2010
October 7, 2010
Renewable Energy is Easter Europe has boomed driven by government incentives and subsidies.Many of these countries like Estonia,Bulgaria and Czech are cutting or already have cut generous feed in tariffs paid to Green Energy Investors.While Czech has seen an unprecedented Solar Boom leading to a massive public backlash,Estonia and Bulgaria have seen huge wind energy projects.The Green Energy has boomed in the last 2 years mainly as governments in these countries try to meet the Renewable Energy Target of 20% by 2020 set by the European Union.These East European countries have been hit hard by these EU directives as the costs have spiralled
October 7, 2010
Northrop Grumman the US Defense Giant and the largest US Shipbuilder as well is entering the Offshore Wind Energy Field.With Cape Cod very near to receiving the final approvals for setting up the first Offshore Wind Farm in the USA,Northrop sees a good opportunity.Shipbuilders around the world have recently entered the growing Green Sector of Offshore Wind.Korean Shipbuilders like Hyundai,Samsung have already set up Wind Turbine plants.Northrop on the other hand will team up with Gamesa to explore the Wind Energy field in the United States.Note Shipbuilding Industry is facing tough times with overcapacity and competition from Asian Players.Its critical for shipbuilders to look for newer greener pastures and Offshore Wind Energy is the best positioned space for them.It requires heavy industrial engineering and offshore operations both of which at shipbuilders excel at.
October 7, 2010
Coal India Limited (CIL) is the biggest IPO in the history of the Indian markets.The Company has generated a lot of investor interest because of a number of firsts.It is the largest coal producer in the world in one of the biggest demand growth regions.The company has excellent fundamentals being rated 5/5 by the rating agency.The government has disallowed anchor investors for the IPO as it finds that allocation could be construed as biased.Note Anchor Investors in Indian IPOs are favored investor who are preallocated a fixed amount of shares by investment bankers.This is similar to the US practice where all of the IPO is offered to institutional investors by investment bankers solely on their discretion.India is much more egalitarian in its approach to IPO regulation with a fixed amount 35% reserved for retail investors .The pricing of the issue has been a hot topic of speculation with the expected price range to give it a multiple of around 15x which is around 20-30% cheaper than comparable large US and China coal companies like Massey,Shenhua and others.
October 5, 2010
Organized retail industry in India is largely an oligopsonic market. (An oligopsony is a market form in which the number of buyers is small while the number of sellers in theory could be large. It contrasts with an oligopoly, where there are many buyers but just a few sellers. An oligopsony is a form of imperfect competition. One example of an oligopsony in the world economy is cocoa, where three firms (Cargill, Archer Daniels Midland, and Callebaut) buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries.)
Shopping centres in India have well defined product categories. These including the multiplex, the food court, the hypermarkets, the departmental stores (loosely referred to as anchors) and then the vanilla stores. In each of the anchor product categories, there are virtually 4-5 established players that all the retailers have to go to. This gives rise to an oligopsonic market with the retailers having the relationship power balance tilted in their favour. Also, with shopping centres being capital intensive (with large amount of debts) and the retailers working on negative working capital, the cash flow pressures are that much more on the shopping centre owners than the retailers. It gives retailers much more time to play hardball in their negotiations with the shopping centre owners.
October 5, 2010
The Government of India has formed a high powered panel to look into replacing the usage of diesel powered gensets by Renewable Energy in Telecom Towers.India has around 300,000 Telecom Towers most of which are powered by expensive diesel generators.The reason is that a lot of the telecom towers are situated in far flung areas where the grid does not exist.Also the power supply in India is erratic and not reliable with 10 hour electricity blackouts not an infrequent occurrence.In these cases a backup supply of electricity supply is badly needed.Diesel Generators are the most popular form with Diesel heavily subsidized by the government in comparison to normal petroleum.Also Diesel Generators are widely available without huge capital costs.
October 5, 2010
Japan is now looking to develop mines in Vietnam and Kazakhstan to secure these minerals which are essential to the green and defence industries.The desperation seems high amongst the Japanese as they are also looking to prospect for these minerals in the seas surrounding Japan.Besides these efforts to secure these minerals from newer sources,METI is also looking to recycling and efficiency measures.The Government will set up reprocessing plants in Japan in order to reduce dependence as well as invest in newer methods and processes to increase the efficiency of the usage of these Rare Earth Minerals.While the embargo seems to have eased with reports that the Chinese have allowed one ship with Rare Earth Minerals to proceed to Japan,the future seems uncertain.Lynas Corp ,the Australian Rare Earth Miner which is going to start production in 2011 has said that it has got a Japanese customer for its products.
October 5, 2010
Real Estate Companies have been trying to raise money from the primary markets for a long time.The depressed markets and the negative sentiment about the real estate sector had prevented that from happening.Realty companies are known for their "creative accouting" shenanigans and their financial statements are not even trusted by Fund Managers.However the Current Bull Run has sparked renewed interest in all sectors even depressed ones like Realty.This has presented a golden oppurtunity for Real Estate Companies to do IPOs.While the last 2 Real Estates issues Jaypee Infratech and Nitesh Estates were disasters,this ones looks better than the last 2 lemons.Oberio Realty has good profits,cash flows and zero debt.This makes their issue much better,however the Realty Sector is a dangerous one to play because of the corruption that pervades the entire industry.So you make an investment here not really knowing what you are getting into.Not a Warren Buffet Investment by a long shot.The upside is limited with huge amount of downsides in the form of unknowns.Here are some of the features of Oberio Realty
October 5, 2010
India suffers from a lack of variety as well as depth in ETFs compared to developed markets such as USA.Only Benchmark Asset Management Company (AMC) has seriously invested in the ETF space and its NiftyBeES ETF which follows India's Nifty Index is the most successful one so far.India's Infrastructure Sector has attracted a lot of investor interest given the stupendous $500 Billion Investment planned over the next 5 years.This will be 2.5x the investment in the past 5 years and will help India's crumbling ports,roads,railways,power and communications sectors to gear up to India's 8-9% GDP growth.Recently EGShares launched INXX which also markets itself as a play on India's Infrastructure Growth in the US Markets.However that ETF was found wanting in a lot of areas.The new InfraBeES ETF launched by Benchmark seems much better than INXX and has been launched in the Indian markets.This ETF is based on CNX Infrastructure Index and its 1 unit will be 1/10th of that Index.Here are some of the key features of this new ETF
September 30, 2010
Nokia had lost a big chunk of marketshare in 2009 to local competitors like Micromax,Lava,Spice and MNCs like Samsung,LG and others.In 2010,this trend has accelerated with Nokia losing an astounding 18% marketshare in the first 6 months of 2010.The company's markshare has been whittled down to just 36% from 54% earlier with local Indian mobile makers gobbling up a 33% marketshare.In the $6.5 bb annual revenue market for mobiles in India,this implies a loss of $1 billion in 2010 revenues.For Nokia,this is another resounding defeat as its Indian Fortress crumbles.Nokia is getting squeezed both on the high end as well as the low end.Local Indian companies are coming up with better features at lower price points and beating Nokia black and blue.Despite huge R&D,manufacturing strengths and an enviable distribution network,Nokia has lost the pulse of the Indian customer.The smaller Indian companies like Micromax are receiving Private Equity money to expand faster given their huge success.Nokia clearly needs more than a change of CEO,it needs to change the whole culture and DNA of the company like IBM in the 1990s.
September 29, 2010
General Electric being Smart in its Chinese Expansion
General Electric is looking to Invest Heavily in the new Age Green Industry like other Industrial Giants like Siemens,ABB etc.Having a Local Partner is a Huge Advantage since almost the whole of the Chinese Wind Industry is controlled by Chinese SOEs who favor local companies over foreign ones.EU and Japan have protested against discrimination over their domestic firms but not to much avail.GE is trying to circumvent the Discrimination Problem by giving a majority stake of 51% to Harbin Electric Machinery (HEC).However the Going will not be Easy for GE which is a Global Wind Market Leader because Competition is intensifying in the Chinese Market.Ming Yang Wind Power is looking to expand six fold to take advantage of the Growth in Chinese Wind Energy.Other Companies are doing the same.
September 29, 2010
United Kingdom a Laggard on Renewable Energy
UK has been the biggest laggard in Renewable Energy amongst the European Union.Despite being a leader in Offshore Wind,it severely lacks in other forms of Green Energy like Solar,Biomass etc.It has been very late in introducing a Feed in Tariff Scheme which has been a huge success in Germany and other countries.While there have been booms and busts caused by poorly designed FIT schemes in Czech and Spain,UK does not suffer from this problem.The Subsidy Scheme adopted by UK favors small distributed installations which is currently the aim of the other EU countries.This review has led to uncertainty in the minds of Green Investors as Government Subsidy is essential for reasonable returns.
Why UK is Reviewing the FIT
The Labour Government which implement this Green Policy has changed and the new PM David Cameron is trying to radically change the Government Policy.He has sharply curtailed the UK Budget and may want to change the Opposition Party set Green Policy as well.This seems to be the only justification behind this move which can only be described as erratic.
September 29, 2010
2) Expensive Valuation - Despite Negative Cash Flows for 3 out of the last 5 years,Cyclical Industry and Customer Concentration Risk,the Management wants around 35x P/E Valuation for their company.This is quite amazing as I would not consider the company a Buy at even 20x.However even shadier and crappier issues have managed to listed.Prakash Steelage,Aster Silicates are all examples of investors trying their hand at such Junk.
3) Customer Concentration - The Company is dependent on a few customers like Tata Motors and Indian Railways for most of its revenues.Competition for supplying Wagons to Indian Railways has increased drastically with even State Owned Companies joing the fray.CV is a cyclical industry and margisn in the CV Body Building Business are nothing great.The Company has failed to show consistent margins in the business
Summary
This is one of the more crappier issues to hit the market.Investors should not be even considering subscribing to the issue given the bad management history,cyclical sector and competition.Margins are nothing great.Growth has been inconsistent and the stock is overvalued even at half of its asking price.
September 28, 2010
MingYang is the first Chinese Wind Energy Company to list its shares in the American Stock Exchange.There are a number of Chinese Solar Companies like Renesola,Trina Solar,Suntech etc which are traded in the USA but no Wind Energy Plays.In fact the number of Wind Companies trading on US Exchanges is almost non-existent.Clipper and Broadwind are hardly big players in the global market and provide little direct exposure to Wind Energy for US investors.MingYang is issuing 25 million ADS at a range of $14-16 share diluting around 20% of the company and giving it a market cap of roughly around $1750 million.The proceeds will be used in capacity expansion and R&D mostly.MingYang is the only significant non-state owned Chinese Wind Energy Company with a 2009 marketshare of around 4%.The Company has a very short history installing its first Wind Turbine just 2 years ago and has seen an exponential growth riding on the incredible Wind Industry Growth in China.Here are the advantages and disadvantages of the Company.
September 27, 2010
Brazil,Peru,Colombia and now South Korea have all joined the "Buy Dollar and Sell Local Currency" Club.The Brazilian Real has appreciated by 34% in the last 2 years while similar stories lie behind Peru and Colombian interventions as well.With yields at near zero,Developed World Investors are pouring money into debt,equity and commodities fueling some of the Emerging Markets to all time highs.Some of the valuations like the Indian market are already stretched with local investors shunning the bubble markets.Countries with large Export Sectors like South Korea are particularly sensitive to currency appreciation and are joining in the chaos that the currency markets have become.The $4 Trillion Currency Markets are too big for a single country to take on as the Swiss found out losing Billions of Dollars in the process.The Currency Chaos is set to persist as the Financial System has become Unstable with Huge Debts,Moral Hazard and Central Bank Meddling.Gold has touched an all time high of $1300 with Silver following closely.With such volatility in Currencies,Business has become quite difficult with faith in currencies eroding at a fast pace.
September 27, 2010
Tamil Nadu is one of India's most prosperous and industrially advanced states located at its southernmost extreme.The state has shown remarkable progress in the field on Wind Energy utilizing almost 80% of its Wind Power Potential with 40% of India's total Wind Installations.With the right mix of policies,Tamil Nadu has also become the hub of Wind Energy Manufacturing with Global Heavyweights like Suzlon,Gamesa,Vestas all building plants in the State.A number of new players like Sterling Infotech and Lietner have also started manufacturing Wind Turbines in Tamil Nadu due to favorable networking effects.The state is also generates the 3rd largest amount of biomass energy with around 340 MW installed.Here are the reasons why Tamil Nadu has become the Biggest Renewable Energy State in India.
1) Tax Holidays and Subsidies - The government has given attractive subsidies to attract Wind Power Developers to the state.Rs 3.39 ( 8c/Kwh) is the tariff given to Wind Energy besides another 1c/Kwh received from the Federal Government as Generation Based Incentive (GBI).The projects in the state easily make 25-30% returns on their investment attracting a whole host of private industry developers.The Industry also gets a 10 year tax holiday,custom duty exemptions and accelerated depreciation boosting the returns even further.A 20 year PPA at fixed prices helps in building investor confidence .
September 27, 2010
India has seen a flurry of IPO’s in the current month of September 2010 as the companies IPOing in this month will not have to submit […]
September 27, 2010
Renewable Energy The potential for UK feed-in tariff changes– PV-Tech Gamesa shares slide after Del Pinos sell stake – Reuters EDF, Constellation Said in Talks to […]
September 25, 2010
Bulgaria has also now decided to cap Renewable Energy Growth with around 12.5 GW of Green Energy applications lying in the backlog.Poorly designed and implemented subsidies are the root cause for such booms and busts.Poor Governance mechanisms are behind these Green Disasters.Bulgaria is the poorest European Union Country and can ill afford higher electricity prices.The government is targeting a 16% RE target by 2020 for which it wants to fix targets for different Green Energy Sources.The power grid operator has already warned of blackouts in case even half of the 12 GW Renewable Energy applications are actually constructed.Solar and Wind Energy have been incentivized with high FITs with global heavyweights like Siemens and Suzlon rushing in to build wind farms.
September 25, 2010
India's Stock Market Regulator SEBI has castigated the investment bankers for giving investors the short end of the stick.The regulator accused the I-Banking community of only looking out for the interests of the promoters by pricing primary issues too high.The proof is in the fact that 62% of the IPOs in the last 3 years are trading at below issue price despite the fact that Indian markets are near an all time high.Bad practises such as charging zero fees from big band government divestment,unethical if not illegal promotion of IPO companies through planted ads in newspapers were some of the other things that SEBI found objectionable.
September 24, 2010
Offshore Wind Energy is starting to receive a huge amount of investment and attention both in Europe and Asia.Onshore wind installations facing the problems of visual impact,saturation of good windy geological locations and problems of low frequency noise.However Offshore Wind Farms face no such problems since they are located in high wind locations offshore far away from the general population.The largest Wind Farm got installed in the UK with Swedish Utility Vattenfal starting a 300 MW + Farm off the cost of Thanet.UK is at the vanguard of the Offshore Wind Energy Revolution with the largest amount of installations at 1340 MW.The Government has given out a number of approvals to another 30-40 GW of Wind Farms to a number of private players.This will not only substantially raise the Renewable Energy generated from UK but will also result in a huge number of Green Jobs and Investment.Already a number of Oil and Gas offshore companies are converting themselves to Green Ones to take advantage of the Offshore Wind Boom.The Wind Farms are being developed by big utilities like Dong,E.ON,EDP and RWE.
September 24, 2010
Independent Solar Project Developers are fast becoming extinct as Solar Panel Producers are fighting to gobble them up.The Solar Pipelines developed by these project developers have become very valuable for Module Producers who want to lock in to their captive demand.Despite a 140% y/y growth forecast in Solar Demand this year,the Solar Panel Production has managed to keep up.Huge amounts of capacity have been built up with Demand still precariously dependent on European Government Subsidies.There is always the danger of a Spanish meltdown happening in a crucial market which could lead to a major decline.Sunpower,First Solar and MEMC have been at the forefront of such acquisitions spending hundreds of millions of dollar in acquireing these developers.Most of these Project Developers have reaped a huge windfall as they had not constructed even 10% of their pipelines.The value given to these acquired companies was for their PPA,developement,environment permits,land acquisitions etc.
September 24, 2010
India's Central Bank RBI had proposed to deregulate the savings rate on Bank Deposits as part of the Financial Reforms.Note Savings Rate is the only regulated interest rate in the Banking Sector.This has led to a huge windfall for Indian Banks.With a savings rate of around 3.5% and lending rates of 12%,Banks manage to reap profits from this huge spread in the rates which is commonly known as the "Net Interest Margin" or NIM.Indian NIMs are very high compared to that of other countries because of this discrepancy.Indian consumers are known to deposit most of their savings in Banks as Stocks and other Assets are considered untrustworthy.Banks with high proportion of their deposits in the form of these savings deposits have much higher profitability.Note RBI has increased the returns on the savings deposits recently by shortening the length of the cumulative returns.
Indian Banks don't want competition in this space as they will lose the supernormal profits that they make because of this regulation.Private Banks are at the forefront of this opposition which is ironical as they should are the first in welcoming deregulation and competition
September 23, 2010
Maharashtra is one of the most industrialized states in India but it lags behind other states in Renewable Energy.The recent mandate by the Central Electricity Regulator to increase the requirement of Renewable Energy to 6% of Electricity Produced found Maharashtra having a severe shortfall.Maharashtra has the largest power capacity in the country with around 21 GW but most of it is thermal based generation.Despite having the second largest Wind Power Capacity with 2 GW which is around 42% of the state's potential.However Maharashtra is still considerably short of the 6% Renewable Purchase Obligation (RPO) set by it.With CERC set to increase the Green Energy Target to 10% by 2015,Maharashtra needs not only to meet the shortfall but also to increase the share of Renewable Energy.
September 23, 2010
Recently Rare Earth Minerals Companies have seen sharply rising exports.Molycorp which came out with an IPO in the US markets has seen its stock price shooting up despite not producing commercial quantities.Other Australian and Canadian Companies have also seen steep increase in stock price.The Chinese Embargo should lead to further price appreciation as other countries focus on expanding supply and production of these minerals.The recent spat between Japan and China over a fishing boat incident has escalated in recent times with the top leadership in China taking issues.China's relations with other countries have deteriorated in recent times with increasing trade friction with USA,Currency and Territorial Issues with Japan and growing Tension with India over border and land issues.
September 23, 2010
However Tecpro Systems differs from the other 2 IPOs in the sense that it is primarily focused on the Power Sector Space.It is a leader in the ash handling and material handling systems and is currently diversifying into becoming a turnkey provider in this segment.Like other infrastructure players it has seen amazing growth in the last 3 years at around 70%+.Its margins have come down and stabilized at around 7%.Cash Flow have been negative due the breakneck growth and the high WC requirements of the Construction Sector.The valuation does not seem expensive with the promoters diluting around 15% of the company.
Summary
This EPC company seems a good investment to me though not as good as VA Tech Wabag.The valuation at around 17x P/E is not very expensive though the sector concentration increase the risk for the company.However given the management quality,this company seems a better investment that other construction companies.The growth prospects of the Power Sector in India is huge and Tecpro seems well positioned in this space with partnerships with other major companies like Va Tech Wabag.Though there is some concentration risk,I think Tecpro seems a subscribe.
September 22, 2010
Not only Europe,even US is rapidly losing Green Jobs to Asia.Earlier Evergreen Solar had decided to shut down its US plant to set up a factory in China and Energy Conversion Devices is laying off workers to hire more in Mexico.The high costs of labor and capital have made it unfeasible for Western companies to manufacture in the Developed Nations.High Subsidies in the form of Low Interest Long Term Loans,Tax Holidays,Free Land have made the Asian countries irresistible to US companies.First Solar which is the largest manufacturer of panels in the world has most of its production in Malaysia where it enjoys a 15 year tax holiday.Chinese Company's get massive subsidies from the government.This combined with extremely low worker and managerial salaries make western factories totally uncompetitive in a globalized world.REC which is one of the world's biggest solar polysilicon and wafer producers has decided to shut down its module plant in Sweden.While the reason given is isolation from other factories,I suspect the costs are too high in expensive Sweden.Another European Solar Factory closes as Green Industry moves to Low Cost,Subsidy Rich Asia
September 22, 2010
Ashoka Buildcon is a Construction Company primarily focused on the Road Segments.Given India's huge demand for infrastructure and roads,the company is growing at 50%+ growth rates.However the quality of management is suspect given tax seizures,criminal cases and related transactions.The valuation of the company is also not cheap at around 22-23x P/E and around 3x P/B.The Company has grown at an excellent rate while maintaining a Net Margin of 8-10%.
Summary
While I like the Road Sector in India and the Company is a well positioned company in this sector,I hate to invest in a company where Management seems untrustworthy.The valuation of the company is not exactly cheap either without being very expensive at around 20x.However if something bad happens Macro wise then expect the stock price to plummet .There are other companies in the Road Sector like IL&FS which operates in the same segment but has a better management trust quotient.
September 22, 2010
VA Tech Wabag is one of the best quality companies to come out with an IPO in the Indian Market in 2010.The Company boasts of a quality management,good technology and fast growth.Despite a hiccup in 2009,the company has picked up its growth in 2010 and operating in a fast growing Water Industry with good execution,it looks to have little downsides.While Low Net Margins and High Working Capital is a characteristic of the EPC sector it operates in,the company has constantly been able to improve on those parameters.
Summary
There is almost nothing to dislike about the company except the valuation which is a tad expensive at around around 28-30x,however the sector P/E is also around 30-35x and VA Tech Wabag deserves a premium.Given the high quality of the company and the Water Sector it operates in,I would invest in the company as the future growth is tremendous.Also the international diversification and the Recession Proof Water Industry makes this investment safer than your normal Indian EPC company which are asking for the same valuations.
September 22, 2010
TSMC Cost Targets Would be Incredulous coming from any other Company
TSMC has said that it would look to become amongst the top 5 suppliers in the world in the next 5 years and looks at a Cost per Watt of only 19c/watt in the next 3 years which would be further reduced to 14c/watt.This is much lower than the current costs for the Solar Leader First Solar which is at around 75c/watt.This target if achieved would make solar energy the cheapest form of energy and would definitely make TSMC No.1.Note First Solar is planning a cost target of 52c/watt in the next few years.TSMC is planning to start production in Q211 with 200 MW of production planned for 2012.
September 21, 2010
Cons
1) Valuation - The Valuation of the company is not cheap at around 3x P/B and around 28-30x P/E .But with companies of the same quality going in for around the same if not higher valuations,why would the company sell the shares at a discount.This however does not make it better for investors who get very little for investing in a newly listed company.This stock is an unlikely candidate to be multibagger
2) Negative Cash Flows - The High WC Requirements of the Sector and Fast Growth has meant that the Operating Cash flows of the company have been negative in the last 3 years.
Summary
The Company and the Sector in which it operates is a good one,however the Valuation has discounted most of the good things about the company.The company has very little to be negative about except the high working capital ,negative cash flows and the like.But that is a feature of the Construction Sector rather than anything negative about the company.The high valuation given to the issue makes it avoidable given better opportunities in the Indian market.