finxpress_9september2012

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SEPTEMBER 9 ,2012

Company In Focus

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Term of the Week

INSTITUTE OF MANAGEMENT TECHNOLOGY, GHAZIABAD

Cover Story : CRR - A debated policy

SEPTEMBER 9 ,2012

EDITORIAL

Dear Readers, Greetings from FinNiche! This week IMT 1st year students entered into their Second Term. New beginning with new enthusiasm is seen all around the campus. Also the summer internship placement events have begun with pre-placement talks to make the 1st years more aware of their companies. We wish all the first year students best wishes for their SIP Process. In this edition of FinXpress, we have Coal India Limited as the “Company in Focus” section giving an idea of its strategic policies and production. In the “Term of the Week” we move to Over-The-Counter(OTC). In the markets section, we discuss about Indian shares closing at two-week high after a special trading ses-sion. In the “special page” we will cover CRR – a debated policy. We sincerely hope that the readers find our content engaging. We would appreciate feedback and sugges-tions for improvement. We hope to bring you more information in the future thus keeping you updated and adding to your knowledge base. Till then, “Enjoy Reading”! Yours Sincerely, The Editorial Board “FinXpress”

PAGE 1 http://www.imtgfinxpress.co.cc

SEPTEMBER 9 ,2012

COMPANY IN FOCUS

Coal India Limited

Coal India Limited (CIL) as an organized state owned coal mining corporate came

into being in November 1975, with the government taking over private coal mines. With a modest produc-

tion of 79 Million Tonnes (MTs) at the year of its inception, CIL is the single largest coal producer in the

world today.

Operating through 81 mining areas, CIL is an apex body with 7 wholly owned coal producing subsidiaries

and a mine planning and consultancy company spread over 8 provincial states of India. CIL also fully owns

a mining company in Mozambique christened as 'Coal India Africana Limitada'.

CIL also manages 200 other establishments like workshops, hospitals etc. Further, it also owns 26 technical

& management training institutes and 102 Vocational Training Institutes Centres. Indian Institute of Coal

Management (IICM) as a state-of-the-art Management Training; 'Centre of Excellence' - the largest Corpo-

rate Training Institute in India - operates under CIL and conducts multi disciplinary management develop-

ment programmes. In April 2011, CIL was conferred the Maharatna status by the Union Government of

India and ranked as one of India's most valuable companies by market value.

Mission of Coal India Limited

The Mission of Coal India Limited is to produce the planned quantity of coal, efficiently and economically

with due regard to safety, conservation and quality.

Strategic Relevance

Produces around 81.1% of India's overall coal production

In India where approximately 52% of primary commercial energy is coal dependent, CIL alone meets to the tune of 40% of primary commercial energy requirement

Commands nearly 74% of the Indian coal market

Feeds 82 out of 86 coal based thermal power plants in India

Accounts for 76% of total thermal power generating capacity of the Utility sector

Supplies coal at prices discounted to international prices

Insulates Indian coal consumers against price volatility Makes the end user industry globally competitive Production CIL contributes around 85% of coal production in India. It is the largest company in the world in terms of coal production. It employs nearly 397,000 personnel and is the largest corporate employer in the country.

It is one of the largest companies in the country, with turnover being around 386.31 billion in 2007-08.

It is one of the largest tax payer (Corporate Tax 35.75 billion (US$647.08 million)) in 2007-08 and has

paid Dividend of 17.054 billion (US$308.68 million) to the Govt. of India in 2007-08. CIL produces over 400 Million Tonnes of Coal annually. Coal production ending Financial Year 2011 was 431.32 Million Tonnes (MTs). CIL's dynamic production momentum is evident in the fact that in recent years, CIL leaped from 300 MTs mark achieved in 2003-04 to 400 MTs (2008-09) in a time span of 5 years. It took CIL 12 years to cross the 300 MTs production mark from that of 200 MTs achieved in 1991-92. CIL Is targeted to produce 452 MTs FY ending 2012.


SEPTEMBER 9,2012

Financial Information

In 2010, CIL's initial public offering (IPO) got subscribed 15.28 times, collecting a record over 2.4 tril-lion—the highest IPO subscription so far. On the first day of its listing on the Sensex, its stock closed 40%

higher than IPO price. It is India's largest ever public offer from Coal India Ltd. to raise up to 15,000 crore. It is currently 90% owned by the Government of India with the remaining 10% owned by the public. Annual Trend of Stock Price

Market Cap (Rs Cr.):226,347

EPS - TTM (Rs):12.82

P/E Ratio (x):27.94

Face Value (Rs):10.00

Latest Div. (%):5.00

Div. Yield (%):2.79

Book Value / sh. (Rs) :30.97

P/B Ratio (x):11.57


SEPTEMBER 9 ,2012

TERM OF THE WEEK : Over-The-Counter (OTC)

The phrase "over-the-counter" refers to a security traded in

some context other than on a formal exchange such as the NYSE,

NSE, BSE etc, via a dealer network as opposed to on a centralized

exchange.

An exchange has the benefit of facilitating liquidity and also miti-

gates all credit risk concerning default by the counterparty. Also,

products traded on the exchange are standardized to facilitate transparent trading. The advantages of

OTC over Exchange traded ones are mainly the lower costs (in terms of government taxes and fees pay-

able) and the ability for sellers and buyers of these products to bilaterally negotiate and customize the

transactions themselves.

But, OTC derivatives can lead to significant counterparty risks. Counterparty risk is the risk that a counter-

party in a derivatives transaction will default prior to expiration of the trade and will not make the current

and future payments required by the contract. There are many ways to limit counterparty risk. One of

them focuses on controlling credit exposure with strategies like diversification, netting, collateralization

and hedging.

As such, OTC stocks are generally unlisted stocks which trade on the Over the Counter Bulletin Board

(OTCBB) or on the pink sheets. In general, the reason for which a stock is traded over-the-counter is usu-

ally because the company is small, making it unable to meet exchange listing requirements. One has to be

wary of such stocks as most of them are either penny stocks or are offered by companies with bad credit

records.

Instruments such as bonds do not trade on a formal exchange and are, therefore, also considered OTC

securities. Most debt instruments are traded by investment banks making markets for specific issues. If an

investor wants to buy or sell a bond, he or she must call the bank that makes the market in that bond and

asks for quotes.


SEPTEMBER 9 ,2012

MARKET THIS WEEK

SENSEX gained 1.19% from last week and ended at 17683.7 this week.

Simple Moving Averages

Returns – BSE Sensex

Nifty gained 1.9% from last week and ended the week at 5358.7

Simple Moving Averages

Returns – Nifty

30 Days 50 Days 150 Days 200 Days

17476.30 17389.50 17203.00 16959.94

YTD 14.85 % 1 Week 1.50% 1 Month 0.50% 3 Months 6.20%

6 Months 3.10 % 1 year 3.60 % 2 Year -5.20 % 3 Year 10.40%

30 Days 50 Days 150 Days 200 Days

5,294.32 5,271.41 5,219.40 5,133.35

YTD 15.88 % 1 Week 1.60 % 1 Month 0.10% 3 Months 5.80%

6 Months 2.30 % 1 year 4.20 % 2 Year -4.70 % 3 Year 22.30 %


SEPTEMBER 9 ,2012

Overview

Indian shares closed at two-week high in a special trading session, led by hopes of another eco-nomic stimulus by the Federal Reserve after a weaker-than-expected jobs report. Indian equities may struggle to sustain the gains of the last two sessions, as macro concerns could prompt inves-tors to book profits at higher levels instead of buying more. The market gained after the Euro-pean Central Bank's new unlimited bond buying programme. The ECB's bond buying programme appears positive for the markets in the near term, but the sustainability of the rally remains a question as a result ofpolicy inaction from the government. Expectations from the upcoming Fed-eral Reserve meet next week (13 September) may also infuse some liquidity into the markets on the hope of a QE3. Markets could head higher from these levels, but would be capped by the continued political log-jam and policy paralysis. Markets will move in a tight range and stock specific selection need to be done. The macro scenario is deteriorating due to the trade deficit and lack of reforms to curtail the current account and fiscal deficits. The current weakness in the economy (and consequently earnings) will only be reversed if the government takes measures to improve business confidence and boost infrastructure investments.

Policy Rates Reserve Ratios Lending Deposit Rate

Bank Rate 9% CRR 4.75% Base Rate 10%-10.5%

Repo Rate 8% SLR 23%

Savings Deposit Rate 4%

Reverse Repo Rate 7%

Term Deposit Rate 8%-9.25%

Margin Standing 9%

Exchange Rate v/s INR Commodities unit Rs./unit

% change

Currency Symbol Rate %

change Gold 10 gms. 31880 2.11%

US Dollar $ 55.52 0.35% Silver 1 Kg. 63875 8.26%

Euro € 70.20 0.78% Crude Oil 1 BBL 5347 0.26%

Dirham AED 15.08 0.20%

Japanese Yen ¥ 0.703 0.69%

Chinese Yuan CNY 8.73 0.11%


SEPTEMBER 9 ,2012

NEWS OF THE WEEK

Parent Ministries Oppose PC Selloff Plan on Weak D-St The heavy industries, steel, and power ministries have opposed stake sale in state-run firms under their administrative control, creating a potential roadblock for Finance Minister P Chidambaram’s plans of ag-gressively pursuing the disinvestment programme. The finance ministry is keen to raise Rs. 30,000 crore through sale of government shares in state-run com-panies in the current fiscal to avoid overshooting the fiscal deficit target of 5.1% of GDP by a wide margin. Chidambaram plans to meet the chiefs of state-run companies next week to give a push to the disinvest-ment process, which is yet to take off five months into the new financial year. The Union cabinet has given approval for stake sale in Bharat Heavy Electricals (BHEL) and Steel Authority of India (SAIL), and the disinvestment department, a wing of the finance ministry, plans to shortly begin the share sale process for these two companies. It hopes to raise Rs. 7,000 crore, more than 20% of its disinvestment target, from stake sale in both these firms.

Draghi Gets ECB Support for Unlimited Bond Purchase European Central Bank President Mario Draghi said policymakers agreed to an unlimited bond-purchase programme to regain control of interest rates in the euro area and fight speculation of a currency breakup. “(The programme) will enable us to address severe distortions in government bond markets which origi-nate from, in particular, unfounded fears on the part of investors of the reversibility of the euro,” Draghi said at a press conference in Frankfurt after the ECB held its benchmark rate at a record low of 0.75%. “Under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area.”

Two-Wheelers have a Flat on Recession Road With the blame on high interest rates & pricey petrol, Hero MotoCorp and Bajaj are amongst the worst-hit two-wheeler companies whose sales fell for the first time in 42 months. Hero MotoCorp and Bajaj Auto posted a sharp drop in sales while overall industry numbers declined 5% for the first time since January 2009 to 1.07 million units. Only Honda Motorcycle & Scooter (HMSI) and Suzuki bucked the trend with a robust rise in numbers.

PSBs Need 90k crore to Meet Basel-III Norms: Subbarao The Reserve Bank of India has estimated that the government will have to infuse about Rs. 90,000 crore in capital into state-run banks to meet the new global prudential capital requirements as stipulated by the Basel-III norms. “If the government opts to maintain its shareholding at the current level, the burden of recapitalisation will be of the order of Rs. 90,000 crore,” said RBI governor D. Subbarao. “On the other hand, if it decides to reduce its shareholding in every bank to a minimum of 51%, the burden reduces to under Rs. 70,000 crore.” However, the new norms will be applicable from January 2018. The RBI feels that it may not be very diffi-cult for banks to raise the required funds over the next five years.


SEPTEMBER 9, 2012

Govt Rules Out Easing Sourcing Norms The government has ruled out any relaxation in the mandatory sourcing norm for global retailers who want to set up fully owned single-brand retail stores in the country, but there could be fresh guidelines to provide more clarity. "We are not talking of any dilution. We are talking of clarity...We are very clear that 30% of the sourcing has to be from India primarily from micro, small and medium enterprises," Commerce and industry minister Anand Sharma told reporters at an event organised by industry chamber FICCI. Swedish furniture retailer IKEA, which has proposed to invest Rs.10,500 crore up single-brand retail stores in India, had sought relaxation in the 30% mandatory sourcing from small industry. The minister said the rules for 100% FDI in single brand retail will not be referred back to the Union Cabinet for changes.

Only ‘Non-Serious’ Players to Lose Coal Block Permits The government will ask the operators of 58 coal blocks that have been issued show-cause notices to pro-vide details of investments this week to ensure only non-performers lose their mines, according to a top government official. The investment proofs to be sought include progress on projects for which the coal was to be mined, such as power plants and details of mine development. But the government will be “cautious” in taking away mines after the finance ministry expressed concerns to the coal ministry on the impact of large-scale de-allocations on the banking system, which is already groaning under substantial nonperforming assets, the official said. Deepak Parekh has warned that the banking system could face a serious crisis if a large number of allotments were cancelled. So far, show-cause notices for de-allocation have been served for 58 coal mines, including those held by the Tatas, the Naveen Jindal Group, Hindalco, Reliance Power and ArcelorMittal.

Govt Likely to Ease Investment Norms for PSUs Central public sector enterprises, sitting on a cash pile of over Rs. 1.6 lakh crore, may be allowed to invest in treasury bills and equity mutual funds as the government is likely to ease investment rules for these units, said government officials familiar with the matter. The decision is likely to perk up markets, espe-cially mutual funds, which have been languishing for a while now. According to a government official the current guidelines are too restrictive. There’s a case for more free-dom and investment in markets. Safety and better returns would be the key guiding principle. A govern-ment committee under additional secretary in the finance ministry Shakti Kanta Das is looking into invest-ment options of cash-surplus public sector enterprises, and is likely to give its recommendations soon, which could pave the way for more funds trickling into mutual funds. Most public sector enterprises currently invest their surplus money in bank deposits as per the directive of the finance ministry. According to these directives, the CPSEs have to park at least 60% of their surplus funds with public sector banks, and they are allowed to invest up to 30% in mutual funds, but only in those floated by the public sector.

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AUGUST 05 ,2012 PAGE 9 http://www.imtgfinxpress.co.cc SEPTEMBER 9, 2012

COVER STORY

One cannot agree more with the Chairman of the Prime Minister’s Economic Advisory Council, C. Rangara-jan’s suggestion on phasing out the cash reserve ratio (CRR) requirements of banks and using this meas-ure of credit control “only in extraordinary circum-stances”. Currently, for every Rs 100 of deposits they receive, banks have to keep Rs 4.75 with the Re-serve Bank of India (RBI), which does not pay them any interest on this im-pounded money. The CRR, in other words, is a tool for sucking out a portion of deposits kept with banks that they would ordinarily have lent out and earned interest income. Such an instrument may have been in tune with the philosophy of financial repression underpinning the conduct of monetary policy of the pre-nineties. That was a period of administered deposit and lending rates; the RBI having to compulsorily fund the Government by sub-scribing to the latter’s bonds; selective credit controls; and so on. It was a regime characterized by fiats of all manner and kind. CRR, as an imposition on the banking industry for controlling credit creation, was per-fectly in accord with the culture of regulation prevailing then. But today, interest rates are predominantly market-determined and there is also no automatic monetiza-tion of budget deficits. The RBI can increase or decrease money supply by buying and selling bonds through open market operations that it undertakes independently. The central bank can also influence interest rates, by raising or reducing the ‘repo’ and ‘reverse repo’ rates at which banks borrow from or park money with it. Given these far superior monetary policy options — that are, more importantly, cul-turally in sync with the current regulatory philosophy — the CRR is an anachronism that ought to be dis-pensed with, or used in “extraordinary circumstances”, as Rangarajan puts it. The CRR made sense in 2007-08, for instance, when the country was inundated by over $100 billion of capital flows, which posed un-precedented challenges to domestic liquidity management. That is hardly the case now, when forex in-flows have moderated considerably and firms are battling liquidity constraints. Now that Rangarajan, a former RBI Governor himself, has favoured doing away with the CRR, it is time to make a start. By neither reducing the CRR nor the repo rate, the RBI has made it difficult for banks to bring down their cost of funds, without which they cannot lower their lending rates either. The only way out, then, is to reduce deposit rates, which is what the State Bank of India (SBI) has done and others, too, may follow. The SBI Chairman, PratipChaudhuri, has defended the move by citing poor credit demand: When there are few takers for loans at current rates, what is the point in attracting deposits that would have to be invested in bonds or, worse, impounded as CRR earning zero interest? The current fiscal (till August 10) has actually seen banks’ investments in government securities, at Rs 192,900 crore, exceed their credit growth of Rs 111,610 crore. Whichever way one looks at it, the case for abolishing the CRR if not cutting the repo rate cannot be stronger.

CRR - A debated policy in the current times


SEPTEMBER 9 ,2012 PAGE 10 http://www.imtgfinxpress.co.cc

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Documents

mission of coal india

coal dependent

coal india africana

india accounts

planned quantity of

private coal mines

indian coal market feeds

indias overall coal