A Twist In The Tale :-

All know about the ongoing legal battle between Ambani brothers about the KG Gas dispute and now it has gone to Supreme Court for hearing on 20 July, 2009. We had covered this in our previous post (http://tanmaygopal.blogspot.com/2009/07/update-on-rnrl-reliance-gas-dispute.html), but government has started playing its cards and now the case has become even more interesting. 

The government filed a petition before the Supreme Court seeking a direction to declare as "null and void" the private family agreement of the Ambanis that provides for gas supply by RIL to RNRL. The Special Leave Petition (SLP) was filed by the Petroleum Ministry, a day after it filed an affidavit in response to Mukesh-led RIL's petition in the Supreme Court challenging the High Court order. The points put forward in the SLP by Petroleum Ministry:-

• The gas under the PSC (Production Sharing Agreement) was "the property of the government of India".
• "The contractor (in this case RIL) has certain rights and obligations under the PSC. The rights do not include utilising the gas at the discretion of the contractor.
• The goverment had valued the gas at $4.20 per mmBtu and has stipulated that fertiliser units were to get the gas first followed by power sector. But RIL-RNRL family agreement clauses violate this stipulation.

Why has Government suddenly awaken?

All the blocks provided under NELP (New Exploration Licensing Policy) are on lease basis and private companies use them for a particular time period. In any lease, there is only a transfer of possession and no transfer of ownership. KG basin block is also on the same lines. Government says all the blocks are national property and NELP is on profit-sharing basis. Government share of profits is dependent on selling price so one can not sell below the price set by the Government. The Petroleum Ministry said that the gas produced and expected to be produced from KG basin and other fields under the various PSEs is substantial. "It is expected to nearly double the availability of gas in India in about one year's time. If properly used, it will promote the industrialisation of India. In terms of the MoU, however, all the gas will be owned by the respondents (RIL and RNRL) and utilised at their discretion. Obviously, the pressing needs of the priority sectors cannot be allowed to be held hostage to the benevolence and mercy of these two respondents," the government submitted.

Sub-lease- A lessee can transfer the whole or any part of his interest in the property by sub-lease. However, this right is subject to the contract to the contrary and he can be restrained by the contract from transferring his lease by sub-letting. The lessee can create sub-leases for different parts of the demised premises. The sub-lessee gets the rights, subject to the covenants, terms and conditions in the lease deed. http://www.helplinelaw.com/docs/lease/lease2.shtml

About NELP Eight:- http://www.gulfoilandgas.com/webpro1/PROJECTS/Bid_Project.asp?id=7839

Original NELP clauses (1999 document):- http://www.4shared.com/file/119106623/db2932ed/goi11.html

It is Government who fixes the Gas prices (refer clause 19 in this page):- http://petroleum.nic.in/ng.htm

Weekly Technical View by Tanmay G Purohit:

Nifty (4375) rose for 4 days on trot after Monday to close up by 9.27% this week and recouped almost all of the previous week losses. 3900-3930 was minimum target for downmove and Nifty took U-turn from that place. Sustained move past 4500 will negate the bearish H&S formation and we will have to assume that the trend is still up, but for now it is trading in a broadening triangle which indicates large swings on both sides. Nifty breaking 4200 this week will be negative and caution is advised if 4100 is taken out. Because I had a cautious view, we could not catch the 400+ point move on Nifty this week but market is always supreme and we have to obey its orders as no one can dictate terms here. Many ask when Nifty will correct to 3600 so that we can buy - the point is one should not worry much about index movement. When there are opportunities, we should buy. Buying value gives us margin of safety and caution is being advised because a bit of risk management will only improve the total returns of the portfolio. 

Support: 4280/4210/4100

Resistance: 4440/4510/4630

INFOSYS (Rs 1770):- Buy Rs 1750-1770 for target Rs 2000-2030. Keep stops below Rs 1670. The target can be even Rs 2200 if one can hold for a bit longer term (stop losses can’t be given on longer term targets).

•  INFOSYS results were not outstanding but in these difficult times results of such large tech companies are not expected to be very magnificent, sustaining profits is more important and when once again growth materializes this stock can outperform. Long-term investors need to accumulate.
• Market Talks - Infosys bags $10-m outsourcing contract from Intel, which could evolve into up to $100 million.

More About High Dividend Yield Stocks:-
The previous post (http://tanmaygopal.blogspot.com/2009/07/dividend-yield-stocks-company-name-ex.html) took care of high dividend yield stocks, this will make sure that we know something about those companies before investing. Always know about a company and its business, then only invest in it :-


TATA CHEM :
http://www.tatachemicals.com/
Established in 1939 at Mithapur (in Gujarat, India), Tata Chem (TCL) is a part of the Tata group. The company is a pioneer and market leader in the Indian branded iodised salt segment and India's leading producer of nitrogenous and phosphatic fertilisers. TCL is a global company with interests in chemicals, crop nutrition and consumer products. It is the world's second largest producer of soda ash. With manufacturing facilities in India, UK, the Netherlands, Kenya and USA, TCL is the world’s most geographically diversified soda ash company. It is a leader in the branded salt market in India with above 50% market share. The company recently ventured into the agri-produce wholesale business called Khet-Se and is also running tests for the new bio-fuel business.


Fundamentals:-
CMP Rs 200 EPS Rs 19.22 (TTM) Book Value Rs 171
In correcting markets, an investor needs to find margin of safety in any stock and that comes from fundamental strength. TATA CHEM is paying Rs 9/share as dividend and that makes it 4.5% dividend yield which is very handsome. The stock is a value buy at current levels trading at around 10 P/E on TTM basis. The price has corrected more than 30% from recent peak at Rs 269 made in June'09 and is cheap even from Price/Book Value approach. The dividend record is crystal-clean for Tata Chem as every year it has paid some dividend and never since 2001-02 the dividend payout has gone below Rs 5/share.

In a recent development, Government of India has said that many fertilizer units in India remain underutilized. Tata Chemicals' Haldea-based plant was able to utilize only 57% of total capacity. "Performance of some of the fertiliser units in the country is below par. The main reason for lower production in urea plants is the limitation of availability of natural gas," the Minister of State for Chemicals and Fertilisers, Srikant Kumar Jena, said in a written reply in the Lok Sabha. The government, however, has decided to accord highest priority in gas allocation to the fertiliser sector for expansion and revival of projects. India's gas worries should come to an end soon as RIL, which is currently producing 31-32 mmcmd, is likely to touch 80 mmcmd in next six months from its KG-D6 gas fields and as per Morgan Stanley the peak output is expected to save India $8.3billion annually on import costs.

Fertilizer industry  is seeking an all-cash subsidy payment instead of a mix of cash and bonds, which sell at discounts, resulting in working capital disruptions and losses. Though it is proposed, it is still a pending matter with government and if finalized, will be a catalyst for Tata Chem.

NIIT TECH :
http://www.niit-tech.com/index.aspx
NIIT Technologies became an independent organisation in 2004, after spinning off from NIIT Ltd. Even though the price history is of just 5 years, NIIT Ltd itself has been into software development since last 15 years. NIIT Tech provides solutions for Banking & Fin Services, Insurance, Travel, Transportation & Logistics and Retail & Distribution segments. 


Fundamentals:-
CMP Rs 96 EPS Rs 19.56 (Year-ended Mar'09) Book Value Rs 51.09
NIIT TECH trades at just 4.9 times its FY09 EPS and is paying Rs 6.5/share as dividend yielding 6.78% which takes it very close to even Post-tax Fixed Deposit returns of nationalized banks. One has to understand that stocks are not like Fixed Deposits but if one takes a longer term view, they can be a bit more than that. Good dividend yield makes sure at least some returns as dividends and if it is a growing company (like NIIT TECH also looks), it helps in capital gains too when broader markets do well.


There were other stocks also in that list, I will just give a table of their fundamentals (just for information purpose):-

Financial Snapshot of High Dividend Yield Stocks
Stock Name	Web Site	EPS (Rs) (TTM)	Book Value (Rs)	P/E Ratio	P/B Ratio	Div Yield (%)
KARUR VYSYA BANK	http://www.kvb.co.in/	43.71	250.00	6.59	1.15	4.18
GIC HOUSING FIN	http://www.gichfindia.com/	10.61	69.35	7.37	1.13	5.13
HYDERABAD IND	http://www.hil.in/	59.08	242.46	4.00	0.97	4.24
JK CEM	http://www.jkcement.com/	20.36	129.35	4.95	0.78	3.47
HAWKINS COOKER	http://www.hawkinscookers.com/	36.15	73.95	8.94	4.37	6.19
ORIENT PAPER	http://www.orientpaperindia.com/	10.17	24.75	4.49	1.85	3.26
HEG	http://www.hegltd.com/	26.30	149.21	7.41	1.31	3.33
CHEVIOT	http://www.groupcheviot.net/index.html	26.55	369.46	5.92	0.43	3.82

Dividend Yield Stocks
Company Name	Ex-Date	Dividend (Rs)	CMP Rs (10Jul09)	Div Yield (%)
KARUR VYSYA BANK	14-Jul-2009	12	287	4.18
TATA CHEM	14-Jul-2009	9	200	4.50
CHEVIOT COMPANY	16-Jul-2009	6	157	3.82
GIC HOUSING FIN	16-Jul-2009	4	78	5.13
HYDERABAD IND	16-Jul-2009	10	236	4.24
NIIT TECH	17-Jul-2009	6.5	96	6.77
JK CEM	20-Jul-2009	3.5	101	3.47
HAWKINS COOKERS	22-Jul-2009	20	323	6.19
ORIENT PAPER	24-Aug-2009	1.5	46	3.26
HEG	8-Sep-2009	6.5	195	3.33

In these corrective times, one has to find good investment picks which can give steady returns over a long term even if capital gains are not available because of broader market weakness. So I am giving some high dividend yield stocks which will go Ex-Dividend in next 2 months, all companies may not be very strong fundamentally but companies like TATA CHEM, NIIT TECH, GIC HSG, JK CEM, HEG have proved to be growing in the past with strong management backing. One can think of buying these stocks as a long-term investment and for dividend-stripping. More on some of these stocks in a later post, keep coming back to this place!