Fate of Reliance Industries- Dependent on Reliance Retail?

9 Jun, 2013 by Niraj Satnalika

Reliance Industries

Mukesh Ambani has been one of the biggest businessmen working for his consumers. Chairman of India’s largest private sector company, did it once again with Reliance Retail this time. The Company added a stunning 13 million loyal customers to its network of retail stores. The reliance stores see a footfall of over 2.5 million every week. Shocking isn’t it? Well the number is made realistic by the Reliance Retail Ltd.

Ambani followed his passion of engaging millions since the formation of Reliance Infocomm to which he added over 11 million subscribers before Ambani brother partition.

Reliance Retail Ltd. saw new heights when its revenue reached INR 11,000 Crore registering a cash profit of Rs 78 crore. RRL, which is the subsidiary of parent organization Reliance Industries Ltd., is said to have a little fewer than 50 retail-business subsidiaries under it.

Significance of Retail Business to the entire Reliance Group

Retail business worth around $2 billion now plays a important role for the entire group worth around $68.4 billion. Over 60% of Reliance’s revenue comes from exports. Thus to invest in the high-growth domestic consumption-based market was reliance’s next bet which included both 4G broadband and retail sector.

Retail is already bearing fruits for the group while broadband launch is under testing mode.

If we take a quick sneak peek into RIL’s balance sheet, we find that the cash rich company having cash pile of over INR 80,000 crore generates almost 38% of its net profit from interest earned. The refining and petrochemical business of RIL adds to the cash pile every year, despite the business’s inability to grow.

Expectation from Retail Segment

Reliance’s retail business can benefit the company from India’s growth. Also it can bring in more profits from business operations, thereby reducing the share of interest income in the net profit. Improvement in operating profit will help the company use its cash bank for acquisition which will again help the company expand its network across India and worldwide.

Telecom business will be disruptive or the industry and to match the industry for retail, Reliance needs to catch up on industry leader Pantaloon Retail.

Growth Strategies

The value format for the retail sector accounts for over 60% of total revenue generated saw least additions of only 10 stores. Company currently aims to focus on large stores of the format wholesale or cash-and-carry. Company also is not looking at opening any reliance fresh stores of the neighborhood format.

Company is currently focusing towards the growth of loyal programme. Loyalty programme is a key driver to LFL (Like-for-Like) growth which helped contributing over 65% to the company’s sales. It is expected that the loyal-programme shoppers tend to sped twice as much as other customers do.

Reliance Brands

As a part of third strategy the company plans to expand its presence by massive expansion of its smaller stores in other formats. The fashion and lifestyle format, Reliance Trends, saw the maximum number of new store launch at 95. Also the new stores addition when added with old stores sales gives the final figures in retail sector which has been impressive for Reliance trends. Reliance trends grew by 8% LFL, where as its digital format saw 17% LFL growth. Reliance Brands showed highest overall growth numbers at 82% with revenue touching 200 crore and LFL growth of 12%. Reliance brands forms joint venture with foreign brands is a luxury business. The Company also plans to go for private labels in order to minimize its dependency on the supply chain. Also private labels give higher margins and thus forms to be a logical step for RRL.

At last to conclude we can say that Reliance Industries has been loyal to its consumers and this time, the company is expected to reach new heights provided investment is made using its cash bank to expand the network.

India should learn from China, Force First Solar and others to set factories in India

31 May, 2013 by Sneha Shah

China,First Solar,India,Solar Energy

China forces Foreign companies to set factories in China

China has done a fabulous job in forcing foreign companies to play by its rule in the past. The government there has allowed foreigners the access to its huge market, in return for setting up factories and research centers in the country. It has fostered firms who have managed to learn the technology and set up cheap manufacturing themselves. This has allowed China to become the biggest exporter in the world. India on the other hand, has a weak and government led by pygmies. The ruling party is ruled by a dynasty and the PM is a powerless bureaucrat with no power. The ministers are busy full time in lining their pockets and retaining political power with no time to think about the progress of the country.

There are periodic alarms about the huge quantum of equipment imports and how the country is totally depended on the outside countries for its basic needs. There are some reports made by highly paid consultants which gathers dust. The new semiconductor policy is a classic example of the Indian government’s incompetence over a long period of time. There is no vision and the attempts are half-hearted and useless. Same is the case with the telecom equipment and power equipment policies. India has a robust private sector with global leaders like Tata Motors, TCS etc. However, they have also been subverted by the system and are busy in gaming regulations rather than creating value (for most companies I think).

India should ask FSLR to set factories in India

First Solar (FSLR) is a US solar panel company that has made hay in India by exploiting a big loophole in India’s federal subsidy for solar energy. The
company sells thin film solar panels which are allowed to be imported by solar plant developers under India’s JNNSM. This has led FSLR to capture almost 80% of orders in India’s JNNSM built solar plants making a mockery of India’s efforts to promote domestic manufacturers. The company is now colluding with the US government to prevent India’s 2nd phase from closing this loophole. India is the only big market for FSLR outside of its own country, as it cannot compete in the Japanese and Chinese market. The FSLR CEO has realized this and is making a huge effort in growing its presence in the Indian market by tying up with the local players and making statements against India’s domestic content policy. The country has also abandoned a plan to set up a multi-million factory in India, as it does not think that the government will impose anti dumping duties against it. Let’s hope that the Indian bureaucrats and politicians can look beyond their own selfish interests and do the right thing.

However, I don’t think that they will rise to the occasion.

The Chinese want to manufacture Solar Products in India to escape the looming Anti-dumping Duties

28 May, 2013 by Sneha Shah

Solar Energy

The Indian solar manufacturing industry is running on fumes with 10% capacity utilization. Even the bigger capacity players like Tata Power, Indosolar and Moser Baer are running at very low utilization as the market has been captured by imports from China and the US. It is estimated that almost 80% of the solar panels being used in India’s 1.3 GW solar plants are imported.

The huge price crash in solar panel prices globally has made Indian manufacturers redundant. Most companies even in China are running at losses as overcapacity has led to a complete loss in pricing power. Indian companies are very small compared to the global majors like Sunpower (SPWR), Trina Solar (TSL) and Yingli Energy (YGE). They don’t have a chance unless the Indian government offers them some protection from foreign government subsidies. US companies like First Solar (FSLR) have become predators in the Indian market as they realize that the Indian government is weak and corrupt. Unlike Japan and China, the Indian government gives no protection to the local industry. This is one of the reasons why India imports billions of dollars in value added equipment across all sectors like telecom, power and now renewable energy. The US government made India look like a fool by going to WTO over India’s ineffective local content policy.

Read all about Solar Products in India – Guide on Solar Energy Panels, Lanterns,Lights,Heating Equipment Suppliers.

Earlier the Indian companies managed to export some panels into the fast growing European market. But now with overcapacity they cannot compete in the local markets, leave alone the foreign developed markets. The Chinese companies are trying to set up local factories in order to beat the potential duties which might happen in the future. India is going to be the 3rd to 4th largest solar energy market in the world. The Chinese companies desperately want a piece of the pie. Recently one of the “small” big solar player in India- Titan EnergySystems talked about how they had received an offer for a JV from 2-3 players in China.

Renesola (SOL) and Trina Solar (TSL) already have got tie ups in place and SOL is planning to set up a solar panel factory in India soon. The capex costs of new plants have gone down drastically in the last few years due to scale and technology improvements. India’s government cannot continue its inept and corrupt ways. It needs to learn from METI and others on how to strengthen the local industries.

Also read on GWI Solar Equipment Sales falls off a cliff, only $3.6 billion sold in 2012 compared to $13 billion last year.

Business Standard

Cornered by cheaper imports of finished products in the solar power sector, including solar panels, domestic manufacturers see their only hope in anti-dumping laws in India and elsewhere.
While India commenced its anti-dumping probe against import of solar panels in November last year, the European Union (EU) has recently decided to impose anti-dumping tariffs against Chinese imports.”With these anti-dumping moves, the Chinese manufacturers are looking at entering collaborations with the local manufacturers as the Indian export channel do not attract anti-dumping laws for these products in the US or in the Europe,” Rao SYS Chodagam, founder and managing director of Hyderabad-based Titan Energy Systems Limited, said on the sidelines of a workshop here on Monday.In fact, a large Chinese player has already approached three Indian companies, including Titan Energy Systems for setting up a 500 Mw capacity, he said, refusing to reveal the name of the company.

Barring Social Media and Mobile Apps from Stock Market?

16 May, 2013 by Niraj Satnalika

Indian Markets,Technology

It is undoubtedly true that the mobile phones have taken a toll over the global economy development. The world is no more a big place and people can now contact any person staying miles away in a matter of seconds. Mobility has improved at large. The use of smart phones, tablets have been increasing manifold. Short messaging services like BBM/Whatsapp are used extensively by people to stay connected. Recently in a survey it was found that large scale use of messaging services like BlackBerry Messenger (BBM) and WhatsApp are done by manipulators. These applications are used as a medium to spread sensitive information about stock target, which at the end is resulting in a speculative environment.

Usage of Social Media services in Stock Market

The capital market regulator in India, the SEBI has announced several steps which are being taken to check the risks being posed by these new-age mobile applications. SEBI has reported that it is in the process of implementing software tools to check and analyse the discussion pertaining to stock market on the social media. The market regulator, to strengthen its probe and oversight on capital market, has tied up with several IT experts. This will help SEBI understand the current picture in a better manner.

As far as the applications of messaging services are concerned, it is becoming difficult for SEBI to track the source of such information. Applications like Whatsapp and BBM are too tricky, given the multi-level difficulties faced in tracking source (epicenter) of market sensitive information.

These mass messaging problems are adding to the woes of the market regulator as the transmission of messages in these platform use internet. Use of internet encodes the messages in a complex manner which is difficult for the third party to decode.

Manipulation of Stock Prices using Social Media

The market manipulators/speculators have been using the social media like Facebook/twitter/Blogs etc. in a big way to influence the price of stocks. False word is spread as news for different stocks by people using a fake id which is thought as a tip by common man. People have now moved to easy means of spreading messages. The use of blog, etc has reduced given the fact that these platforms could be easily tracked due to their highly public nature.

The free messaging services available on the platforms of BBM/Whatsapp etc. have added attractiveness among the speculators as these medium are comparatively fast and easy.

Also Read Social Network strategy for Companies and its Importance.

SEBI is finding it difficult to track the data related to the call records from telecom companies. Tracking of messages from these mobile apps seems impossible. SEBI also pointed out that these applications are increasingly used for insider trading. SEBI’s investigations into number of insider trading cases recently has unveiled that the used of apps like BBM and WhatsApp are increasing among people. SEBI has hired IT specialists to check the transfer of information through these medium.

SEBI wants to stop free flow of false information using Internet & Mobile device services

It is expected that in near future, the market regulator will come up with certain regulations to prevent the use of mobile phones from manipulating the market. The Social media platforms have become an effective place to spread information in real time and are being used by various scrupulous elements in the stock market.

Development of free websites giving stock tips have also increased manifold. People uses fake charts about the stock movement which is aimed to attract the common people towards their prediction. These problems have been taken up by SEBI, which is soon going to create a ban on the use of leading social media platforms and websites to support such discussion related to stock market.

Conclusion

At last we can say that the market watchdog is currently determined to bring a new wave of development and transparency in the market. This will definitely help safeguard the interest of retail shareholders. These reforms when implemented will ensure that the market is driven primarily based on one’s fundamental and technical analysis.

Another US factory goes caput, despite Anti-dumping duties against China

9 May, 2013 by Sneha Shah

Solar Energy,USA

Kyocera to Shut down its US Manufacturing unit

Kyocera Solar is in talks to shut down its manufacturing unit in San Diego in USA. The company wants to shut down its US plant citing there was low demand in this unit. The company’s PV business is performing very well due to the recent rise in demand in Japan. The closure of the Kyocera unit in San Diego would involve laying off of more than 20 jobs. The company feels it needs to focus more on its Tijuana plant in Mexico.

Read about Kyocera Solar Panels Review.

Kyocera is one of the oldest solar panel manufacturers and is second only to Sharp amongst the Japanese companies. It also manufactures industrial ceramics, telecommunications equipment, office document imaging equipment, electronic components, semiconductor packages, cutting tools, and components for medical and dental implant systems. Kyocera Solar Corp. in Japan was founded in 1996 and Kyocera Solar, Inc. in the U.S. was founded in 1999. The company has production bases in Japan, Mexico, Europe and China and is planning a factory in California as well. The company plans to reach 1000 MW of production by 2013.

At the global industrial summit – Vibrant Gujarat, the massive banking group Mizhou signed a MOU to build a 200 MW solar power plant in Gujarat which could be scaled upto 2 GW. The plant will be supplied by Kycoera.

PV Tech

According to local media reports, the subsidiary of Japanese conglomerate Kyocera is struggling with large orders for its modules and has responded by slimming down its workforce.

In a statement to local newspaper U-T San Diego, Cecilia Aguillon, director of government relations for Kyocera Solar, said the reductions would affect 23 staff, while a further 85 temporary positions would be filled by an external agency.

India’s Renewable Purchase Obligation Policy to fail, thanks to our screwed up Government

29 Mar, 2013 by Sneha Shah

Green Investing,India,Renewable Energy

India’s RPO Model

India’s energy industry is a royal mess in all respects be it mining, electricity generation or distribution. Large parts of the populance do not get electricity at all and those who do are faced with 8-10 hour long power cuts. I have written countless times about the problems of the electricity industry. The government is to blame for the whole mess given that bad governance is at the root of every problem. India’s useless leaders are loath to correct the situation and the industry remains in a morass. In such a situation the growth of India’s renewable energy industry is extremely difficult. The main tool used by the government in boosting green energy was the RPO model, in which electricity distributors and users were forced to buy a portion of their needs from clean energy sources. However despite the start of the policy with much fanfare and the trading of RECs in energy exchanges, the end result has been a complete failure.

Read Renewable Certificate Prices in India Volatile on GWI.

Government’s Failure to enforce RPO

Again the guilty party behind this mess is the Indian government and its regulators. They have devastated entire industries through delays and corruption. Telecom, Real Estate, Aviation etc. remain in an endless downturn as the government refuses to solve the regulatory issues. The RPO mechanism has been made a dodo by the CERC, as defaulting organizations are not being penalized for meeting their RPO obligations. The green energy producers who had set up their plants basing their entire business model on RPO are now royally screwed. Trading in the energy exchanges like IEX see a massive amount of RECs being put for sale at the floor price with no bids. The reason is that the distributors are not buying their mandanted RECs. Those buyers who had bought RECs earlier are kicking themselves in the ass. CERC and other states refuse to fine or force the distributors in buying the RECs. This means that no new green power plants will be set up and the whole RPO policy will fail. One fails to understand the convoluted logic of the Indian regulators and policy makers. Why did they make a policy which they did not want to enforce.

India has ambitious policies of generating 15% of its energy in 2020 from green energy sources. Given the current trends and stupidity, it will be a big feat if they mange to reach even 10%. India’s energy situation is getting bleaker by the day, as India is massively fuel deficient and imports most of its oil, natural gas and coal needs. Renewable Energy particulary solar energy is an answer to India’s power problem. But the “damn I care” attitude of the Indian leaders will keep the energy problem alive and kicking.

Problems of REC Market

REC policy in India which was unfurled with great fanfare in 2011 is suffering because of a lack of enforcement from states. According to the RPO, a certain percentage of a state’s electricity generation must come from clean energy sources. States and utilities which can’t meet their renewable energy requirements can buy REC from Indian Energy Exchanges to meet their needs. Power Exchanges in India have already set the ball rolling in terms of trading in RECs. However, the REC policy which was meant to be the primary subsidy for green energy generation in India based on market rates is currently in a limbo. Though there is enough supply of RECs in the energy exchanges, there is not enough demand as states are not forcing their utilities and industries to meet their renewable power purchase obligations (RPO). The trading has been lack-lustre as there is no urgency for states to buy REC until the end of the fiscal year in March when they have to meet their compliance numbers. This has led to low illiquid trading of Renewable Energy Certificate which has made price discovery difficult. Also it acts as a major problem for green energy producers as they can’t get remunerative prices as the market does not exist in a proper form.

1) REC Markets are notoriously difficult to set up and run – India has started a Renewable Energy Certificate (REC) Scheme recently to boost the share of Clean Energy Sources in India’s Electricity Mix. India’s Electricity Regulator (CERC) has come out with a notification making it mandatory for Electricity Utilities to buy 6% of their requirements from Green EnergySources. However the REC Scheme still faces teething problems in its implementation. It would take a couple of years for a well developed market in RECs to develop if everything goes to plan. Note REC are notoriously difficult to implement as Italy and Australia have found out. High Prices led to Booms while Low Prices lead to a Green Bust while it is impossible to set the Perfect Right Price.

2) Volatile REC Prices – However the market for REC remains volatile due to the fact there is a lot of uncertainty with RPO. The biggest source of this problem is the fact that RPO is not enforceable by the regulator. If the state slips in its RPO, it does not have to bear any penalty or punishment. Given the pathetic state of the electricity distributors in the state with billions of dollars in debt, it seems unlikely that they will buy expensive green energy to meet their RPO.

Hindu

About a year back, this writer asked the Chairman of the Central Electricity Regulatory Commission Promod Deo, whether the State electricity regulatory commissions would enforce the ‘renewable purchase obligation’. (Under this, specified ‘obligated entities’ are mandated, by law, to either purchase costlier green power, or buy ‘renewable energy certificates’ from the market.) He replied that it was like asking whether policemen would catch thieves.Some of the ‘obligated entities’ which were good boys in meeting their obligations, are now kicking themselves for having done so.As a consequence of this, the renewable energy sector in the country feels short-changed. This is a pity, given that, the world over, the accent is on developing this very sector for producing energy through environment-friendly means.

UNKEPT PROMISE

India has 3,400 MW under the two-year-old REC mechanism. This means that the owners of these power plants have opted to sell the electricity at non-premium tariffs and get RECs that can be sold in the market. Who will buy these RECs? The ‘obligated entities’. The promise that the ‘obligated entities’ shall provide the demand for the RECs in the market is one made by law. These power plants are today suffering for having put trust into that promise.Today, the market is awash with RECs, with about 20 lakh of them valued not less than Rs 300 crore, looking for buyers. There is just one more trading session (which will happen on March 27) for the current year, or just one more opportunity for the obligated entities to meet their obligations. Nobody is betting they will.

SPECIOUS ARGUMENT

It is the job of the State electricity regulatory commissions to ensure that the obligated entities in their States fall in line. Tamil Nadu, Karnataka and Himachal Pradesh are fully compliant, but none of the other regulators has taken due action in terms of collecting the penalty. Some States such as Maharashtra, Gujarat and Punjab have allowed the obligated entities one more year’s time.However, in some States (such as Tamil Nadu, which is the bastion of wind power in the country), the power producers are allowed to sell their electricity in the market (‘open access’) at any price. Often, this price is sufficient to yield a profit. But still they get the RECs.

SYSTEMIC PROBLEM

If you distil it further, you will see that the problem is systemic. First, ‘electricity’ is a ‘concurrent’ subject and each State is free to legislate at its own will. That is why there is no commonality between the regulations, and the existence of a ‘Forum of Regulators’ does not seem to have helped bring in this essential commonality.Second, it is difficult not to entertain a feeling that there is what is called ‘regulatory capture’ — state regulators are handpicked by the State governments and often the regulator is “our man”.Third, at a larger level, there is no mechanism to make a wayward discom fall in line other than to go to the regulator and thence the Appellate Tribunal for Electricity. If the intent is to nurture the renewable energy sector, there should be a way by which the Centre could pay the industry first and deduct the amounts from the central devolutions to the States.

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