essar steel tgt 55/57

essar steel
cmp 48.85
buy arnd 48/49
sl 43
tgt 55/57.
happy investing

Calls....[15/11/2007]

BEST BUY

CHAMBAL FERT (BUY) 54.8 (Target1) 56.2 ( Target 2) 58.25 (Sl) 53.1

JP HYDRO (BUY) 97- 97.4 (Target1) 99 ( Target 2) 101.1 (Sl) 93

JUPITER BIO (BUY) 169.5 (Target1) 172 ( Target 2) 174.5 (Sl) 165

Oil companies dump bonds at a discount

LIC sole taker for oil bonds.

What is the connection between oil subsidies and the Life Insurance Corporation (LIC)?

Well, LIC, the government-owned insurer, is bailing out the financially-strapped oil marketing companies by buying up the oil bonds issued to them by the government, though at a discount.

“LIC is pretty much the sole buyer of these bonds,” confirmed a senior official of Indian Oil Corporation (IOC), the largest government-owned marketing company.

Other financial institutions together buy a minuscule amount of the bonds on sale by IOC and the other two oil marketing companies — Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL).

These bonds are issued by the oil marketing companies to compensate for charging consumers less than market price on petroleum products like fuel, LPG and kerosene.

In the current year, 42.7 per cent of the under-recoveries (read retail losses) of oil companies — estimated at Rs 54,935 crore — will be met by oil bonds.

The amount of bonds on sale each year is huge. This year, about Rs 23,458 crore worth of bonds are slated to be issued. This is likely to be revised upwards with global crude oil prices hovering close to the $100 a barrel mark.

Since the oil companies are losing Rs 240 crore a day, they monetise the bonds as soon as possible to meet their working capital needs.

“From selling these bonds at a premium, we have now moved to monetising them at a discount of almost 5 per cent of the face value,” said the official.

This financial year IOC has sold around Rs 6,000 crore worth of oil bonds already, from which it has managed to realise only around Rs 5,700 crore. HPCL has realised around Rs 1,728 crore from the Rs 1,800 crore worth of oil bonds it has sold so far this financial year.

The amount of bonds that these oil companies can sell in a quarter is also capped at 25 per cent of the total bonds in their portfolio.

These companies have, therefore, seen a sharp rise in borrowings. IOC has already borrowed close to Rs 28,000 crore so far this financial year compared with around Rs 27,000 crore in the whole of the last financial year.

“I don’t want paper (bonds). I want cash,” said IOC Chairman Sarthak Behuria recently.

This view is echoed by other oil companies. “We need cash to meet our project costs and daily expenses,” said a senior official of HPCL.

The company’s board has recently approved an increase in the annual borrowing limit to Rs 17,500 crore against Rs 13,000 crore earlier.

The bonds usually have a face value of either Rs 100 or Rs 1,000. The bonds are released by the government in three tranches during a financial year. They come with a maturity period of over five years, which can go up to 10 years. The interest rate on the bonds is usually around 8 per cent.

Crude oil: Hitting a Ton

Crude oil hitting the $100-abarrel mark now seems to be a matter of when rather than if. The run-up from $75 to $95 has been quite fast, accelerated by the weakening dollar, falling crude oil inventories and growing energy demand. From the beginning of ’03 till mid-’04, prices hovered between $25-$40. For the next two years, prices soared from $40 to touch nearly $80 per barrel.

In the second half of ’06, prices did drop till $50 but only to rally again in ’07. The Iraq war, growth of Asian economies and their energy consumptions, disruption caused by hurricanes in ’05 and US refinery problems involving conversion from MTBE as an additive to ethanol have been key factors contributing to the rise in oil prices over the last five years.

The recent spurt in oil prices is, however, not supported by a corresponding rise in demand or disruption in supply of crude. There has been no dramatic increase in crude oil consumption in last two years as shown by the table. In fact, since ’03, oil supply has closely tracked the demand growth. Demand for other sources of energy is growing much faster and share of oil in total energy consumption is declining steadily.

Since ’05, total demand for energy is growing at a compounded annual rate of 3%. Not surprisingly, many observers feel that high prices of oil have been partly due to speculation rather than any fundamental change in demand-supply situation.

The speculation in oil contracts has been aided by unprecedented liquidity flows into the global financial market, which has lead to asset inflation around the globe. An expectation of rising prices has converted crude oil into an asset class just like gold. Historically, investment in crude oil gives an excellent hedge against the weak US dollar. While the 5-year correlation between crude oil prices and the euro-dollar rate stands at 68%, the fast declining dollar has caused the correlation to accelerate to 94.5% since the beginning of ’07.

The second consecutive interest rate cut by the US Fed in less than two months along with an indication that it is not going to be the last one is favouring a bullish view for crude oil prices. So, do we see crude oil prices going higher from the $100 mark? According to data reported by Bloomberg, oil traders have raised their bets on crude oil at $125.

Kaushalya Infra IPO price band Rs 50-60/sh, opens on Nov 20

Kaushalya Infrastructure Development Corporation will be foraying into the capital markets with an IPO of 85 lakh equity shares of Rs 10 each for cash at a premium to be decided by 100 per cent book building process.

Price band

The price band is fixed between Rs 50 and Rs 60. The issue will open on November 20 and close on November 23. The shares are proposed to be listed on the BSE and NSE.

Objects

The company plans to use the proceeds from the issue to fund land acquisition, land development rights and real estate development, investment in BOT/BOOT projects for joint ventures, and purchase of capital and infrastructure equipment for the execution of projects.

Net issue

Up to 4.75 lakh equity shares will be reserved for employees and net issue to the public would be 80,25,000 equity shares.

This net issue would constitute 40.93 per cent of the fully diluted post-issue paid-up capital of the company.

SREI Capital Markets Ltd will be the lead managers of the issue and Intime Spectrum Registry Ltd the registrar, reports The Hindu Business Line.

PVR Ltd: Buy

An investment can be considered in the stock of PVR Ltd, one of the country’s larger multiplex chains. The stock trades at 18 times its estimated financial year 2008 per-share earnings and at about 12-13 times estimated financial year 2009 earnings, assuming conservatively that growth rates will halve from historic levels.

PVR appears quite capable of delivering such growth rates, given its aggressive plans to add screens, its superior track record in execution and a healthy film production pipeline that will ensure steady content supply. It’s own foray into co-production and other businesses also holds promise.

PVR reported a 40 per cent growth in revenues to Rs 116 crore and 80 per cent growth in net profits in the first half of the financial year 2008 A significant driver of margin expansion in recent quarters has been the waiver of entertainment tax for some of its multiplex properties. However, we expect PVR to maintain its margins. With 23 multiplexes or 89 screens under the PVR Cinemas circuit, it is likely to add 37 screens over the next three quarters. It has a particularly strong presence in Delhi and the NCR regions, which means it has access to premium real estate.

Forays into other regions might come at relatively lower rental costs. PVR now claims to account for at least 10 per cent of domestic theatrical revenues. Shorter film runs have resulted in a higher distributor share, but PVR has so far managed to maintain this share at about 30 per cent of gross ticket sales. It also has a favourable revenue mix, with only 60 per cent of its revenues coming from box office sales.

About 20 per cent of its revenue is derived from sale of food and beverages.

The company’s subsidiary PVR Pictures has gained traction in the distribution business. PVR is also foraying into food courts business through a joint venture with the Dabur group.

Use of the joint venture route and the measured pace of expansion into new areas lend confidence. We, however, have not factored in any gains from these businesses.

DLF to buy ultra-luxury Amanresorts for $250 mn

First overseas buy by India's largest real estate company.

DLF Ltd is acquiring the privately-held super luxury resorts and spa chain Singapore-based Amanresorts for around $ 250 million.

This will be the first overseas acquisition by India's largest real estate company, which recently went public.

Sources close to developments said at $250 million, the deal is being concluded at an extremely conservative valuation. In addition to this payout, DLF will assume debt of approximately $220 million as part of the deal.

DLF, the country’s largest realty firm by market capitalisation at over Rs 1,48,527 crore, had announced a month ago that it intends to raise $750 million overseas for acquiring and developing properties abroad. Part of the proceeds would be used for funding the Amanresorts acquisition.

The $220 million debt will remain on the Amanresorts balance sheet and be paid off from its future revenues.

The 20-year-old Amanresorts has 18 operational properties under its belt in Indonesia, Cambodia, Sri Lanka, Morocco, Bhutan, India, the Philippines, the United States, French Polynesia and France.

All Amanresort properties have a room tariff of over $600 per night, giving it a hugely exclusive tag. Since very few of these properties have more than 50 or 60 rooms and villas, the chain functions on the lines of a lifestyle resort for the rich and famous.

Singapore-based Silverlink Holdings holds a majority stake in Amanresorts and will completely exit the company after the acquisition. It is believed that the founder, Adrian Zecha, will also move on from the chain after the takeover.

The acquisition also entails DLF taking over a prime property at Delhi’s Lodhi Road. Amanresorts had bought this property from the India Tourism Development Corporation five years ago for Rs 76.22 crore.

The old building has been demolished and a new one, currently under construction, should be operational in another six months.

Being developed as a super-luxury resort, room tariffs at the property are also expected to range between $600 and $700 per night, making it one of the most expensive hotel rooms in the country.

"DLF is getting an opportunity to gain access to the super-luxury hospitality market with this acquisition. The Aman brand name will continue even after the acquisition," said a company executive, who declined to be identified.

DLF forayed into hospitality last year. It has a 74:26 joint venture agreement with Hilton International for developing 50 to 75 properties in the long term.

DLF’s initial roll out plan in India includes eight to 10 luxury hotels (it has also tied up with the Four Seasons for a property overlooking the DLF Golf & Country Club at Gurgaon), 25 or 30 business hotels and 10 to 15 serviced apartments