EPFO Trustees' decision final on PF investments: Harish Rawat

New Delhi: The labour ministry today said it would abide by the decision of the Central Board of Trustees (CBT) on whether a portion of Rs5 lakh crore of provident funds should be invested in stock markets or not, reports PTI.

"The CBT decision would be final on whether Employees' Provident Fund Organisation (EPFO) should make investment in stock markets or not. The board would soon take up the issue," minister of state for labour Harish Rawat told reporters here at a PHD seminar.

There are differences between the ministries of labour and finance on the issue. The finance ministry wants the labour ministry to follow the investment pattern that it is has notified, which provides for up to 15% of the corpus in stock markets without approval of the EPFO's apex decision making body — Central Board of Trustees (CBT).

The ministry of labour and employment has forwarded the advice of the finance ministry to the EPFO's board for consideration and the trustees are likely to take up the issue in its next meeting scheduled on 15th September.

Earlier, labour secretary P C Chaturvedi had also said that the "decision of CBT would be final and supreme".

"We are careful in investing money of our workers. People call us very conservative, but paramount thing is safety of principal amount (deposits) of workers," he had said.

In a recent letter to Mr Chaturvedi, finance secretary Ashok Chawla had referred to the changes made in EPF schemes earlier without any discussion with CBT and said it (labour ministry) could take a similar view on the issue of investment pattern of provident funds.

On the letter, Mr Chaturvedi had said, "There are many missing links in the advice of finance ministry (to invest in equity). There are many issues in that."

He added, "When you say equity, it is not face value. It is not that you are getting Rs10 share for Rs10. You are getting that at Rs100. Tomorrow this Rs100 could become Rs120 or Rs80."

Mr Chaturvedi said there were several issues, operational as well as about the returns, involved in the case. "You don't get anything by way of interest (by investing in equity). It is only when you liquidate that share only then you get return."

He had also said the finance ministry's advice is based on the experience of New Pension Scheme (NPS) where they have admitted that there is no data available to establish that "what labour ministry is doing is inferior to what they are advising."

Mr Chawla's letter said that while NPS for central government employees could generate a weighted average investment return of 14.82% in 2008-09, EPFO has been giving only 8.5% returns to its subscribers for many years.

The EPFO has been giving 8.5% return annually to its subscribers since 2005-06.

Countering Mr Chawla's views, EPFO said the income earned on EPF investments are actually realised, while the returns declared in NPS are notional and subject to market conditions.

Later last month on 25th August, CBT's advisory body Finance and Investment Committee (FIC) stuck to its stand against investment of EPFO money into stock markets--either in shares or indices.

Whereas the Employees' Provident Fund Organisation commands a corpus of Rs3 lakh crore, other provident funds, which follow the Fund's investment pattern, have another Rs2 lakh crore.


Govt to make cancer drugs available at minimal prices

New Delhi: The government is in talks with pharmaceutical companies for ensuring availability of cancer drugs at a minimal price at their low-cost pharmacy chain Jan Aushadhi stores across the country, reports PTI.

"We are motivating companies, which make cancer drugs that they should supply cancer drugs at a minimal rate to the Jan Aushadhi stores," minister of state for chemicals and fertiliser Srikant Jena told reporters on the sidelines of a CII conference here.

Aiming to make available quality medicines at affordable prices for all, especially the poor and the disadvantaged, the Jan Aushadhi store scheme was launched in 2008.

At present, 231 medicines are being supplied in the 44 Jan Aushadhi stores in Punjab, Haryana, Uttarakhand, Orissa, Rajasthan, Andhra Pradesh, Chandigarh and Delhi.

Under the scheme, states provide space within government hospital premises for running the outlets.

The Department of Pharmaceuticals, under the aegis of chemical and fertiliser ministry, has been entrusted with the task of setting up these stores across the country.

The minister said that the modalities of procurement and pricing of drugs would be decided by early next week.

"Discussions with pharma companies are not yet over. It is in the process. In the next couple of days, I will be able to tell you the detail about the procurement process and the pricing of the drugs," he added.

Mr Jena said that after reaching to a conclusion, the price of cancer drugs, which are more in use, would be comparatively less, but the critical ones may not be available below the market price.

On increasing the number of Jan Aushadhi stores, he said with the states more forthright now, the number would go up now.


Mid-cap Scanner: Hindustan National Glass

The company plans to expand capacity by FY12 and should benefit from better efficiency and a hike in its stake in a float glass venture

Hindustan National Glass (HNG) is India's largest container glass solutions provider with a 65% market share. The company has a market cap of Rs 20 billion and the average traded volume over the past two weeks was at 4,000 shares. HNG has plants at Rishra (West Bengal), Bahadurgarh (Haryana), Rishikesh (Uttarakhand), Neemrana (Rajasthan), Nashik (Maharashtra) and Puducherry. The company has grown in the past 10 years through mergers and acquisitions and it has also succeeded in turning around some of the loss-making units that it acquired. It is in the container glass space which makes up about 7% of the Rs775 billion packaging industry. This business has been growing at 8% CAGR. (Compound annual growth rate is the year-over-year growth rate over a specified period of time.)

HNG caters to the pharmaceuticals, liquor, beverages, cosmetics and processed foods industries. While 85% of its sales volumes are to the FMCG sector, 15% is in the pharmaceuticals sector. The volume breakup businesswise is liquor 52%, beer 13%, food and beverages 17% and personal care 4%. Among HNG's customers are United Spirits, Pernod Ricard, Diageo, Radico Khaitan, United Breweries, SAB Miller, Carlsberg, Pepsi, Coke, Nestle, Unilever, Heinz, Cipla, Pfizer and Glaxo.

HNG plans to increase capacity by 40% in FY12 to accelerate growth. It had delayed capacity expansion because of volatile fuel costs, according to a report by Motilal Oswal (MOSL) on the company. Capacity is to be increased from the current 2,825 tonnes per day (tpd) to 3,775tpd in CY12. This includes a 100tpd capacity at Nashik, for the high-margin cosmetics glass segment. MOSL estimates 7% volume CAGR over FY10-12 to improve significantly to 23% CAGR over FY12-14.

The company is also setting up a unit with 650tpd capacity at Naidupeta in Andhra Pradesh at a cost of Rs4.9 billion, to cater to demand in South India. The unit is expected to begin production in January-March 2012. 

Another positive aspect is the improving efficiency that should result in margin expansion. "Draw efficiency has improved from 64.5% in FY07 to 85% and pack efficiency has also got better to 87%," MOSL said. These efficiencies ratios indicate the number of bottles produced to the molten material drawn.

HNG is working towards using LNG at its Neemrana unit beginning this year, as well as at the Nashik unit from FY12. The company has implemented technical improvements such as the narrow-neck-press-and-blow process that produces lighter and yet stronger bottles. This has brought higher realisations for the company, while reducing costs for its customer. Higher capacity in the cosmetics business is expected to also add to margins.

CRISIL Equities expects margins for HNG to recover in the ensuing quarters, after a not so good first quarter, since the company raised prices by about 6% from August 1. "We continue to remain positive on the growth prospects for HNG, driven by its leadership position in the container glass industry and strong management capabilities. We maintain the fundamental grade of '4/5', indicating that HNG's fundamentals are superior relative to other listed equity securities," CRISIL said in a recent report.

A third aspect going for HNG is that it plans to increase its stake in a 600tpd float glass venture from the current 47.5% to 51%. MOSL has valued the stake at Rs32 a share and it expects this to begin contributing to the consolidated numbers from FY12. However, CRISIL is somewhat disappointed by a lack of clarity in the performance of the float glass business in the first quarter. The company does not disclose results of this unit on a quarterly basis.

Most of the benefits from the expansion, margin improvement and the float glass venture are likely to kick-in in the long term.

MOSL also points out that HNG has a low debt-equity ratio of 0.5x and that nearly 17% of the equity is in the form of treasury stock (reacquired stock) that can be used to further reduce debt. It has valued the container glass business at 10x F12E EPS and the stake in the float glass business at Rs32 a share (and at 10x FY12E EPS for a 51% stake). It has a target price of Rs325. CRISIL estimates the fair value for the stock at Rs292, at 13x FY11 and 11x FY12 earnings.

Late May, news reports suggested that Piramal may sell its glass business to HNG. Since then, the stock has traded in a range of Rs 200-250, although currently it shows a technically bearish trend. In June, an investment entity of Sequoia Capital acquired a little over 7% stake in HNG for Rs1.3 billion  (about $27 million). 


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