Jubliant Organosys

Jubilant Organosys and Eli Lilly have entered into a 50:50 joint venture agreement in India, focusing on providing drug development services. This is a strategic collaboration which would be focusing exclusively on developing new drugs in the areas of oncology, metabolic disease, cardiovascular and diabetes. This Bangalore based joint venture will focus on developing molecules from the preclinical stage to the Phase II stage. Both the partners will jointly invest $8 million in this venture over the next three years.

By leveraging the expertise of Eli Lilly in the R&D capabilities, Jubilant would strengthen its drug discovery and development portfolio. Also, the partnering of global innovator such as Eli Lilly would boost the global acceptance for Jubilant’s CRAMS and accordingly result in an earning traction. Jubilant’s topline is expected to grow at a CAGR of 35 per cent and net profits at a CAGR of 26 per cent over FY08-10E, on account of robust growth prospects available across the CRAMS segment and better performance by Hollister. The stock currently trades at a P/E of 9x FY10E earnings.

Opto Circuits

Opto Circuits India (OCIL) recently cancelled the proposed $100 million acquisition of a European company, with which it had signed a letter of intent in September 2008. The reason cited is that the demanded price is not justifiable from an economic value perspective. This step is positive for OCIL, as it removes any uncertainty of possible balance sheet risk in the short term.

OCIL’s revenues are expected to grow at a CAGR of 54 per cent and net profits at CAGR of 42 per cent over FY08-10E, led by strong growth in the non-invasive as well as invasive businesses. The growth in the non-invasive business will be led by the recent Criticare acquisition—focusing on patient monitoring systems (PMS) and SpO2 sensors, while the invasive business is expected to show traction through stents and DIOR, used in angioplasty procedures.

OCIL, through its 100 per cent subsidiary EuroCor, has certification to sell its invasive products in 34 countries. Until now, OCIL has traded at a premium to the market because of high growth, healthy margins and upsides from potential acquisitions. However, with the recent market fall and overhang of large ownership by foreign institutional investors, the stock price has corrected more-than-warranted, making it attractive. At Rs 203, the stock trades at a P/E of 10.3x and 7.3x its FY09E and FY10E earnings, respectively.

Stock Idea : Aban Offshore

Aban Offshore Ltd., formerly Aban Loyd Chiles Offshore Limited, is an off-shore oil and gas drilling company. The Company has two business segments: Offshore Oil Drilling and Production services, and Wind Power generation. The Company together with its sub-sidiaries, provides oil field services for offshore exploration and pro-duction of hydrocarbons in India and internationally.

ASSETS

It owns and oper-ates offshore drilling rigs, as well as provides drilling services to vari-ous oil and gas operators. The Company pos-sesses twenty offshore assets including fifteen jack-up offshore drilling rigs, two drill ships, one floating production platform and a jack-up rig and drill ship each on bareboat charter. It enjoys the privilege of part-nering with several global players in the oil and natural gas industry by offering them reliable, state-of-the-art drilling services. Its notable cus-tomers include ONGC, Hardy Exploration & Production (India) Inc., Oriental Oil Co. (Dubai), Shell Burnei, Shell Malaysia, Hind Oil Explo-ration Co. Ltd, Cairn Energy, Petronas Carigali etc. It is India`s largest offshore drilling entity in the private sector. Its innovative and cost ef-fective solutions make the company one of the most efficient interna-tional drilling contractors. Aban Singapore Pte. Ltd. (ASPL) was formed as a wholly owned subsidiary of Aban Offshore Ltd. to offer drilling services to large global oil and gas operators.

INVESTMENT RATIONALE:

Aban Offshore has received a contract to drill two wells and for two optional well programmes. The firm period of the contract, ex-pected to commence following the delivery of the rig from the yard in the first quarter of 2009, is likely to last for 150 days with an es-timated revenue of USD 30 million during the firm period.

Venture Drilling AS, in which the Aban Singapore (ASPL), sub-sidiary of Aban Offshore, has a 50% indirect shareholding, has agreed with ExxonMobil for a six month extension of the present drilling contract, in direct continuation and on same terms (at an operating day rate of USD 425,000 after withholding tax). The ex-tended period is likely to last till July 2009.

The company has received a contract to drill 3 wells in Malaysia. The estimated revenue from the contract is USD 17 million for 90 revenue days.

It has won another contract worth USD 38 million to drill 6 wells and one optional well program in Malaysia. Aban Offshore signed an agreement with Exxon Neftegas for the deployment of the jack-up rig Murmanskaya Offshore Russia for a 2 well programme. The project is expected to generate USD 34 mil-lion worth revenues, which has an estimated duration of 160 days and will commence in direct continuation of its present contract that is expected in June 2008.  It will strengthen the top & bottam line of the company.

The company received letter of intent for the deployment of the newly built jack-up rig Aban VIII in the Middle East for 18 wells plus 4 optional wells programme. The company expects USD 300 million in revenues over 4 years. The deployment is to commence following delivery of the rig, which is expected in the second quar-ter of 2008.

Reliance Industries: Refining blues

In the June 2008 quarter, RIL posted GRMs of $15.7 per barrel, which disappointed the Street which had pencilled in margins of $16-17 per barrel, given the sharp rise in crude oil prices. Refining contributes about 55 per cent to the company’s revenues which were Rs 1.37 lakh crore in FY08. Moreover, industry watchers believe there could be a slight delay in the output of gas from KG-D6 basin with it now being available only in November or even later.

Analysts say less than robust demand and fresh refining capacity coming into the market—much of it in Asia and the middle east– over the next couple of years, could cause refining margins to fall 20-25 per cent from FY 2008 levels.

Over one million barrels per day (bpd) of crude oil distillation capacity is estimated to come on stream in CY08 while twice that capacity is expected to be commissioned in the following year. GRMs, which were ruling at roughly $15 per barrel in FY08 could, therefore, come off to levels of around $12 per barrel by FY10.

Towards the end of August, Singapore refining margins had dropped sharply the result of a fall in the margins for diesel.

With the new refineries being complex in nature, the demand for middle distillates such as diesel and kerosene is likely to be met. However, margins for diesel could nonetheless remain higher than those for gasoline.

RIL’s petrochemicals business which brings just over 40 per cent of revenues is expected to do well with petrochemicals margins firming up in recent weeks. Also, the risks of the company being asked to pay a windfall tax appear to have receded.

RIL is expected to end FY09 with revenues of around Rs 1.9 lakh crore and a net profit of close to Rs19,000 crore.

BS Report

Indian Markets : Is it bottoming Out?

The Indian market went through an impressive five-year bull market, beginning in 2003 and running until January 2008, fuelled by over $50 billion in FII inflows. During this period, corporate earnings surged at an unprecedented annualised rate of 32%, while multiples expanded from 9x to 19x at their recent peak.

Unfortunately, since then, India’s market sell-off has been equally intense, accompanied by higher credit costs, inflation, lower industrial production, and several high-profile earnings disappointments. Although recent quarterly earnings growth has remained high, the trend has been one of QoQ deceleration, with contracting EBITDA margins (23% vs 26% last year) and net profit growth of 22% compared to 32% last year.

And rising commodity pricing, particularly oil, of which India is a net importer, are likely to strain margins and earnings growth for the foreseeable future. It is instructive to look at India’s high inflation environment in the mid-1990s.

In 1994, inflation was high at 10.8% compared to today’s 11.42%, and the market was trading at similarly high P/E multiples of 23x. A very sharp correction of over 40% and a de-rating of the market P/E to around 13x soon followed.
Today, by contrast, market multiples have already contracted to 14x. Moreover, in addition to lower inflation, today’s GDP growth is forecast at 7%+, versus only 6.3% in 1994. In short, a strong argument can be made that the economy, as well as the market, are in better shape today.

Nevertheless, the situation could quickly worsen if oil prices continue to rise. India’s net imports of oil as a percentage of GDP is likely to rise to 6% this year, and research shows that every 10% increase in oil prices can shave off at least 0.1% in GDP growth and add 0.4% more inflation. Much, then, depends on where oil prices are heading, not something anyone can confidently predict.

So has the Indian market survived this correction, or can it de-rate further to, say, a 10x multiple, like in 2003? Past bear markets in India have fallen 40- 55%, while MSCI India has already fallen 40% since December 2007. On the plus side, an argument can be made that India’s corporate sector today is stronger, deeper, and better positioned to weather this slowdown than in the past.

In addition, though the economy is not without challenges, with the exception of the oil price, many of these appear less daunting than they have in the past. Combined with a growth to valuation profile that remains attractive relative to global peers, we would argue, the Indian market can avoid a further significant de-rating, unless commodity prices continue to rise.

Nevertheless, we would hasten to add that any immediate upside is also unlikely. Absent improvement on the global market front, the Indian market is likely, more than anything else, to be range-bound.

Ever since markets slid precipitously in January and continued on the downward turn, one has been wondering if the market has fallen enough to see a sustainable trend reversal. Amidst around 7,000 point fall in sensex from January peak till date, there have been as many as four 1,000-point rallies, including a 20% rise from mid-March low to end-April high.

Debate as appeared in ET.

Aban Offshore $55 Million Contract Malaysia

Two contracts secured for Deep Driller

Aban Offshore Ltd. has received letters of intent for the deployment of the jackup rig Deep Driller 2 offshore Malaysia for two separate well programs.

The first three-well program, with revenue of $17 million, has an estimated duration of 90 days in direct continuation of an existing contract.

The second contract has an estimated duration of 210 days and is for a six firm well plus one optional well program, Aban said. The estimated revenue from the contract is $38 million. The deployment is to commence in direct continuation of the first program.

Related post : Rig Market In India , Offshore Support Companies on Rise

 

Source : Oil & Gas Industry

PCPIR, Kakinada AP: $85 Billion Investment

Hyderabad: ONGC Ltd has decided to exit the proposed refinery-cumpetrochemicals project at Kakinada in Andhra Pradesh, making way for the GMR Group, which will hold 51% equity in the project that was originally to cost Rs 31,000 crore.

The project is part of Andhra Pradesh’s Petroleum Chemical and Petrochemical Investment Region (PCPIR) proposed over 600 square miles and envisaged to attract investments worth Rs 340,000 crore over the next ten years.

GMR’s entry is expected to put PCPIR on the fast-track now.

However, the refinery project is likely to cost close to Rs 40,000 crore with GMR indicating that it would like to increase the capacity upwards of 20 million tonnes to make it more viable, sources privy to the proceedings of a board meeting today told DNA Money.

It is understood that GMR has proposed a higher capacity upwards of 20 million tonnes of refining to make the export oriented project more viable.

Reliance Industries had started its own refinery with a capacity of 30 million tonnes and was now going in for an expansion, it was pointed out at the board meeting held on Monday.

ONGC had hiked the initial proposal of 7.5 million tonnes to 15 million tonne and 4.5 lakh tonne per annum petrochemcial complex within the PCPIR to improve viablilty.

But unhappy with the AP government’s reluctance to grant tax sops to the tune of Rs 16,000 crore over eight years, ONGC had been dilly-dallying with the proposal for some time. The two had signed an agreement for the project in September 2006.

ONGC subsidiary Mangalore Refinery and Petrochemcials Ltd (MRPL), held 46% in project, while the Infrastructure Leasing & Financial Services Ltd and the Kakinada Sea Ports Ltd were to hold 51%. The Andhra Pradesh Industrial Infrastructure Corporation (APIC) was to own the remaining 3%.

With the enty of GMR, as per the revised equity structure IL&FS and the Kakinada Sea Ports will hold 46%,while APIC will continue to have its 3% equity. “All issues were resolved at a board meeting on Monday,” Sam Bob, principal secretary, industries department, AP, told DNA Money.

“Apart from GMR, the Hundujas and Essar were the other contenders for the project and we decided on the former seeing their past record,” Bob said. GMR will have management control of the project and will come up with its own detailed project report based on the initial work done by ONGC.

“It is good that we now have GMR in the picture which is a local company and known for its speedy implementation of project,” said APIC vice chairman and managing director B P Acharya.

Another refinery proposed to be developed by the HPCL near Achutapuram near Visakhapatnam at the other end of the proposed PCPIR, is the second anchor for the ambitious special zone.

“The project will be undertaken through a special purpose vehicle of the GMR Holdings Group,” a GMR official said, adding that the group believes the project will help it achieve its overall growth objectives apart from delivering value and creating jobs.

Source : DNA

Rig Market in India

A boom in exploration in India has tripled rig usage over the past four years, adding to a global shortage and causing delays in tapping natural gas off the Indian east coast. Transocean, the world’s largest offshore drilling company, may raise rig prices further after India completes the biggest auction of offshore blocks.

• With crude oil prices galloping over $ 135/bbl, increased investments in exploration and production space globally has become inevitable.However, lack of availability of rigs will continue to keep the day rates firm.  

• Rents have tripled since 2005 for new rig contracts stretching up to 2012 as explorers seek to decrease the delay between discovery and development to take advantage of high oil prices.

 

Indian Market

Transocean, the world’s largest offshore drilling contractor with 82 units, made $296 million, or 10.2 percent, of total sales from India, according to its 2005 annual report. Revenue from India more than doubled since 2003, the fastest among Transocean’s main markets

Future Expetation

Reliance is paying $320,000 a day until August 2008 to rent the Deepwater Frontier rig, more than twice what the rig’s owner, Transocean, charged an earlier client, according to Transocean’s Web site. The rent is set to rise to $477,000 a day, if Reliance extends the contract in 2008 for another three years.

Riding on Market Boom :

Aban Offshore (Aban), with its 22 rigs (post acquisition of Sinvest) is well poised to leverage on the industry dynamics. Historically, Aban has clocked the highest operating margins in the industry at a global level.

Contract renewals for six of Aban’s assets (including Sinvest) are due over the next 10 months. With the current tightness in the rig market, the re-pricing of these contracts is expected to happen at significantly higher rates compared to their existing rates.

Essar Oilfields Services, a unit of Essar Shipping & Logistics, in Cyprus, paid $220 million for Transocean Wildcat, a 30-year-old offshore rig that can operate in depths of about 400 meters and capable of drilling up to 7,600 meters

 

Source : BS, Hearld, Transocean

 

Rigs demand: Offshore support companies on rise

As the quest for discovering oil hidden deep under the sea bed gathers momentum, fortune of Indian companies engaged in providing offshore support solutions to oil exploration companies have been riding high on the bourses.

 The biggest development in this sector was the announcement of NELP-VI in February 2006, under which a total of 55 blocks were offered, including 30 offshore blocks. Further, ONGC, along with its overseas arm ONGC Videsh Ltd, and ONGC Mittal Energy and Reliance Industries Ltd have been scouting for opportunities all over the world. (also see: Reliance Building Assets world over)

 OMEL has bagged two blocks in Nigeria, estimated to have reserves of about 500 million barrels each.

Considering that less than half the wells awarded since 2000 have been drilled, the demand for rigs is set to remain high in the near future. The government has decided to offer more exploration blocks under NELP VII in the coming days.

 

The higher level of exploration activity in India has increased the demand for rigs over the past few years. In 2005-06, about 35 rigs were operating in India (including jack-up rigs, drill barge, platform rigs and drill ships). This rose to 45 in 2006-07 and is expected to go up to 50 by the end of 2007-08 (These figures include ONGC-owned rigs).

Companies such as Aban Offshore, Dolphin Offshore, Garware Offshore, Jindal Drilling & Industries  and Duke offshore, apart from shipping companies such as Great Eastern Shipping that are operating in this space, have seen brisk trades at the counters in the last few weeks. Internationally, a rig could fetch a daily hire charge of about $ 3,00,000 at present,  Great Offshore a leading integrated offshore service company, had placed the order for the rig with Bharati Shipyard. Betting big on the rig, scheduled to be delivered by April 2009, Great Offshore clinched a five-year contract from ONGC for deploying it.

Source: HIndu, Rediff, News

Praj Ind

PRAJ INDUSTRIES
The stock made a big breakout on a strong volume expansion. The key resistance level on daily charts was Rs 250. However, on weekly charts, the key resistance was at Rs 265. The long-term target would be Rs 320, while it could go till Rs 285 in the short term.

Multi bagger in making

Asian Oilfield, is engaged in short drilling  for ONGC & other private players, as evident from the financials company is witnessing a huge growth in the sales & porofit & planning to add two more rigs.

Return on Total Assets (ROTA)	17.32%
Return on capital employed (ROCE)	27.14%

Considering the sprut in E& P sector, company is poise to have a great future ahead. However due to recent runup Asian valuation looks expensive, but in recent past all the Oil & gas companies are getting rerated. 

Enjoy the ride…..