Insights@Intelsense: Draft National Electricity Plan, September 2022

To subscribe to any of Intelsense Research services, visit www.intelsense.in. If you wish to know more about our PMS offerings, mail us at equity@intelsense.in

Insights@Intelsense

The Draft National Electricity Plan, September 2022 offers great insight into the Power Sector. Here we do a deep dive into some of the critical portions from the standpoint of infrastructural development and opportunities that may open up in this space. The plan envisages achieving a capacity addition of nearly 50% of the already existing installed base.

The total installed capacity for our country has grown at a rate of ~7.84% CAGR since independence.

The growth of installed capacity and energy generation has seen some tapering off compare to other historical 5 years periods and is expected to gain momentum from here.

Major reforms were undertaken in the Distribution Sector along with liquidity infusion during COVID -19.

The plan forecasts Region wise Energy requirement for the next decade.

The need for Inter-regional transmission capacity is stressed and also considered in the plan.

The estimated fund requirement for the capacity addition is a massive 14.35 lakh crore over the next 5 years.

The fund requirement to complete these projects is expected to provide growth opportunities for the Banking Sector at large.

The planned capex will open up requirements for the entire supply chain. Boiler, Turbine &Generator (BTG) form a major part of the thermal power plant. This is expected to benefit BHEL the largest player with L&T, Thermax & others.

Another very important part is emission control equipment like FGD - Flue Gas Desulphurisation and SCR - Selective Catalytic Reduction.

BHEL is already doing large FGD orders and working for SCR also.

The construction machinery requirement for a 660 MW set is outlined in the plan.

The plan mentions need of civil contractors to execute Hydro projects.

Wind Power plants execution can be achieved but focus on building quality turbines will be essential.

The plan stresses the need for developing indigenous sources for critical items.

The key material requirement is expected to provide major demand boost to Core Sector such as Cement & Steel. Major Cement demand coming from Hydro plants and for Steel from Wind projects.

Castings, Forgings, Tubes, Turbines and Generators requirement for Thermal Power Stations.

An FGD system alone will require huge amounts of Material for construction.

Limestone requirement for FGD is also expected to be massive.

Land Requirement in terms of Acre/MW was estimated.

Emission norms highlight the importance of FGD

The investments, if they fructify, could be a significant game-changer in the infrastructure space in India.

Curiosity@Intelsense

 

Multidisciplinary learning is one of the best ways to improve our investment acumen. Here is a summary of some of the best learnings of the week. If you like this collection, consider forwarding it to someone who you think will appreciate it.   You can sign up to https://www.getrevue.co/profile/intelsense to receive all blogs from me directly into your inbox.   To subscribe to any of Intelsense Research services, visit www.intelsense.in. If you wish to know more about our PMS offerings, mail us at equity@intelsense.in

Stoicism and Investing

Stoicism and Investing In my experience, investing is 9% theory, 1% execution, and 90% managing your emotions. That’s why I’ve been applying the philosophy of Stoicism to my investing strategy—it helps me to manage the most important part: Emotions.   At some point, you must take action. But we tend to keep searching for that special piece of wisdom that makes the difference. So we keep reading more books, listening to more podcasts, and following the different investing sages.   As a result, we never take action, and we become our own worst enemy.   Until you take your own money and put it on the line, you never know what it feels like to invest. I can say that I’ve made nearly all the investing mistakes one can make.   But Stoicism has helped me to become a better investor because it made me more level-headed.   Every time you invest in something, you’re taking a risk with your hard-earned money, which will always remain scary. But no matter what happens, don’t talk yourself out of investing. You can’t afford it.   In the long term, markets still move in one direction: Up. You either take the ride up, or you stay where you are. https://dariusforoux.com/stoic-path-to-wealth/

The history of memes

Richard Dawkins, the evolutionary biologist, coined the term “meme” in his 1976 book The Selfish Gene, likening discrete bits of human culture that propagate between people to genes. Dawkins shortened the ancient Greek word “mimeme” – with an apology to his classicist colleagues – to meme, to rhyme with “cream”. He suggested that memes were melodies, ideas, catchphrases or bits of information that leap from brain to brain through imitation, expediting their transmission.   He coined the term to highlight just how human culture can replicate itself. And in that sense memes have been around probably since humans have had cultures they have shared. But we can also see the kernels of what makes modern internet memes so successful in ancient forms of popular culture. https://www.bbc.com/future/article/20220928-the-surprising-power-of-internet-memes

Incentives are the most powerful force in the world

No matter how much information and context you have, nothing is more persuasive than what you desperately want or need to be true. And as Daniel Kahneman once wrote, “It is easier to recognize other people’s mistakes than our own.” What makes incentives powerful is not just how they influence other people’s decisions, but how blind we can be to how they impact our own.   A big thing here is recognizing that people are not calculators; they are storytellers. There’s too much information and too many blind spots for people to calculate exactly how the world works. Stories are the only realistic solution, simplifying complex problems into a few simple sentences. And the best story always wins – not the best idea or the right idea, but just whatever sounds the best and gets people nodding their head the most. Ben Franklin once wrote, “If you are to persuade, appeal to interest and not to reason.” Incentives fuel stories that justify people’s actions and beliefs, offering comfort even when they’re doing things they know are wrong and believe things they know aren’t true. https://collabfund.com/blog/incentives/

PROFILE: Bernard Arnault - The LVMH man

 

I have always been fascinated by businessmen. In this post, I write to highlight a brilliant businessman and corporate investor, who although amongst the world’s richest men, is not very well known or talked about.

“The Terminator”

Bernard Arnault is France’s richest person and is the chairman of the world’s largest maker of luxury goods, Moet Hennessey Louis Vitton. He controls about half of LVMH, which had revenue of 64.2 billion euros ($76 billion) in 2021.  In 1984, Arnault, then a young real estate developer, heard that the French government was set to choose someone to take over the Boussac Saint-Frères empire, a textile and retail conglomerate that owned Christian Dior. With the help of Antoine Bernheim, he acquired Financière Agache, a luxury goods company. He became the CEO of Financière Agache and subsequently won the bidding war for Boussac Saint-Frères, buying the group for a ceremonial one franc effectively taking control of Boussac Saint-Frères.   He laid off 9,000 workers in two years, after which he acquired the nickname “The Terminator” He then sold nearly all of the company’s assets, keeping only the Christian Dior brand and Le Bon Marché department store By 1987, the company was profitable again and booked earnings of $112 million on a revenue stream of $1.9 billion dollars

The billion-dollar idea

In the 1980s, Arnault had the idea to create a group of luxury brands. He worked with Alain Chevalier, CEO of Moët Hennessy, and Henry Racamier, president of Louis Vuitton, to form LVMH in 1987. In July 1988, Arnault provided $1.5 billion to form a holding company with Guinness that held 24% of LVMH’s shares. As a response to the rumours of creating a “blocking minority”, Arnault spent another $600 million to buy a 13.5% more stake in Louis Vuitton. Arnault’s views and mission by then greatly differed from Henry Racamier, Louis Vuitton’s president. In January 1989, he spent another $500 million to gain control of a total of 43.5% of LVMH’s shares and 35% of its voting rights. With the new stake, he was able to reach the “blocking minority” and was successful in dismantling the LVMH Group. He then turned on Racamier, stripped him of his power and ousted him from the board of directors, He subsequently became the unanimous chairmen of the company.

Ambition, Strategy, Drive & Growth

Upon Arnault’s takeover, in eleven years, annual sales and profit rose by a factor of 5, and the market value of LVMH increased by a factor of 15.  What followed was a string of strategic acquisitions. In July 1988, Arnault acquired Céline. LVMH acquired Berluti and Kenzo in 1993.  Arnault bought out the French economic newspaper La Tribune in 1993. Despite the 150 million euros he spent on acquiring the company, he sold it off in order to buy another French economic newspaper Les Échos, for 240 million euros. In 1994, LVMH acquired the perfume firm Guerlain. In 1996, Arnault bought out Loewe, followed by Marc Jacobs and Sephora in 1997. Five more brands were also integrated into the group: Thomas Pink in 1999, Emilio Pucci in 2000 and Fendi, DKNY and La Samaritaine in 2001. In the 1990s, Arnault decided to develop a centre in New York to manage LVMH’s presence in the United States. The result was the LVMH Tower which opened in December 1999.

M&A to preside over the biggest rivalries

In 1999, Arnault turned his attention toward the Italian Luxury Brand, GUCCI. He discreetly amassed a 5% stake in the company before being detected. When Gucci responded claiming it to be a hostile takeover, Arnault upped his stake to 34.4 percent while insisting he wanted to be a supportive and unassertive stakeholder. Domenico De Sole, the CEO of the Gucci group, discovered a loophole that allowed him to issue shares with only board approval, and for every share LVMH bought, he created more for his employees, diluting Arnault’s stake. The fight dragged on until settlement in September 2001. After the legal ruling, LVMH sold its shares and walked away with $700 million in profit

The luxury behemoth

On 7 March 2011, Arnault announced the acquisition of 50.4% of family-owned shares of the Italian jeweller Bulgari, with the intention to make a tender offer for the rest, which was publicly owned. The transaction was worth $5.2 billion. In 2011, Arnault invested $641 million in establishing LCapitalAsia. In February 2014, Arnault entered into a joint venture with the Italian fashion brand Marco De Vincenzo, taking a minority 45% stake in the firm. By January 2018, Arnault had led the company to record sales of 42.6 billion Euros in 2017, 13% over the previous year, as all divisions turned in strong performances. Under Arnault’s leadership, LVMH has grown to become the largest company by market capitalization in the Eurozone, with a record of 313 billion euros ($382 billion) as of May 2021 For a very brief period on 24 May 2021, Arnault temporarily became the richest man in the world, surpassing Jeff Bezos with a net worth of 187.3 billion dollars