Companies & Sectors
ICVL may buy coal assets in Australia

ICVL, the joint venture between five State-owned companies, is also participating in the bidding process for acquisition of equity in some underdeveloped coal assets abroad

International Coal Venture Ltd (ICVL) is reviewing several proposals for acquiring coal assets in Australia with a view to examining their suitability and viability, according to a statement made by coal minister Sriprakash Jaiswal in the Lok Sabha.
ICVL, a joint venture of five State-owned companies-Steel Authority of India, Coal India Limited, Rashtriya Ispat Nigam Limited, NMDC Limited and NTPC, has been formed for securing metallurgical coal and thermal coal assets in overseas territories.
The company is also participating in the bidding process for acquisition of equity in some underdeveloped coal assets abroad, said the minister.
However, Mr Jaiswal added that no acquisition has been made so far.
ICVL, at the time of its constitution, had set itself a target to buy at least one coal asset by the end of March, but has made no progress yet.
Steel and power companies in India are facing difficulties in securing coal mines, due to problems with environment clearances and stiff opposition from local communities.
Indian steel companies' demand for coking coal is met by imports, as the country merely produces coking coal. Demand for coking coal has been growing as State-owned and private players are ramping up production capacity.
ICVL has identified Indonesia, Mozambique, the USA and Colombia as target countries for acquisition of coal assets and proposals received from these countries are also under review, added Mr Jaiswal.
 Power companies are also facing shortage of thermal coal supply in the country. In its recent report, ICRA says, "The demand-supply gap in the domestic industry is likely to widen significantly over the medium- to long-term as many large-size, coal-based power projects are expected to be commissioned over this period. Many of these projects were conceived on the premise that domestic coal would be available to them in the required volumes."
 Since the last quarter, prices of coking coal and iron ore have been shooting up in international markets, as the floods in Queensland (Australia) has disrupted mining and shipments of coal, amid surging demand.
The coal will be sourced from assets-once they are acquired-and would primarily be used by the promoter companies of ICVL, the minister added.


Eco Survey: 9% growth next fiscal, unrest in Middle East, inflation dampeners

The Economic Survey 2010-11, tabled in the Lok Sabha by finance minister Pranab Mukherjee, said tight monetary policies would have to stay to curb inflation and mitigate global risks such as rising food and commodity prices and debt problems in the European nations

New Delhi: Inflation will remain a priority for the government which projected over 9% economic growth in the next fiscal even as downside risks emerge from rising oil prices due to turmoil in the Middle-East, reports PTI.

The Economic Survey 2010-11, tabled in the Lok Sabha by finance minister Pranab Mukherjee, said tight monetary policies would have to stay to curb inflation and mitigate global risks such as rising food and commodity prices and debt problems in the European nations.

Ahead of the general budget, the survey made out a case for gradual exit of stimulus provided to the industry to combat the impact of the global financial crisis in 2008-09.

Insisting that the inflation is clearly the 'dominant' concern, the survey said "current growth and inflation trend warrant persistence with an anti-inflationary monetary stance". Consolidation of fiscal deficit would also be essential to check the price rise, it added.

"Inflation is a matter of great concern, no doubt. Just one year ago in February 2010 food inflation was as high as 20.2%... though it is high but it has come down in January... still it is an area of concern and we shall have to work on it, particularly in the context of global economic crisis," Mr Mukherjee told reporters after tabling the survey.

The survey, considered a report card on the economy, listed rising international oil prices and sovereign debt problems in the Euro zone and the political turmoil in the Middle East as the downside risks for the Indian economy.

Higher current account deficit due to impact of fragile global recovery on Indian exports and increasing domestic consumption was listed as an area of concern.

"The problem may be further aggravated by the rising international oil prices," it added.

For the current fiscal, the survey said, the economy would grow by 8.6%, up from 8% a year ago. "It is expected that the growth will breach the 9% mark in 2011-12", reaching the pre-crisis levels.

The survey also suggested a set of reforms, including streamlining of land acquisition and environmental clearance norms, to expedite infrastructure projects, a crucial driver of growth.

Besides, it also pitched for opening of foreign direct investment (FDI) in multi-brand retail starting with metro cities. "FDI in retail may help bring in technical knowhow to set up efficient supply chains which could act as models of development," the survey added.

It also pressed for reforms in banking and insurance sector.

The survey suggested private participation in social sectors such as health and education in the form of public-social-private-partnership to supplement the government efforts.

India, the survey said, needs a policy to bring another round of multifaceted reforms for the industrial sector to have a sustained double-digit output growth in the medium to long-term.

In the short-term, the sector is likely to grow at moderate but sustainable rate. However, increasing cost of financing and slowdown in foreign equity inflows in the current financial year are causes for concern.

"Over the medium to long-term, to sustain double-digit output growth and reduce the vulnerabilities of the sector, there is a need to put in place a policy framework for embarking on another round of multifaceted reforms," it said.

It also pitched for giving banking licences to industrial houses wanting to set up banks to promote the goal of financial inclusion.

"As regards allowing industrial houses, business houses and NBFCs to promote banks, they may be allowed full banking license with provision for avoiding conflict of interest issues," it said.

On India's exports, it said that shipments will surpass the $200 billion target for the current fiscal and the gradual roll-back of stimulus measures is not likely to impact growth of the country's overseas shipments.

On insurance, it said that there will be different set of norms for life and non-life insurance companies for coming out with a public float.

"It is proposed that the disclosure requirements for life and non-life companies would be separately mandated given the nature of their respective business," the survey said.

It added that investors would be required to be made aware of the financial performance, company profile, financial position, risk exposure, corporate governance and management of these companies.

To contain excessive flow of foreign capital, it said that India should work closely with G-20 countries to take collective steps.

"We will have to keep open the options of having to take corrective measures, should these flows affect us adversely.

The most important step in this context is to work with the G-20 countries and try to figure out collective decision rules, whereby each country tries to intervene minimally in the flow of capital," the pre-budget survey said.

It further said, "When it does intervene, it does so taking into account the externalities on other nations."

The continuing debt turmoil in the euro zone area could have an adverse fallout on the Indian economy, hurting its capital flows as well as exports, it added.


Wireless industry set to sail despite stormy weather

Regardless of the recent turbulence, most mobile service providers are charting aggressive plans to continue on the steep growth trajectory, before the onset of consolidation a couple of years down the line

The second largest population in the world, relatively low tele-density and a fast-growing economy have ensured that India continues to hog global headlines for the immense potential waiting to be tapped in the country's telecom market.

Millions of new users are being added each month and analysts cannot stop raving about the gold trail that awaits the competitors trawling the minefield. The stories that consume space may not always be positive-most of the recent discourse has been around issues related to the wrongful allocation of spectrum, Bharti's merger pains after the acquisition of Zain in Africa, and the legal costs surrounding Idea's buyout of Spice Telecom. But regardless of the turbulence, most service providers are charting aggressive plans, setting their compasses northwards, sailing to pursue the rewards this soaring industry promises.

As if to spook the story a little, the break-out of the 2G spectrum scandal threatened to derail the industry. But after it emerged that the main protagonists in the problem may be fringe players, it has been business as usual for one of India's fastest-growing industries. While a Joint Parliamentary Committee (JPC) investigates the spectrum allocation matter to isolate the culprits, the market leaders have turned their attention to leverage the Cricket World Cup to build brands and consolidate their share of the pie.

The launch of mobile number portability (MNP) has added to the evolving texture of heated competition among the main players-Airtel, Vodafone, BSNL, Idea, Tata and Reliance. MNP allows cellular customers to switch between operators within the same circle while retaining the existing number for a nominal charge. The impact of MNP will only be understood in a few months, when substantial market data is available on the movement of customers over a period.

Preliminary data from a recent survey indicated that about 25% of mobile phone users were considering shifting network. It will be interesting to see the net ported connection figures that should become available between May and June this year. Early indications suggest Bharti and Vodafone are likely to be the two main beneficiaries of the shuffle.

The recent launch of 3G services by various operators also means that the doors have opened to new streams of revenues as they push VAS and data content through the expanding base of smart phones in the market. The evolution of operating systems (iOS, Android and Windows 7) and the ever-increasing range of mobile applications have enabled service providers to create and tap into a new generation of opportunities. With voice-related revenues hitting a plateau due to falling unit prices and the intense competition, VAS, gaming and data will add a healthy layer to buffer flat ARPUs (average revenues per user per month).

The key drivers of growth are expected to be: Value added services (VAS), 3G services- streaming & m-advertisements, data connections, and rural penetration.

It is widely accepted that voice revenues will continue to remain flat, or essentially trace the growth of connections. ARPUs that range from about Rs75 for CDMA operators to about Rs125 for GSM operators, have declined for five straight quarters. But the decline is expected to reverse, thanks mainly to advertising investments during this period which is dominated by the World Cup now and the IPL IV season beginning in April. The two big events have set the stage for an organised push for higher non-voice revenues and RCom is expected to benefit significantly from holding exclusive mobile rights to the ICC event.

A recent study by Assocham-Deloitte estimated that non-voice revenues are set to quadruple from the current Rs12,200 crore by 2015. As against the global average of 23% of total revenues, Indian service providers get just 10% of their revenues from value added services currently. The Indian market is believed to be on the cusp of a break-out in this segment, catalysed by an improvement in hardware and operating systems, quality mobile applications that enhance the experience, coupled with faster network connectivity. This explains why key players are clamouring to get onto the broadband and wi-fi bandwagon.

It appears that Idea Cellular, which invested the most in MNP related advertising, may not have received commensurate return on investment. One of the reasons could be Idea's strength in the rural markets, where there is lesser churn from MNP. Irrespective of the short-term shuffle in connections, MNP will certainly encourage innovation and competitive behaviour. The Economic Times reported that over 1.7 million subscribers opted to port their numbers as of 9th February.

The MNP shuffle could alleviate some of the pain for GSM majors Airtel, Vodafone, Idea and BSNL which suffered the most in terms of market share last year. The arrival of a slew of second generation service providers crowded the market and resulted in the leading players-Airtel (2.1%), Reliance (1%), Vodafone (0.75%), BSNL (0.4%) and Idea (0.1%)-suffering a combined loss of 4.3% market share, down from 62.6% in January 2010 to 58.3% at the end of December 2010. The biggest gainers have been new players Uninor and Videocon that gained 2% and 1% respectively. Tata is the only company to have survived the wave of attrition, mainly due to its strong acquisition of customers through its GSM service Tata DoCoMo.

The following table lists the market share as of January 2011


*Source - Cellular Operators Association of India (Figures for Reliance Telecom as of Dec. 2010

While RCom and Tata have made rapid strides with the introduction of GSM services, Idea Cellular has also moved up quietly, climbing from 5th to 4th on the list of service providers by market share. Even more impressive is the proportion of Idea's active subscribers (90.04%), second only to market leader Bharti.

In the recent Visitor Location Register (VLR) figures released by TRAI, Idea reinforced the belief that it is emerging as one of the national alternatives to erstwhile leaders Bharti Airtel, Vodafone Essar, RCom and BSNL. Vodafone and BSNL have reason to be concerned, clocking abysmally low volumes on active subscription numbers, while we do not have quality numbers to report the relative performance of RCom.

Rural tele-density was 30 connections per thousand people at the end of December 2010, leaving enormous room for growth. It is an area that is expected to expand rapidly, thanks to the relentless trends in migration and rising incomes from social development programmes such as NREGA. Among the established players, Bharti and RCom made early inroads, alongside BSNL, in the rural areas, riding on an estimated Rs14,000 crore USO (Universal Service Obligation) Fund. While there are murmurs that both the private sector biggies are itching to bail out of their commitments, another operator has been steadily chipping away at the rural market.

Idea Cellular is enthusiastic about the vacuum in rural telephony supported by its growing investments in cell sites. In fact, Idea has a high proportion of rural subscriptions in its growing portfolio-almost half of Idea connections originate in rural India. Of course Bharti, RCom, Vodafone and BSNL each have a higher volume of customers, but when we overlay the active connection rates over the subscription numbers it is easy to see why Idea is an emerging threat to its competitors.

While there are several listed companies with direct and indirect investments in the mobile services industry, it is difficult to make a practical assessment of most of these stocks due to the clouds hanging over the industry.

Bharti has spent over Rs340 crore on an international branding campaign to reshape its identity in Asia and Africa. And it is not yet clear how the acquisition of Zain in Africa will play out in terms of cash flows and the return on investment in the next few years. Idea's (Aditya Birla Group) buyout of Spice is likely to result in higher than expected legal costs, even though the marriage has enabled Idea gain a national footprint. DoT has once again re-opened the BSNL-MTNL merger discussion, while RCom and Essar are working overtime to mitigate the risks associated with their respective investments in Swan/Etisalat and Loop Telecom.

But despite the chaos, the industry is set to continue on its steep growth trajectory, before the onset of consolidation a couple of years down the line. While there are many direct and indirect plays to share in the growth, two companies are worth a deeper study from an investor's perspective-Bharti Airtel, the clear market leader, and Idea Cellular.

It would be prudent to let the current turmoil in the market and the industry pass, although declines in the broader indices may create interesting investment opportunities, investors with a moderate risk appetite will do well to investigate Bharti and Idea as promising long-term investments. Both companies have outpaced the market in ARPUs-Bharti earns Rs198, while Idea takes in Rs168, against the industry average of Rs110. Irrespective of the short-term market turmoil and governance risk, the mobile services industry in India is all set to continue growing at a brisk pace.

Data source: TRAI and COAI




6 years ago

yes nice article

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