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Volume 1 Issue 87
19th S ept 13
NEW AND IMPROVED
DB Corner Page 5 A Consolidated Approach Towards its goal of achieving financial inclusion while remaining resilient, the RBI has come up with a discussion paper, which identifies initiatives for reorientation of the banking structure Page 6 New And Improved The new Companies Bill, which replaces the nearly six-decade old norms, provides for far-reaching changes in the way companies operate and are regulated in the country Page 10 A Blessing In Disguise While the depreciation of the Indian rupee against the US dollar has hurt several sectors, the tourism sector is seeing increased inflows of foreign tourists into the country Page 14 Avoiding The Debt Trap Before investing in a company that has opted for corporate debt restructuring, investors need to ascertain if it is really worth the investment Page 17 The End Justifies The Means The recent proposal to increase filing fees for pharmaceutical patents will be justified if it is used to overhaul the old and sloppy system prevalent at present Page 22 Taking A Hit Falling volumes have affected the cement sector badly and its woes seem to be compounded by the fact that the upcoming elections have not yet brought any cheer to the industry Page 24 Sailing On Discounts Apparel retailers have managed to post good profits despite shrinking consumption across sectors through discounts, sales and other innovative marketing techniques Page 27 All Is Not Lost Despite the weakness in the rupee, investors can still invest in products that can withstand heat from the falling currency and hedge their portfolios Page 30 The Million Dollar Club The coveted ` 100 crore mark, a norm in the Indian film industry, is in part a result of corporatization and accountability, coupled with acute business acumen Page 32 TRAI-ING Times Ahead Although the reduction of the duration of advertisements on television is being cheered by consumers, the broadcasters are crying foul as it will reduce their ad revenues Page 35 Finolex Cables Ltd: Wired For Growth Upgradation and expansion of existing facilities as well as improving demand is expected to boost the top line of Finolex Cables Ltd in the coming times Page 38 Ready For The Kill Despite tough market conditions, investors can still make a killing on the bourses with the right choice of products and an investment horizon Page 43 Important Statistics Page 46 Going From Fat To Fit Losing your flab should be treated like your trading or investment activity on the stock market for maximum gains Page 48 Important Jargon For The Fortnight Page 52
Volume 1
Issue: 87, 19th Sept 13
Editor-in-Chief & Publisher: Rakesh Bhandari Editor: Tushita Nigam Senior Sub-Editor: Kiran V Uchil Art Director: Sachin Kamble Junior Designer: Sagar Padwal Marketing & Operations: Divya Bhurat, Shreelatha Gollavathini Research Team: Sunil Jain, Dipesh Mehta, Anand Shendge, Manav Chopra, Vikas Salunkhe, Runjhun Jain
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Beyond Market 19th Sept 13
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Tushita Nigam Editor
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The markets look good and market participants are advised to buy on declines
conomic data was seen improving in countries like the US, Europe and China in the previous month, indicating recovery. Further, low tempering of expectations regarding quantitative easing or QE by the US Federal Reserve resulted in a trend reversal in the rupee in the past fortnight. Also, the markets reacted positively to the series of initiatives announced by the newly appointed RBI Governor, Raghuram Rajan on the first day of taking office. This was further supported by the uptick in the Index of Industrial Production (IIP) for the month of July. On the inflation front, while
Consumer Price Index (CPI) moderated marginally from last month, the Wholesale Price Index (WPI) for the month of August rose to 6.1% as against 5.7% in July. The markets look good and market participants are advised to buy on declines. The Nifty looks good around the support levels of 5,820 and 5,720. Stocks like Sesa Goa Ltd (LTP: `177.20 ), Cipla Ltd (LTP: `430.45), Tata Steel Ltd (LTP: `291.80), Sun Pharmaceutical Industries Ltd (LTP: `562.45), Amara Raja Batteries Ltd (LTP: `300.95) and United Spirits Ltd (LTP: `2,552.85) look good from trading and investment perspectives. In the coming fortnight, market
participants can look forward to the outcome of the monetary policy review, which may not see any change in interest rates, yet needs to be looked out for as it will be Rajans first policy review since he took office as the Governor of the RBI earlier this montH.
BSE: 19,742.47 NSE: 5,840.55 (as on 16th Sept 13)
Disclaimer It is safe to assume that my clients and I may have an investment interest in the stocks/sectors discussed. Investors are required to take an independent decision before investing. Investment in equity is subject to market risk. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing.
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A Consolidated Approach
Towards its goal of achieving financial inclusion while remaining resilient, the RBI has come up with a discussion paper, which identifies initiatives for reorientation of the banking structure
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he Reserve Bank of India (RBI) recently unveiled a draft paper titled Banking Structure In India The Way Forward. The draft gives a glimpse of what banking in India would look like in the future. Many countries, post the global financial crisis, have taken steps to review their banking system. While the Indian banking system remained largely unaffected by the global crisis, a need to reorient its banking system was felt due to its growing and globalizing economy as well as to further its mandate of financial inclusion. Further, not only was it important to incorporate lessons learnt from the Existing Banking Structure in India*
global crisis, few challenges faced by the banking industry too makes the timing of the draft paper apt. Issues facing the banking industry like capitalization of public sector banks, unsatisfactory progress in financial inclusion, changing banking landscape globally, need to support growth and finally ensuring financial stability prompted the central bank to reorient the banking structure. The RBI has invited comments on the discussion paper by 30th September. THE EXISTING STRUCTURE India follows a universal banking model in which banks offer a variety of financial services rather than providing separate licences for niche
activities as in developed nations. The present structure is broadly divided into commercial banks and cooperative banks. Both perform an identical function of deposit mobilization, provision of withdrawal facilities and providing credit. However, the scope varies. The latter have localized operations with farmers and small businesses as customers. Profit maximization is not their motto. While commercial banks have a larger presence, they are able to provide more services due to their scale. Thus both - commercial and cooperative banks - together complement each other in providing services across the nation. A pictorial depiction of the banking structure can be seen in the adjoining chart.
Public Sector Banks (26)
Commercial Banks
Cooperative Banks
State Bank Of India Associate Banks (5) Nationalized Banks (19) Other Public Sector Bank (1) Private Sector Banks (20) Old Private Sector Banks (13) New Private Sector Banks (7) Foreign Banks (43) Branch Mode Of Presence (331 Branches) Regional Rural Banks (64) Limited Area Of Operation Local Area Banks (4) Limited Area Of Operation Urban Cooperative Banks (1,606) Multi-state Urban Cooperative Banks (43) Single State Urban Cooperative Banks (1563) Rural Cooperatives (93,551) Short Term (92,834) State Cooperative Banks (31) District Central Cooperative Banks (371) Primary Agricultural Cooperative Societies (92,432) Long Term (717) State Cooperative Agriculture And Rural Development Banks (20) Primary Cooperative Agriculture And Rural Development Banks (697)
*Position as on March 31, 2013
Interestingly, even with 157 banks operating in the country (cooperative banks not included) [26 Public Sector Banks, 7 New Private Sector Banks, 13 Old Private Sector Banks, 43 Foreign Banks, 4 Local Area Banks (LABs), 64 RRBs], just about 40% adults have formal bank accounts. There are 1,606 urban co-operative banks (UCBs), 31 state co-operative banks, 371 district central co-operative banks (DCCBs), 20 State Cooperative Agriculture and Rural Development Banks (SCARDBs) and 697 Primary Cooperative Agriculture and Rural Development Banks (PCARDBs) in India. Even then, India faces the fundamental challenge of financial inclusion.
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For instance, India has around 3.5 ATMs and less than seven bank branches per 100,000 people, compared with 30 branches and 90 cash machines for the same number of people in developed countries. Thus, there was a need to enable the banking system to cater to the needs of a growing and increasingly globalizing Indian economy, provide specialized services and deepen financial inclusion. Against this background, the RBI issued guidelines regarding licensing of new banks in the private sector in February this year. It stated that there was a need for an explicit policy on the banking structure in India. THE PROPOSED STRUCTURE The central bank still thinks the universal model is the preferred model, particularly in the aftermath of the global financial crisis, where many banks with niche activities failed. But it accepts the need for differentiated banking licences like infra financing as well as retail, wholesale and investment banking. The RBI proposes a four-tier banking structure, which is very different from the existing structure. The first tier may consist of three or four large Indian banks with domestic and international presence along with branches of foreign banks in India. Mid-sized banks including niche banks with economy-wide presence may form the second tier. The third tier would have old private sector banks, regional rural banks and multi-state urban cooperative banks (UCBs). And the fourth tier may consist of many small privatelyowned local banks and cooperative banks. These would specifically cater to the credit requirements of small borrowers in the unorganized sector in unbanked and under-banked areas.
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THE PROPOSED STRUCTURE Suggested Basic Building Blocks As Suggested By The Central Bank: - Creation of three or four global-sized banks to have global presence through consolidation among large public sector banks and private sector banks. - Encouraging investment banks/investment banking activities. - Allowing banks for niche segments for taking care of specialized banking needs through di erentiated licensing. - Enhancing the presence of foreign banks to stimulate competition in India. - Reorienting the policy regarding the presence of Indian banks abroad. - Encouraging inclusion to reach out to the excluded and under-banked regions. Small banks at the bottom of the tiered structure may be the preferred vehicle for these objectives to facilitate nancial inclusion. - Conversion of UCBs which meet the necessary criteria into commercial banks or LABS/small banks. - Issuing licences to new banks should be a continuous rather than an intermittent process to make the sector more competitive.
THE DEBATE The draft paper put forward some crucial issues for debate. Let us look at some of them. Small Vs Big Bank Even though small banks have the potential for financial inclusion, their performance has been unsatisfactory. They have weakness in the form of narrow capital base, restrictive geographical jurisdiction, lack of diversification in source of funds and concentration risk. Thus, the RBI suggests that if small banks are to be preferred, these issues need to be suitably addressed. The RBI puts the case of converting some UCBs into commercial banks or small banks as these banks will achieve freedom from dual control and have more avenues to raise capital. They could extend banking services in the regions characterised by poor banking outreach. Further, the RBI has put forward a
case for consolidation in the sector. The Reserve Bank of India feels that there is a need for few Indian banks to cater to the global needs by becoming global players. The RBI proposes the creation of three or four global-sized banks to have global presence through consolidation among large public sector banks and private sector banks, keeping in view the need for competition within the domestic banking sector and also to avoid complex structures. Broken Vs Continuous Licensing Before anyone can carry on the business of banking in India, a license from the RBI is mandatory. Apart from the banking license, the banks also have to seek permission to open new branches. In order to keep competitive pressure on existing banks, the RBI is of the view that the current Stop and Go licensing policy should be reviewed. Instead, a continuous authorization
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policy needs to be adopted. However, the central bank warns that the entry norm needs to be stringent so as to encourage entry only by well-qualified entities so as to improve the quality of the banking system and promote competition. Presence Of Foreign Banks In India (And Indian Banks Overseas) In order to boost competition, promote efficiency of the local banking system and also to bring in sophisticated financial services and risk management methodologies, which can be adopted by domestic banks, the RBI feels more foreign banks should participate in the Indian banking system. The RBI also supports the view of bigger presence of Indian banks abroad. This will enable large Indian banks to engage in a much wider range of activities and have a greater potential for growth.
Currently, Indian banks have presence through representative office or a banks branch. The RBI is of the view that local incorporation by large banks either individually or in the joint venture mode with other banks or with overseas banks should be a way forward for Indian banks. Government Presence Banking Sector In The
examining the pros and cons of various options, suggests that the objectives of enhancing competition, promoting higher growth and furthering financial inclusion could be achieved through various ways. These include issuing banking licenses on a continuous manner, creating space for more mid-sized private banks, allowing the setting up of niche banks through differential licensing and small-sized local banks, encouraging the presence of more foreign banks, rationalizing the policy regarding presence of Indian banks abroad, allowing conversion of UCBs into commercial banks or LABs/small banks and facilitating consolidation of large and mid-sized commercial banks on a voluntary basis. But, there should not be any leniency in the rigorous prudential requirements at any stage to ensure that banks continue to be financially sound and resilienT.
RBI estimates show the government may have to invest `90,000 crore in the next few years to meet Basel III capital needs. In view of the fiscal burden on the government on account of recapitalization of Public Sector Banks (PSBs), the RBI is of the view that the government should dilute their stakes or use options like non-voting equity shares or differential voting equity shares. IN A NUTSHELL The discussion paper, while
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NEW AND IMPROVED
On 9th Aug 13 Rajya Sabha passed the Companies Bill, which was already cleared by the Lok Sabha in December last year. Now with President Pranab Mukherjees assent it is only a matter of time before the Bill will become an Act. It is an historic feat as the new Bill overhauls the existing corporate law regime in India and replaces the more
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he wait is finally over. The Companies Act, 2013 will soon replace the Companies Act, 1956.
than 50-year-old law. While adding new concepts, the new Companies Act, 2013 aims to repair and fine tune few shortcomings of the existing Companies Act. The new Bill passed by the parliament has brought dramatic changes in almost all areas of administration and management of corporates. More focus is given on corporate governance norms, enhanced disclosures and transparency, facilitation of corporate social responsibility (CSR) as well as stricter enforcement processes.
While protecting interests of investors, particularly small and minority investors, the Bill also promises to boost entrepreneurship, increase accountability of managements and auditors. The Companies Act, 2013, has 29 chapters, 47 clauses and 7 schedules as against 13 parts, 658 sections and 15 schedules in the old Companies Act, 1956. While amending a few existing norms, deleting obsolete ones, the new law introduces few new concepts as mentioned in the accompanying table.
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l Bil e h -T In -ed ---d d A -ts ---A) p e FR ) c --LT y (N n C y o N t ( C -- mpan ri l na utho --on Co bu New A i r --e Persmpany aluer Law Tlatory
On k Co ed V any gu Re r c mp Si iste s Co ance s el l g n nn it Re iona Fi Su erso l t Na iona tion l P a c ) t s DR Na ss A geri rs or (G a na ecto rect s s a Cl t M Di itor ceip ir y Ke en D ent d Re Au d m y n o W Of itor pe de ion s n I po t De ta Ro bal o with Gl
maximum of `25 crore or three times of profits made from insider trading or both. However, the new Bill has not clearly defined what price sensitive information means. Impact While the penalty seems to be paltry as compared to the grave offence of insider trading, which is rampant in India, it is a welcome provision, nevertheless. It brings India at par with laws in other matured markets. Squeeze Out Or Exit Offer This is an important provision in the bill as it provides exit routes to shareholders. If a shareholder feels that the funds raised from him were used for a purpose other than the one stated in the company objective or prospectus, then the company or the controlling shareholder has to compulsorily give an exit option to that shareholder. The exit price will be as specified by the Securities and Exchange Board of India (SEBI). Further, shareholders who have acquired a majority stake of at least 90% will have to compulsorily notify their intention to buy-out minority shareholders. The purchase price will be ascertained on the basis of the valuation done by a registered valuer. This provision is also applicable to unlisted companies. Impact This provision offers an exit option to minority shareholders. PROVISIONS INDIRECT IMPACT Corporate Governance Corporate governance refers to the set of principles by which a company is governed. Stakeholders in this case
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the company.
The article looks at a few important provisions of the new Companies Bill, which will directly or indirectly have a bearing on shareholders as well as investors. PROVISIONS HAVING DIRECT IMPACT Class-Action Suits The existing class action suits in India are complicated and highly unpopular. The point in case is the infamous Satyam scam, where there has still been no progress in compensating the affected Indian shareholders, while their foreign counterparts have already been paid for the damages. However, now with the new law, even Indian shareholders would be able to file law suits and claim damages efficiently. A class action suit is a form of lawsuit where a large group of people can collectively bring a claim to the court through a representative. Now a group of 100 investors with common interest in a matter can sue the management of a firm in case of suspected wrongdoings. They can also sue a companys auditor or a section of shareholders or any expert or advisor or consultant associated
Even depositors can file law suits against errant companies. Depositors were not allowed to file suits under the older regime. The National Company Law Tribunal, a separate tribunal, which the new bill proposes to set up, will hear these suits and pass judgements. However, banking companies are not covered under class-action lawsuits as per the Bill. Frivolous applications can ask for fine to the tune of `1 lakh. Impact This provision will empower shareholders, especially minority shareholders, since they cannot stand against the might of a company. The provision for class-action will help shareholders to defend their rights, paving the way for enhancement of the corporate governance system in the country. Prohibition Of Insider Trading While the earlier Act had no mention of insider trading, a new clause has been introduced in the new Companies Bill with respect to prohibition of insider trading of securities. Directors and key managerial personnel of a company are prohibited from forward dealings in securities of the company. The guilty would be subject to imprisonment of up to 5 years or a minimum fine of `5 lakh and a
HAVING
would include everyone ranging from the board of directors, management, shareholders to customers, employees and society. The management of the company, hence, assumes the role of a trustee for all the others and are central to corporate governance. The maximum number of directors has been increased from 12 to 15, out of which at least one third of the board should comprise of independent directors. Their tenure should be limited to two terms adding up to 10 years. Independent directors cannot serve more than 20 companies at the same time. Further, the Bill proposes that at least one woman be on the Board. The Bill also aims to improve audit quality. Perhaps the most controversial provision is one that stipulates that auditors should be rotated. An audit firm shall not hold office for more than 10 consecutive years and an individual auditor shall not hold office for more than five years in listed companies. The auditors will be eligible for re-appointment after a cooling off period of five years. A National Financial Reporting Authority will be set up to oversee audit quality as well as to take disciplinary action against erring auditors.
Impact This will ensure better commitment of independent directors. Independent directors will improve independence, transparency and objectivity of the functioning of the Board. The importance of rotating auditors is not yet clear. Corporate (CSR) Social Responsibility
The company will give preference to local areas when formulating its CSR policy. This would mean lesser labour disputes, lesser regional disputes against projects, etc which is good for the company in the long term. No penalty will be imposed on that company unless it fails to explain the reasons for its inability to spend on corporate social responsibility. Related Party Transactions The Companies Bill contains restrictions on related party transactions. Related party transaction will require shareholders approvals and the transactions will have to be disclosed in the directors report along with justification for entering into such transactions. The Companies Bill provides for more stringent penalty and imprisonment for infringement. The Bill proposes that a company cannot make investment through more than two layers of investment companies. Impact The need of shareholders approval will lead to enough deliberations before approving related party transactions. Further, restriction on layers will uncomplicate dealS.
The new Bill mandates corporate social responsibility (CSR) expenditure of 2% average net profits of the last 3 years by companies with a net worth of `5 billion or more or turnover of `10 billion or more or net profit of `50 million or more. This provision is in line with the governments focus on inclusive growth. A list of approved CSR activities has been outlined in the Bill. Impact India Inc is unhappy with the mandatory nature of the provision as it makes little economic sense. This is bad even for shareholders. However, almost all top companies do CSR even now on a voluntary basis. Further, CSR will earn goodwill and improve the image of the company, thereby attracting all stakeholders.
The Time Line ------------PRESIDENT'S ASSENT BILL BECOMES AN ACT MINISTRY OF S CORPORATE AFFAIR WILL NOTIFY, FRAME RULES
DEC '11 BILL PLACED IN THE LOK SABHA; REFERRED TO THE TEE STANDING COMMIT
JUN '12 TEE STANDING COMMIT REPORT SUBMITTED
DEC '12 LOK SABHA PASSES THE BILL
AUG '13 RAJYA SABHA PASSES THE BILL
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ters l with company law mat dedicated forum to dea Law Tribunal: It is a h Court in various y Hig pan Com the al by ion yed Nat pla a e rol The Bill proposes ion, etc. In short, the ergers, capital reduct disposal of cases. including mergers, dem facilitate the speedy l wil It -----------T. NCL by yed pla be l --------------------wil --s --ter --mat --------corporate g agreement. Now, --------------------tin --lis --the --of --49 ----use er cla -----------------tee was mandatory und , relationship committee , only the audit commit the Bill: stakeholder In a company, till now by ed lud inc n bee e take care of s hav (to tee tee mit mit com com ory ty dat ili man sib three other corporate social respon ration committee and pectively) nomination and remune directors and CSR, res of ing -----------------hir and ary sal st, ere --------------------int --ers --old --shareh -----------------rove oversight of --------------Authority (NFRA) to imp --------------------al Finance Regulatory ion Nat a e scrutiny of lud ish inc abl l est ch wil The Bill proposes to ested with powers, whi nals services of professio ment. NFRA is to be inv of age y man lit qua ial anc the fin of t ate essmen corpor ass to and ers rds pow nda al sta ici ng quasi-jud ting and auditi entitled to exercise compliances of accoun role of The onally, NFRA will be t. iti duc Add con es. mis anc of pli e com ctice in cas associated with such professionals from pra ablishment of NFRA. levy penalties and bar unclear after the est is order investigation, AI) (IC -----ia Ind of tants oun Acc ----------------------red --rte --Cha --of -----the Institute and key --------------------ors --ect --dir --the --of ----ion --remunerat --------------------e taining details of the and other details lik file annual returns con ication of compliances tif Every company needs to cer d, ose imp t men ish pun or y alt pen , nel management person --------------n investors, etc. --------------------shares held by foreig ----------------------------of meetings of --ber --such as num -----------enhanced disclosures --------------------more information and and investments, n tee tai ran con gua ld ns wou loa ort of rs The directors rep remuneration, particula closures directors appointment, Though some of the dis the board, policy on icy and initiatives. pol CSR ut abo s ail det would find this and ers ons old cti reh nsa sha tra the ty , related par annual report, now parts of the companys are available in other ----------ce. --------------------information in one pla ----------------------------, which are --ies --pan for com --------------and only exception is --------------------end only on 31st March a different e can hav y pan can y com The any ia. of side Ind The financial year ing consolidation out a foreign entity requir holding/ subsidiary of ----al. bun Tri the --------------------approval of --------------------financial year with the the Ministry --------------------er --und --ed --ish --abl --est --ice (SFIO) --------------------ll be Fraud Investigation Off framing of charges sha been given to Serious ed with the court for fil Statutory status has O SFI of ort rep n pect of certain igatio res est in inv est The arr s. to air er Aff pow of Corporate r. SFIO shall have the expedite ed by a police office O would strengthen and treated as a report fil The recognition of SFI ud. fra for t men ish t the pun offences, which attrac -effective. --------------------cess, making it more --------------------the investigation pro and --------------------ors --ect --dir --nt --nde --epe --ind --directors, --------------------erest committed by officers, And if the public int taken if the fraud is 10 years for frauds. to Penal action would be up and ths mon is six d as fraud are ate ent tre onm s ris ion imp lat m vio imu e Som auditors. The min onment is three years. eements, ud, the minimum impris share sale/purchase agr is affected by the fra s, mis-statements in ctu spe pro in ts men applications and ate re -st sha mis le h, tip oat mul er und ing s statement aining bank credit, mak jections, etc for obt mis-statements in pro ------------. res sha ate duplic --------------------fraudulently issuing --------------------------other assets ----any --dwill or -----------ures, securities, goo --------------------stocks, shares, debent be carried ll ty, sha per pro Act any the of of t s provision Valuation in respec es required under any pany or its liabiliti or net worth of a com -----------------------d Valuer. --------------------out by only a registere for --------------------lot --bal --tal --pos --h --oug --thr now vote --------------------ers or creditors can ty of vote, sharehold To give equal opportuni -----------------------of arrangement. --------------------approval of the scheme --------------------------------------------------------------------------------------------------------------------------------------------------w?
ions Other Important Provis-------------------------
New La Why The Need For A------------------------dscape has changed
e globalized, 6, with the economy mor significantly since 195 more g tin get iety businesses and the soc The Indian business lan ernment supervision of gov er low le, gib fun capital more . rights and entitlements ence vigilant towards their restore investor confid to and sts ere int olders To take care of shareh Inclusive growth etc frauds directors, auditors, To control scams and e: Role of independent of corporate governanc ces cti pra t bes uce To introd er enforcement To fill gaps and strict
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A BLESSING IN DISGUISE
While the depreciation of the Indian rupee against the US dollar has hurt several sectors, the tourism sector is seeing increased in ows of foreign tourists into the country
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ising crude oil prices and domestic economic woes have led to the rupees decline against the dollar by 20% this year with no bottom visible yet. The rupee slumped to a lifetime closing low in the previous month, which incidentally also is the biggest single-day decline in 20 years. There is more bad news in store. Analysts predict the rupee to crash to `70 per US dollar, leading to warnings that the Indian economy could face a full-blown crisis. While the Indian currencys free fall may have spooked the markets as well as policymakers, there are a few sectors that stand to gain from the rupees appreciation. The tourism industry for instance is looking forward to a good season. With the exchange rate going in favour of foreign visitors, tourists get a higher value for the US dollar. A stronger US dollar means increase in a tourists purchasing power and this in turn will attract more tourists to India. In India, the tourist season begins from September till March, when about 60% of the total foreign tourists visit the country. India gets about 6.5 million foreign tourists every year mostly from USA, Europe, Bangkok, Vietnam, Myanmar and the Middle East. As per a report in a leading business daily, according to the Indian Association of Tour Operators (IATO), which has over 1,600 members, the weak Indian currency will provide comfort to the tourism industry, which has seen outgoing traffic hit by almost 25%.
This is a key season for us and the weak rupee will certainly provide the cushion to the industry. We are seeing foreigners extending their stay in India as they get to buy a lot more at a cheaper rate now, explained Gour Kanjilal, a former official of the tourism ministry. One tourist place, which is a favourite among foreign tourists, is Goa. With the rupee appreciating, the state has become 15% to 20% cheaper than last year. Reports in newspapers suggest that many five-star hotels in Goa are seeing a rise in bookings from abroad. The other fallout of the rupee depreciation is that Indian tourists headed abroad to Europe, North America, Dubai, Singapore and Thailand have cancelled their plans and instead are looking at holidaying within India. As per a report in a leading business daily, domestic tour operators will be affected by this. However, it will bring cheer to the stagnant hospitality sector in the country. Industry lobbying body, the Associated Chamber of Commerce and Industry of India (Assocham) says the rupees slide has contributed to a 35% surge in domestic tourism between January and June and a 15% to 20% fall in outbound tourism over the same period. Rough estimates suggest that around 15 million Indians take their vacations overseas each year. But because of the rupee slide, these 15 million will now vacation at home. This will in a way help the rupee because it means there will be less selling of rupee for foreign currency. While there has been a fall in outbound tourism, the number of foreign tourists arriving in India between January and June rose 2.6%
over the same period last year, according to figures from the Ministry of Tourism. This figure is expected to rise over the holiday season starting November this year. Popular tourist destinations such as Goa, Agra, Jaipur and Pune are expected to benefit from the increase in domestic and foreign tourists. Incidentally, these places were the only hotel markets to report growth in revenue per available room, a measure of profitability, in the year ended 31st March, a report by hotel consultant HVS says. Another sector, which is gaining from the rupees fall, is medical tourism. With the rupees steep fall, it has become more affordable for patients from abroad to undergo surgeries and other medical treatments in India. Estimates suggest that India saw an inflow of about one million foreign patients last year and according to experts this number will only go up this year, considering that it has now become cheaper to be treated in India. The momentum is already visible. In Chennai, a popular medical tourism destination of India, private hospitals have reported a 10% to 15% increase in medical tourism in the last one year. Nursing homes in Chennai have also seen a 10% to 15% rise in medical tourism in the last one year. In an interview to the website, Live Chennai, Apollo Hospitals CEO B Prem Kumar said the hospital has seen an increase in patients from the Middle East region, especially after the holy month of Ramzan. Last year, the hospital had more than 65,000 international patients from Middle East, Africa and SAARC countries. SAARC (South Asian Association for Regional
Cooperation) is a group of eight South Asian nations, including India and Pakistan. The geographical split of foreign patients, who come to Apollo for treatment, is something like this: the SAARC region accounts for 36%, Africa 26%, West Asia 26%, the US 3% and Europe 3%. Foreign patients usually come to hospitals in India for treatments such as cardiac surgery, neurosurgery, spine and joint surgery, oncology as well as organ transplant. Other hospitals in the country have seen an increase in foreign patients as well. One of Indias leading hospital chains, Fortis International has seen a 20% to 25% increase in the number of its foreign patients business every year over the last two years. This year, Fortis International expects a 28% growth while experts say growth, this year could even be as much as 30%, if the rupee doesnt recover its lost ground. The global medical tourism market is worth $100 billion, of which India has a 3% market share. India is also the fastest growing medical tourism market in the world, which at present is dominated by the United States.
The current state of the rupee has only helped the cause of medical tourism. India competes with countries such as Singapore, South Korea, Thailand and the Philippines for the medical tourism pie. And this year, the rupee has depreciated the most against the dollar, making Indian healthcare more affordable than competing countries. Sample this: the rupee has depreciated almost 20% against the dollar, Korean won has depreciated 4%, the Philippine peso 6.40% and Thai Baht less than 3%. The biggest factor in Indias favour is the low cost of healthcare here, which is one-fourth to one-tenth of that in advanced countries. A 2011 KPMG report talks about Indias cost advantage compared to other countries. A coronary artery bypass surgery costs $70,000 to $1,33,000 in the US, $31,750 in South Korea, $22,000 in Thailand and just $7,000 in India. And, while the cost of knee replacement in the US is $30,000 to $53,000, $11,800 in South Korea, $11,500 in Thailand, it is only $9,200 in India. The low cost is, however, not the only reason which attracts foreign patients.
The country also offers high quality medical care, as many Indian hospitals have world-class facilities and are accredited by the internationally-recognized Joint Commission International. Recent trends in the industry suggest that a lot of people from the US are coming to India for treatment because of the low costs involved and also because of the familiarity factor of Indian doctors, many of whom are trained in the US. Another reason for the increase in foreign patients from the US is the US Affordable Care Act, popularly known as Obamacare, after which US insurance companies started encouraging medical tourism to save on insurance money. Till about two years back, only 85,000 patients went out of the US for medical treatment, and a very small percentage of this came to India. Experts, however, expect this figure to go up to 2 million in the coming years and the country has already started seeing many medical tourists coming from the US. The rupees fall is, therefore, not bad news for the entire Indian economy. While the fall has had a negative impact on many sectors, for some industries such as tourism, it has come as a saviouR.
Boomlet Boomlet is a small but sharp increase in business activity, political activity or birth rates in a particular region over a given period of time. While a boom is considered a period of vigorous growth and prosperity, a boomlet is regarded as a mini-boom. A boomlet has the same business, political or growth rate activity as a regular boom, but to a lesser degree. A boomlet may be a smaller or less enduring trend as against a traditional boom. A boomlet is a small boom. In the stock market, a boomlet is associated with a temporary but sustained increase in prices, or a period of buying and rising prices (as opposed to a bust, or a bear market with falling prices).
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ebt is like a double-edged sword. It works wonderfully in good times. But in poor economic conditions, the same can cause huge damage. Indian companies experienced the advantages of debt financing in the year 2007 and 2008. With the help of debt they were able to create extraordinary returns for
their shareholders, leading to large market capitalization. However, today most of them are in the news for different reasons. In fact high debt in the books of many of these companies has caused a huge correction in the market capitalization of these companies and many of them are on the verge of bankruptcy. We are already reading cases of several companies opting for the corporate
debt restructuring route to deal with the situation. Add to this, the economic and interest rate environment has forced even larger groups or viable businesses to ask banks to restructure their loans. However, due to the long period of the slowdown and policy hiccups in the country, the problems have compounded to such an extent that
Before investing in a company that has opted for corporate debt restructuring, investors need to ascertain if it is really worth the investment
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with the passage of time these same companies are turning into a growing threat to the entire banking system of the country. Investors are shying away from banking stocks, particularly PSU banks, because of their growing fear about non-performing assets. In a downturn when an economy is not doing well, equity investors who have invested in highly leveraged companies suffer the most. There is very less that can be offered to investors as a large part of earnings of these companies is employed in servicing the debt as well as paying interest costs. In fact, the situation is so grim that equity investors start losing their capital. This is possible in cases of companies where their net worth has eroded because of high losses arising out of high interest costs. TAKING THE RIGHT STEP Thankfully, the situation is reversing and companies are no longer living in the hope of early recovery in the business cycle and improvement in interest rates, as a growing number of companies are now taking efforts to clean their balance sheets. Today, most of these companies are in the news for wanting to sell their core and non-core assets to monetize and retire debt on a priority basis. Desperation is reaching its peak and today many companies are considering of selling their assets, raising cash, financing the existing debt with cheaper ones, raising equity with the help of fresh issuances of shares, speeding up the recovery of receivables, managing working capital cycle efficiently, conserving cash, postponing capex plans and cutting on employee costs, among
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other possible measures to retire debt. Though the risk is still not eliminated, if companies can successfully restructure debt and turnaround the business, it could be the greatest investment in terms of returns. In the process of debt unloading or deleveraging there could be huge wealth creation because most of these companies are currently quoting at depressed valuations. Improvement in earnings along with valuations re-rating could have a huge impact on the share prices of these companies. GAINING TURNAROUNDS FROM
The investor also needs to assess the present situation of the company in which it is operating. Here the individual must seek answers about the current financial and liquidity position of the company who must also take stock of the present situation in terms of assets and cash flows of the business. The present position of the liabilities and profile of liquid assets as well as non-core assets will be worth keeping in mind. Once the past and the present are known and assessed properly, the last thing to do is to make a note of the future course of action. Here, investors need to make certain estimates of cash flows, profitability as well as obligations. Based on the present and the past about the company, the investor needs to predict the future and see what it will look like and make a fair judgement of the future and the possible outcome. THE DYNAMICS VALUATIONS OF
Though the potential for returns is high, investing by looking for companies which can turnaround their debt would be risky. It will require a lot of assumptions to be made and the environment in which the company is operating has to be conducive as well. Before buying such turnaround cases, investors need to look at qualitative aspects of business and the industry. Even the best debt restructuring plan could be of no use if the business and the industry in which the company is operating are not sound. Quality of the business and nature of the industry is very important to be understood before making any successful investments. The foremost question that needs to be asked is what went wrong in the past? Why has the company landed in the current situation? Will these difficulties or problems repeat again? If a person knows the origin of the problem, it will be easy for him/her to use precautions and prepare for any adversity that could arise anytime in the future.
Earnings-based valuations are often not able to capture the true value of companies with debt. Companies which have debt tend to trade at lower valuations in terms of price to earnings ratio. A large part of the value is captured by debt in the books. For instance, if a business is worth `100 crore and 80% of which is financed by debt, then the market capitalization of that company should ideally reflect the value of the equity, which is `20 crore in this case. Even at twice its book value (equity or net worth), the business will be able to attract a market capitalization of `40 crore. So, despite the large balance sheet, the market capitalization is less
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because a large part of the value is accounted for debt in the books. Now, if same business generates a 10% return on equity, the annual profit will come to around `2 crore. This means that the company with a market capitalization of `40 crore is currently trading at 20 times its earnings value. However, if the company can retire `20 crore of its debt, it will straight away save `2.4 crore in terms of interest, assuming a 12% rate of interest on the existing debt of the company. Even if one assumes a 30% rate of tax, the `20 crore debt reduction can help its earnings to almost double to around `4 crore. If we apply the same price to earnings ratio, the resultant market capitalization will work out to be `80 crore. Also, if the company retires its debt, it will lead to higher return on equity and thus help the company to get better valuation in the market. This could be huge value creation for existing shareholders. But the real question that begs to be asked is: how is the company going to reduce its debt? This benefit will only be available if the company does this through the internal accruals because in that case additional costs will not be incurred. On the contrary, if the company raises fresh funds to retire the existing debt the benefits will accrue to the extent of arbitrage in rate of interest. If the debt is retired through the issue of fresh equity, investors need to understand the implications of the fresh issue on earnings. Because of the fresh issue of shares, the number of outstanding shares will increase and earnings will get diluted or earnings per share will be lower than what the company would have reported on a normal basis.
In this case the investor needs to compare the impact of dilution with the saving accruing because of debt reduction. If the benefits of debt reductions are higher than the cost of raising fresh equity or dilutions in equity, investors will stand to gain. This could be possible if the company issues shares at higher prices, in which case the number of shares to be issued will be lower. Many companies are looking to raise funds by way of rights issues, private placement, etc. However, there could be even more compelling cases. Many high debt companies from the power, construction and other sectors are desperately looking at asset sales so that they can retire debt. If the assets are non-core or the assets are not contributing anything to the revenues and profitability of the company, this route could be much better in terms of creating value for the existing shareholders. There are companies looking to sell their loss-making assets, which is even more beneficial as this will not only retire debt but also take away the losses it makes for the organization and thus impact the overall profit and valuation of the company. In case the company is selling productive assets or assets which contribute to profits and financials of the company, then investors need to calculate and compare the benefits. If the sale of such assets can fetch say `20 crore but it also reduces the profitability of the company say by `3 crore to `4 crore, then the reduction in debt may not be that much beneficial. DEBT RESTRUCTURING Apart from the companies which have
the option of raising funds and selling assets, companies are also looking at restructuring their existing debts. We regularly hear and read in the media reports of many companies going in for corporate debt restructuring (CDR) so that they can restructure their existing debts. Today, in a number of cases, the biggest fear is that once if the company is liquidated, its creditors and bankers will get the least that is owed to them because of the dip in asset values of these companies. Therefore, the focus has shifted to revival, which will protect the interests of both investors and lenders to the company. This is precisely the reason why in many cases it is not only in the interest of promoters but also in the interest of the banks to not call these accounts as non performing assets and thus scare their investors. In most cases the promoters look to extend the payment cycle, lower annual payments and reduce the existing interest costs. Also, some companies consider the option of converting some of the debt in equity, as it effectively saves on the interest cost. These measures could address the liquidity issue in the short term. And if the maturities of the debt are increased or more grace period is offered by bankers, then in that period the company can remain profitable, thus protecting itself from the erosion of its market capitalization. Investors need to go through details of such proposals announced by the company in the name of debt restructuring. Each option should be analyzed in detail according to the cost and benefit. During the downturn in the markets,
extending the maturity period or grace period can help companies immensely in terms of shifting immediate liabilities in the future. Under this, the company can manage short-term liquidity issues and focus on the business and its own requirements for the business and thus return to growth. Capitalization of interest cost in the meantime could help them to report profits and thus protect the net worth of the company.
If bankers and promoters are bringing fresh funds, the nature of such funds, terms of these funds should be analyzed properly to understand the outcome of this move. If the promoters are willing to put more money, it shows their confidence. Investors should also keep a close eye on other cost reduction initiatives that come along with the debt reduction exercise undertaken by a company. Many companies in the recent past have announced plans to slash their
employee count significantly. This could have a huge impact on earnings if employee cost as a percentage of sales and operating profit is high. Selling stake in subsidiaries, postponing near term capex, shifting offices as well as manufacturing facilities to low-cost areas, outsourcing work and rationalizing presence in the domestic and international markets in terms of capital allocation are few other measures that companies are adopting and must be looked at by investorS.
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the end justifies the means

The recent proposal to increase ling fees for pharmaceutical patents will be justi ed if it is used to overhaul the old and sloppy system prevalent at present
ith the aim to bring better transparency in the Indian pharmaceutical patent system, the Department of Industrial Policy and Promotion (DIPP) recently released a gazette draft notification on 12th June. The government of India announced a proposal to increase the filing fees for pharmaceutical patents. According to the draft order, companies need to pay double the amount in comparison with the previous fee structure.
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The proposed fee structure under draft Patent (Amendment) Rules, 2013 ideates increase in the current fee structure by almost 100%. It has also proposed a levy of 10% surcharge on physical filings with the patent office. However, in developed countries patent fees are much higher, almost five times higher than the existing Indian patent fee format. In response to the proposed increase in fee structure, a government official reasoned that the proposed increased fee is still less than the fee in
developed countries where it is almost five times more. India is now becoming an international search and patent examination authority. There is a considerable backlog of patent applications in India. The patent office needs to be substantially equipped with higher quality and larger quantity of technically qualified manpower. According to the released draft of the amended rules, there will be a 10%
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additional surcharge on documents filed in the physical format. This is the first time in the history of filing of Indian pharma patents that such a surcharge will be levied, indicating that authorities are trying to encourage applicants to use the e-filing mode. An eminent pharma lawyer feels that it is justified in the present situation. Today the e-filing system is mainly restricted to limited banks. It may be due to a slow server. The system is clumsy too. And to overcome this, the number of banks supporting e-filing and the payment options must be broadened and the system overhauled. If the system is upgraded and implemented in the right spirit, it will not only act as a catalyst to increase efficiency through digitization but will also help increase the transparency, according to an industry expert. The website of Patent Office became operational on 26th Jan 05 and the teething problems have continued too late past-infancy. Most information is unavailable, unreliable, outdated or simply missing from the website. The down time of the website is too frequent and often long. The 18-month publication and even the fee paid early publications are often (many examples of even delay in 2 to 3 years is available for the 18-month publication) delayed. These and other delays and deficiencies need to be rectified. If the proposed fee increase is used to address these perennial problems, which cause extreme inconvenience and loss to the users, the fee increase is well-justified. Today at the Indian patent office the issue of pendency is very high and the impact of the direct levy should be such that it should reduce pendency.
According to a pharma industry expert, the original fee structure was itself on the lower side since 2005 and one only hopes that if there is any proposal to levy higher fee it should correspond with an increase in the current level of service provided. In the present scenario, India is considered to be the leader and outsourcing provider for IT and e-jobs across the world. However, India has remained poor domestically in e-practices. It is high time that Indian applicants and the Indian Patent Office is e-enabled. The Indian Intellectual Property (IP) system has to be e-practiced and e-transparencied in all respects by e-enabling all stakeholders, practitioners and the PTO. Increasing the official fee for various office actions is absolutely justified. India provides a two-tire fee structure, with a 1:4 ratio between natural persons (individuals or group of individuals) vis--vis other than natural persons (corporates, institutes, etc) for patent application fees and all other fees. In the context of the additional surcharge on physical filings, although the move is in the right direction, it should be implemented to its fullest extent so that the system is made applicant friendly and that it encourages e-filing. This increase in fee should not hamper the growth of Indian companies considering the number of players that are involved and the increased amount involved. The increase in the patent fee is very much needed to improve the infrastructure of the Indian patent offices and increasing the number of examiners, which in turn, will help quick scrutiny of patents saving
valuable time, which was not the case earlier as applicants had to wait for years. They were also asked questions that were not relevant to them. The effects of the proposed draft patent fees will be visible in a short while post the implementation. Indian pharma companies like Venus Remedies, Suven Lifesciences and many more have received a number of pharma patents from various countries and many more are still in the pipeline. These pharmaceautical companies say that if the increased patent fee is justified then they would not really mind paying extra. The industry would be willing to bear the additional burden provided it results in modernization of the system and proper utilization of funds so as to reduce the turnaround time for each application. Every applicant today yearns to have his/her respective applications processed faster. India should be fair and reasonable in its IP policy of private-public parity, equity and balance of rights and obligations. The fee increase is a routine exercise. This will not in any way hamper the growth of pharmaceutical companies. Patent fee increase is the least of worries for the Indian pharma sector. The growth of Indian pharma companies will be positively affected by the proactively negative policies of the government, which is forcing most pharma-industry leaders to sell out and get out of this pharma mess. Indian pharma firms would not mind paying extra as long as the Indian patent office gives them better facilities and utilizes the money thus earned in a proper manner, especially in upgrading the infrastructure and making the procedure more compatible as well as approachablE.
TAKING A HIT
Falling volumes have affected the cement sector badly and its woes seem to be compounded by the fact that the upcoming elections have not yet brought any cheer to the industry
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he cement sector plays a critical role in the economic growth of a country. Cement is vital to the construction sector and all infrastructure projects. The construction sector alone constitutes 7% of the countrys gross domestic product (GDP). And the industry occupies an important place in the Indian economy because of its strong linkages to other sectors such as construction, transportation, coal and power. However, since it is used as a raw material in other industries there is little awareness as to the dynamics that drive the cement industry apart from core construction activities in various sectors it is sourced as a raw material. This time we provide you a sneak peek into the very making of cement and how the cement industry in the country is estimated to grow in the coming quarters. RAW MATERIALS Few raw materials are required to produce cement. According to the web site understanding-cement.com, raw materials such as limestone, clay, marl or shale (supplies the bulk of the silica, alumina and ferric oxide) and other supplementary materials such as sand, pulverised fuel ash (PFA) or ironstone to achieve the desired bulk composition, are needed to manufacture cement. These raw materials are extracted from a quarry - a large deep pit, and then crushed to a necessary degree to make it softer and fine enough to blend with other materials. The materials are then blended so that clinker (the stony residue from burnt coal or from a furnace) of required composition is made. Then heating and cooling of clinker and various
other procedures produces cement. Apart from these, another important raw material for cement production is coal. Coal is required for heating purposes and to produce a desired composition clinker. Though the National Council for Cement and Building Materials and Cement Manufacturers Association has proposed petroleum coke (petcoke) as a cheaper alternative to coal in recent times, not all cement companies have shifted to petcoke in place of coal. Petcoke is a by-product extracted from refining of heavy crude oil. It can help in producing higher grade cement with the same raw material or same grade of cement using marginal and low-grade limestone. Due to higher calorific value compared to coal, less quantity of petcoke is needed to be moved from source to plant site, which reduces the cost of transport. MARKET SIZE The cement industry in India is expected to add 30-40 million tonnes per annum (MTPA) of capacity in 2013. The industry has a current capacity of 324 MTPA and operates at 75% to 80% utilization. A recent report by research firm RNCOS predicts that Indias cement industry players will continue to increase their annual cement output in the coming years and the countrys cement production will grow at a compound annual growth rate (CAGR) of around 12% during 2011-12 and 2013-14 to reach 303 million metric tonne (MMT). Concerning various regions, Indias cement industry is diverse as a country. The southern region is
growing (the demand for cement production) at below all-India level in the past three years. After contracting 1% to 2% in FY11-12, the demand had marginally recovered to 5.6% growth in FY13, on par with the all-India level. Growth in the eastern region also recovered slightly, from 6% in FY12 to 6.6% in FY13. However, the north and west grew at a healthy rate of 10% and 13%, respectively in FY12, before slowing to 5% in FY13. Growth in the central region also fell to an estimated 5.6% in FY13. India is the second largest producer of quality cement in the world. The cement industry in India comprises of 183 large cement plants and over 365 mini cement plants. Currently, there are 40 players in the industry across the country. Overall, India would require a cement capacity of around 480 MT. The industry will have to add another 150 MT of capacity during the period, according to the latest report from the working group on the industry for the 12th Five Year Plan (2012-17). CAPACITY In the last five to six years, cement capacity addition has shown handsome growth. It has jumped twice. According to various estimates, the pace of capacity additions in FY07-13 had been at a 14.2% CAGR as against 6.1% for FY98-07. Cement capacity had leapt by 120% from 166 MT in FY07 to 368 MT in FY13. This, however, was always above the required demand in the industry leading to a situation of overcapacity in the industry. As a result, utilization had declined to an all-time low of 71% in FY13. At
the current profitability of `914/t and utilization of around 71%, analysts estimate that returns in the industry are below the cost of capital. Therefore, capacity additions could slow down materially over the next three years with only 56 MT of incremental capacity expected to lift utilization gradually to 76% by FY16. Industry analysts estimate that this should give pricing power back to cement manufacturers in the next few years as construction activities are gaining momentum. Going Ahead The demand in the cement industry is expected to improve only in the second half of the current fiscal. This year, due to bountiful monsoon, the second half would address the concerns related to availability of water unlike last year when it was a drought-like situation in Maharashtra and Gujarat. Maharashtra is the largest cement-consuming region in India.
Hence, volumes growth would pick up in the second half of the fiscal. However, scarcity of funds with real estate and infrastructure companies signal a weakness in demand for cement companies. Hence, companies, with a lighter balance sheet and cash on books can weather any further slowdown in the economy. Companies such as ACC and Ambuja Cements, which have around `2,500 crore cash each on their books and Ultratech Cements, which has diverse presence are few companies, that are better-off than most of their peers in the industry. Cement prices recovered in May after a fall in prices in two consecutive months. According to various estimates, broadly, cement prices increased by `15/kg in May. Cement companies, however, could not cash in on this increase given the rise in diesel prices, which pushed freight costs. It is estimated that 70% to 75% of cement is transported through trucks or sea, where diesel is
used as fuel. Average diesel prices in June this year in comparison with the corresponding period last year have increased by 25% to `54 per litre. This has impacted sales of cement companies in the June 13 quarter. The recent June 13 quarter financial performance of most cement companies was dismal. Early monsoon, high diesel and freight prices and low construction activities have impacted the financial performance of cement companies in the June 13 quarter. Consequently, cement companies across regions recorded a 8% to 9% decline in their net sales, around 28% to 30% in their operating profits and net profits in the range of 30% to 35%. According to various estimates, the demand growth in the cement industry is expected to be around 8.5% for FY14 on the back of spending before general as well as state electionS.
Baptism By Fire It is a phrase originating from Europe that describes an employee that is learning something the hard way, like being immersed in their field of employment. Baptism by fire has its roots in battle terminology, describing a soldiers first time in battle. Baptism by fire is used when the best way for someone to be trained is for that person to experience actual situations rather than to just study those situations. Jobs that require baptism by fire may include police officers, firemen, military personnel, etc. Baptism Of Fire A difficult situation that a company or individual experiences that will result in either success or failure. Examples include Initial Public Offerings (IPOs), a new CEO hired to manage a struggling company, and hostile takeover attempts. A baptism of fire will either weaken or strengthen the entity involved.
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Apparel retailers have managed to post good profits despite shrinking consumption across sectors through discounts, sales and other innovative marketing techniques
hile sales across sectors declined significantly in April-June 13 on the back of negative economic sentiments, dampening the spirit of consumers who are refraining from making big purchases like homes and
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cars, apparel retailers have managed to post healthy quarterly sales and margins in April-June 13 as consumers continued to spend on small purchases like apparels. Consumption has been shrinking in almost all sectors. But retailers have
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managed to maintain profits. This has been possible mainly due to discounts and benefits of 10% excise duty exemption being passed on to consumers in the country. Also, innovation in marketing has helped companies to report healthy
profits in the quarter. Retailers said companies have seen a healthy growth in sales in the first quarter of 2013 as consumers postponed their big purchases and had enough cash to splurge on apparels. Some neither made promotional offers nor reduced prices, but all of them saw growth in sales. Govind Shrikhande, managing director, Shoppers Stop believes that at a time when big-time items like cars and air ticket sales are shrinking due to negative sentiments in the market, people are splurging on small-ticket items like apparels. Overall, the apparel industry has seen a slowdown in the past several quarters. But in the June quarter, retailers witnessed a 35% overall growth and 18% like-to-like (same store sales, which is operational for more than one year) growth. The margins of these companies have also increased in the quarter. Shoppers Stop too has posted a like-to-like growth of around 12% and the margins are up by 70 basis points. On an annual basis, the company has witnessed a margin growth of 30 to 40 basis points and the margin growth of 70 basis points, which is the highest in recent times. For Shoppers Stop, the apparels segment saw a like-to-like growth of 17% to 18%, which helped push margins up. Similarly, Provogue India Ltds net sales grew by around 7% from a year ago to `106.53 crore in April-June 13. The like-to-like sales growth is up by around 25% and margins have moved up by 2% to 3% of Promart Retail. The premium mens wear brand of Madura Garments, Max Retail passed on the excise duty exemption benefit
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to customers in the last quarter and it also ran a three-week-long after-summer sales offer, which helped the company to boost its sales. Louis Philippe, which too is not much into promotional offers, saw a like-to-like growth of 10% to 12% said a senior official of Louis Philippe. Aditya Birla-owned Pantaloon Fashion & Retail also witnessed healthy sales in the quarter. Marketing innovation too helped apparel companies to boost sales. Innovation in marketing includes extending brands, giving combo offers to boost sales, focusing on exact target audience, reducing the size of the product rather than increasing prices and offering small-size packs at lower prices, among others. Apart from these, offering discounts work all the time to boost sales. Most retailers were offering discounts and some are still continuing with it to lure customers as well as to increase their sales. Westside had up to 60% off till last month, while Globus and Pantaloons were offering a 50% discount. Shoppers Stop too offered sale. However, industry experts cautioned that discounts if continued for too long can have a negative impact on the margins of these companies. It should be spread out in such a manner that it actually benefits the company to clear its stock and get a faster revenue turnover. Discounts have been an evergreen solution for marketers hoping to make some profit during a crisis. India being a value-driven nation, the customer focuses on finding value in the purchase he makes. Discounts are one of the many options available to retailers in India.
Apart from that, it is very important for retailers to market their brand where they find the biggest target group of customers. For some brands targeted at mass audience, retailers should focus on expanding in airports and metro stations. Right display of products is also very essential to attract customers, said a retail consultant. Sometimes discounting is not very exciting as it can impact profitability of retailers. Moreover, consumers may just get used to discounts and wait to shop only when discounts are offered by the particular brand, the consultant said adding that retailers should focus on other options of marketing to attract consumers. While most retailers are continuing with discounts, they are not too bullish on companies reporting healthy sales during the festive season. Retailers have managed to post healthy sales in the first quarter. But their festive spirit has been dampened by the depreciating rupee and uncertain economic conditions, going forward. The retailers were also hit by a weak rupee as the Indian currency plummeted 17% and closed at 65.70 against the dollar on Friday, 30th August, said an industry expert. The continous depreciation of the rupee is escalating manufacturing costs of retailers too. Further rupee depreciation would result in increase of input costs of retailers. Organized retailers are not too bullish about the near future as Indian consumers are staying away from splurging even on small size purchases since the last couple of months, experts said. The uncertainty of economic
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conditions is growing with every passing day and organized retailers are actually bracing for a muted pre-festive shopping season as more and more consumers are tightening their purse strings. Consumers are seeking more value for their festive shopping but this would only impact the margins of retail companies. Typically, festive season (from October to January) contributes to around 50% of the total revenue for retail companies. Most retailers have been battling soaring realty costs, delays in new mall openings, high inventory and increasing operating expenses in recent months. Industry majors say footfalls across retail stores are reducing with increased uncertainty in economic conditions and sales have also muted in the last couple of months. Companies are, therefore, focusing on offering continued discounts to lure maximum customers. However, even after extending the sale season, sales for the period on the whole have not increased as customers have merely shifted purchases to the period when discounts happened. This time around it largely led to a change from purchases at full prices to purchases at discounted prices. As a result, net sales failed to increase. Market remains challenging. It will continue to be a roller-coaster ride for a year. Sale on discount is becoming too frequent, which is not good. We are trying to attract customers with fresh merchandise, good service and gift vouchers, said Shrikhande of Shoppers Stop. Consumers are definitely splurging less on fridges and television sets. They are also down-trading in soaps
and shampoos. The situation could improve after Diwali. The depreciation of the Indian currency has increased the cost of products by around `1,000 and there has been a substantial drop in demand in August, experts said. According to industry analysts, the organized retail sector in the country maybe witnessing a roller-coaster ride since the last couple of years but in the long-term, the retail sector has a huge potential. The Indian retail market is the largest and the fastest growing market in the world. With a population of over 1.2 billion and household size between four and five on an average, it is not difficult to see the potential attractiveness the market offers. Modern retail increased its share by 7.8% in the total retail market in 2012, which is estimated at `2,23,572 crore. The retail market is further expected to expand by an impressive 29.7% CAGR to reach `4,87,423 crore in 2015, according to India Retail Report - 2013. The clothing and apparel segment in the year 2012 accounted for a lions share of modern retail in India at 33%. Food and grocery accounted for 11% share each. Consumer electronics, food services and jewellery are among other significant categories in modern retail. The size of the Indian apparel garment market is nearly `2,45,000 crore, out of which the organized sectors size is `45,000 crore to `50,000 crore. Out of total apparel garment in the organized sector, the branded apparel market is estimated at `20,000 crore and is expected to grow at 15% per annum to touch `30,000 crore in the next three years, analysts saiD.
All Is Not Lost

Despite the weakness in the rupee, investors can still invest in products that can withstand heat from the falling currency and hedge their portfolios
he free fall of the Indian rupee has been making headlines since the past few months and the unprecedented decline of its value
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against the US dollar has made everyone from serious economists to stand up comics talk about it in everyday parlance. While the rupee has had policymakers worried, you
may have wondered how it impacts your life apart from the fact that it will increase the worries of those who are planning to travel overseas for recreation or educational purposes.
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As you may have realized by now that the markets are heavily impacted by a falling currency, needless to say it will impact your investments too. If you are drawing solace from the fact that the rupee is showing signs of recovery now (it has indeed pulled back from its lifetime low of 68.8 to a slightly more tolerable level), it may be much too early if currency market experts are to be believed. If you havent thought of hedging your portfolio against the currency, which promises to be volatile in the days to come, now is the time to do so. Let us take you through few ways and means to help you protect your portfolio against the rupee. CAREFUL STOCK PICKING If you are contemplating about which stocks to add to your portfolio, you need to consider the ones that have a sizeable revenue stream in foreign currencies such as the dollar and the Great Britain pound. These stocks are the ones that belong to companies in the field of pharmaceutical and information technology. A careful analysis of companies in these sectors will show you that these companies run a lot of international projects that earn in foreign currency, thus it is a good idea to have them in your portfolio. Another sector to look into is the FMCG sector, which in any economic cycle does not see much of a downturn as products from this sector are non-discretionary in nature. However, it must be added here that the stock picking must be based on careful analysis of companies and one must choose based on fundamental analysis, ratios of profitability and examine them in the background of macro economic conditions. It is always wise to choose companies that have been through a few market
cycles and have been around for the past decade at least. If you do not have the time or expertise to carry out such detailed research, it is best to opt for mutual funds. Any mutual fund analysis site will throw up a number of options when you search for schemes that specialize in defensives and will even give you a detailed analysis of these schemes in comparison with their peers. You can then make a prudent choice. TIME TO THINK GLOBAL When you are trying to protect your investments against the rupees fall you need to diversify your portfolio and get assets that are denominated in other currencies apart from the rupee. The best way to do so is through international funds. A careful combing of the aforementioned mutual fund analysis websites will reveal to you that there are many feeder funds and other index-based international funds. Its a good idea to consider some of these funds now and to make an investment decision based on the basis of the outlook on the country. Once again you should choose your investment vehicle with enough research about its performance, etc. Do not just go by word of mouth recommendation. There is always merit in doing some research yourself about the countrys currency conditions before taking the leap. At this point in time as much as 10% of your portfolio can be skewed towards overseas assets. The more diversified you are, the lesser are your currency risks. BOND AHOY The other way to protect yourself against the falling rupee is by
investing in dollar denominated bonds. Although these are usually used by non resident Indians (NRIs) and high networth individuals (HNIs), you can make an investment in the same without much trouble. Making an investment in such dollar denominated bonds can help a portfolio immensely in such times. If in spite of your best efforts you have lost money and are in a state of depression, we suggest you bounce back. Maybe you cannot take the fancy vacation abroad this year or may have to postpone your higher education plans by a little, there is no reason to believe that the rupee will only have a free fall here on. In fact as has been pointed out earlier by us, the rupee is gradually recovering from its record lows thanks to the new RBI Governor Raghuram Rajan who seems to be more surefooted in his policy-making initiatives than any of his predecessors. But that having been said, one must neither be too hopeful nor too panicky. One of the cardinal mistakes made by most people when faced with a volatile currency is exiting global funds and running towards the yellow metal, which is considered to be a safe haven. Gold prices too will move in tandem with global market sentiments and as mentioned earlier it is a good idea to diversify among other geographies. If the current situation has scared you and you have started piling cash in order to invest in better times, you are making yet another mistake. Sure things are not rosy, but it is better to put your investments at work by opting for fixed income products. These are some of the suggestions that can help you protect your portfolio to a large extent and earn enough from your investments even in times of troublE.
The coveted `100 crore mark, a norm in the Indian film industry, is in part a result of corporatization and accountability, coupled with acute business acumen
ilms occupy epic proportions for Indians. Besides music and cricket, the familiarity and acceptance of films among Indians is
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rich and astonishingly high. In a country where social statuses differ to such a varying degree one feels that the country produces films for almost all classes.
But today films are no longer films. Gone are the days when films used to be mere gala affairs. Today, films are a product of application of acute business acumen and the fun just does
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not end in the story, performance or songs. It ends with a whopping collection at the box office. It is the coveted `100 Crore Club. This juggernaut has swept the film industry and many an entertainment company is making a packet by following certain tried and tested formulas to the hilt. So, how does a `100 crore film work? This time we deconstruct this truth, which is gaining currency but was once regarded a myth. THE BEGINNINGS With the advent of corporatization of the Hindi film industry, there is a fresh wave of accountability in the very process of making, releasing, marketing and distributing films. Today, companies like Eros International Media, UTV Disney, Viacom 18, Balaji Telefilms, Reliance Big Pictures and Fox Star Studios are few of the prominent film corporations, which have brought professionalism to Hindi films. This is a complete departure from the era when Hindi films were produced by rich merchants and businessmen mostly from Punjab, Gujarat, Kolkata, and very infrequently from the rest of Indian territories. So, this transition from individuals to corporations has brought about seminal structural changes in the business of filmmaking. Today, costs are not overblown. Actors and actresses are willing to participate in the profits of a film instead of opting for an upfront fee before the release of the film. The situation is such that every penny spent is accounted for and is not allotted unless it has some meaningful contribution to the making of the film.
Take for instance, the concept of script doctors. Studios, which have spent large amount of time in the western markets and have learnt the ropes of business the hard way, many a time, send their Hindi film scripts to their writers team in the US to ascertain the viability of logic and the narrative of the plot. Apart from this, these studios also put in accountants to monitor daily expenditures. They also monitor weekly allocation of funds to their films. If a films weekly fund requirement goes beyond the stipulated budget, these studios demand a cost analysis of the week. Unless these studios get the cost analysis, they do not release funds for the coming week. These studios also have their men who give them daily updates of the shooting of the film. According to various industry reports, it is believed that UTV has a process in place whereby it monitors even the time of the shot and call time of the cast of a film. Eros International Media, another emerging entertainment behemoth, believes in a three-way approach wherein there is consistent interaction between its cost accountant, the executive producer who is present on the set of the movie, and the assistant to the director. No wonder, today, it is not an aberration for film making and quite infrequently but conspicuously crossing the `100 crore box office collection in the last five years. But what are the factors that are pushing the traditional mould of making and producing films? What exactly pushed the envelope? More importantly how are these entertainment companies making the coveted `100 crore almost a frequent
affair in a year? THE OVERHAULING Today, a film making `100 crore even after deducting the entertainment tax, which is as hefty as 50% of its gross collections, is not an aberration. What is an aberration is the frequency with which films are making `100 crore at the box office. On an average it is estimated, an A-list actor has given 4-5 films, which have garnered `100 crore in recent times. This is quite startling considering how equations and perceptions have changed in the industry regarding the star power of an actor. One of the chief reasons for this is the steep increase in the average ticket price of exhibition companies and also single theatre owners. It is estimated that almost all multiplex companies raise their average ticket price by `10 every six months. It is not an aberration to have considerable difference in ticket prices on weekends and weekdays. On most occasions a difference of 100% in the weekday ticket price of a multiplex has been observed. This holds true for films whose content and performances can also be mediocre but music catchy and foot-tapping. Another factor that has helped in creating `100 crore juggernauts is the sheer growth in the number of screens and multiplexes in the last few years. Today, exhibition companies like PVR, Inox Leisure and Big Cinemas have expanded their presence even in tier-II and tier-III cities, which were unexposed to new films and whose patrons had no choice but watch re-runs of old duds in a dusty and
inadequately ventilated single screen theatres in the past. Besides, there is consolidation in the industry also, which has helped these companies to expand swiftly and deeply. In recent times, Inox Leisure acquired Fame India, which has enhanced its screen capacity to 287 in 39 cities from a screen capacity of less than 150. Very recently, PVR also acquired Cinemax India, which also enhanced its screen capacity to 383 screens in 38 cities from 213 screens. Interestingly, these screens are allotted to films depending upon the budget of a film. It has been estimated that in 2010 a big budget film would have secured 1,200 screens domestically and 250 screens internationally, which increased to 3,000 screens domestically and 500 screens internationally in the year 2011. On the other hand for a medium budget film, domestically screen space increased to over 1,000 in 2011 from 600 in 2010, while internationally it remained same at
120. This expansion, coupled with star power, has helped significantly in increasing collections of films at the box office. OTHER SOURCES Add to this, the huge penetration and use of digital prints of films instead of analogue prints. It is estimated that at present digital prints account for 80% of all Hindi film releases. Many sector analysts point out that this trend has helped reduce costs to a reasonably good extent. It is observed that digital prints provide producers the choice to increase or decrease screens according to their availability in real time. This overhauling does not end merely on the content and the film itself. Today, studios as well as well-travelled producers are also concentrating strongly on the marketing of their films. Take for instance, the film Dev D. The marketing team of UTV Spotboy sat together and focused on certain key elements. And they added a slick element of exotic cinematography.
Such kind of publicity and aggressive marketing has become the leitmotif in Hindi films. This takes serious inspiration from their western counterparts where films are treated as a message in a product, which needs to be communicated efficiently and effectively. Besides, there are new avenues of making revenues, which add cumulatively to the `100 crore juggernaut. It is estimated that today a film can recover 40% to 60% of its costs by pre-selling licensing rights music, theatrical as well as satellite. This is a judicious use of the intellectual property rights associated with the films. Interestingly, many experts believe that this is just a beginning for individual producers and studios. They believe that all-Indias average ticket price is still just 1/7th and 1/5th of the average ticket prices in the US and China. Therefore, as entertainment occupies a significant role in our lives and also as our incomes increase, the `100 crore club would no longer be the coveted forcE.
Raider An individual or organization that tries to take over a company by initiating a hostile takeover bid is known as a raider. Raiders look for companies with undervalued assets and then attempt a hostile takeover by purchasing enough shares to gain a controlling interest. The raiders objective is usually to generate huge profits in a reasonably short span of time, by breaking up the target company and selling off its assets, rather than attempting to turn its operations around and unlocking value over the long haul. Modern-day raiders prefer to go by activist shareholders. Raiders need to have deep pockets and plenty of financial support in order to embark upon their raids. They must also have a well-defined exit strategy to realize profits through asset sales. Companies with substantially undervalued assets on their books and no measures in place to protect against hostile takeovers are vulnerable to raider attacks.
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55 50 45 40 35
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5 10 15 20
im Morrison, poet and lead vocalist of psychedelic band The Doors, once said, One who controls the media, controls the mind. Surely, governments across the world know this. And the way the media is critically monitored speaks volumes about the importance it holds in our society as a whole. Interestingly, this quest for thorough understanding on the part of authorities does not end at media and its able allies. In India, the government intends to even monitor what the last mile consumer consumes - whether it is news, daily soaps, scientific documentary or sports. As a step in this quest, we are observing seminal changes in the way the media business is being conducted. The recent one being: capping of duration of advertisements for television channels. This time we deconstruct the implications of this new directive from the Telecom Regulatory Authority of India (TRAI) and how media as well as entertainment companies are coping with this directive. THE REGULATIONS After several measures concerning digitisation of the media industry, which has been a watershed reform, TRAI recently reduced the duration of advertisements on television channels to 12 minutes per hour. The directive says that any shortfall of advertisement duration in any clock hour cannot be carried forward. It said that the minimum time gap between two consecutive advertisement breaks must not be less than 15 minutes. However, as regards films, the
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TRAI-ING TIMES AHEAD

Although the reduction of the duration of advertisements on television is being cheered by consumers, the broadcasters are crying foul as it will reduce their ad revenues
telecom regulator has said that the time frame between two advertisement breaks should be a minimum of 30 minutes. These directives, however, would not be applicable to advertisements during live telecast of sports events. The TRAI has said that advertisements during the live telecast of a sports event should only be showed during official breaks of the sporting action and not intermittently and abruptly. The telecom regulator has also said that part-screen and drop-down advertisements shall not be permitted and news and sports channels have to display full-screen advertisements. The regulator has stated that channels will have to ensure that the audio level of advertisements cannot be higher than the audio level of the programmes that are being telecast. This means that the advertisers would not be able to use high audio advertising videos to attract the attention of the viewer. Interestingly, the regulator has said that advertisements in the clock hour basis will also include all types of advertisements including advertisements promoting the channels from the broadcasters channels portfolio. Before arriving at these industry rules, TRAI had done a study to understand viewers preferences, choices and the type of content they would watch frequently. In an explanatory memorandum, the telecom regulatory authority found that the duration of advertisements, their placements within or in-between programmes and the frequency of their occurrence, is directly proportional to the quality of viewing experience of the viewers. The regulator also observed that the
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quality of viewing experience of consumers is also related to the quality of service provided by the service providers to the viewers. The telecom regulator said, Since the dawn of television, advertisements have been used to promote a wide variety of goods and services. Advertisements provide for a significant portion of the revenue of the television industry. The broadcasters of the free-to-air channels rely solely on advertisements as their source of revenue, while pay channel broadcasters have twofold source of revenue in the form of advertisement and subscription revenues. Besides, the telecom regulator also found that consumers are not only shown advertisements within and in-between programmes but also shown advertisements of multi-specialty operators and local cable operators through their local networks and brands. At present, there are set provisions regarding the duration and format of advertisements which point out that no programmes shall carry advertisements exceeding 12 minutes per hour, which may include up to 10 minutes per hour of commercial advertisements, and up to 2 minutes per hour of a channels self-promotional programmes. Present provisions also say that there has to be clear distinction between advertisements for the screen and the ones which interfere with the viewing of the programmes. For example, advertisements in the lower part of the television screen to carry captions, static or moving alongside the programmes are the ones that interfere with the whole process of viewing.
According to the TRAI study, there have been several complaints especially from consumers concerning excessive showing of advertisements, long duration of advertisements, overlaying of advertisements on the screen, increased audio level during advertisements even at the cost of loss of screening of live shows and events. When the regulator verified the authenticity of these complaints from consumers, it was found that the advertisement duration and formats are not in accordance with the provisions at present. It has been pointed out that the advertisements are shown several times in between the programmes, which break the continuity of programmes. These breaks regrettably come at a crucial stage of programmes. Hence, the regulator felt the need to at least restrict and regulate the duration, frequency and timings of the advertisements. THE IMPLICATIONS It is amply clear that this time the telecom regulator has showed a strong sense of sensibility in dealing with problems associated with heavy bombardment of advertising. The primary objective here is to strike a balance between good quality viewing and also the commercial interest of broadcasters. Only long established and diversely present entertainment companies such as Zee Entertainment Enterprises, Sun TV Network and TV18 Broadcast would be able to manage the 12-minute rule. Many analysts believe that to compensate for any loss of advertisement revenues most of these companies have increased their advertising rates. So, a simple logic that comes into
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play here is the focus on value growth rather than volume growth of advertisements. Experts believe that the 12-minute rule would be not a major problem as long as companies continue to offer niche as well as diverse content. It is generally believed that to maintain volumes, the industry would see launches of new movie channels given that most general entertainment companies (GEC) would launch niche channels across genres because after news genre, movie channels have a
maximum advertising inventory of around 18 minutes, while Hindi general entertainment companies have about 14-16 minutes for showing advertisements. The recent launch of niche content movie channel &Pictures from Zees stable is a case in point. It is also believed that companies can invest more in new content/channels to increase market share as digitization too has helped television networks across the spectrum to garner a higher share of subscription revenues.
At present, the Hindi movie genre advertisement market is worth `1,200 crore with high-reach but is low in value for advertisers as it offers relatively lower cost per rating point with high return on investment. Hence, going ahead, the volume game would be the focus of broadcasters. Also with digitization, channels with exciting niche content and wide acceptance would not only provide high value advertisements but also package deals from multi-specialty operators for broadcasterS.
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Wired For Growth

Upgradation and expansion of existing facilities as well as improving demand is expected to boost the top line of Finolex Cables Ltd in the coming times
The companys product portfolio includes PVC insulated industrial cables, FR-LSH PVC insulated industrial cables, PVC insulated single core and multi-core flexible industrial cables, rodent repellent multi-core flexible industrial cables, PVC insulated winding wires and 3 core flat cables, XLPE 3 core flat cables, power and control cables, high voltage power cables (up to 66KV), polyethylene insulated jelly filled telephone cables, auto and battery cables, co-axial and CATV cables, LAN cables, switchboard cables and fibre optic cables, among others. Finolex Cables Ltd has manufacturing facilities located at Pimpri and Urse in Pune as well as in the states of Goa and Uttarakhand. The company operates in mainly four business segments: electrical cables, communication cables, copper rods and others (switchgears and CFL). The electrical cables division is the largest amongst these and it contributes about 87% to the top-line and is the main focus area of business for the company.
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inolex Cables Ltd (FCL), the flagship company of the Finolex Group, was established in 1958 in Pune. It is one of Indias leading manufacturer of electrical and communication cables.
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Revenue Break-Up: FY13

7.8%
30.8%
service providers, higher use of data on mobile phones, which requires higher bandwidth, etc, will substantially improve growth possibilities in the current financial year. Also, the changeover to digital transmission in several cities across the country resulted in additional demand for coaxial cables. Electrical Cables Is Expected To Revive Soon
8%
87.4%
Electrical Cables Communication Cables Copper Rods Others

Source: Company Data, Nirmal Bang Research
FCLs electrical cables business has been giving a strong performance over the last four years. However, recently the growth tapered down due to a poor economic environment. The segment supplies cables to the auto and power sector. We believe that with the slightest improvement in the automobile industry, the segment will come back to its old growth trajectory. Copper Rods Mainly For Captive Consumption The copper rods segment of the company has been erratic in its performance. FCL consumes a majority of its copper rods production for its cables, and sells only ~10% to third party vendors.
Revenue Break-Up: FY12
5%
32% 58% 5%
Electrical Cables Communication Cables Copper Rods Others
Due to low profitability from this business, utilization levels are dependent on internal consumption. With the expansion of capacity in electrical cables and the start of EHV venture with J-Power Systems, copper consumption by the company is likely to improve going forward and lead to better utilization. Segmental Revenue And Growth
2500 2000 1500 1000
18.7% 15.8% 16.0% 37.7%
40% 30%
19.7%
INVESTMENT RATIONALE Communication Cables Has Turned Around The communication cables segment, which had been on de-growth till FY12 primarily due to uncertainty over spectrum allocation leading to no investments by mobile service providers, however, turned around in FY13 and registered a growth of 22.7%. In Q1FY14 too, the segment grew by 26%. The segment is expected to continue its growth rate of 20% to 25% on the back of recent developments in the telecom sector wherein the government announced a series of plans, including the creation a nationwide Optic Fibre Network to provide connectivity to village pachayats. Further, the roll out of 4G services by some telecom
20% 10%
3.9%
0% -10%
500 0
FY08 FY09
-8.6%
FY10
FY11
FY12
FY13
Q1FY14
-20%
Electrical Cables 350 300 250 200 150 100 50 0
% growth 80% 60%

22.71% 26.0%
70.5%
40% 20% 0% -20%
1.2%
8.9%
-24.7%
-29.5%
FY08
FY09
FY10
FY11
FY12
FY13
Q1FY14
-40%
Communication Cables
% growth
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Segmental Revenue And Growth

91%
Products
Segment
Products
82%
800 600 400 200 0

FY08 FY09 FY10 FY11 FY12
22% 4% 38%
Electrical Cables
50%
4.9%
0%
-25.05%
FY13
Q1FY14
-50%
Copper Rods
% growth
Attractive Valuations Finolex Cables is trading at an attractive valuation. Historically, the stock traded in the range of 6-8x. However, currently it is available at 4.7x and 4.3x on FY14E and FY15E earnings. Entering New Segments The company is continuously looking at developing new products to expand its portfolio as well as adapt to changing needs of the market. FCL has expanded into product segments that are complementary to the electrical cable market, that is, CFLs and electrical switches. In the current fiscal, the company has already launched new lamp models including LED-based lighting systems meant for home use, street lighting and other commercial spaces. This move has brought additional market reach at minimal cost expansion. It also plans to enter the switchgear product segment and will launch a series of products within the MCB, ELCB and MCCB range during 2013-14. Finolex expects to commission a 5MW solar power plant at its Urse facility. This initiative will result in substantial cost savings not only at the plant facility, but also reduce its dependence on grid power for manufacturing operations, effectively putting to use the existing land at the facility for productive purposes. Leading Player In The Cables Industry FCL is a leading domestic manufacturer of electrical and communication cables with a wide product range. The company offers a Total Cable Solution. It manufactures cables in the 1.1KV to 66KV categories. However, approximately half its cable segment revenues are from the Low Voltage Cables (1.1KV to 3.3KV). The broad segmentation of the products manufactured by the company is as follows.
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Communication Cables
Copper Rods Electrical Switches Lamps
1100 V PVC insulated cables Motor winding PVC insulated cables and 3 core flat cables Automotive/battery cables UPS cables Heavy duty, underground, low voltage, power and control cables Heavy duty, underground, high voltage, power cables Jelly filled telephone cables (JFTCs) Local area network (LAN) cables PE insulated telephone cables (Switchboard cables) Coaxial cables Optic fibre Optic fibre cables V-SAT cables CCC rods of 8 mm diameter Premium and classic switches, sockets,regulators, etc Retrofit and non-retrofit CFL lamps as well as T5 tube lights and fittings.
The companys product application range is for electrical usage, transmission of voice and data for domestic, commercial and industrial applications to electrical products. Its main user industries are construction, automotive, consumer durables, agriculture, industrial and power sectors. The company has a strong brand image. For long it has been the only cable company to hold the consumer superbrand status. The brand has also enabled the company to market its products in the overseas markets. It has a wide distribution network and backward integration, which provides strong competitive advantages to FCL over its peers. The companys distribution network consists of ~3,000 distributors and 17 warehouses spread across the country. FCL has backward integrated facilities for manufacturing its major raw materials copper rods (manufactures CCC rods and a small part of it is sold to third party customers) and PVC compounds. These advantages provide the company the benefits of visibility, availability and low-cost quality products at market price.
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Joint Ventures (JVs) To Help Strengthen Product Portfolio (a) Finolex J-Power Systems Pvt Ltd (Ownership Interest: 49%) On 13th Dec 07, the company entered into a joint venture agreement with J-Power Systems Corporation of Japan, to offer complete turnkey solutions in extra high voltage (EHV) cable systems (cables above 66KV) in India as well as abroad. The JV commenced its manufacturing operations towards the end of September 11 and has since been able to supply electrical cables of the 66 KV range. The ventures plant at Shirwal near Pune is geared to produce extra high voltage electrical cables in the range of 66KV to 500KV. The JV has secured its first large order (valued at `38 crore) to supply 132KV power cables to the Maharashtra State Electricity Transmission Co Ltd. The company is in the process of gaining product approval from various SEBs, boosting its business. (b) Corning Finolex Optical Fiber Pvt Ltd (Ownership Interest: 50%) During FY12, the marketing JV with Corning of USA was established and an investment of `0.5 million was made. Corning is the world leader in specialty glass and ceramics and the inventor of optic fiber technology. The JV will market Optical Fiber to cable makers within India and it commenced operations from Q4FY13. Major Capex Towards Capacity Expansion And Upgradation And Realignment Of Current Facilities Done Over the last five years, the company had undertaken a capex of ~`279 crore, which has gone primarily into upgradation of its high voltage cable plant and its CFL business. The Pune manufacturing operations have been consolidated at the Urse site (a majority of manufacturing operations from Pimpri moved to Urse). This will help further improve cost competitiveness in the low duty electrical cables segment offered by the company. The Roorkee facility will be expanded over the next six months at a cost of approximately `100 crore. This expenditure will double the current capacity at Roorkee and will further help improve profitability in view of the fiscal benefits that will accrue. The company has shifted a major part of production to its Roorkee plant, which avails
excise duty and income tax benefits. The increasing north Indian markets and tax benefits availed by this plant are expected to boost the companys turnaround. Considering the opportunities in the telecom sector, the company is investing ~`50 crore in additional cable making equipment at the Optical Fibre Cable facility at Goa. Capex
FY09 FY10 FY11 FY132 FY13
Capex (`Cr)
124.9
29.1
25.04
46.76 53.22
Profitability
15% 10% 5% 0% FY08 -5% FY09 FY10 FY11 FY12 FY13 PAT (%) FY14E EBITDA (%)
Return Ratios
25% 20% 15% 10% 5% 0% -5% -10% FY08 FY09 FY10 FY11 RoE (%) FY12 FY13 FY14E RoCE (%)
The revenue for FCL grew at a CAGR of 10.4% from FY08 to FY13. On the back of expanded and upgraded capacities coming online and improving demand we expect the companys top line to grow at 12.2% and 10.1% in FY14E and FY15E, respectively. The companys PAT has been impacted by losses on derivative contracts over the years, which got over in FY13. The impact is clearly visible in FY13s PAT, which grew by 47.9% as against the earlier four years CAGR of 2.5%. The companys tax rate has been low on account of certain excise benefits and MAT credit it enjoys. However, it will return to a higher tax rate of 25% to 26% by FY14 as some of these benefits come to an end. FCLs PAT is likely to grow by 12.1% CAGR over FY13-15E. FCL has been able to manage its working capital well. It
has also brought down its debtor days to 15 in FY13 from 23 in FY10. FCL also holds a 32.39% stake in Finolex Industries Ltd from which it earns dividend income. We have not valued this stake in our numbers. Valuations
Year Consolidated Net Sales (` Cr) Growth (%) EBITDA (` Cr) Margin (%) PAT (` Cr) Margin (%) EPS (`) PE (x) RoE (%)
FY12A FY13A FY14E FY15E
2064 2271 2556 2813
1.4 10 12.6 10.1
179.2 229.7 257.3 284.1
8.7 10.1 10.1 10.1
98.2 145.3 169.9 182.6
4.7 6.3 6.6 6.4
6.4 9.5 11.1 11.9
8.1 5.4 4.7 4.4
12.3 15.7 15.8 14.8
Source: Company Data And Nirmal Bang Research
At the current market price, the stock trades at 4.6x and 4.3x its FY14E and FY15E EPS. It also trades at 3.4x and 2.6x its FY14E and FY15E EV/EBITDA. Over the last three years, Finolex Cables Ltd has traded in the range of 6-8x its EPS.
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Despite tough market conditions, investors can still make a killing on the bourses with the right choice of products and an investment horizon
READY FOR THE KILL
he Indian equity markets are going through a roller-coaster ride since the past few months. There are many reasons for the downturn in the equity markets, such as high current account deficit (CAD), slowing growth and tapering of quantitative easing in the US. The kind of volatility that has been seen in the past two months has rattled many investors. Even mutual fund investors and those investing in debt and equity funds have burnt their fingers in the past few weeks. Many investors have turned cautious. In fact some of them have already started adjusting their portfolios keeping in mind the volatility in the equity markets.
Here we will provide investors with tips on how to look at their portfolios in such uncertain times and emerge victorious. How should investors invest and what are the integral points before investing in mutual funds. HAVE A PLAN AND STICK TO IT Before getting into any venture, investors usually plan everything in advance and with care, whether it is going abroad for a vacation or planning for a new home. However, when it comes to financial investing, many people do not have a proper plan. And even if an investor has a concrete plan, it is quite likely that he may not stick to it. This is where hundreds of investors
make a huge mistake. There are chances that investors will move out if there is weakness in the markets or they redeem their investments for the fear of a further downside in the equity markets. But investors must stay focused and stick to their plan to bear fruits of investments in the future. Before entering into any financial investment like mutual funds, insurance, tax planning or equity, investors should have a proper plan and enter with a specific time frame in mind. For instance, if investors need money after one year, they should clearly put money in liquid funds or if they have an investment horizon of 10 years, they should invest only in equity diversified funds.
DIVERSIFICATION A MUST IN THE PORTFOLIO Investment diversification is a risk management strategy. If the portfolio is properly diversified, investors will have adequate risk-reward characteristics in their portfolio. Holding onto one type of investment might have its own risks (like holding only sectoral fund or mid- and small-cap fund). Investors should allocate some amount to such products but only as a supplement to their main investments. The most basic investment diversification strategy should include both investments - debt as well as equity. Having some exposure to other categories like international fund or balanced fund might be useful to investors in current volatile times. This investment diversification in mutual funds means that an investor is able to obtain immediate access to hundreds of individual stocks or debt papers with very minimum investments. If not mutual funds, investors have to buy different stocks and bonds in order to get sufficient diversification in their portfolios. Investors should bear in their mind that no matter how diversified their portfolio is, the risk can never be completely eliminated. The most important point is to find a medium between risk and returns. INVESTMENT WITH A TIME HORIZON One of the integral elements that should be taken into consideration is the time horizon for which investments need to be held. Many times investors are unaware of the product they invest in. This in turn reduces their overall returns. Investors looking for safety and less
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volatility in their portfolios should opt for debt schemes or if some senior citizen is looking for streaks of income should invest in monthly income plans (MIPs). As we saw some trouble in debt funds over the past few months, investors should always remain careful and their investment portfolios should be actively managed depending upon the views on interest rates. If investors have chalked out their investment horizon, the next step should be selecting funds in their portfolio. As said earlier individuals should always invest with a time horizon. If they are unsure about it, then they should invest in equity funds through systematic investment plans (SIPs). DONT TAKE UNDUE RISKS FOR SHORT-TERM RETURNS In the investment world, all of us have to take few risks to generate better returns, going forward. But any investor who goes for short-term returns or even high returns in a short time frame tends to lose money. Greed is one of the many evils in financial investment and, therefore, investors should not invest in thematic funds or small-cap funds for a shorter duration. No matter how big the returns are, there are many investors who put all their investments in the same basket (for example, all systematic investment plans are in one fund or in different schemes of the same fund house), which is also a huge risk. Investors have to spread their money across different financial investments and different time frames to reduce the chance of losing money. This exercise would also ensure that risks are reduced even if there is fluctuation in returns without sacrificing on future gains.
DECIDE ON PROPER ASSET ALLOCATION After all the above considerations, next step in building a portfolio should be proper asset allocation within the portfolio. In mutual funds, asset allocations are of two parts. One is regarding how much you need to allocate between equity and debt. While at the micro level, one needs to decide what kind of funds will suite his/her investment profile (aggressive investors look for mid- and small-cap funds, while conservative investors go for a balanced scheme). The most important rule of asset allocation is to match investment time frame with the expected life span of the fund. Say for example, if investors want to invest some amount for one year, they should blindly go in for fixed maturity plans (FMPs). But the thumb rule suggests that the money that is needed within the next three-five years must be in debt funds and anything that you want to invest in for over five years should be in equity funds (which can be diversified equity funds or mid- and small-cap funds). MAKE SIMPLE INVESTMENTS There are hundreds of equity schemes in the country and there are many among them, which are difficult for retail investors to understand. There are some arbitrage funds or P/E ratio funds or even asset allocation funds, which can also be considered for investment purposes. However, these categories of funds are only meant for seasoned investors and those who know the risks of investing in such products. It is believed that investments for retail investors should remain as simple and hassle-free as possible.
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Even in terms of returns if we look at longer duration, pure diversified equity funds have delivered much better returns compared to such thematic funds. In financial investment, one should stick to their fund and investment horizon to reap better returns over a longer period of time. A retail investors portfolio should have few simple products, realistic investment expectations and a decent time frame for the money to grow. If all this is done properly, one can have positive results over a longer time frame. MAINTAIN DIFFERENT G O A L - O R I E N T E D PORTFOLIOS Each one of us wants to go on an international vacation or retire early or better still have continuous income in the working life. These are just a few of the many goals investors may have from their investments and some objectives change as life moves on. So, for retirement 35-year-old investors should start investing in systematic investment plans (SIPs) in large and mid-cap funds. Say for their daughters marriage, investors should select a product that has equity and gold component. Retired investors seeking monthly income should invest in monthly income plans (MIPs) or even post office monthly income schemes, which can protect the capital that they have invested in. Long-term funds should be in diversified equity funds and emergency fund should be invested in liquid funds. Such implementation allows clear thinking about each goal, ably supported by investments, which will be able to meet that particular goal in the future.
IDENTIFY RISK AND RETURNS BEFORE INVESTING Return on investment is the amount of money you receive as compared to the amount you have invested in. While risk is the probability that your investment will gain or lose money, before investing, the investor also needs to consider his/her own risk tolerance and his/her ability to absorb a loss. In general terms, higher the risk, higher is the profit on an investment. Risk is attached to each and every financial instrument. So, investors need to identify risk and returns according to their investment profile. Investments in many securities come with a degree of risk and if returns are not in proportion with the risks taken, then it is not worth investing in. Risk-adjusted returns are calculated against returns given by a risk-free instrument, which is usually government-backed debt papers or term deposits of banks. A superior mutual fund is one which gives better returns than others for the same kind of risk taken. DONT GET EMOTIONAL ABOUT INVESTMENTS Investors get emotional about their investments and according to many investment gurus, it is one of the major mistakes investors normally make. Say for example, an investor has invested in a particular scheme, which was supposed to give good returns, but over a period of time, it did not perform well. Yet, the investor will hold on to that particular scheme simply because he had considered it to be one of the best schemes. This does not mean that schemes will continue to deliver positive returns every year.
In order to withdraw emotionally from investments, investors should use the advice of financial advisors and make a concrete plan of their investments. It is always good to have self confidence, but over confidence in financial investments can be risky at times. For some investors, emotions often get in the way of the investments, but one has to keep emotions at bay in such matters. Sentiments have a dominant influence when it comes to investors money. But do not let them lead you away from a good long-term investment plan. REVIEW AND ANALYZE ON A CONTINUOUS BASIS We sure must be aware of several investors whose investments are lying in cold storage since many years. They have either stopped their investments or have not tracked them for years. There are even those investors who have dozens of funds overlapping other funds. While some have merged, others have closed down. But this is not the way to run a portfolio. Investors must review and analyze their portfolios once or twice every six months. One of the best yardsticks to analyze a portfolio is to look at long-terms returns. Many times some good quality funds underperform in the market. Individuals should never redeem their investments by looking at short-term returns. Investors should also look at the rating of the schemes, whether they have improved or fared badly. If during the exercise any investor finds that his investment is continuously giving negative returns over the past few years, he should immediately move out and invest in other well-rated equity or debt fundS.
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TECHNICAL OUTLOOK FOR THE FORTNIGHT

he August Nifty Futures lost more than 8% on account of negative global cues and the weakness in the rupee. The Nifty breached the psychological level of 5,200 on 28th August (on an intraday basis) for the first time since July 12. The trend reversal was observed in the market on the last day of the August series expiry as the Nifty rallied more than 2% to expire above the 5,400 level. Renewed apprehension of the US QE3 tapering resulted in downward trends in the global equity markets. Together with this, the geopolitical tension in Syria added fuel to the already existing problem. Emerging markets like India were the worst affected mainly due to their negative balance of payment. The dangerously high level of current account deficit together with outflow of foreign capital due to unfavourable global scenario led to an acute weakness in the Indian rupee. The rupee touched its all-time low level of 68.85/dollar on 28th August. The Nifty September series Future rallied more than 10% (as on 16th Sept) on account of value buying and the visible improvement in Indias trade deficit (mainly due to deprecation in the rupee). The outcomes of the Federal Reserves meet (regarding QE3 tapering plan) on 18th September and the Reserve Bank of Indias monetary policy meet on 20th September are expected to provide a firm direction to the Indian equity markets. The short-term range for Put Call Ratio - Open Interest (PCR-OI) for Nifty Options is 0.8-1.3. The current
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PCR-OI stands at 1.35 (as on 13th Sept 13), which is also the higher end of the September series. Going forward, we see PCR consolidating between 1.1-1.40, maintaining a neutral view for the market at the current level of 5,900 till the end of the September expiry. On the Nifty Options front, for the September series, a broad range between 5,300 and 6,000 is being predicted by Nifty Options traders and a consolidation is seen between this range. The highest OI build up is seen at 5300PE and 6000CE to the tune of 8.84 million and 5.32 million, respectively (as on 13th Sept 13). India VIX, which measures the immediate 30-day volatility in the markets, has been choppy since the past few days due to a large number of news flows including the upcoming Fed meet and the RBI policy scheduled on 18th and 20th of this month, respectively. But going forward, we believe that it has already formed a stiff resistance of 36 and we may see a neutral to negative view on India VIX and a consolidation between 25-34 levels. The Nifty Index observed a sharp rally from its August 13 low of 5,180 and advanced to surpass the 5,850 level. The Nifty has an immediate resistance area which indicates that 5,970-6,020 level is a curial hurdle to be crossed immediately. It is essential for the Nifty to close above this level for a positive bias and continuation of the uptrend. And any move beyond that may trigger a further upside till 6,220 and 6,350, which is a possibility over the next few weeks. However for the uptrend to remain intact, the Nifty should sustain above
the level of 5,750 in case of further correction in next few weeks. Since the past few trading sessions, the Nifty has been in a strong uptrend, forming a series of higher tops and bottoms. The oscillator situation suggests the absence of a negative divergence pattern. However, there is insufficient evidence for any top and, therefore, we conclude that the advance is not done yet. The index is likely to test its historical highs. The support resides at the 5,750 level on the downside and one should maintain a buy-on-dips approach. After taking support near its May 12 low, the Bank Nifty has risen from its oversold territory and the recent move has helped it to sustain above the 10,150 level, which is a bullish signal. The Bank Nifty faces strong resistance around the 10,450 level on the upside and market participants should maintain a positive bias only on close above this for an upside potential of 10,750-11,100 levels; there is an immediate support at the 10,150-10,050 levels of the Bank Nifty on the downside. OPTION STRATEGY: SHORT STRADDLE ON NIFTY AT 5900 It can be initiated by Selling 5900CE and Selling 5900PE of the Sept series. The net combined premium inflow comes around `240, which is also the maximum profit (that is if the Nifty Sept series expires at the 5,900 level). The break-even stands at 6,140-5,660. There is unlimited loss beyond the break-even range. Traders can square off their strategy when the combined rate of the Strangle comes below 100 or goes above 300, whichever is earlieR.
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Low Price To Earning High Return On Equity Stocks

The table represents companies from the BSE 500 that are Low on Price to Earning (PE) and High on Return on Equity (ROE)
Company Name Company Name Current Market Price (12th Sept'13) Trailing P/E Price/ Book Value Dividend (%) Market Capitalization ( ` in cr) Return On Equity FY13 Return On Equity FY12
Syndicate Bank Dena Bank Punjab National Bank Power Finance Corporation Ltd Gujarat Mineral Development Corporation Indiabulls Housing Finance Ltd IRB Infrastructure Developers Ltd Muthoot Finance Ltd Dewan Housing Finance Corporation Ltd Gujarat Flurochemicals Ltd Rural Electrification Corporation Ltd Bharat Heavy Electronics Ltd Apollo Tyres Ltd Gujarat State Petronet Ltd Balmer Lawrie & Company Ltd South Indian Bank Ltd Cairn India Ltd Jammu & Kashmir Bank J K Cements Ltd GIC Housing Finance Ltd Texmaco Rail & Engineering Ltd City Union Bank Balkrishna Industries Ltd Finolex Industries Ltd Redington India Jindal Steel and Power Ltd Yes Bank Ltd Hindustan Zinc Ltd Geometric Ltd Atul Ltd Petronet LNG Ltd NIIT Technologies Ltd Oil India Ltd Natinal Mineral Development Corporation Ltd Manganese Ore India Ltd Greenply Industries Ltd Gujarat Gas Company Ltd* Shriram Transport Finance Company Ltd Bajaj Finance Ltd LIC Housing Finance Ltd Infotech Enterprises Ltd Cholamandalam Investment & Finance Company Ltd Axis Bank Ltd MRF Ltd** Gateway District Greaves Cotton Ltd Kirloskar Oil Engines Ltd Engineers India Ltd Jagran Prakashan Ltd
Source: Capital Line * Year-ending December12
72.85 51.05 494.15 124.40 86.40 207.25 73.95 116.70 118.80 247.10 191.40 134.80 64.05 50.15 313.85 20.65 319.00 1178.90 182.65 94.45 29.50 42.50 231.60 110.75 55.25 238.65 281.15 129.75 79.00 311.80 118.90 282.10 446.75 123.65 216.15 408.00 211.70 552.90 1121.50 181.30 185.00 216.15 1020.60 12892.60 108.60 56.85 149.40 175.70 82.25
2.05 2.35 3.64 3.84 4.42 4.46 4.47 4.56 4.97 5.06 5.11 5.12 5.13 5.34 5.35 5.38 5.46 5.64 5.69 5.83 6.36 6.44 6.45 6.72 6.88 7.39 7.79 7.84 7.93 7.95 8.08 8.15 8.15 8.16 8.17 8.23 8.25 8.43 8.88 9.01 9.36 9.37 9.40 9.47 9.70 9.87 10.19 10.41 10.59
0.40 0.36 0.53 0.68 1.08 1.35 0.75 1.16 0.75 0.86 1.08 1.08 0.95 0.93 1.04 0.97 1.28 1.17 0.87 0.92 0.94 1.32 1.55 1.91 1.34 1.05 1.74 1.70 1.90 1.44 2.00 1.56 1.40 1.78 1.31 2.08 2.82 1.71 1.66 1.40 1.56 1.58 1.44 1.91 1.49 1.90 1.88 2.58 2.92
67 47 270 70 150 1000 40 45 50 370 82.5 270.5 50 10 308 70 115 500 65 50 100 100 75 55 20 160 60 155 85 60 25 85 300 700 55 60 350 70 150 190 90 33 180 250 70 80 250 120 100
4385 1787 17467 16421 2748 6841 2458 4338 1525 2716 18900 32994 3228 2822 894 2769 60944 5715 1277 509 537 2178 2238 1374 2206 22309 10132 54823 500 925 8918 1703 26855 49024 3631 985 2715 12544 5583 9149 2066 3094 47880 5466 1179 1388 2166 5920 2730
21.19 17.62 16.03 19.74 26.20 23.83 17.48 30.15 17.15 17.68 23.84 23.93 19.71 19.21 24.26 20.53 25.12 23.55 16.76 16.23 17.68 22.33 27.41 17.41 21.61 24.43 24.81 23.33 30.18 21.48 28.84 21.48 19.42 24.43 16.58 28.61 32.56 21.90 21.90 17.22 17.59 18.35 18.74 22.48 16.16 21.83 18.18 30.15 26.39
17.88 20.72 20.09 16.98 24.39 29.61 18.07 41.88 17.66 31.92 20.68 31.11 15.73 22.39 20.93 21.59 17.92 21.21 14.40 12.26 20.21 24.91 27.28 9.63 22.50 30.52 23.07 22.37 29.51 18.82 34.11 23.47 20.68 33.31 17.98 16.84 33.24 23.96 23.97 18.51 13.84 12.27 20.29 17.47 17.35 25.78 16.56 38.00 24.39
** Year-ending September12
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GOING FROM FAT TO FIT

Losing your flab should be treated like your trading or investment activity on the stock market for maximum gains
obody likes to incur a loss, especially in stock markets. But there is one loss that even stock market traders crave, and that is weight loss. Stock market traders are often seen complaining about increased weight gain especially due to their sedentary lifestyle, long hours of sitting in front of the trading terminals, erratic eating habits comprising mainly of junk foods and lack of exercise, among various other habits. In fact in the stock market whatever happens on the trading terminal of the trader almost always translates into unnecessary weight gain. If one is making a loss, he or she indulges in binge eating and mainly consumes comfort foods like fried
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items and sweets. Alternatively, if he/she is making a profit, they tend to celebrate it by treating themselves and others around to a party; sinful food once again. So if it makes you wonder whether the culprit is the market, then the answer to this lies within the market. In this article, we shall try and apply few principles of successful stock trading to losing weight. A word of caution: Before starting any specific kind of diet plan, lifestyle modifications, or any weight loss programme, please consult a doctor or a qualified professional. STOCK MARKET OF WEIGHT LOSS We, market players, understand only
the stock market parlance. So let us try and explain the whole process in that language only. The first thing in the battle against the bulge is to become a bear , that is, go short on your calorie intake, especially all those empty calories that you derive from junk foods, fried eatables, sweets, salty items, processed foods, aerated beverages, and so on. The next thing is to hedge this position by going long on healthy foods such as whole grain cereals, pulses, nuts, green leafy vegetables, citrus and colourful fruits and vegetables, etc. Do not forget to drink adequate amount of water. Also, just as in the markets, merely focussing on a single asset class is never a good idea, in the same way
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just taking a hedge position on your food will not be enough to achieve your target. You have to diversify your portfolio by adding a healthy dose of daily exercise such as walking, running, cycling, or any other light aerobic activity and yoga to increase your flexibility. You also need adequate rest apart from practising meditation and simple breathing techniques to reduce your stress. And if possible, spend quality time with your friends and family too. Remember weight loss is not a short-term strategy. Enter with a long-term perspective and very soon your efforts will start giving you dividends (tax-free of course). Your weight and waist, which were trading at highly-expensive valuations should by now be reversing their trend and soon be available at fairly attractive valuations, quite literally. You will look and feel healthier as well as beautiful from within and the real returns will be visible in the eyes of all your loved ones. Unfortunately, once a decent profit has been made, most of us think of booking partial profits and begin giving in to our temptations and start going easy on our exercise regimen. We find that a resistance level is reached, which prevents any further weight loss. The initial momentum is lost and there is a sharp pullback of the weight back to the high side. This is a classic retracement pattern but the onus lies entirely on us to prevent it from going from a mere retracement to a full-fledged reversal. One has to take fresh positions with renewed vigour and invest even more of ones time and effort than before. Do this and you will find that as the fall was arrested and the crucial
support level was not broken, the next wave on the weight loss chart will be long, sustained and much higher. Once your optimal weight has been reached, it is then only a question of monitoring your portfolio on a regular basis, that is, checking your weight at frequent intervals, monitoring your food habits as well as correcting yourself if you are faltering in certain areas, adding newer activities to your exercise regimen so as to escape a sense of boredom. And once it becomes your second nature and a way of life, the daily volatility of weight fluctuations wont have much of a bearing on your overall returns. STOCK MARKET RULES FOR WEIGHT LOSS Substitute The Underperformers With Outperformers If you have a banking stock in your portfolio, which has given a return of 5% whereas another stock from the banking sector has given a 12% return for the same duration, would not it be prudent to switch to a better performing stock? Similarly, foods too can be substituted in such a way that you are only taking in healthy stuff and chucking out the bad stuff. For example, if you feel like having a sandwich, substitute the white bread with whole wheat bread; the mayo or butter with green coriander or mint chutney; fried foods with baked versions of the same. If you crave for sweets, do not go for ghee-laden delicacies. Instead, opt for fruits or natural sweeteners such as dates, honey, etc. Invest In Fundamentals, Not On Stock Price Do not buy a stock just because it is
cheap. Read and go for a healthy balance sheet company. In the same way, do not buy any food from the supermarket just because it fits your budget or looks appetizing. Read the label and pick the one which offers better nutrition like high vitamins, high proteins, low fat content, low sugar, low salt, etc. In other words, pick value buys not junk stocks. Avoid Sectoral Funds It is always advisable to invest in a well-diversified equity fund rather than a fund that focuses on a single sector to avoid a huge loss if that sector runs into strong headwinds. In the same way, one should stay away from diets or diet fads that focus primarily on a single class of food component or food group. There is a credible risk that might do more harm than good to you. A balanced diet will always give better results. Always Keep A Buffer Like in the stock market, you dont commit 100% of your funds to a particular stock or an asset class. If you have `100, allocate `75 first. That way if the stock falls further, you still have money to buy more. In the same way, do not eat your fill. If you are hungry and want four chappatis, eat only three. That way if you feel hungry afterwards and have some after-dinner snack or dessert, you will not feel guilty. Invest In Good Dividend-Paying Companies This way you earn second income by way of dividends without having to do anything extra. Similarly, invest in building your muscle mass through regular exercise and weight training.
The more muscles you put on, the more calories your body will need to burn to maintain it, even when you are not exercising. Set Realistic Targets Do not expect 70% to 80% returns within a month of buying a stock. Similarly, keep your weight loss goals realistic; do not set absurd targets such as 10 kg to 15 kg loss in a month. Anything good takes time. Stay Away From Quick Rich Formulas Or Tips You hardly hear of a day trader or a speculator becoming a billionaire overnight based merely on a single tip. There may be cases but they are few and far between. It is invariably the long-term investor who makes real money. In the same way, in weight loss too, it is the person who puts in time, effort and perseverance who loses weight in the long run and manages it. Do not believe in some magic pill or attractive weight loss advertisements that claim to help you become lighter overnight without any side effects or surgery or dieting or exercise. The only thing that becomes lighter is your wallet. Always Keep Stop Losses Weight loss does not move in a linear
fashion. There will be days or maybe even weeks when your weight will move up. But the trick is to keep a mental stop loss. So say, you have lost 10 kgs in two months, you should keep a stop loss of 2 kgs to 3 kgs as buffer for some rebound weight gain. But that should be it. If it touches that number, buckle up, and restart your regimen. Do Not Overtrade Excess of anything is bad, even dieting and exercise. Do everything in moderation. Eat in moderation, exercise in moderation and even rest in moderation. Do An SIP In the stock markets it is always advised to invest in parts such as Systematic Investment Plans (SIPs) so that you are not caught on the wrong side if your lumpsum investment crashes in the market. Similarly, when you are dieting, never starve yourself or go on a crash diet. It can be harmful for your health. Instead, eat 5 to 6 small meals throughout the day so that you never feel weak or hungry and always have good energy levels. Always Remember Your Goals If you have set a target of 30% returns from a particular stock with a
long-term horizon, stick to it. Dont get swayed or perturbed by the ups and downs of the markets or the stock. Similarly, always remember the reason or the goal behind your decision to lose weight. It may be different for different individuals such as looking good, leading a better life, becoming healthy, improved performance at work, etc. Whenever you are tempted to give in to your cravings, keep these goals in front of your eyes and you will not falter. Keep Emotions At Bay Emotions should have no place in the stock markets or weight loss. Do not be too elated when you lose weight, lest you become complacent and lax. Also, do not be depressed if you do not lose weight despite putting in efforts. Keep a state of equilibrium and continue your diet plan. Seek Professional Required Help If
If you feel you are not best equipped to handle your investments or do not have the expertise, you should seek the help of professionals or experts to reach your desired goals. Also, if you feel your efforts are not giving you the desired result, seek professional help such as dieticians and physical trainers to help you in your battle against the bulgE.
Echo Bubble It is a post-bubble rally that becomes another, smaller bubble. The echo bubble usually occurs in the sector in which the preceding bubble was most prominent, but the echo is less dramatic. People point to the rally that occurred after the market crash of 1929 as an example of an echo bubble. Just like its more prominent predecessor, the smaller echo bubble eventually burst. Also, after the technology bubble that occurred at the turn of the 21st century - one of the biggest bubbles of all time - people believed that another echo bubble was on the way.
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Its simplified...
Contact - Daisee Boga: +91-22-39268244, 7738068289
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IMPORTANT JARGON FOR THE FORTNIGHT

DRAFT TO REVISE CLAUSE 41 OF THE LISTING AGREEMENT
he market regulator Securities and Exchange Board of India (SEBI) has proposed changes to clause 41 of the listing agreement. Clause 41 deals with the preparation and submission of financial results to the Stock Exchange. It prescribes the way in which a company should disclose its quarterly and yearly results to the stock exchanges. The revised format is hoped to improve the disclosure standards and reduce the compliance cost and time of listed companies. It is also consistent with the new Companies Bill. Why A Need To Revise The Clause Clauses and sub-clauses of the existing Clause 41 of the listing agreement were amended as and when needed. This had created ambiguities in interpretation of the law. Also, as the focus of the present Clause 41 is on manufacturing companies, non-manufacturing companies like financial companies are required to make disclosures in line with that of manufacturing companies, which is not appropriate. All this had to be corrected. What Are The Changes Perhaps the most important change the SEBI has proposed is the need for half yearly consolidated accounts. In case there is a variation of 20% or more in items like revenue/ total assets/ total liabilities/ profits (loss) in the consolidated financial results as against standalone results of last annual audited results, the listed company will have to prepare consolidated results half yearly. Currently, companies prepare consolidated accounts only at the end of the fiscal. Accounting experts feel eventually SEBI will mandate consolidated financial statements for all quarters. The change takes significance as very often companies have profits in their standalone accounts but huge losses in
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their consolidated accounts because of a loss-making subsidiary or a joint venture. This used to distort the overall picture. What Is The Other Major Change From Investors Standpoint The second important change proposed by the SEBI relates to material foreign subsidiaries and joint ventures. The SEBI is now proposing that audited results should constitute at least 80% of the consolidated turnover, net-worth, profit or loss of the company. The 80% will include Indian company and foreign subsidiary. So, if the foreign subsidiary is significant enough it will get audited, giving a better picture to the investor about the subsidiary. The existing guidelines are unclear. There have been instances of companies not taking audit of foreign subsidiaries, especially in tax haven countries. With the new rules, companies that have significant foreign subsidiaries need to ensure that those foreign subsidiaries are reviewed and audited. The clause is likely to affect a few companies but it would affect them significantly. More Changes The SEBI proposes that all listed companies will have to adhere to Indian GAAP while disclosing their consolidated financial results. The option of publishing consolidated results only in International Financial Reporting Standards (IFRS) will be discontinued. Many tier I Information Technology companies currently disclose results in IFRS only. However, these companies have the option to submit consolidated financial results as per IFRS notified by the Indian Accounting Standard Board (IASB) in addition to publishing financial results as per the notified Accounting Standard. This move is to bring consistency in reporting results by all companies in India. Miscellaneous Changes In order to enhance visibility, the exceptional item shall be disclosed as a line item in the main table of results
Its simplified...
instead of including it in the Notes to results. Further, the definition of Exceptional Items has also been modified. Exceptional Items are highly judgmental and many companies follow divergent and inconsistent practices. The move will bring more clarity in disclosures. The market regulator SEBI has proposed mandatory disclosure of details of the discontinued operations as part of the notes to the financial results. Further, to replace different reporting formats (such as lakh, millions, etc) that create confusion, SEBI has proposed mandatory reporting all figures in financial statements in ` crore till two decimal points. SEBI also proposes a mandatory submission of statement of cash flow half yearly (every six months) in addition to the balance sheet. Companies would also have to mandatorily disclose the book value of their shares.
construction of the project with money from the bank. This money comes cheap to him. Home loans are far cheaper than construction loans. Also, the bank offers credit to the developer (indirectly), based on the buyers balance sheet and not on developers book. What The RBI Has To Say The central bank is worried about the risk to the system due to such schemes. Risk emanates in case of disputes between individual borrowers and the developer. Default or delayed payment of interest or EMI by the developer during the agreed period on behalf of the borrower also throws an element of risk. Further, there are always chances of non-completion of the project on time. More so, any delayed payments by the developer will be on behalf of individual borrowers and not the developer. This might spoil the Credit Information Bureau (India) Ltd (CIBIL) score of the loan borrower, while the developer goes unscathed. Hence, the RBI has notified banks that disbursal of housing loans sanctioned to individuals should be linked to construction progress of a project and banks should refrain from upfront disbursals to developers in incomplete or under-construction or green-field projects. The RBI has always remained cautious towards real estate financing post the global financial crisis of 2008 and the current steps are further addition to the same. How Does It Affect Real Estate Players Apart from cheap credit, the developer also enjoys an upfront sale under such schemes. Developers use some part of the money to retire their existing debt or for business development or other corporate needs and use the remaining for construction purposes. What Is The Banks Perspective Providing such loans help a bank as they are classified as mortgage and not construction finance, which is considered a risky business by the Reserve Bank, and thus requires higher provisioning. However, now with a directive to ban such schemes, the banks will have to provide more on their books as the risk weight for all such existing loans will increase. How Does It Affect The End User Such schemes were good for home buyers as their EMIs would start only after the project is completed. However, as mentioned earlier even the risk to the 20% of the amount put upfront is also higher under such schemes. This justifies the central banks movE.
RBI BARS 80:20 SCHEMES

The innovative housing loan schemes, popularly called as 80:20 or 75:25 schemes, launched by real estate players in collaborations with banks, have come under the Reserve Bank of Indias (RBIs) scanner. The RBI recently notified banks to stop such schemes. Cash-starved real estate players were hoping high from such schemes to boost sales in an otherwise weak demand outlook. Stock prices of real estate companies were quick to react negatively post the RBI notification. What Are 80: 20 Or 75: 25 Schemes Under the scheme, the buyer of the residential unit pays 20% of the total amount of the property upfront to the developer. The remaining 80% is disbursed by the bank directly to the developer. The developer services the loan on behalf of the home buyer for a certain specific time or till the project gets completed. For developers, such schemes are a marketing tool to attract buyers, while for banks such schemes mean home loan borrowers. Developers either pass the interest costs to buyers by increasing prices before announcing such schemes or often absorb the interest cost for higher sale. The bank, developer and the client usually enter into a tripartite agreement. Such schemes are famous in Delhi, Mumbai and Bengaluru. It is estimated that nearly 25% of loan disbursements for new flats in Mumbai are under such schemes. So, What Is The Problem Under the garb of such schemes, the builder finances the
Introduction To Technical Analysis

Speaker - Manav Chopra, CMT
Mr. Manav Chopra is a quali ed CMT (Charted Market Technician) from MTA USA and an MBA in Finance . He is also a visiting faculty on Technical Analysis at renowned management institutes. He is a regular feature on various news channels and print media where he shares his technical perspective on the markets
WHAT WILL YOU LEARN

The Big Picture With the help of this training programme, you will learn to di erentiate between Trading and Trending Markets and how these work. You will also learn the art of picking Positional Trades. Real Market Examples Review and master trade with trend and pattern analysis based on real market examples. Become More Precise Know when a stock, industry or market is about to make a move and be the rst one to take advantage of it. Discover Why The Trend Is Your Friend Learn advanced charting techniques to identify trends, minimize ambiguity and increase pro t potential in almost any market condition. Put It All Together Learn to use a "mental checklist" to select appropriate strategies for each trading session and adapt your trading plan accordingly.
COURSE CONTENT
Lesson 1: Technical Analysis - Introduction And Overview The de nition of Technical Analysis and the theory behind it. The need for Technical Analysis and how it provides you an edge over other traders. De ning and locating trends, consolidation, support and resistance, among others. Lesson 2: Charting Basics Learn the di erence between di erent types of charts for trading the market - Line, Bar, Candlestick, etc and use the one that suits you the best. A brief study on Dow Theory and its applications. Lesson 3: Using Trend Lines And Trend Channels Learn to draw and use TREND LINES and TREND CHANNELS objectively in your trading. This simple but powerful concept can keep you on the right side of the market every time! Lesson 4: Moving Averages Learn how to use this popular indicator in your trading. Using MOVING AVERAGES as TREND identi ers, to locate support and resistance areas, or as lters for your trade set ups! Lesson 5: Price Pattern Analysis This module will involve the study of several reversals and continuation patterns like Head & Shoulders, Triangles,
Date: 28th Sept 13 | Time: 9.00 am to 12.30 pm Venue: Nirmal Bang, B-301/302, Marathon Innova, O Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Contact: 022 - 3926 8022 | email : training@nirmalbang.com Free Training Workshop Limited Seats Only | Registration On First Come First Serve Basis.
Rectangles and how to trade them e ectively. Understanding the psychology behind a pattern and its formation. Interpretation of Chart patterns and the signi cance of volume while using patterns. Evolving a Trading strategy based on patterns.
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team of dedicated and experienced research analysts do just that. They give calls on prominent business channels, print media and newswire services, bene tting scores and transforming lives. At Nirmal Bang, its a relationship beyond broking.
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NEW AND IMPROVED

Issue: 87, 19th Sept 13

Beyond Market 19th Sept 13

Tushita Nigam Editor

Beyond Market 19th Sept 13

BSE: 19,742.47 NSE: 5,840.55 (as on 16th Sept 13)

Beyond Market 19th Sept 13

Beyond Market 19th Sept 13

Public Sector Banks (26)

*Position as on March 31, 2013

Beyond Market 19th Sept 13

Now, Commodity Trading Is No More A Puzzle.

Beyond Market 19th Sept 13

NEW AND IMPROVED

Beyond Market 19th Sept 13

JUN '12 TEE STANDING COMMIT REPORT SUBMITTED

DEC '12 LOK SABHA PASSES THE BILL

AUG '13 RAJYA SABHA PASSES THE BILL

Beyond Market 19th Sept 13

ions Other Important Provis-------------------------

New La Why The Need For A------------------------dscape has changed

Beyond Market 19th Sept 13

Beyond Market 19th Sept 13

Beyond Market 19th Sept 13

Beyond Market 19th Sept 13

Beyond Market 19th Sept 13

EQUITIES | DERIVATIVES | COMMODITIES* | CURRENC Y | MUTUAL FUNDS# | IPOs# | INSURANCE# | DP

Beyond Market 19th Sept 13

Contact At: 022 3926 9140, e-mail: distributionhelpdesk@nirmalbang.com

the end justifies the means

Beyond Market 19th Sept 13

Beyond Market 19th Sept 13

Beyond Market 19th Sept 13

Beyond Market 19th Sept 13

All Is Not Lost

Beyond Market 19th Sept 13

Beyond Market 19th Sept 13

Beyond Market 19th Sept 13

TRAI-ING TIMES AHEAD

Beyond Market 19th Sept 13

EQUITIES | DERIVATIVES | COMMODITIES* | CURRENCY | MUTUAL FUNDS# | IPOs# | INSURANCE # | DP

Beyond Market 19th Sept 13

Wired For Growth

Beyond Market 19th Sept 13

Revenue Break-Up: FY13

Electrical Cables Communication Cables Copper Rods Others

Revenue Break-Up: FY12

Electrical Cables Communication Cables Copper Rods Others

Electrical Cables 350 300 250 200 150 100 50 0

% growth 80% 60%

40% 20% 0% -20%

Source: Company Data, Nirmal Bang Research

Segmental Revenue And Growth

800 600 400 200 0

Copper Rods Electrical Switches Lamps

Source: Company Data, Nirmal Bang Research

Beyond Market 19th Sept 13

Source: Company Data, Nirmal Bang Research

Source: Company Data, Nirmal Bang Research

FY12A FY13A FY14E FY15E

2064 2271 2556 2813

1.4 10 12.6 10.1