promoters).
# The point I am making: while the media (and analysts) were in a downgrade frenzy, why were smart, knowledgeable people, not reading those research reports (or pink newspapers). Or were they writing them? In trading parlance, we call this, ‘maal nikalvana’, and is in no way different from the manner in which you put a white bedsheet over yourself to make your sister shit in her pants…;). I survived all this, and exited Bharti at 360, happy at the predictable ‘behavioural map’ that I had figured out. After 360, the analysts returned to telling the truth; actually (oh sorry! But Bharti was really a good company, a sector outperformer and would consolidate both India and Africa. So what if the profits are down, the stock is still up, despite a beaten-down market!!!)
# Something similar happened recently in DLF, which will give you a sense of déjà vu if you track the story with the technical charts. Thrice, there were prominent headlines in the pink papers on various issues with the company (bad accounting, hidden losses, high debt). Every time, it led to a selloff, the stock bottomed at 209 with huge volumes and backed up 10-15 per cent…..it was party time in a bear market.
The big story now is the ‘penalty’ on DLF by the Competition Commission of a whopping Rs 630 crore (see the TRAI ‘recommendation’ above). Suitably headlined in the ;pink papers, it led to a selloff on a day when the broad market bottomed and some very smart investors bought 140 lakh shares from some very relieved idiots. Watch this issue one year hence….!!! DLF is since not breaking new lows, despite being from a pariah (real estate) sector…!
Back to Tata Steel
But this story is about Tata Steel and I must return to it, first by making my main point: that there are serious, quiet and invisible ‘cosy’ relationships between analysts (especially from foreign brokerages, who put out ‘research’ when the market is delicately poised) and the media, who give it a loud, terrifying voice that will blow you away if you don’t know your facts thoroughly. Recently, the market bottom for this cycle was made on a day when the leading pink paper chose to ‘poll’ some unnamed ‘fund managers’, and told you that the market was dropping 13 per cent......not 17, 9 or 12.36 per cent. Just 13 per cent.....the stock sold by its foolish readers was dully lapped up. Now watch this space six months hence!!!
The lesson for you, my dear readers…..your only hope of dying rich is if you just read these papers one week after the day they are delivered to your house, and then you watch what your foolish neighbours did when they listened to such false ‘advice’. In my case, I read these (pink papers) to find out what the fools are doing. And I don’t watch TV, which is seriously good for my financial health.
The canards floating around just now:
Tata Steel is a global company, and with Europe facing a double dip, its European operations will be badly affected.
Europe accounts for 56 per cent of Tata Steel’s turnover, and about 30 per cent of its EBIDTA. It has high Operating Leverage, i.e. unit drop in selling prices will lead to high negative impact on its EBIDTA. But at 5x EBIDTA, this belief will at best hold for the short term (even if it is true).
At these valuations, just the 20% EBIDTA growth from the Indian operations, which are unaffected, will give you a decent return.
Steel prices are bearish, and Tata Steel will be affected.
They have been bearish for some time now (CMIE has projected a 7% increase in domestic prices around October 2011), and recent results showed that Indian turnover growth made up for the decline in prices. EBIDTA was flat, despite lower prices. Going forward, India will still see 10 per cent growth in steel demand and maybe some price improvement if the ban on iron ore mining and the problems of JSW prove to be good for its competitors. But this is to tell you that even in the short term, Tata Steel’s EBIDTA will be more or less flat. But its stock price is down 20 per cent below is current Book Value. At these levels, its current profits give you a 21 per cent post-tax return; all you have to believe is that EBIDTA will not fall significantly. In a high interest rate environment, this is an interest rate sensitive stock with high debt. It should be badly affected by a recessionary scenario.
Wrong! The Corus debt has been reduced steadily, and consolidated debt is at 2x EBIDTA now, a very stable ratio. Its spare debt capacity gives it the ability to make another aggressive acquisition; watch out. Even if it doesn’t invest, it is paying down Rs 10,000 crore debt this year, or its expansion at Jamshedpur will come up with lower leverage than at SAIL or JSW. The company is the most under-geared in its sector, something it has in common with Bharti.
Looking at the positives
The ‘global’ operations of Tata Steel are genuinely global, with commercial operations in 53 countries. A shortfall in sales in Europe will be made up by faster diversion to other growing economies, especially in Africa.
Corus is not the operation it used to be in 2008, when it brought down Tata Steel to 40 per cent of its Book Value. Memories of that downfall have triggered the current selloff and that is why it is an opportunity for you. Today’s Tata Steel is a different company: huge cost synergies have already been extracted, half the Corus debt is paid off and most importantly, Corus technology is now helping Tata Steel with its product development in India and other emerging markets; that will help it outperform its competition locally. And the local markets are both robust and growing.
The fears about a European slowdown, even if they are true, don’t justify a 65 per cent discount to its average historic valuations (of 1.3x Book Value).At a 20 per cent discount to today’s Book Value, you are getting a strong, deleveraged Balance Sheet and a robust P&L with little downside risk. If there are risks, they are already factored into the price. The positives have not been factored in, and some of them are already on the Balance Sheet. Like Benjamin Graham was fond of doing, he wanted to pay only for current reality, not for future potential. You are getting just such an opportunity in Tata Steel right now.
Disclaimer: the author has put his money where his mouth is. He has put his shirt (and his reputation) behind Tata Steel.
source: Valueresearch
By Sanjeev Pandiya | Oct 22, 2011
Regular readers know that I mostly write philosophically, trying to derive principles that drive action, rather than recommending specific actions for our readers. Rarely, I speak about a specific company/ event/ trend, except to deal with a macro-trend. Today, here are some disconnected thoughts that slip through my mind as news/ events/ trends roll along in fast forward…
# So S&P downgraded the US and everyone panicked. It wasn’t really news, even from S&P; but I suppose once people start running, nobody knows why they are running.
The same day, S&P upgraded Tata Steel, which then proceeded to drop like a brick, till it reached a whopping 20 per cent discount to Book Value. The debt has come down to 2x consolidated EBIDTA, well under control. Corus has mostly turned around and cost synergies (estimated at $400 million) have started to flow. The closure of illegal mining in Bellary will indirectly benefit Tata Steel to maintain its 20 per cent topline growth, both in India and globally. At Rs 130 EPS (including one-time capital gains), you are buying the company at 3.7x earnings and 4x EBIDTA. This is even better than Bharti, my last recommendation…
# The company has a Return on Net Worth of 13 per cent, but the stock is available at a 10 per cent discount to its CURRENT Net Worth of Rs 490 per share; since you would mostly be investing with a horizon of one year, that would be a 25 per cent discount to its expected Net Worth (of Rs 550 per share) one year hence. In short, you get a 21 per cent post-tax (31% pre-tax) return if you hold the stock forever. This is the kind of once-in-a-lifetime investment that Charlie Munger and Warren Buffet talk about. If you have bought the stock at the right price, and it is compounding steadily, the right time to sell it is …..never.
# Let us take a look at how this has come about, and what are the canards floating about in the market/ media/ analyst community that have beaten down the stock to such deep value. In these chaotic times, the media is full of misleading stories, sometimes orchestrated by the analyst community, who will change their tune the moment the stock has reached the right hands. I think this is a bigger and more systematic scam than 2G, CWG and Bellary combined. It is just unfortunate that Anna and his team don’t have the eyes to see it.
The Bharti saga
Don’t believe me?! For those of you who remember my columns while the Bharti story was unfolding, take a look at the sequence of events while the orchestrated beating down of the stock was taking place:
# The first phase was when the tariff wars started and the stock was marked down on a huge selloff by mutual funds from 457 to 320 (October 1 - 14, 2009; look up the technical charts to follow my story). As a natural contrarian, this attracted my attention.
# Tired bulls capitulated end-November 2009 (near the expiry) and there was a short-covering rally by mid-December to 342. This ended Phase I of my story.
# Now starts the co-ordinated ‘story-spreading’. In January-February 2010, the Zain story broke and an ‘analysts’ consensus’ was worked out, saying the acquisition was ‘value dilutive’ for Bharti, because it was a premium (about 20% per subscriber) to Bharti’s own beaten-down valuations. Look around now, and tell me where those concerns are. Bharti is up 60 per cent from those days, even though the market is down 20 per cent. Anyway, in the week February 10-16, 2010, the stock was marked down from 315 to 271. Thereafter, it trundled along over March and April, recovering as more information about Zain trickled in. In February 2010, I wrote the first of my columns on Bharti, angry at the disinformation being spread about Bharti.
# At just this time, I called up an analyst in a leading foreign brokerage who was covering Bharti. I challenged her downbeat view on the sector, finding that she agrees with all my counter-arguments about Bharti being a sector outperformer and a relative value argument, etc. She agreed with everything, but maintained the ‘party line’. i.e. the stock is down from 271 with a target of 210. Recently, she has revised he price target to 504. I can’t believe that she did not know what she was doing; her ‘party line’ was to talk down the stock, put out ‘public research reports’ which are duly headlined by the leading papers (more money is made by this process than Kalmadi could ever imagine; in respectable Indian society, this is even called a ‘business’ and gets you market cap in dollars).
# But back to my story. After the Zain fracas died down, the 2G scam broke out, circa late April 2010. It had a limited effect on the already beaten-down Bharti stock, except when a bombshell of a story was headlined, obviously (surprise!!!) in the pink papers: the TRAI recommendations about the sector, especially one recommending a whopping Rs 14,000 crore licence renewal fee. These ‘recommendations’ were duly headlined as fact and repeated ad nauseam. I wrote an angry column ‘TRAI-ing to Fail’, which should be read now in the archives, to see how right I was:
click here
The stock dropped below 260 and stayed there for two months, during which almost everyone I knew dropped out of Bharti. The stock they sold was picked up by some of the smartest investors in the country (including the promoters).
# The point I am making: while the media (and analysts) were in a downgrade frenzy, why were smart, knowledgeable people, not reading those research reports (or pink newspapers). Or were they writing them? In trading parlance, we call this, ‘maal nikalvana’, and is in no way different from the manner in which you put a white bedsheet over yourself to make your sister shit in her pants…;). I survived all this, and exited Bharti at 360, happy at the predictable ‘behavioural map’ that I had figured out. After 360, the analysts returned to telling the truth; actually (oh sorry! But Bharti was really a good company, a sector outperformer and would consolidate both India and Africa. So what if the profits are down, the stock is still up, despite a beaten-down market!!!)
# Something similar happened recently in DLF, which will give you a sense of déjà vu if you track the story with the technical charts. Thrice, there were prominent headlines in the pink papers on various issues with the company (bad accounting, hidden losses, high debt). Every time, it led to a selloff, the stock bottomed at 209 with huge volumes and backed up 10-15 per cent…..it was party time in a bear market.
The big story now is the ‘penalty’ on DLF by the Competition Commission of a whopping Rs 630 crore (see the TRAI ‘recommendation’ above). Suitably headlined in the ;pink papers, it led to a selloff on a day when the broad market bottomed and some very smart investors bought 140 lakh shares from some very relieved idiots. Watch this issue one year hence….!!! DLF is since not breaking new lows, despite being from a pariah (real estate) sector…!
Back to Tata Steel
But this story is about Tata Steel and I must return to it, first by making my main point: that there are serious, quiet and invisible ‘cosy’ relationships between analysts (especially from foreign brokerages, who put out ‘research’ when the market is delicately poised) and the media, who give it a loud, terrifying voice that will blow you away if you don’t know your facts thoroughly. Recently, the market bottom for this cycle was made on a day when the leading pink paper chose to ‘poll’ some unnamed ‘fund managers’, and told you that the market was dropping 13 per cent......not 17, 9 or 12.36 per cent. Just 13 per cent.....the stock sold by its foolish readers was dully lapped up. Now watch this space six months hence!!!
The lesson for you, my dear readers…..your only hope of dying rich is if you just read these papers one week after the day they are delivered to your house, and then you watch what your foolish neighbours did when they listened to such false ‘advice’. In my case, I read these (pink papers) to find out what the fools are doing. And I don’t watch TV, which is seriously good for my financial health.
The canards floating around just now:
Tata Steel is a global company, and with Europe facing a double dip, its European operations will be badly affected.
Europe accounts for 56 per cent of Tata Steel’s turnover, and about 30 per cent of its EBIDTA. It has high Operating Leverage, i.e. unit drop in selling prices will lead to high negative impact on its EBIDTA. But at 5x EBIDTA, this belief will at best hold for the short term (even if it is true).
At these valuations, just the 20% EBIDTA growth from the Indian operations, which are unaffected, will give you a decent return.
Steel prices are bearish, and Tata Steel will be affected.
They have been bearish for some time now (CMIE has projected a 7% increase in domestic prices around October 2011), and recent results showed that Indian turnover growth made up for the decline in prices. EBIDTA was flat, despite lower prices. Going forward, India will still see 10 per cent growth in steel demand and maybe some price improvement if the ban on iron ore mining and the problems of JSW prove to be good for its competitors. But this is to tell you that even in the short term, Tata Steel’s EBIDTA will be more or less flat. But its stock price is down 20 per cent below is current Book Value. At these levels, its current profits give you a 21 per cent post-tax return; all you have to believe is that EBIDTA will not fall significantly. In a high interest rate environment, this is an interest rate sensitive stock with high debt. It should be badly affected by a recessionary scenario.
Wrong! The Corus debt has been reduced steadily, and consolidated debt is at 2x EBIDTA now, a very stable ratio. Its spare debt capacity gives it the ability to make another aggressive acquisition; watch out. Even if it doesn’t invest, it is paying down Rs 10,000 crore debt this year, or its expansion at Jamshedpur will come up with lower leverage than at SAIL or JSW. The company is the most under-geared in its sector, something it has in common with Bharti.
Looking at the positives
The ‘global’ operations of Tata Steel are genuinely global, with commercial operations in 53 countries. A shortfall in sales in Europe will be made up by faster diversion to other growing economies, especially in Africa.
Corus is not the operation it used to be in 2008, when it brought down Tata Steel to 40 per cent of its Book Value. Memories of that downfall have triggered the current selloff and that is why it is an opportunity for you. Today’s Tata Steel is a different company: huge cost synergies have already been extracted, half the Corus debt is paid off and most importantly, Corus technology is now helping Tata Steel with its product development in India and other emerging markets; that will help it outperform its competition locally. And the local markets are both robust and growing.
The fears about a European slowdown, even if they are true, don’t justify a 65 per cent discount to its average historic valuations (of 1.3x Book Value).At a 20 per cent discount to today’s Book Value, you are getting a strong, deleveraged Balance Sheet and a robust P&L with little downside risk. If there are risks, they are already factored into the price. The positives have not been factored in, and some of them are already on the Balance Sheet. Like Benjamin Graham was fond of doing, he wanted to pay only for current reality, not for future potential. You are getting just such an opportunity in Tata Steel right now.
Disclaimer: the author has put his money where his mouth is. He has put his shirt (and his reputation) behind Tata Steel.
source: Valueresearch
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