Keep your money in fixed deposit - Invest in Reliance Petroleum

Reliance Petroleum has been formed to set up a greenfield petroleum refinery and polypropylene plant to be located in a special economic zone (SEZ) in Jamnagar, Gujarat, Western India. The proposed refinery and polypropylene plant will be located adjacent to the existing refinery and petrochemical complexes of Reliance Industries Limited (RIL). The refinery will have a total atmospheric distillation capacity of approximately 580 kilo barrels of crude oil per stream day and also a 0.9 million tons per annum polypropylene plant. The Company has entered into an agreement with Bechtel France S.A.S (Bechtel) to license the technology for the major process units of the refinery and polypropylene plant. Bechtel will also provide engineering, project management and other construction services for the Company. Reliance Petroleum (RPL) has announced the successful completion of the 2nd year of implementation of its complex refinery, coming up in a special economic zone at Jamnagar. The company achieved 82% overall progress in just 24 months since commencement of the project. Based on the progress so far, the company is on course to complete the project ahead of its initial schedule of December 2008.

Apart from the promoter company, RIL, RPL also offers a good investment opportunity as its 29 million metric tonne per annum (580000 barrels per day ) refinery the world's sixth largest is likely to come on stream before the scheduled December 2008. The commissioning of capacity is well timed given that the outlook for gross refining maragins is bullish till FY 12. Globally refining margins are likely to remain buoyant between $ 5 - $ 10 per barrel from 2008 to 2012 thanks to the huge demand supply mismatch and the time lag of three to four years for new capacities to come on stream.

Reliance Petro to me is like a FD(Fixed Deposit) Invest and forget. Look back in 2012 and you will enjoy the fruits.

Lanco Industries

Lanco Industries Ltd is currently trading at around Rs 54. It has previously seen 100+ and was hammered in Jan 2008 crashlanding. Caveat - Its a smal cap company with 40 Cr of market share. Previous observations says that when this share starts rallying it is locked in upper circuit for days together making it difficult to buy. So have patience in such a scenario. Your comments on this are invited. My two cents on why to buy this stock are as follows -

Lanco Industries Ltd. is a part of Electrosteel Castings Group and manufactures Ductile Iron Pipes, Pig Iron, Cement and Coke. Ductile Iron Pipes is used mainly in Water Supply and Sewerage applications. Considering the growing urbanization in the country and shortage of Adequate water infrastructure, which is a priority for the country, the demand scenario for DI Pipes is positive.

The government of India is currently implementing over $ 5 billion worth of Water Resource Management Projects. We believe the allocations for Water Resource sector will grow substantially in the coming years. The Union Government in its Finance Budget - 2007 has given special emphasis on providing pure drinking water to households and communities in the country and has extended exemption from excise duty on certain water purification devices & pipes of diameter exceeding 200 mm used in water supply systems.

Lanco Industries is the only fully backward integrated producer of DI Pipes. It has capacity of 90,000 tonnes of spun DI Pipes, 150,000 tonnes of Pig Iron , 90,000 tonnes of Slag Cement and 51,000 tonnes of Castings. Besides these it also owns captive Iron Ore Mines and that way its a fully backward integrated DI Pipes producer in India. Lanco Industries has over the past few years taken initiatives which will enable it to emerge as a cost efficient manufacturer of Ductile Iron Pipes in the country – these include enhancing capacities, backward integration by way of setting up Coke Oven Plant and 12 MW Captive Power plant. These initiatives will hold the company in good stead in the years to come. The establishment of Coke Oven Plant and Captive Power generation will not only make it a fully integrated company but will also bring in substantial cost benefits, thereby enhancing profitability.

its time to look for valuations. See results -
With this in place company can achieve revenues of Rs.425-440 crores in FY 08 and PAT of around Rs.26-28 crores, resulting in an EPS of around Rs.7. Current EPS is 5.6 and P/E less than 10. Though it has been a profitable company since last many yrs but it has shown an exponential growth in profit this yr only.

Mar '07 Jun '07 Sep '07 Dec '07

Net Profit 5.05 4.65 4.62 8.06

A company that is doubling net profits in 2 quarters needs to be looked into .
...with the budget in pipeline , further soaps are expected in rural infrastructure and water management sector and company price will get a boost.

Gujarat NRE coke

Your views are invited on investing in Gujarat NRE coke.

Company has listed subsidary in Australia where it has coal mines and is now into oil exploration as well. A boost to Australia's export revenue is on the way with coal and iron ore miners close to settling massive price increases with China and Japan.Analysts believe coal prices will double, while Asian steel mills are expected to settle for a 60 % jump in iron ore prices, News Limited reports.If the increases are achieved, Australia`s export revenue from coal and iron ore is set to jump from billion to more than billion next year.From Economic times: Gujarat NRE Coke finds favour with investors of Oz A batch of foreign investors led by an Australian fund were seen buying shares of Gujarat NRE Coke in good numbers. According to these investors, floods in Australia, freezing weather in China and transport bottlenecks in Indonesia will stoke a sharp rise in the price of coal in other parts of Asia. JP Morgan recently raised its forecast for 2008 coking coal prices to 0 a tonne, a 42% jump from last year`s agreed price of .38. Its previous estimate was 0 a tonne. It is in this light that foriegn investors are accumulating shares of mining major Gujarat NRE Coke in good numbers.

Which is a better stock in telecom sector - Airtel or Reliance Communications

Broadly telecom sector stcks are loosing the charm because of following reasons -
A) Almost 8-10 new telecom players to enter the field. Price wars inevitable
B) DoT has recently suggested to PM to bring down per minute cost of usage to 10paise for local and 25-40 p for STD calls. Margins will be hit hard.
C) In case of any slowdown the revenues of these comapnies will be hit as large part of their revenues comes from enterprice segment esp. BPO, ITES.
This is supported by the Look at the Dec 07 company results; Airtel & Rcomm results are comapred below -

Dec '06 Mar '07 Jun '07 Sep '07 Dec '07
Sales Turnover (RComm) 3,043.45 3,140.29 3,228.93 3,328.39 3,403.52
Net Profit 771.06 686.75 837.30 801.24 436.48

Sales Turnover(Airtel) 4,712.32 5,218.73 5,611.62 6,059.89 6,618.27
Net Profit 1,043.69 1,286.84 1,412.92 1,619.15 1,419.84

If you really want to bet on telecom, I will suggest RCOM who is planning to go into GSM is better choice. Go thru following analysis (taken from business standard)-

The company's capex will be a fifth to a third less than that of the newcomers.

While GSM mobile phone firms Bharti Airtel and Vodafone-Essar remain locked in battle with the ministry of telecommunications for extra radio spectrum to run their operations, CDMA mobile phone firm Reliance Communications can finally expect to steal a march over them now that it has also been given GSM spectrum in all 22 telecom circles across the country.

Of the 85 million new mobile connections of all types (both GSM and CDMA) added in the country between November 2006 and November 2007, nearly 27 per cent were accounted for by Bharti Airtel as compared to a mere10 per cent by Reliance and 13 per cent by fellow CDMA mobile provider Tata Teleservices, underscoring Reliance's need to begin offering the more popular GSM mobile services.

COMPARISON OF BHARTI AIRTEL AND RELIANCE COMM (Figures in Rs crore)
Q2FY07 Q3FY07 Q4FY07 Q1FY08 Q2FY08
Revenues
Bharti 4357.1 4912.9 5393.2 5904.6 6337.4
R Comm 3526.0 3755.3 3936.9 4307.7 4578.5
Op Profit
Bharti 1702.3 2005.3 2240.9 2446.5 2709.7
R Comm 1352.5 1527.2 1635.2 1814.2 1961.8
OPM (%)
Bharti 39.1 40.8 41.6 41.4 42.8
R Comm 38.4 40.7 41.5 42.2 42.8

Beginning GSM mobile services is also critical since the Average Revenue Per User (ARPU) is much higher for GSM firms which, on average, earn Rs 275 per month as compared to Rs 173 for all the CDMA mobile firms. So far though, Reliance has managed to show an operating profit margin equal to Bharti's due to the lower operational and capital costs of CDMA mobiles. In the second quarter of 2006-07, Bharti's turnover was 1.2 times Reliance's and this rose to 1.4 in the second quarter of 2007-08. In terms of operating profits, this difference rose 1.3-1.4 times in the same period.

What's important for Reliance's GSM foray is that it has a big advantage over the two or three newcomers who are also expected to begin operations in the GSM mobile space. Not one to waste time, Reliance has already reportedly placed orders for 80-100 million lines to be set up over a period of about three years.


The Reliance advantage is two-fold. Bharti Airtel and Vodafone-Essar's quality of service is declining with the existing spectrum over-stretched, so if Reliance gets its GSM mobile network up and running fast, it can hope to attract several of their customers. If it gets the companies' older subscribers, this will hike its ARPU even more — in general, older subscribers, generally in the metros, pay a higher ARPU than non-metro users and are often heavier users of value-added services as well.

In the thick of the fight between the GSM mobile phone firms and the telecom ministry, Telecommunications Minister A Raja had announced that number portability would be introduced from April this year — this will allow Reliance to attract customers of existing GSM mobile phone firms.

With the Telecom Regulatory Authority of India (Trai) increasing the subscriber requirements two to three times for spectrum allocation, existing GSM mobile phone firms may be in a position to improve the quality of their services. In spite of several of them soon qualifying for fresh spectrum in some circles, they may still not get it.

The new subscriber norms notified by the ministry include allocation of spectrum till just 7.5 MHz, while firms like Bharti Airtel and Vodafone-Essar already have 10 MHz and will soon qualify for 12.4 MHz!

This is the reason why Trai chief Nripendra Misra has written letters of protest to the Department of Telecommunications (DoT). Misra has said that while he had prescribed a subscriber-linked path for the allocation of up to 15 MHz of spectrum, the DoT had notified a path of just up to 7.5 MHz.

In comparison with the new GSM-mobile players who've just been given their licences/spectrum, Reliance Communications has a cost advantage of anywhere between 20 and 40 per cent. As Romal Shetty, consulting firm KPMG's executive director, points out, 60-70 per cent of Reliance's existing CDMA infrastructure (the towers) can be used for its new GSM network.

A good way to illustrate this is to look at the country's expected mobile phone subscriber base of 500 million by 2010. If Reliance is to get 20 per cent of this market, it needs to get around 65 million more subscribers. Assume all of these are to come from GSM mobile services and not from CDMA that Reliance offers at the moment.

To service such a market, a newcomer would have to set up 65,000 towers (assuming one tower can service an average of 1,000 customers) which could cost around $4bn and another $2.5bn or so for the electronics.

Reliance, however, already has 22,000 towers, according to company officials. So, while it will need to spend around $2.5bn on the electronics for GSM services, it will need to build just 43,000 new towers — this reduces its overall capital costs by around a fifth (given that Reliance has transferred all its towers to a separate business, Reliance Telecom Infrastructure Limited (RTIL), the capital costs talked of refer to RTIL — the point, however, remains since the revenues Reliance Communications will pay RTIL will depend upon the overall cost the latter incurs).

Reliance officials, however, claim that they will have 40,000 towers up and running by the end of this fiscal. Though rivals argue it is not possible to ramp up so fast, it is useful to see the impact of this on its costs. If the company has 30,000 towers, and needs to build just 35,000 more, its capital costs will fall to $4.7bn or nearly 30 per cent less. If the company has 40,000 towers, the capital costs go down by over 35 per cent.

In the first year of operations, however, Reliance's savings will be a lot more since it can use its 22,000 existing towers first and simply instal the GSM electronics required on them — for the first 22 million or so subscribers that these towers can accommodate, Reliance's capex costs will be a mere $35-40 per subscriber, according to Shubham Majumder, associate director-research, who tracks telecom at Macquarie Capital. This is in comparison to the $100 or so that newcomers will have to invest in capex per subscriber.


Obviously, existing mobile phone firms such as Bharti Airtel and Vodafone-Essar will also be able to expand at $30-40 per subscriber since they can use their existing towers and just need to add in electronics — but if the firms don't get additional spectrum, such comparisons are meaningless. This is the crux of the current tussle between the GSM mobile firms and the ministry of telecom.

While many believe it will be difficult for Reliance to offer both CDMA mobile and GSM mobile services at the same time, there are some precedents for this. Vivo, the largest operator in Brazil and the country's only CDMA operator, moved to a GSM network three years ago and 70 per cent of its net additions came from GSM services. For now, it is definitely advantage Reliance.

To summarise -
1) RCOM will churn lot of Airtel customers after GSM roll out. I think equipment has already been ordered (I am not sure on this). They will use their existing sites and hense roll out will be very fast.
2)Unlocking the embedded value from tower infrastructure is myth. Airtel has formed two comapaies - Bharti Infratel ( which it owns) and Indus where its stack is 42%. It plans to list the former after listing of Indus. The sum of parts theory actually is debitable. Udayan Mukherjee has come out heavily on this in HT Business. The business which was till date reflected in the Airtel balance sheet will go into balance sheet of Indus or Infratel (whatever it is). Thats the only difference.

But yes in short term till RCom launched GSM in other circles (It already is operating in some) Airtel has definete edge. Long term I will back RCOM.