Why Rakesh India Strategy More of the samecontent.indiainfoline.com/eBook/IQ/IQJFM2016.pdfWhy Rakesh...

Vol 3. Issue 1. • January 2016 - March 2016 • www.iifl.in • Complimentary Copy

pg27Management Roadshow: Post Conference Note

Simba, go to the city pg22

Life Insurance: Unlocking value pg48

What to avoid while planning your finances? pg52

GST setback yet again Wrong hit and wrong time pg59

2015: The year that was pg62

A visit to Baddi: Alkem Laboratories pg64

Special Features

4

Ms. Chitra RamkrishnaMD & CEO, National Stock Exchange (NSE)

“NSE’s commitment is to improve financial well-being of the people.”

19

Tushar PradhanChief Investment Officer, HSBC Global Asset Management

“An optimal mix of assets can provide a smooth investment return over the interim”

54

Swati KulkarniExecutive Vice President and Fund Manager, UTI AMC

“The investment side of the economy is yet to see strong traction”

Why Rakesh Jhunjhunwala

remains Bullish in 2016?

Why Rakesh Jhunjhunwala

remains Bullish in 2016?

14

US Monetary Policy Review

60

India Strategy

More of the same

From the

Managing Director’s Desk2015 was a difficult year in the markets. If there was a “guess the Sensex contest” with an additional piece of information that crude will be around $35 per barrel in December, then consensus predictions would have been Sensex 30% higher and India Rupee appreciating at least by 10%. However we end the year, with a depreciating rupee and Sensex losing about 6%. Of course it a matter of pride that according to Bloomberg, IIFL Research was the most accurate among brokers in predicting the Sensex close for the year. And during the year, our economist was the only one out of over 50 who Bloomberg polled to get Rajan’s 50 basis points rate cut bang on target.

Enthusiasm about India and Modi has given way to pessimism and frustration. December 2015, most people are worrying if India will become a basket case – no green shoots, infra in a mess and banking sector will collapse leading to a macro economic disaster. If you just jiggle your memory cells a bit, the exact opposite was being talked about in December 2014 – how India is on the cusp of an economic revolution. 2014 was a hope trade with a reality check in 2015.

This brings me to the topic I wish to discuss– cycles. In spite of experts talking about the death of the economic cycle, I believe the cycle is very much alive and kicking. If you had invested in January 2002 and exited in December 2007, you would have had 6 years of consecutive positive Sensex returns. That was possible because of a commodity super cycle combined with domestic recovery. On top, we had global and domestic liquidity deluge. The party ended and Indian economy is still suffering from a hangover. Hangovers take time to go irrespective of any concoctions that Jeeves might conjure.

Currently, Indian economy is slowly but steadily finding its feet. Rural India was hit by bad monsoons and that has clearly affected rural demand. Urban consumption is picking up. Inflation is under control. Domestic liquidity is good. We will see more rate cuts over next 12 months.

What will drive up the economy? I reckon it would be consumption and whatever little government can do and spend on infrastructure, railways and defence. Benign interest rates will help. If rain gods smile, then you have an additional kicker. Private sector capex will take at least another 18 months.

My sincere advice to Investors – buy Indian equities with a long term perspective. Definition of long term differs from investor to investor but I guess anything over five years should suffice. And if you are someone who is data driven, from 1995, we have only two instances where Sensex or Nifty delivered two consecutive years of negative returns.

My forecasts for 2016 – Sensex 20% higher, Interest rates 50 bps lower and India Rupee depreciating by 5%.

Happy Investing and wish you a happy and Money Making 2016

R. Venkataraman

HAPPY NEW YEAR

IIFL Quarterly January 2016 - March 2016 2

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Table of ContentsEditor Anil Mascarenhas

Head of Research Amar Ambani

Contributors Rajiv Mehta Prayesh Jain Bhavesh Gandhi Tarang Bhanushali Ruchita Maheshwari Hitesh Jain Alok Deora

Design Mohammad Jameel

E-mail: [email protected]

Website: www.indiainfoline.com

Tel: +91 22 - 4007 7148

IIFL Holdings Limited

Corporate Office IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Tel: (91-22) 4249 9000/ 4060 9000 Fax: (91-22) 4060 9049

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Page No.

From the Managing Director’s Desk 2

Ms. Chitra Ramkrishna, MD & CEO, NSE 4

India Strategy: More of the same 8

IPOs see best performance in 5 years; will retail investors continue to return? 12

Why Rakesh Jhunjhunwala remains Bullish in 2016? 14

2015 Market Report Card: Many a Class, Not many Pass 15

Tushar Pradhan, Chief Investment Officer, HSBC Global Asset Management 19

Simba, go to the city 22

Management Roadshow: Post Conference Note 27Bajaj Corp Ltd ............................................................... 28

Can Fin Homes Ltd ....................................................... 30

Capital First ................................................................... 32

Greenply Industries ...................................................... 34

Gulf Oil Lubricants ........................................................ 36

Manappuram Finance Ltd .......................................... 38

Sadbhav Engineering Ltd. .......................................... 40

Sterlite Technologies Ltd. ............................................ 42

Tata Communications ................................................ 44

Techno Electric & Engineering Ltd ............................ 46

Life Insurance: Unlocking value 48

Tips to obtain a loan for the self-construction of home 51

What to avoid while planning your finances? 52

Swati Kulkarni, Executive Vice President and Fund Manager, UTI AMC 54

Diesel vehicle ban in Delhi: What Auto companies are saying? 57

GST setback yet again Wrong hit and wrong time 59

US Monetary Policy Review 60

2015: The year that was 62

Get set go: Managing Money in 2016 63

A visit to Baddi: Alkem Laboratories 64

Disclaimers 66


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http://www.indiainfoline.com

Ms. Chitra Ramkrishna, MD & CEO

LEADER SPEAK

“NSE’s commitment is to improve financial well-being of the people.”

“NSE’s commitment is to improve financial well-

being of the people.”IIFL Quarterly January 2016 - March 2016 4

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You have said you knew little commerce in school and that you wanted to build an independent financial career. How has the journey been?

I think as one grows up, the person starts evaluating various options. During the formative years in school, be it today or my time, not all students are aware about the options available. In my case, after finishing CA, I entered the corporate world. Once I got the chance to get into a new capacity building project in the capital market, I joined NSE, the country’s most trusted stock exchange.

Comment on your plans to launch new ETFs based on various asset classes such as fixed income and commodities.

It’s indeed an achievement that NSE considered the ETF segment at a time when no one deemed it fit to talk about the segment. We have explored it as a product category about a decade ago. We believed that this product category can actually ensure wealth creation for the masses. We started educating a large population of small savers on how a simple passive investment vehicle, which is on a broad-based index such as NIFTY, is perhaps the simplest and the most protected way for market participation. For example, CPSE ETF based on Nifty CPSE index has helped the government execute a disinvestment of Rs.3000 cr; people got a long-term, low-cost, small ticket and a convenient investment product simultaneously. In recent times, Exchange-traded funds (ETFs) have garnered wider acceptance, as financial instruments’ unique advantages over mutual funds have caught the eye of many investors.

How have you kept yourself abreast with the nitty gritties of operations, technology, and risk-management? Do you perceive digital push and mobile trading as the game

Ms. Chitra Ramkrishna, B. Com, B.L., Fcs serves as Managing Director and Chief Executive Officer of National Stock Exchange. Ms. Ramkrishna serves as Promoter Director of Power Exchange India Limited. Ms. Ramkrishna has been the Managing Director and Chief Executive Officer of National Stock Exchange of India Ltd. since April 1, 2013. Ms. Ramkrishna served as Joint Managing Director of National Stock Exchange of India Ltd. from September 1, 2009 to April 1, 2013. She served as Head of Listing and Deputy Managing Director of National Stock Exchange of India Ltd. She serves as a Member of Derivatives Panel of Securities and Exchange Board of India. She serves as Executive Director of National Stock Exchange of India Ltd. She serves as Director of NSE Strategic Investment Corporation Limited and India Index Services & Products Ltd. She serves as Director of National Securities Clearing Corporation Limited. She has been a Member of Executive Committee at National Securities Depository Ltd. since March 9, 2009.

“It’s indeed an achievement that

NSE considered the ETF segment at a

time when no one deemed it fit to talk about the segment.

We have”


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changer?

Since I began my journey, I never needed an excuse to come to office. It’s a lovely place and more so because the organisation has an impact on a large diaspora and can facilitate nation building through peoples’ participation. Stock is an enabling platform for many things. We are still a young market infrastructure institute that has so many things to do. India has developed a lot, but a lot can be done in regards to financial inclusion and deepening. Smart phones are ushering in more and more people to the market. The outreach of technology is expanding and trading through mobile phone is doubling yoy.

What is your assessment in regards to technological changes that are taking place in the financial space? Are you comfortable with the developments on algo trading?

No business model can be static and there will be changes with time. Technology is ever-evolving, and the exchange platform is also constantly upgrading to match people’s expectations. In regards to algo platform, NSE follows guidelines and regulations that SEBI brings into the market from time to time. We also try to incorporate the best practices in our day-

Ms. Chitra Ramkrishna, Managing Director & CEO, National Stock Exchange of India Limited

to-day operations. Since NSE has remained a trusted destination for all sorts of traders, including long-term investors, algo traders, strategy players, and first time investors, the journey in itself says it all.

What are the opportunities and challenges for NSE at present?

We are a regulated platform and will stick to SEBI’s directions. At present, some of the new segments such as ETF, currency, interest rate, and SME platform are doing well at NSE. In the SME platform, for example, after two years of engagements with stakeholders, we are now seeing signs of some maturity. Lot of institutional corporate investors are participating in SME IPOs and many of them are coming back to invest in other SMEs. As an organization, we remain true to our commitment of improving financial wellbeing of people.

You recently rebranded the NSE indices. What benefits do you hope to derive?

NSE’s subsidiary, IISL, which creates most of the indices has now more than 50 products encompassing various formations. While some focus on market cap and sectors, others could channelise their focus toward strategy-based indices or govt bonds. At a time when NIFTY has become synonymous with country’s economic and capital market

NSE has collaborated with leading international exchanges. This has helped Nifty 50 to become global. NSE has cross listing agreement with some of the leading exchanges, including Chicago Mercantile Exchange and London Stock Exchange. NSE has signed a licensing pact with Singapore Exchange Ltd.


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performance, inclusion and prefixing the word NIFTY in the names of IISL’s indices will widen the acceptability of the products linked to the Nifty family worldwide.

Your comments on listing?

As we have already made it clear, NSE will list. SEBI has recently come out with broad guidelines and a more detailed one is expected. NSE board and management will take listing to its logical conclusion soon.

What steps are you taking to make NSE popular internationally?

NSE has collaborated with leading international exchanges. This has helped Nifty 50 to become global. NSE has cross listing agreement with some of the leading exchanges, including Chicago Mercantile Exchange and London Stock Exchange. NSE has signed a licensing pact with Singapore Exchange Ltd. Indian investors also get exposure to the US and Europe through derivatives on S&P500, DJIA, and FTSE 100. These contracts are traded in Indian hours and settled in Rupee, ensuring minimal currency risks.

What steps are you undertaking to improve retail participation? What is your message and advice to retail investors?

NSE has a diverse client base comprising domestic institutions, foreign investors, and sophisticated derivatives traders, and retail investors. The retail investors’ number is ever-growing, mostly due to awareness issues. At NSE, we emphasize on investor education. In 2015, we have done more than 1000 programs across the

country. NSE has marked its forays into formal education in financial literacy and investor protection. We define the kind of appropriate products for the market. Thus, you will note that our single-minded purpose is to ensure the larger financial wellbeing of those who come to the market. The geographical outreach of NSE members is something unique. NSE members are present in 36 states, 600 districts, 3250 cities, with around 34000 branches in India. More than 19 million retail investors (unique PAN accounts) are registered with the exchange. With new initiatives such as entry of pension funds, we envisage more indirect participation of retail investors and growth in awareness.


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We expect 2016 to be another challenging year for Indian equities. The twin headwinds of 2015, challenging growth environment and anaemic profit cycle,

would continue to weigh on stocks. Further valuations too are demanding. The global environment is likely to become more challenging with the easy liquidity environment ending as the Fed continues to tighten monetary policy. Given this backdrop, we remain neutral on the overall market with a preference for stocks and sectors with low earnings and valuation risks.

Growth likely to remain sluggish: We do not expect the business cycle to see material acceleration in FY17 although GDP growth will see some acceleration at a headline level, as agri growth normalises after two consecutive years of drought. The capex cycle is likely to remain sluggish with pockets of improvement in sectors such as roads. The drag from rural consumption is likely to persist. On the positive

More of the same

side, inflation is likely to trend down, allowing for further monetary easing; CAD is also likely to be contained at sub 1%.

Earnings and valuations – downside risk: In an environment of single-digit nominal GDP growth and a weak domestic growth environment, consensus estimates imply 20% earnings growth for FY17. This is unrealistic and earnings downgrade will follow for the sixth consecutive year. Similarly, current valuation levels leave limited room for further rerating of the market. Thus, equity returns will at best mimic earnings growth.

Portfolio strategy – stay defensive: A challenging macro environment coupled with modest earnings growth and above-average valuations calls for conservative portfolio positioning. Thus, we prefer sectors and stocks with low earnings and valuation risks. We are overweight on consumer staples, energy, and IT and underweight on financials, industrials and materials.

India Strategy


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Top Large Cap Buys Top Mid Cap Buys » BPCL » Godrej Consumer » Infosys » Lupin » Motherson Sumi

» Blue Star » Kansai Nerolac » Chola Finance » Indraprastha Gas » Ramco Cement

Key Overweight Sectors Key Underweight Sectors » Consumer Staples » Energy » Information Technology

» Financials » Industrials » Materials

2015 – a mixed year: 2015 was a mixed year for Indian stocks. The benchmark Nifty index fell 4% during the year, making it only the third

year in the past 12 years when the market declined in the year and mid-cap and small-cap stocks outperformed with 6-7% returns during the year. The two key factors that affected the market during the year were continued earnings downgrades and a sharp slowdown in foreign investor flows as global backdrop became challenging.

The year saw maximum earnings downgrades in recent years, with FY16 consensus Nifty EPS seeing 21% downgrade through the year. A part of this is due to continued weak economic environment. However, the sharp decline in commodity prices explains the bulk of the earnings downgrades. The year also saw a sharp reversal in FII inflows into India. CY15 saw a modest US$3bn inflow from FIIs in equities in contrast

to an average of US$20bn in the preceding 3 years.

While the headline market return was disappointing, investor sentiment was generally positive as reflected in a buoyant IPO market. The largest number of IPOs since 2010 was in 2015, with more than US$2bn being raised via IPOs.

On the economic front, macroeconomic stability continues to be the big story rather than growth. All three key indicators – inflation, fiscal deficit, and current account deficit (CAD) improved YoY, which kept the rupee stable. Economic growth especially the investment cycle remains sluggish and stress on balance sheets of banks’ also remains elevated. As things stand now, 2016 is likely to see more of the same on the macro front. However, the global backdrop will be significantly more challenging with the end of easy liquidity environment.

Global backdrop – significantly more challenging in 2016: At the start of 2016, the global backdrop appears significantly more challenging than it was during early 2015. 2015 was expected to be a year of gradual recovery in global growth, given accommodative monetary policies by the major central banks. Global growth in 2016 is estimated to be lower than in early 2015. Further, global growth will likely decelerate YoY in 2016. Emerging markets growth in particular is likely to be sharply lower this year. However, there are two specific macro risk factors globally.

The first is the pace at which the US Federal Reserve will normalize its monetary policy. The financial markets expect a fairly gradual pace of policy normalization from the Fed with no more than 50bps increase in the Fed funds rate in 2016. However, the Federal Reserve’s own guidance suggests that the Fed funds rate will see a 100bps increase in 2016.


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Considering that this is the first time in almost a decade when the Fed is hiking interest rates, one has to wait and watch how the financial markets respond to a faster-than-expected path of Fed rate hikes.

The second risk stems from continued slowdown in China. The issue is not so much slowdown in growth, which was almost inevitable. The core issue is the probable policy responses, given sensitivity of the government to slowing growth and its ramifications in global financial markets considering the size of the Chinese economy. For example, a

modest devaluation in the Chinese currency in Aug-2015 set off a sharp fall in all EM currencies.

Domestic growth – stability achieved but recovery not yet in sight: The major economic development in the past two years is that India has achieved macro-economic stability. In 2013, when the emerging markets last saw volatility owing to concerns over Fed tapering its QEIII, India was part of the fragile five economies. Its CAD was the largest among emerging markets and inflation was close to double digits. Fiscal deficit too was high at 6% and the country was on the verge of a sovereign rating downgrade. The Indian rupee was among the worst performing currencies in the emerging markets.

Two years hence, when the Fed started tightening the monetary policy, India is among the most stable economies in the emerging markets. Its inflation has halved to just 5% and CAD has fallen by more than 70% and is now less than 1% of GDP. Fiscal deficit too has improved and India is on the verge of a sovereign rating upgrade. Having outperformed a basket of EM currencies by 20ppt in 2015 and 12ppt in 2014, the Indian rupee is among the most stable currencies in the emerging markets.

However, the one thing that has not changed is economic growth. GDP growth has remained the same, hovering over the 7% mark in the past two years (FY15 and FY16ii), despite expectations of recovery following the decisive results of the 2014 general elections. Admittedly, two consecutive years of drought have weighed on growth. However, one has to note that the government has disappointed on the policy front, and business confidence too has declined in recent months.


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India will continue to improve its macroeconomic stability this year with inflation likely to decline further and CAD likely to remain below 1% in FY17ii. However, we do not expect GDP growth to accelerate materially in FY17. Consumption momentum will remain weak owing to a continued drag from rural economy. However, improvement in urban demand will partially offset this. Overall capex growth will remain weak, but some segments such as roads and railways will likely to see uptick. Assuming a normal monsoon, agriculture GDP, which was flat in the past two years, will normalise and thus drive acceleration in growth. Headline GDP growth will accelerate to 7.8% in FY17ii, backed by turnaround in agriculture. Nonetheless, non-agri GDP growth will broadly remain unchanged relative to the past two years. Thus, the economy will exhibit more of the same trend in 2016 like it did in 2015.

Key overweight sectors:Consumer staples: Although the demand environment remains soft, the sharp correction in commodity prices has created significant cushion for companies to generate double-digit earnings growth. ITC remains an exception, given the event risk from the budget.

Energy: Although oil prices have declined, refining is in a sweet spot due to robust global demand and low capacity additions. Further, the downstream sector in India is likely to benefit from margin expansion pursuant to deregulation of retail fuel prices. Earnings growth has limited downside risk.

Information technology: Valuations are generally reasonable at mid-teens and the sector should see double-digit earnings growth. Any depreciation in currency due to dislocations in global financial markets will further boost earnings growth.

Key underweight sectors:Industrials: While there are nascent signs of a recovery in the capex cycle, valuations are either already rich or there are company-specific issues which will drag performance. Earnings risk also

remains on the downside.

Materials: Global commodity prices are at multi-year lows and with global growth likely to weaken and the days of easy liquidity likely to be behind us, commodity prices are likely to remain weak. Thus, earnings risk thus remains on

the downside.

Financials: We continue to see downside risk to earnings for financials, especially those that are exposed to the corporate sector. This belief stems from modest credit growth due to low growth, decline in margins due to changed regulatory norms, and further increase in credit costs. However, earnings for banks exposed to the consumer should be resilient.

Source: IIFL Institutional Equities


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IPOs see best performance in 5 years; will retail investors continue to return?

The big-bang listings of Dr Lal Pathlabs and Alkem Laboratories on Wednesday ostensibly marked the closure of a fruitful year in India’s primary market after two rather dull years.

In fact, the domestic primary market has ended calendar 2015 with the best performance in five years. On Wednesday, the issue of Alkem Laboratories and Dr Lal Pathlabs made stellar debut on the bourses, by gaining about 31 per cent and 52 per cent, respectively, in debut trade.

The two issues were up for subscription between December 8 and December 10. The last IPO for the year, Narayana Hrudayalaya, sailed through earlier this week with 8.63 times subscription, after witnessing tepid response in the first two days.

The success of the twin issues raised the total fund raising by companies from the primary market in calendar 2015 to more than Rs 13,000 crore. Last year, only six IPOs hit the market and raised a meager Rs 1,261 crore. The year before, the number was still less at just three, mobilizing a total of Rs 1,284 crore.

More than the bare numbers themselves, the most remarkable thing to happen in the primary

The domestic primary market has ended calendar 2015 with the best performance in five years.

₹ 550 ₹ 833.4

₹ 283.4

Issue Price Profit/(Loss) CMP

Dr. Lal PathLabs51.5%

23-Dec-2015Listing Date

₹ 1,050 ₹ 1,468.5

₹ 418.5


Alkem Laboratories39.9%

23-Dec-2015Listing Date

₹ 180 ₹ 236.1

₹ 56.1


S H Kelkar & Company31.2%

16-Nov-2015Listing Date

₹ 205

₹ 406.7

₹ 201.7


VRL Logistics98.4%

30-Apr-2015Listing Date


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market was the return of retail investors, who have made a big-bang comeback after lying dormant for many years.

The issues of Alkem Labs and Dr Lal Pathlabs witnessed overwhelming response from retail investors. The retail quotas of IPOs of Sadbhav Infrastructure Project, Shree Pushkar Chemicals and Navkar Corporation were, however,

subscribed fully. That after, some of the year’s big-ticket and high-profile issuances including the one of InterGlobe Aviation and VRL Logistics among others, witnessing poor response from retail investors. The issue of InterGlobe Aviation for instance had got fully subscribed on the second day of book building itself, but the response from retail

investors was tepid.

What is remarkable about the strong retail participation in these IPOs was the fact that they have betted on these issues at a time when there was so much uncertainty in the market amid fears of a strong FPI outflow due to the impending rate hike by the US Federal Reserve and also concerns over slow growth revival and delay in reforms push in the domestic economy.

Analysts say investors have suddenly become more comfortable with IPO valuations as these issuances are now priced to perfection. So the quantum, valuations and businesses have all become reasonable, which has lifted investor sentiment in the primary market. A spate of regulatory reforms by the Sebi has also helped matters and the mood of investors in the IPO market, which is now acting as a catalyst to bring retail investors back into the market. After a strong year for IPOs, it remains to be seen if 2016 can help retail investors keep their faith in the equity market.

IPO Listed OnIssue Price

Current Price

Profit /Loss (%)

Alkem Laboratories 23-Dec-2015 1,050 1,468.5 39.86

Dr. Lal PathLabs 23-Dec-2015 550 833.4 51.52

S H Kelkar & Company 16-Nov-2015 180 236.1 31.17

Interglobe Aviation 10-Nov-2015 765 1,192.5 55.88

Coffee Day Enterprises 02-Nov-2015 328 275.3 (16.07)

Prabhat Dairy 21-Oct-2015 115 151.2 31.48

Sadbhav Infrastructure Project 16-Oct-2015 103 98.1 (4.76)

Pennar Engineered Building Systems 10-Oct-2015 178 158.8 (10.79)

Shree Pushkar Chemicals and Fertilisers 10-Oct-2015 65 110.3 69.69

Navkar Corporation 09-Oct-2015 155 205.0 32.26

Power Mech Projects 26-Aug-2015 640 637.3 (0.43)

Syngene International 11-Aug-2015 250 396.6 58.64

Manpasand Beverages 09-Jul-2015 320 486.6 52.06

PNC Infratech 26-May-2015 378 537.0 42.06

UFO Moviez 14-May-2015 625 505.0 (19.20)

MEP Infrastructure Developers 06-May-2015 63 47.6 (24.44)

VRL Logistics 30-Apr-2015 205 406.7 98.39

Inox Wind 09-Apr-2015 310 363.8 17.34

Adlabs Entertainment 06-Apr-2015 168 139.4 (17.02)

Ortel Communications 19-Mar-2015 181 176.1 (2.71)

IPOs performance in 2015


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Why Rakesh Jhunjhunwala remains Bullish in 2016?

Why Rakesh Jhunjhunwala remains Bullish in 2016?

Rakesh Jhunjhunwala is bullish on the stock market for long and continues to remain so. “Our stock market has already made its low and the recent correction shall pave way for new highs in 2016,” he said in a recent television interaction. He also points out that the only concerning factor is the US markets. The above

notwithstanding, he does not see any other factors fueling a downfall of our markets. India has to be looked at as an independent country because the local money flow will be far greater than foreign money flow, he opines. India’s macroeconomic condition is best suited for high growth in the near future, he added.

Rakesh Jhunjhunwala, partner at Rare Enterprises, feels that the Indian mutual funds flow has been good and will only get better. The massive selling of FIIs, which was absorbed by local institutions for the first time, will prove beneficial, according to him.

He expects India to become a huge export hub in the next decade. Expecting a good monsoon, after hurting monsoons in the past two years, he envisages some government initiatives in regards to infrastructure and business ease to lead to improved sentiment.

In an interview to ET, Rakesh Jhunjhunwala pointed out that investing in large caps is ultimately going to be beneficial.

He believes the Pharma industry will be a game changer and India will lead the Pharma space, backed by upgrading of technology,

market expansion, strong price competition, and heavy spending on research. He is also bullish on housing finance companies,

but treaded a cautious path with regard to banks. He expects problems in the banking sector to only worsen with time.

Some stocks he is bullish on are: Lupin and Aurobindo in the Pharma Sector, HDFC and Kotak in the Banking Sector

He is also positive on IndiGo, Rallis India, Titan, and Tata Motors.


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Picking the most lucrative asset class from the basket of loaded investment options has always been a tricky affair, given the pros and cons oscillating between the value props of ‘Long term’ and ‘Short

term’. Nevertheless, here’s an attempt to put the ordeal in perspective for the year that’s on the verge of being called gone by. Even a cursory glance at the 2015 performance makes it pretty evident that real estate and gold have lost much lustre due to over-exposure, thereby shrinking possibilities of good returns.

Over the years, historical data indicates a string of blips and dips in the real estate market. However over the course of time, an upward moving trend has, sooner or later, bridged gaps in market performance. Despite this, experts believe that investing in real estate is not as lucrative a bet since a property could take several months and mostly years, to get sold. Also, any booms which are undergone by both the asset classes are usually followed by a stagnation phase, in view of the low demand and surplus supply.

The uncertainties over issues like global growth and the timing of Fed rate hike at the dawn of 2015 made gold

Many a Class, Not many Pass

2015 Market Report Card

Picking the most lucrative asset class from the basket of loaded investment

options has always been a tricky affair, given the pros and cons oscillating between the value props of ‘Long term’ and ‘Short term’. Nevertheless, here’s an attempt to put the ordeal in perspective for the year that’s on the verge of being called gone by.


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furiously volatile almost throughout the year. Gold Futures for February Delivery almost dropped 9% to Rs.1078.1/ oz as compared to Rs. 1183.9/oz on Comex.

The stocks of gold miners have majorly underperformed vis-à-vis gold and market indices. While a major exchange traded fund (ETF) like Market Vectors Gold Miners Index (GDX) has declined sharply by 17 per cent as of October 2015, SPDR Gold Trust (GLD) witnessed a fall of 4 per cent since January 2, 2015. Once considered the ‘safest haven’, the prices of gold have hit a slump. Considering the adverse effect of rupee depreciation - since the metal becomes costlier to foreign buyers when the buck hikes - gold prices have plummeted, thereby reducing its gleam as an investment option.

Even the conventional investment route of Fixed Deposits, darling of the risk-averse investor, seems to be losing traction. Ever since the Reserve Bank of India reduced its policy rates by 50 basis points (bps), depositors have pulled out as many as

Rs 40,000 crore till date. While the declining interest rates do make the debt market a good alternative, fixed deposits don’t seem attractive at the moment despite having earned much of people’s trust over time. Tepid bank rates are steadily forcing people towards alternative investment avenues like Mutual Fund debt schemes and tax-free bonds. However, on year on year basis, aggregate deposits are still on a rising spree.

On the other side of the investment space, Equities, considered the most risky asset class, have also failed to perform in light of global uncertainties. The markets tanked around 5-7% in 2015 owing to the prolonged ambiguity over Greece, commodity crash in China and the sudden yuan depreciation. The dissipation over the so-called Modi wave and other domestic headwinds, including a less-than-expected GDP growth, slowdown in rural economy, elusive investment cycle, huge deflationary impact, low transmission of RBI rate cuts by banks, have almost wiped out the initial market euphoria.

However, Mutual Funds have emerged as the flavor of the season, rapidly gaining the reputation of being a money


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spinner, with MF returns surpassing those of Sensex. No wonder, MFs are regarded by experts as the optimum path to step into the share market. During the year, MF schemes which were found to be the most reliable were the ones that made investments in mid-cap companies that provided meatier returns as compared to large and multi caps on a year basis.

The tornado swirling across the globe fearing the effect of the rate hike by the US Federal Reserve has calmed down, given that Fed has raised rates by 0.25 percentage points in its meeting this month. As stated by Chief Economic Advisor, Arvind Subramanian, Fed’s move was much anticipated and markets should have priced it in. Irrespective of the frenzy earlier prevailing in India, there would be little or no impact on the country, considering the country is well-cushioned with inflation turning benign, favorable fiscal deficit and a robust external situation, as per Subramanian. The Chief Economic Advisor’s comments about the market being fairly hedged against any volatility due to rate hike, may have put an end to the concerns looming over equities, gold, mutual funds, fixed deposit and real estate, which previously fretted

about losing their sheen, in case of a money pull-out.

What’s new?

For the people of India having a penchant for buying gold and keeping it as a valuable investment, the Reserve Bank of India introduced a buoyant option in the form of Sovereign Gold Bonds (SGBs), in an attempt to facilitate gold investments in line with the shifting demands of the modern era.

With SGBs, the central bank provided the substitute for holding physical gold with a lock in period of 8 years, though post completing 5 years, selling could be done in tranches on the dates of interest payment. As per the scheme, investors earn an interest of 2.75% per annum and the issue price is paid in cash by investors and on maturity, the bonds will be redeemed in cash. The bonds can be bought via designated post offices and commercial banks. Besides investors, corporate entities and individuals can make a minimum investment of 2 grams and maximum invest maximum of 500 grams each year. So, in an assumed scenario, if SGBs have been purchased worth Rs 1,25,000 and are held for a span of 5 years, with the price of gold standing at 25,000 every 10 grams, an interest of 2.75 per cent will be given, compounded half yearly on the investment.

However, the scheme entails shortcomings like the heavy loss subjected to the investor should the gold prices dip and the interest which is earned on SGBs is not sufficient to combat inflation. Additionally, even though SGB scheme does not have an active market for it, bond would be listed on the


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bourse, which in turn restricts liquidity thereby making SGB a close-ended scheme. Also, tax will be levied on the interest which is earned by the investor on the bonds.

Thanks to the prevailing market volatility, investors are also contemplating alternate options like wine, coins, precious metals, fine art, diamond, hedge funds, venture capital among others, as a means to diversify their financial portfolios.

On the basis of actual transactions from various market players, the Diamond Index for the year stood at 9.43 per cent, depicting the movement in prices across global diamond market. The S&P GSCI Precious Metals Index (comprising of gold and silver), at 13.37 per cent, became the yardstick to measure investment performance in the market of precious metals commodity, in this year. The Liv-ex Fine Wine 50 Index ( at 1.27 per cent in 2015) including 10 most recent vinatges, keeps a check on the daily price movement of the most traded commodities in the wine market. Additionally, the Kruggerrand Coin Index was at 11.27 per cent in 2015, representing the denomination of a 22 carat gold bullion coin with a weight of one troy ounce, as per recently published data.

Summing up

The year 2015 has brought more fear and cheer for the bourses. The initial market jubilation post Modi’s elevation to power has surely paled, if not completely washed out. Apart from dipping market sentiment, the prospects for future outlook too appear more or less gloomy unless the Indian stocks gain the limelight again with either better earnings in the coming quarters or the passage of key legislation in Budget 2016-17.

Going by the performance in recent years and experts’ views,

mutual funds seem to be the flavor of the season for scores of retail investors. A sizeable amount of SIP accounts and incessant inflow into mutual funds almost throughout the year has drawn support from domestic institutional investors. Any impact of continual selling by FIIs, who, in November, got engaged in net selling worth Rs. 7,074.17 crore (US$ 1.071 billion) in equities and who, till date, have sold worth over Rs 5,500 crore in December, witnessed the cushioning from domestic institutional investor.


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“An optimal mix of assets can provide a smooth investment return over the interim.” Tushar Pradhan, Chief Investment Officer, HSBC Global Asset Management

Anil Mascarenhas of IIFL gives you highlights of an interactive session with Tushar Pradhan where he says, “An optimal mix of assets can provide a smooth investment return over the interim; however, more intrepid investors are likely to garner attractive returns if they venture to sail in the equity markets.”

Tushar Pradhan, Chief Investment Officer, HSBC Global Asset

Management, has over 19 years of experience in various roles through his career. He is an MBA in Investment Finance, having graduated from the University of Hartford, Connecticut, USA in 1992. Prior to joining HSBC Global Asset Management, India in June 2009, Tushar has also worked in international positions in the United States for a couple of years before returning to India. In India he has worked with HDFC Asset Management and more recently with AIG Global Asset Management in senior asset management roles.


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Looking back at 2015, do you think the recovery was as much as anticipated at the start? What do you expect in 2016?

India is one of the very few Emerging Markets (EM) economies to have weathered the currency crisis well and is now on the path of recovery. The macro adjustment process along with a weaker external environment and lackluster rural growth has meant that recovery of growth in 2015 was weaker than expected. The macro narrative over CY2015 was one of softening inflation and weak growth. The credit cycle continued to be difficult. Earnings expectations had to be consistently cut.

How do you see corporate profitability panning out?

We expect a modest recovery in 2016, driven early by better margins – aided by lower input and interest costs – and subsequently a volume recovery. Government-led investment spending and urban consumption are likely to lead with private sector investments and rural consumption lagging. At present, corporate profitability is at a decadal low. Given the rate cuts that have taken place, corporate profitability can double in the next three to four years by margins just reverting to mean.

Domestic funds managed to weather the storm of FII selling this year. How do you view the situation going ahead?

FIIs disappeared from markets since April’15 and local investors or DIIs continued their inflows well into the last quarter of the calendar year 2015. However, fatigue is now evident even in local flows. Overhead trendline growth for developed markets, slowing China growth and stress in currencies of emerging markets have kept the global liquidity flows away. The very nature of a bi-polar world, which was the norm in the global economy now looks to change in favour of more muted, but more similar rates of growth across the world. This is a change in the world order and it will lead to some adjustment in the manner in which assets are allocated.

What should one hope for in India?

The macro economic situation in India is improving. Inflation is declining and so are interest rates. However, a lot of the inflation reduction is imported in the form of lower crude oil prices. An errant monsoon and tepid industrial production are the major reasons to be worried about in the near future.

HSBC Global Asset Management is a major global asset management firm managing

assets totalling USD447 billion at the end of June 2015 with well-established businesses in Europe, the Asia-Pacific regional, North America, Latin America and the Middle East. We believe that HSBC Global Asset Management is well placed to provide a globally-consistent, disciplined, investment process across our capabilities, which draws on the local knowledge and expertise of our team of over 500 investment professionals and over 2,000 employees based in c. 30 countries around the world. HSBC Global Asset Management in India provides a comprehensive range of investment management solutions to a diverse client base and is committed to delivering consistent investment performance, world-class service and a broad range of solutions for all types of investors.


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The lack of any catalysts to the current scenario may prompt a lot of investors to conclude that there may not be any upside left in the markets in the interim.

While the current markets cannot be termed inexpensive or cheap, the valuations appear dear only due to the non-deliverance of earnings. Once the earnings growth resumes, the market may look pretty attractive on a 2-3 year basis. Equity investing is always for the longer term and today’s scenario reflects a good time to invest in this asset class.

Which are the sectors you are bullish about?

The first incipient signs of recovery are showing up in some sectors of the economy. Auto sales in commercial as well as passenger vehicles - are seeing a sharp uptick. Interest rates are headed lower, and will further sustain the momentum as liquidity in the system remains comfortable. While banks still are long way away from starting to lend aggressively as they are constrained for lack of capital. Private banks and NBFCs are much better positioned for these opportunities especially in areas of personal finance, housing and auto finance.

Infrastructure spending, while not in full flow, is showing up in the orders placed for road construction, certain urban infrastructure projects and in water management. Companies aligned to these activities are definitely in line for some good times driven by these factors.

Export oriented businesses are likely to see some stability in earnings given the weakness in the INR as well as the prospect of a strong dollar outlook

for the next year. Volumes in most industries continue to look up, given the debottlenecking of freight corridors and enablement of transport of commodities.

What is your message to investors?

We had emphasised an asset allocation approach at the beginning of the last year and we continue to emphasise the same going forward. An optimal mix of assets can provide a smooth investment return over the interim; however more intrepid investors are likely to garner attractive returns if they venture to sail in the equity markets. While the journey may be stormy, the destination will indeed be well worth the trouble!


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Simba, go to the cityAlmost two-thirds of farmers are ready to quit farming for a good job

Ready to quit farming for a good job in city, 61%

Not ready to quit farming, 26%

Can’t say,

13%

Majority of farmers want their children to settle in cities

Want children to settle in city, 60%

Want children

to settle in

village, 14%

Go with children’s choice, 19%

Can’t say, 7%


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Rural India faces the structural drag of overdependence on agriculture, which in turn suffers from subscale land holdings. Tailwinds of the global soft commodity boom and benign

fiscal policy had masked these issues, which have since receded. Policy prescriptions directed at farming such as MSP increases and APMC reforms would have limited impact. The commodity nature of farming will result in large farms with their lower unit cost of production continuing to reap profits while numerous small farmers bleed. The real solution thus lies in accelerating the migration of people away from agriculture. Faster non-agri growth can achieve this for which improvement in India’s inadequate infrastructure, both hard and soft, is critical. In the near term, discretionary sectors with rural exposure such as farm equipment, agrochemicals, two wheelers, and select FMCG companies will be buffeted by weakness in the rural economy.

18% of GDP cannot sustain 47% of the workforce: Agriculture benefited from global soft commodity upcycle and domestic factors like benign fiscal policy. These tailwinds are reversing and structural weaknesses are coming to the fore. With a meagre 18% share of GDP, agriculture cannot support half the labour force. Agriculture is a commoditized activity, which makes sub-scale operations unviable. 70% of agriculture families are unable to make ends meet.

Wrong diagnosis, wrong prescriptions: Conventional diagnoses of farm distress are misplaced. First, the supply chain does not fleece farmers; netbacks of Indian and US farmers are similar. Second, increasing credit to small farmers will increase their vulnerability as they have negligible equity.

70% of agricultural households in India and 55% of farms in the United States lose money.

Agriculture contributes only 18% of output but accounts for 47% of workforce. Both these numbers are significantly higher than even other developing countries.

There are ~90 million households or 225 million people directly dependent on agriculture in India. In contrast, in the US, there are only 2.1m farms.

Yield growth in major crops has accelerated in the last decade and has been the highest since 1980s and early 1990s. In both cereals and pulses, yields have increased at ~2% Cagr, which is well above population growth.

Despite improvement, less than 50% of the farms currently have irrigation facilities. Most of the improvement in recent years is due to tube wells which has depleted the water table in many states.

Average farm size in India is 1.15 hectare, which is one-tenth of that in Thailand and about half of that in Indonesia. Average farm size in the US is 170 hectares.

69% of agricultural households in India operate less than 1 hectare of farm land. On average these households have negative savings rate.

While leasing of farm land has picked up in India, this has had a modest impact on arresting the pace of fragmentation of

Did you know ?


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operational farm units. In 2012, around 10% of farm land was leased.

Even in the US, 55% of farms lose money despite the large farm size and efficient infrastructure and supply chain. Median household farm income has been negative in each of the past 5 years.

We find that farm netbacks in India are comparable to those in developed countries like the United States. This is contrary to commonly held belief that middlemen fleece the farmers in India resulting in low realisation.

The rural economy saw robust growth during 2008-13 primarily due to global soft commodity boom and loose fiscal policy in India. Acceleration in nominal agri GDP was thus almost entirely due to higher prices.

While changes in support prices for farm products are a domestic policy decision, our analysis suggests that MSPs closely track international prices with a lag. Thus MSPs do not deviate significantly from international prices over the medium-term.

80% of borrowings of large farmers (>10 hectare land) are from institutional sources (banks etc). However, only 15% of the borrowings for landless farmers are from institutional sources.

India provided direct input subsidies of more than 1% of GDP or `9,300/hectare to the agricultural sector in FY15. This is almost 25% of the value of surplus from major crops from a single season.

Third, sustained increase in MSPs is not a policy option as they ultimately track global cycles. Fourth, fertilizer price reforms and DBT will both be difficult to implement. Fifth, contract farming gains elude small farmers. In the US, despite efficient markets and large farms, 55% of the farmers lose money.

Long-term solutions for farmers lie outside farming: Over the next two decades 120m people need to be moved out of farming, compared with 34m during 2005-2012. This needs acceleration in non-agri growth. The government has attempted land acquisition and labour reforms; but instead, initiatives aimed at removing large infrastructural gaps (hard and soft) relative to other countries should take priority. Success of programmes such as Make-in-India, Smart Cities and Skill India Mission will depend on this gap being bridged.

Discretionary sectors with rural exposure to face headwinds: In the near term, weak global soft commodity prices, continued fiscal tightening and sluggish economic growth, will keep rural income growth anaemic. In agri-input sectors, seeds being relatively inelastic, will be the least impacted while discretionary/capital intensive items like agrochemicals and farm equipment will be negatively impacted. In the auto sector, motorcycle and moped sales will be negatively impacted while CV sales and cars will be relatively less impacted. FMCG companies with significant exposure to rural economy will be negatively impacted.

The present state of agricultureAgriculture benefited from global soft commodity upcycle and domestic factors such as benign fiscal policy. These tailwinds are reversing and structural


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Following are some of the key trends in the agriculture sector in recent years:

» Moving away from subsistence farming: Historically, Indian agriculture has been largely about subsistence farming as output was used largely for self-consumption. However, things have

changed in the last two decades. The share of low-margin food grains has declined significantly and that of higher-margin horticulture crops has increased to the point where horticulture is almost as important as food grains. Further, the share of livestock (especially milch cows and buffaloes) in overall agriculture output has increased sharply. It is worth noting that the livestock sector depends less on the monsoons.

» Increased, but still low irrigation infrastructure:Irrigation facilities have improved considerably with almost half the sown area currently irrigated (as against just 35% in early 1990s). However, despite

a lot of talk by the government on this issue, bulk of this improvement is due to construction of tube wells, and is because of private sector initiatives rather than due to higher public spending.

» Lower volatility due to resilience to monsoons:Agriculture output in India has historically been fairly volatile due to dependence on monsoon. However, a combination of

improved irrigation facilities and crop diversification has meant that farm output volatility has reduced considerably. Thus, while historically, farm output had declined at least three times in any ten-year period, there has not been a single year of decline in farm output in the past 12 years.

» Increasing investments resulting in greater mechanisation:

The agriculture sector has seen significant investments in the last decade. However, despite much government focus, a large part of this has come from the private sector. In the last few years, sharply higher labour costs and increasingly erratic rainfall have driven investments in farm mechanisation.

Tractor sales, for example, increased 2x in the last decade, compared with the preceding decade.

» Acceleration in growth in yields: Yield growth in major crops has accelerated in the last decade and has been the highest since 1980s and early 1990s. In both cereals and pulses, yield growth has been more than 2% Cagr,

well above population growth, resulting in improved per capita availability of food grains. This improvement is a consequence of higher realisations for farmers in the last few years, which supported greater farm investments.

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weaknesses are coming to the fore. With a meagre 18% share of GDP, agriculture cannot support half the labour force. Agriculture is a commoditized activity which makes sub-scale operations unviable. 70% of agriculture families are unable to make ends meet.

A small but important sector: Agriculture is the smallest sector of the Indian economy, accounting for ~18% of gross value added. However, despite this small share of output, agriculture is an important sector of the economy, perhaps even more important than manufacturing. This is because agriculture is significantly more labour intensive than other sectors as well as other countries. Thus, even today, agriculture directly accounts for just less than half the total employment. In absolute terms, this translates into ~90 million agricultural households or 225 million people directly employed in the agri sector.

While the agriculture sector in India has become fairly small, its share in both national output as well as labour force is significantly higher than in other economies. China, for

example, derives less than 10% of its GDP from agriculture. In most developed countries, less than 5% of the workforce is employed in agriculture.

Agriculture share falling in both output and employment: The share of agriculture in overall output has declined over the years, from more than 50% post independence to just less than 30% during the time of liberalisation in early 1990s to ~18% currently. Nevertheless, agriculture remains a very important driver of the rural economy. Agriculture contributed to ~40% of rural GDP in FY05, the latest period for which official data is available. However, even today, agriculture directly

contributes to just over a third of rural incomes, based on NSSO data.

Further, it should be noted that a large part of the non-agricultural income would also be dependent on agriculture. For example, income of a small shopkeeper in a rural area would depend largely on agricultural households buying his goods. Thus, indirectly, many more households depend on agriculture for their livelihoods.

In our visit to Krishnanagar and Aluipara in the Nadia district in West Bengal, we found that there were no factories in the entire district. While there were various shops including 2W dealers, their demand depended on income growth of farmers. 2W dealers we spoke to in Krishnanagar have seen significant decline in their sales due to sharp fall in paddy price. The precarious state of agriculture has also resulted in significant migration of people to urban areas and even outside India from the district.

Source: IIFL Institutional Equities


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(Post Conference Note)(Post Conference Note)

Bajaj Corp LtdBajaj Corp LtdCMP `424

We hosted Mr D.K Maloo (Deputy CFO) and Mr Kushal Maheswari (Head – Treasury) of Bajaj Corp Ltd at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings were as follows:

The rural demand, which has been the key focus area for the Company, has been sluggish during last couple of quarters, which has impacted Company’s volume growth. While the Management expects the next couple of quarters to be challenging, it is hopeful of revival in demand post that period. It continues to focus on increasing its market share from current levels of 61% to 65% in light hair oil segment in next few years.

On the raw material front, while the LLP prices have declined from `84 per kg in Q2 FY15 to `59 per kg during Q2 FY16 (currently at `55 per kg), the refined oil prices have increased from `70 per kg in Q2 FY15 to `82 per kg during Q2 FY16 (currently at `100 per kg). Considering the current decline in LLP prices, the Company has stopped forward booking of raw material and is largely buying in the spot market. Management expects marginal increase in LLP prices and decline in refined oil prices during the coming period.

The Company has been able to generate very strong margins of 31% EBITDA during Q2 FY16 largely on account of sharp decline in input costs. However, the Management does not see these levels of margins sustainable over the medium to long term. The expected rise in input costs coupled with higher advertising expenses (on the back of increase in competition) would add pressure on margins.

Bajaj Corp is a debt-free Company with cash surplus of nearly `400 cr. In absence of inorganic opportunities, the Company is paying high dividends to shareholders. The Management is continuously scouting for inorganic opportunities for the next level of growth. While the Management did not commit to any acqusition opportunities in the near term, it expects to close in on some inorganic opportunities during next few years.

Sector: FMCGSector view: PositiveSensex: 26,118

52 Week h/l (`): 522 / 353

Market cap (`cr) : 6, 258

6m Avg vol (‘000Nos): 143

Bloomberg code: BJCOR IN

BSE code: 533229

NSE code: BAJAJCORP

FV (Re): 1Price as on December 31, 2015

% Mar-15 Jun-15 Sep-15Promoters 66.9 66.9 66.9Institutions 26.1 26.0 26.9Others 7.0 7.1 6.2

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The company has its presence through well established retail network including big organized retail outlets like Hypercity. The Company does not sell its products through ecommerce route currently. The Management is likely to continue to focus on adding more retail networks and does not intend to sell its products through the e-commerce medium.

For acquired brand Normarks which achieved topline of `58 cr in FY15, the Company is hopeful of achieving strong topline and profitability growth over next few years. The Management plans to sell Normarks products through its well established retail distribution network of hair oil, which would lead to significant exposure and thereby generate strong volume growth. The Management expects Nomarks to be a `250 cr brand over the next four years.

The gross margins for Nomarks brand as a whole is nearly 65% with nearly 80% gross margins from cream segment. The Company is in the process of integration of the brand into Bajaj Corp portfolio and as a strategy it is attempting to convert the brand from problem solution brand to cosmetic brand for mass distribution. The Company is therefore rationalizing the number of SKUs being sold and also reducing stock at the distributor levels which has impacted sales off late. The Company expects to benefit significantly once the rationalization process is complete.

Company Profile

Bajaj Corp Ltd is one of India’s leading FMCG Company having strong brand portfolio which include Bajaj Almond Drops Hair Oil, Brahmi Amla, Bajaj Kailash Parbat Cooling Oil and Jasmine and Black tooth powder. The company’s brand Bajaj Almond Drop Hair Oil is among the top brands

in the overall hair oil market.

BCL acquired skin care brand Nomarks from Ozone Ayurvedics in 2013 which gave the Company entry into the personal care segment. In the light hair oil market, BCL enjoys a strong market share of nearly 60% and with the premium positioning it is able to generate higher prices per unit. The Company acquired Uptown Properties in September 2011 which owns a piece of land and building in Worli, Mumbai. Uptown Properties was previously owned by the C.K. Raheja Group. The corporate headquarters of Bajaj Corp Ltd will be constructed on this land and Construction is expected to be completed by 2016. BCL sells its products through a strong distribution network across 3 mn retail outlets.

Financial summaryY/e 31 Mar (` cr) FY12 FY13 FY14 FY15Revenues 473 607 672 826yoy growth (%) 32.0 28.2 10.7 22.9 Operating profit 117 173 186 239 OPM (%) 24.6 28.4 27.7 29.0 Reported PAT 120 166 149 173yoy growth (%) 43.0 38.3 (10.5) 15.9 EPS (Rs) 8.2 11.3 10.1 11.7P/E (x) 52.0 37.6 42.0 36.2Price/Book (x) 14.6 13.0 12.1 12.8EV/EBITDA (x) 53.5 35.2 33.0 25.6 Debt/Equity (x) 0.0 0.0 0.0 0.0 RoE (%) 29.9 36.5 35.4 43.6 RoCE (%) 37.6 45.7 44.2 52.7

Source: Company, India Infoline Research


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Can Fin Homes LtdCan Fin Homes LtdCMP `1,076

We hosted Mr. C Ilango (MD), Mr. Prashant Joishy (Chief Manager) and Mrs. Shamila M (DGM) of Can Fin Home Finance (CFH) at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings held were as follows:

� Management targets a loan book of Rs. 10,500-10,600cr by the end of FY16. The target has been lowered from Rs. 11,000cr on account of the likely impact of floods in Chennai. The long term target of reaching loan book size of Rs. 35,000cr by 2020 at a CAGR of 30% remains intact.

� In terms of customer profile, ~78% of the loans are offered to the salaried and ~22% to the self-employed. By loan type, ~86% of loans are housing loans and 14% are non-housing loans (LAP, Top-up Personal Loans, commercial housing loans, etc). Builder loans are negligible at ~Rs. 29cr and Can Fin has no plans to increase focus on this segment.

� Can Fin has 110 branches and 26 satellite offices. It plans to add 15-20 satellite offices and 5-10 branches every year. The monthly cost for a satellite office is Rs. 50,000 whereas for a branch it is Rs. 1,50,000. It typically takes 3 months for a satellite office to breakeven and about 9 months for a branch. The branch manager is solely responsible for sourcing, credit appraisal, monitoring and recovery.

� The blended yield of the overall portfolio stands at 11.3%. Housing loan yields (11.08%) are much lower than non-housing yields (13.5%). In terms of customer profile, salaried class yield is at 10.5% and yield of self employed segment is at 11.4%. The average ticket size for the housing and non-housing loans is ~Rs. 18 lakhs and ~Rs. 12 lakhs respectively.

� Management plans to boost overall portfolio yield by increasing the proportion of non-housing loans to ~25% over the medium term. Of this, LAP is expected to increase to 10% of loan book from present ~5%.

� The entire loan book is floating in nature except for Gruhlakshmi, a

Sector: FinancialsSector view: PositiveSensex: 26,118

52 Week h/l (`): 1,121/456

Market cap (`cr) : 2,864

6m Avg vol (‘000Nos): 60.2

Bloomberg code: CANF IN

BSE code: 511196

NSE code: CANFINHOM

FV (`): 10Price as on December 31, 2015


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product which gets financed from NHB at 6.85% for a period of 5 yrs and maximum spread is capped at 2%. The funds obtained for this product can be lent only to the affordable housing segment. The outstanding book under this product is Rs. 740cr.

� In terms of borrowing mix, bank borrowing stands at ~25%, NHB refinance stands at ~35% and CP/NCD issuances stand at ~35%. The overall cost of borrowing stands at 9.1% with Can Fin being able to garner incremental NCDs and CPs at much lower rates. Incremental borrowing rates for NCDs and CPs are at ~8.5% and ~7.4% respectively. This would lead to lower cost of funds over the coming quarters.

� C/I ratio is expected to touch 15% over the medium term from 19% currently. The improvement in C/I ratio will happen due to cost rationalization and operational efficiency.

� A strong focus is maintained on preserving asset quality. Continuous monitoring takes place on the 3-months and 6-months overdue portfolios and the company works with the customer to recover the amount. Asset quality will continue to be maintained at current levels with the long term target of GNPA at 0.25%.

� Capital adequacy is strong at 21% and Can Fin will require fresh capital only by December 2017. Improvement in NIMs aided by asset mix and containment of C/I ratio will be the key levers for RoA improvement, which is expected to scale up to 2% by FY18.

� In spite of trimming our loan growth assumptions to

factor in the impact of Chennai floods, we have modestly upgraded earnings estimate for this year and FY17 on the back of a likely stronger performance on margin and opex productivity. Robust earnings growth of 45%+ over FY15-17 justifies stock valuation at 14x P/E and 2.5x P/ABV on FY17 basis.

Company Profile Can Fin Home Finance (CHF) is one of the fastest growing housing finance companies (HFC) promoted by Canara Bank (42.4% stake). Regionally, CHF is mainly focused in South India where more than 70% of branches are located. Company mainly caters to the first time home buyers in largely urban pockets.

Financial summaryY/e 31 Mar (` cr) FY14 FY15 FY16E FY17ETotal operating income

5,571 7,879 10,368 13,202

Yoy growth (%) 47.1 41.4 31.6 27.3 Operating profit (pre-provisions)

1,113 1,517 2,448 3,240

Net profit 757 862 1,433 1,870 yoy growth (%) 39.9 13.9 66.1 30.5 EPS (`) 37.0 32.4 53.8 70.2 Adj. BVPS (`) 228.4 290.0 333.4 389.7 P/E (x) 29.1 33.2 20.0 15.3 P/Adj. BV (x) 4.7 3.7 3.2 2.8 ROE (%) 17.6 13.9 17.3 19.4 ROA (%) 1.5 1.2 1.5 1.5



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Capital FirstCapital FirstCMP `411

We hosted Mr. Saptarshi Bapari (Head - Investor Relations & Strategy) of Capital First (CAPF) at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings were as follows:

MSME-LAP/MSME is 61%/69% of total AUM. Rest of the book includes Wholesale Finance - 14.5%, Consumer Durables - 8.5%, 2w - 8%. Wholesale Fin book comprises of builder loans and LAS. CAPF has ~1.7mn customers of which 1.2mn are consumer durables and ~40k are MSME customers

Company typically targets MSMEs that are present at the middle of the value chain (Bajaj Finance is the key competitor here). MSME-LAP Avg. Ticket size is at ` 80lacs-` 1cr and Avg. LTV is ~42%.

While providing loans to MSME-LAP customers, focus is on CIBIL score and enterprises’ ability to generate sufficient cash flows rather than the value of the mortgage collateral. Of the total applications logged in, typically just ~40% get converted into disbursals and a large part of the rejections are due to insufficient cash flows. The stringent risk management practices have led to robust asset quality.

Avg. yields for various segments; MSME - 12.5-12.75%, 2W - 25%, Consumer Durables - 23-24%. Avg. loan tenure for various segments; MSME - 6 to 8yrs, 2W - 2 to 3yrs, Consumer Durables - 8 to 9months.

80-85% of the total business is currently sourced by DSAs. In terms of geographies, 70-75% of the business comes from North and West, ~15% comes from the South and the rest comes from the East.

CAPF targets to double AUM by FY19 (CAGR of 25%) and would focus on digital technology to drive this. Asset mix would likely shift towards Consumer Durables and 2w loans and share of MSME financing is expected to come down by 4-5%. Within MSME segment, CAPF intends to move towards lower end of the value chain where ticket sizes are ` 10-25 lacs.


52 Week h/l (`): 465/321



Bloomberg code: CAFL IN

BSE code: 532938

NSE code: CAPF


% Mar-15 Jun-15 Sep-15Promoters 65.4 65.3 65.3Institutions 17.8 17.7 18Others 16.8 17 16.7

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Company intends to bring down the proportion of bank term loans from 75% to 60% of borrowings, which will lower the overall cost of funds. Currently, the NCD rates are ~100bps lower than Base Rate of banks.

The combined effect of favourable shift in borrowing and lending mix would drive NIM improvement going forward.

Aided by QIP of ̀ 300cr towards the end of FY15, CAPF’s CAR stands at 20% versus the regulatory requirement of 15%.

New initiatives include a) tie-up with Amazon for supply financing b) entry into lifestyle financing and c) planning for a co-branded credit card that will generate fee income.

We continue to believe that CAPF’s RoA and RoE would improve to 2.1% and 18% respectively by FY18 on the back of margin expansion and operating leverage. Thus, stock valuation should structurally re-rate from current 1.7x FY18 P/ABV.

Company Profile Capital First is a specialized provider of finance to MSMEs offering varied financing options and catering to their needs at different stages of business lifecycle. Bulk of the company’s MSME portfolio is long term loans backed by collateral (being property, etc) and based on a thorough evaluation of enterprise’s business and cash flow. Average ticket size of the book is at ~`9.6mn and average LTV is at 42%. MSME lending forms nearly ~70% of the AUM; other segments of 2w financing, consumer durable financing and wholesale funding forms the rest. Standing at ` 13,604cr currently, Capital First’s AUM has grown at staggering ~65% pa over FY10-15 driven by significant investments in network,

employees, technology, credit appraisal and other processes. The portfolio mix has substantially moved towards MSME and Retail loans over the past five years. The profitability of the franchise is currently sub-optimal with RoA at 1.5%, but the ratio is likely to move towards healthy 2% over the next couple of years driven by multiple operating levers.

Financial summaryY/e 31 Mar (` cr) FY15 FY16E FY17E FY18ETotal operating income

643 927 1,183 1,506

Yoy growth (%) 49.6 44.1 27.6 27.3 Operating profit (pre-provisions)

266 474 639 843

Net profit 112 181 264 363 yoy growth (%) 202.6 61.7 45.6 37.6

EPS (`) 12.3 19.9 29.0 39.9 Adj. BVPS (`) 167.5 178.7 198.9 226.2 P/E (x) 33.4 20.6 14.2 10.3P/Adj. BV (x) 2.5 2.3 2.1 1.8ROE (%) 8.4 11.2 14.7 17.8 ROA (%) 1.1 1.6 1.9 2.1



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Greenply IndustriesGreenply IndustriesCMP `977

We hosted Mr. V. Venkatramani, Chief Financial Officer of Greenply Industries or GIL at our IIFL Management Roadshow held on December 4, 2015. Following are the key takeaways from the investor meetings:

Greenply deals in Plywood and MDF (medium-density fibreboard) products. Plywood accounts for ~72% of the total revenue and MDF accounts for the rest. Under plywood, the premium segment constitutes ~80% of the revenue and the mid segment accounts for ~20% (100% outsourced).

Plywood: On the back of the decline in premium plywood category led by higher inventory built-up in the real estate, GIL reported decline in margin to the tune of ~9% in H1FY16 (GIL had reported as high as ~12% margin). With poor liquidity in the system and inventory built-up led reduction in real-estate sales hurting the performance of GIL.

As per the management, the plywood division would have grown by 12%-15% if the company had extended the credit period for distributors. GIL envisages a 50-60bps improvement in margins in the plywood category in FY17E, driven by increased capacity utilization, higher outsourcing, and implementation of GST.

MDF: GIL has plans to set up a 0.36mn cbm, which will be double the size of its existing MDF plant in Andhra Pradesh. GIL will likely incur a capex of ~`650cr over FY16E-FY19E, most of which will be funded 50:50 or 60:40 via debt and internal accruals. The plant will likely be commissioned by October 2018.

GIL v/s Centuryply (MDF): Unlike Centuryply which is setting-up a capacity in Punjab, GIL is setting-up a capacity in South India. It will help logistics cost savings by 10% (transportation cost from Uttarakhand plant to South India market) and cater to the huge market available with ease.

GIL v/s Centuryply (Plywood): GIL sources its raw-material requirement from Myanmar by setting-up a 42mnsqm or 12,600cbm installed capacity via 50:50 JV route with an investment of `28cr each in August 2014. GIL uses more

Sector: Building ProductsSector view: PositiveSensex: 26,118

52 Week h/l (`): 1,130/787



Bloomberg code: MTLM IN

BSE code: 526797

NSE code: GREENPLY

FV (`): 5 Price as on December 31, 2015


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than 60% or 7,000-8,000cbm of high quality raw-material for captive consumption and rest low grade is sold in the market. On the other hand, Centuryply enjoys first mover advantage by setting-up a 40,000cbm capacity in Myanmar in February 2014 and 40,000cbm capacity in Laos. With the shortage of face veneer in the domestic market, the prices of face veneer went up by 20%-25%. The captive consumption of Centuryply is 9,000-10,000cbm, the company sells balance capacity in the market. This helped Centuryply in generating higher revenue with better margins in the plywood segment.

GIL hedges all the forward contracts unlike Centuryply which prefers to keep all its positions open. Moreover, any forex (gain) or loss, GIL shows before EBITDA which impacts margin for the company. However, Centuryply, posts after EBITDA as they treat as an interest cost item. Hence, margin of Centuryply is higher compared to GIL.

Greenteriors brand – a new venture: Under Greenteriors, GIL is launching its first product - wallpaper. Typically, the margin is expected to be in the range of 22%-24% and is likely to generate a business of `200cr over the next three years.

GST implementation to benefit organised players: Organised players pay excise duty of 12.5% and value-added tax or VAT of 12.5% - a total of ~25% tax. As per the management, the difference between the prices of organised and unorganised players is ~15%. This will narrow down the price difference by 10% to 5%.

Company Profile GIL has total plywood production capacity of 32.4mn sqm spread over Nagaland, West Bengal, Uttarakhand and

Gujarat and MDF production capacity of 0.18mn cbm located in Uttarakhand.

Financial summaryY/E Mar (` cr) FY15 FY16E FY17E FY18ERevenues 1,564 1,658 1,870 2,115Growth (%) 12.5 6.0 12.8 13.1EBITDA 205 232 265 302EBITDA (%) 13.1 14.0 14.2 14.3PAT 107 117 138 162EPS (Rs) 44.5 48.4 57.2 67.2P/E (x) 19.4 20.2 17.1 14.5P/BV (x) 4.9 4.0 3.3 2.7EV/EBITDA (x) 13.1 11.3 10.0 9.0 RoCE (%) 19.3 20.9 21.3 20.0


GIL (European MDF plant)Centuryply (Chinese MDF plant)

The cost of the project is high The cost of the project is comparatively low

The plant can run at a maximum rate of 115% capacity utilization

The plant can run maximum 90% of capacity utilization

The company enjoys the flexibility to change the product composition as per the raw-material price prevailing which will help the company in maintaining margins

The company can run only fixed composition product. No flexibility.

The power cost declines as the capacity utilization rate increases

No such benefit available

The quality of the product is superior The quality of the product is mediocre

Source: Company & India Infoline Research

Difference in the MDF plant of GIL v/s Centuryply


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Gulf Oil LubricantsGulf Oil LubricantsCMP `519

We hosted Mr Amit Mandhaniya (DGM Finance) and Ms Sugandha Khandelwal (Manager - Business Planning) of Gulf Oil Lubricants at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings held were as follows:

� India is significantly under-penetrated when compared with other emerging markets and the developed countries with regards to lubricant consumption. With India’s GDP is likely to improve along with marked growth in industrial production (driven by Make in India campaign), Gulf Oil sees strong recovery in lubricant demand, which was on a weak trajectory in the recent past.

� Gulf Oil Lubricants is the third largest private lubricant player in India. Overall it is the sixth largest player.

� Currently, the company has an overall market share of 5%, while it has 7% market share in the replacement market. It expects to improve this on a sustained basis in the near future through entry into newer segments and agreements with new OEMs.

� In the near future, Gulf Oil is launching new products for the passenger cars and the light commercial vehicles.

� The company is setting up a new plant in Chennai, which will have a capacity of 40,000-50,000 KL and will require a capex of `150 crore, of which `40 crore have already been incurred and the remaining will be spent over the next 18 months. The plant is expected to commence operations by Q1 FY18.

� Gulf Oil products are priced at ~10% discount to Castrol products but command a similar premium to other player products.

� Over the medium term, the company expects to see 2-3x industry growth.

� The company is in the process of widening its distribution network, which currently stands at 350 distributors and 58,000 retailers.

Sector: Oil & GasSector view: PositiveSensex: 26,118

52 Week h/l (`): 564 / 389



Bloomberg code: GOLI IS

BSE code: 538567

NSE code: GULFOILLUB

FV (`): 2 Price as on December 31, 2015


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� The company derives 30% of its revenues from the B2B segment, which comprises the OEMs and industrials. Rest 70% comes from the B2C segment comprising 45-50% from CVs, ~5% from passenger cars and rest from two-wheelers.

� When compared with the market leader, Gulf Oil’s operating margins are much lower. The majority of the gap is attributed to the pricing premium the market leader commands. Gulf Oil expects this gap to narrow down as it sees it getting some pricing power with innovative products.

� Tie-up with OEMs is critical for long term success in the lubricants business. Recently, the company entered into a tie-up with Mahindra & Mahindra wherein all service centres will use only Gulf Oil products for specific models. The company expects many more such tie-ups in the near future.

Company BackgroundGulf Oil is part of the Hinduja Group, one of largest diversified groups in India. The Group acquired Gulf from Chevron in the late 1980s and owns the rights to the brand for all countries worldwide, except Portugal, Spain & USA. In India, Gulf as a brand has been present since the 1920s and is one of the most popular automotive brands in the country. The Indian lubricant business of the group is under the listed entity, Gulf Oil Lubricants (GOL). GOL was demerged from Gulf Oil Corporation as a separate entity In July 2014 to have a pure India lubricants play. It also manufactures and markets 2-wheeler batteries, automotive filters and lubricating equipment. Gulf ’s Indian operations have:

» Widespread nationwide availability

» State-of-the-art blending plant with a capacity of 72,000 MTPA, located at Silvassa

» More than 300 Distributors and over 50,000 Retailers

» 5 Regional Offices – Bengaluru, Gurgaon, Kolkata, Lucknow & Mumbai

» 33 Sales Offices and Depots

» Over 200 sales and technical services personnel

Financial summaryY/e 31 Mar (` cr) FY15 FY16E FY17E FY18ERevenues 967 1,024 1,126 1,262yoy growth (%) 9.7 5.8 10.0 12.0 Operating profit 129 156 177 204 OPM (%) 13.4 15.2 15.7 16.2 Pre-exceptional PAT 77 96 113 133Reported PAT 77 96 113 133yoy growth (%) 13.5 24.0 17.5 18.1 EPS (Rs) 15.6 19.4 22.7 26.9P/E (x) 33.2 26.8 22.8 19.3Price/Book (x) 13.7 9.9 7.5 5.8EV/EBITDA (x) 17.4 14.1 12.0 10.0 Debt/Equity (x) 1.2 1.0 0.6 0.4 RoE (%) 41.4 43.1 37.6 34.1 RoCE (%) 33.0 35.0 34.4 35.3



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Manappuram Finance LtdManappuram Finance LtdCMP `29.5

We hosted Mr. Kapil Krishan (CFO) of Manappuram Finance (MGFL) at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings were as follows:

� Manappuram has already begun diversifying its loan portfolio from being a pure gold loan financier. The non-gold loan portfolio share in total AUM is expected to reach 25% by FY18.

� It acquired Asirvad MFI in FY15, having an AUM of ~Rs. 350cr. This has already increased 30% qoq over the past two quarters aided by strong distribution expansion. Management targets to grow this book to Rs. 2000cr by FY18. There would be dedicated branches for managing the MFI business.

� Asirvad MFI currently does an RoA of 4%, which could moderate to 3.5% by FY18 as expenses relating to branch and employee addition would be incurred. In terms of capital requirement, Asirvad MFI would require Rs. 100cr/yr capital to fund the expansion plans. The capital would be consumed from the existing capital base of Manappuram.

� Mortgage and CV Fin are other businesses that are expected to contribute another Rs. 2000cr to the AUM by FY18. The Mortgage Fin business caters to the self employed segment with average ticket size of Rs. 15 lacs and yields of 14-15%. These businesses are expected to generate RoAs of 1.5% by FY18.

� Gold loan portfolio is expected to increase by Rs. 1000cr/yr for the next three years. This is assuming gold prices remain at current levels. Should gold price increase, higher growth can be expected as the ticket size itself will improve.

� Auctions during Q2 FY16 were unusually high at ~Rs. 800cr partially due to the residual impact of erstwhile high LTV loans. Going forward, auction run rate is likely to be at ~5-6% of AUM (~Rs. 500-600cr/quarter in absolute terms).


52 Week h/l (`): 38/19.75


6m Avg vol (‘000Nos): 3392

Bloomberg code: MGFL IN

BSE code: 531213

NSE code: MANAPPURAM



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� The entire gold portfolio has migrated to the new product structure and a lower duration. Hence, improvement in net yields is expected from the coming quarter onwards. Average duration of the gold loan portfolio is now ~5 months.

� Manappuram has scaled-up the issuance of Commercial Paper in the last two quarters, which have now reached 12% of the borrowing mix. The contribution is likely to reach 15-20% in the medium term, which should support lower cost of funds as the borrowing cost of commercial paper is significantly lower than bank funding. Modest improvement in portfolio yield and moderation in cost of funds will drive NIM improvement going forward.

� Opex/AUM ratio, which is currently at 8% is likely to remain at similar levels as there will be significant branch and employee related investments in the non-gold loan businesses. Scope for operating leverage exists in the gold loan business with Avg. gold AUM/Branch expected to go up to Rs. 4-4.5cr from current Rs. 3cr over a period of three years.

� Post the event, we have trimmed our net profit estimates by 2-5% for FY17 and FY18 to factor continuance of a high opex structure. The investment risk reward is still highly favourable for long term investors owing to a) initiatives that have de-risked the business b) robust capitalization c) improved corporate governance d) ample scope to improve RoEs e) high dividend payout (yield at 7%).

Company Profile Manappuram Finance is one of the leading gold loan NBFCs

in India having major AUM concentration in South India due to substantial gold holdings in the region. Over FY12-14, Manappuram’s AUM shrunk due to regulatory tightening and sharp correction in gold prices. However, stability in operating environment and intense branch activation efforts has driven consistent AUM growth since early FY15, which should continue in the future. Credible attempt has been made by the management towards reducing the inherent risk of business by introducing shorter-tenure gold loans and diversifying into synergistic products.

Financial summaryY/e 31 Mar (` cr) FY15 FY16E FY17E FY18ETotal operating income

1,116 1,294 1,489 1,724

yoy growth (%) 2.8 15.9 15.1 15.8 Operating profit (pre-provisions)

441 478 551 646

Net profit 271 282 320 370 yoy growth (%) 20.0 4.1 13.2 15.9 EPS (`) 3.2 3.4 3.8 4.4 Adj.BVPS (`) 30.2 31.2 32.3 33.9 P/E (x) 9.2 8.8 7.8 6.7P/Adj. BV (x) 1.0 0.9 0.9 0.9ROE (%) 10.6 10.5 11.4 12.4 ROA (%) 2.4 2.3 2.3 2.3 Dividend yield (%) 6.8 6.8 6.8 6.8 CAR (%) 25.7 24.6 22.1 19.8



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Sadbhav Engineering Ltd. Sadbhav Engineering Ltd. CMP `342

We hosted the Management of Sadbhav Engineering Ltd at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings were as follows:

� Management expects strong increase in NHAI award activity in 2H FY16. The Company intends to participate in tenders worth around `2,000 cr across selected states and expects tenders for these projects to be opened in the next couple of quarters.

� In the mining segment, the company is planning to set up an SPV to act as Mine Developer and Operator (MDO), which would contract nearly 70- 80% of work to SEL.

� Management indicated that large ticket MDO orders worth ̀ 35,000 cr from the Mining space would come up for awarding. Considering the strong pipeline, the Management remains optimistic to win significant orders in this space. The orders would span across multiple years.

� Management continues to focus on segments like Irrigation and Mining and its exposure in these two segments has increased from nearly 25% of total order book as on FY11 to more than 40% as on H1 FY16. Management indicated of margin improvement in the mining segment going forward owing to certain high margin projects in portfolio.

� The Company has undertaken debt refinancing for some of the projects. It expects the debt refinancing coupled with expected decline in interest rates to lead to decline in interest costs going forward. Management expects the consolidated debt to peak out at nearly ` 80 bn by FY18.

� SEL expects order inflow to the tune of nearly `2000 cr during the second half of FY16. Taking the current order book and new order inflows into consideration, Management expects the standalone revenues to grow by more than 20% with EBITDA margins in the range of 10-11% during FY17.

Sector: INFRASector view: PositiveSensex: 26,118

52 Week h/l (`): 385 / 241



Bloomberg code: SADE IN

BSE code: 532710

NSE code: SADBHAV



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� The Company currently undertakes EPC projects for third party as well as for in-house BOT projects. Going forward management expects to maintain focus on both (third paty and in-house BOT) with a view to have a strong addressable market. This provides strong visibility on the EPC revenues for the Company going forward.

� The Management expects its subsidary SIPL to generate strong revenue growth by FY18 as under construction projects turn operational and start toll collection. With the increase in revenues and the expected decline in debt, the Management expects SIPL to turn profitable by FY18.

Company Profile SEL is primarily engaged in the construction of Roads, Mining and Irrigation. SIPL is a subsidiary of SEL and is the holding company of all the BOT assets. The order book of the SEL stands at `9,306 cr as on September 30,2015. The order inflow during 2Q FY16 and 1H FY16 was `1,608 cr and `2,684 cr respectively. The order inflow during 1H FY16 was predominantly from the EPC space. Road and Highways constitute 70% of the order book while Irrigation and Mining constitute 30% of the order book. SIPL, a subsidiary of SEL was incorporated as an asset holding company for road and other Infrastructure BOT projects in 2007. SIPL has been engaged in development, operation and maintenance of road infrastructure assets.

SIPL undertakes turnkey contractual works, other than civil construction, of the projects. Sadbhav is focused on building a sizable asset base in the road BOT project. SIPL has a project portfolio consisting of eleven BOT projects of which seven projects are fully operational, one is partially

operational and the remaining three projects are in various stages of completion. The total project cost for eleven BOT projects is `10,160 cr and Equity investment (including subdebt) as on September 2015 is `2,000 cr. The Company also acquired stake in MBHPL from SEL & JV partner which is under process of completion. The Company has strong track record of completing four out of six operational projects on or before scheduled date. The Company has presence in high growth states of Gujarat, Maharashtra, Rajasthan, Haryana, Karnataka and Andhra Pradesh.

Financial summaryY/e 31 Mar (` cr) FY12 FY13 FY14 FY15Revenues 2,676 1,811 2,358 2,970yoy growth (%) 21.1 (32.3) 30.2 25.9 Operating profit 290 156 249 300 OPM (%) 10.8 8.6 10.6 10.1 Reported PAT 141 74 106 114yoy growth (%) 17.5 (47.3) 43.3 7.2 EPS (Rs) 9.3 4.9 7.0 7.3P/E (x) 36.6 69.7 48.8 46.8Price/Book (x) 6.7 6.2 5.4 4.3EV/EBITDA (x) 16.4 29.5 42.2 35.9 Debt/Equity (x) 0.5 0.8 0.9 0.7 RoE (%) 20.3 1.6 16.2 9.9 RoCE (%) 25.0 9.9 14.1 13.6



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Sterlite Technologies Ltd. Sterlite Technologies Ltd. CMP `97

We hosted Mr Anupam Jindal (CFO), Mr Vishal Aggarwal (Head - IR) and Mr Kartik Sankaran (Corporate Strategy and IR) of Sterlite Technologies Ltd (STL) at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings were as follows:

� The Company is currently operating at almost full capacity in its optic fibre (OF) and optic fibre cables (OFC) capacity and Management expects strong demand going forward. The Management believes doubling of the capacity (8 mn fkm to 15 mn fkm) in OFC and debottlenecking in OF bsuiness (20 mn fkm to 22 mn fkm) would be key driver for its revenues going forward. As it is demerging the power business (which is witnessing relative lower growth than telecom), it expects the consolidated entity (post demerger) to witness strong growth over the next few years.

� The Company uses OF for captive consumption of OFC and also sells outside with current cabling mix is nearly 45%. The Management expects the cabling mix to increase to nearly 65% by FY18. It expects to sell ~22 mn fkms of OF and ~15 mn fkm of OFC by FY18.

� Management expects margins to remain strong for the telecom business owing to the premium pricing. It generates higher margins in the OF business as against the OFC business. While in OF it generates EBITDA of $2.25 per km on sale of $7 per km, it generates EBITDA $4.25 per km on sale of $20 per km. With the doubling of capacity in OF business, the blended margins likely to maginally come down in product business.

� Management expects Elitecore, which is into software products, to be a significant contributor to topline going forward. It expects nearly 20% YoY growth during FY17 in this business with EBITDA margin of nearly 11%. The Management expects strong growth to continue over the long term owing to strong expertise in Operations and Business support systems.

� The Company is the only player in the industry manufacturing its own

Sector: DIVERSIFIEDSector view: PositiveSensex: 26,118

52 Week h/l (`): 110 / 48


6m Avg vol (‘000Nos): 2219

Bloomberg code: SOTL IN

BSE code: 532374

NSE code: STRTECH



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glass used in cables. As per the Management, the backward integration allows the company to reduce the cost of manufacturing its products. It is therefore able to generate higher margins that other peers.

� Management is extremely optimistic on the telecom services business, which is currently a marginal revenue contributor. However it has a current order book of around ̀ 2,000 crore, which majorly comprises NFS orders to be executed by end of 2016. Out of the NFS order book, major proportion is from services business. Management expects strong traction in this business over the medium to long term.

� The Company does not expect significant capex going forward. The Management also highlighted the sharp decline in D/E from more than 5x to 1.1x post the demerger. While the current debt of the telecom entity is `924 cr as of Sep 30, 2015, it expects to bring down debt to `800 cr levels by end of FY16.

Company Profile Sterlite Technologies is fully integrated OF producer and one of the largest suppliers of OF to overseas markets in China, Europe and South East Asia. Sterlite Technologies also manufactures Power conductors and has also forayed into power transmission through its subsidiary Sterlite Grid. The subsidiary has 7 projects out of which 3 projects are operational. The telecom services business is currently a marginal revenue contributor for STL.

The Company recently announced demerger of power business into a separate entity Sterlite Power Transmission

Limited (SPTL). As per the scheme of arrangement, STL’s shareholders will continue to retain their equity share in STL (Telecom Company). Additionally, for every five share held in STL, the shareholders will have an option to receive one equity share of SPTL or one Redeemable Preference Share (RPS). The demerger is expected to complete by Q4 FY16.

Financial summaryY/e 31 Mar (` cr) FY13 FY14 FY15 FY15**Revenues 3,092 2,564 3,097 1,619yoy growth (%) 17.9 (17.1) 20.8 NAOperating profit 223 275 461 345OPM (%) 7.2 10.7 14.9 21.3Reported PAT 25 -36 -3 118yoy growth (%) (36.5) (241.0) (92.6) NAEPS (Rs) 0.6 -0.9 3.0 2.9P/E (x) 151.0 NA NA 25.6Price/Book (x) 3.3 3.4 6.3 4.9EV/EBITDA (x) 26.9 28.5 13.0 7.8 Debt/Equity (x) 2.4 3.7 1.1 1.1 RoE (%) 2.2 (3.1) 13.8 19.7 RoCE (%) 4.7 3.5 7.5 19.5

Source: Company, India Infoline Research; FY15** contains proforma financials post demerger of power business.Proforma multiples calculated post reduction of `22.5 from CMP as per scheme of demerger.


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Tata Communications Tata Communications CMP `435

We hosted Mr. Mahesh Pratap Singh of Tata Communications at our IIFL Management Roadshow held on December 04, 2015. Following are the key takeaways from the investor meetings:

� Company’s target audience consists of ~6,000 global customers with at least US$3-4bn in revenues across 3-4 countries and ~5,000 employees

� Tcom has 24-25% share of India enterprise data, which has increased ~100bps every year with the perception of a premium service provider

� Globally company is quite small at US$1bn in enterprise revenues as compared to 5-6 leaders who have a combined US$50bn+ in sales; on the positive side, enterprise is growing at 25% vs. at best 6% growth for global peers

� Traditional services share of revenue has come down to 35% in FY15 from 70% in FY10; though a good business company explained that ‘in the long term it is more like running on a tread mill’ as busines is suspect to steep price erosion

� Data is growing at 15% pa with constantly evolving revenue composition; 75% of EBIDTA is derived from data services; Tcom enjoys 15% share of global wholesale voice market

� Data operating margin at 19-20% with medium term goal of high 20s and even 30% in the long term; base data portfolio is making 26% margin

� Tcom targets limited ATM roll outs of <2,000 per year or ~100-150/month with primary objective to get profit from each ATM; company believes it would be unfair at this stage to get distracted with long term end game for ATM business

� New services in data are making US$40mn annualized EBIDTA loss, which is sizable in terms of P&L

Sector: TelecomSector view: PositiveSensex: 26,118

52 Week h/l (`): 505/336



Bloomberg code: TCOM IB

BSE code: 500483

NSE code: TATACOMM



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� Company says the latest turn of events at Neotel (Neotel shareholders and Vodacom to revise the terms of transaction) is disappointing and subsequently Vodacom and Neotel have submitted modified proposal to the Competition Commission for approval. In response to investor queries regarding the complexity of business, company did agree about difficulty of understanding the various moving parts of data business; hence as a simple rule of thumb, it recommended tracking two parameters-absolute EBIDTA growth and capex

� Company targets 15% RoCE in three years from current 5% driven by faster (than revenue) EBIDTA growth and largely unchanged capital employed

� Company is operating at peak leverage with US$300-350mn annual capex nearly equal to annual depreciation

Company Profile Tata Communications is a part of the Tata group of companies and became the umbrella brand for erstwhile government monopoly VSNL, VSNL International as well as Teleglobe and Tata Indicom in Feb 2008. Its’ portfolio includes transmission, IP, converged voice, mobility, managed network connectivity, hosted data center, communications solutions and business transformation services to global and domestic enterprises and service providers as well as, broadband and content services to Indian consumers. Tcom owns amongst the largest undersea cable networks, a Tier-1 IP network, and connectivity to more than 200 countries across 400 PoPs; it also owns more than 10 lakh sq feet of data center space. Tcom has a strategic investment in South African operator Neotel, which it is in talks with Vodacom for divestment of

its entire holdings. Company posted H1 FY16 revenues of ` 10,361cr and pretax profit of ` 166cr along with 15% EBIDTA margin.

Financial summaryY/e 31 Mar (` cr) FY15 FY16E FY17E FY18ERevenues 19,913 20,564 19,796 21,354yoy growth (%) 1.3 3.3 (3.7) 7.9Operating profit 2,994 3,167 3,207 3,523OPM (%) 15.0 15.4 16.2 16.5Reported PAT 1 99 144 270yoy growth (%) (98.8) - 45.5 87.4

EPS (`) 0.0 3.5 5.1 9.5EV/EBITDA (x) 8.2 7.8 7.6 6.2ROE (%) 19.0 35.3 64.9 108.4ROCE (%) 7.9 9.0 8.8 12.7



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Techno Electric & Engineering Ltd Techno Electric & Engineering Ltd CMP `535

We hosted Techno Electric & Engineering Ltd at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings held were as follows:

� Transmission and Distribution (T&D) capex is expected to remain strong over the next five years. The growth would be witnessed at both, Centre and State. Share of high voltage would increase going forward to reduce T&D losses and addressing issues related to availability of land.

� Order book at the end of Q2 FY16 stood at ` 2,200crore. The company has managed to gain orders worth ` 550crore in H1 FY16 and expects ordering to improve further in H2 FY16 on the back of strong orders expected from Power Grid. Of the total order book, power generation sector accounted for ` 90crore, transmission business accounted for ` 1,795crore and distribution accounted for the rest, ` 315crore.

� The company continues to focus on complex projects, which have higher margins and better cash flow and projects, which are funded by government agencies. Power Grid accounts for 43.9% of total order book followed by Bihar state with a share of 22.5% and NTPC with 9.9%. The company has ventured into the STATCOMS and HVDC corridor.

� The management believes investments going forward in solutions on STATCOMS, HVDC and other power electronics would increase. With increased focus in renewable power, the challenge in managing dynamic flow of power will further increase leading to greater technology and investment in these solutions. It has formed a JV with a Chinese company, which gives the technological component of the project.

� The company has also ventured into EPC for Solar projects in a JV with a Chinese company. In the initial stage, the company would execute a single project and post the execution of this project would decide on the continuation of this business.

Sector: Capital GoodsSector view: NeutralSensex: 26,118

52 Week h/l (`): 580 / 329



Bloomberg code: TEEC IB

BSE code: 533281

NSE code: TECHNO



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� The company expects 20-25% yoy growth in order inflows over the next three years. Execution cycle for the current order book is 24-36 months. The company has guided for EPC revenue of ` 1,000crore in FY16 and ` 1,200crore in FY17 from ` 670crore in FY15. However, it believes slower execution in Bihar during the elections would lead to a marginal miss in FY16 revenues.

� Performance of wind power has been lower on a yoy basis due to climatic change and lower wind. Evacuation issues continue to impact overall profitability. The company has sold 44.45MW at 215cr and intends to divest balance portfolio to improve strength for bidding more PPP projects in transmission sector. Techno plans to garner ~` 800crore from the sale of balance wind power assets.

� The company plans to bid for projects with IRR of 18-20% and which have substation as a major scope of work.

Company Profile Techno Electric & Engineering Company Ltd (TEEC) was founded in 1963 and provides EPC services to power generation, transmission and distribution sectors. Since its inception in 1963, TEECL has groomed itself in the field of comprehensive engineering, procurement and construction services for fuel oil storage and handling system, comprehensive piping systems including power cycle piping, process plant installation, fire protection systems, EHV switchyards, EHV sub stations, power plant cabling system, plant electrical distribution system including plant earthing systems, lightning protection system and plant illumination systems installed nationwide.

TEEC entered into the wind power business by acquiring Super Wind and Simran Wind from Suzlon in FY10. Subsequent to this TEEC has expanded its power capacity in Simran Wind from 50MW to 167MW by doing Greenfield expansion. The company has sold 44.45MW of wind power at an effective valuation of ` 215cr and intends to divest balance portfolio to improve strength for bidding more PPP projects in transmission sector, improve ROCE & focus on EPC. The company entered BOOT/BOOM business with a JV with Kalpataru Power in FY11 at Jhajjar and secured a second project in FY15 at Patran. Currently, it has 2 projects and is looking to add 1 or 2 projects annually targeting a portfolio of 5 projects by FY17.

Financial summaryY/e 31 Mar (` cr) FY12 FY13 FY14 FY15Revenues 820 700 708 794yoy growth (%) 14.4 (14.6) 1.2 12.1 Operating profit 220 235 193 208 OPM (%) 26.8 33.5 27.2 26.2 Pre-exceptional PAT 121 120 87 105Reported PAT 121 120 87 105yoy growth (%) 7.2 (0.4) (27.3) 20.1

EPS (Rs) 21.2 21.1 15.3 18.4P/E (x) 25.3 25.4 34.9 29.1Price/Book (x) 4.6 4.0 3.6 3.3EV/EBITDA (x) 16.4 15.4 18.4 16.8 Debt/Equity (x) 0.9 0.8 0.6 0.5 RoE (%) 19.6 16.7 10.9 12.0



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Life InsuranceUnlocking valueIIFL’s latest report on Life Insurance titled “Unlocking value” believes the four large private sector life insurers are well placed to benefit from an upturn in growth prospects of the industry. Favourable macro outlook, stable regulatory regime, strong distribution architecture and economies of scale would enhance value for these insurers. Further, a better perspective on the franchise value from improved disclosures would enhance the equity value attributable to these insurers. A comparative analysis places HDFCSL and Max Life at the top of the pecking order.

Structurally attractive market: New business premium (NBP) of life insurance grew at 21% Cagr during FY01-15 enabling India to emerge as a large player in the global life insurance industry. Despite such rapid growth, life insurance in India remains under-penetrated. The factors influencing consumption of life insurance over the long-term suggest potential for high growth to sustain. Robust macro-economic performance and increase in financial savings would drive strong growth in NBP over the medium-term.

Growth for private sector insurers to gain traction: Changes in regulation and poor investment returns during FY11-14 hurt NBP growth for the private sector. However, private sector life insurers have begun reclaiming lost ground since FY15 and are likely to achieve further market share gains over the medium term. Insurers with higher share of linked products in their portfolio and strong a bancassurance partner would benefit the most.

HDFCSL and Max Life at the top of the heap: An analysis of life insurers on parameters such as growth, market position, profitability, and value of


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in-force business places HDFCSL and Max Life ahead of IPru Life and BALIC. Limited disclosures from SBI Life and RELIC constrain our view of these companies. Nevertheless, they are unlikely to secure a place ahead of the top three insurers.

Upside to valuation from favourable investment performance: We peg FY17ii P/EV at 1.5-2.4X based on profitability of the franchise, growth performance and outlook, ratio of VIF to EV and price discovery achieved through private deals thus far. We envisage upside potential (7-14%) to current investor expectations on the value of life insurers from those already discounted.

Structurally attractive marketIndia has been a fast growing life insurance market and emerged as the eleventh largest market for life insurance globally and the fifth largest within Asia over the past 14 years. NBP grew at 21% Cagr during FY01-15 in local currency. The private sector registered 65% Cagr, whereas the government-owned insurer, Life Insurance Corporation (LIC) delivered 19% Cagr during the same period.

Despite high growth registered by the sector, India remains an under-penetrated market. Insurance penetration — premium income as a percentage of GDP, stood at 2.6% of GDP in FY15. It increased from 2.6% in FY03 and touched a peak of 4.6% in FY10 before declining to 2.6% in FY15, back to the

level achieved in FY03. In recent years, industry volume growth has also trailed nominal GDP growth. Per capita premium income (US$) registered 11.7% Cagr over FY03-15 but it is significantly lower than that of many developing and developed economies. The penetration and per capita data insurance consumption indicate significant scope for the life insurance industry to maintain high growth over the long term.

Growth of life insurance business exhibits significant cyclicality, underscoring the influence of macro-economic backdrop and changes in regulations. However, the key themes continue to influence long-term growth prospects positively are,

» Favourable demographics

» Increased insurance penetration

» Lack of alternatives

India’s favourable demographic profile is well known, that is, its high share of young population. This young population is likely to enter productive workforce over the next two decades driving down dependency ratio (defined as the ratio of productive young population to the population dependent on such productive population). There are two key favourable outcomes from the evolving demographic profile: a) increased demand for life insurance with falling dependency ratio,


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as increase in workforce participation boosts savings potential; and b) increase in demand for annuity/pension products as the share of aged population increases.

LIC likely to lose dominance from hereonLIC and private sector players are segmented on products offerings and distribution channel used for selling the product. Growth rate and market share shifts between them are determined by underlying changes in the macro-economic environment, households’ income level and urbanisation trends. LIC would likely maintain its focus on participating products. Demand for participating products is likely to lag the industry growth rate over the medium term. Hence, LIC is likely to witness further erosion in its market share. Private sector insurers are well positioned to benefit from traction in sales of ULIPs, as witnessed from the growth trend registered in FY15 and sharp uptick in its contribution in the premium income volume. As discussed before, a substantially revamped product benefit and charge structure and significant downsizing in cost structure have improved the competitiveness of participants. The private sector insurers would gain market share with sustained traction for ULIPs.

A clear positioning has emerged among the top five private sector insurers based on the products sold. IPru Life and HDFCSL have maintained high share of ULIPs in their product portfolio whereas Max Life has maintained sharp focus on participating products. SBI Life and BALIC had a balanced mix between participating and ULIPs in FY15. IPru

Life and HDFCSL are likely to improve their market position while Max Life and SBI Life are likely to

consolidate or improve their market position marginally. For BALIC to improve its market position, it would need to create a sharper product focus.

There exists a long tail of insurers who lack scale. They accounted for 13% market share

on APE basis in FY15. This group of insurers with sub-scale operations have lost market share

since FY11 — market share of these players was 15% in FY11. Potentially, one out of the 17 players could

gain significant market share and break into the top league of insurers over the next five years. Otherwise, the market share position of the bottom tier insurers is likely to remain unchanged over the foreseeable future. The competitive environment will likely be influenced by LIC, which is the dominant player of the market and top league of five to six insurers in the private sector.

Separating leaders from othersDistribution is an important value chain in the life insurance industry and captures significant value of the business. Premium mix by channel for LIC and the private sector insurers varies significantly. LIC relies significantly on agency channel and has little diversification. In contrast to this, the private sector in general has a diversified channel mix with dominance of bancassurance, declining yet meaningful contribution from agency channel and gradually increasing share of direct premiums. Group business is sourced primarily through the direct channel — 76% of private sectors’ and 98% of LIC’s FYP group business in FY15.


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Tips to obtain a loan for the self-construction of home

This way the loan disbursement will be hassle free and take minimum time and effort. You will be well on the way to constructing your dream home.

If you have a plot of land and want to construct a home on it then you may need a loan. It is necessary to know what requirements need to be met for obtaining the necessary loan. This way the loan disbursement will be hassle free

and take minimum time and effort. You will be well on the way to constructing your dream home.

We look at certain tips for obtaining a loan for constructing a house on a self-owned plot of land.

Loan amount: If the land is free from loans, even 100% construction funding can be available. The banks compute the loan amount as per the market value of the plot. They accept the value of the land as self-contribution for availing of the loans.

Ownership status of the land: The ownership - the title holder(s) of the plot is the most significant issue. The land could have been purchased from an independent land owner/developer. It could have been inherited from the present owner’s ancestors.

Basic facilities/amenities available: Gated communities are preferred by lenders. If the plot is within a gated

community with standard facilities already present such as water and electricity connection, roads laid then it is simpler to obtain a loan.

Statutory requirements: The plot should possess all necessary clearances from the local town-planning authority as well as government. It should not be in agricultural or commercial or green zone. If it does fall into the mentioned categories, funding is not possible as per conventional criteria for home loans.

Necessary documents: It is mandatory to have a sanctioned plan from the concerned town-planning authority or the corporation of the city. Tax dues on the land should have been cleared completely.

Tranche disbursement: Usually the loan disbursement is in tranches. For instance if 50% of the construction is completed, 50% of the loan funds will be released. If the funds disbursement is in advance, only on a valuation person’s report that the disbursed sum has been used for construction and satisfactory progress is made will the next tranche be released.


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What to avoid while planning your finances?Till about a decade ago, life was simple, needs and wants were few, all one needed was to get a job to raise a family and most of the needs (both short as well as long term) were met through the salary one earned and maybe a paltry / low amount of savings in fewer and simple financial products.

Financial planning today has become one of the most important aspects of life as we know it. Every single person from high ranking officials like CEOs, COOs to common housewives all know that it is critical to plan their finances

for a better life not just for them but for their loved ones.

To increase levels of financial safety and security for the not too as well as the distant future, a person needs to avoid a few basic mistakes listed below:

Having no set goals: Setting goals prior to financial planning is very crucial. If goals are clearly defined it becomes easy to work towards the goals since each goal has different amounts, timelines, risks associated with them and thus, diversification of a portfolio becomes important. Therefore, with the absence of clearly defined goals it becomes difficult to plan.

Saving post spending: One needs to save first and then start spending rather than spending and then saving as this doesn’t work. Your expenses should be accounted for after you have saved.

Absence of a professional advisor: It is critically important to enlist the services of a certified financial planner to create one’s portfolio as this task has become so complex with risks being so varied. Instead of trying to do this by ourselves, it is advisable to seek professional help to build towards a brighter financial tomorrow.

Not planning for contingencies: We may plan towards achieving various lifestage goals and in doing so, it is very important to set aside a contingency fund to help us through any emergency situations that we encounter which may put our income at risk. This fund is to be used only during and for emergencies and not for expensive holidays or shopping trips or even luxury purchases.


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Don’t forget the risks: Your goals can be impacted if you have not accounted in the risks associated. While financial planning one must not forget that things like death, disease, disability may happen to anyone at any point of time disrupting your financial strategy. Sound financial planning takes these factors into consideration and protects you against an economic impact of the same.

Not accounting for inflation: While planning, while accounting for a rise on Year-on-Year income, we need to remember that expenses will also increase proportionately. Due to inflationary costs, savings will start to deplete at a higher rate than expected. Thus, not accounting for inflation will paint an incorrect picture with regard to progress towards

financial goals. We also need to remember that the inflation rate for healthcare services and education is significantly higher than the Consumer Price Index based rate of inflation.

Not having adequate life insurance cover: Choosing a cover that sounds attractive and is lighter on the pocket but which may not cover risks to all your financial goals is the biggest mistake one can make. In the case of any eventuality, it is this cover which will help your loved ones sink or swim and save them from financial stress. Generally having an insurance cover of 10-12 times a person’s annual income is considered appropriate.

Not reviewing progress: If a person does all of the above then he has taken a giant step towards securing his financial future. However all of the above will come to a naught if the progress of his / her portfolio is not reviewed periodically. At least set a couple of days every year to review how you are doing against the plan. This will give you a fair insight into if the path that you are on is correct or if a few tweaks need to be made to ensure that the goals are not just met but that one gets maximum bang for their buck when it comes to ROI.

Carefully planned finances are a giant step forward towards a healthier financial future. Committing any of the above listed mistakes will be gambling with one’s financial security. Financial planning is a systematic step by step process that can help you evaluate your financial position, goals and aspirations through a clear and well-thought out plan. The old dictum “failing to plan is planning to fail”, still holds true and so by planning your finances properly not only will a person have safety and security of their finances but most importantly have peace of mind.


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Executive Vice President and Fund Manager, UTI AMCSwati Kulkarni

Swati Kulkarni, Executive Vice President and Fund Manager, UTI AMC Ltd, has professional experience of 18 years of which last 17 years has been with UTI AMC. She has been a Fund Manager since 2004. Earlier, she was part of the Fund Management team involved in analyzing companies across sectors, while assisting the Fund Managers. She has handled Mutual Fund Research, Market Research, Product Reviews and Quantitative Analysis as part of the Research and Planning team at UTI.

The investment side of the economy is yet to see strong traction, which is expected to be driven first by the Government spending followed by participation of private sector.


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Are you seeing a recovery in the Indian economy? Do you expect a pick-up in spending?

We believe Indian Economy is undergoing a gradual cyclical recovery. The macro economic variables such

as Current Account Deficit, Inflation, IIP growth, Interest rate, Fiscal Deficit, Indirect Tax collection all are showing improvements over the levels of 2013. The investment side of the economy is yet to see strong traction, which is expected to be driven first by the Government spending followed by participation of private sector. The multiplier effect of investment spending on boosting consumption is likely to help India to achieve higher sustainable GDP growth. The IMF had lowered its 2015 growth projection to 3.3% from 3.5%, largely driven by reduction of growth forecast of US and other Developed Markets. China growth also is expected to slow down and Russia is expected to remain subdued. The volatility in global financial markets and particularly in emerging markets, is likely to persist given the concerns about China - growth slowdown; devaluation - as well as the pace and timing of interest rate action by the US Federal Reserve.

What do you make out of current equity market movements?

The range-bound market movement of last year reflects the underlying muted earnings growth. The asset quality issues, slowing rural consumption, slow economic recovery and falling commodity prices have caused such performance. In addition, the FIIs flows also have been lackluster although MF experienced strong inflows. The current expectations of earnings pick up in the second half of FY16, hinges on the recovery in consumption on account of lower inflation and interest rates, and the momentum gathering in the budgeted

capital spends from the Government, besides a favorable base of second half of FY15. The companies are likely to show gross margin expansion on account of falling raw material costs, which coupled with operating leverage benefits and interest costs savings, is expected to lead to higher earnings growth.

What is your investment strategy in UTI Mastershare? Which are the sectors you are most bullish and bearish on?

UTI Mastershare predominantly invests in large cap companies (whose market capitalization is in top 70% of overall market capitalization). It follows top down approach for sector allocation and bottom up for stock selection within the sectors. It follows growth investing style. We have invested in stocks where we believe earnings growth potential is higher, thus it has a dominant mix of quality cyclical as well as quality defensive stocks. We are overweight on domestic cyclical sectors like Cement, Construction, Industrial Manufacturing, and Private sector Banks and also in defensive sectors like IT and Pharma. We are not very constructive on metals and


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reality sector from a long term perspective.

What is your investment philosophy as one of the leading women fund managers in the country? How has it changed over the years since you have managed many Funds?

My investment philosophy revolves around investing

in the stocks that have sustainable cash flows; competitive advantage, strong management track record, respect for corporate governance and conservative accounting policy. Such companies tend to conduct business efficiently across economic cycles, delivering higher return on capital than the cost of capital. A constant review of the valuations helps in deciding on staying invested/ booking profits.

While the broad philosophy remains same across the funds, the positioning of the Funds require us to build portfolio that suits the investment framework. For e.g. UTI Mastershare follows a large cap growth style and focuses on top down approach whereas UTI MNC follows a Multicap bottom up approach.

We book profits regularly on such stocks where we believe that the future capital appreciation potential is limited considering the estimated earnings growth and valuation or according to

our analysis we believe that they may underperform in the near term. We do not take very aggressive bets on a single sector or on too many outside benchmark stocks. We limit single stock’s weight to 8% and single sector’s weight to 30%.

What is your advice to retail investors?

Equity asset class is smartly played by investing in the equity MF schemes as you get a professional team to manage your portfolio at a small charge. For an individual to achieve diversification by buying 50-60 stocks and tracking them regularly may be a herculean task that too may be with compromised results. Thus, it is advisable to invest large part of the equity allocation into equity mutual funds. A pyramid approach may be followed with 50-60% of the equity allocation going into large cap funds, 20-30% allocation for mid cap equity funds and the rest can be invested in thematic, sector equity funds.

In terms of mode of investment, disciplined approach of regular investing through monthly SIP of long tenure will be helpful to build corpus over long period. However, many retail investors are heavily invested in fixed income

assets. They can use lump sum investment option to improve their asset allocation as

also start SIP such that the returns that they get on their investments beat inflation in the long run and create

wealth for them.

A pyramid approach may be followed with 50-60% of the equity allocation going into large cap funds, 20-30% allocation for mid cap equity funds and the rest can be invested in thematic, sector equity funds.


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What Auto companies are saying?Diesel vehicle ban in Delhi

In a bid to curb the pollution levels of the national capital, Supreme Court (SC) banned registration of diesel passenger vehicles of engine capacity of 2000cc or above in Delhi till 31 March 2016. Smaller diesel cars have been spared from the ambit of this order, which will come as a relief to many. All taxis in Delhi will have to use CNG with immediate effect. The worst-hit automakers will be the likes of Mahindra & Mahindra (M&M) and Toyota Kirloskar Motor, besides top German luxury car brands - Mercedes-Benz, BMW and

“So, even if we believe the decision on diesel vehicles isn’t optimal, we’ll honour it and develop vehicles that comply with their stipulations.”

Anand Mahindra, Chairman, Mahindra Group

“To improve the air quality from vehicle point of view we must take a closer view of various factors causing pollution.”

Vikram Kirloskar, Vice-chairman, Toyota Kirloskar

Audi Of the ~2.6 million total passenger vehicle sold in the country, Delhi’s share is at 7%, with about 30% being diesel vehicles. Car dealers in Delhi will be saddled with diesel vehicle inventories.

Anand Mahindra, Chairman, Mahindra Group was at his diplomatic best saying, “So, even if we believe the decision on diesel vehicles isn’t optimal, we’ll honour it and develop vehicles that comply with their stipulations.”

Meanwhile, Pawan Goenka, Executive Director, M&M, said


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that the decision could be a “blessing in disguise” for the auto industry as it can lead to new innovations for curbing pollution levels in the country. While terming the pollution issue as a “serious one” which demands immediate measures to be undertaken, he emphasized that all problems should not be attributed to diesel vehicles and the media should not make it an “emotive issue” as it will lead to wrong conclusions.

Mahindra & Mahindra (M&M) said in a regulatory filing that the order affects 2 per cent of the company’s total monthly sales. M&M Executive Director Pawan Goenka told analysts that its dealerships in NCR have an inventory worth Rs. 100 crore. The affected products represent around 2% of M&M’s total monthly sales in the city.

Vikram Kirloskar, Vice-chairman, Toyota Kirloskar Motor, said, “To improve the air quality from vehicle point of view we must take a closer view of various factors causing pollution.”

A Tata Motors spokesperson was quoted as saying that while there would be some impact on their sales in the three-month period specified in the order, the company’s continued foray into petrol segment, as shown by recent launches, will stand it in good business stead over a period of time.

Vinod Dasari, President, Society of Indian Automobile Manufacturers, said the SC decision was a “sudden decision without warning”. “There are way too many agencies

regulating the industry,” he added. Dasari, who is Managing Director of Ashok Leyland, pointed out that just three per cent of Delhi’s pollution could be attributed to passenger vehicles, both petrol and diesel.

Daimler AG’s Mercedes-Benz, for whom the Delhi region represents almost a quarter of sales in the country, said the diesel ban and the uncertainty around it would “severely impact” growth plans and future investment in India.

“We think this decision is going to adversely affect the auto industry as a whole and will certainly encourage the creation of an unequal ground,” a Mercedes-Benz India spokesperson told a newspaper.

“There cannot be anything more fundamental than the right to clean air and what the court has recognised today… (is) this is a public health emergency,”

Sunita Narain, Leading environmentalist

Abdul Majeed, partner and national auto practice leader, PwC

“The SC order is significant and it will impact the luxury segment hardest. In fact, even the segment below 2000cc will get impacted ahead.”


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With the political class busy bickering among themselves over issues of far lesser importance, the fate of the much-awaited goods and services tax bill

will be known only in 2016. Interestingly, the government had also willy-nilly met much of the terms of the Congress party for its support to the bill, such as abolition of the 1 per cent inter-state transfer tax and also capping of the GST rate below 18%.

Now, this marks a definite setback for the industry and markets, which were looking at these major tax reforms taking effect in the new financial year, with the possibility of adding some 100-200 basis points to the GDP growth and providing a whole lot of incentives to a host of industries, especially those where the unorganised players rule the roost.

The GST regime is aimed at establishing a single tax regime and creating a common market across the country, which can lead to efficiency in the supply chain and also make things much easier for various manufacturing companies, thus contributing in a big way to the ease of doing business.

While several macro factors indicate certain buoyancy in the domestic economy, a further delay in the GST implementation will send out all the wrong signals to overseas investors, especially portfolio investors, many of whom have already deserted the market after waiting for far too long to see some fresh momentum in the reforms process, recovery in corporate earnings and a kickstart to the capex cycle, all of which have eluded the domestic economy all this while.

GST setback yet again Wrong hit and wrong time


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US Monetary Policy Review

The wait, indecisiveness and nervousness have eventually come to an end. Handwringing about the possibility of a US Federal Reserve rate hike has been the rhetoric, which market participants were

jaded of. After a gap of exact seven years, Fed has decided to end the era of ultra cheap interest rates and commence a new chapter for the interest rate trajectory. Nevertheless, Fed performed the herculean task of striking a balance by hiking rates as well as pacifying the markets by reiterating that the process of policy normalization will be gradual and gentle in order to avert the US economy from tilting into recession. As expected, Fed delivered a rate hike of 25 basis points, accompanied with an accommodative policy statement. Fed stated that improvement in economic conditions warrant a rate hike. Rise in consumer spending, strength in housing market and business fixed investment reflects improving confidence in the economy. The central bank also referred to healthy labour market, wherein unemployment rate has literally halved when compared with the levels during the global financial crisis of 2009.

On the future course of action, Fed alluded that subsequent rate hikes will be dependent on the progress in economic conditions. On inflation front, Yellen indicated that the reading is expected to rise to 2% over the medium term as

US Federal Fund Rate projections

US unemployment rate projections

Source: US FOMC, India Infoline Research. Note: Median projections

Sugar Coated Bitter PillSugar Coated Bitter Pill


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the temporary effect of weak energy and commodity prices will fritter away and strength in labour markets entail improvement in wage rates. Fed expects inflation to pick up sharply during 2016 to a 1.6% annual rate from 0.4% rate this year. Unemployment is anticipated to fall further to 4.7% next year, while economic growth is expected to hit 2.4%. On overseas developments, Fed seems to have considered the repercussions of prevalent slowdown in China, Europe and Japan and termed the mentioned risks as balanced.

The only thing which can deter the course of action is further deterioration in the global economic landscape and aggravation of the deflationary scenario. We need to understand that stronger US dollar does not spell in to healthy prospects for the US economy at a large. Practically, strength in US dollar can lead to import of deflation from the overseas markets. US dollar is expected to gain further momentum in the longer run as divergent scenario seems to be emerging, wherein Fed is turning out to be a bit hawkish, while Europe, Japan, China and other emerging markets are contemplating at a prolonged accommodative stance. This entails flight of capital to a safer and high yielding currency like greenback.

We also take the Fed’s target of 2% inflation over the medium term with a pinch of salt, considering that commodity prices are going to remain weak for a quite some time, with producers saddled with overcapacity amid weak demand growth.

Market participants remain cautious about fragile Chinese economy and the lag in calibration of global supply/demand equilibrium. One can fail to find anybody who is starry-eyed regarding commodity price prospects. Pessimism prevails and further decline in commodity prices is not ruled out. Prevalent market dynamics are unprecedented to an extent wherein there is no appropriate supply side response to lower prices. Generally, supply/demand equilibrium rebalances itself, however, this time things look quite different. The production cost curves for most commodities have moved lower, thanks to the descent in energy prices and depreciation in emerging market currencies. Lower prices may not necessarily result in to meaningful supply side response, as producers need to generate cash flows in order to service debt and are therefore compelled to maintain production.

It will be interesting to witness the long term repercussions of the rate move on the global markets. Narrowing interest rate differentials between US and emerging markets can lead

to hefty capital outflows. Stronger US dollar and ensuing weak commodity prices

can pose a danger of rising corpo¬rate bond defaults, balance of payment

issues for commodity producing nations. Producers will

also be compelled to scale down on capital

expenditure and in the process drag down

the economic growth of respective nations.


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The year that was

Labour is one of the most critical factors of

production. Industrial peace and harmony can

be achieved only when the goals of employment

and employability are in tune with the goals of

industrial development and growth...Read More

Ministry of Labour - Making India a Better Work Place for All

The year 2015 will be written in golden letters in

the annals of history of coal sector in the country

for the coal mines auction conducted in an

efficient & transparent way...Read More

Coal mine auctions hit a goldmine

These initiatives include ease of registration

of the business in the form of Udyog Aadhar

Memorandum, Framework to revive sick

MSMEs, promoting innovation in rural

entrepreneurship through ASPIRE

scheme, fund for regenerating traditional

industries...Read More

Ease of doing business to make Micro, Small and Medium Enterprises more globally competitive

During the current fiscal, Ministry of Finance has

undertaken various initiatives and measures

for enhancing the Revenue Collection ,easing

and formulating the Taxation policy, Fiscal

consolidation , improving the Economic

Growth and there by contributing to the Nation

building...Read More

Ministry of Finance - enhancing revenue collection, easing taxation

The Department of Sports has formulated

Himalayan Region Sports Festival (HRSF)

for promoting unique sports traditions in

the Himalyan Region, which includes Nepal

and Bhutan and Indian states such as J&K,

Uttarakhand, Himachal Pradesh, Sikkim and the

North Eastern States...Read More

Sports - Target Olympic Podium (TOP) Scheme and Preparations for Rio Olympics

In the pre-2014-15 periods, the approach to

disinvestment was based on identification

of stocks on an annual plan basis. This often

resulted in problems like delay in approaching

the market, hammering of stocks, overhang

and lack of flexibility in divestment of

stocks...Read More

OFS issues of REC, PFC, DCIL and IOC; Fin dept raises around Rs. 12,700 crore

With Fed event now being past us, downside

from hereon looks limited, though knee-jerk

reaction to any global event cannot be ruled

out. Any surprise in terms of passage of key

legislation like GST and land acquisition bill

in Budget 2016-17 or before could provide

immediate stimulus to equity market...Read More

Bidding Adieu to 2015: After a dismal year for equities, investors hope for Happy New Year!

“In 2015, Indian employees grew more aware

of their market value, fuelled by the flourishing

start-up scenario. Inviting ample investment

from private equity firms, Indian start-ups

burgeoned, and so did their hunger for talented

resources...Read More

Looking for the right job? A round-up of Indian recruitment market in 2015


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http://www.indiainfoline.com/article/news-top-story/2015-coal-mine-auctions-hit-a-goldmine-115121600269_1.html

http://www.indiainfoline.com/article/news-top-story/year-2015-ease-of-doing-business-to-make-micro-small-and-medium-enterprises-more-globally-competitive-115121800329_1.html

http://www.indiainfoline.com/article/news-top-story/year-2015-ministry-of-finance-enhancing-revenue-collection-easing-taxation-115122000114_1.html

http://www.indiainfoline.com/article/news-top-story/year-2015-sports-target-olympic-podium-top-scheme-and-preparations-for-rio-olympics-115121800298_1.html

http://www.indiainfoline.com/article/news-top-story/year-2015-ofs-issues-of-rec-pfc-dcil-and-ioc-fin-dept-raises-around-rs-12-700-crore-115121800456_1.html

http://www.indiainfoline.com/article/news-top-story/bidding-adieu-to-2015-after-a-dismal-year-for-equities-investors-hope-for-happy-new-year-115121800481_1.html

http://www.indiainfoline.com/article/news-top-story/looking-for-the-right-job-a-round-up-of-indian-recruitment-market-in-2015-115121900258_1.html

If you’ve not been able to systematically save and invest for 2015, you could start doing the needful from 2016—sooner the better.

Saving habits/pattern: Now is the time to review your saving habits and see how you’ve done for yourself. Experts note that it doesn’t matter how much money you make, you cannot achieve your financial goal, if you’ve spent all your money. By keeping track of your expenses, spending and saving habits, you will be able to achieve your financial goal with much ease. By following a systematic pattern in saving, you will be able to automatically save for the future, and create a corpus for the long term. With the money saved, you can also set up an emergency fund, if you’ve not done so far.

Get financially responsible: If you’ve been making late payments on your loans, particularly on your home, auto or personal loan EMIs, it’s time to rectify. Late payments would eventually lead to a poor credit score, which in turn, could disqualify you from loan sanctions in the future. Being responsible, financially, should be one of your goals for 2016.

Get set go Managing Money in 2016With just few more days to go for 2015 to end, now is the time to review your portfolio for the past year, to see how you did, so that you could rectify and take necessary actions, if needed, for the next year. Experts note that by doing so you will understand your saving habits, investments better, and manage your money better.

Prepare a budget: To achieve your long term and short term financial goals, it is important to chalk out a budget. Coming up with a financial plan, jointly with family members, will help you organise and monitor your expenses, keep track of your spending habits. Take help from a financial planner. Personal finance apps will also help you organize your finances, keep track of your financial records.

Review your portfolio: By taking a closer look on your investment portfolio, you will get an idea on the returns some of the financial products have offered. For instance, most of us have invested blindly in some of the financial instruments that are not offering decent returns. With inflation only expected to rise in the future, it is important that we review our portfolio, at least at this time of the year, so that we can create a corpus for the long run and save more.


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Alkem LaboratoriesA visit to Baddi

Alkem’s key anti-infective brands are Clavam, Taxim-O and Taxim. In Gastro-intestinal Alkem enjoys market share of 5.6% with brands like Pan and Pan-D. In Pain/ analgesics Alkem commands third-largest market share of 5.0%. In Vitamins/ minerals/ nutrients we had the sixth-largest market share, a company official shared with us citing data from the Red Herring prospectus.

Alkem Laboratories, the fifth largest domestic pharma company owns a bouquet of leadership brands built and sustained over a long time and has emerged as

the fifth largest domestic pharma company. The response to the company’s IPO has been phenomenal as it got subscribed by a whopping 33.29 times when the bidding ended on Dec 10, 2015. Valuations are attractive as even at the upper price band, Alkem was available at ~12x FY18E earnings. This compares well against listed peers like Alembic and Indoco.

Promoted by Mr. Samprada Singh and Mr. Basudeo Singh, company boasts of five brands in top 50. We visited the company’s Baddi facility recently. A touchdown at Chandigarh airport with the sun shining bright on a cool winter morning, a quick snack at the Pinjore Gardens, also known as the Yadavindra Gardens. No we didn’t have the time to stroll past the terraced gardens or Shish Mahal or enjoy the series of fountains and waterfalls. All we had time was to savour a local juice squeezed out of Kinnu even as we debated whether it was more of an orange or sweet lime.

“Our domestic operations are further divided according to the various therapeutic areas in which we operate. Last fiscal year, we had a portfolio of 736 brands in India and are among the top ten pharmaceutical companies in India in terms of domestic sales for the past 12 years.”

Prabhat Agrawal, CEO, Alkem


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Alkem has cemented its presence in intensely competitive and largest therapeutic segment anti infective on back of strong brands like Clavam, Taxim O and Taxim. Though acute segment, which caters to anti-infectives, pain-killers and analgesics among others accounts for large share of domestic formulations, company is also focused on fast growing chronic therapies.

Alkem promoters have had a long standing experience in domestic formulations business with first manufacturing set up in 1978. Despite an intensively competitive scenario in acute therapeutic segments, company has created sizable brands with top 20 accounting for ~54% of domestic revenues in H1 FY16. When I met Mr. Samprada Singh, Chairman, Alkem Laboratories, over a decade ago, he had fondly reminisced how he had started as a retail chemist in 1953. He managed sole distributorship for the Bihar and main accounts were Abbott Labs, E Merck India, Dolphin Labs of Calcutta, BDH etc. Click here to read the 2004 interview.

The company has taken initiatives to diversify from an India centric revenue base; exports account for 25%

of revenues, scaled up mostly through acquisition of US-based Ascend Laboratories from ~12% in FY11.

After a quick view at the coating facilities and capsule filling machines moving with precision we moved out of our stuffy double suits and protective footwear and masks to breathe some fresh air outside the facility.

In India, daava and daaru are spoken with the same breath and as we moved on our way to relax the night at Kasauli, our driver quizzed if we had tried the whisky brand Solan No. 1. A quick search on the web showed Solan No. 1 was the best selling Indian whisky for over a century and that the Kasauli distillery and brewery was set up in the late 1820s. We stopped to pick a bottle available at a steal in the local wine shop. Old is gold they say. The strength and sustainability of Alkem’s brands can be gauged by the fact that the average age of its 10 bestselling brands is 17 years. This sustainability and higher than market growth, can only be explained by strong brand loyalty that Alkem has been able to create so far. Let’s wait and watch how Alkem, which has been around for decades, does now as a listed entity.


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