Companies & Sectors
Priority status for solar power will aid smaller players
The central bank's move basically means that banks are now mandated to provide a percentage of their annual adjusted net bank credit (ANBC) or the credit equivalent amount of off-balance sheet exposure, whichever is higher, to RE project developers seeking finance
 
The Reserve Bank of India (RBI) recently revised its priority sector lending (PSL) guidelines. Now medium enterprises, social infrastructure and renewable energy (RE) will form part of priority sector, in addition to the existing categories. This has brought excitement to the stake-holders.
 
The central bank's move basically means that banks are now mandated to provide a percentage of their annual adjusted net bank credit (ANBC) or the credit equivalent amount of off-balance sheet exposure, whichever is higher, to RE project developers seeking finance.
 
Bank loans with a limit of Rs.15 crore (approx $2.5 million) will be made available for RE power generation (solar, wind, biomass, and micro-hydro) and for non-conventional energy-based public utilities such as street lighting systems and remote village electrification. For individual households, the loan limit will be Rs.10 lakh per borrower. Various policy think tanks, research institutes and industry representatives have been lobbying for this move and finally the government has acceded.
 
How will the solar power sector be impacted with its inclusion in the PSL framework?
 
To begin with, analysis of the Rs.15-crore limit needs to be highlighted. Today, grid-connected solar PV plants cost around Rs.7 crore/MW. Considering a standard debt-equity ratio range of 3:1-4:1, developers with plans to install around 2.5 MW now have easy access to finance. This means that smaller and emerging players can now enter the market in the 100 kW-3 MW segment and stave off competition from the larger players.
 
Research has shown that the 60 GW ground-mounted portion of the 100 GW solar target (by 2022) needs a mix of large solar parks (>200 MW), 10-50 MW plants, 5-10 MW plants and plants <5 MW when it comes to grid-connected systems; along with off-grid plants <1 MW for remote rural electrification. Large solar plants (>10 MW) come with baggage (intermittency and associated grid management and synchronisation headaches, land contention and displacement issues, additional investment for government for green corridors, and the possibility of cartelisation) whereas smaller centralised distributed generating units (<5 MW) are easy to incorporate into the existing grid infrastructure without any of the aforementioned issues.
 
Keeping the cap can be interpreted to be the government's strategy to carve out a market for smaller entrepreneurs to thrive in, while allowing established large solar companies and developers (who already have access to finance) to flourish in the large solar parks segment. It will also allow SMEs to use solar for captive consumption purposes now that they can access finance easily.
 
Such strategic niche management can be extended to the off-grid space to enable rural electrification using decentralised solar plants (<500 kW) with micro-grids. A differential rate of interest (DRI) scheme can be introduced under the "weaker sections" category which will allow developers to get loans at less than 10 percent interest, thereby increasing profit margins in market spaces which have been shunned in the past.
 
The other aspect is with respect to individual households. The Rs.10 lakh limit here means that the government is encouraging urban households to adopt RTPV (rooftop photo voltaic) systems with or without storage using easily accessible loans from banks. Today RTPV costs around Rs. 92,000/kW and Rs. 70,000/kW (with and without two hours of lead-acid battery storage). Research has shown that the largest possible grid-connected RTPV system for a domestic consumer in Bengaluru (without battery backup and meeting 60 percent of the annual electricity demand of the household with solar) is 18.5 kW with an initial investment of Rs. 13 lakh.
 
Assuming a standard debt-equity ratio of 3:1, the revised PSL guidelines make it possible for this consumer to instantaneously get a loan for a RTPV system. Gone are the days when bankers used to be sceptical every time the words "loan" and "individual RTPV system" were mentioned in the same sentence.
 
Earlier, banks used to associate risk with solar PV in terms of asset management, technology evolution and individual credit ratings. Keeping the ambitious 40 GW RTPV target (by 2022) in mind, the government has initiated this progressive Rs.10 lakh move. Hopefully, the state utilities will find innovative complimentary tariff mechanisms which will allow the RTPV market space to grow rapidly in the near future.
 
Most representatives of the renewable energy industry are quite excited by RBI's move and expect that the Rs.15-crore limit will be increased in the near future to maintain an aggressive growth rate in this environment-friendly industry in India.

User

COMMENTS

Anand Vaidya

2 years ago

Govt buildings, schools, railway, bus stands, airports, military, over the canals, hospitals, clinics, carparks... the opportunities for free land and immediate market are limitless.

The govt also needs to urgently look into subsidies & better credit facilities for electric vehicles to reduce petroleum imports and reduce pollution.

Harshad Kamdar

2 years ago

Indian Railways have about 7500 stations and assumed 15000 platforms. Each admeasures 2500 sq mts. Thus we have ready property of3750 hectares if this is used to generate electricity thru SPV a significant amount of elec will be produced. Each platform will produce 550 KWhr per day or 200 Mwh per annum. This is a huge potential and with bank finance avaailable the small players will contribute to the target of 100 GW by 2022. The railway will require to set up its own grid to purchase and use its power. Harshad Kamdar

India tops list of drone-importing nations
India's first UAV delivery came from Israel in 1998. The UK, on the other hand, imported its first UAV in 1972 from Canada. But Japan was the first country in the world to import a UAV, it got one from the US in 1968
 
The decision by India's National Disaster Response Force to use drones to help Nepal map the scale of devastation caused by last month's earthquake indicates how India has enthusiastically taken to these pilot-less aircraft -- the so-called eyes in the sky.
 
With 22.5 percent the world's unmanned aerial vehicle (UAV) imports, between 1985 and 2014, India ranks first among drone-importing nations, followed by United Kingdom and France. UAVs, or drones as they are commonly known, are pilotless aerial vehicles used for reconnaissance, surveillance, intelligence gathering and aerial combat missions.
 
The advantage of UAVs is that they come at a fraction of the cost of manned aircraft with no risk to human lives. The data here relate to drone/UAV transfers (imports/exports) between countries. There are also drones that have been indigenously developed, so the actual number of UAVs possessed by each nation may be different.
 
A total of 1,574 UAV transfers have taken place across the world between 1985 and 2014. Of these, 16 are armed UAVs, according to data provided by Stockholm International Peace Research Institute (SIPRI), an independent global conflict-research institute.
 
UAV trade recorded an increase of 137 percent between 1985 and 2014. The period between 1985 and 1990 saw sales of 185 UAVs globally, which increased to 439 between 2010 and 2014. Egypt and Italy are among the other large importers. The last decade also registered sales of 16 armed UAVs.
 
India's first UAV delivery came from Israel in 1998. The UK, on the other hand, imported its first UAV in 1972 from Canada. But Japan was the first country in the world to import a UAV, it got one from the US in 1968.
 
India's UAV imports, have almost all been from Israel, according to SIPRI data. Of 176 UAVs, 108 are Searcher UAVs and 68 are Heron UAVs. Israel is the leading exporter of drones, accounting for 60.7 percent 1985 and 2014.
 
The US, with a 23.9 percent of UAV exports, ranks second, followed by Canada with 6.4 percent. Israel shipped has shipped 783 drones since 1980.
 
Some of India's eyes in the sky:
 
Netra: An autonomous UAV developed jointly by ideaForge Technologies and Defence Research and Development Organisation. Can take off and land vertically, like a helicopter. It can also fly and return to base on its own. Currently used by Indian armed and paramilitary forces.
 
The National Disaster Response Force used the Netra drone during the 2013 Uttarakhand floods to identify survivors and assess damage. It was also deployed during the Bhuj floods in 2013 by the Gujarat government.
 
Nishant: Used for day/night reconnaissance, target tracking and extraction of target coordinates, artillery fire correction and damage assessment. Nishant is being inducted into the Indian army, with 4 UAV units.
 
Panchi: Wheeled-version of Nishant. Capable of taking-off and landing from small airstrips. First flight in December 2014.
 
Rustom I: All-weather, medium-altitude, long-endurance UAV. It will operate at medium-to-long ranges and gather near real-time high-quality imagery and radio signals. It will perform a range of military missions.
 
Rustom II: Being designed to operate at up to 30,000 feet for 24 hours at a stretch.
 
Aura: A combat drone capable of flying at 30,000 feet and launching missiles, bombs and guided missiles.
 
Lakshya: Remotely operated and used as a target to train gun and missile crew and air-defence pilots for the three services.
 
Armed UAVs were exported for the first time in 2007, when US delivered two MQ-9 Reapers to the UK. The MQ-9 was used by the UK forces in Afghanistan. China became the second-largest exporter of armed UAVs in 2014, when it delivered five drones to Nigeria, which deployed UAVs against Boko Haram, a terrorist outfit.
 
Drone attacks have been criticised around the world for accidentally killing civilians while hunting suspected terrorists. More than 2,400 people (273 civilians) have been killed in 390 drone attacks in 5 years (2009-14) under the Obama administration, according to a report by The Bureau of Investigative Journalism.
 
The use of drones/UAVs in India is mainly confined to surveillance and reconnaissance, unlike the US, which uses armed drones in Pakistan, Afghanistan and Yemen, according to Sameer Patil, associate fellow on national security, ethnic and terrorism studies at Gateway House and former assistant director at the National Security Council Secretariat in the Prime Minister's Office.
 
Drones used along the India-Pakistan border are simpler than the ones used on the Chinese border in Ladakh, where they require long endurance and high-altitude capability, Patil said.
 
UAV squadrons in India mainly operate with Herons and Searcher MK IIs from Israel. However, there are also some UAVs/drones that have been indigenously developed or are under development. As use grows, more drones are coming, also the armed ones.

User

Making a mockery of Nifty?
Bosch, with a P/E of 67.9, gets included in Nifty. Market players react with shock. Some smell manipulation
 
India Index Services & Products Ltd (IISL), a group company of National Stock Exchange (NSE) that manages CNX Nifty and other indices, decided to include Bosch Ltd in the elite 50-stock benchmark removing IDFC Ltd from 29th May. While the Index Maintenance Sub-Committee at IISL takes such decision on periodic reviews, the question is how did Bosch, one of the most expensive scrips, with a price-to-earnings (P/E) ratio of 67.9, get included in the benchmark index. Was it done to boost volume, price of Bosch or is there any other reason? Some smell manipulation given the funny names that are included in various NSE indices.
 
The charge is serious because so is the implication of this move. They simply cannot avoid an index stock. For instance, index funds are required to hold all the scrip in an index in the same measure as its weight in the benchmark. Exchange-traded funds have to buy Nifty stocks to track the index. Even mutual funds benchmarked to Nifty index have to buy most of index stocks so as no to move to far away from the index. 
 
The question is, when all this institutional money chases Bosch out of compulsion. Will all of these investors get enough of shares of Bosch to buy? A wise and experienced market player Prasanth had this sarcastic comment to make about this startling move by NSE. 
 
When his sacrcam fell flat he had to clarify.
 
On Wednesday, just 1,627 shares of Bosch were traded. Not only is the Bosch counter very illiquid but the stock is horribly expensive too. In essence, by this one move, NSE will force institutional investors to make an extremely expensive stock even more expensive. This move is so bizarre that it almost smells of manipulation.
 
 
Indeed, as Moneylife has written in the past even a hollow, scam-ridden company like Himachal Futuristic is included in NSE500, for reasons best known to NSE. (Read: Why is Himachal Futuristic in the elite list of CNX S&P 500?)
 
Bosch scrip recorded its 52-week high at Rs27,990 on 20 March 2015, while its 52-week low was Rs10,300 as on 5 May 2014. Even among its peer group companies, Bosch is the most expensive scrip at a price of Rs22,710 per share and a market cap of Rs19,566.10 crore as on 30 April 2015. The second most expensive scrip in this peer group is BEML Ltd at Rs982 per share and a market cap of Rs1,849.93 crore as on 30 April 2015. While the PE ratio of Bosch is 67.29, the same for BEML is 14.94. On the valuation issue, here is a comment from another astute market player.
 
 
Even the price-to-sales ratio (PSR) of Bosch, compared with peer group companies is extremely high at 6.89. 
 
Earlier, while responding on criticism about choosing index stocks, NSE had said, “The top 50 companies listed on the NSE that satisfy the criteria related to market capitalisation, liquidity (impact cost), floating stock and minimum listing criteria are considered for inclusion in the index.” 
 
At the same time, IISL, while replying to a query on rationale for giving a company index representation, had said, “companies are reviewed based on market capitalisation, liquidity (impact cost), floating stock and minimum listing criteria. Profitability is not a current criterion. In case, one was to introduce profitability as a criterion, all companies with long gestation periods (infrastructure, telecom, etc) would not be eligible for inclusion in the index. In such a case, the resultant index would not be truly representative of the underlying market.” 
 
Interestingly, Bosch, a profitable but illiquid company was first included in Futures & Options (F&O) segment a few months back, preparing the ground for its eventual inclusion in Nifty, as part of a well-thought out plan.
 
    
 
NSE and BSE have earlier stood exposed for selecting dubious operator-driven scrips for the F&O segment. (Read: SEBI slams down on F&O manipulation-II: NSE and BSE as the first line of regulation stand exposed)
 
Another astounding aspect of Bosch is its absolute value. Each stock is worth over Rs22,000, which hardly any retail investor can afford to buy. Why include such a stock in the flagship index dominated by Bharti, Reliance etc.? 
 
Following the inclusion of Bosch in Nifty, its share price increased by about 3%, while IDFC's price dropped by a similar percentage. IDFC, which closed Thursday at Rs168.25 on NSE, has a P/E ratio of 16.43, price-to-sales ratio of 3.01 and RoI of 3.44.
 

User

COMMENTS

Ralph Rau

2 years ago

This is so shocking one is left speechless.

It will destroy the confidence of investors in the index and hence in the markets.

Then again it will serve as a caution to investors not to invest in any Index fund.

VGANESAN

2 years ago

Buy the undervalued stock removed from nifty and sell the overvalued stock included in the nifty.Historical evidence suggests stocks removed from index has done extremely well if belongs to quality.Example ranbaxy colgate arvindmills idea cellular These companies have done excellent job after removing from the index.

Mitranand Financial Services Pvt Ltd

2 years ago

This is not first time remember how foolishly they added United spirits and removed later on. Indices should be represented as parameter of economy and give weightage different sector of economy irrespective of Under or our performance.

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)