Companies & Sectors
Reliance Jio and Bharti Airtel to share infrastructure

Bharti Aritel and Reliance Jio will utilise each other’s infrastructure to provide better quality of services

Reliance Jio Infocomm Ltd (Reliance Jio), a subsidiary of Reliance Industries Ltd (RIL), and Bharti Airtel Ltd (Bharti) has decided to share each other’s telecom infrastructure. No financial details were provided, except the companies said the pricing would be at arm’s length, based on the prevailing market rates.
 

Under this arrangement, both companies will share infrastructure, including optic fibre network (inter and intra city), submarine cable networks, towers and internet broadband services.
 

 “The cooperation is aimed to avoid duplication of infrastructure, wherever possible, and to preserve capital and the environment. This will also provide redundancy in order to ensure seamless services to customers of the respective parties,” the companies said in a joint statement.
 

The arrangement, in future, could be extended to roaming on 2G, 3G and 4G, and any other mutually benefiting areas relating to telecommunication including but not limited to jointly laying optic fibre or other forms of infrastructure services, Reliance Jio said.

As part of this arrangement, Bharti and Reliance Jio have already announced an agreement under which Bharti has provided capacity on its i2i submarine cable to Reliance Jio.
 

On Tuesday, Bharti Airtel closed Rs1.35 down at Rs335.35 on BSE, while benchmark BSE Sensex closed marginally down at 21,255.

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Power companies fall on new CERC guidelines; NTPC worst hit

The draft guidelines for the new power regulatory regime and price has been formulated by CERC and it is expected to hit NTPC the worst

National Thermal Power Corporation Ltd (NTPC) share crashed 11.26% Tuesday on BSE following news of new draft guidelines issued by Central Electricity Regulatory Commission (CERC), which may make it tougher for power producers to earn healthy profits.
 

As per the draft guidelines, the new regulatory regime is expected to commence from 1 April 2014 and will extend to 31 March 2019. In the new guidelines, the method of calculating incentives is the same—return on equity method—but tightening has been done in other areas, particularly in the taxation and expenses front. This is seen as harsh and is likely to affect the profitability and operations of power plants over the next five years. Other power companies like Power Grid Corp (Power Grid) is also expected to be hit by the new norms. Share price of Power Grid was seen down 3% and Neyvelli Lignite Corporation closed down 1.29%.
 

As per the draft guidelines released by CERC, the post tax return on equity (RoE) has been maintained at 15.5%, but the incentive structure has been linked to actual generation (PLF) beyond the threshold level of 85%. This number has been pegged 50 paisa/kWh for “ex-bus scheduled energy corresponding to scheduled generation in excess of ex-bus energy corresponding to Normative Annual Plant Load Factor (NAPLF).” This means, producers like NTPC, have to crank out power with a high load factor to make returns worthwhile, regardless of the expenses (such as import of coal from abroad).
 

The new regime is expected to benefit end consumers (read: other big power companies, large corporations to who buy power from NTPC and Power Grid). Previously, power generating companies like NTPC, Damodar Valley Corporation and NEEPCO were previously “grossing up” their tax liabilities and claiming it from end consumers. However, as per new regulatory guidelines, they will have to claim only on the ‘actual tax paid’. This will reduce margins for companies like NTPC and Power Grid. Edelweiss Securities in a research report said, “We believe the new norms have been framed by tightening operating rules to ensure end consumer benefits from higher efficiency in the system.”
 

The scope of this regulation is only applicable to companies or power stations where tariff is decided by the CERC. Private players who have sought tariffs through competitive bidding have been excluded from this regulation as are renewable energy companies. The draft regulation states the scope: “where tariff of a generating station or a unit thereof and a transmission system or an element thereof including communication system used for inter-State transmission of electricity is required to be determined by the Commission under section 62 of the Act read with section 79 thereof.”
 

Edelweiss expects NTPC to be affected badly and sees the company generating 9% RoE instead of the 24% it has been generating so far. The report said, “NTPC, which has historically earned higher RoE (over base rate of 15.5%) of 24% plus via incentives, operational efficiency and tax benefits (we estimate  about 9% under existing norms), will likely see pressure on profitability/RoE impacting valuations.”
 

On Power Grid, Edelweiss says it will be marginally affected. “Tighter operational norms will also impact Power Grid, we estimate it to be limited since RoE of approx 16.5%-17.0% (over base RoE of 15.5%) has marginal contribution from incentives,” the report said.

The CERC has called for views and recommendations from stakeholders and there could be modifications to the guidelines before 31 March 2014. Even if the new norms are enforced, it remains to be seen how companies like NTPC and Power Grid Corporation will be able to recover tariffs as many power companies and power utilities are cutting down on expenses due to the paralysis in the power sector and lack of government initiative to get it off the ground.
 

NTPC closed Tuesday 11.26% down at Rs136, while Power Grid Corp and Neyveli Lignite ended the day 3% and 1.5% down at Rs98.3 and Rs61.2, respectively on the BSE. The 30-share Sensex also ended the day marginally down at 21,255.

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Sensex, Nifty end lower on profit-booking

Nifty is still on an uptrend and would appear to be weak below 6,285

After three days of rise, the domestic indices closed in the negative Tuesday breaking the uptrend. The indices opened in the red and continued to head lower on profit booking. Around 1.30pm the indices hit their respective low from where it tried recovering but closed in the negative.

 

After the poor performance in assembly elections in Madhya Pradesh, Chhattisgarh, Rajasthan with the Bharatiya Janata Party (BJP) getting victory, the Congress has retained power in Mizoram with a landslide margin.

 

The Sensex and the Nifty opened at 21,294 and 6,355. The indices immediately hit their days high at 21,328 and 6,362, respectively after which it started its downward journey. The Sensex and the Nifty hit low of 21,175 and 6,308. The Sensex closed at 21,255 (down 71 points or 0.33%) while the Nifty closed at 6,333 (down 31 points or 0.49%). The National Stock Exchange recorded a volume of 68.40 crore shares.

 

Among the other indices on the NSE, only four indices rose which were IT (1.90%); FMCG (0.92%); Metal (0.61%) and Pharma (0.30%) while the top five losers were Infra (3.20%); PSE (3.17%); Bank Nifty (1.84%); PSU Bank (1.83%) and Finance (1.75%).

 

Of the 50 stocks on the Nifty, 19 ended in the green. The top five gainers were TCS (4.10%); Hero MotoCorp (3.81%); Sesa Sterlite (2.42%); Lupin (2.36%) and ITC (1.58%). While the top five losers were NTPC (11.37%); LT (4.11%); Power Grid (3.85%); I C I C I Bank (3.55%) and BHEL (3.21%).

 

Out of the 1,223 stocks on the NSE, 354 ended in the positive, 814 closed in the negative while 55 remained unchanged.

 

NTPC, a benchmark stock, fell 11.26% to Rs136 on the BSE after the Central Electricity Regulatory Commission released draft regulations that will decide the multi-year power tariffs for 2014-2019.

 

The setback for ruling Congress Party in recent state elections could imperil the country's fiscal deficit target by tempting the government to have less restraint on spending, Fitch Ratings warned on Tuesday. Fitch noted that unless revenue unexpectedly surged, India would ultimately need to cut spending if it wanted to meet its fiscal deficit target. US indices closed in the positive on Monday.

 

Fed Bank of St. Louis President James Bullard said in a speech the odds of tapering bond purchases have risen along with gains in the labour market, and any reduction should be modest to account for low inflation. His Dallas counterpart, Richard Fisher, said in a Chicago speech that the Fed needs to begin tapering at the earliest opportunity, as the current pace of stimulus comes at a cost that far exceeds its purported benefits.

 

Except for Jakarta Composite (up 1.46%) and KLSE Composite (up 0.11%) all the other Asian indices closed in the negative. Straits Times fell the most (1.03%).

 

A series of Chinese data was released today. Industrial output for November rose 10% from a year earlier, slowing from the previous month's 10.3% increase. Retail sales rose 13.7% in November, accelerating from October's 13.3% rise. Tuesday's data also included urban fixed-asset investment, which was up an annualized 19.9% in the January-November period, slowing from a 20.1% gain for January-October. Fixed-asset investment, which is reported on a year-to-date basis, is seen as an indicator of construction activity in China. The European indices were trading in the green. The US Futures were trading marginally higher.

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