TALK of a bonus issue saw a brief euphoria grip the Gail counter on the bourses on Tuesday. News that its subsidiary Ratnagiri Gas and Power (RGPPL) will come out with an IPO to raise Rs 1,000 crore by end 2008, saw the scrip gain nearly 3% in ten minutes. The counter, however, lost steam thereafter. When contacted, the Gail management strongly denied any such move. The scrip that had closed at Rs 393 on Monday, gained almost 7% on Tuesday at Rs 420, before the news struck, only to end the day at similar levels after hitting an intra-day high of Rs 436. Gail ended FY-07 with accumulated reserves worth 12.5 times its paid-up equity, which makes it susceptible to bonus rumours from time to time.
Wednesday, March 12, 2008
Monday, March 10, 2008
SHIV-VANI Oil & Gas Exploration Services: Join The Treasure Hunt
Shiv-Vani will generate healthy returns over the next 18-24 months, given its bulging order book and favourable outlook for the E&P sector
SHIV-VANI Oil & Gas Exploration Services is one of India’s leading companies providing integrated support services to onshore petroleum exploration companies. It clocked a turnover of Rs 400 crore during the year ended December ’07. It is the only player in the country to provide integrated services for developing coal bed methane (CBM) projects. Considering its bulging order book position and favourable outlook for the exploration and production (E&P) industry in India, the company will generate healthy returns over the next 18-24 months.
BUSINESS:
Shiv-Vani offers integrated service solutions for exploration of oil and natural gas till their exploitation. Its involvement in an E&P block starts with seismic surveys and continues till drilling, apart from repair and maintenance of oil wells. Shiv-Vani owns 25 onshore rigs, with seven more set to join the fleet by June ’08. It has tied up with Express Drilling of the US to emerge as the only integrated CBM services provider in India. It mainly works for PSUs like ONGC and Oil India. It operates from three bases and owns 600 transport vehicles, which makes it easy to move equipment to remote locations. It is executing a few contracts in Oman and the US; these accounted for a quarter of its revenues last year.
GROWTH DRIVERS:
India’s exploration industry has received a boost due to the government’s New Exploration Licensing Policy (NELP). Considering high crude oil prices and commitments of E&P companies under earlier NELP rounds,the boom in the domestic E&P sector may continue. This will drive demand for services provided by Shiv-Vani. Its unexecuted order book stands at over Rs 3,500 crore, of which, 70% will be executed in the next 24-30 months. Its first CBM contract, worth Rs 650 crore, with ONGC started in December ’07. This will boost its revenues and profits from March ’08 quarter onwards.
FINANCIALS:
Shiv-Vani has registered a cumulative annual growth rate of 78.7% in net profit over the past four years, while sales grew 42.8%. During the 12-month period ended December ’07, its net profit more than doubled to Rs 76 crore, while net sales surged 44% to Rs 395 crore. The company plans to close this accounting year for the 15-month period in March ’08 .
VALUATIONS:
Shiv-Vani is trading at 28.1 times its trailing 12-month EPS. In comparison, at CMP, its forward P/E works out to 13, based on FY09 estimated earnings. We estimate Shiv-Vani to close FY09 with topline of Rs 1,000 crore and net profit of Rs 200 crore. This provides upside potential for long-term investors. The estimate accounts for 25% equity dilution over the next 18 months on conversion of outstanding convertible bonds and warrants.
SHIV-VANI Oil & Gas Exploration Services is one of India’s leading companies providing integrated support services to onshore petroleum exploration companies. It clocked a turnover of Rs 400 crore during the year ended December ’07. It is the only player in the country to provide integrated services for developing coal bed methane (CBM) projects. Considering its bulging order book position and favourable outlook for the exploration and production (E&P) industry in India, the company will generate healthy returns over the next 18-24 months.
BUSINESS:
Shiv-Vani offers integrated service solutions for exploration of oil and natural gas till their exploitation. Its involvement in an E&P block starts with seismic surveys and continues till drilling, apart from repair and maintenance of oil wells. Shiv-Vani owns 25 onshore rigs, with seven more set to join the fleet by June ’08. It has tied up with Express Drilling of the US to emerge as the only integrated CBM services provider in India. It mainly works for PSUs like ONGC and Oil India. It operates from three bases and owns 600 transport vehicles, which makes it easy to move equipment to remote locations. It is executing a few contracts in Oman and the US; these accounted for a quarter of its revenues last year.
GROWTH DRIVERS:
India’s exploration industry has received a boost due to the government’s New Exploration Licensing Policy (NELP). Considering high crude oil prices and commitments of E&P companies under earlier NELP rounds,the boom in the domestic E&P sector may continue. This will drive demand for services provided by Shiv-Vani. Its unexecuted order book stands at over Rs 3,500 crore, of which, 70% will be executed in the next 24-30 months. Its first CBM contract, worth Rs 650 crore, with ONGC started in December ’07. This will boost its revenues and profits from March ’08 quarter onwards.
FINANCIALS:
Shiv-Vani has registered a cumulative annual growth rate of 78.7% in net profit over the past four years, while sales grew 42.8%. During the 12-month period ended December ’07, its net profit more than doubled to Rs 76 crore, while net sales surged 44% to Rs 395 crore. The company plans to close this accounting year for the 15-month period in March ’08 .
VALUATIONS:
Shiv-Vani is trading at 28.1 times its trailing 12-month EPS. In comparison, at CMP, its forward P/E works out to 13, based on FY09 estimated earnings. We estimate Shiv-Vani to close FY09 with topline of Rs 1,000 crore and net profit of Rs 200 crore. This provides upside potential for long-term investors. The estimate accounts for 25% equity dilution over the next 18 months on conversion of outstanding convertible bonds and warrants.
Tuesday, March 4, 2008
No tax sop for new refinery projects
BUDGET MEMORANDUM HAS INTRODUCED SUNSET CLAUSE FOR 100% TAX EXEMPTION FOR MINERAL OIL REFINING, POST ’09
INVESTMENTS by oil refiners in new refinery projects could be in jeopardy after the latest Union Budget, which has a provision that strips new refinery projects of income tax benefits. As things stand, a petroleum refinery is eligible for 100% income tax exemption for the first seven years of its operation. The Budget memorandum has now introduced a Sunset clause for 100% tax exemption for refining of mineral oil, if the project starts after April 2009.
This means the new refineries will no longer enjoy the I-T benefits, under Section 80-IB of the Income-Tax Act that other projects have had. If implemented, the provision could grossly reduce the return on capital and increase the payback period for new refinery projects. SV Narasimhan, finance director of India’s largest petroleum refining company Indian Oil, expressed concern over the development. “The removal of tax benefits is a big concern for the industry. Considering the huge investment needed in setting up a re finery, these incentives were essential for their economics to work out well We plan to take up this issue with the government at the earliest to restore these benefits,” he said. Industry sources said the move could impact new investments in the business.
Among those facing the heat imme diately will be Bharat Petroleum’s Bina refinery and the Hindustan Petroleum Mittal joint venture refinery at Bhatin da. The Rs 10,500-crore Bina refinery is expected to be completed by December 2009, while the Bhatinda refinery is scheduled to commence operations only by end of 2010. Both will not be el igible to claim tax benefits. However Reliance Petroleum’s 27-million-tonne new refinery at Jamnagar is luckier, as it is on schedule to commission opera tions by December 2008.
Tax consultants Ernst & Young ac knowledged the problem in their re port on the Union Budget 2008. The report said, “The removal of tax holi day on refining will adversely impact new refinery projects.” Tax holiday claims for production of natural gas could also be questioned in the future the report said.
The Budget has actually proposed a new provision in sub-section (9) of Sec tion 80-IB, to provide that no deduc tion will be allowed to a mineral oil re finer if they begin operations after April 2009. However, confusion exists with the same Budget memorandum re defining the words ‘mineral oil’. Ac cording to the memorandum, “For the purpose of this section, the term ‘min eral oil’ does not include petroleum and natural gas, unlike in other sections of the Act.” In the absence of any clear un derstanding as to what ‘mineral oil would mean if not petroleum crude most of the refiners are convinced that their new projects will get hit. Howev er, one public sector refiner said the de velopment does not apply to the petro leum refining sector.
OIL’S NOT WELL
Currently, a petroleum refinery is eligible for 100% I-T exemption for the first 7 years of operation
This means the new refineries will no longer enjoy the I-T benefits, under Section 80-IB of the Income-Tax Act
Among those facing the heat immediately will be Bharat Petroleum’s Bina refinery and the Hindustan Petroleum-Mittal joint venture refinery at Bhatinda
However, Reliance
Petroleum’s 27-million-tonne new refinery at Jamnagar is luckier, as it is expected to be commissioned by Dec ’08
INVESTMENTS by oil refiners in new refinery projects could be in jeopardy after the latest Union Budget, which has a provision that strips new refinery projects of income tax benefits. As things stand, a petroleum refinery is eligible for 100% income tax exemption for the first seven years of its operation. The Budget memorandum has now introduced a Sunset clause for 100% tax exemption for refining of mineral oil, if the project starts after April 2009.
This means the new refineries will no longer enjoy the I-T benefits, under Section 80-IB of the Income-Tax Act that other projects have had. If implemented, the provision could grossly reduce the return on capital and increase the payback period for new refinery projects. SV Narasimhan, finance director of India’s largest petroleum refining company Indian Oil, expressed concern over the development. “The removal of tax benefits is a big concern for the industry. Considering the huge investment needed in setting up a re finery, these incentives were essential for their economics to work out well We plan to take up this issue with the government at the earliest to restore these benefits,” he said. Industry sources said the move could impact new investments in the business.
Among those facing the heat imme diately will be Bharat Petroleum’s Bina refinery and the Hindustan Petroleum Mittal joint venture refinery at Bhatin da. The Rs 10,500-crore Bina refinery is expected to be completed by December 2009, while the Bhatinda refinery is scheduled to commence operations only by end of 2010. Both will not be el igible to claim tax benefits. However Reliance Petroleum’s 27-million-tonne new refinery at Jamnagar is luckier, as it is on schedule to commission opera tions by December 2008.
Tax consultants Ernst & Young ac knowledged the problem in their re port on the Union Budget 2008. The report said, “The removal of tax holi day on refining will adversely impact new refinery projects.” Tax holiday claims for production of natural gas could also be questioned in the future the report said.
The Budget has actually proposed a new provision in sub-section (9) of Sec tion 80-IB, to provide that no deduc tion will be allowed to a mineral oil re finer if they begin operations after April 2009. However, confusion exists with the same Budget memorandum re defining the words ‘mineral oil’. Ac cording to the memorandum, “For the purpose of this section, the term ‘min eral oil’ does not include petroleum and natural gas, unlike in other sections of the Act.” In the absence of any clear un derstanding as to what ‘mineral oil would mean if not petroleum crude most of the refiners are convinced that their new projects will get hit. Howev er, one public sector refiner said the de velopment does not apply to the petro leum refining sector.
OIL’S NOT WELL
Currently, a petroleum refinery is eligible for 100% I-T exemption for the first 7 years of operation
This means the new refineries will no longer enjoy the I-T benefits, under Section 80-IB of the Income-Tax Act
Among those facing the heat immediately will be Bharat Petroleum’s Bina refinery and the Hindustan Petroleum-Mittal joint venture refinery at Bhatinda
However, Reliance
Petroleum’s 27-million-tonne new refinery at Jamnagar is luckier, as it is expected to be commissioned by Dec ’08
Saturday, March 1, 2008
TROUBLE AT HOME
EXCISE PAIN FOR PETCHEM PLAYERS
BUDGET 2008 HAS MADE IT MORE DIFFICULT for export-oriented units (EOUs) to sell in the domestic market. EOUs, generally eligible to sell up to 50% of their annual sales domestically, will now have to pay customs duty at 50% of applicable rates for such sales, compared to 25% till now. India’s largest petrochemicals company, Reliance Industries (RIL), whose Jamnagar refinery enjoys EOU status, is likely to be affected by the change. Others like South Asian Petrochemicals and IG Petrochemicals, which enjoy EOU status, will also witness an erosion in their competitive advantage when selling in India.
Also, costs are likely to go up for polymer manufacturers as the finance minister has reimposed 5% import duty on naphtha, from nil last year. “Thanks to a complex regime of export benefits and duty exemptions, naphtha is exported from refineries and is imported by manufacturers of polymers, leading to price distortions and revenue losses,” he said.
This will adversely impact companies like RIL and Haldia Petrochemicals, which use naphtha for polymer production. Till now, RIL used to export naphtha from its refinery availing of the benefits of being an EOU, while its erstwhile subsidiary IPCL used to import it duty-free.
Petrochemicals manufacturers are not happy with the development. “We are disappointed by the re-imposition of 5% import duty on naphtha used in production of polymers. This is not in line with the basic rule that customs duty on raw materials should be less than that on the finished product,” said Chemicals and Petrochemicals Manufacturers Association of India president KG Ramanathan.
The general reduction in excise rates from 16% to 14% and the cut in central sales tax to 2% will help the petrochemicals industry. “The waiver of loans and interests to farmers will help increase plastic consumption in the agriculture sector,” said Supreme Industries MD MP Taparia.
The fertiliser industry will benefit from the reduction in duty on sulphur, which has been cut from 5% to 2%.
BUDGET 2008 HAS MADE IT MORE DIFFICULT for export-oriented units (EOUs) to sell in the domestic market. EOUs, generally eligible to sell up to 50% of their annual sales domestically, will now have to pay customs duty at 50% of applicable rates for such sales, compared to 25% till now. India’s largest petrochemicals company, Reliance Industries (RIL), whose Jamnagar refinery enjoys EOU status, is likely to be affected by the change. Others like South Asian Petrochemicals and IG Petrochemicals, which enjoy EOU status, will also witness an erosion in their competitive advantage when selling in India.
Also, costs are likely to go up for polymer manufacturers as the finance minister has reimposed 5% import duty on naphtha, from nil last year. “Thanks to a complex regime of export benefits and duty exemptions, naphtha is exported from refineries and is imported by manufacturers of polymers, leading to price distortions and revenue losses,” he said.
This will adversely impact companies like RIL and Haldia Petrochemicals, which use naphtha for polymer production. Till now, RIL used to export naphtha from its refinery availing of the benefits of being an EOU, while its erstwhile subsidiary IPCL used to import it duty-free.
Petrochemicals manufacturers are not happy with the development. “We are disappointed by the re-imposition of 5% import duty on naphtha used in production of polymers. This is not in line with the basic rule that customs duty on raw materials should be less than that on the finished product,” said Chemicals and Petrochemicals Manufacturers Association of India president KG Ramanathan.
The general reduction in excise rates from 16% to 14% and the cut in central sales tax to 2% will help the petrochemicals industry. “The waiver of loans and interests to farmers will help increase plastic consumption in the agriculture sector,” said Supreme Industries MD MP Taparia.
The fertiliser industry will benefit from the reduction in duty on sulphur, which has been cut from 5% to 2%.
Tuesday, February 26, 2008
Volumes speak for Gujarat Gas
The quarterly results of Gujarat Gas for the quarter ended December 2007 were better than expected as new supplies of natural gas came into play. The company’s consolidated net profits jumped 121% to Rs 39.24 crore, taking the full year profits to Rs 152.95 crore.
During the quarter, the company drew additional natural gas supply of 1.43 million standard cubic metres per day (MMSCMD) from Tapti gas field to take the total volume of gas sold to 3.65 MMSCMD. These gas volumes were nearly 7% higher as against the corresponding quarter of previous year and 26.5% higher from the September 2007 quarter. As the volumes in retail and CNG segments grow steadily over a period of time, the company sold a substantial quantity from the additional gas to industrial consumers on short-term bulk contracts. Coming back to the financial statements, Gujarat Gas reported 26% higher net sales at Rs 345.87 crore during the quarter ended December 2007 on a consolidated basis. Operating margins shot up substantially by 630 basis points to 18.5%, resulting in a 91% jump in operating profits. Profits before tax jumped 107% to Rs 58.94 crore. However, the future appears somewhat uncertain for the company with the government initiating steps to bring entire gas produced by Panna Mukta Tapti (PMT) fields to Gail for marketing from April 2008.
Monday, February 25, 2008
NITIN FIRE Protection: Some Like It Hot
Considering Nitin Fire Protection’s high growth and earnings visibility, investors with an 18-24 month horizon can put money in the stock
NITIN FIRE Protection (NFPCL) offers turnkey fire protection services to commercial and industrial clients with expected annual consolidated turnover of Rs 130 crore in FY08. It has set up a unit to manufacture high-pressure cylinders in Vizag SEZ. It has bagged orders worth Rs 170 crore for this plant, to be executed over 15 months, while growth from its core business continues unabated. Considering NFPCL’s high earnings visibility, investors with an 18-24 month horizon can invest in it.
BUSINESS:
NFPCL operates via six subsidiaries and offers products & services in fire security, electronic security and intelligent building management systems segments. It also trades in high-pressure seamless cylinders, which it sources from China. It recently set up an arm in Jabel Ali Free Trade Zone, Dubai, to offer fire protection services. NFPCL has set up a 500,000 units p.a. facility to manufacture high-pressure cylinders used for CNG. Located in an SEZ, this facility will cater to export demand. With this, NFPCL will become the second-largest producer of high-pressure seamless cylinders in India. The company holds 10% stake in an oil exploration block in Rajasthan, adjacent to Cairn’s discovered oil fields. Its exploration activities will begin soon and continue for 2-3 years. NFPCL may invest Rs 12 crore over the next three years in this activity.
GROWTH DRIVERS:
Its CNG cylinders plant will be commissioned in this quarter. The unexecuted order book for this plant is over 120% of NFPCL’s annual turnover. The demand for CNG cylinders is set to remain strong in future. Meanwhile, NFPCL’s fire protection business is set to grow 20-25% y-o-y for the next two years.
FINANCIALS:
For Q3 FY08, NFPCL saw 165% jump in net profit to Rs 15.3 crore, and 48% rise in net sales to Rs 101.5 crore. For FY07, it had net profit of Rs 10 crore on sales of Rs 100.5 crore. It has been able to maintain OPM at 18%. High-pressure cylinders may generate OPM in excess of 20%.
VALUATIONS:
NFPCL is set to close FY08 with net profit of Rs 21.3 crore, which may rise to Rs 40.6 crore in FY09. The CMP of Rs 459.75 is 27.3 times and 14.3 times the expected earnings for FY08 and FY09, respectively. Considering its high growth and earning visibility, the valuations seem attractive for investors. NFPCL does not have any direct peer. Everest Kanto Cylinders — India’s largest producer of high-pressure seamless cylinders — is trading at a P/E of 29.6, while electronic security provider Zicom trades at a P/E of 19.4.
RISKS:
NFPCL has no experience in manufacturing high-pressure cylinders. Commissioning of this unit was planned in October ’07, but was delayed.
NITIN FIRE Protection (NFPCL) offers turnkey fire protection services to commercial and industrial clients with expected annual consolidated turnover of Rs 130 crore in FY08. It has set up a unit to manufacture high-pressure cylinders in Vizag SEZ. It has bagged orders worth Rs 170 crore for this plant, to be executed over 15 months, while growth from its core business continues unabated. Considering NFPCL’s high earnings visibility, investors with an 18-24 month horizon can invest in it.
BUSINESS:
NFPCL operates via six subsidiaries and offers products & services in fire security, electronic security and intelligent building management systems segments. It also trades in high-pressure seamless cylinders, which it sources from China. It recently set up an arm in Jabel Ali Free Trade Zone, Dubai, to offer fire protection services. NFPCL has set up a 500,000 units p.a. facility to manufacture high-pressure cylinders used for CNG. Located in an SEZ, this facility will cater to export demand. With this, NFPCL will become the second-largest producer of high-pressure seamless cylinders in India. The company holds 10% stake in an oil exploration block in Rajasthan, adjacent to Cairn’s discovered oil fields. Its exploration activities will begin soon and continue for 2-3 years. NFPCL may invest Rs 12 crore over the next three years in this activity.
GROWTH DRIVERS:
Its CNG cylinders plant will be commissioned in this quarter. The unexecuted order book for this plant is over 120% of NFPCL’s annual turnover. The demand for CNG cylinders is set to remain strong in future. Meanwhile, NFPCL’s fire protection business is set to grow 20-25% y-o-y for the next two years.
FINANCIALS:
For Q3 FY08, NFPCL saw 165% jump in net profit to Rs 15.3 crore, and 48% rise in net sales to Rs 101.5 crore. For FY07, it had net profit of Rs 10 crore on sales of Rs 100.5 crore. It has been able to maintain OPM at 18%. High-pressure cylinders may generate OPM in excess of 20%.
VALUATIONS:
NFPCL is set to close FY08 with net profit of Rs 21.3 crore, which may rise to Rs 40.6 crore in FY09. The CMP of Rs 459.75 is 27.3 times and 14.3 times the expected earnings for FY08 and FY09, respectively. Considering its high growth and earning visibility, the valuations seem attractive for investors. NFPCL does not have any direct peer. Everest Kanto Cylinders — India’s largest producer of high-pressure seamless cylinders — is trading at a P/E of 29.6, while electronic security provider Zicom trades at a P/E of 19.4.
RISKS:
NFPCL has no experience in manufacturing high-pressure cylinders. Commissioning of this unit was planned in October ’07, but was delayed.
DEEPAK FERTILISERS: Lots In The Pipeline
Deepak Fert & Petrochem’s revenues will rise once it secures additional supply of natural gas. Investors with an 18-24 month horizon can consider the stock
DEEPAK FERTILISERS and Petrochemicals (DFPCL) has an annual turnover of Rs 950 crore. It derives over 72% of its revenue from chemicals and 28% from fertilisers. Successful commissioning of Dahej-Uran pipeline (DUPL) may provide upside once the company secures additional natural gas. Investors with an 18-24 month horizon can consider the stock.
BUSINESS:
DEEPAK FERTILISERS and Petrochemicals (DFPCL) has an annual turnover of Rs 950 crore. It derives over 72% of its revenue from chemicals and 28% from fertilisers. Successful commissioning of Dahej-Uran pipeline (DUPL) may provide upside once the company secures additional natural gas. Investors with an 18-24 month horizon can consider the stock.
BUSINESS:
DFPCL manufactures various chemicals. It enjoys 45% market share in nitric acid, 35% in ammonium nitrate and 16% in methanol. It is the only producer of isopropyl alcohol (IPA) in India. It also trades in some chemicals and fertilisers. But the lack of availability of sufficient natural gas remains a key problem. DFPCL recently diversified into the realty sector and has built a specialty shopping mall ‘Ishanya’ with 5.5 lakh sq ft leasable area in Pune. DFPCL also entered into a JV with Yara International, a global manufacturer of ammonium nitrate and specialty fertilisers. The JV will invest in the 300,000-tonne ammonium nitrate plant the company plans to set up at Paradip at a cost of Rs 400 crore. At current prices, this plant will generate annual revenue of over Rs 300 crore. The company is building storage tanks to facilitate imports of ammonia that will free up natural gas for other products. It also plans to reduce greenhouse emissions from its factories.
GROWTH DRIVERS:
GROWTH DRIVERS:
After completion of DUPL, the company has drawn a test quantity of natural gas and seeks to finalise a firm supply for future use. Higher availability of natural gas will not only help it to operate its facilities at full utilisation levels, but will also enable it to save on high-cost naphtha. Volume growth from IPA business and revenues from ‘Ishanya’ will drive DFPCL’s profitability. At current lease rates, ‘Ishanya’ may add 10% to its operating profit.
FINANCIALS:
FINANCIALS:
The company’s net sales saw a CAGR of 20.5% over the past four years, while net profit rose 10.1%. During the quarter ended December ’07, net profit fell 1% to Rs 24.5 crore, while revenue rose 13% to Rs 274 crore.
VALUATIONS:
VALUATIONS:
The company’s EPS for trailing 12 months stood at Rs 11. The CMP of Rs 130.75is 11.9x this EPS. Supply of natural gas may boost its revenues by Rs 200 crore on a full-year basis. In addition to the savings on naphtha, this can boost its annual operating profit by Rs 45 crore. Although the company appears fairly valued at current price, the potential benefits from additional gas supplies have not being taken into account. It has consistently paid dividends. The stock can generate value for investors.
CONCERNS:
DFPCL has faced delays in project execution. Its future growth may suffer if it is unable to secure additional supply of natural gas in time
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