Companies & Sectors
Non-bailable warrant against Mallya, Kingfisher on complaint by GMR

Many airports have filed cases against Kingfisher for dishonouring cheques. However, this time GMR made sure that the Court in Hyderabad issues non-bailable warrant against Vijay Mallya as well

Vijay Mallya-owned Kingfisher Airlines continues to be drawn in to more troubles for itself and its owner as well. On Friday, a local Court from Hyderabad has issued non-bailable warrant against the carrier and its chairman in a cheque bouncing case filed by GMR Hyderabad International Airport Ltd.
GMR, which manages Rajiv Gandhi International Airport in Hyderabad, had filed a case against Kingfisher in the Special Magistrate's Court for dishonouring cheques worth over Rs10 crore by the Vijay Mallya-owned Airlines.
The 13th Special Magistrate Court at Erramanzil issued the warrant against Kingfisher Airlines, Vijay Mallya, CEO Sanjay Agarwal and three other directors of the company and posted the case to 5th November.

The court had earlier taken cognisance of the matter and issued summons against the company and the five directors (including Mallya and Agarwal) asking them to appear before it by Friday.

The counsel of Kingfisher, who had appeared on their behalf, filed an application before the court over non-appearance of their clients and requested the court not to issue the NBW.

However, Judge Kedara Chary dismissed the same and issued the NBW against them, one of the counsels of GMR JB Chenna Keshava Rao said.

There was an agreement between Kingfisher and GMR under which Kingfisher was collecting user development charges/fee from passengers with regard to Hyderabad airport charges and the Mallya-owned carrier was supposed to remit GMR the money amounting to around Rs 10.5 crore, which it did not pay.

"They (Kingfisher and Mallya) became due and were liable to pay the amount over Rs 10 crore. When we demanded the amount, they issued cheques over a period of time since January this year which were dishonoured when presented for clearance. After this, legal notices were also served but they did not make the payments," Rao said.
Last month, GMR-operated Delhi International Airport Pvt Ltd (DIAL) dragged Kingfisher to court after cheques of about Rs3 crore issued by the carrier, bounced. 
Earlier in July, GVK-run Mumbai International Airport also filed a case against Kingfisher Airlines in cheque bounce issue. The court at that time, issued summons against top management of Kingfisher for dishonouring cheques worth about Rs15 crore.  
According to media reports, Kingfisher owes over Rs40 crore, including airport user fee, to DIAL.
Kingfisher also owes Airports Authority of India (AAI) the maximum amount of over Rs250 crore towards charges relating to landing and parking, route navigation facility charges and licence fee.
Meanwhile, according to a PTI report, the ailing Airlines has extended its lockout till the next weekend, apparently after failing to convince its striking staffers, protesting delay in salaries, to return to work.

Airline sources said the airline management, in an internal mail, has said that due to operational reasons, all flights across its network would be cancelled till 20th October.

The mail came a day after Kingfisher CEO Sanjay Aggarwal appealed to all employees, striking over non-payment of salaries for seven months, to return to work to resume flight operations soon. The employees are insisting that the salaries be paid first before they resume duty.

With all its flights cancelled since the lockout declared on 4th October, aviation regulator DGCA earlier asked liquor baron Vijay Mallya-owned carrier to stop selling tickets following reports that it had started accepting bookings last week before ending its lockout.

Kingfisher had declared a lockout on 28th September till October four following the strike, cancelling its entire flight schedule, and extended it till 12th October later. This has now been extended till 20th October.

On 5th October, DGCA issued a show-cause notice to Kingfisher asking why its flying license should not be suspended or cancelled as it had grounded its entire fleet and failed to offer safe, efficient and reliable service. It has given the airline 15 days to reply.

Civil Aviation Minister Ajit Singh has also said the airline would have to submit a concrete plan to DGCA on safety and salary payments, before it is allowed to resume flights.

Kingfisher has been saddled with a loss of Rs8,000 crore and a debt burden of another over Rs7,000 crore, a large part of which it has not serviced since January.


The farce of power sector reforms: States have limited room to absorb more liabilities

The state electricity boards’ debt restructuring plan has to be accompanied by more liabilities to be taken on by the states. Most states have already breached their targets under the Fiscal Responsibility Act

The Cabinet Committee on Economic Affairs (CCEA) recently approved the scheme for restructuring the debt of state distribution companies (Discoms). The scheme lists various measures required to be taken by Discoms and state governments for achieving the financial turnaround of the Discoms by restructuring their debts with support through a Transitional Finance Mechanism by the central government. The scheme will remain open up to 31 December 2012, unless extended by the Government of India (GOI), the ministry of power said. The scheme announced by the central government to state power distribution companies is an attempt to restore power purchasing capacity of the debt-ridden Discoms and enable banks to recover their loans.
However according to CARE Research, states involved in the current restructuring plan may find it difficult to adhere to their respective fiscal deficit limits given the acceptance of weaker states in the central restructuring package and the doubts over the tariff hike momentum given the limited room for states given bulging subsidies and anticipated slower revenue growth.
The restructuring would be beneficial for the short term, over the long-term functional autonomy would be essential. The scheme requires the states to take over 50% of the short-term liabilities (STL) through issuance of special securities (non-SLR bonds) in favour of participating lenders in a phased manner, according to the fiscal limits available (under FRBM Act). The balance 50% needs to be restructured by the banks with a three-year moratorium. According to CARE Research, this may bring a short-term relief for the Discoms but in the long-term it will all depend on how the Discoms are able to raise tariffs and cut distribution. According to Nomura Research, as most states have ‘effectively’ breached their Fiscal Responsibility and Budget Management (FRBM) targets at present, getting immediate Statutory Liquidity Ratio (SLR) status for bonds issued by Discoms looks unlikely.
The impact on state governments will be huge as the previously off-balance-sheet commitments to SEBs now increasingly become part of their budgets. According to CARE Research the fiscal deficit of problem states (Punjab, Andhra Pradesh, Madhya Pradesh, Haryana, Rajasthan, Tamil Nadu and Uttar Pradesh) is already more than 2% of their respective Gross State Domestic Product (GSDP). As per the FRBM Act, state governments are mandated to maintain the fiscal deficit of around 3% of their GSDP (3.5% in case of Punjab). However, the fiscal deficit of the above-mentioned seven states is already between 2.1% to 2.98% (3.26% in case of Punjab) as per their financial year 2012-13 budgets. Thus, they have very limited fiscal room to absorb any more liabilities on their books. Of the seven stated only four would meet the required amount as per space available in the FRBM limit for FY2012-13. 
With an expected decline in GDP growth impacting the revenues of states and centre, the situation may be more complex. The state governments would have to go in for additional new taxes/sale of assets to raise resources. However, with state elections due in Rajasthan and Madhya Pradesh in December 2013 and a general election due in 18 months, such revenue-raising measures seem difficult.
Underpaid subsidies and underestimated losses are a key concern for Discoms. The Shunglu Committee Report, which evaluated 15 state distribution companies. The components of “Other Current Assets” are highly ‘opaque’ with likely possibility of subsidy booked, but not received with higher proportion of agricultural losses (than accounted for) being hidden. The accumulated losses of the Discoms are estimated to be about Rs1.9 lakh crore as on 31 March 2011.
Most of the banks have already initiated the restructuring of advances on their own and according to CARE Research banks have already restructured around 45% of the total Discom advances in the past few quarters. The restructuring packages have reduced the asset quality concerns of banks along with a state guarantee on the Discom advances.
Although more clarity is awaited on the interest rate at which the bonds will be issued by the SEBs. According to Nomura research, 50% of the loans to get converted into Discom bonds are likely to attract the state government coupon rate (8.5%-9%), entailing a 5%-6% hit in the Net Present Value (NPV). The 50% loans restructured with three-year moratorium and five-year repayment will not attract an NPV hit if the coupon rates are maintained. However, it might attract 2% provisioning as per RBI norms. In the worst-case scenario, the overall haircut for banks could be in the range of 5%-6% excluding the mark-to-market impact. 


Another chance to sell BHEL?

Euphoria over power sector reforms ignores severe concerns on fuel shortage, says Nomura and downgrades BHEL to ‘reduce’. It sees the current rally as an excellent opportunity to exit the stock

Revival of new orders in the power equipment sector is unlikely and the euphoria on SEB (State Electricity Boards) restructuring ignores severe concerns on fuel shortage, says the Nomura Equity Research. BHEL outperformed the Sensex by about 20% over the past three weeks on the back of the new restructuring plan for SEBs. While the plan is likely improve the health of the power sector, it does not change the outlook for new equipment orders, in Nomura’s view, as fuel supply concerns continue:
 As per estimates, despite building in an optimistic 620 million tonne increase in coal supply per annum over FY12-17F (at 18.3% CAGR), the annual order inflow for BHEL is unlikely to exceed 6GW per annum
 In contrast, a realistic assessment suggests that actual coal increase will be less than 377 million tonnes (at 12.5% CAGR) implying 32GW of existing orders will have to be cancelled; BHEL faces risk to about 28% of its order book.
•  Further, rising competition and falling utilisation during times of negligible order pipeline could have a cascading effect on margins.
BHEL is expensive even on best-case coal supply outlook, argues Nomura. It maintains its estimates which build in the best-case coal outlook and, despite that, it arrives at a DCF-based (discounted cash flow) target price of Rs199 per share. 
Nomura factors in deteriorating margins (down to 12-14% post FY14 from 21% currently) and medium-term order inflow of about 6GW per annum. Given about 20% potential downside, the brokerage firm downgrades BHEL to ‘Reduce’ and sees the current rally as an excellent opportunity to exit the stock. Instead, Nomura recommends playing the SEB reform story through power lenders such as PFC (Power Finance Corporation) and REC (Rural Electrification Corporation).
The most critical warning from Nomura in this context is that coal supply estimates indicate limited incremental equipment opportunity over FY13-17F. Fuel supply for power plants has not kept pace with the significant capacity addition that developers in India are planning. Nomura has been highlighting its concerns for a while, and still emphasises that coal availability will be the key bottleneck apart from land and environmental clearances in deciding the finalisation of new projects. In the best-case scenario, Nomura estimates that coal supply can increase to 1.09 billion tonnes per annum from 469 million tonnes per annum currently (for the power sector). Despite building these numbers, the brokerage firm thinks that there is scope for only 22GW of additional equipment ordering over the next two to three years.
Whatever little order inflow comes up in the power equipment sector, post the challenges in the coal sector, will face the litmus test of severe competition in the domestic market. Compared with a near-monopoly status in the past in the context of NTPC orders, BHEL’s market share has fallen to just 36% in the recently concluded bulk tendering for NTPC orders (both the phases put together). Ironically, this is despite the preferential treatment given to BHEL. It was awarded 2-4 units in all the orders subject to it matching the lowest bid. Nomura sees a bigger threat looming in the future, since NTPC does not have any more similar tenders lined up and, moreover, all the future tenders will have no preferential treatment for BHEL. 
Moreover, Nomura notes that the 36% share in NTPC orders is fraught with the risk of lower margins, since BHEL will get these orders by matching the prices quoted by the lowest bidder, which seems way below BHEL’s normal pricing. 




5 years ago

A clear fortnight ahead this article gave advice to use current rally to exit the stock, BHEL.

Today the prediction came true with a bang.

BHEL had steep fall of 6.58% {Rs15.95} in big volumes {1,09,55,053}

Well done Money life digital team.

Mohan Raj

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