Wind Market Open for Clean Energy

Suzlon EnergyIndia has introduced a plan to encourage investments in Wind power clean energy by giving generation-linked incentives of 50paise/kWh, in case investors can’t claim accelerated depreciation incentive. This scheme, is likely encourage those Independent Power Producers (IPPs) / foreign financial investors who have been either limited or absent from the market due to tax anomalies. This plan improves IPP project IRRs by 175-210bps. If successful, it could rejuvenate growth in the world’s 5th largest market with less than 20% potential tapped of the 45GW.

You should note that India has been an early adopter of renewable energy, with wind accounting for ~6% of installed capacity. More importantly, in 2007, 16% of new generation capacity add
was through wind turbines.

Panacea Biotec – Weak Q4

Panacea Biotec’s Q4 PAT (Rs249mn) was 3% lower than estimates. Revenues were 26% lower than estimates. While gross margin improved significantly by 450bps which reflects the price increase in polio vaccines, EBITDA margin (16.8% vs 18.7% last year) was lower on account of forex loss, and higher than expected personnel and R&D costs. Q4 PAT was saved largely by other income due to reversal of sales tax liability.

Expect Panacea to drive growth in FY09 through pentavalent combination and other vaccines launches. Likely progress on Anthrax vaccine tender award Dec’09, potential M&A activity, launches of IPV vaccine, Pharma NDDS dossier filings.

Analysis of Idea – Spice – Telekom Malaysia Mobile Deal

Laid back Modis who failed to turn around a company in 10 years have finally sold out of Spice Communications [Holds license in Karnataka and Punjab with Spectrum in 900MHz band] to Idea Cellular in a share swap ratio of 100:49. [49 Idea Shares for every 100 Spice]. Going forward what does the future look like for Idea Cellular ?

From the structure of Idea’s deal it appears that TMI [Telekom Malaysia] is keen to partner a larger player in the Indian Mobile growth story. TMI will acquire 14.99% equity (pre-Spice merger) in Idea at ~Rs157/share as a cash infusion implying post-merger valuation of Idea at ~13x FY10E-EV/EBITDA.

Additionally, TMI holds ~39.2% stake in Spice that will be swapped for a 4% stake in Idea post-merger. Eventually, TMI will hold one board seat in Idea & own between 18.5-20% stake in Idea depending on its participation in the open offer for Spice. The AV Birla group will hold ~46% stake post deal vs ~58% currently.

Inflation hits another High

If P. Chidambaram stakes claim for India’s growth story and record tax collection, he should not hesitate to paint himself in black for the co-lateral damage he has caused to 80%+ of India’s population by doubling the Inflation during his tenure and making it reach a new 13 year high of 11.42% [Higher than the highest rate of Interest offered by Bank’s Certificate / Fixed Deposits]

Rising global oil prices with record Inflation has put the Indian markets into PANIC selling mode by Institutional Investors. Until yesterday, Net FIIs selling in the Indian market for the month of June is Rs 9,500 crore [$2 bn].

Looking at the components, primary articles were up 10.96%; manufactured products were up 9.74% while the fuel price index was up 16.37%. Similar to trends seen since March this year, the uptrend is due to edible oils classified under non-food articles, fuel (with market determined fuels up 30%-50%), basic metals up 21.3% and iron-ore up 42.6%.

Upward revisions to the index continue with the April 19 data being revised up from 7.57% to 8.23%. Of the headline 11.42% WPI number, 2.49% is attributed to primary articles, 5.42% to manufacturing and 3.54% to the fuel index.

JK Paper – Performance Sliding

JK Paper reported Q3FY08 results. Net revenues increased by 17.8% YoY / 7.1% QoQ to Rs 2.2 bn. EBITDA margins declined sharply by 530 bps YoY / 240 bps to 15.2%, as against consensus expectations of 18%.

Increase in raw material by 54.9% YoY and 60.2%YoY increase in power and fuel cost put pressure on margins. Raw material as percentage of sales for the quarter was 27.1% (20.6% previous year) and power and fuel was 10.7% (7.9% previous year). As a result, EBITDA was down by 12.4%YoY / -7.6% QoQ to Rs 336 mn (we expected Rs 383 mn). Higher other income of Rs 52 mn as against mere Rs 2 mn previous year supported financials. Commissioning of new packaging plant led to increase in depreciation and interest charge. Depreciation increased by 35.7% YoY to Rs 170 mn while interest increased by 83.8% to Rs 143 mn. As a result PBT declined by 58.3% to Rs 76 mn.

Company on fully diluted basis reported EPS of Rs 2.0 as against Rs 1.5 previous year.

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