Stock StockWatch Watch Watch list - Capital Marketsubscribers.capitalmarket.com/cmmagazine/pdf/2918_c.pdf · The starch industry has shown above 15% compounded annual growth rate

6 7Oct 27 - Nov 09, 2014 CAPITAL MARKET

StockWatchStockWatchStockWatch

Watch list

The following are fundamentally strong companies identified by Capital Market analysts. The list is constantly reviewed and updated,adding scrips with upward potential and removing those that have, in our opinion, exhausted their run.

COMPANY IND. PRICE (Rs) TTM TTM P/ENO. 17-10-2014 YEAR EPS (Rs)

COMPANY IND. PRICE (Rs) TTM TTM P/ENO. 17-10-2014 YEAR EPS (Rs)

Ador Welding 41 220 201406 5.0 44.4

Andhra Sugars 109 135 201406 20.0 6.8

Apcotex Industri 106 327 201406 13.6 24.0

Astec Life 67 67 201406 4.9 * 13.6

Astral Poly 75 378 201406 7.2 52.6

Auto.Corp.of Goa 10 505 201406 29.6 17.1

B H E L 39 227 201406 13.0 17.4

Bajaj Auto 8 2374 201409 110.7 21.5

Bajaj Electric 36 277 201406 0.0 0.0

Bajaj Fin. 50 2557 201409 156.6 16.3

Banco Products 10 141 201406 12.0 * 11.7

BASF India 22 1234 201406 23.0 53.7

Bayer Crop Sci. 68 2262 201406 84.6 26.8

Benares Hotels 57 1501 201403 65.8 22.8

Bharat Forge 17 752 201406 19.0 39.6

Birla Ericsson 16 74 201406 7.8 9.5

Bosch 10 14282 201406 305.2 46.8

Britannia Inds. 54 1340 201406 34.1 * 39.3

Carborundum Uni. 1 188 201406 4.8 * 39.4

Castrol India 22 411 201406 9.2 44.8

Cipla 70 594 201406 15.0 * 39.7

Clariant Chemica 22 987 201406 21.8 45.4

Control Print 62 180 201406 15.8 11.4

Corporation Bank 11 323 201406 24.8 13.0

CRISIL 106 1823 201409 37.7 * 48.4

D B Corp 47 365 201409 17.3 * 21.0

DCM Shriram Inds 88 143 201406 21.4 6.7

Engineers India 45 233 201406 12.1 19.3

Esab India 41 619 201406 21.3 29.1

Essel Propack 62 111 201406 7.1 * 15.5

Exide Inds. 10 165 201406 6.0 27.3

Fag Bearings 13 2797 201406 88.2 31.7

Federal Bank 12 136 201409 11.3 12.0

Foseco India 22 915 201406 28.5 32.1

Garware-Wall 97 161 201406 13.8 11.7

Gateway Distr. 106 256 201406 13.1 * 19.5

GE Shipping Co 82 389 201406 36.3 * 10.7

Godrej Consumer 65 906 201406 22.5 * 40.3

Goodyear India 105 633 201406 45.4 14.0

Greaves Cotton 46 133 201406 4.5 29.5

H D F C 51 997 201406 51.7 * 19.3

HCL Technologies 27 1506 201409 90.9 16.6

HDFC Bank 12 885 201406 36.7 24.1

Hikal 71 683 201406 28.5 24.0

Hindustan Media 47 167 201409 16.6 10.1

Honeywell Auto 43 5248 201406 109.7 47.9

HSIL 21 393 201406 9.9 39.8

Huhtamaki PPL 62 178 201406 7.2 * 24.7

IL&FS Transport 45 169 201406 19.4 * 8.8

Indian Hume Pipe 20 288 201406 9.9 29.2

Infosys 27 3854 201409 206.5 * 18.7

ING Vysya Bank 12 637 201406 32.9 19.3

Ingersoll-Rand 25 683 201406 21.0 32.5

Intl. Travel Hse 104 248 201406 21.6 11.5

J & K Bank 12 133 201406 20.7 6.4

JMC Projects 31 132 201406 8.6 15.3

Kalpataru Power 102 132 201406 10.1 13.1

Kirl.Pneumatic 25 534 201406 19.9 26.8

KSB Pumps 78 514 201406 19.1 26.9

L G Balakrishnan 10 649 201406 37.1 17.5

Lak. Electrical 39 460 201406 33.5 13.8

Lak. Mach. Works 92 3970 201406 174.1 22.8

Larsen & Toubro 45 1452 201406 52.1 * 27.9

LIC Housing Fin. 51 333 201406 26.3 12.6

M & M 7 1254 201406 59.0 21.3

M M Forgings 17 478 201406 28.9 16.6

Manjushree Tech. 62 466 201406 22.3 20.9

Maruti Suzuki 6 2943 201406 85.5 34.4

Munjal Showa 10 180 201406 16.8 10.8

Navneet Educat. 77 95 201406 5.5 17.2

NBCC 31 733 201406 22.6 * 32.4

Poddar Pigments 22 131 201406 14.1 9.3

Power Grid Corpn 76 134 201406 8.8 15.2

PTC India Fin 50 43 201406 4.2 10.3

Rallis India 67 212 201409 8.3 * 25.7

Rane Brake Lin. 10 311 201406 23.2 13.4

S B T 11 435 201406 28.6 15.2

SKF India 13 1090 201406 37.5 29.0

South Ind.Bank 12 26 201406 3.6 7.2

St Bk of India 11 2522 201406 192.3 * 13.1

Sterling Tools 48 348 201406 25.3 13.7

Sukhjit Starch 106 282 201406 24.1 11.7

Sundaram Finance 50 1293 201406 39.9 32.4

Sundram Fasten. 48 154 201406 6.5 23.7

Superhouse Ltd 58 233 201406 31.7 7.4

Supreme Inds. 75 589 201409 20.7 * 28.4

Swaraj Engines 46 967 201406 54.0 17.9

T.V. Today Netw. 47 207 201406 13.8 15.0

Tata Elxsi 28 583 201406 27.0 * 21.6

TCS 27 2445 201409 107.2 * 22.8

Tech Mahindra 27 2271 201406 122.2 * 18.6

Thermax 44 849 201406 19.4 43.8

Tide Water Oil 22 14856 201406 798.9 18.6

Time Technoplast 75 46 201406 4.6 * 10.1

TVS Srichakra 105 1074 201406 75.4 14.3

Va Tech Wabag 44 1577 201406 43.9 * 35.9

Vesuvius India 81 695 201406 29.8 23.3

V-Guard Inds. 39 893 201406 25.0 35.7

WABCO India 10 3755 201406 58.8 63.9

Whirlpool India 36 421 201406 12.3 34.2

Wipro 27 566 201406 33.7 * 16.8

WPIL 78 532 201406 23.0 23.1

Yes Bank 12 598 201406 39.8 15.0

Z F Steering 10 709 201406 9.0 78.5

* indicates that EPS is consolidated. This issue Astec Life and Sukhjit Starch replace GMDC and Modison Metals. TTM: Trailing 12 months.

6 8 Oct 27 - Nov 09, 2014 CAPITAL MARKET

StockWatch

Sukhjit Starch & Chemicals

Sweet prospectsWell placed to capitalise on the increasing demand for starchproducts from varied sectors

nies and leading domestic companies inthe user industries.

In the last two years, over Rs 100-crorecapex resulted in enhanced capacity to threetimes the original size, with an additionalfacility, with capacity of 50 tonnes per dayto make key product dextrose monohydrate,at the Malda unit in West Bengal. The ex-panded of the Himachal Pradesh unit willalso start delivering this fiscal.

The starch industry has shown above15% compounded annual growth rate inthe past five years. Yet, the size of theindustry is small. Per capita consumption

in India at just 3% of the US. The momen-tum of growth is expected to continue atthe same pace in the next five to 10 yearsas the industry shifts to high-value prod-ucts and per capita consumption improves.The consumption of starch by chance out-paces its gross domestic product growth inhigher proportions. A similar replay is ex-pected in India.

Key risks include availability and pricefluctuation of maize, the basic raw mate-rial, from owing to natural vagaries. Aninvariable upward revision in the minimumsupport price by the government increasesthe cost disproportionately. However, thelocation of most plants in major maize-growing states of the country mitigatesthe raw-material risks to some extent andensures raw material availability at com-petitive cost with adequate supplies dur-ing the kharif (April-September) and rabi(October-March) seasons. With well es-tablished credit worthiness and integrityamong maize suppliers, SSCL has becomethe most preferred buyer in all the maizeprocurement areas.

Net sales spurted 15% to Rs 137.69crore and the operating profit margin roseto 11.2% from 8.9%, taking operatingprofit up a good 45% to Rs 15.42 crorein the June 2014 quarter over a year ago.

Profit after tax jumped 48% to Rs 6.33crore. Due to procurement of most rawmaterials at lower costs because oflocational advantage, better margin isexpected to be sustained throughoutthe year.

Interest cost increased in Q1 of thefiscal ending March 2015 (FY 2015)due to higher working capital on rawmaterial stock. But it will come downgradually as working capital require-ment eases in the course of the year.Internationally, maize prices havefallen substantially. This should ensurethat raw material prices remain undercontrol in future as well. We expectSSCL to register EPS of Rs 32.7 in FY2015. The stock trades at Rs 282. P/Eworks out to 8.6. �

One of the largest manufacturers of starchand starch derivatives in India, SukhjitStarch & Chemicals’s (SSCL) technical ex-pertise gathered over more than 60 yearsensures optimum adaptation to end-use.Apart from native starch, products com-prise modified starch, dextrine, liquid glu-cose, maltro-dextrin, mono-hydrate dex-trose, any-hydrose dextrose, sorbitol-70%solution, and various by-products cateringto a wide spectrum of industries.

Industries using starch and its prod-ucts include food and drink encompassingbaked goods, confectionary and chocolate,frozen foods, ice cream and dairy, honey,baverages, preserved foods, and instantfoods. Starch and its derivatives are usedin paper and board to make wet end, sizepress, corugated board, and coating. Per-sonal care and pharma consume starchproducts to produce tooth paste, shoe pol-ish, injectable solutions, excipients, andbulk drug fermentation. Pet foods, cattlefeed, poultry feed, and compound feeds,too, use starch derivatives. Industrial ap-plications consuming starch include deter-gents, paints, glues and adhesives, steelcastings, aluminium, textile, oil well drill-ing, and construction.

A double-pronged approach usingstate-of-the-art technology as well as ex-ploiting indigenous potential has servedSSCL well. Years of research and care-ful co-ordination of methodology haveresulted in qualitatively superior prod-ucts meeting stringent customer norms,manufactured by cost-effective produc-tion techniques.

Full-fledged manufacturing facilitiesare at four locations in major maize-pro-ducing regions of the country. This giveslogistic advantage for raw-material pro-curement and supply of finished prod-ucts at lower freight cost to regional cus-tomers. Multi-locational presence alsohelps to improve market visibility ofproducts. In the last few years, therehas been aggressive expansion its geo-graphical markets in India. Client baseincludes many multinational compa-

Sukhjit Starch & Chemicals: Financials

1203(12) 1303(12) 1403(12) 1503(12P)

Net Sales 354.33 419.74 508.43 589.15

OPM % 12.8 12.1 10.1 11.4

OP 45.37 50.95 51.10 67.34

Other income 0.62 0.37 0.48 0.58

PBIDT 45.99 51.32 51.58 67.92

Interest 11.19 14.12 16.65 18.80

PBDT 34.80 37.20 34.93 49.12

Depreciation 7.13 8.85 12.27 14.90

PBT 27.67 28.35 22.66 34.21

Total Tax 5.56 6.77 6.62 10.11

PAT 22.11 21.58 16.04 24.10

EPS (Rs)* 30.0 29.2 21.7 32.7

* On current equity of Rs 7.38 crore. Face Value: Rs 10.(P): Projections. Figures in Rs crore.Source: Capitaline Databases

Double advantage

Sukhjit Starch & Chemicals shouldbenefit from lower raw material pricesand the recently completed Rs 100-crorecapex to enhance capacity

Capita Telefolioaverage returncrosses 100%

see page 85

69Oct 27 – Nov 09, 2014 CAPITAL MARKET

InFocus

Mangalore Chem & Fert

A tame

ending?A status quo in ownershipcould result in a sharp dropin the stock priceThe one-member committee of indepen-dent director of Mangalore Chemicals &Fertilizers (MCF) found the open offers byrival groups for acquiring MCF as per thelaw and fair and reasonable. DeepakFertilisers and Petrochemicals Corporationhad offered Rs 93.6, while the Zuari groupRs 81.6. Why the independent director didnot endorse the price offered by DeepakFertilizers is a puzzle.

Is there any strategic reason forindependent director Pratap Narayan to takea neutral stand? This is unlikely. The openoffer by the Zuari group is jointly with theUnited Breweries (UB) group belonging toVijay Mallya, who is almost on the verge ofbankruptcy and facing trouble from everynook and corner. The open offer from theZuari group was to fend off the hostile bidfrom Deepak Fertilisers.

Interestingly, UB group is not going tofinance the open offer. Owing to itsfinancial troubles, the financing part of theopen offer will be entirely taken care bythe Zuari group. There is hardly any non-monetary consideration to say that both theoffers are equal.

Independent directors are appointed bythe promoters. Is this a case of conflict ofinterest? Is this the reason why theindependent director has taken no stand onthe open offer in his recommendation?Narayan, the lone independent director onthe board of MCF, was appointed inJanuary 2012.

Commenting on whether the open offeris fair and reasonable, the independentdirector noted that the competing offers werein line with the provisions of the Securitiesand Exchange Board of India (SubstantialAcquisition of Shares and Takeover)Regulations, 2011, and, to that extent, fairand reasonable.

In actual, this observation by theindependent director hardly serves any

purpose. It is the headache of the capitalmarket regulator to confirm whether theopen offers are in line with regulation.Comments of the independent directors arenot needed on this topic.

The minority shareholders need opinionthat will help them. The recommendationshould be with, justification. It is given thatthe shareholders’ action should not beexclusively influenced by the price. But ifthere are any non-monetary considerations,the independent directors should elaborate on

A costly proposition

MCF is trading at P/E of 15.3 andP/BV of 2.03, while Zuari Agro is quotingat P/BV of 1.02 and Deepak Fertilisers atP/E of 5.5 and P/BV 0.93

Base=100 as on 21 Oct 2013 * 20 Oct 2014Face Value: Rs 10.

Relative performance ofMangalore Chem v BSE Small cap Index

The line-up

The UB group controlled 21.97% andZuari Fertilisers and Chemicals16.43% in MCF end September 2014

COMPANY DEEPAK MCF ZUARI AGRO

FERTILIZERS CHEM

CMP (Rs) 157.6 95 195.6

M-cap (Rs cr) 1389.6 1125.9 822.7

52-WH (Rs) 185.1 104.7 245

52-WL (Rs) 99.8 48.2 90.6

Networth (Rs cr) 1491.1 555.7 805.6

Net Sales (Rs cr) 3817.6 3310.2 5175.9

ROCE (%) 17.7 10 5.52

RONW (%) 17.4 13.4 -6.24

Debt-Equity Ratio 0.74 2.6 3.45

Interest Cover Ratio 4.34 1.91 0.77

Debt (Rs cr) 961.6 1521.6 2613.7

P/E Ratio 5.5 15.3 0

P/BV 0.93 2.03 1.02

CMP (current market price) is closing as on 17 October

2014. Networth, net sales, ROCE and RONW is for the fiscal

ended March 2014. P/E (price to earning) and P/BV (price to

book value) as on 17 October 2014. EPS is for TTM ended

30 June 2014. Consolidated financials considered wherever

available. ROCE: Return on capital employed. RONW: Return

on net worth. Interest cover ratio is calculated as net profit +

tax + interest/interest.

Source: Capitaline Database

them. Recommendation should notbe a formality.

In a statement released on 26 September2014, the independent director, as part ofsummary of reasons, said that the MCF stockhad hit the upper circuit. Accordingly,shareholders should independently evaluatethe competing open offers and take aninformed decision. This is norecommendation at all.

The battle for MCF intensified with boththe warring groups increasing their openoffer prices. Deepak Fertilisers revised itsoffer to Rs 93.6 from Rs 63 a share. Zuariincreased its price to Rs 81.6 from Rs 68.55.The offer by Deepak Fertilisers wassignificantly higher, i.e., up 14.7%compared with the rival group.

The UB group had equity of 21.97%,while Zuari Fertilisers and Chemicals helda stake of 16.43% in MCF end September2014. Hostile suitor Deepak Fertilisers owns25.31%, acquired from the open market inphases. Zuari Fertilisers is a wholly ownedsubsidiary of Zuari Agro Chemicals.

The battle for MCF continues to betitled towards the Zuari and the UB groupas this combine controls 38.4% of the paid-up capital. Initially, Mallya had agreed tohand over MCF to Zuari when DeepakFertilisers mounted a takeover bid.Subsequently, he backed out and decidedto retain control of MCF.

The offers by both rivals, which closedon 20 October 2014, received a tepidresponse, primarily because MCF hasreported a sharp rally. The stock closed at Rs94.4 on 16 October 2014. The current priceis higher compared with the price offered byDeepak Fertilisers, which is the highest.

MCF manufactures nitrogenous andphosphatic fertilizers. It commands asignificant market share in Karnataka.Deepak Fertilisers produces industrialchemicals and fertilizers, while Zuari Agromakes complex fertilizers.

Investors should not assume that thefight between the Zuari and DeepakFertilisers will intensify. Already, MCF istrading at a significant premium. At a priceto earning (P/E) multiple of 15.3 and priceto book value (P/BV) ratio of 2.03 the stockis way expensive compared with its suitorsZuari Agro (P/BV 1.02) and DeepakFertilisers (P/E 5.5 and P/BV 0.93). In asituation of status quo, MCF will remainwith the UB group. This could result in asharp decline in the price of MCF.

— S Khedekar


SectorSnapshot

Cement

Demand

driversPrices in the southern andwestern regions sawthe highest increaseAll-India cement production continued toimprove in August 2014, signifying recov-ery in demand. Domestic cement produc-tion was up 10.3% to 20.57 million tonnes(mt) in August 2014 over a year ago. Ce-ment production inclined 11% to 113.81 mtin April-August 2014. Production increased3% to 255.54 mt in the fiscal ended March2014 (FY 2014) compared with FY 2013.

The Cement & Lime Wholesale PriceIndex (WPI), with a weight of 1.39 in theWPI, stood at 167.7 in September 2014, up1.9% over the year and 1.1% over the month.But it declined 2.4% in April-September2014 over the year, in addition to 1% fall inthe fiscal ended March 2014 (FY 2014) com-pared with FY 2013.

Meanwhile, the Grey Cement WPI, witha weight of 1.26 in the WPI, stood at 167.3in September 2014, up 2% over the year

and 1.1% over the month. But it dropped2.7% in April- September 2014 over a yearago, after 1.3% fall in FY 2014 comparedwith FY 2013.

Cement prices exited Q1 of FY 2015with an increasing trend, which contin-ued till July 2014 due to delay in south-west monsoon. There was gradual mod-eration in August and September, beforea price-hike announcement in the secondhalf of September.

The all-India average cement pricesstood at nearly Rs 307 per bag in the secondquarter ended September 2014, up 1% overJune 2014 quarter. Cement prices in thesouthern and western regions saw the high-est increase of 9-15% on account of pick-upin demand and tight discipline. In contrast,cement prices in the eastern, central and

northern regions continued to remain weak,witnessing a drop of around 1-8%, on pick-up in monsoon.

Imported coal prices (in rupees) havebeen on a decline over the last nine-10 monthsand are at multi-year low levels. This haseased off the operating cost pressure on ce-ment companies using imported thermal coalfrom Indonesia, South Africa and pet cokefrom the US and Gulf region. Hence, thecement industry‘s profitability should con-tinue to benefit from lower fuel cost overthe next few quarters.

The government has planned to aban-don bitumen, the popular raw material forroad construction, in favour of cement forall new road projects, in line with a pro-posal by Union Transport Minister NitinGadkari. The ministry has also planned tochange the model for assessing the projectcost. The projects will now be evaluated onthe basis of the lifecycle cost of the project,against the current model of using just thecost of construction. The government hasdecided to start using cement for all newprojects that are in the pipeline as long asthe cost of construction of a concrete road isnot more than 20% higher than that of aroad made using bitumen. Cement roads aremore durable and cheaper to maintain thanbitumen in the long run, even though theyare more expensive.

OutlookThe cement sector is expected to report agood set of numbers for the second quarterended September 2014 on higher volumes,increased prices and delayed onset of mon-soons. Cement demand has been registeringa strong growth in this fiscal year till date.Demand is expected to improve further dueto increased spending for rural and semi-urban housing and rise in orders for infra-structure projects

The industry is expected to witnesspositive growth in the coming years, withconsumption demand set to gallop at aCAGR of more than 8% in FY 2014-16.Indian cement players are optimistic in themedium term and are guiding for a gradualrecovery. The industry expects incremen-tally better volume offtake in FY 2015 andFY 2016, with long-term demand likely torecord a CAGR of 6-8%, given the cyclicalupturn in the economy and the expectedpolicy-push to drive investment in the in-frastructure sector by the new pro-devel-opment government at the Centre. �

SectorSnapshot

Abandoning bitumen in favour of concrete

Looking ahead

Imported coal prices have been on a decline over the last nine-10 months and are at multi-year low levels. This has eased off the operating cost pressure on cement companies

COMPANY MCAP CMP CHG IN TTM DEBT/ PROMOTOR CHG IN MCAP (%) OVER

(Rs Cr) (Rs) TTM PAT P/E EQUITY HOLDING 1 MONTH 1 YEAR

(%) (%) (%) (%)

UltraTech Cem. 68079.42 2481.05 -17.74 32.46 0.30 61.70 -6.03 26.26

Ambuja Cem. 32347.31 208.85 6.26 22.92 0.00 50.39 -2.72 7.38

Shree Cement 28731.33 8246.65 -21.59 36.50 0.34 64.79 -5.54 88.65

ACC 26046.56 1387.30 -12.32 25.08 0.00 50.30 -9.44 23.14

The Ramco Cement 7369.67 309.65 -69.92 70.11 1.18 42.32 -8.62 66.30

JK Lakshmi Cem. 3967.50 337.20 -16.58 33.69 1.25 45.96 5.84 333.70

Prism Cement 3890.97 77.30 -82.64 -189.43 1.82 74.87 -0.64 177.06

Birla Corpn. 3812.00 495.00 -20.68 20.80 0.55 62.90 -5.61 132.07

J K Cements 3652.44 522.30 -46.72 35.06 1.32 66.93 3.09 165.40

India Cements 3332.90 108.50 -147.02 -59.91 0.74 28.23 -11.17 112.12

Orient Cement 2587.89 126.30 -30.28 26.25 0.40 37.50 3.52 211.08

Heidelberg Cem. 2104.17 92.85 -541.43 85.12 1.63 69.39 12.89 157.92

Others 7389.31 -99.75 9353.56 0.88 57.73 4.25 140.03

Total 193311.47 -20.76 32.80 0.45 54.85 2.45 54.98

Price as on 13 October 2014. TTM ended June 2014. Change in TTM PAT is over TTM ended June 2013


SectorSnapshot

Tourism

Gets Centre's

backingDollar inflows see a double-digit growth in the latest sixmonths of CY 2014The Central government has identified thetourism sector for its huge employment-gen-eration potential. Tourism contributed ashare of 6.88% (3.74% direct and 3.14%indirect) in the GDP and 12.3% (5.31% di-rect and 7.05% indirect) in employment inthe fiscal ended March 2013 (FY 2013).

Prime Minister Narendra Modi has laidout his Five Ts — Tradition, Talent, Tour-ism, Trade and Technology – as the focusareas for building Brand India. All theseelements have a direct correlation with thetravel and tourism sector. In the Union Bud-get 2014-15, the government announcedfive tourist circuits around specific themesand allocated Rs 500 crore. Liberalising visaon arrival, electronic travel authorisation(ETA), and the Swachh Bharat programmeare some of the other steps initiated by theCentral government.

Noting certain differences betweenpersons of Indian origin (PIO) and over-seas citizens of India schemes, the primeminister announced that PIO cardholderswill be granted visa for life and a newscheme will be announced soon, mergingthe two schemes. Further, there will be noneed for long-stay visitors to India to visitpolice stations. Also, long-term tourist

visas for American citizens and visa onarrival for American tourists will be an-nounced soon.

Hygiene and cleanliness will contributein enticing the prospective inbound tourists.The government has cleared a massive pro-gram, Swachh Bharat Mission for UrbanAreas, proposed to be implemented overfive years, starting from 02 October 2014,in all 4,041 statutory towns. The total ex-pected cost of the programme is Rs 62009crore over five years. Central assistance willRs 14623 crore. The government is also con-sidering to launch a cleanliness index formajor cities.

Necessary infrastructure will be putup in a phased manner to facilitate ETA,a visa-on-arrival scheme for tourists from180 countries, at nine airports in India.The nine airports are Delhi, Mumbai,Kolkata, Chennai, Hyderabad, Bangalore,Kochi, Thiruvananthapuram and Goa.The countries to which the ETA facilitywould be extended would be identified ina phased manner.

Foreign tourist arrivals increased at anaccelerated pace of 7% to 51.79 lakh inJanuary-September 2014 compared withthe 5.6% growth in calendar year (CY) 2013and a 4.3% rise in CY 2012. Foreign ex-change earning (FEE) in US dollars im-proved 5.8% to US$ 14.19 million in Janu-ary-September 2014 with a strong double-digit growth in the latest six month of CY2014. The FEE growth picked up from amoderate 3.4% increase in CY 2013.

In its first 20-year passenger growthforecast released on 16 October, the In-ternational Air Transport Association(IATA) has projected India to emerge asthe third fastest-increasing market by ad-ditional air passengers per year. Currentlythe ninth largest market, India will see atotal of 367 million passengers by CY2034, adding 266 million passengers com-pared with 101 million passengers ex-pected in CY 2014. IATA believes theIndian domestic market will grow at a 6.9%average annual growth, adding 159 millionextra passengers, and improving the do-mestic air market to 215 million.

The number of domestic tourist visit-ing states and Union Territories (UTs) was1,145 million in CY 2013, rising 9.6% overCY 2012. The top 10 states by number ofdomestic tourist visits (in million) in CY2013 were Tamil Nadu (244.2), UttarPradesh (226.5), Andhra Pradesh (152.1),Karnataka (98.0), Maharashtra (82.7),Madhya Pradesh (63.1), Rajasthan (30.3),Gujarat (27.4), West Bengal (25.5) andChhattisgarh (22.8). The contribution ofthe top 10 states was about 84.9% to thetotal number of domestic tourist visitsin CY 2013.

OutlookThe tourism sector has been on the top ofagenda of the new government. The reformsin the tourism sector are expected to boosttourist inflows. The government is also seek-ing international co-operation in developingtourism infrastructure. State governments,too, are focusing on identifying the poten-tials for growth in the tourism sector. India’sdemographic dividend of a younger popula-tion and higher disposable income is a boonfor tourism services.

However, to exploit the opportunitiesin the tourism sector, the focus needs to beon strengthening of the tourism infrastruc-ture, tourist safety and security, and effec-tive advertising of India as a destination. �

367 million air passengers by CY 2034

Opening the doors

Foreign tourist arrivals increased at an accelerated pace of 7% to 51.79 lakh in January-September 2014 compared with the 5.6% growth in CY 2013 and a 4.3% rise in CY 2012



(%) (%) (%) (%)

Thomas Cook (I) 3701.10 145.60 -13.61 91.25 0.19 73.19 -2.28 124.69

Intl. Travel Hse 204.18 255.55 -0.16 11.19 0.00 61.69 -8.63 59.72

Mahasagar Travel 2.57 3.27 -47.37 3.67 0.70 30.22 5.14 -13.65

Cox & Kings 3982.29 291.70 22.93 36.40 0.67 59.51 -2.69 222.50

Total 7890.14 0.48 56.15 2.39 202.38

CMP: Current market price as on 13 October 2014. TTM ended June 2014. Change in TTM PAT is over TTM ended June 2013.


SectorSnapshot

Tea

Rising use

to cheerA weak rupee to boostexports providing reliefto falling pricesLocal tea prices slipped further in Septem-ber 2014 on rising output in Assam andWest Bengal, which made up for the mod-eration in south Indian production. The all-India tea auction quotes fell near Rs 129per kg, their lowest mark since early June2014. Prices have been on downward tra-jectory after soaring in July, when worriesover the monsoon firmed up the sentiments.Exports remain firm on good demand frombuyers in UK and Pakistan.

India is the second largest global pro-ducer of tea after China and the largestglobal consumer of black tea. Tea pro-ductivity is around 1,700 kg per hectarein India. Assam, West Bengal, TamilNadu and Kerala account for 98% of thetotal output.

India’s tea production surged to 162.09million kg (mkg) in July 2014, up nearly15% from a month earlier, primarily due to

higher output from Assam and West Ben-gal. Tea output stood at 155.13 mkg in July2013. This makes the output in July 2014record a moderate rise of 4.50% on the cor-responding period of last year.

India’s largest producing state in July2014 was Assam. Total output in Assamsurged to 91.66 million (m) kg in July2014, up around 30% from June 2014.However, the performance of the stateremained depressing in annual terms withthe output dropping 3.22% compared withJuly 2013. West Bengal’s tea productionstood at 43.15 mkg, up 8% over the yearand 14% over the month.

Total north Indian production includ-ing that of Assam and West Bengal stood at

138.20 mkg in July 2014, witnessing a flatmovement over July 2013. However, itmarked an impressive surge of 24% com-pared to the previous month. Tea produc-tion in south India stood at 23.89 mkg, up41% compared to July 2013 but down mar-ginally on a month.

The Indian tea industry exported 35.13mkg of tea in April-June 2014. The quan-tum of tea exported was 0.75 mkg lowerthan the volume of 35.88 mkg April-June2013. The average realisation, at Rs 198.82per kg, was lower as well in April-June 2014compared with Rs 201.23 per kg in the samequarter a year ago. Thus, the total tea ex-port value was also lower at Rs 698.44 crorein April-June 2014 compared withRs 722.01 crore a year ago.

Tea exports have remained flat over theyears due to increasing competition in theglobal market and declining quality of teaproduced in India. Post 2011, the Tea Boardhas stopped providing monthly data on teaexports and releases only quarterly data.India’s tea exports rose 6.7% to 94.53 mkgin January-June 2014 from a year earlierdue to higher exports to the UK and Paki-stan and lower exports to Iran, Egypt, andUnited Arab Emirates.

OutlookThe upward tick in local output couldkeep supplies steady in the domesticmarket in the near term. The seasonaltrend also supports estimates that pro-duction is likely to stay elevated in Sep-tember-October.

This might help plug some deficit dueto shortfall in tea output this summer.However, demand remains strong. Giventhe feeble undertone of the Indian rupee,exports could witness an uptick after gain-ing nearly 7% in the first six months of2014. Global black tea production in-creased about 7% in calendar year 2013,followed by record crops in major pro-ducing countries like India, Kenya and SriLanka and higher production in most pro-ducing countries.

Global demand is likely to growaround 3%, ensuring that Indian exportsmaintain their current momentum in thenext few months as well. The Indian teaindustry exported 225.76 mkg in FY 2014as against the target of 230 mkg. How-ever, it marked a steady rise of 4.50%compared with the quantum of exportsin FY2013. �

Increase in output to bridge demand gap

A weak brew

Tea exports were flat and so also realisation in the June 2014 quarter over a year ago due toincreasing competition in the global market and declining quality of tea produced in India



(%) (%) (%) (%)

Tata Global 9730.52 157.35 46.84 23.08 0.18 0.35 -7.06 -1.66

Mcleod Russel 2951.04 269.60 -35.56 19.69 0.12 0.46 -9.52 -2.05

Bombay Burmah 1705.39 244.50 -95.28 1874.05 0.72 0.66 0.56 129.79

Goodricke Group 364.93 168.95 51.12 10.61 0.04 0.74 -11.50 41.86

Jay Shree Tea 260.93 90.35 -136.80 -13.58 1.28 0.56 -8.88 3.43

Rossell India 256.35 69.85 -7.10 15.43 0.27 0.75 2.34 112.52

Warren Tea 228.25 191.00 -41.70 10.34 0.00 0.75 1.51 13.02

Duncans Inds. 142.94 25.75 167.97 -4.00 2.21 0.83 -15.85 50.58

Assam Company 139.72 4.51 -33.14 20.37 2.13 0.47 -15.38 4.88

Harr. Malayalam 127.47 69.05 -231.45 -14.05 0.34 0.50 3.45 72.63

Others 297.57 7.06 14.64 0.48 0.50 5.57 52.28

Total 16205.11 -12.11 26.62 0.38 0.60 5.48 22.84

CMP: Current market price as on 13 October 2014. TTM ended June 2014. Change in TTM PAT is over TTM ended June 2013.

ApnaMoney Investment Strategy

73Oct 27 - Nov 09, 2014 CAPITAL MARKET

Taxation

Second thoughtsThough the notice for reassessment can result in unsettlinga settled position, it is required to ensure the levy of rightful taxesWhen the assessing officer (AO) has reasonto believe that income chargeable to tax hasescaped assessment for any assessment year(AY), he may assess, reassess, or recomputeloss [(subject to Sections 148 to 153 of theIncome Tax (IT) Act, 1961)] for that AY in-cluding any other income that he may dis-cover during the course. However, the AOcannot assess or reassess income involvingsubject matters of appeal or revision.

The AO can issue requisite notice forthe relevant AY within the prescribed statu-tory period for undertaking reassessmentafter filing or deemed filing of return. No-tice can be issued after four years from theend of the AY only if the income having es-caped assessment is not less than Rs 1 lakhfor that AY. In any case, no notice can beissued after six years from the end of theAY. Income from foreign assets can be, how-ever, reassessed till 16 years from end of AY.

If the earlier assessment has been underSection 143(3) or 147 of the IT Act, thenthe action by the AO after four years fromthe end of AY is possible only if the escape-ment is on account of failure of the assessseeto file return of income in response to no-tice or to disclose all material facts fully andtruly. Mere production of books of accountmay not necessarily be disclosure so as todisable the AO’s action.

If the earlier assessment is framed underSection 143(3) or 147 and if the AO is an ITofficer (ITO), then approval of the JointCommissioner IT (JCIT) is required if thereopening is within four years and CIT is oror Chief CIT is required if it is beyond fouryears from the end of the relevant AY. If theearlier assessment is not under Section143(3) or 147, then no approval is necessarytill four years from the end of the AY. Butapproval of the JCIT or Additional CIT isnecessary beyond four years.

The reassessment can be initiated onlywhen the AO has reason to believe that in-come chargeable to tax has escaped assess-ment in the relevant AY. The basis of the be-lief should be discernible from the materialon record, which was available with the AOwhen he recorded reason. Based on the in-

formation that comes to his notice subsequentto the earlier assessment, the AO can issuenotice for reassessment. Details available infile with the ITO does not by its mere pres-ence become an item of information. It istransmuted into an item of information onlyif and when its existence is realised and itsimplications are recognised. A change ofopinion, in the absence of any material newlydiscovered or brought, will not be construedas “reason to believe”. Thus, it will fail thejudicial test. When copies of statement ofincome, trading account, profit and loss ac-count, or audit report are appended to thereturn filed by the assesssee, then taking re-sort to Section 147 or 148 is unwarranted asthe material acted upon had been made avail-able along with the return of income.

The reasons leading to satisfaction un-der Section 147 must be duly recorded inthe file and the order sheet by the AO bring-ing out clearly the link of reasoning withthe belief of escapement and also indicat-ing the estimate of escapement.

When a notice under Section 148 is is-sued, the proper course of action for the noticeeis to file return and seek reasons for issuingthe notices. On receipt of reasons, the noticeeis entitled to file objections to the issuance ofthe notice and the AO is bound to dispose itof by passing a speaking order.

Thus, the notice for reassessment canresult in unsettling a settled position after alapse of time. It would cause inconvenienceand harassment to the assessee. However, itis required so to ensure the levy of rightfultaxes, which have been missed to be col-lected due to oversight or negligence.

— Tushar Doctor

ApnaMoney

When the AO changes his opinion

7 4 Oct 27 – Nov 09, 2014 CAPITAL MARKET


have drawn attention to the penalty im-posed by the Competition Commissionof India (CCI). On a complaint led bythe Belaire/Park Place Owners’ Associa-tions, the competition regulator had im-posed a penalty of Rs 630 crore in Au-gust 2011. Further, the CCI restrainedthe developer from formulating and im-posing allegedly unfair conditions on

buyers in Gurgaon and ordered to suit-ably modify these conditions.

The CCI orders were challenged by DLFon several grounds by filing appeals withthe Competition Appellate Tribunal(Compat). In May 2014, Compat held DLFa dominant player in Gurgaon and consid-ered certain actions by it to be violative ofthe Competition Act, 2002. Compat upheldthe penalty imposed by the CCI.

DLF approached the Supreme Court(SC) against the Compat order. The SC inAugust 2014 admitted the appeal. The SCdirected DLF to deposit Rs 630 crore in aninterest-bearing fixed deposit with thecourt within three months. The entire de-posit is subject to the final decision of theSC. The company is taking steps to com-ply with the directions of the SC.

The auditors of DLF have put forth afew more observations. However, the opin-ion of the auditors is not qualified on thesematters. The financial statements of DLFHomes Panchkula, have been certified bythe management. The subsidiary had totalassets of Rs 645.9 crore and reported totalrevenue of Rs 173 crore in the fiscal endedMarch 2014 (FY 2014).

Fur ther , f inancia l resul ts ofSilverlink Resorts has been includedbased on the management’s accounts ona line-by-line basis in the consolidatedfinancial statements. From 7 February2014, it ceased to be a subsidiary of DLFand reported revenue of Rs 445.7 crorein FY 2014.

The auditors of Unitech have expressedqualified opinion on the recoverability ofcertain outstanding amounts. An amount ofRs 771.9 crore was outstanding comprisingadvances for purchase of land, projects pend-ing commencement, advances paid to jointventures (JV) entities, and collaborators on31 March 2014 (Rs 924.8 crore in FY 2013).According to the company, these advanceswere given in the normal course of businessto land-owning companies, collaborators,projects and for purchase of land.

As per the information made availableto the auditors, Rs 152.9 crore were recov-ered and/or adjusted in FY 2014. Based oninternal assessments and evaluations,Unitech is of the opinion that these advancesare recoverable and/or adjustable and, thus,no provision was made.

As per Unitech, constructive and sin-cere efforts are being put in the recovery of

Investment Strategy

Valuation v governanceConsolidated numbers of many real estate companies consistof unaudited figures of subsidiariesFainted-hearted investors should stay awayfrom the auditors’ report of real estate andconstruction companies. The statutory au-ditors have ruthlessly poured red ink all overtheir reports. Very few companies are ex-ception to this trend.

Pick 10 annual reports of real estatecompanies on a random basis. In case of sixto seven companies, auditors have raisedalarm over various issues. This is true acrosscategories, be it market capitalization, turn-over or net worth.

Auditors’ reports reveal bluntly the dis-turbing and disappointing state of affairs ofthe real estate industry. It is essential to readtheir observations before evaluating real es-tate and construction companies for invest-ment. These documents provide ample hintsabout the poor corporate governance stan-dards followed by these companies. Also,the reports highlight the fact that real estatecompanies are stretching it too far almoston all the fronts: funding and financing, ac-quisition of land, project execution, dealingwith customers, accounting, transparency,and liquidity.

The auditors of one of the leadingnorth-based real estate companies, DLF,

As per the order

The Supreme Court has directedDLF to deposit Rs 630 crore in aninterest-bearing fixed deposit withinthree months

Base=100 as on 17 October 2013 *17 October 2014Face value: Rs 2.

Relative performance ofDLF v BSE Sensex

ApnaMoney

7 5Oct 27 – Nov 09, 2014 CAPITAL MARKET


the Companies (Acceptance of Deposit)Rules, 1975, in FY 2014. Further, the com-pany has delayed repayment of maturedfixed deposits.

Unitech has received notice of defaultfor term loans and non-convertible deben-tures. The firm had outstanding delays ason balancesheet date including interest tobanks and financial institutions. It had out-standing delays on 31 March 2014 includ-ing interest to debenture holders aggregatingto Rs 260.2 crore and delays ranging fromone to 336 days.

Prestige Estates Projects’s trade re-ceivables are outstanding for more than sixmonths from the date they were due in-cluding Rs 110.7 crore relating to dues fromcertain parties. These receivables have beenconsidered good and recoverable based onthe continuing business relationships andarrangements that the company has withthese parties. This has been put as ‘em-phasis of matter’ by the auditors and opin-ion is not qualified in this respect. As perthe annexure, the auditors have noticed de-lays in depositing Employers’ ProvidentFund (EPF), service tax and tax deductedat source (TDS).

The auditors of Parsvnath Developershave noticed 94 instances of delays in re-payment of dues to banks ranging from oneday to 109 days for amounts varying fromRs 1.2 lakh to Rs 12.5 crore. Further, 72instances of delays were noted ranging fromone day to 365 days for amounts varyingfrom Rs 5.4 crore to Rs 5 crore in repay-ment of dues to financial institutions and 21instances of delays were noted ranging from1 day to 207 days for amounts varying fromRs 20.3 lakh to Rs 31.2 crore in repaymentof dues to debenture holders.

Besides, the auditors of Parsvnath no-ticed delays in deposit of statutory duessuch as EPF, employees’ state insurance,income tax, TDS, sales tax and service tax inFY 2014. The undisputed income tax ofRs 105.7 crore for FY 2012, Rs 61.3 crorefor FY 2013 and advance income tax of Rs7.1 crore for FY 2014 were outstanding on31 March 2014 for more than six monthsfrom the date they became payable.

The real estate industry is passingthrough recession due to slowdown in de-mand. There is lack of adequate sources tofund real estate projects, resulting in delayedrealisations from customers and lower avail-ability of funds to discharge the liabilities,

government authorities of Andhra Pradeshand Chandigarh.

Second, the auditors have not auditedthe financial statements of the Singaporebranch of Unitech, with total assets of Rs5 lakh. The finncial statements are in theprocess of being audited by other auditors.The annexure to the auditors’ report revealfurther issues. The mandatory investmentsof public deposits were not made as per

these advances. It is confident of recoveryin the foreseeable future. However, the au-ditors are unable to ascertain whether all theremaining outstanding advances are fully re-coverable or the advances are outstanding orhave remained unadjusted for a long periodof time. The auditors have further statedthat neither the amount recovered nor therate of recovery in FY 2014 indicated thatall of the remaining outstanding amounts arefully recoverable. The outstanding advancesare significant considering Unitech’s networth of Rs 9869.8 crore and market capi-talization of Rs 4539.3 crore.

Further, the auditors of Unitech havedrawn attention to a few other matters aswell without any qualification. First, no ad-justments were considered necessary forrecoverability of the balance of short-termloans aggregating to Rs 429.6 crore (Rs 367.4crore in FY 2013) and investments aggregat-ing to Rs 27.5 crore (27.4 crore in FY 2013)as the matters are sub-judice. This financialexposure was to subsidiary Unitech VizagProjects and the project for development ofamusement-cum-theme park at Chandigarh.Both these projects are in a limbo. The com-pany is fighting a legal battle with the state

Delayed dues

The auditors of Parsvnath Developershave noticed 94 instances of delays inrepayment of dues to banks for amountsvarying from Rs 1.2 lakh to Rs 12.5 crore

Base=100 as on 17 October 2013 *17 October 2014Face value: Re 5.

Relative performance ofParsvnath Developers v BSE Sensex

Wrong target

The minority shareholders of DLF are bearing the burnt of the action by the promoterstimes when the stock market is showingsign of revival and offloading assets hasbecome relatively easier. Moreover, DLFwill not be in a position to float real estateinvestment trust (REIT), which couldhave enabled it to reduce debt. The realestate industry continues to struggle withlower demand, which means difficulty inserving debt.

Ideally, the Sebi order should havebeen against the promoters who are atdefault rather than the company. The non-disclosures or inadequate disclosures areby the promoters and not by thecompany. The minority shareholders ofDLF had to bear the burnt of the actionby the promoters. Reacting to the Sebiorder, the stock plunged 28.5% on 14October 2014.

The Sebi order highlights the corpo-rate governance issues in the real estateindustry. Moreover, the industry ismarred with questionable and sharppractices. No wonder, real estate stocksare facing investors’ apathy.

Stock market regulator Securities andExchange Board of India (Sebi) hasbarred DLF, a real estate giant strugglingto retain its market share, from assessingthe capital market for three years. Also,Sebi has banned the promoters includingits founder-promoter and patrich KPSingh from assessing the market in itsorder issued in October 2014. Thecompany is likely to approach theSecurities Appellate Tribunal against theSebi order.

The penal action is in response to thenon-disclosure of crucial information suchas legal cases against DLF and disclosurespertaining to subsidiaries in the initialpublic offering document in 2008.

The real estate company is reelingunder massive debt (Rs 22945 on 30 June2014) and focussing on trimming it sincethe last few years without any majorsuccess. This exercise of cutting debtwould become increasingly difficult withthe ban on assessing the financial markets.

Indeed, the ban comes at the worst of



according to Parsvnath. Thus, it has wit-nessed delays in payment of principal andinterest on its borrowings and discharge ofstatutory liabilities and income tax. The de-veloper is exploring alternative sources offinance including sale of non-core assets toovercome the temporary liquidity crunch.

The auditors of Peninsula Land havedrawn attention to the fact that the com-pany has taken the balancesheet route in-stead of the profit and loss (P&L) account.The company has given effect to the amal-gamation and merger of four entities with it.The restated and recorded values of work-in-progress and the resultant adjustment ingoodwill and merger-scheme expenses wereadjusted directly against general reserve, capi-tal reserve and accumulated profit. This isnot in conformity with the relevant provi-sions of Accounting Standard (AS)-14 onaccounting for amalgamations and AS-5 onnet profit or loss for the period, prior pe-riod items and changes in accounting poli-cies. Had the company adopted AS-14 andAS-5, profit after tax would have been lowerby Rs 293.1 crore.

Peninsula’s employee benefit expensesincluded Rs 9.5 crore paid as contractedremuneration to three executive directorsin whole-time employment. Of this, Rs 3.2crore was in excess of the limits specifiedin the Section 309 of the Companies Act,1956. This was the result of lower profitreported in FY 2014. It has applied to theCentral government for approval for excessremuneration, which is pending. The com-pany will be recovering the excess remu-neration if the Central government declinesits application.

Peninsula has recognised expenses andincome for ongoing projects based on es-timated costs and overall profitability ofa project, as per its judgment. The audi-tors have relied on the judgment as thematter is technical.

The minimum alternate tax (Mat) creditentitlement of Rs 60.4 crore (Rs 50 crore inFY 2013) is based on future performance asprojected by Peninsula. The auditors haverelied on the judgment of the management.Lastly, the auditors have noted several de-lays in depositing TDS, service tax, EPF,value-added tax (Vat), and works contract tax.

The auditors of Godrej Properties(GPL) have relied on the management’s es-timates of the percentage of completion coststo completion and projections of revenue

expected from projects owing to the techni-cal nature of estimates for projects underlong-term contracts.

GPL is following the percentage ofcompletion method of accounting. Accord-ingly, the revenue from sale of properties isrecognised in the P&L account in propor-tion to the actual cost incurred as against thetotal estimated cost of projects under ex-ecution on transfer of significant risk andrewards to the buyer. Revenue wasrecognised up to 31 March 2012 only if theactual project cost incurred was 20% or moreof the total estimated project cost.

Oberoi Realty’s consolidated financialstatement included results of two JVs thatare unaudited management accounts. Thetotal assets of these two JVs accounted forRs 255.7 crore on 31 March 2014.

Puravankara Projects incorporated itsshare of loss of Rs 1.7 crore from an associ-ate company for FY 2014. The financialstatements of this particular associate havenot been audited. Further, the auditors havenoticed delays in payment of undisputedstatutory dues in FY 2014.

Housing Development and Infra-structure (HDIL) has delayed repay-ment of dues to debenture holders, finan-cial institutions and banks. An amount ofRs 252 crore towards principal andRs 46.3 crore towards interest to non-cumulative debenture holders, Rs 10.2crore towards interest on term loans fromfinancial institutions, and Rs 28.7 croretowards principal and Rs 24.2 crore to-wards interest on term loans from bankswere due on 31 March 2014.

HDIL’s undisputed statutory dues out-standing on 31 March 2014 for more thansix months from the date they became pay-able included service tax (Rs 40.7 lakh), Vat(3.2 crore), TDS on works contract (Rs 4.9crore), and income tax deducted at source(Rs 2.8 crore).

DS Kulkarni Developers (DSK) hasdelayed payment of advance tax of approxi-mately Rs 4.3 crore for a period of morethan six months. As per the annexure, thecompany has continued the guarantee of Rs100-crore loan taken by erstwhile DSK Glo-bal Education & Research Pvt Ltd from Cen-tral Bank of India. The terms and conditionsof the guarantee are not prejudicial to theinterests of DSK.

The board of directors of Hubtownhas declared dividend of Re 1 per equityshare, or 10%, on face value of Rs 10. Theconcurrence of the secured debenture hold-ers is required in accordance with the Se-curities and Exchange Board of India (Is-sue of Capital and Disclosure Require-ments) Regulations, 2009, and the deben-ture trust deeds.

Hubtown’s recognition of expense andincome for ongoing projects is based on theestimated costs, as per the judgement of themanagement. As the matter is technical, theauditors have relied by the estimates pro-vided by it.

Hubtown has not provided for interestand allied costs or accounted for liabilitieson funds received from the debenture hold-ers. It is in the process of negotiating withthe debenture holders. The impact on thefinancials after the conclusion of the nego-tiations is not expected to be material.

The auditors of Hubtown have drawnattention to the non-creation of investmentsof 15% of the value of the redeemable de-bentures, which are required to be created,as per the requirement of the general circu-lar issued in February 2013, issued by theMinistry of Corporate Affairs. The com-pany needs to invest Rs 28.2 crore in speci-fied liquid funds.

The projects are under various stages ofdevelopment and are expected to have netrealisable value greater than cost. Being atechnical matter, the auditors have relied onthe opinion of the management.

Hubtown has issued guarantees and pro-vided securities aggregating to Rs 642.7 croreto banks and financial institutions on behalfof various entities including JVs. These ex-

Need for a nod

Hubtown has declared dividend of Re 1per equity share on face value ofRs 10. The concurrence of the secureddebenture holders is required


Relative performance ofHubtown v BSE Sensex



Red flags

The audit report of DB Realty is one the most qualified among real estate companies

A share of loss of Rs 15.2 lakh fromone partnership firm is based on theaccounts as approved by the company inits capacity as one of the partners. Thesefinancial statements have not yet beenapproved by the other two partners.

The auditors have drawn attention tothe guarantees issued and securities ofRs 2897.3 crore provided by DB Realtyto banks and financial institutions onbehalf of various entities. These aresignificant in relation to the net worth. Asper the company, these are not expectedto result in any financial liability. It had anet worth of Rs 3375 crore on 31 March2014 and market value of Rs 1487.5 croreon 17 October 2014.

DB Realty is a partner in a firm calledDynamix Realty. The auditors have drawnattention to various disclosures ofDynamix. First, the firm had grantedunsecured loan to Nihar Construction PvtLtd without interest and repayable ondemand with no other terms for which thepartners had given their consent. Theoutstanding amount was Rs 8.7 crore inFY 2014 (Rs 24.4 crore in FY 2013),which is considered as good for recovery.

Second, Dynamix had grantedunsecured loan with interest of Rs 209.2crore to Kusegaon Realty Pvt Ltd. Itrecovered the principal amount in FY2011. The outstanding amount of Rs 9.1crore represents interest receivable and isconsidered good for recovery. TheCentral Bureau of Investigation (CBI)

DB Realty is available at 56% discount toits book value of Rs 138.74. The stockreported as all-time high of Rs 540 inMarch 2010 and is currently hovering atRs 61.15. However, this should not bemistaken for value buy. A glance at its auditreport will reveal this fact. The auditreport is one the most decorated amongreal estate and construction companies.

DB Realty’s investment in preferenceshares of Marine Drive Hospitality &Realty Pvt Ltd (MDH) did not generateany return in the fiscal ended March 2014(FY 2014). The company has invested Rs1427.7 crore in MDH. Even though thereis a huge investment in these preferenceshares, there is no control or significantinfluence on MDH. The companyconsiders the investment as strategic andlong term in nature. It believes the currentmarket values and future prospects of thisinvestment are in excess of its investment.

DB Reality’s security depositsinclude Rs 357.5 crore given to variousrelated parties for acquisition of develop-ment rights. It is in the process ofobtaining necessary approvals for theconcerned properties. These propertieshave current market values significantly inexcess of carrying values and are expectedto achieve adequate profitability onsubstantial completion of projects.Therefore, no provision has been made.

The auditors have commented on thenon-availability of contract documents ofproject advances of Rs 78.2 crore providedto two associate companies. This amountforms part of long-term loans andadvances. As per DB Realty, the requireddocuments are under execution.

The project work in progress, valuedat cost or net realisable value, whicheveris lower, stood at Rs 226.2 crore. Theauditors have relied on the company forrealisable value of the cost incurred as thisis a technical matter.

The financial results include share oflosses from investment in two partnershipfirms and limited liability partnershipaggregating to Rs 1.1 crore and investmentsin these firms aggregating to Rs 145.5crore. The financial statements of thesefirms have been audited by other auditorsand relied on by the auditors of DB Realty.

has made several allegations againstKusegaon in relation to the secondgeneration (2G) telecommunication scam.CBI has alleged that, of these loans, Rs200 crore was paid as illegal gratificationto Kalaignar TV Pvt Ltd. This matter issub-judice and the impact cannot beascertained at this stage.

As per the attachment order issued bythe adjudicating authority under thePrevention of Money Laundering Act,2002, the company’s assets amounting toRs 52.1 crore were attached in August2011. Of these assets, the adjudicationauthority has taken over the bank balanceof Rs 68.9 lakh. This matter is sub-judice.The attachment is in relation to theinvestigation of the 2G spectrum case.

The auditors of DB Realty havedrawn attention to various matters thatare sub-judice. The company is confidentof recovering loans and advances aggregat-ing to Rs 165.8 crore and investments ofRs 31.2 crore involved in these matters.

DB Realty has recognised theminimum alternative tax (Mat) creditentitlement of Rs 3.75 crore, which isbased on the judgment of the management.

The auditors have noted DB Realty’sinvestments aggregating to Rs 40.8 croreand loans and advances aggregating Rs262.5 crore to certain subsidiaries, jointlycontrolled entities and associates, whichhave incurred losses and also have negativenet worth. Investments in these entities areconsidered strategic and long term in natureby the company. It says the entities are inearly stage of real estate development. Noprovision was considered necessary.

As per the annexure on projectinventory, DB Realty needs to strengtheninternal controls for tenancy payments andproject contracting including properdocumentation for comparative quotations.Undisputed statutory dues includingEmployees’ Provident Fund, investoreducation and protection fund, employees’state insurance, income tax, sales tax,service tax, and cess have not beenregularly deposited with the appropriateauthorities. The company incurred cashlosses in FY 2014. Further, as per theannexure, it has defaulted on payment ofinterest of Rs 1.72 lakh. Funds of Rs 232.2crore have been raised on short-term basisfor long-term investment.

Question marks

DB Realty needs to strengthen internalcontrols. Funds of Rs 232.2 crore havebeen raised on short-term basis forlong-term investment


Relative performance ofDB Realty v BSE Sensex



posures are significant in relation to the profitfor the year and the net worth of the com-pany. As per the management, these are notexpected to result in any financial liability.

Contingent liabilities including corporateguarantees have been identified by Hubtownand relied on by the auditors. Further, theP&L account included share of net loss frominvestments in JVs aggregating to Rs 29 lakhand investments in these firms aggregatingto Rs 8 crore. The current-account balanceare based on the financial statements pre-pared by the management.

Hubtown’s investments aggregated toRs 8.6 crore and loans and advances aggre-gated to Rs 1049.8 crore in certain subsid-iaries, jointly-controlled entities, and asso-ciates, which have incurred losses and havenegative net worth. These investments areconsidered strategic and long term in nature.The underlying projects of the concernedentities are at an early stage of development.As per Hubtown, the current market valuesof certain properties is significantly in ex-cess of their carrying values and are expectedto achieve adequate profitability on substan-tial completion.

Hubtown has delayed repayment ofdues to banks, financial institutions and de-bentures holders. End FY 2014, IT deductedat source of Rs 12 crore, Maharashtra Vatand works contract tax of Rs 1.5 crore, andservice tax of Rs 1.9 crore remained out-standing for a period exceeding six months.

The auditors of Landmark PropertyDevelopment Company have drawn atten-tion to the business-transfer agreement andconsideration receivable by the company. A

business-transfer agreement was signed inApril 2012 between Ansal Landmark Town-ships Pvt Ltd (ALTPL), Ansal Landmark(Karnal) Township Pvt Ltd (ALKTPL), andAnsal Properties & Infrastructure. Pursu-ant to the agreement, advances including in-terest of Rs 49.9 crore given by LandmarkProperty to ALTPL stood transferred to anew entity set up to run the Karnal project,i.e, ALKTPL.

Following this new arrangement, Land-mark Property is entitled to allotment ofplots, flats in group housing-cum-commer-cial properties in the ongoing residentialtownship developed by ALTPL atGhaziabad in Uttar Pradesh and ALKTPLat Karnal in Haryana. After adjusting Rs 14.4crore as against the allotment of flats andplots, the remaining amount outstanding wasRs 35.4 crore on 31 March 2014.

Hindustan Construction Company(HCC) has an aggregate exposure ofRs 1709.1 crore to subsidiaries HCC RealEstate and HCC Infrastructure in the natureof long-term investments and loans and ad-vances. There is diminution in the value ofinvestments and advances. No provision hasbeen made as, according to the company,the diminution is temporary in nature.

HCC’s claims of Rs 518.3 crore out-standing for more than five years under,‘Uncompleted contracts and value of workdone’, amounting to Rs 445.5 crore; ‘Long-term trade receivables’, amounting to Rs 34.3crore; and ‘Short-term loans and advances’,amounting to Rs 38.5 crore. The companyis reasonably confident about recovering thisamount considering the contractual tenabil-ity, progress of negotiation with clients andbased on its past experience.

The ‘Long-term trade receivables’ ofRs 1056.5 crore and ‘Uncompleted con-tracts and value of work done’ of Rs 243.1crore represent favourable arbitrationawards. However, these awards have beenchallenged by the clients in courts. Of these,awards amounting to Rs 105.4 crore havebeen set aside by the district and high courts(HCs) against which it has preferred appealswith HCs and the SC. HCC has been legallyadvised that it has a good case on merit. Therecoverability of the sums is dependent onthe final outcome of the appeals.

‘Trade receivables’ of Rs 20.9 crore and‘Uncompleted contracts and value of workdone’ of Rs 48.1 crore have been outstand-ing for projects where work has been sus-pended by clients or have been handed over

No buffer

HCC has an aggregate exposure of Rs1709.1 crore to subsidiaries. No provisionhas been made for the diminution in thevalue of investments and advances

Base=100 as on 17 October 2013 *17 October 2014Face value: Re 1.

Relative performance ofHindustan Construction Co v BSE Sensex

Towers in air

Real estate companies are stretching it too far almost on all the fronts: funding and financing, acquisition of land, project execution,

dealing with customers, accounting, transparency, and liquidity

COMPANY NETWORTH MCAP DEBT/ INTEREST P/BV AUDITORS COMMENTS

(Rs cr) (Rs cr) EQUITY COVERAGE CONCERNS

Ansal Properties 1633.10 452.50 0.46 1.72 0.28 167.30 Project inventory

DS Kulkarni 501.40 248.50 0.90 4.68 0.54 100.00 Corporate guarantee

DLF 16643.50 19663.60 0.95 1.54 0.72 630.00 Penalty imposed by CCI

HCC 1263.40 1798.60 3.89 1.15 2.98 1709.10 Exposure to subsidiaries

Hubtown 1692.20 836.50 0.85 1.06 0.49 642.70 Guarantees and securities

Mahindra Lifespace 1137.30 2180.20 0.47 2.54 1.73 100.00 Project advances

Parsvnath 2681.30 872.50 0.55 1.35 0.31 174.10 Outstanding income tax and advance tax

Prestige Estates 2971.10 8377.50 0.59 4.87 2.33 110.70 Outstanding trade receivables

Unitech 9869.80 4539.30 0.38 1.46 0.37 771.90 Advances towards projects

Unity Infraprojects 843.00 164.90 1.87 1.01 0.19 315.70 Claims under arbitration

Year ended March 2014. Market capitalization is as on 16 October 2014. Networth is as per standalone books. Auditors concerns refer to comments and qualification and amounts involved. Only select comments andqualifications considered for the table. Book value and debt-to-equity as on 31 March 2014. Interest coverage is calculated as net profit + tax + interest / interest and is as on 31 March 2014.Source: Capitaline Databases



to clients. HCC is confident about recover-ing this amount based on the continuous dia-logue with the clients.

The managerial remuneration paid to thechairman and managing director of HCC wasin excess by Rs 10.1 crore per annum in FY2013 and in FY 2014. The company hasmade an application to the Central govern-ment, which is pending.

As per the annexure to the audit reportof HCC, the internal controls over account-ing of consumption, wastages and materialreconciliation need further strengthening.The scope of internal audit system needs tobe enlarged to cover project related cost-to-complete workings and certain areas of head-office accounting.

Ajmera Realty & Infra has consoli-dated the unaudited financial statements offoreign subsidiary based on the figures au-thenticated by the management. The foreignsubsidiary had total assets of Rs 151.6 croreon 31 March 2014.

Marathon Nextgen Realty investedRs 125 crore in Parmeka Pvt Ltd (PPL) inFY 2012. In the terms of memorandum ofunderstanding between Marathon and PPL,Marathon will be entitled to receive 25% ofthe profit of PPL. The profit would be ac-counted for when PPL generates profit fromits activities.

The auditors have drawn attention tothe development agreement by Marathonin February 2007 for development of aproperty in Bangalore with the owner ofthe land. The agreement is still in force.However, the relevant confirmation is yetto be obtained from the party. The devel-opment work is to commence once the regu-latory compliances are received. The firmpaid an advance towards the JV on the ba-sis of the agreement signed. The advancepaid is adequately secured by collateral inthe form of unencumbered land based onan agreement between Marathon and thepower of attorney holders in the form ofregistered document.

The auditors of Omaxe have reporteddelays in certain cases in payment of undis-puted statutory dues. Further, the consoli-dated financial statements include manage-ment certified accounts of one of the whollyowned subsidiary, Rohtas Holdings (Gulf),which had total assets of Rs 24.7 crore on31 March 2014.

Ansal Properties & Infrastructureclaimed exemption of Rs 34.5 crore up to

31 March 2013 under Section 80 IA of theIncome Tax Act, 1961, being tax on profitarising out of the sale of industrial parkunits. However, the notification by theCentral Board of Direct Taxes (CBDT) ispending. The CBDT rejected the initialapplication. In response, the company fileda review petition. The firm has taken theopinion of a senior counsel. According tothe senior counsel, the review petition sat-isfies all the conditions specified in the rel-evant scheme. No exemption was claimedin FY 2014 as there were no sales of indus-trial park units.

Ansal Properties is carrying project in-ventory of Rs 167.3 crore for one of its grouphousing projects. It has applied to the au-thority for developing the project on thebasis of the revised scheme announced bythe concerned authority. Its application hasbeen approved, envisaging developing theproject on a smaller piece of land equivalentto the amount paid and surrendering the bal-anced project land. Pending final decision ofthe authority and fulfilment of conditionsprecedent, the company believes there is noimpairment in the value of the project.

Discrepancies were noticed duringphysical verification of fixed assets. Thesehave been recorded and accounted in thebooks of accounts. Ansal Properties had notmaintained liquid assets of Rs 12.7 crore forfixed deposits accepted from the public asstipulated by regulation. The amount wasmaintained after the stipulated time. Incometax amounting to Rs 6.6 crore was depos-ited with delay. Ansal Properties has de-layed repayment of dues including interestto banks and financial institutions.

Billing dispute

Due to price escalations and otherfactors, the cost of a project of UnityInfraprojects increased. The clients havedisputed the additional claims


Relative performance ofUnity Infraprojects v BSE Sensex

Unity Infraprojects executed a projecton the basis of work orders received from theclients. However, due to price escalations andother factors, the cost of the project increased,leading to additional claims. The clients havedisputed the additional claims. The firm hasopted for arbitration proceedings. The addi-tional claims amounting to Rs 315.7 crore areunder arbitration. The company has ac-counted these amounts as ‘Revenue’.

Unity defaulted in repayment of duesto banks and financial institutions in FY2014, which were honoured subsequently,except the amount of default aggregating toRs 99.4 crore, which remained outstandingon 31 March 2014.

Nitesh Estates advanced Rs 15.7 croreon 31 March 2014 to various parties forpurchase and joint development of land andproperties. Considering the timeline of theseadvances, these should have been convertedinto acquired land or joint development agree-ments. Else, these amounts should have beenrecovered. The company continues to be-lieve that joint development agreements oracquisition of land will be consummated. Inthe event the agreements are not consum-mated, these advances can be recovered. Inthe absence of sufficient documentation tojustify the timing around when these ad-vances are capable of being converted intojoint development agreements or result inacquisition of land and considering that theyare not secured, the auditors are not able tocomment on the recoverability.

Mahindra Lifespace Developers’sother loans and advances included projectadvances of Rs 100 crore pending for overtwo years relating to a project whose com-mencement has been delayed due to non-performance by vendors. The company hasinitiated action against the vendors to pro-tect its interest and for resolving the disputeto enable commencement of the project.

Mahindra Lifespace has invested Rs 18crore in equity shares of wholly owned sub-sidiary Mahindra Infrastructure Develop-ers (MIDL). MIDL has further invested Rs15 crore in the equity shares of New TirpurArea Development Corporation(NTADCL). Due to adverse business con-ditions, NTADCL is incurring losses and itsnet worth is eroded. The company expectsa turnaround of NTADCL in future consid-ering the various steps contemplated by thestakeholders such as infusion of equity capi-tal, debt restructuring, increase in tariff rates



of water and various other concessions fromthe government of Tamil Nadu. It believesthere is no permanent diminution in the valueof the investments in NTADCL and MIDLas well. Considering the long-term and stra-tegic nature of the investment, no provisionwas considered necessary.

SRS Real Infrastructure needs tostrengthen the internal control system forpurchases of inventory. It has an internalaudit system, the scope and coverage ofwhich requires to be further enhanced to com-mensurate with the size and nature of thebusiness and activities. Besides, the audi-tors have reported slight delay in paymentof undisputed statutory dues.

The auditors of MVL have reportednon-availability of confirmations of someof the debit and/or credit balances of tradereceivables, trade payable, loans, advances,bank accounts and deposits. In the absenceof confirmations, it was not possible to de-termine any provision. The undisputedstatutory dues outstanding for a period ofmore than six months stood at Rs 2 crore on31 March 2014. MVL has overdues amount-ing to Rs 41.6 crore towards banks. Thesedefaults have occurred on different dates

starting from July 2012. It has applied forrestructuring of these loans. The proposalsare under consideration of the banks.

Ansal Housing and Construction de-posited service tax, sales tax and advance taxin FY 2014 with delay. Ansal Buildwell de-faulted in repayment of dues amounting toRs 3.2 crore to a bank. These dues were notpaid till the date of the annual report. Simi-larly, the auditors of Anant Raj have reportedfew instances of slight delay in payment ofundisputed statutory dues. Emami Infra-structure incurred cash losses in FY 2014.

ConclusionSeveral real estate and construction compa-nies are available at a significant discount totheir book values (BVs). Moreover, manycompanies have managed to reduce their debtto seemingly manageable levels. However,investors should exercise extreme cautionwhile evaluating these companies.

First, the debt level could have moder-ated. But these moderate levels could be anunbearable burden as the industry is strug-gling. The operating and net profit levels arenot robust enough to service the debt. Thisis clearly evident from the fact that several

companies have delayed and/or defaulted onrepayment of loans and in depositing undis-puted statutory dues such as EPF and in-come tax. In short, the liquidity situationcontinues to be grim.

Second, and more importantly, the valu-ation in terms of price to BV could be al-luring. The issue, however, is about poorcorporate governance and transparency. Forinstance, when it comes to consolidationof books of accounts, the unaudited ac-counts certified by the management havebeen taken into account by many compa-nies. There is clear conflict of interest. Howcan minority shareholders rely on suchbooks of accounts that are not audited butcertified by the management?

Further, there are several cases of ad-vances and investments where there is noclarity on recovery. These issues are hang-ing fire for many years. These exposures aresignificant and can wipe out an entire or sig-nificant portion of the net worth.

Investors should focus on the qualityof stocks or corporate governance issuesrather than valuation when it comes to as-sessing real estate and construction com-panies for investment. �

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their position in the market throughexpansion. Oil refiners and marketers arelooking aggressively at diversifying intoother activities in the energy value chainsuch as E&P.

The Union government has alreadydecided to close a few non-viable PSUs andselected some for revival. This is good newsas there is no point in putting good moneyafter bad. This time, therefore, there seemsto be greater chances of PSUs delivering ontheir mega capex plans. With a clear majority,the NDA government is better placed todrive growth of PSUs. Already, it has takeninitiatives to fast-track environmental andforest clearances.

Capital Market glanced through theannual reports, chairmen’s speeches, andpresentations to get a sense of PSUs’investment plans. PSUs have better chancesto excel if they manage to execute theircapex plans on time and without any costoverrun. Indeed, investments by PSUs arenecessary for their growth and survival. Itis essential that NMDC and Coal India(CIL) ramp up their production. Both arecash-rich. What these companies need isthe political will to excel.

Mostly, PSUs follow the Five-Year Planfor capital investment and execution. Thenew government has scrapped the PlanningCommission. However, the current 12th Five-Year Plan is expected to continue.

Country’s most valuable PSU andamong the worlds leading E&P companyOil & Natural Gas Corporation (ONGC)has drawn an ambitious ‘Perspective Plan2030’ to transform itself into an integratedenergy major. The PSU is targeting to doubleproduction to over 130 million tonnes of oilequivalent (mtoe) by calendar year (CY)2030, with 50% contribution coming fromoverseas. The firm intends to invest Rs 11trillion over the fiscal ending March 2013)(FY 2013) to FY 2030 as against Rs 2.65trillion under the 12th Five-Year Plan (FY2013-17). It is aiming for around six-foldincrease in production from overseassubsidiary ONGC Videsh (OVL) to 60 mtoeby FY 2030.

Also, ONGC aims to strengthendownstream linkages in alternate energy,LNG and petrochemicals. It is targeting30% of the revenue from non-E&P verticals.The PSUs needs to grow at 4% against itshistoric figure of 2% to achieve these targets.

ONGC reported production of 59.2 mtoein FY 2014. This included its own output,share in joint ventures (JVs) and productionof OVL (8.35 mtoe). The PSU has reporteddecline in domestic production over the lastfive years. On the contrary, OVL hasrecorded a reasonably robust growth inproduction. The company needs to putgreater focus on enhancing output throughconsistent and massive investment.

Subsidiary of ONGC MangaloreRefinery and Petrochemicals (MRPL) hassigned a memorandum of understanding withthe government of Karnataka for setting up alinear alkyl benzene (LAB) plant and toexpand its refining capacity over the nextthree to six years, subject to techno-economicviability and availability of requiredinfrastructure at Mangalore in Karnataka,with an estimated capital investment of Rs8500 crore. LAB is used for producing rawmaterials to manufacture detergents.

Country’s largest oil refiner Indian OilCorporation (IOC) has set capex target ofRs 56200 crore for various projects in the12th Five-Year Plan as against Rs 48655 crorein the previous Five-Year Plan. It has chalkedout investment plans worth Rs 12000 crorefor the current fiscal. The PSU had investedRs 9400 crore in FY 2013 and Rs 16700crore in FY 2014,.

IOC will be shortly commissioning its 15-million tonne per annum (mtpa) refineryproject at Paradip in Odisha. This will improve

Investment Strategy

The coming paper floodDue to their capital-intensive nature, focus on sources of fundsand the strength of the balance sheets of PSUsPublic sector undertakings (PSUs) discuss-ing big investments but having little to show,and that also after inordinate time lag, is acommon scene. Lately, the market is nottaking the mega plans of PSUs seriously.This is because, year after year, it is thesame old story of PSUs making big-bangannouncements but achieving little on theground. Indeed, PSUs are notorious for sig-nificant delays, cost overruns and even aban-doning projects altogether.

Can this change with the newgovernment? Since the National DomesticAlliance (NDA) government assumed officeend May 2014, the level of optimism abouta change in the fortunes of PSUs has goneup. Moreover, Prime Minister NarendraModi is known for turning around financiallysick state government-owned companies inthe capacity of chief minister of Gujarat.

The new government has pursuedcertain crucial policies of the previousgovernment such as deregulation ofpetroleum prices. Prices of politically-sensitive petrol, diesel and cooking gas areno longer capped. Now these products aremore or less market-driven. This wasunbelievable a few years ago.

PSUs involved in exploration andproduction (E&P) of oil have megainvestment plans in place. The downstreamoil refining and marketing companies havetheir own large-scale plans to consolidate



competitiveness at the marketplace and alsoprovide operational flexibility. At present, itspipelines division is implementing 13 projectsat a cost of around Rs 6800 crore to furtherexpand the network of crude oil and productpipelines. The ongoing expansion will resultin additional throughput capacity of 15.5 mtpaand a pipeline length of over 3,200 km. Also,several LPG pipeline projects are planned.

At present, IOC owns and manages thecountry’s largest pipeline network of over11,000 km to transport crude oil, productand gas. The pipeline throughput stood at73.1 million tonnes in FY 2014.

Oil India (OIL) has developed a capitalexpenditure plan to accelerate its explorationand development activities in its existingacreages. The company plans to incur capexof around Rs 19000 crore in the 12th Five-Year Plan. Lately, the PSU is focussing onnon-conventional and renewable energyresources like wind power projects, solarpower projects and shale oil and gas.

In July 2014, OIL acquired 50% equitystake in WorldAce Investments, a Cyprus-based wholly owned subsidiary of PetroneftResources, which owns licence 61 in theTomsk region in Russia. This marks its entryinto Russia and a significant ramp-up of theoverseas E&P portfolio.

To bridge the gap between sales and itsrefining capacity, Hindustan PetroleumCorporation (HPCL) is modernising itsVisakh refinery project to increase therefinery capacity to 15 mtpa from 8.3 mtpa.Additionally, it will be undertakingexpansion of its Mumbai refinery to increaseexisting capacity to 10 mtpa from 6.5 mtpa.The company reported combined refiningthroughput of 15.51 mtpa, with capacityutilisation of 105%, in FY 2014.

HPCL has formed a JV, HPCLRajasthan Refinery, with the governmentof Rajasthan as an equity stakeholder. TheJV will be setting up a nine-mtpa refinery-cum-petrochemical complex in Rajasthanat a capital cost of Rs 37000 crore. Thisrefinery will be processing the indigenousMangala crude oil produced from local CairnIndia oil fields.

Lastly, HPCL as an anchor tenant hasfinalised a grass root 15-mtpa petrochemical-cum-petroleum refinery at Visakhapatnam.It has plans for implementation of thisproject in collaboration with domestic andinternational oil and petrochemicalcompanies after conducting the feasibility

study and financial assessment.HPCL acquired 11.25% and 9.75%

participating interest in two E&P blocks inAustralia in FY 2014. This is a significantstep in creating a balanced portfolio ofupstream asset.

Bharat Petroleum Corporation(BPCL) had worked out investment plansworth Rs 40000 crore on upcoming andongoing projects over FY 2012 to FY 2016.It incurred capex of Rs 5560 crore in FY2014 as against Rs 3544 crore in FY 2013.

In a mega investment plan, BPCL willbe enhancing the capacity at the Kochirefinery to 15.5 mtpa from 9.5 mtpa.Further, it will be carrying out modernisationof the existing facilities to produce superiorquality fuels. This project involves capitaloutlay of Rs 16504 crore and is expected tobe completed in May 2016. It is almost halfway through.

At the Mumbai refinery, BPCL will beinstalling integrated crude and vacuumdistillation unit of six mtpa capacity toimprove mechanical integrity of theexisting old standalone crude and vacuumunits at a cost of Rs 1419 crore. Further, thecompany will be expanding the marketingnetwork and infrastructure as well. Also, thePSU is working on multiple oil and gaspipeline projects.

Gail India has developed a strategy forFY 2011-FY 2020. By FY 2020, it wants toemerge as an integrated hydrocarbon playerwith significant upstream, midstream anddownstream interests. The company ownsapproximately 11,000-km network ofpipeline in the country, which it wants totake it to 15,000 km.

Gail plans to set up LNG terminals andregasification units to handle increased LNGvolumes. Also, it has executed a regasificationagreement with Petronet LNG forregasifying 2.5 mtpa of LNG in the plannedexpansion at the Dahej unit in Gujarat.

In the downstream segment, Gail aspiresto be among the top petrochemical playersby expanding existing capacities, setting upnew plants, and acquiring equity stakes inupcoming projects. At present, it is doublingthe existing petrochemical capacity at Pata,Uttar Pradesh. Also, it is setting a newpetrochemical plant in Assam throughsubsidiary Brahmaputra Cracker & Polymer.Another petrochemical plant at Dahej isbeing set up through a JV.

Gail is participating in 20 E&P blocks:18 in India and two in Myanmar. Productionhas already started in four blocks. The PSUis evaluating the acquisition of overseasassets, primarily those with hydrocarbondiscoveries that are under production orlikely to start production in near future.

In the coming years, Gail is targetingadditional 40-50 cities or geographical areasthrough its subsidiary and JVs for city gasdistribution business.

NTPC intends to increase its capacityby almost three times to 1,28,000 MW byFY 2032. The incremental capacities are atvarious stages of development: underconstruction (22,414 MW), bids invitedfrom vendors (6,800 MW), feasibility reportapproved (17,900), and under-feasibilitystudy (37,758 MW). In the intermediateperiod of FY 2013 to FY 2017, the PSUintends to add 14,228 MW. It added 6,005MW to its existing capacities in FY 2012 toFY 2014.

At present, with an installed capacityof 43,128 MW, NTPC contributes aroundone-fourth to the power generation of thecountry and accounts for 18% of the totalthermal installed capacity.

Also, NTPC is looking at acquiringdistress power assets. As per estimates,power capacities of around 49,700 MW arein a limbo owing to lack of fuel and underrecovery of costs. It has already invitedexpression of interest for coal-based thermalpower projects in the country and abroadfor stranded projects.

World’s largest coal-mining companyCIL has 148 on-going projects, withcapacity of 484 mt and a sanctioned capitaloutlay of Rs 39821.5 crore, under various

More output

HPCL is modernising its Visakhrefinery to increase the capacity to15 mtpa and the Mumbai refinerycapacity to 10 mtpa

Relative performance ofHPCL v BSE Sensex

Base=100 as on 21 October 2013 * 20 October 2014Face value: Rs 10.



stages of implementation. In FY 2014, 74ongoing projects contributed 239.9 mt. Theenvisaged contribution from 134 ongoingprojects is 335.93 mt by FY 2017.

Of these 148 ongoing projects, 95 haveboth forestry and environmental clearances.Environmental clearances are awaited for fourprojects, forestry clearances for 27 projects,and both forestry and environmental nodsfor the remaining 22 projects.

Further, CIL has identified 126 projects,with an estimated capacity of 440.99 mt,which will be taken up in the current 12thFive-Year Plan ending FY 2017. Of these,60 projects can contribute around 88 mt byFY 2017. Till date, 11 projects withpotential capacity of 80.52 mt, with aninvestment of Rs 11800 crore, have receivedapproval. CIL reported production of462.42 mt and offtake 471.58 mt in FY 2014.

NMDC is in the process of setting up athree-mtpa steel plant at Nagarnar inChhattisgarh. Construction is going on infull swing. It is in possession of about 2,120acres of land for the steel plant, townshipand other facilities. The PSU will beincurring capital cost of Rs 15525 croretowards this project. This project hasreceived the necessary statutory clearancesincluding environmental clearance from theMinistry of Environment and Forests andthe government of Chhattisgarh.

Additionally, NMDC has taken severalprojects such as the Bailadila project to enhanceproduction at capital outlay of Rs 607 crore,augmenting production capacity at theDonimalai project (Rs 898.5 crore) and a 1.2-mtpa pellet plant at Donimalai (Rs 572 crore)

NMDC reported the highest-everproduction of 300.25 lakh tonnes of iron orein FY 2014 (271.84 lakh tonnes in FY 2013).The company incurred capital expenditureof Rs 2518 crore, the highest- ever since itsinception in FY 2014.

Petronet LNG is in the process ofexpanding capacity of its Dahej LNG

terminal to 15 mtpa from 10 mtpa. Theexpansion involves construction of twoadditional storage tanks, additionalregasification facilities of five-mtpacapacity, and four LNG truck loading bays.It has obtained all the statutory clearancesfor the expansion project. The project isexpected to be completed by FY 2016.

Further, Petronet has proposed settingup a third regasification terminal atGangavaram in Andhra Pradesh. It has signeda binding term sheet with Gangavaram Port.

At present, Steel Authority of India(Sail) is executing growth plan to enhanceits hot metal production to 23.5 mtpa fromthe current level of 14.4 mtpa in FY 2014.This modernisation and expansion plan isundertaken at its five steel plants at Bhilai,Bokaro, Rourkela, Durgapur and Burnpurin Bihar. The PSU incurred capex of of Rs9890 crore in FY 2014 and has budgetedcapex of Rs 9000 crore for the current fiscal.

In the next phase of expansion, Sail hasdrawn a long-term Strategic Plan 2025. Itwants to achieve production of 50 mtpa ofhot metal. If successfully implemented, thecompany will emerge among the top steelcompanies in the world. The good partabout its expansion plan is the fact that thepossesses land bank, iron ore reserves forcaptive use and other necessary ingredientsfor expanding capacities.

Indraprastha Gas (IGL) will beconsolidating in the existing areas ofoperation and in new geographies as well.For consolidating its presence in Delhi andthe National Capital Region, it will beinvesting Rs 240 crore in FY 2015. It hasaggressive plans to expand the pipelineinfrastructure to increase the coverage andpenetration of its network.

Recently, IGL acquired 50% equity inCentral UP Gas, which distributers inKanpur and Bareilly in Uttar Pradesh. ThePSU has taken 50% stake in MaharashtraNatural Gas, a city gas distributioncompany operating in Pune, Maharashtra.The company will be bidding for gasdistribution network in new cities.Incorporated in 1998, IGL, is a JV betweenGail and BPCL, in which the governmentof Delhi also control 5%.

Neyveli Lignite Corporation hasinstalled capacity of 2,740 MW. Thecompany is implementing several projects,which will take its total power generatingcapacity to 4,701 MW. These projects include

Greenfield expansion

NMDC is setting up a three-mtpa steelplant at Nagarnar in Chhattisgarh, withnecessary environmental clearance, at acapital cost of Rs 15525 crore

Base=100 as on 21 October 2013 * 20 October 2014Face value: Re 1.

Relative performance ofNMDC v BSE Sensex

Sense of purpose

PSUs follow the Five-Year Plan for capital investment and execution. Though the Planning

Commission has been scrapped, the current 12th Five- Year Plan is expected to continue

COMPANY TOTAL DEBT DIVIDEND NETWORTH MARKET CAP CAPEX COMMENTS

(Rs cr) (%) (Rs cr) (Rs cr) (Rs cr)

BPCL 33152.3 170 19440 48201 40000 Upcoming & ongoing project overthe period of FY 2012 to 2016

Coal India 177.8 290 42404 220346 39822 148 ongoing projects

HPCL 47993.8 155 14000 16791 37000 9-million-tonne refinery-cum-petro-chemical complex in Rajasthan

IOC 94915.9 92 67913 87588 56200 Various projects between FY 2013and FY 2017

MRPL 9792.7 0 7069 10419 8500 Various projects over the next threeto six years

NMDC 0.0 850 29947 62543 15525 3-million-tonne steel plant atNagarnar in Chhattisgarh

ONGC 49112.8 190 172151 339653 1100000 Various projects over FY 2013 andFY 2030

Oil India 10146.4 215 20482 34114 19000 Exploration and developmentactivities in FY 2013-17

SAIL 26089.6 20.2 43307 31537 9000 Expansion plan in FY 2015

Market capitalisation as on 16 October 2014. Debt, dividend and net worth for the fiscal ended March 2014, Consolidated financials

Source: Capitaline Database

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Scrip Rec. Rec. Cur. Price % SensexDate Price 15-09-14 Var Var(%)

Scrip Rec. Rec. Cur. Price % SensexDate Price 15-09-14 Var Var(%)

MM Forgings 12/27/2013 90 484 438 27

L G Balakrishnan 1/15/2014 138 692 401 26

TVS Srichakra 10/16/2013 225 1102 390 31

Monsanto India 11/1/2013 700 2911 316 27

Suprajit Engg 10/1/2013 32 131 309 37

National Build Con 11/6/2013 135 539 299 28

Sundram Fasteners 11/29/2013 40 147 267 29

Isgec Heavy Engg 2/12/2014 880 3215 265 31

Gujarat Pipavav Port 10/30/2013 50 177 253 27

KNR Constructions 3/7/2014 88 297 238 22

Munjal Showa 10/9/2013 63 212 236 32

Manjushree Tech 9/20/2013 129 411 219 32

Fiem Industries 10/18/2013 206 653 217 28

Sterling Tools 4/9/2014 127 401 215 18

Essel Propack 9/25/2013 37 115 210 35

AIA Engineering 9/13/2013 318 970 205 36

Banco Products (I) 2/21/2014 54 165 205 30

ITD Cementation 4/16/2014 149 445 199 20

Munjal Auto Ind 2/7/2014 41 120 192 32

DCM Shriram Ind 4/11/2014 54 154 185 19

Apcotex Industries 5/14/2014 129 366 184 13

Z F Steering Gear 3/28/2014 263 705 168 20

Hi-Tech Gears 5/7/2014 86 227 164 20

GMM Pfaudler 2/19/2014 91 240 163 29

Indian Hume Pipe 1/31/2014 125 305 144 31

JBM Auto 7/18/2014 352 840 139 5

Auto Corp of Goa 1/29/2014 211 501 137 30

Whirlpool of India 2/26/2014 193 449 132 28

Benares Hotels 7/11/2014 910 2037 124 7

India Nippon Elect. 10/4/2013 152 333 119 35

Control Print India 6/27/2014 90 189 110 7

JMC Projects (India) 1/8/2014 81 166 105 29

BASF India 11/20/2013 589 1206 105 30

Swaraj Engines 10/11/2013 482 984 104 31

Ingersoll-Rand (I) 1/10/2014 385 783 103 29

Vesuvius India 9/11/2013 356 720 102 34

Jyoti Structures 11/8/2013 25 50 100 30

Tide Water Oil 1/3/2014 7403 14675 98 29

TV Today Network 12/11/2013 116 230 98 27

Ador Welding 12/18/2013 129 255 98 29

City Union Bank 9/18/2013 43 85 98 34

SKF India 10/25/2013 575 1130 97 30

Foseco India 11/27/2013 494 948 92 31

Roto Pumps 6/6/2014 247 451 83 6

Astec LifeSciences 6/25/2014 42 76 81 6

Garware-Wall Ropes 6/13/2014 97 175 80 6

Container Corp 12/6/2013 723 1268 75 28

Federal Bank 11/13/2013 74 128 73 33

Poddar Pigments 7/25/2014 101 174 72 3

Bharti Infratel 1/24/2014 174 293 69 27

Company Rec. Date Rec. pricePrice05052014 Var. (%) Sensex Var. (%)

TVS Motor Co 30-Aug-13 31 130 319.4 30.1

VST Tillers Tractors 3-Jul-13 367 1,246 239.5 26.3

Monsanto India 26-Jun-13 603 1,819 201.7 30.5

Va Tech Wabag 9-Aug-13 409 1,174 187.0 28.9

Suprajit Engineering 1-Oct-13 32 90 181.3 24.1

Kalpataru Power 26-Jul-13 63 175 177.8 22.6

Gujarat Pipavav Port 30-Oct-13 50 126 152.0 15.1

Jyoti Structures 8-Nov-13 25 61 144.0 17.2

AIA Engineering 13-Sep-13 318 752 136.5 22.7

Essel Propack 25-Sep-13 37 86 132.4 22.0

TVS Srichakra 16-Oct-13 225 512 127.6 17.9

National Bldg Const 6-Nov-13 135 301 123.0 15.9

Fiem Industries 18-Oct-13 206 452 119.4 16.0

Bharat Forge 14-Aug-13 229 502 119.2 25.0

L G Balakrishnan 15-Jan-14 275 598 117.5 13.8

Motherson Sumi Sys 7-Aug-13 139 298 114.4 29.8

Sundram Fasteners 29-Nov-13 40 85 112.5 16.5

MM Forgings 27-Dec-13 90 174 93.3 14.3

PTC India Financial 5-Jun-13 14 27 92.9 23.8

Isgec Heavy Engg 12-Feb-14 880 1,645 86.9 18.4

TVS Motor Co 30-Aug-13 31 130 319.4 30.1Telefolio's One-year Toppers

Company Name Rec. Date Rec. Price as onTelefolioSensexPrice 15-Sep-15Gain (%) Gain (%)

MM Forgings 12/27/2013 90 484 438 27

L G Balakrishnan 1/15/2014 138 692 401 26

TVS Srichakra 10/16/2013 225 1102 390 31

Monsanto India 11/1/2013 700 2911 316 27

Suprajit Engg 10/1/2013 32 131 309 37

National Build Con 11/6/2013 135 539 299 28

Sundram Fasteners 11/29/2013 40 147 267 29

Isgec Heavy Engg 2/12/2014 880 3215 265 31

Gujarat Pipavav Port 10/30/2013 50 177 253 27

KNR Constructions 3/7/2014 88 297 238 22

Munjal Showa 10/9/2013 63 212 236 32

Manjushree Tech 9/20/2013 129 411 219 32

Fiem Industries 10/18/2013 206 653 217 28

Sterling Tools 4/9/2014 127 401 215 18

Essel Propack 9/25/2013 37 115 210 35

AIA Engineering 9/13/2013 318 970 205 36

Banco Products (I) 2/21/2014 54 165 205 30

ITD Cementation 4/16/2014 149 445 199 20

Munjal Auto Ind 2/7/2014 41 120 192 32

DCM Shriram Ind 4/11/2014 54 154 185 19

Apcotex Industries 5/14/2014 129 366 184 13

Z F Steering Gear 3/28/2014 263 705 168 20

Hi-Tech Gears 5/7/2014 86 227 164 20

GMM Pfaudler 2/19/2014 91 240 163 29

Indian Hume Pipe 1/31/2014 125 305 144 31

JBM Auto 7/18/2014 352 840 139 5

Auto Corp of Goa 1/29/2014 211 501 137 30

Whirlpool of India 2/26/2014 193 449 132 28

Benares Hotels 7/11/2014 910 2037 124 7

India Nippon Elect. 10/4/2013 152 333 119 35

Control Print India 6/27/2014 90 189 110 7

JMC Projects (India) 1/8/2014 81 166 105 29

BASF India 11/20/2013 589 1206 105 30

Swaraj Engines 10/11/2013 482 984 104 31

Ingersoll-Rand (I) 1/10/2014 385 783 103 29

Vesuvius India 9/11/2013 356 720 102 34

Jyoti Structures 11/8/2013 25 50 100 30

Tide Water Oil 1/3/2014 7403 14675 98 29

TV Today Network 12/11/2013 116 230 98 27

Ador Welding 12/18/2013 129 255 98 29

City Union Bank 9/18/2013 43 85 98 34

SKF India 10/25/2013 575 1130 97 30

Foseco India 11/27/2013 494 948 92 31

Roto Pumps 6/6/2014 247 451 83 6

Astec LifeSciences 6/25/2014 42 76 81 6

Garware-Wall Ropes 6/13/2014 97 175 80 6

Container Corp 12/6/2013 723 1268 75 28

Federal Bank 11/13/2013 74 128 73 33

Poddar Pigments 7/25/2014 101 174 72 3

Bharti Infratel 1/24/2014 174 293 69 27

Kirloskar Pneumatic 12/20/2013 365 615 68 27

Career Point 4/4/2014 81 135 66 20

Honeywell Auto 5/9/2014 3182 5285 66 17

PTC India 11/22/2013 57 93 64 33

HT Media 2/14/2014 72 118 63 32

Hikal 6/11/2014 446 727 63 5

Mindtree 4/30/2014 710 1155 63 20

Cummins India 12/13/2013 428 695 62 29

Modison Metals 4/18/2014 33 53 61 19

Bajaj Electricals 12/4/2013 176 281 60 29

Nilkamal 5/16/2014 233 369 58 11

Lakshmi Mach Works 2/28/2014 2610 4132 58 27

Intl Travel House 4/23/2014 174 275 58 17

KEI Industries 6/20/2014 24 37 56 7

WPIL 7/16/2014 381 591 55 5

LIC Housing Finance 1/17/2014 208 319 53 27

Invest & Precision 8/13/2014 57 87 53 3

CRISIL 5/2/2014 1281 1950 52 20

BASF India 5/30/2014 793 1206 52 11

ESAB India 3/26/2014 442 670 52 21

Tata Elxsi 2/5/2014 407 609 50 32

Styrolution ABS (I) 3/14/2014 419 623 49 23

Hindustan Media 1/1/2014 110 161 46 27

Vishnu Chemicals 9/3/2014 93 133 42 -1

South Indian Bank 12/24/2013 20 28 41 27

Andhra Sugars 4/2/2014 107 150 40 19

Dynemic Products 8/28/2014 48 66 38 1

Morganite Crucible 8/1/2014 382 525 37 5

Maruti Suzuki India 5/21/2014 2168 2970 37 10

D B Corp 9/27/2013 252 341 35 36

Castrol India 10/23/2013 312 419 34 29

Superhouse 8/22/2014 188 252 34 2

Lakshmi Electrical 7/2/2014 329 440 34 4

Rane Brake Lining 7/30/2014 244 320 31 3

Rane (Madras) 8/6/2014 307 402 31 4

Ador Fontech 8/20/2014 91 118 30 2

DCM Shriram Industries9/5/2014 121 154 27 -1

HDFC Bank 1/22/2014 678 860 27 26

The Great Eastern Shipping Company 6/4/2014 361456 26 8

Automobile Corporation of Goa8/14/2014 400 501

Track record

3 Months 46 46 Months 60 1012 Months 102 2024 Months 100 3036 Months 109 3960 Months 127 43As on 15 September 2014

Period ended Var (%)10 Sep 2014 Telefolio Sensex

Average

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a 500-MW lignite-based expansion project, a1,000-MW Neyveli new thermal powerstation at Neyveli, a 51-MW wind-powerproject at Kazhuneerkulam, Tamilnadu, a 10-MW solar power project at Neyveli, and a1000-MW coal-based power project atTuticorin through a JV subsidiary company.

Further, Neyveli is consideringimplementing power projects of 6,505-MWcapacity over the next eight years. Thecapacity of lignite mining is proposed to beincreased to 36.25 mtpa from the current30.6 mtpa. Also, coal blocks of PachwaraSouth and Jilga-Barpali are expected to becommissioned in future.

Chennai Petroleum Corporation isupgrading its Manali refinery in Tamil Naduat a capital outlay of Rs 3110 crore. Theupgradation is aimed at increasing thedistillate yield by processing increasedpercentage of high sulphur crude. This projectcomprises installation of a delayed coker unit(2.2 mmtpa) and revamp of the existing hydrocracker unit to 2.25 mtpa from 1.85 mtpa.The construction work has commenced at thesite and the project is scheduled forcompletion by December 2015.

Power Grid Corporation of India(PGCIL) capitalised assets worth Rs 15904crore in FY 2014 and added 6,604 circuitkilometre (ckm) of transmission lines, 17sub-stations, and about 41,160 mega voltampere (MVA) transformation capacitiesinto the transmission system. It madecapital investments of Rs 23158 crore inFY 2014, 15.6% higher compared with FY2013, for implementation of projects inaccordance with the commitments made inthe 12th Five-Year Plan. The company hasapproved 19 new projects, with anestimated cost of Rs 8548 crore, forimplementation in FY 2014.

PGCIL has presented an integrated planfor desert power development for harnessingthe huge renewable energy potential of about300-GW solar and wind energy at desert andcold desert waste land in the Kutch, Thar,Lahaul & Spiti, and Ladakh areas by FY 2050.The plan includes establishment and gridintegration of renewables, at an estimated costof Rs 43.75 lakh crore, through hybridtransmission corridors. This plan has beenpresented to the Union government.

NHPC is in the process of constructingfour hydroelectric projects, with an installedcapacity of 3,290 MW. As part of futureexpansion plan, five projects, with an

installed capacity of 5,115 MW, are undervarious stages of approval. Besides, threeprojects in Jammu & Kashmir (2,120 MW)and one project in Manipur (66 MW) areenvisaged to be executed through JVs. Atpresent, the hydro electricity generator hastotal installed capacity of 6,507 MW spreadover 18 power stations.

BEML plans to diversify into newproducts such as continuous miner and minecruiser in the mining and constructionbusiness, light rail vehicles and electric busesin the rail and metro segment and aggregatesfor the aerospace sector. These will be newrevenue streams in the defence vertical. Thecompany makes earthmoving and otherheavy industrial equipment for the miningand civil engineering industries.

ConclusionThe government should ensure the ongoing

capital projects of PSUs are executed on time.This in itself will provide a big boost tothese PSUs. Policy makers have accordedgreater operational freedom to certain cat-egory of PSUs such as maharatnas. Thisshould be extended to other PSUs as well.

On his visit to the US, the prime ministersaid the government has no business to be inbusiness. The picture is contradictory whenit comes to running PSUs. CIL is anappropriate example. On the other side, thedefence sector has been liberalized. InAugust 2014, the government notifiedincreased foreign direct investment in defenceto 49% from the earlier 26%.

Over the last two decades sinceliberalisation, there have been several casesof corruption, scams and wrong-doing in theprivate sector. The government should keepthis in mind while pursuing mindlessprivatisaion.

Co-ordination and co-operation betweenthe Centre and state governments is essential.In this context, one-man-driven approach atthe Centre could be counterproductive. Thecountry is large and diverse. An autocraticapproach could spoil the environment andhurt growth over the long term.

The stuck pipeline project of Gail Indiais an opt example. Petronet LNG hascommissioned a five-mtpa greenfield LNGimport and re-gasification plant at Kochi inKerala. The Central government had givenpermission to Gail to lay pipelines to connectthe Kochi terminal to the consumers inMangalore and Bengaluru. The pipeline toBengaluru passes through Tamil Nadu, whereGail is facing problems in acquiring land. Thematter is under litigation. Also, the Mangaloresection is awaiting approval from the stategovernment. This has resulted in lowerofftake and dismal capacity utilisation.

Largely, PSUs operate in capital-intensive industries. Investors have to focuson sources of funds and the strength of theirbalance sheets before exploring these stocksfor investment.

In October 2014, the Securities andExchange Board of India notified rules forminimum 25% public shareholding in listedPSUs by August 2017. Invariably, this meansseveral PSUs will come out with public offers.This could put pressure on their share prices.Disinvestment could be a good opportunityto enter PSU counters if investors believethat the government means business, at leastthis time around. �

Looking ahead

NHPC is constructing four hydroelectricprojects, with a capacity of 3,290 MW.Five projects, with capacity of 5,115 MW,are under various stages of approval


Relative performance ofNHPC v BSE Sensex

Higher outlay

Power Grid Corporation of India’s capexof Rs 23158 crore in FY 2014 was 15.6%more than in FY 2013 for commitmentsmade in the 12th Five-Year Plan


Relative performance ofNHPC v BSE Sensex



Money Matters

How to shuffleMIP portfolioto avoid tax?

all investments of more than one year inFMPs. The FMP matured in September2014. The asset management companydid not offer any rollover option due towhich I had to redeem the units. Do Ineed to pay short-term capital gain tax?

— mohana_01@As per the Union Budget 2014-15, any gainfrom debt mutual fund held for less thanthree years and sold after 10 July 2014 willbe classified as short-term capital gain. Thus,you will have to pay tax as per your tax slabon the gain from the FMP.I have a Public Provident Fund (PPF) ac-count, which matured last year. I hadextended the account for five years alongwith Form H, which allows me to con-tribute regularly to my PPF account. NowI need to withdraw some amount fromthe account.

— akpatel_99@You can withdraw a maximum 60% of theamount available at maturity any time inthe subsequent five years. There is onlyone withdrawal allowed every year. Forexample, if the balance in your PPF ac-count at maturity is Rs 10 lakh, you canwithdraw a maximum of Rs 6 lakh in fiveyears. You may go for lumpsum with-drawal of Rs 6 lakh or spread over fiveyears subject to one withdrawal everyyear. But once the 60% cap is reached,you cannot withdraw any more. The next

ApnaMoney

I had invested in a monthly income plan(MIP) two years ago. I am withdrawing afixed amount every month from the fund.The withdrawal this year is subject toshort-term capital gain tax as my hold-ing period is lower than three years. Howshould I restructure my portfolio so thatthe taxation is reduced?

— subash_19@The best option is to stop withdrawal fromyour MIPs till you complete three years.After three years, you will enjoy indexationlike you did before. But the option to paytax at 10% without indexation is not avail-able anymore. If you depend on withdrawalfrom MIP for your day-to-day needs, theninvest in a fund enjoying the benefit of eq-uity taxation and has a similar risk-profileas any other MIP. By replacing the debtportion of the fund with arbitrage investing,the fund ensures lower volatility comparedwith diversified equity funds.

You can also redeem the MIP and investthe amount in a combination of an arbitragefund and an equity fund. Go for a regulardividend option as there is no dividend dis-tribution tax.

You can pay short-term capital tax tillthe time you complete three years and paylong-term capital gain tax once your invest-ment is three years old.I had invested in a fixed maturity plan(FMP) in February 2013. When I ivested,the indexation benefit was available for

...................................................................The queries have been answered keeping in mindthat the investors understand the risks involved invarious investment options discussed in the col-umn. Capital Market or the writer cannot be heldresponsible for any loss arising due to the invest-ment descision taken by investors based on thesolutions given. Readers may e-mail their queriesto: [email protected]

withdrawal is allowed only on second re-newal for the next five years.SREI Infrastructure Finance has comeup with a non-convertible debenture(NCD) issue. How does it fare on therisk-return parameters? Are there anybetter NCDs lined up going ahead?

— gopinath_73@The NCD issue of SREI Infrastructure Fi-nance is open till 31 October 2014. The de-bentures are secured and the return ranges from10.75-11.75% depending on the category ofinvestors. Investors can subscribe across ten-ures of two-five years. Shareholders, seniorcitizens and existing bond holders will enjoy0.25% additional rate of interest across all ten-ures. The issue has received a rating of AA- byCare and AA from Bricks Works Rating. Thecompany is paying dividend every year sincefiscal ended March 2003.

SREI Infrastructure finances infrastruc-ture projects. The infrastructure sector hadperformed poorly in the last three-fouryears. This is reflected in the financial per-formance of the company. Going forward,the outlook for the infrastructure sectorlooks promising. This should help SREIInfrastructure. The quarter ended June 2014was particularly good for the company,both sequentially as well as over the year.

There are a very few options availablein the market offering rates as high as 12%per annum. Most of them are fixed deposits(FDs) of companies, whose ratings are lowerthan that of SREI. Also, FDs are unsecuredborrowings and riskier than secured NCDs.Given the return, SREI Infrastructure NCDis a good investment option. It also enjoysdecent liquidity as it will be listed on theBombay Stock Exchange. Being a listed se-curity, there will be no tax deduction atsource on the interest portion, irrespectiveof the interest amount.

Looking at the decent rating, positive out-look for the infrastructure sector, good lastquarter results and the rate offered, the issuelooks attractive compared with some otheroptions available offering similar return. Thereare a few NCDs lined up going ahead. But thisissue is a good investment proposition.

— Rahul Mantri

ApnaMoney

Three options

Stop withdrawal from MIPs, redeem units to invest in equity-arbitrage fund, or continuepaying applicable taxes

SCHEME NAME LATEST NAV EXPENSE 1-YEAR

CORPUS (Rs cr) (Rs) RATIO (%) RETURN (%)

HDFC Monthly Income Plan - LTP (G) 3558.32 32.29 1.93 23.53

Reliance Monthly Income Plan (G) 2228.13 30.53 1.95 19.58

ICICI Pru MIP 25 (G) 742.02 27.89 2.44 19.16

UTI-MIS Advantage Plan (G) 471.23 28.45 2.29 19.49

DSP BR MIP Fund (G) 360.10 26.99 2.48 14.74

Return is absolute. List not exhaustive. NAV as on 17 October 2014.

FMP: Pain of short-term capital gain

ApnaMoney Tax Matters

88 Oct 27 - Nov 09, 2014 CAPITAL MARKET

Tax Matters

How are online returns filedfor derivatives trading?

turn for the first time. It could be trouble-some if you feed wrong data.

For the purpose of ITR-4 and also appli-cability of Section 44AA of the IT Act, youare required to maintain proper books of ac-counts including balance sheet, profit and loss,and other general books and statements. Also,if your turnover or gross receipt exceeds Rs 1crore from April 2013 to March 2014, it wouldattract Section 44AB of the IT Act, i.e., taxaudit. In that case, you are required to get theaccounts audited by a practicing CA.The Companies Act, 2013, became effec-tive from 1 April 2014. A lot many changeshave taken place. Can you briefly mentioneight-nine changes affecting auditors?

— Rakesh Maripi, e-mail

Companies Act, 2013, has provided for ex-tensive changes for audit and auditors toenhance the effectiveness of the audit andaccountability of auditors.

The numbers of audits under the newCompanies Act, 2013, has been restricted to20. The auditor will now be appointed forfive years. However, at each AGM, memberswill have the option to rotate the audit part-

ner or the audit team and the joint auditor.For listed companies, mandatory rotation ofan audit firm is after 10 years and of indi-vidual auditor every five years. The coolingperiod is five years. During the cooling pe-riod, the auditor cannot provide services tothe holding company and subsidiary.

Auditors’ indebtedness to the clientcompany will warrant disqualification whenthe amount exceeds Rs 1 lakh. The auditoris restricted from providing certain non-au-dit services to audit clients either directlyor indirectly.

A class-action suit (CAS) can be filedagainst the auditor or the audit firm for im-proper or misleading statement of particularsmade in the audit report or for any fraudu-lent, unlawful or wrongful act or conduct.CAS has to be filed with the National Com-pany Law Board Tribunal. The threshold forinitiating CAS is 100 or 10% of the totalnumber of members, whichever is less.

If the National Financial ReportingAuthority proves misconduct on partof the auditor, the audit firm can be de-barred for 10 years. These changes un-doubtedly, have a considerable impact onthe audit profession.I work for a private limited company. InApril 2013, we agreed to sell a propertyfor Rs 55 lakh at a future date. The agree-ment of sale may be executed in March2014 or in the next financial year. Theproperty value, as per the balance sheet,is Rs 386544. The original value is Rs1327708. If the market value of the prop-erty is more than the sales agreementvalue, are there any income tax repercus-sions for the buyer or seller? What is thetax liability on the transaction? If we buyanother property for our factory withinthe stipulated period, what are the taxbenefits or exemptions that can beclaimed? Is there any certifying author-ity who can certify the value of the pre-mises, considering the number of years thebuilding exists, and give us a certifiedcopy? In this case, is the value consideredby the certifying authority treated as

By T K Doctor & Zankhana P Mehta

I trade in the derivatives segment of theNSE. I trade in options on intra-day basis.I take positions only as an options buyer. Inever sell them. The trades never exceedthe time frame of one month. I am notemployed anywhere and trading is my soleprofession. I recently received a Rs 10-lakh gift from my mother. This should betax-free, as per my knowledge. She filesher income tax (IT) return regularly. I havestarted using the money, which I have re-ceived from her, for my options trade. Inthis scenario, please guide me how I shouldfile my IT return online. I never did thatin the past. I was a salaried individualwhen I was working in Mumbai.

— Rahul Patwardhan, e-mail

Income earned from trading in derivativesis taxed as business income. From assess-ment year 2006-07 (financial year 2005-06) ,derivatives transactions are not consid-ered as ‘speculative transactions’ if theysatisfy the conditions prescribed in Section43(5) of the IT Act, 1961, Transactionsshould have been carried out on arecognised stock exchange. The securitiestransaction tax should have been paid.Transactions should be supported by con-tract notes. If all the conditions of the sec-tion are satisfied, then such transactions areconsidered as non-speculative transactions.Otherwise, they would be regarded specu-lative transactions.

Considering the transactions in derivativesare non-speculative business transactions, youneed to file return in IT Return (ITR)-4. Asper Section 56(2)(vii) of the IT Act, gift re-ceived from relative is not taxable in the handsof the recipient. Mother is defined as ‘rela-tive’. Hence, Rs 10 lakh received as gift fromyour mother is not taxable.

One can also make use of various e-filing software available in the market.There is no need to attach anything withthe ITR. But keep all the documents readyfor assessment if demanded by the assess-ing officer.

Take the help of professionals like char-tered accountant (CA) as you are filing re-

Gift received from relative is not taxable in the handsof the recipient. Mother is defined as ‘relative’.Hence, gift received from mother is not taxable

ApnaMoney

CAS can be initiated against audit firms

ApnaMoney Tax Matters

89Oct 27 - Nov 09, 2014 CAPITAL MARKET

The replies are only in the nature of guidelines. The taxcounsellors and the publication are not responsible forany decision taken by readers on the basis of the same.Readers may e-mail their queries on direct taxation to:[email protected]

...................................................................

Capital gain cannot be charged if the gain is investedin certain bonds subject to certain conditions. For example,the asset transferred should be a long-term capital asset

market value? Is the certificate valid forincome tax?

— Kunjal Bandi

If the difference between the stamp duty valu-ation and actual consideration exceeds Rs50000 tax will be payable on such notionalamount by the seller as well as purchaser. Ifthe seller holds the immovable property asstock-in-trade as business income under thenew Section 43CA of the Income (IT) Act,1961, effective 1 April 2013.

Tax is applicable if the seller is holdingthe property as capital asset and if the indi-vidual or the Hindu undivided family pur-chaser, under amended Section 56(2)(vii)(b)of the IT Act from 1 April 2013, shows it asincome from other sources. The tax liabilityis assuming you are holding the property ascapital asset, which means property of anykind held by an assessee, whether or not con-nected with his business or profession.

If the depreciable asset (other than an as-set used by power generating unit eligible fordepreciation on a straightline basis) is trans-ferred, capital gain is taken as short-term capi-tal gain, irrespective of period of holding.

Computation of capital gain or loss canbe made on the transfer of a depreciableasset, for which depreciation has been al-lowed in the past, only if the writtendownvalue of the block of assets is zero on thelast day of the previous year or when theblock of assets is empty on the last day ofthe previous year.

If the consideration received or accruedas a result of the transfer of land and /orbuilding is less than the value adopted orassessed for payment of stamp duty, thevalue so assessed is to be the full value ofthe consideration received as a result of suchtransfer for computing capital gain. Short-term gain will be sale consideration less cost.

Capital gain is taxable unless exemptedunder Sections 54,54B,54EC,54F,54G, and54GA of the IT Act. Being a company, youare not eligible for claiming exemption bybuying another property within the stipu-lated period. However, you may avail ex-emption under Section 54EC of IT Act.

Section 54EC provides that capital gaincannot be charged if the gain is invested incertain bonds subject to certain conditions.One of the conditions is that the asset trans-ferred should be a long-term capital asset.If the transfer of depreciable asset, Section50 is applicable. By virtue of Section 50 (forthe purpose of Sections 48 and 49 of the ITAct), capital gain on transfer of a depreciable

asset is treated as capital gain on transfer ofshort-term capital asset.

Nowhere does Section 50 says that, forthe purpose of Section 54EC, a depreciableasset is a short-term capital asset. Section54EC is an independent section. Section50 does not have an overriding effect overSection 54EC, which has an application ifthe long-term capital asset is transferred.Therefore, capital gain received by an as-sessee on the transfer of a depreciable as-set (if conditions necessary under Section54EC are complied with the assessee) iseligible for the benefit under Section 54EC.

You may adopt the market value as perthe certifying authority. However, the con-cerned assessing officer (AO) may refer thevaluation of the capital asset to a valuationofficer appointed by the IT department if thevalue of the asset is in accordance with theestimate made by a registered valuer (whoworks in a private capacity under a licenseissued by the Central Board of Direct Taxesand his valuation is not binding on the AO)but the AO feels the value so claimed is lessthan its fair market value applicable up to30 June 2012 or at variance with its fairmarket value (applicable from July 1, 2012).

The AO may also refer the valuation toa valuation officer of the IT department ifthe AO is of the opinion that the fair mar-ket value of the asset exceeds the value ofthe asset by more than Rs 25000 or 15% ofthe value claimed by the assessee, which-ever is less, and if the AO is of the opinionthat it is necessary to make a reference tothe valuation officer.I got placement in a UAE company. I amposted in Dubai. I fly to India once everyfive months. My salary is approximatelyRs 98000 per month. I need to open a bankaccount to deposit my salary. But I amconfused. Which type of account should Iopen? Non-resident Indian (NRI), non-resident external (NRE), or non-residentordinary (NRO) account? The accountshould ensure that my salary is not tax-able in India.

— Ranjan Kumar e-mail

In case of non-resident Indians, foreign in-

come is not taxable in India. Only Indian in-come is taxable in India. Salary income istaxable in the hands of the non-resident if itis received or deemed to be received in Indiaor accrued or deemed to be accrued in India.

Income of a non-resident by way of, ‘Sala-ries’, is deemed to accrue or arise in India ifthe income is payable for services rendered inIndia, if the rest period or leave period is pre-ceded and succeeded by services rendered inIndia and forms part of the service contract ofemployment, and if the salary is payable bygovernment of India to a citizen of India forservices rendered in India.

Normally, the place of accrual of salaryis the place where the services are rendered.So, for a non resident, only salary earned inIndia is taxable in India.

Salary received in the NRE accountwill be taxable outside India. Salary of anon-resident accruing outside India is nottaxable under the Income Tax (IT) Act,1961. As such, it is not included in totalincome even if it is received in India lateras salary payable is taxable at the placewhere it accrues. The only exception is sal-ary received in advance, which is taxableat the place where it is received.

Both NRO and NRE accounts are main-tained in Indian currency and can acceptremittances in foreign currency. However,for NRE account, there is no restriction ontransfer of money back to the foreign ac-count. So NRE is preferable. The NRO ac-count should be used for income receivedIndia such as rent, dividend and interest.Banks are not allowed to credit such in-comes earned in India into the NRE account.

Hence, you can open an NRE accountand get your salary deposited in the account.Salary deposited in this account is non-tax-able in India because your salary accruesoutside India, i.e., in Dubai. This holds as-suming your residential status under the ITAct is ‘non-resident’.


Astec LifeSciences

Will sustain good growthSupplying a diversified range of intermediates on long-term contractsto users across markets to shield from seasonal swingsEstablished in 1994, Astec LifeSciencesmakes a wide range of agrochemical activeingredients and pharmaceutical intermedi-ates. The experience in the development andproduction of intermediates and active in-gredients makes it an ideal partner, resultingin relationships with large and small compa-nies all over the world.

Multipurpose production facilities atDombivli (50 km from Mumbai) and towplants at Mahad (180 km from Mumbai)meet global standards. These are based on3,000 litres to 20,000 litres of glasslined andstainless steel reactors. A typcial reactor sizeis 10,000 liters.

Active ingredients are sold to crop-pro-tection formulators and intermediates totechnical-grade product manufacturers. For-mulations are sold in bulk to companies en-gaged in retail marketing. Hexaconazole,tebuconazole, metalaxyl and propiconazoleare some of the key products used in crop-protection. Dicap, one of the key pharma-ceutical intermediate, is used to manufac-ture antifungal agents.

Besides enjoying a good share of thedomestic market, Astec has success-fully ventured into international mar-kets as well, exporting products toSouth Africa, Europe, the US, WestAsia, East Asia, Japan and SouthAmerica by entering into long-termsupply contracts with the buyers inthese countries to scale up exports.

A strong R&D focus has enabledthe introduction of a number ofunique products. Operations are in-tegrated vertical and horizontal, re-sulting in efficiency and low cost.Contract manufacturing and researchwill be a platform for future growth.India is well positioned to capitalizeon this opportunity as multination-als are moving manufacturing fromhigh-cost western countries to emerg-ing economies.

India has a strong pool of scien-tific manpower and a well developedeco-system for the production of fine

CapitalineCorner

http:/ /www.telefol io.com

FOR MORE DETAILS ON PAGE 85

facility at MIDC Mahad, Maharashtra. Thefacility incorporates the proprietary pro-cess technology developed by a major mul-tinational customer. The project will have asubstantial impact on the agrochemical busi-ness in the coming years.

A manufacturing contract has beenbagged from Sumitomo. Partial sales werebooked in the fiscal ended March 2014 (FY2014). The order is expected to be fullyoperational in FY 2015. For the currentcontracts, no further capex is required. Butif more orders are snagged, then new capexwill be undretaken.

Currently, contract research and manu-facturing forms about 20-25% of total sales.Exports constitute around 35-40% of totalsales. Exports will grow more than 20% inFY 2015. Q4 and Q3 are the best quartersfor exports for the company.

The strategy is to consolidate presencethrough a few key products and access cus-tomers across the globe to ensure sustainedgrowth every quarter in an otherwise sea-sonal industry. Export volumes complementdomestic sales and insulate against vagar-

ies and shifts in market behavior,which is not an uncommon experi-ence in the agrochemical business.

Though sales were almost flat ataround Rs 66 crore, the operatingprofit margin (OPM) rose to 23.2%from 16.1%, leading to a 42% jumpin operating profit (OP) to Rs 15.22crore in the quarter ended September2014 over a year ago. Net profit wasup 77% to Rs 6.13 crore.

Consolidated sales increased 8%to Rs 117.56 crore and the OPMjumped to 20.6% from 16.8%, lead-ing to a 32% growth in OP in the halfyear ended September 2014 over ayear ago. Consolidated net profitsurged 67% to Rs 7.94 crore. We ex-pect Astec to report consolidated salesof Rs 228.25 crore and net profit Rs12.83 crore, giving an EPS of Rs 7 forFY 2015. The current price of Rs 67discounts this around 9.6 times. �

Right chemistry

Astec LifeScience has identified contractmanufacturing as a platform for growth.The strategy is to consolidate presencethrough a few key products

Share price on BSE in Rs

Astec LifeSciences: Consolidated financials

1103(12) 1203(12) 1303(12) 1403(12) 1503(12P)

Net Sales 110.44 113.17 174.73 207.34 228.25

OPM (%) 15.1% 14.0% 16.2% 17.2% 19.6%

OP 16.64 15.82 28.30 35.73 44.69

Other income 0.23 0.29 1.06 0.00 0.00

PBIDT 16.87 16.11 29.36 35.73 44.69

Interest 4.06 5.66 8.79 9.25 11.94

PBDT 12.81 10.45 20.57 26.48 32.75

Depreciation 5.83 8.64 11.87 14.76 15.97

PBT 6.98 1.81 8.70 11.72 16.78

Total Tax 2.08 0.54 2.79 2.50 3.71

PAT 4.90 1.27 5.91 9.22 13.07

EO (Net of Tax) 0.00 0.00 0.00 0.57 0.21

MI 0.00 -0.09 -0.05 -0.02 0.03

PAT after MI 4.90 1.36 5.96 8.67 12.83

EPS (Rs)* 2.6 0.7 3.2 5.0 7.0

*Annualised on current equity of Rs 18.53 crore: Face value of Rs 10 each.EO: Extraordinary items. EPS is adjusted for EO and relevant tax.(P): Projections MI: Minority interest. Figures in crore.Source: Capitaline Databases

Capita Telefolio

average return

crossess100%

see page 85

chemicals. Last year commercial produc-tion commenced at a new state-of-the-art

Documents

Stock StockWatch Watch Watch list - Capital Marketsubscribers.capitalmarket.com/cmmagazine/pdf/2918_c.pdf · The starch industry has shown above 15% compounded annual growth rate