Sensex Continues to Trade Flat; Consumer Durables & Metal Stocks Shine

Mon, 10 Oct 01:30 pm

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Indian share markets continued to trade near the dotted line with positive bias in the noon session amid mixed global markets. Barring PSU, oil & gas and realty sector, all the sectoral indices are trading in green.

The BSE Sensex is trading higher by 52 points and the NSE Nifty is trading higher by 21 point. The BSE Mid Cap index is flat, while the BSE Small Cap index is up by 0.4%. The rupee is trading at 66.69 to the US$.

Share price of ITC is trading on an optimistic note (up 0.8%) after it was reported that the company will sell its entire stake in its US-based wholly-owned subsidiary King Maker Marketing (KMM) for an estimated consideration of US$ 24 million.

ITC entered into an agreement with the US-based buyer, Premier Manufacturing, to divest 100% of its equity stake in KMM. KMM is primarily engaged in distribution of cigarettes in USA. The expected date of completion of sale of the subsidiary is November 30, 2016.

Main business of King Maker Marketing, registered in New Jersey, is to import and distribute tobacco products (Subscription Required) to licensed wholesalers and retailers throughout the USA. ITC is KMM's sole supplier of tobacco products.

KMM recorded net sales of US$ 32.7 million and earned a net income of US$ 0.53 million during the financial year ended March 31, 2016. During the last fiscal, KMM reportedly paid a dividend of US$ 1.5 million to ITC.

The cigarette industry in the USA continues to be adversely impacted by long-term decline in cigarette consumption and growing illicit trade due to tax differential between various States, mislabeled cigarette tobaccos positioned in a lower tax bracket, non-compliant imports and Native American manufacture.

In another development, according to an article in the Moneycontrol, ITC's improvement in cigarette business is likely to ramp up its business performance in the second quarter of this fiscal. It also expects revenue growth of the FMCG business to pick up significantly in second half of FY17 on improving macro and new product launches. It says paper prices are up significantly in the September 16 due to shut down of competitor plants.

Moving on to news from stocks in oil & gas sector. According to an article in the Livemint, Oil and Natural Gas Corporation (ONGC) has inked a preliminary agreement to take an operating stake in Gujarat government firm Gujarat State Petroleum Corp (GSPC)'s KG basin gas block. The Memorandum of Understanding (MoU) signed last week has a dispute resolution mechanism set out wherein any differences over issues like valuation or natural gas reserves would be referred to a three-member committee of outside experts.

As per the reports, this is perhaps for the first time that a MoU sets out a dispute resolution committee and it perhaps is indication of the pitfalls that ONGC anticipates in buying a stake in the block. It has already differed with GSPC on the gas reserves the block holds and has appointed US-based consultant Ryder Scott to do an independent assessment.

ONGC initially was not keen to buy stake in the block as it felt the block had reserves far less than what GSPC was claiming and the asking price for the stake was not commensurate with the returns. GSPC was to begin gas production from the block in 2013 but after sinking in US$3.6 billion it was found that gas reserves are one-tenth of 20 trillion cubic feet claimed in 2005 and that too is technically difficult to produce.

In the process it has amassed Rs 195.76 billion of debt, on which interest cost was Rs 18.04 billion in 2014-15, according to the CAG. And against this, its revenue was Rs.1.52 billion in 2014-15.

Share price of Gujarat State Petronet was trading up by 2.3%, while ONGC is trading down by 1.2% at the time of writing.

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