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SAIL: Sweet timing

Sail set to benefit from lower-priced coking coal

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Niraj Bhatt Mumbai
Contract prices of coking coal, a key input for user industries such as steel and pig iron, have eased substantially over the past few weeks.
 
Analysts point out that recent long-term contracts between Australian suppliers and Japanese steel makers have been priced at $98 a tonne, which is about 15-16 per cent lower than the earlier contract price.
 
It is understood that one of the biggest beneficiaries from this development is SAIL, given that it imports a significant quantity of its 10 million tonne annual requirement of this raw material from Australia.
 
SAIL's coking coal contracts from Australian suppliers, typically run from July to June period and it is understood that the steel-maker would also be looking to leverage lower prices when its contract comes up for renewal, given that this input accounts for a majority of its total raw material costs.
 
In H1 FY07, SAIL's adjusted raw material costs amounted to Rs 5, 408 crore on a turnover of Rs 16,104 crore.
 
Analysts point out that SAIL could save up to Rs 140-150 crore in a year, if it was also able to renegotiate its contract for coking coal, at prices similar to Japanese steel makers.
 
Meanwhile, large pig iron suppliers such as Tata Metaliks are also expected to benefit from lower coking coal prices, when their contracts come up for renewal. SAIL trades at a mere 7 times estimated FY07 and 5 times FY08 earnings.
 
Asahi India Glass: Topline blues
 
After an adverse operating environment in 2005-06, thanks to pricing pressure, high raw material costs, and floods at its Taloja plant, net sales at Asahi India Glass had grown just 1.8 per cent y-o-y last year.
 
But the situation changed somewhat in the first half as strong demand growth and better price realisations resulted in consolidated sales improving 12.8 per cent y-o-y in the first half of FY06. But at the operating profit level, the growth was slower at 7.1 per cent due to higher oil prices earlier in the year.
 
Now that oil prices are low, and Asahi India's integrated plant is coming up on schedule, its performance should improve going forward. Its 700-tonne a day float glass plant commenced production on Monday. This, according to the company, will increase its float glass market share from 20 per cent to 35 per cent.
 
The plant will also manufacture value-added glass (reflective and mirror), automotive safety glass and architectural glass from the current quarter. Some of these products will find applications in the booming construction industry.
 
Margins should improve at the net level as this plant has tax benefits because of its location in Roorkee. But with its current price of Rs 134 discounting the FY08 EPS about 16-17 times, the stock appears expensive.
 
GTL Infrastructure: Towering presence
 
The recently listed GTL Infrastructure, which was demerged from GTL, is raising Rs 340 crore by a 1:1 rights issue at par to fund its Rs 2,100 crore infrastructure expansion plan.
 
At present, the telecom tower company has funds of Rs 1,034 crore in a debt-equity ratio of 2.15:1, which will be maintained in future. It plans to put up 400 towers a month till the end of FY08, when it expects to have 6,700 towers.
 
For a company that has come into existence a few months ago, this will be phenomenal growth from the current 200-odd towers. But the 50 per cent-plus annual growth rate in the mobile telephony market is a key reason for the aggressive plans.
 
No wonder then that other players such as Quipo Telecom Infrastructure, Telecom Tower and Infrastructure (an Essar group company) and TVS ICS are investing in the business too.
 
That mobile phone companies are expanding in Class B and Class C towns, which is where GIL's towers will come up, suggests a large enough pie for every tower company to corner.
 
Capex plans of carriers are estimated at Rs 27,000 crore by FY08, a part of which will fund over 100,000 towers that they will need as part of their roll-out programmes.
 
It is not just the physical infrastructure but also the maintenance and running costs that keeps the cash flow (monthly rentals) rolling in for tower companies such as GTL Infrastructure.
 
Analysts estimate that the company will touch revenues of Rs 70 crore in FY07 and about Rs 200 crore in FY08. Owing to a shortage of towers and in a bid to reduce costs, mobile operators are already sharing towers.
 
If GTL Infrastructure can house more than one company on each tower, its margins will get better. It expects each tower to earn an operating margin of about 45 per cent if it has one customer, which will go up to 60 per cent if the number of operators on that tower increases to three. The market seems bullish on the firm as its stock rose 8.7 per cent to Rs 42.55 on Tuesday.
 
With contribution from Amriteshwar Mathur and Ram Prasad Sahu

 
 

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First Published: Jan 03 2007 | 12:00 AM IST

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