Floods May Hit Sugar Output
After the recent heavy rains in the southern and western parts of Maharashtra, the sugar crop may be damaged ahead of harvests. Maharashtra is India’s largest sugar-producing state. The unseasonal rains have also submerged large sugarcane growing areas in neighbouring states of Andhra Pradesh and Karnataka.
 
The flooding has forced the sugar mills in Maharashtra and Karnataka to delay their crushing season by 10-15 days which generally begins by the middle of October. In case of sugar mills in Andhra Pradesh, the rains would not make much of a difference because the state had a very poor cane crop and hence crushing will not begin before November-end.
 
In 2008-09, sugar output in India, the world’s second biggest producer after Brazil, fell more than 40% to about 15 million tonnes (MT) forcing the country to allow duty free imports. The retail prices of sugar has already touched Rs40 per kg.
 
During the new season that starts from October, the sugar production in the country is likely to be about 16-17MT. India consumes about 23MT of sugar a year and is expected to import about 9MT.
 
Speculations of India increasing its import due to supply constraints will also have its impact on the sugar prices globally. As India will celebrate Diwali this week, demand for sugar is expected to go up. Record price and supply crunch have prompted the government to impose stock limits on bulk sugar consumers, wholesale traders and retailers to check hoarding. Market sources expect the production to be impacted by 20% and the sugar price to rise by 30%.
 
Among the leading sugar companies, Bajaj Hindusthan which is entirely based in Uttar Pradesh won’t be adversely affected by the Maharashtra floods but the company is still vulnerable to sugarcane availability. According to market sources, to overcome the supply issues, Shree Renuka Sugars, India’s biggest refiner is planning to acquire Equipav SA Acucar e Alcool, the sugar and alcohol assets of Brazil’s Equipav Group.
–Swapnil Suvarna [email protected]
 
 

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Jacking up prices for IPOs
Real estate developers are ramping up property prices in order to get higher valuation for utilising public money as many of them are planning to enter the capital market to raise funds.
 
“It is all a game plan because Initial Public Offerings (IPOs) are lined up. Increase in the prices provides them (the developers) with a higher valuation. All those builders who have not yet been able to capitalise on the booming stock market are jacking up the prices between 10%-15%,” said Pankaj Kapoor, founder and chief executive, Liases Foras, a property research firm.
 
From October 2008 and during the slowdown, all developers had to reduce property prices by as much as 30%. This move helped in some recovery and brought back a little momentum in realty. To take the benefit of the recovery, initially developers hiked prices by 5%-10% to signal the bottom and get potential buyers to stop waiting for a further decline.
 
“As the builders saw demand coming in the market, they hiked up the prices once again for higher valuation and they have killed the market,” Kapoor said.
 
According to market sources, Lodha Developers Ltd has increased property prices by 10% because it sees the company to be valued at about Rs2,500 crore. Nitesh Estates, another developer based in Bengaluru is expected to file draft red herring prospectus to raise Rs550 crore while Sahara Prime City—the real estate unit of Sahara Group is also planning to raise around Rs9, 800 crore and hence has increased the property prices by same percentage. Orbit Corp Ltd and Indiabulls Real Estate Ltd are also following the same footsteps.  All the realty companies are set to raise Rs13,500 crore from markets through IPOs.
Pallabika Ganguly, [email protected]
 
 

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Merchant power projects mint money
 Why have oil refiner and trader Adani, steel manufacturer Jindal, copper & aluminium manufacturer Sterlite and drug manufacturer Torrent jumped into power projects? The reason is: They can make super profits by selling power to the power grid, also called merchant power, thanks to the Electricity Bill 2003 and the new rules framed by the Central Electricity Regulatory Commission (CERC). These rules provide for trading in power without getting into power purchase agreements.
 
The volume of power trading over the past three years has jumped 22% CAGR—to 21 billion KWh, in 2008. Of this, 557 million units were traded between Rs8-Rs10 per unit (as against nil in 2007) and 5,292 million units were traded for Rs6-Rs8 per unit (as against 461 million units in 2007). This clearly shows that power is being sold at high prices by merchant power projects as they are free to trade power at any price during periods of peak shortage. The cost of electricity generation ranges between Rs1.75 per unit for coal-based power projects to Rs3.5 per unit for traded coal by thermal power plants. Selling at Rs5 and above ensures super profits. At times of peak demand, it can fetch as much as Rs10 per unit. This is not too far from the tariff fixed for solar power projects. The Orissa Electricity Regulatory Commission (OERC) has fixed the tariff for solar power at Rs15 per KWh for the first 12 years for new solar projects.
 
According to a research report by broking company Enam, new power projects of 62GW will come up between 2011 and 2014. Of this, 13.3GW will come from merchant power projects. Jindal Steel & Power is planning a 3,200MW merchant power project and 2,500MW as ‘regulated power projects’. Torrent and Sterlite are also planning 3,647MW and 4,400MW power projects, 40% of which will be sold as merchant power. Adani’s 6,600MW power project includes 1,848MW for merchant power.
 
Adani Power is completing a 6,600MW power project and has mobilised Rs3,000 crore from its recent IPO. It will commission its project by 2011-12. Indiabulls Power Limited (IBP) is executing five coal-based power projects generating 6,615MW and is planning an IPO for financing it. IBP’s management has indicated that the first power plant would be commissioned at Nashik in 2011-12. Merchant power is the new road to make super profits.
Dhruv Rathi [email protected]
 

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