i Develop Stocks Advisory

Reliance Power premium slips in grey market

Shrinking grey market premium in the Reliance Power issue, as a result of the bearish mood in the market in the past two sessions, is prompting investors in the non-institutional category to reduce their exposure to the issue. According to market sources, the grey market premium has now slipped to Rs 280, compared to Rs 320 on Tuesday and is way below the price of Rs 400 it had been commanding last week.

Many HNIs are said to have informed non-banking finance companies that they will not be requiring the entire lot of funds that they had initially committed to borrow. If the premium in the grey market narrows down, it would mean lower gains on the day of listing.

For those looking to booking profit immediately on listing this could be a loss making proposition because the listing price has to be significantly higher to cover the cost of borrowed funds. But this could be a boon to some other investors, who are taking a slightly longer-term view on the stock.

If one section of investors pull out, others are likely to get higher allotments. Should the market bounce back around the time of listing, these investors stand to earn higher profits. A day before the Reliance Power issue opened, the premium was hovering at Rs 380, more than 80% over the upper price band. Sensing

Infy BPO to ink 3 deals worth $50-$150m each

While the Indian outsourcing industry is coping with sub-prime crisis and an escalating rupee, Infosys BPO is chalking out new ways to stay ahead. The company is now looking at ‘transformational deals’ that will help it get new business.

"These are deals where we do the initial investment for the clients in technology transformation and process automation. We run their system and by the end of it, we are able to bring down the number of people involved in the process to zero," says Infosys BPO chief executive officer and MD Amitabh Chaudhry adding, “the clients don’t have to make an upfront investment and we take the risks.”

"This is the way forward for the BPO industry," says Chaudhry, who feels given the current situation, companies will have to rethink their strategies to remain competitive.

Already, Infosys BPO is executing two such small-sized deals in the range of $5 million to $7 million. But they are eyeing three large deals between $50 to $150 million each. The company, which already has 11 centres around the world, is also planning to scale up their operations both in India and abroad. "We will increase headcount in Pune, Jaipur, Delhi and Chennai in the next 12 to 18 months," Chaudhry says. Their existing centres in Philippines, China, Thailand, Poland, the Czech Republic and Mexico to will see more intake. Their plans to create a centre of excellence in Philippines and increase capacity both in Manila and China.

As of now, Infosys BPO contributes 6% to Infosys’ overall revenue. It’s eyeing a revenue of $250 million for the fiscal year 2007-08. So far, they have recorded revenues of about 176 million dollar in the first three quarters of FY08. The company also has forward contracts of about $1.2 billion in their kitty. "We are ready to face a situation where the dollar is equal to Rs 35. That is why, inspite of the meltdown we continued to have 22% margins this year."

As for the future, they plan to push KPO aggressively, invest more in Asia, look at legal process outsourcing and procurement business. As for acquisition they’ll do that too only if the price is right.

SBI, SocGen tie up for custody business foray

State Bank of India (SBI) is tying up with French bank Societe Generale (SocGen) for its proposed custodial services business. This makes it the first Indian bank to make an entry into this business, which is largely dominated by foreign banks.

According to sources, SBI is looking at a new subsidiary in which SocGen will hold around 26% while SBI will hold the balance equity. For SocGen, this will be the second tie-up with SBI. Couple of years ago, it acquired 37% stake in SBI’s mutual fund business.

Sources added that an MoU between the two players has already been signed. The custody business provides a range of security services, including safekeeping and settlement, reporting, corporate actions, dividends collection and distribution, proxy voting, tax reclaim services, fund administration and providing market news and information.

Foreign banks like HSBC, Citi, Deutsche and StanChart are the major players in the business. They bring their overseas relationships into the country. Compared to Indian players, foreign players have the reach. Most of the business comes from foreign institutional investors (FIIs) who have business relations with the international offices of these banks. Most of these players have strong domestic as well as international businesses.

Though these players make only 2-3 basis points on custody fees, they earn largely from float, forex and a host of other transactions. With the boom in the capital market over the past few years, more FIIs are entering the market. The total number of FIIs registered so far in India is at 1,253 and the number of FII sub-accounts which are registered is at 3,720.

“We feel that there is a huge untapped business potential and we expect to gain a substantial market share within years of operations,” said senior SBI officials. They added the custody business would be a subsidiary of SBI. While both shareholders are working on the nitty-gritty, sources said new subsidiary would start operations by the next fiscal year.

For SBI, it’s one of the many initiatives to emerge as a one-stop-shop bank. By the next fiscal year, the bank is eyeing general insurance business and private equity fund. Already the bank is into life insurance, stock broking service, mutual fund and factoring service.

In loan syndications, too, SBI has become very aggressive. According to Thomson Financial, SBI is the top mandated arranger in Asia-Pacific, excluding Japan, Australia and Central Asia, with loans of $12.57 billion.

this interest among retail and high net worth investors, banks and finance houses (many of which are arms of brokerages) have lined up for funding subscription.

Reliance races towards billion-dollar Q3 profit

As India’s most valuable firm Reliance Industries (RIL) gets ready to announce its third quarter results on Thursday, analysts with leading Indian and international broking houses are keeping their fingers crossed.

The petrochemical giant has, of late, developed a habit of surprising the analysts and also beating street expectations. The trend is likely to continue this time too. RIL is expected to post an over 25% increase in net profit, which is expected to touch Rs 4,000 crore ($1 billion), on a turnover of Rs 33,234 crore, according to ETIG estimates.

If we were to add the Rs 4,023 crore RIL gained from the sale of a 4% stake in Reliance Petroleum during the quarter, the PAT will zoom past Rs 8,000 crore (about $2 billion). The net profit is based on the assumption that RIL will post robust gross refining margins (GRMs) of over $15 per barrel during the December 2007 quarter. The rise in petrochemical prices and a modest increase in volumes will help the company post a substantial gain in turnover.

The improved performance will make RIL the second Indian corporate, after ONGC, and the first private sector company to cross the $1 billion mark in quarterly net profit. ONGC had posted a net profit of Rs 5,097.5 crore during the second quarter of 2007-08, the highest in Indian corporate history.

The October-December quarter witnessed strong growth in international refining margins, as prices of petro-products like petrol, diesel and naphtha rose faster than crude.

The benchmark Singapore refining margins almost doubled during the quarter to around $8 per barrel compared with the corresponding quarter in 2006-07. Meanwhile, GRMs in the US weakened during the period. The US is a key market for RIL, which is able to supply low-sulphur fuel. During the same period, GRMs in Europe and Asia improved.

RIL’s profits are likely to be high, despite an expected weakening of petrochemicals margins. Globally, the petrochemicals business has witnessed pressure on margins, as feedstock prices soared faster compared with the downstream petrochemicals and polymers. However, RIL will not face significant adverse impact, since some of its petrochemical units use natural gas as feedstock.

The erstwhile IPCL’s Gandhar and Nagothane petrochemical complexes and RIL’s Hazira petrochemicals complex are based on natural gas. Refining and petrochemicals contribute 98% of the company’s total revenues.

During the quarter, RIL’s Jamnagar refinery is likely to post around 5% fall in the volume of crude processed. This fall in production is likely to have a marginal negative impact on profits when compared with the corresponding previous quarter. The rupee’s appreciation, over the last one year, could also have a marginally negative effect on its financial performance.

On the Bombay Stock Exchange, the RIL scrip ended at Rs 3,098, down Rs 64, or 2%, over the previous day’s closing in a weak market.

Southern Ispat merger plan okayed

Southern Ispat Ltd’s board of directors has accorded in-principle approval for the merger of Kerala Sponge Iron Ltd and the Managing Director is authorised to carry on discussions with the board of Kerala Sponge Iron Ltd. The board also authorised the Managing Director to do all the necessary works related to the procurement of raw material to the upcoming integrated steel plant at Kannur. The board cleared the move to change the name of the company to Southern Ispat & Power Ltd.