The iron and steel industry is going through a crisis of raw material supply, which, due to lack of adequate despatches from domestic miners, is being imported at high cost
The iron ore prices in the international market have been falling in the last couple of years and are currently in the range of $92-$95 per tonne. Imports by China have also reduced. But main supplies from Australia and Brazil have continued to hold the market, which was traditionally dominated by low grade iron ore, obtained from Goa. The Chinese had mastered the art of a high grade ore mix from both the above countries.
Chinese have, in the absence of low grade iron ore supplies from Goa have reconfigured their blast furnaces to make steel, as the uncertainty has continued for the last two years. Goa mining operations of this low grade iron ore, which has a capex of 20 mt (million tonnes), are expected to resume once the rains stop. E-auctions of ready stocks are continuing to trickle into the market.
As against the 14 mt of iron ore that Sesa Sterlite used to mine in Goa before the ban, they may now be producing about 3 mt to 3.5 mt.
The Goa State Assembly proposes to hold comprehensive discussions on the guidelines that will form the backbone of the mining industry in the state on 18th August. Chief Minister, Manohar Parrikar, has indicated that the mining leases which are currently under suspension may be handed over to their traditional owners, as the state government is not interested in taking them over (or even auctioning them).
In the meantime, due to the uncertainty associated with the mining industry, it has been reported that 55 barges, generally used for carrying iron ore in Goa, out of the 525 in operation, were sold to buyers from Gujarat, Maharashtra, West Bengal and Karnataka.
It may be recalled that, the Supreme Court had imposed a ban (in 2012) on Karnataka iron ore pellet exports. Earlier, the apex court had said that "iron ore and its products will be sold by NMDC only through e-auction to steel and associated industries which are dependent on iron ore from Karnataka. No middlemen/ traders will be eligible to participate in the e-auction and no export will be permissible."
This was in response to an appeal submitted by miners, including KSPL Ltd and the government-owned KIOCL and NMDC Ltd. These companies had contended that as there was a domestic market for pellets produced by them. Still, they were being forced to operate at 50% capacity.
In a later development, during the recent visit the Iranian Mining Minister, had shown keen interest in importing iron ore pellets manufactured in Karnataka, as their own domestic supply was of much poorer quality. It may be remembered that Iran has a running rupee account with UCO Bank in Kolkata and has a substantial credit balance. He showed serious interest in obtaining these iron ore pellets from KIOCL (formerly also known as Kudremukh Iron Ore Co Ltd). Since the requirement of 20 mt, spread over five years, is large, and can help the industry, the matter has now been taken up at the Central Government level, according to CMD, Malaya Chatterjee. Any assistance would enable them to kill two birds with one stone. Low grade iron ore can not be consumed by the steel industry. Also, the pellet makers were having idle capacity.
The iron and steel industry is also going through a crisis of raw material supply, which, due to lack of adequate despatches from domestic miners, is being imported at high cost.
This industry also needs urgent attention of the government to resolve these issues, to save the industry and to reduce the prospect of unemployment.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
Nifty has to stay above 7,700 for the upmove to continue
On Tuesday we had mentioned even if Nifty gives up some gains on Wednesday, it may push higher over the coming days. Although the domestic indices managed to close in the positive for the third consecutive session, the trading on the bourses today was quite volatile. The market sentiments may have been affected by the weak data of July consumer price inflation and June factory output, given after-market hours on Tuesday.
The data from Japan and China may have added to intraday weakness. The market was supported by a stronger opening in Europe and expected firmness in the US markets.
The S&P BSE Sensex opened lower at 25,861 and NSE's CNX Nifty too opened in the negative at 7,717. Sensex moved between the range of 25,792 and 25,973 and closed at 25,919 (up 38 points or 0.15%). Nifty moved between 7,696 and 7,757 and closed at 7,740 (up 13 points or 0.16%). The NSE recorded huge volume of 99.39crore shares. India VIX rose 2.19% to close at 13.7625.
Among the other indices on the NSE, the top five gainers were FMCG (2.19%), Pharma (0.95%), IT (0.82%), MNC (0.35%) and Auto (0.10%). The top five losers were Realty (5.42%), Smallcap (3.34%), PSU Bank (3.20%), Media (3.10%) and Nifty Midcap 50 (2.37%).
Of the 50 stocks on the Nifty, 19 ended in the green. The top five gainers were HCL Technologies (2.89%), ITC (2.79%), Hindustan Unilever (2.45%), HDFC (2.36%) and Sun Pharma (2.28%). The top five losers were Bhel (6.51%), Bank of Baroda (4.51%), DLF (4.10%), Coal India (3.47%) and Hindalco (3.40%).
Of the 1,593 companies on the NSE, 350 companies closed in the green, 1,201 companies closed in the red while 42 companies closed flat.
Nomura has raised the BSE Sensex target to 30,310 by end of August 2015. Nomura also mentioned that the cyclical pick-up in growth is being ignored by the market obsessed with bold policy and reform moves by the new government.
Commerce and Industry Minister Nirmala Sitharaman said on Wednesday that the NDA government will not 'entertain' foreign direct investment in multi-brand retail.
The Indian government on Wednesday said it will come out with a new natural gas pricing formula by 30th September keeping in mind the interest of investors and public.
Hindustan Unilever (2.49%), which last week hit its 52-week high was today among the top two gainers in the Sensex 30 pack. It has clarified with regard to a news item that it has decided to reorganise the home and personal care business into two separate businesses i.e. Home Care and Personal Care Businesses, to ensure focus on the growth drivers for each of these businesses. However this is an internal restructuring within the company and it does not involve any demerger, hiving off or any other similar corporate action.
BHEL (6.57%) was the top loser in the Sensex 30 stock. It has posted weak June 2014 quarter result; the net profit of Rs465.43 crore has fallen to Rs193.50 crore for the quarter June 2014. Sales decreased from Rs6,458.12 crore to Rs5,154.97 crore for the relevant quarter.
Eicher Motors (11.66%), hit its 52-week high on the BSE today, was the top gainer in ‘A’ group on the BSE. It posted good June 2014 quarter result. The net profit for June 2014 was Rs133.24 crore as compared to Rs52.62 crore for the quarter ended June 2013. Sales increased from Rs381.82 crore for the quarter June 2013 to Rs746.19 crore for the quarter June 2014.
Unitech (17.14%) was the top loser in ‘A’ group on the BSE. The Central Bureau of Investigation has started a fresh inquiry into the Rs1,700-crore land deal between Tata Realty and Unitech in 2007.
US indices closed Tuesday higher. Except for NZSE 50 (0.02%) and Straits Times (0.06%), all the other trading Asian indices closed in the green. Seoul Composite (1.02%) was the top gainer.
China's industrial production slowed slightly in July and investment showed signs of weakness, official data showed today, 13 August 2014. Value-added industrial output in China rose 9% in July from a year earlier, edging down from a 9.2% on-year increase in June, data from the National Bureau of Statistics showed. Retail sales in China increased 12.2% in July from a year earlier, slowing from a 12.4% on-year increase in June.
Fixed-asset investment in non-rural areas of China rose 17% in the January-July period compared with the same period a year earlier. The rise in the closely watched indicator of construction activity was also slower than the 17.3% increase recorded in the January-June period.
Japan's economy contracted sharply in the second quarter after a sales-tax increase in April sent household spending tumbling, which economists said could pressure the government to take additional stimulus measures. Real gross domestic product, the total value of all goods and services produced in the economy, shrank 6.8% in the three months through June on an annualised basis from the previous quarter.
European indices were trading higher. US Futures too were trading in the green.
The move raises issues like who benefited from the debt write-offs and whether previous financial statements were fudged?
Almost three years years after Reliance Industries Ltd (RIL) bailed out the Network18 group by injecting Rs1,700 crore and one month after it acquired direct control by investing another Rs4,000 crore, ejecting promoter Raghav Bahl and some celebrity anchors, the two group companies, TV18 Broadcast Ltd (TV18) and Network18 Media and Investments Ltd (Network18) have reported a combined write-off of Rs1,268 crore in their June quarter results. This is 75% of the original investment made by RIL.
On Tuesday, TV18 reported a consolidated net loss of Rs214.06 crore in the first quarter of FY2014-15 compared to a profit of Rs3.87 crore in the same period a year ago. What’s surprising is that the media firm has reported a consolidated profit of Rs9.11 crore (before tax) in the latest quarter, but it wrote off a huge Rs223.28 crore under ‘exceptional items’.
What comprises the exceptional items? According to the notes to the TV18 financial results, Rs122.26 crore has been considered for the ‘obsolescence/impairment in the value of certain tangible and intangible assets’, Rs87.70 crore reported as ‘Write-off of provisions of non-recoverable loans, advances, receivables’ and Rs13.31 crore has been deducted towards ‘severance pay and consultancy charges’. What these tangible and intangible assets are and the details of the debt have not been disclosed.
Network18 has reported a huge consolidated loss of Rs1,021.88 crore for the June 2014 quarter, compared to a profit of Rs18.90 crore in same quarter last year. While Rs25.06 crore has been declared as an operating loss, as much as Rs1,045 crore has been classified as expense under exceptional items. Here, as high as Rs234 crore has been considered as the ‘diminution in the value of goodwill’ and Rs519 crore of debt has been written-off and another Rs142 crore has been considered as the loss in value of certain investments.
Here, the severance pay and consultancy charges have been reported as Rs20.94 crore and the loss in value of certain tangible and intangible assets has been reported as Rs127 crore. No further details of these items have been mentioned.
The question is what happened between March 2014 and June 2014 to warrant such large scale write-off? If no significant event has happened, does this mean that these assets were being carried in the books at inflated values all this while?
In response to our email, a spokesperson from RIL said, “None of the exceptional items considered in the consolidated unaudited financial results of Network18 for the quarter ended 30 June 2014 pertain to any entities belonging to erstwhile promoters Raghav Bahl and his affiliates.”
“All disclosures as required under applicable regulations have been made in the financial statements and notes thereunder,” he added.
On 7 July 2014, Independent Media Trust (IMT) a subsidiary of Reliance Industries took over the controlling stake of TV18 Broadcast and Network18 Media and Investments.
Earlier, in May 2014, RIL said its board funding of up to Rs4,000 crore to IMT, of which the company is the sole beneficiary, for buying control in Network18, including its subsidiary TV18. "IMT would use the funds to acquire control over NW18 and TV18 resulting in ownership of about 78% in NW18 and 9% in TV18 and to acquire shares tendered in the Open Offers," RIL had said in a statement.
RIL's deal with Raghav Bahl of Network18 group is one of the most complicated deals of all time. According to a press release, issued by RIL at that time, promoter companies of Network18 and TV18 and the IMT entered into a Term Sheet under which the Trust would be subscribing to the Optionally Convertible Debentures (OCDs) to be issued by the Promoter Companies.
This was the first part of the deal. In the second part, Infotel Broadband Services (now Reliance Jio Infocomm), a unit of RIL, signed a memorandum of understanding (MoU) with both, TV18 and Network18 for preferential access for distributing all contents of the media group companies through its fourth-generation (4G) broadband network. As per the agreement, RIL was to divest part of its interest in Eenadu TV (ETV) channels to TV18.
Both Network18 and TV18 were raising funds worth Rs2,700 crore, each, through rights issues. Network18, the promoter and majority shareholder in TV18 was to subscribe to around Rs1,400 crore out of the total Rs5,400 crore rights issue. "The contribution of the current promoter entities of Network18 in this net aggregate rights issue of both Network18 and TV18 will be about Rs1,700 crore,” the companies had said in a regulatory filing at that time.
Earlier, RIL had admitted that the company and its group companies invested Rs2,600 crore in Ushodaya Enterprises, the holding company of ETV channels. As per the deal with Mr Bahl, the Mukesh Ambani group divested its 100% interest in ETV news channels, 50% in entertainment channels and 24.5% interest in Telugu channels to TV18.
RIL had said, its acquisition of TV18 and Network18 would differentiate its 4G business by providing a unique amalgamation at the intersect of telecom, web and digital commerce via a suite of premier digital properties. This suite includes In.com, IBNLive.com, Moneycontrol.com, Firstpost.com, Cricketnext.in, Homeshop18.com, Bookmyshow.com and the broadcast channels Colors, CNN IBN, CNBC TV18, IBN7, CNBC Awaaz.
More than two decades ago, Reliance had made a bid to enter the media by buying the Observer newspaper which it ran half-heartedly and closed down. Anil Ambani, the estranged and debt-strapped younger brother of Mukesh was leading that effort. The ADAG group controlled by Anil Ambani has large stakes in TV Today and other media companies.