Companies & Sectors
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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MSMEs economic upsurge expected: CII

The second quarter of FY10 may be the upturn point for MSMEs in India, says an industry body

The positive sentiment built up in second quarter of FY10 among the micro, small and medium enterprises(MSME) companies is expected to carry forward into the third and the fourth quarter, says an industry body. According to a Confederation of Indian Industries (CII) survey, there is a positive shift in turnover and order booking during the second quarter of FY10 compared to the first quarter.
 
“It appears that the worst of the crisis period is over and a turnaround seems within sight for most of the industry,” said Salil Singhal, chairman, CII National MSME Council.
 
An assessment of the expectations of the MSMEs for the third quarter of FY10 revealed that 54% respondents expect an increase in turnover, 43% respondents expect an increase in production and 45% respondents expect an increase in their order bookings, the survey said. Also, 31% and 37% of respondents expect an increase of their export and profitability, respectively, compared to the second quarter of 2009-2010, the survey added.


The survey also highlighted that during the second quarter, nearly 45% respondents registered an increase in turnover; 42% reported an increase in production and 38% increase in order-booking compared to the previous quarter.
 
Most MSME companies are profiting due to the various incentives announced by the Union government and the Reserve Bank of India (RBI).
 
And beneficial impacts were expected from the first and second stimulus packages that the government has given.
 
Also, initiatives such as special monthly meeting of state level bankers’ committees (SLBCs), enhancement in the guarantee cover under credit guarantee scheme from 50% to 85% for loans up to Rs5,00,000 and Rs50 billion credit from RBI to Export-Import Bank of India for pre- and post-shipment credit, may have a beneficial impact and contribute towards easing the liquidity position for the MSMEs, the survey pointed out.
–Aditya Kshirsagar [email protected]

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