CV sales may actually falter due to emission norms

Commercial Vehicle (CV) sales may be hit in the coming months due to the phenomenon of 'pre-buying' before changing emission norms make trucks more expensive next month

Emission changes from October will mean trucks will move to Euro 3 standards from Euro 2 - already reports of 2%-4% hikes across CV makers are surfacing. Anticipation has already resulted in advance buying to avoid the price hike, and this could hit CV sales over the next few months. Citi Investment Research & Analysis wrote in a recent report, "If history is a guide, then medium and heavy commercial vehicle demand could be fairly stable in 2HFY11 with a modest negative impact in 3Q."

When norms last changed in FY06, MHCV sales, particularly buses, were volatile while LCV volumes experienced fairly even growth rates. Citi expects the situation to be pretty much the same this time around too.

Stocks of most CV producers are at all-time highs - levels where most analysts believe that they are no longer in the 'value zone'. If indeed CV sales falter a bit, we could see a short-term dip in these stocks. However, over the longer term, consensus opinion is very positive for these stocks based on GDP growth and robust monsoons this year.

Tata Motors' share price has flattened out since August at around current levels. Most of its recent rise came about due to the phenomenal performance by its international operations -Jaguar Land Rover. The biggest risk to its performance, therefore, would be any faltering in this direction. The other risk is of course, the rollback in excise norms and slowing sales due to higher prices and tighter financing conditions.

Ashok Leyland has gained a bit, but it seems to be facing resistance at Rs70+ levels. The price has shot up with its latest order win for 2,850 buses from the Tamil Nadu government.

Mahindra & Mahindra has given some kind of a breakout. It has the comfortable hedge of farm equipment growth.

In a recent analyst meet, Ashok Leyland had said that CV demand was strong and that it has multiple new launches lined up, which should boost volumes. However, it had said that its Pantnagar plant ramp-up was proceeding a little slower than expected and tax benefits from the plant would come in by FY12 rather than in FY11. The management reiterated its guidance of total sales of 90,000 vehicles in FY11 and hinted that upsides to this were likely. It plans include launching the U-Truck platform by October, 10 models (on this platform) to be introduced before November, and around 25 models over the next 18 months. It plans to raise around Rs6 billion in debt this year, of which it has already mobilised Rs3.6 billion.

Citi said in its report that feedback on M&M's Maxximo was mixed - "Maxximo is a better product than Tata's ACE at less than peak loads. At peak, apparently, the ACE outscores the Maxximo on account of the former's better pulling power. Dealer feedback on the new Tata Prima (the world truck) was negative - sales are flagging due to its significant price premium over the 4923." Citi also said that the positive perception that AMW enjoyed 12-18 months ago appears to be faltering, as AMW's after-sales service network isn't as robust as that of competitors.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).


Coordinate policies against protectionism: India to G20

New Delhi: At a time when states in the US are embracing policies that reek of protectionism, India today asked a grouping of developed and developing economies to act towards keeping trade open and ensure financial stability, reports PTI.

"The immediate spheres of such coordination (between G20 member countries) are macroeconomic policies and exit strategies, pace of regulatory reforms to ensure financial stability without affecting prospects of growth... keep international trade open and avoiding protectionism," finance minister Pranab Mukherjee said at a financial crisis conference here.

He further said that the group of 20 nations (G20) will need to coordinate policy actions in a manner that can ensure strong, sustainable and balanced growth.

The state of Ohio in the US earlier this month banned outsourcing of state IT contracts to foreign companies. The move came on the heels of Washington's decision to hike visa fee for H-1B and L1 categories. These moves are expected to hurt the USD 50-billion Indian IT market, which garners a major chunk of revenues from American companies.

The outsourcing ban by Ohio has come as a disappointment to India, and commerce minister Anand Sharma said on Tuesday that the move is "not welcome at all."

Finance ministers of G20 countries would meet next month, which will be followed by the fifth G-20 Summit of heads of states on 11th and 12th November in South Korea.

G20 is a group of 20 countries, comprising both developed and developing nations including India.

Mr Mukherjee said that as clearly indicated by the current global crisis, no country is insulated from global economy and the crisis is turning out to be much deeper and broader than expected.

"It began as financial crises, which then became a general economic crisis. It is also becoming an employment crisis. As clearly indicated by the current crisis, no country is insulated and it is turning out to be much deeper and broader than expected," he added.


Midcap Scanner: KSK Energy Ventures

KSK Energy saw a sudden spurt recently on media reports that Malaysian billionaire T Ananda Krishnan’s Usaha Tegas Sdn plans to invest $250 million in the company. Here’s a closer look at the organisation

Hyderabad-based utility company KSK Energy's stock price has seen a sudden jump after languishing at the Rs150-Rs160 levels since June. The key driver for this stock is that in a few years time, if all its capacity expansion plans go well, it will enter the big league with around 10,000MW of capacity. However, for now, it looks like the successful commissioning of its 540MW Wardha Warora project (which is already at the half-way mark) is a near-term trigger. If all goes as planned, its revenues will see a significant jump this year.


Market cap: Rs63 billion
Face value: Rs10
52-week H/L: Rs225 (22 Oct 2009) /Rs153 (31 August 2010)
Promoters: 53%; FIIs: 13%; DIIs: 8%
Current market price: Rs169

Its management expects earnings of Rs5 billion in FY11 and Rs9 billion in FY12 based on revised PPAs for its under-construction projects and merchant rates of around Rs4-5/kwh.  Its FY10 revenues and profit were Rs4.5 billion and Rs1.9 billion respectively. Its June quarter revenue and net profit figures were at Rs2.4 billion and Rs966 million respectively.

KSK Energy Ventures (KSK) is the Indian listed subsidiary of KSK Power Ventur Plc, a London-listed entity. The group holding structure is given in the graphic below:

The company is promoted by first generation entrepreneurs KA Sastry and S Kishore. It began in 2000 with a small 20MW plant in Kasargod (Kerala). Currently it has 279MW operational capacity, 3,730MW in the process of completion, and 6,345MW in the planning stages. A lot of its capacity is coming up in central and north-east India and most of its capacity is coal, although it does have three hydro projects.

Here are a few details of its projects...

Operational projects:

- 58MW Sai Regency Power, Tamil Nadu
- 43MW Sitapuram Power Plant, Andhra Pradesh
- 43MW Arasmeta Captive Power Plant, Chhattisgarh
- 135MW VS Lignite Power Plant, Rajasthan
- 52MW Bahur Power, wind-based, Tamil Nadu

Projects under construction:

- Wardha Warora Power Plant (Maharashtra) - 540MW; Coal (2x135MW units already up)
- Arasmeta Expansion, (Chhattisgarh) - 43MW; Coal

Projects under initial construction or in the development stage:

- KSK Mahanadi, Akaltara (Chhattisgarh) - 3,600MW; Coal (expected to be up in FY13)
- KSK Dibbin (Arunachal Pradesh) - 130MW; Hydro

Projects in the planning stage:

- JR Power; 1,800MW; Coal; Orissa (expected COD: 2015)
- KSK Narmada; 1,800MW; Coal; Madhya Pradesh (expected COD: 2015)
- KSK Naini; 1,800MW; Coal; Orissa (expected COD: 2016)
- Kamang HEP; 600MW; Hydro; Arunachal Pradesh (expected COD: 2016)
- Kamang Basin HEP; 345MW; Hydro; Arunachal Pradesh (expected COD: 2016)

For the KSK Mahanadi 3,600MW project, it has a tie-up with GMDC and GIDC for their Morga-2 and Gera Pelma-3 blocks respectively. KSK recently (in early August) started the second 135MW unit of its 540MW Wardha Warora Project (4x135MW) near Chandrapur in Maharashtra. The first unit in this series began in May this year and subsequent units are expected every three months. Its135MW lignite-fired plant in Rajasthan began in March. Its next project to be up is expected to be the 3,600MW Chhattisgarh one.

For the 540MW plant at Maharashtra, it has a purchase tie-up with Maharashtra State Electricity Distribution Co Ltd for 450MW at Rs 5.19/kwh for one year - this will begin only after all the units in this series are complete. Until then, it is selling power on a merchant basis. From FY12, KSK has entered into a power purchase agreement with Reliance Infra for 300MW at Rs4.75/kwh for 3 years for the latter's Mumbai area.

In a March 2010 report on Indian utilities, Credit Suisse had declared that KSK was the (then) cheapest stock in terms of capacity adjusted relative valuation and has said that it sees a five times EPS growth in the stock over FY10-12.

In June this year, it signed a PPA with Gujarat Urja Vikas Nigam Limited for the long-term supply of 1,010MW of power, based on dedicated coal supplies from Gujarat Mineral Development Corporation and its coal blocks from KSK's 1,800MW Narmada plant.

KSK develops most of its power projects through various SPVs, where the consumer also holds equity. This helps disperse risk for both parties. Key foreseeable risks to stock performance include difficulty in raising money for projects, rising debt to equity ratio as bigger projects come up, and use of Chinese equipment. The company raised Rs12 billion in its IPO and a little more than Rs5 billion in a QIP this year.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).



Shibaji Dash

7 years ago

Dicy. Too risky. Setting up Infras despite media brouaha are shots in the dark. They have to jump many hurdles including the environmental and rehabilitation issues.See how NHPC and NTPC are presently stuck.

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