Utilities - Intent to improve coal for IPPs, modalities not clear [Abhishek Puri]
Press reports (Hindu, 21 Jun’13) suggest that the Cabinet Committee on Economic Affairs has approved the coal price pass-through mechanism. Key decisions – 1) Coal India will sign fuel supply agreements (FSA) with all 78 GW capacities – additional 16GW capacities approved to include cases of tapering linkage. Fuel supply will start after power purchase agreement (PPA) is signed. 2) Coal India annual supply quantity will be limited to 65/65/67/75% for FY14/15/16/17 for domestic coal and balance coal to meet 80% in FSA will be met through imports either by Coal India or directly by power generators. 3) Higher cost of imported coal will be allowed as a pass-through in tariffs. Ministry of Power (MOP) will issue advisory to Central Regulator (CERC) and State Regulators (SERC) to develop modalities for pass-through.
Indian Infrastructure - Needing much more than help from the weather gods [Manish Saxena]
We are encouraged by the monsoon, which is above normal, widespread and could help arrest the dip in India's water tables. This is good news for the economy as a whole, as power deficits decline, both from lower demand from the subsidized agri sector and higher supply from low-cost hydro. However, for the majority of infrastructure projects, built on structural shortages, this would mean a push-back in earnings. Notwithstanding strong 2H demand, we cut Coal India estimates by 4% to factor in the likely H1 miss, similar to cuts we made for the cement companies. Even for DG sets, sales may be pushed back, not good news for CUMM (Hold) and merchant power player IPPs.
Indian IT Services - Currency tailwind for the sector; HCL Tech and TCS key beneficiaries [Aniruddha Bhosale]
In our view, HCL Tech and TCS will be the main beneficiaries of the recent rupee depreciation. Our sensitivity analysis suggests that, ceteris paribus, for every 1% depreciation of the INR vs. the USD, earnings of the top-tier Indian IT service companies are likely to increase by 1.5-1.9%, while EBIT margins will be up 20-25bps in FY14E. We believe HCL Tech and Infosys are the most likely to post better-than-expected margin performance if the rupee weakness persists, while TCS will reinvest the gains from the weaker rupee to improve its top line. We reiterate our positive view on the sector, with TCS and Tech Mahindra our top picks.
India Economics Weekly - Will "taper" damage India? [Taimur Baig]
Will "taper" damage India? Since May 21, there has been a rise in global risk aversion as the US Federal Reserve has begun to provide guidance, in a manner somewhat more hawkish than expected, regarding its "tapering" of asset purchase program. India's markets have not been spared, with the INR depreciating the most against the USD in Asia (-6.6%), the Nifty declining by about 8%, and the 10-yr bond selling off by 2%. Plenty can be done to prevent the exchange rate from depreciating in a disorderly manner, in our view.
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Press reports (Hindu, 21 Jun’13) suggest that the Cabinet Committee on Economic Affairs has approved the coal price pass-through mechanism. Key decisions – 1) Coal India will sign fuel supply agreements (FSA) with all 78 GW capacities – additional 16GW capacities approved to include cases of tapering linkage. Fuel supply will start after power purchase agreement (PPA) is signed. 2) Coal India annual supply quantity will be limited to 65/65/67/75% for FY14/15/16/17 for domestic coal and balance coal to meet 80% in FSA will be met through imports either by Coal India or directly by power generators. 3) Higher cost of imported coal will be allowed as a pass-through in tariffs. Ministry of Power (MOP) will issue advisory to Central Regulator (CERC) and State Regulators (SERC) to develop modalities for pass-through.
Indian Infrastructure - Needing much more than help from the weather gods [Manish Saxena]
We are encouraged by the monsoon, which is above normal, widespread and could help arrest the dip in India's water tables. This is good news for the economy as a whole, as power deficits decline, both from lower demand from the subsidized agri sector and higher supply from low-cost hydro. However, for the majority of infrastructure projects, built on structural shortages, this would mean a push-back in earnings. Notwithstanding strong 2H demand, we cut Coal India estimates by 4% to factor in the likely H1 miss, similar to cuts we made for the cement companies. Even for DG sets, sales may be pushed back, not good news for CUMM (Hold) and merchant power player IPPs.
Indian IT Services - Currency tailwind for the sector; HCL Tech and TCS key beneficiaries [Aniruddha Bhosale]
In our view, HCL Tech and TCS will be the main beneficiaries of the recent rupee depreciation. Our sensitivity analysis suggests that, ceteris paribus, for every 1% depreciation of the INR vs. the USD, earnings of the top-tier Indian IT service companies are likely to increase by 1.5-1.9%, while EBIT margins will be up 20-25bps in FY14E. We believe HCL Tech and Infosys are the most likely to post better-than-expected margin performance if the rupee weakness persists, while TCS will reinvest the gains from the weaker rupee to improve its top line. We reiterate our positive view on the sector, with TCS and Tech Mahindra our top picks.
India Economics Weekly - Will "taper" damage India? [Taimur Baig]
Will "taper" damage India? Since May 21, there has been a rise in global risk aversion as the US Federal Reserve has begun to provide guidance, in a manner somewhat more hawkish than expected, regarding its "tapering" of asset purchase program. India's markets have not been spared, with the INR depreciating the most against the USD in Asia (-6.6%), the Nifty declining by about 8%, and the 10-yr bond selling off by 2%. Plenty can be done to prevent the exchange rate from depreciating in a disorderly manner, in our view.
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