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The following are fundamentally strong companies identified by Capital Market analysts. The list is constantly reviewed and updated, adding scrips with upward potential and removing those that have, in our opinion, exhausted their run.
COMPANY
Ador Welding Apcotex Industri Astral Poly BHEL Bajaj Auto Bajaj Electric Bajaj Fin. Balmer Lawrie BASF India Bayer Crop Sci. Bharat Forge Bosch Britannia Inds. Carborundum Uni. Castrol India Cipla Clariant Chemica CMC Container Corpn. Corporation Bank CRISIL D B Corp Engineers India Ent.Network Eros Intl.Media Esab India Essel Propack Everest Inds. Exide Inds. Fag Bearings Federal Bank Foseco India GMDC Gateway Distr. Godrej Consumer Goodyear India Grasim Inds Greaves Cotton Grindwell Norton Guj Apollo Inds HDFC H T Media HCL Technologies HDFC Bank Hikal Honeywell Auto HSIL IL&FS Transport Indian Hume Pipe Infosys ING Vysya Bank Ingersoll-Rand
IND. NO.
41 106 75 39 8 36 50 108 22 68 17 10 54 1 22 70 22 26 106 11 106 47 45 47 47 41 62 20 10 13 12 22 59 106 65 105 95 46 1 44 51 47 27 12 71 43 21 45 20 27 12 25
TTM YEAR
201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309
P/E
11.5 9.1 27.6 8.2 17.6 2455.6 11.6 6.1 20.0 23.7 27.2 38.5 35.5 38.3 43.1 21.9 17.1 21.8 14.4 4.2 40.8 19.2 10.7 19.5 20.7 19.4 14.7 11.3 19.5 22.7 9.3 16.6 8.9 31.9 54.1 10.3 26.4 13.4 15.6 9.5 24.2 12.4 21.1 21.2 21.7 30.9 11.2 10.9 16.9 21.8 16.5 18.2
COMPANY
Intl. Travel Hse J & K Bank Jyoti Structures Kalpataru Power Kirl.Pneumatic KPIT Tech. KSB Pumps Lak. Mach. Works Larsen & Toubro LIC Housing Fin. M&M M M Forgings Manjushree Tech. Maruti Suzuki McNally Bharat Monsanto India Motherson Sumi MPS MRF Munjal Showa Navneet Educat. Paper Products Power Grid Corpn PTC India PTC India Fin Punjab Natl.Bank Rallis India Reliance Inds. SBT SKF India South Ind.Bank St Bk of India Sundaram Finance Sundram Fasten. Supreme Inds. Swaraj Engines T.V. Today Netw. Tata Global TCS Tech Mahindra Thermax TVS Motor Co. TVS Srichakra Va Tech Wabag Vesuvius India V-Guard Inds. VST Till. Tract. WABCO India Whirlpool India Wim Plast Wipro Yes Bank
IND. NO.
104 12 102 102 25 28 78 92 45 51 7 17 62 6 45 68 10 77 105 10 77 62 76 101 50 11 67 80 11 13 12 11 50 48 75 46 47 89 27 27 44 9 105 44 81 39 7 10 36 75 27 12
TTM YEAR
201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309 201309
P/E
7.5 6.0 3.6 9.0 12.1 32.2 13.5 24.6 22.5 9.3 16.6 4.4 9.3 19.5 6.8 14.7 33.2 11.6 10.2 4.2 13.1 9.6 10.1 12.7 6.8 5.2 28.4 13.9 3.9 22.0 5.4 9.8 15.3 10.1 20.2 13.6 14.8 39.8 27.6 27.6 31.3 18.8 8.8 16.1 13.4 24.8 8.7 32.5 26.8 8.1 24.2 9.0
67
StockWatch
the operating profit margin declined to 9.5% from 10.6% and operating profit 5% to Rs 8.69 crore in the quarter ended September 2013 over a year ago. Profit after tax (PAT), however, rose 13% to Rs 4.66 crore. Due to the adverse June The leading welding player will be a key beneficiary 2013 quarter, sales slipped 6% to Rs of the pick-up in the investment cycle 160.25 crore and PAT 27% to Rs 6.28 crore in the six months ended September Ador Welding (AWL) develops, manufac2013 over a year ago. tures and sells welding and cutting prodFocused on increasing the pie AWL is focusing on increasing market ucts (consumables and equipment and auAdor Welding is focusing on increasing share in FY 2014. This will mainly be fultomation). The total solutions provider market share by offering new products filled through offering new products in the offers up-to-date suite of welding and and entering new markets in the existing and new markets and increasing cutting consumables, power sources and current fiscal ending March 2014 the share of existing products in new and accessories besides a full package of soft existing markets. 137 skills and knowledge development for The key strategic differentiator is the welding and fabrication. Large invest124 total solutions-rendering approach. Inments have been made in the project entroduction of a new range of products gineering business. 111 and CNC cutting machines along with At least 100 industries are involved in the launch of automation technology welding-related projects. Major projects 98 aided by game-changing process technolin diversified sectors such as steel, power, ogy, Plasma Mig, from Plasma Laser chemicals and railways promise a lot of 85 J J A S O N D 30 01 M Technologies, its overseas subsidiary, growth for the welding industry in India. Apr Dec 2013 2013 will bolster its position as the most inThe domestic welding market will extennovative and preferred partner for the sively need stainless steel solid and flux Indian customer. Capital expenditure has been budgeted cored arc welding wires and other special The strategy is to focus on the bottom at about Rs 33.00 crore in the fiscal ending consumables. Similarly, potential for weldof the pyramid with a new range of prodMarch 2014 (FY 2014), mainly for ing equipment and low-cost and high-end ucts and services should give a boost to marconsumables, equipment and R&D; producautomation aids to speed up welding proket share, aided by the largest R&D set-up tion equipment to balance lines for achievductivity will provide many opportuniin the Indian welding industry in the private ing capacity production levels; productionties for growth. sector. This helps it to have the fastest time related equipment to improve in-process AWL has undertaken a specific action to market its products. quality and deviation control towards sixplan to improve the volume of the equipThe welding industry and, in turn, sigma levels; analytical instruments for ment business, where adequate infrastrucAWL will grow as investment cycle picks equipment R&D; and new sales offices and ture is available to facilitate growth. Speup in future. The industry caters to a wide additional plots of land. cial products developed by the company range of industrial segments such as transSales grew 6% to Rs 91.64 crore but are now offered to customers for critical portation (auto and ship building), applications of fabrication in the oil oil and gas pipelines, platforms and and gas, power, and equipment fabriAdor Welding: Financials rigs and fabrication of structures for cation sectors, with technical delivpower station of railways, mines, irery conditions (TDCs). 0903(12) 1003(12) 1103(12) 1203(12) 1303(12) 1403(12P) rigation and such other basic indusSpecial products developed in FY Sales 225.3 261.51 295.2 340.91 364.17 369.14 tries. Hence, pick-up in industrial ac2013 and offered with TDCs to cusOPM (%) 16.3 17.6 15.8 11.1 9.9 9.0 tivity in any of these segments will tomers in the oil and gas, power and OP 36.68 45.96 46.68 37.94 36.19 33.18 help the company. equipment fabrication sectors were Other inc. 0.89 3.86 2.21 3.51 3.61 5.47 AWL had debt of only Rs 1.7 well accepted due to the quality assurPBIDT 37.57 49.82 48.89 41.45 39.80 38.65 crore as against net worth of Rs 185 ance practices followed. Quality labs Interest 1.98 0.57 0.55 0.88 0.82 1.07 crore end March 2013. It has been are regularly upgraded to provide strinPBDT 35.59 49.25 48.34 40.57 38.99 37.58 paying Rs 6 per share dividend evgent performance certification deery year for the past four years. We Dep. 13.28 13.11 12.63 12.45 12.34 12.43 manded for new welding applications expect the company to register sales PBT 22.31 36.14 35.71 28.12 26.65 25.15 in the growing infra sector. of Rs 369.14 crore and net profit Rs Total Tax 10.15 10.54 10.02 7.23 7.57 7.38 The extensive manufacturing foot17.77 crore in FY 2014. On equity PAT 12.16 25.60 25.69 20.89 19.08 17.77 print and large manufacturing capaciof Rs 13.60 crore and face value of ties will help AWL to be ready to meet EPS (Rs) * 8.9 18.8 18.9 15.4 14.0 13.1 Rs 10 per share, EPS works out to the demand of any geographic segments * On current equity of Rs 13.60 crore. Face Value: Rs 10. (P): Projections. Figures in Rs crore. Rs 13.1. The share price trades at and, importantly, the demand upswings Source: Capitaline Databases Rs 133. P/E is 10. in the shortest possible time.
Ador Welding
Weld rounded
68
EconomyPulse EconomyPulse
Key economic events in 2013
EconomyPulse
US Federal Reserve indicated a gradual end to the monetary stimulus package Cabinet gave permission for setting up of an independent regulator for the coal sector Commodities Transaction Tax at a rate of 0.01% was decided to be levied from 01 July 2013 CCEA approved the gas-pricing formula of the C Rangarajan panel, to be applicable from 01 April 2014 RBI received about 26 application to set up banks in the private sector July Prime Ministers Project Monitoring Group cleared stalled power projects for want of coal worth Rs 52000 crore Cabinet gave in-principle approval to the proposal for bringing a legislation for a Civil Aviation Authority Foreign direct investment limits hiked in a host of sectors with 100% for telecom and asset reconstruction companies RBI announced liquidity tightening measures to curb rupee volatility National Spot Exchange suspended trade in most of its forward contracts and deferred payments on client trades RBI left interest rate unchanged, while cutting growth forecast to 5.5% for FY 2014 from 5.7% earlier August Government raised import duty on gold and silver to 10% each from 8% and 6% Cabinet approved the proposal for setting up of the Tax Administration Reform Commission Parliament gave its nod for the Companies Bill, which will come into effect from 01 April 2014 Lok Sabha passed the Food Security Bill and Land Acquisition, Rehabilitation and Resettlement Bill On 28 August 2013, the Indian rupee hit an all-time low of 68.80 against the US dollar September Raghuram Rajan took over as the 23rd Governor of RBI, and announced a series of measures to support the rupee RBI raised repo rate from 7.25% to 7.50% to tame inflation, despite weak economic growth Economic Advisory Council to Prime Minister projected Indias GDP growth at 5.3% for FY 2014 RBI nominated three-member panel headed by Dr Bimal Jalan to scrutinise applications for new bank licenses Production target for foodgrains set at 259 million tonnes for FY 2014 World Economic Forum ranked India at 59th in global competitiveness, down three places from last year Seventh Pay Commission to submit report in two years and to be implemented from 1 January 2016 October Asian Development Bank lowered Indias growth forecast to 4.7% for FY 2014 from 6% in April Railways extended the fuel adjustment component for rate decision in the passenger segment IMF lowered Indias growth projection to 3.8% in FY 2014, sharply lower than 5.6% in July World Bank revised downwards Indias growth forecast to 4.7% from FY 2014 from 6.1% projected in April Railway formed a High Speed Rail Corporation, which will evaluate ways to implement high-speed train projects RBI raised repo rate by 25 bps to 7.75% to anchor inflationary expectation November India opened the first public sector bank focused on catering to the financial needs of women S&P warned rating cut if new Union government after 2014 election fails to provide a credible plan to boost growth OCED projected Indias GDP growth at 3.4% for FY 2014, 5.1% for FY 2015, and 5.7% for FY 2016 December India agreed to a four-year peace clause, allowing to do away with food subsidy caps at WTOs Bali meeting Parliament passed the Lokpal Bill, opening the doors for setting up of anti-corruption watchdogs CCEA approved Rs 6600 crore interest-free loans for sugar mills to pay cane price arrears United Nations lowered Indias growth forecast for 2013 to 4.8%, while warning that emerging markets should be prepared to deal with the impact of US Federal Reserves quantitative easing programme RBI maintained status quo on policy rates, while hinting at rate hike if inflation does not ease
Compiled by Vijay Ghutukade
70
OffFocus OffFocus
has come to separate criminal actions from acts of consent. Almost every country in the world has absurd laws. But in India the laws are also severely antiquated. Even though the telegraph has met its end in the country, the Indian Telegraph Act of 1885 is still alive and kicking. This law gives the Central government authority over Indias communication network including phones, faxes and other modern communication devices. It also happens to be the law that allows the government to tap or snoop on communications between citizens. The fact that this law once put the cricket World Cup distribution on television in peril is well known. Interestingly, the SC has held the Indian Telegraph Act inadequate for broadcasting. In India, the legal age for allowing alcohol consumption is decided on a state-tostate basis. Some states prescribe 25 years, others 18 years. This would basically mean that a man is old enough to get married but not allowed to have a drink on his special day. It is also strange that Indian law recognises people above the age of 18 as adults. In the Wardha district of Maharashtra, the legal drinking age is 30, which is the highest anywhere in the world. Some states such as Gujarat and Mizoram outright ban consumption of alcohol. Maharashtra actually enforces a permit system and requires residents to go to a government civil hospital to obtain permission to drink alcohol. In Punjab, women by law are prohibited to be a part of any establishment that serves alcohol. So much for gender equality. In fact, these laws make criminals out of many young people without providing much of a deterrent against alcohol abuse. So any young person who actually wants counselling or wants to give up alcohol may actually risk arrest by coming out as an underage drinker. A law with potential for severe abuse is the anti-blasphemy law. In India, the preservation of law and order comes at a cost. Anyone who tries to spread rationalist thoughts or questions superstition can face stiff penalties. Interestingly, while most news of the misuse of this anti-blasphemy law comes from our neighbour Pakistan, there are instances of people being implicated in India, too. Section 295 A of the IPC deals with deliberate and malicious acts intending to outrage religious feelings of any class by insulting its religion and religious beliefs. This effectively makes it illegal to
71
Antiquated laws
Take, for example, the much discussed Section 377 of the IPC, which criminalising most form of human sexual activity regardless of sexual orientation. At the same time, the same IPC grants immunity to spouses for rape. So fast forward to 2013 and we have a curious situation in the worlds largest democracy: if you happen to be a man and you love another, you get put away from 10 years to life. But if you are a rapist, you can basically walk away scot-free. Section 497 of the IPC cannot be ignored either. The section punishes adultery in this day and age. But the wrath of the law only falls on men, not women. Interestingly, even with Section 377 intact, there are no laws in India that protect men against rape and abuse. Rape laws in India are not gender-neutral. Of course, the proponents of keeping things just the same would argue that there are reasons why these laws exist in the first place. But that is another debate. The focus should really be whether human sexuality should fall within the ambits of penal provisions in the first place. Perhaps the time
OffFocus
criticise any religious practice whatsoever of any faith. In 2012, a case against Sanal Edamaruku, the President of Rationalist International, was brought forward under this law in Mumbai. Edamaruku has since then been given asylum by the government of Finland. It is quite understandable that, with a history of religious violence and riots, the government in India is keen to keep this law. Irrespective of the need to maintain harmony, the suppression of the speech of rationalists and atheists seems deplorable in a modern functioning democracy. Section 66A of Information Technology (IT) Act, 2000, is not a dated piece of legislation. But its constitutional validity is now being challenged in courts. This section states that any person who sends by means of a computer resource or communication device any information that is grossly offensive or has a menacing character can be punished with imprisonment for a maximum term of three years, besides imposing appropriate fine. With such broad generalisation, this act has the ability to turn anyone on Facebook or Twitter into a criminal if they post or tweet without giving careful consideration to their words. In September 2012, Chandigarh police arrested a girl who was the winner of a national bravery award for allegedly posting abusive comments on the citys traffic police Facebook page. This section is so broad and sweeping that its misuse has prompted the government to make changes that include only allowing very senior police officers to file charges under this section. However, these changes are like putting lipstick on a pig. Effectively, what Section 66A does is strip away free speech on the Internet. People who attempt to kill themselves usually are in a lot of pain, emotionally, psychologically or, sometimes, even physically. Surviving suicide in India can be even more painful. Attempt to suicide is a punishable offence under Section 309 of the IPC. In 2011, the SC had asked parliament to delete this law. The SC said: The time has come when it should be deleted by parliament as it has become anachronistic. A person attempts suicide in depression and, hence, he needs help, rather than punishment. Imagine subjecting someone who has just gone through a major life trauma to a jail cell. People who are vulnerable need support of their families, friends and counselling. Isola72
tion and incarceration is what the law has to offer at the moment. Some regulation and laws can be so strange that they are outright hilarious. Andhra Pradesh (AP) has a post of a motor vehicle inspector. According to the Andhra Pradesh Public Service Commission website, some of the grounds for disqualification as a vehicle inspector are colour blindness, squint or any morbid conditions of the eyes or lids of either eye, knock knees, pigeon chest, flat foot, varicose veins, hammer toes, fractured limbs and decayed teeth. Why would tooth decay be a problem for a vehicle inspector could only be explained by powers-that-be. Anyone wanting to be a vehicle inspector in AP should probably brush their teeth twice a day. It is common knowledge that to enter the armed forces the candidate should pass certain height and weight requirements. What many people may not know is that the Indian Air Force stipulates that to be a pilot a person should have the minimum leg length of 99 cm and maximum of 120 cm. Why would a pilot need a particular length of legs is weird and perplexing, especially after the air force prescribes a minimum overall length of 157 cm for all candidates. The aim of lawmakers should be to enact laws that reflect the needs of current society. Parliament is the body that should do this job. It has somehow failed to revoke laws that are absurd. Some laws such as Section 377 are so politically volatile that the government does not even want to venture into the parliamentary route. Sometimes, these laws are left intact to protect the moral fibre of the country. Other times, the government is scared to usher in reform because it is afraid it might cause law and order issues. Cost that these laws extract are very real.
Corruption is an endemic problem in India and the potential of misuse of stringent provisions of the IPC is real. These laws, created during the time of Queen Victoria, reflect a Victorian British morality. Even the United Kingdom has moved beyond those times now. Recently, Queen Elizabeth II pardoned Alan Turing, the father of computing and a codebreaker par excellence. It was his work that led to Britain winning the Second World War. He was prosecuted under Section 377-like laws and ended up killing himself. When the people who gave us these laws have given up on them, it is obvious that the time has come for us to think about becoming a modern vibrant democracy as well. Laws must never persecute people for their morals or their way of life. Over the last years, personal freedom in India has suffered erosion, whether it is the IT Act or Section 377. We cannot have laws in this country that are contrary to our constitution that guarantees us these freedoms. Everyone has the right to pursue happiness. While many moralists will continue to make arguments that the conduct of individuals has an overall impact on society, the truth is that none of them would like their own personal freedoms curtailed. Without the freedom all we have is a colonial legacy in the form of a penal code. Chipping away the Constitution and its provisions can never be an option for a modern India. It is the only thing that separates us from British Raj. The time has come for a change. But, more importantly, the time has come for the parliament to legislate effectively. This can only be done if quality work is done in legislative chambers without disruption and discord. Now the only question is who is going to bell these regressive laws? Shivdeep Singh
Jan 06 19, 2014 CAPITAL MARKET
FORTNIGHT
2.31 3.10 3.34 7.79 1.78 2.24 4.12 5.58 -0.21 5.73 -1.33 1.94 26.14 4.44 4.12 2.85 6.28 7.85 8.33 10.91 37.16 8.10 58.45 6.87 7.79 5.58 7.02 5.69 10.06 7.76 2.32 2.24 1.40 8.31 0.30 3.98 3.31 4.39 2.68 11.88 6.94 4.65 9.65 2.05 6.13 0.77 4.82 4.17 7.13 19.85 9.29 3.34 4.12 -0.21
MONTHLY
YEARLY
9.68 5.14 3.96 72.70 7.41 11.57 12.59 55.77 -20.05 -5.31 42.17 80.46 106.09 16.12 23.51 85.77 -11.00 38.99 30.68 69.01 48.23 476.09 62.76 72.70 55.77 43.81 99.81 102.25 3.63 10.70 11.57 9.78 7.91 33.60 34.91 16.37 -5.23 0.10 -23.39 -0.27 -0.51 27.38 13.23 22.65 54.26 37.87 47.53 -2.61 40.30 -7.44 -18.45 12.59 -20.05
3-YEAR
5.81 2.21 0.62 89.37 -16.72 89.97 -10.15 5.43 -7.83 -12.48 127.37 315.68 51.21 66.41 76.56 131.90 -30.49 5.56 333.38 -37.69 39.69 2762.99 36.27 89.37 5.43 14.50 176.03 167.75 44.00 83.22 89.97 92.05 44.72 77.34 71.83 117.86 -32.27 -17.10 -62.29 -18.23 -14.25 99.90 -16.93 50.86 140.44 48.70 99.61 9.64 32.66 -19.25 -36.48 -10.15 -7.83
3.79 4.62 4.90 8.77 4.86 2.56 0.85 8.09 6.63 7.08 -2.70 10.92 34.96 3.88 2.44 4.49 8.71 14.22 25.10 19.49 71.93 10.32 69.06 10.16 8.77 8.09 18.20 18.10 10.14 8.41 0.87 2.56 -2.64 -2.05 -4.28 4.20 -1.38 8.69 7.06 18.34 11.39 8.56 6.48 9.03 6.39 0.96 3.83 6.03 5.93 23.63 10.24 4.13 0.85 6.63
73
SectorSpecific
MARKET CAP (Rs cr)
St Bk of India NTPC NMDC IOCL S&P BSE BANKEX HDFC Bank ICICI Bank St Bk of India Axis Bank Kotak Mah. Bank Bank of Baroda S&P BSE Auto Tata Motors M&M Bajaj Auto Maruti Suzuki Hero Motocorp Bosch S&P BSE Metal Coal India Sesa Sterlite NMDC Hind.Zinc Tata Steel SAIL S&P BSE Oil&Gas Reliance Inds. ONGC Cairn India IOCL GAIL (India) Oil India S&P BSE IPO Bharti Infra. Just Dial Multi Comm. Exc. Repco Home Fin Credit Analysis NBCC S&P BSE Greenex ITC Infosys Bharti Airtel Hind. Unilever HDFC Tata Motors S&P BSE Power NTPC Power Grid Corpn BHEL NHPC Ltd Siemens Tata Power Co. S&P BSE Realty Index DLF Oberoi Realty Prestige Estates Unitech Godrej Propert. Phoenix Mills 121066.47 113251.39 56259.09 51654.64 647231.75 160270.58 127907.06 121066.47 60685.76 56718.75 27629.31 410962.88 119458.34 59404.71 55993.10 53631.28 41673.40 32774.38 506653.50 178721.41 59649.76 56259.09 56238.74 41179.30 29636.55 777978.96 283929.94 249862.79 61975.50 51654.64 43191.74 29112.73 53757.33 31809.41 9708.20 2304.95 2206.06 2099.46 1869.60 1900512.13 255602.46 204558.64 131434.51 123019.50 122962.46 119458.34 382622.05 113251.39 46204.71 42404.67 24232.46 23625.45 21262.98 70109.59 30498.42 7562.42 5822.25 4081.43 3338.27 3315.62
FORTNIGHT
1.51 -0.22 2.75 6.43 0.80 -3.05 2.07 1.51 4.30 -2.61 -1.30 2.27 0.24 1.74 1.44 4.95 1.06 18.25 3.08 -0.21 4.90 2.75 4.15 2.07 4.06 2.47 1.78 4.12 0.50 6.43 0.96 6.02 7.91 -2.69 19.30 13.61 10.91 0.11 12.57 2.32 2.24 5.58 2.41 1.40 -2.28 0.24 4.07 -0.22 2.41 11.88 9.14 6.94 3.05 8.52 13.53 9.09 8.23 1.63 2.23 2.78
MONTHLY
YEARLY
-25.91 -11.64 -11.34 -18.46 -8.78 -1.48 -2.60 -25.91 -5.21 13.57 -24.22 8.48 19.92 3.60 -9.36 19.81 11.67 14.52 -9.63 -20.05 4.68 -11.34 -1.66 -1.60 -19.56 5.56 7.41 12.59 2.61 -18.46 -2.11 5.48 -18.14 -69.29 -22.54 -5.14 6.22 11.57 55.77 3.19 9.78 -4.71 19.92 -13.99 -11.64 -12.19 -23.39 -22.90 -0.27 -17.50 -30.28 -23.91 -21.67 -6.12 -53.71 -43.69 -7.35
3-YEAR
-35.68 -30.19 -46.93 -39.94 0.52 51.26 -1.44 -35.68 -1.72 65.14 -26.33 22.99 42.68 27.18 33.01 27.31 7.85 68.20 -41.86 -7.83 -37.04 -46.93 4.93 -36.11 -59.53 -17.28 -16.72 -10.15 -2.10 -39.94 -33.38 -13.38 -20.05 89.97 5.43 -3.75 92.05 13.34 42.68 -42.04 -30.19 3.15 -62.29 -29.89 -18.23 -31.68 -46.98 -39.85 -12.01 1.59 -74.74 -39.68 1.98
0.34 -6.34 13.38 6.56 5.07 2.36 6.30 0.34 15.46 -1.25 6.33 0.37 -7.04 2.48 -0.63 7.09 1.71 21.89 8.26 6.63 15.47 13.38 4.27 7.41 6.93 3.63 4.86 0.85 0.12 6.56 3.50 2.52 6.63 6.55 15.55 -4.33 19.49 5.70 18.08 2.94 2.56 8.09 2.18 -2.64 -2.38 -7.04 6.60 -6.34 8.30 18.34 10.99 11.39 15.54 10.38 16.11 23.34 12.63 -0.64 -2.67 3.18
Only top six index constituent by market cap taken. Stock prices adjusted for stock-splits, bonus and rights issues, and dividends if any.
74
PostIPO PostIPO
2011, it plunged below its IPO price. Since then, it has failed to bounce back, the volatile financial and operational performance is a matter of concern for the market. Out of the last four financial years, turnover, volume of production, and profit declined in FY 2010 and FY 2012. Moil increased prices of manganese ore by about 19% in FY 2013. However, volatility in prices of manganese ore remains a key threat. Low- and medium-grade manganese ore is available in India. Thus, the country imports high-grade ore for blending. Import is a direct threat to the company, which can put pressure on the bottom line. The country imported 2.33 mt of manganese ore in FY 2013. Indeed, India is a net importer of manganese. Moil was set up in 1896 as Central Province Prospecting Syndicate, which was later renamed as Central Provinces Manganese Ore Company (CPMO), a British company incorporated in the UK. In 1962, as a result of an agreement, the assets of CPMO were taken over by the Central government and Moil was formed. As the mines are old, full mechanization is not possible. Further, the cost of production increases with deposits reaching deeper horizons. This is another challenge for the company, which has two wind farms of 4.8 MW and 15.2 MW situated in district Dewas in MP. Cash-rich Moils return on equity (ROE) is on a decline at the present level of 16.6% in FY 2013 and 18% in FY 2012 from 75.3% in FY 2008, 62.2% in FY 2009 and 31.1% in FY 2010. One of the reasons is the high cash component on the balance sheet. Cash stood at Rs 2276.7 crore end FY 2013. This is 82% of the net worth and 57% of the market cap of Rs 3984.1 crore as on 10 December 2013. It either needs to deploy this cash effectively or else return it to the shareholders to improve the ROE. With zero-debt over the last one decade, dividend of 55%, or Rs 5.5 per share, including interim dividend of Rs 2 per share was paid in FY 2013. The dividend payout ratio works out to 22.1%. Plans are in place to deploy cash for capital expenditure, which is expected to be around Rs 1021 by FY 2017: around Rs 207 crore in the current in the Rs 400 crore and next fiscal. Despite these investment plans, the company is likely to remain cash-rich owing to the strong operating cash flow.
75
Moil
2012 (FY 2012) and 51% in FY 2013, it holds about 73.5 million tones (mt) of reserves and resources of manganese ore. Out of this, about 44% are proven. The total lease area held is 1,802.97 hectares. Out of this, 39% land is in Maharashtra and 61% in MP. The reserves expected to last for over 40 years based on current production rate. The stock was listed at Rs 551, a huge premium of 47%. However, in quick time, the scrip lost the initial euphoria. In May
Losing value
The Moil stock was listed at Rs 551, a premium of 47% over its offer price. In May 2011, it plunged below its IPO price and has failed to bounce back
Relative performance of Moil v BSE Sensex
122 111 100 89 MOIL 78 M 01 Apr 2013 J J A S O N D 27 Dec 2013 BSE Sensex
PostIPO
Likewise, significant investments for rosion resistance. Globally, over 90% of development of existing mines have been manganese is utilised in the planned. For this purpose, various project desulphurisation and strengthening of have been taken up or proposed. These insteel. Thus, the fortune of this industry is clude sinking of high speed vertical shaft at tied up with that of the steel sector, which the Balaghat and Ukwa mines in Madhya is cyclical in nature. Pradesh, sinking of vertical shafts at Chikla, The domestic economy plunged to a in Mansar and Gumgaon in Maharashtra, decade-low, with economic growth of mere and deepening of the vertical shaft at 5% in FY 2013. The current fiscal is going Balaghat and Chikla mines. The Balaghat to be no different. The investment cycle mine is the largest, with a depth of 309 should revive to give a boost to the steel meters from the surface. industry. In turn, this means, the demand A number of mining projects are being for manganese ore is expected to remain executed to increase capacity of the existing subdued. However, the medium- to longmines and to sustain the existing production term prospects look good with the level. Production target is 1.5 mt by FY 2017 countrys per capita consumption of crude and 2.2 mt by FY 2021. Production was steel continues to be pathetically low at 60 1.07 mt in FY 2012 and 1.14 mt in FY 2013. kilograms (kg) compared with the global Further, a prospecting license has been average of 219.6 kg. Maharashtra has given prospecting licences received for an area of 597.44 hectares in Currently, India is the fourth largest prowill decide its future on the trading floor. Of districts of Nagpur and Bhandara from the ducer of crude steel globally compared with course, the demand environment for mangagovernment of Maharashtra out of the rethe eighth position in calendar year (CY) nese ore needs to improve in the domestic served area of 814.71 hectares. It will help 2003. India is projected to move to second and international markets. to expand its existing mines. There is a posposition by FY 2015. This is expected to In the memorandum of understanding sibility of opening up of a minimum four largely driven by higher economic growth signed with the government, production mines in this area, which will boost producand spending on infrastructure. This is a gitarget of 11.25 lakh tonnes, sales target of tion going forward. gantic opportunity for cash-rich Moil. HowRs 835 crore, and net profit target of Rs Called Sail & Moil Ferro Alloys Pvt Ltd, ever, the company has to execute its expan323 crore have been set for the medium to the equal joint venture (JV) with Steel Ausion plans to benefit from the expected surge long term. But it all boils down to the outthority of India (Sail) for setting up of ferro in demand for steel. look of the steel industry. Manganese is alloys plant with capacity of 1.06 lakh an integral part of production of steel, Outlook tonnes at Nandini in Chhattisgarh will comwhich improves quality of steel in terms Sixteen mutual fund houses held 0.92% prise 31,000 tonnes of ferro manganese and of strength, hardness, durability and corequity stake end 30 September 2013. This 75,000 tonnes of silico manganese. is a marginal decline. A year ago, 19 Another equal JV with Rashtriya mutual fund houses had an equity Ispat Nigam, Rinmoil Ferro Alloys Shareholders pain stake of 1%. However, mutual fund Pvt Ltd, will be putting up a ferro holding has come down drastically alloy plant, with capacity of 57,000 Cash-rich Moils return on equity declined to 16.6% compared with the holding immeditonnes comprising 20,000 tonnes of in FY 2013 from 31.1% in FY 2010 ferro manganese and 37,000 tonnes ately after the IPO. A total of 35 mutual fund houses owned 1.8% eqof silico manganese at Bobbili in FY 2013 FY 2012 FY 2011 FY 2010 FY 2009 Andhra Pradesh. Both these JVs are uity on 31 December 2013. Equity (Rs cr) 168.0 168.0 168.0 168.0 28.0 facing delays in implementation. Profitability margin is high, with Networth (Rs cr) 2765.6 2441.3 2128.2 1677.3 1,320.8 net profit margin (NPM) of 44.3% in These JVs will emerge as captive Sales (Rs cr) 975.0 905.6 1145.3 972.3 1,284.8 FY 2013 as against 45.3% in FY 2012 consumers for manganese ore proOther Income (Rs cr) 235.2 203.3 145.4 129.9 123.2 duced by Moil. and 51.3% in FY 2011. The company expects to clock NPM of 39% in the Besides, acquisition opportunities Profit (Rs cr) 431.7 410.7 588.0 466.3 664.2 current fiscal. are being scouted outside the country. Cash Profit (Rs cr) 464.7 440.6 620.5 491.6 688.4 To exploit manganese ore and other The high cash component in comBook Value (Rs) 164.6 145.3 126.6 99.8 4717.3 parison with the market cap could be metalliferrous minerals, the hunt is on EPS (Rs.) 24.8 23.6 33.8 26.8 2,289.9 for properties to lease or buy from forone compelling reasons for investors Dividend (%) 55.0 50.0 70.0 56.0 475.0 eign countries directly or under special to explore the Moil stock for investment. The cash per share works out to purpose vehicle and JVs. Payout (%) 22.1 21.1 20.6 20.8 20.7 Also, the option of setting up manRs 135, which is over 50% of the curDebt-Equity 0 0 0 0 0 rent market price. The high cash on ganese-based value-addition projects is ROCE (%) 23.7 25.8 45.6 47.2 94.3 the balance sheet can provide downbeing explored. Thus, a lot depends on RONW (%) 16.5 18.0 30.9 31.1 62.2 side support to the stock. the execution of these plans to effecSource: Capitaline Databases S Khedekar tively use surplus cash. This, in turn,
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count have to be audited under Section 44AB of the Income Tax Act, 1961. For companies, e-filing with digital signature is mandatory. For non-auditable cases, DSC is not mandatory. If the DSC is used for income tax return (ITR), the ITR will be treated as legally filed immediately after uploading. If a taxpayer does not have a DSC, he can still file the return electronically. But a signed copy of ITRV has to be sent to Centralised Processing Centre, Post Bag No.1, Electronic City Post Office, Bangalore- 560100, within 120 days. After receiving the signed copy of ITR-V, the CPC return will be treated as legally filed and will be processed. DSC should be of class II or III only,
and issued by the Controller of Certifying Authority-approved certifying agencies in India. There are a total of eight CAs authorised by the CCA to issue DSCs. A person who already has the specified class II or III DSC for any other application can use it for filing the ITR and is not required to obtain a fresh permanent account number (Pan)-embedded DSC. Fresh Pan-embedded DSC is required when the existing DSC has expired or revoked. DSCs are typically issued with one- or two-year validity. It includes the cost of medium (a USB modem, which is a onetime cost), the cost of issuance of digital signature and the renewal cost after the period of validity. The issuance cost of each CA varies and is market driven. A taxpayer has to first register his DSC on the e-filing website, either during registration or post login. Once DSC is registered, the taxpayer has to use the same DSC while uploading the ITR. A DSC cannot be registered by multiple users. The DSC registered has to belong to the assessee and should have his Pan and email ID encrypted. The only exception to this rule is that an authorised signatory (principal contact) for an organisation should register his own DSC to e-file for the organisation. The same DSC can be used for personal e-filing, too. There may not be need for digital signatures to file ITR going forward. The IT department is looking at giving electronic personal identification numbers to taxpayer, which will make electronic ITR filing a hassle-free task. Tushar Doctor
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comments could have long-term repercussions. An enterprise not following uniform accounting polices is one such instance. The auditors obviously cannot quantify the financial impact. But its certainly an important piece of information. Another example would be that of inadequate internal control mechanism for a particular function or multiple functions. Investors tend to focus on items where the financial impact is visible such as nonprovisioning and ignore comments where the financial impact is not given. This is not the right approach. The statutory auditors of NHPC have qualified the books of accounts for the half year (H1) ended 30 September 2013 on capitalisation on certain costs. The PSU has included borrowing cost of Rs 572 crore and administrative and other cost of Rs 205.1 crore in capital work in progress (CWIP) incurred on the Subansiri lower hydro-electric project in Assam. The work at the site has been interrupted. The Accounting Standards (AS) require the expenditure incurred during the interruption period to be charged to the profit and loss account. According to NHPC, technical and administrative work is going on at the site. Thus, the borrowing cost and administration and other general overheads have been capitalised with adequate disclosure in the financial
statements. The company is reasonably confident that, based on past experience, these costs will be allowed to be included in the capital cost of the project and, consequently, will be recoverable through tariff. Further, based on the advise by the office of Cag, the matter has been referred to the Expert Advisory Committee of the Institute of the Chartered Accountants of India (ICAI) for seeking opinion. Besides, the issue has also been referred to the Ministry of Corporate Affairs (MCA) through the Ministry of Power. Further, the auditors have included multiple matters in their audit report on the accounts for H1 ended 30 September 2013 under, Emphasis of matter, without any qualified opinion. The first instance is about carryforward of cost incurred on survey and investigation of projects. As per NHPC, the projects on which survey and investigation expenditure has been incurred are still active. Therefore, the cost incurred has been carried forward. The second comment is about uncertainty of outcome of the claims and arbitration proceedings and lawsuits filed by NHPC against contractors and others. These potential liabilities have been treated as contingent liability. The company says it requires to disclose the uncertainty relating to any outflow of contingent liability in accordance with AS-29. It has made adequate disclosures in the annual report. Third, the auditors have drawn attention to the treatment of expenditure incurred on creation of assets not within the control of NHPC, and generally tagged as Enabling assets. The effects of such expenditure is not been given in the books of accounts. In this
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regard, the PSU is reviewing its accounting practice. There would be no material impact on profitability due to changed accounting practice, if any, in future, as per the company. Fourth, the auditors have also drawn attention to the damage to the 280-MW Dhauliganga power station in Uttarakhand due to floods, resulting in suspension of operations. The losses incurred including consequential losses and loss of profit are considered recoverable from the insurers by the management. The assets of the power station and loss of generation are covered under the mega insurance policy. However, losses beyond excess, if any, are required to be borne by NHPC. The excess losses will be determined after receipt of the final survey report. This amount is not ascertainable at present. Restoration work is underway. The company received on-account payment of Rs 35 crore from the insurance company in October 2013 as against the insurance claim. Fifth, NHPC has not made any provision for expenses for the Dibang hydro electric project in Arunachal Pradesh. Clearance for this project was rejected at the initial stage. However, a draft note for this project has been put up to the Cabinet Committee of Investment (CCI). In October 2013, the Ministry of Environment & Forest gave its recommendation on the proposal of the Ministry of Power to approach the CCI for reviewing the decision. Considering this, the company has decided to wait for a final decision. Necessary provision will be made if the final outcome goes against it. NHPC, Indias largest hydro power company, reported consolidated profit of Rs 2439.6 crore in the fiscal ended March 2013 (FY 2013) and Rs 3025.6 crore in FY 2012. The amount involved is significant for Steel Authority of India (Sail) as well. The statutory auditors gave expressed qualified opinion in their review report for the period ended 30 September 2013. On a cumulative basis, the company had not provided for entry tax amounting to Rs 82.9 crore in Uttar Pradesh, Rs 976.3 crore in Chhatisgarh, and Rs 204.6 crore in Odisha on 30 September 2013. Further, Sail has not made provision for income tax demand of Rs 87.6 crore and claims of Rs 253.8 crore by Damodar Valley Corporation (DVC) for supply of power. The non-provisioning resulted in overstatement of profit by Rs 89.7 crore in the quarter and Rs 159.9 crore in H1 ended 30 SepJan 06 19, 2014 CAPITAL MARKET
Investment Strategy
recoverable. The PSU conducted a special audit to ascertain the amount actually recoverable. Based on this report, a provision of Rs 228.8 crore was made towards unrecoverability of the amount from the concerned sundry debtor. Second, acts of commission and omission for recovery from debtors were noticed at MMTCs Chennai RO. Based on the final report of the special audit, additional provision of Rs 15.5 crore was made in FY 2013. The company had provided Rs 100.2 crore in FY 2012. Third, balances under sundry debtors, claims recoverable, loans and advances, sundry creditors and other liabilities in many cases have not been confirmed. Fourth, the RMS software is not reflecting correct inventory of Sanchi, a brand under which silverware products are sold, due to problems with the package. The manual record has not been maintained. In the annexure to the audit report, the statutory auditors have advised MMTC to strengthen the procedures of physical verification of inventories followed by the management. Also, they have recommended strengthening of the internal control system for purchase and sale of goods. Last, the auditors expressed the need to strengthen the internal control mechanism for reconciliation of goods, risk management, and books of accounts at its Hyderabad RO. Shipping Corporation of Indias (SCI) limited review report for the quarter ended 30 September 2013 contains four issues. First, the accuracy of the exchange gain or loss recognised on revaluation as per AS-11 remains unverifiable and unascertainable. This was due to bill-wise reconciliation of transactions for customer reconciliation and advance received from customers. According to SCI, the issue arising pertains to part payment received in rupees as against foreign currency invoices. The company is trying to resolve the matter by making suitable changes in the foreign currency invoice booking system. It assessed the impact at the end of the quarter and necessary entries have been passed. Second, SCI has not carried out the adjustment in discount rate as per AS-28. Further, it has not provided adequate information for adjustments to be carried out in discount rate and, thus, the impact is unascertainable. The company says it tested assets for impairment and computed the recoverable value for ships owned by it as per AS-
tember 2013. The countrys leading steel maker reported consolidated profit of Rs 2329.4 crore in FY 2013 and Rs 3593.5 crore in FY 2012. Also, the auditors of Sail have drawn attention to multiple matters. For instance, sales to government agencies have been recognised on provisional contract prices. Sales of Rs 1846.9 crore for H1 ended 30 September 2013 was recorded on provisional contract prices. Such sales on cumulative basis stood at Rs 20090.6 crore end September 2013. Sail has made provision of Rs 1148.5 crore towards wage revision to non-executive employees. Fresh agreement is pending. The agreement will be effective from 1 January 2012. As the liability is provided on an estimated basis, the auditors are not in a position to comment about its adequacy. Of this total provision, Rs 408.9 crore was for the quarter and Rs 537.5 crore for H1 ended 30 September 2013. Further, the review report stated that considering the assumptions provided by Sail for salary escalation rates, the auditors were unable to comment on the adequacy of provision for retirement employee benefits based on actuarial valuation in accordance with the AS-15 on employee benefits. MMTC is the worst among the PSUs by auditors qualifications. The auditors seem to have poured red ink all over their report. The company is the countrys largest international trading company. A glance at the audit report accompanying the annual accounts for FY 2013 reveals several issues. First, is the many incorrect and unexplained accounting entries deliberately recorded in the books at the Hyderabad regional office (RO) to suppress the actual sundry debtors
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28. The methodology adopted was consistent for the past three years. As per the calculations, there was no impairment and, thus, no provision for impairment was made. Third, the auditors have drawn attention to the failure to correct material weaknesses in the internal control systems of recording transactions of expenses. As per SCI, it booked slot-hire expenses of Rs 16.6 crore in the September 2013 quarter for prior period as these were under negotiation and were not booked during the relevant period. Lastly, SCI has not received any amount for rescindment of ship-building contract with Rongcheng Shenfel Shipbuilding Company, China, from ICBC Bank, China, as invocation of bank guarantee. Hence, the outcome of the transaction is uncertain. Here is a brief history about this contract. SCI rescinded the shipbuilding contract for construction of a 3,500 twentyfoot equivalent unit container vessel in the September 2013 quarter due to non-delivery of the vessel within the contractual time period. Consequently, the refundment guarantee of US$ 21.3 million for advances paid to the shipyard and interest was invoked in September 2013. The shipyard has resorted to arbitration. ICBC Bank, the bank issuing the guarantee, informed SCI that it was withholding the payment until the arbitration award is published, Subsequent to the September 2013 quarter, SCI rescinded the shipbuilding contracts for two offshore vessels due to non-delivery of the vessel within the contractual time period. The navratna PSU is the countrys largest shipping company. NTPC, the countrys largest power producer, is sitting on hefty contingent liabilities. Its spat with Coal India (CIL) and its subsidiaries lingers. The Ministry of Coal issued a notification in December 2011. According to this notification, grading and pricing of non-coking coal was migrated from useful heat value to gross calorific value (GCV) from 1 January 2012. The coal-supply agreements entered into by NTPC with CIL and its subsidiaries (coal companies) were required to be amended to incorporate acceptable procedures for sample collection, preparation, testing and analysis to facilitate migration. The amendments are still pending. NTPCs board of directors approved payment to coal companies based on the GCV and directed it to frame modalities for implementation of the GCV-based grading system. Accordingly, modalities were framed to implement joint sampling and testing of coal
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matter in their audit report for FY 2013. DCI has further exposure of Rs 426.4 crore to SCL. The company in June 2012 had requested the Ministry of Shipping to appoint a sole arbitrator under the contract for realisation of these outstanding dues. The matter is under consideration of the government. The ministry in September 2013 constituted a committee to consider the outstanding dues payable by SCL. Considering these developments, no provision for doubtful debts has been made by the company. The auditors have not made any comments about these outstanding in their audit report for FY 2013 and limited review reports. The mini ratna company is into dredging activities. In their review report for the period ended 30 September 2013 on standalone accounts, the auditors of CIL have drawn attention to multiple issues without qualifying the books of accounts. The maharatna company is the worlds largest coal mining company. CIL has equity and loan exposure to its subsidiary Eastern Coalfields (ECL), a financially sick company referred to the Board of Industrial and Financial Reconstruction (BIFR). Despite this, the investment in ECL has been considered at book value (BV) by CIL. The revival scheme for ECL has been approved by BIFR and vetted by the government. On implementation of the revival plan, ECL is on the path of recovery, according to CIL. Thus, no provision was considered necessary at this juncture. Second, income of apex charges and interest from ECL has not been recognised. Further, interest income on loans and advances from Bharat Coking Coal (BCCL) has been deferred as it is still having accumulated losses. The subsidiary of CIL first approached BIFR in December 1995. In December 1997, BCCL came out of the purview of BIFR. However, in FY 2010, its net worth turned negative and was again referred to BIFR in 2001. CIL has taken several steps to turnaround BCCL. These include providing financial support in various forms. In March 2013, BCCLs net worth turned positive with CIL subscribing to 5% non-convertible cumulative redeemable preference shares. Last, fixed assets of the Dankuni coal complex in West Bengal leased to South Eastern Coalfields (SECL) for lease rent of Re 1 per annum was shown in the balance sheet at written-down value or BV. As per the company, the nominal income earning is a temporary policy matter and actual worth of the assets including land is much higher than the
Jan 06 19, 2014 CAPITAL MARKET
at the mine end and future payments to coal companies. The modalities were communicated to coal companies by November 2012. Thereafter, NTPC released payments on the basis of GCV. The PSU noticed variation in the GCV of coal supplies received at power stations. These variations were informed to coal companies, which have not accepted them. NTPC has taken these issues with coal companies through the Ministry of Power and the Ministry of Coal. The matter is pending. In the meantime, the difference between the amount billed by coal companies and the amount admitted by NTPC aggregating to Rs 4065.1 crore on 30 September 2013 has been treated as continent liability. The statutory auditors of NTPC have drawn attention to this matter without qualifying its limited review report. The amount involved is significant considering the fact that the company reported profit of Rs 12586.2 crore in FY 2013. Moreover, this contingent liability will keep on growing quarter after quarter unless the issue is amicably resolved between the two PSU giants. Dredging Corporation of India (DCI) is one of the key promoters of Sethusamudram Corporation (SCL). SCL is a special purpose vehicle incorporated in December 2004 for developing the Sethusamudram ship channel project. Its other promoters include Tuticorin Port Trust, Ennore Port, Visakhapatnam Port Trust, Chennai Port Trust, Shipping Corporation of India, and Paradip Port Trust. DCI invested Rs 30 crore in the equity share capital of SCL. The dredging work at Palk Strait was suspended in July 2009. DCI has not made any provision towards diminution in the value of its investment. The statutory auditors of DCI have red-flagged this
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BV. Thus, no provision was required. SECL is a wholly owned subsidiary of CIL. Without qualifying the books of accounts, the statutory auditors of Power Finance Corporation (PFC) have drawn attention to the presentation of foreign currency monetary item translation difference account (FCMITDA). The PSU had exercised the option under the amended AS-11 on the effects of changes in foreign exchange rate to amortise the exchange differences on the long-term foreign currency monetary items over their tenure. Rs 1243.6 crore was carried forward in the FCMITDA and shown on the asset side of the balance sheet on 30 September 2013. As per the announcement by the ICAI in March 2013, the debit or credit balance in FCMITDA has to be shown on the equity and liabilities side of the balance sheet under the head, Reserve and surplus, as a separate line item. PFC has requested for a clarification on the applicability of the ICAIs announcement from the MCA. The MCA responded, explaining the rationale given by the ICAI without stating whether the announcement was recommendatory or mandatory. The matter has been taken up again with MCA. In the meantime, FCMITDA continues to be shown on the assets side of the balance sheet. PFC is a financial institution dedicated to power sector financing. Neyveli Lignite Corporation has provisionally accounted tariff rate based on the provisional order issued by the Central Electricity Regulatory Commission (CERC) for the Barsingsar thermal power station in Rajasthan. The final power tariff rates from CERC are still pending. The revision in capacity charges of power tariff and transfer price of lignite for energy charges of power tariff on account of truing up to the actual, wherever and whenever applicable, will be considered subject to approval by CERC. The truing-up charge is adjustments based on actuals as against projected. Last, pending receipt of the CERC order, reduction in power sales of Rs 17.7 crore on account of deemed export benefit granted by the government was not been given effect by Neyveli. The auditors have drawn attention to these matters without qualifying their audit report for FY 2013. The PSU mines lignite and generates power. The auditors of Bharat Petroleum Corporation (BPCL), a PSU oil refining and marketing company, have drawn attention
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Investment Strategy
speeding up exploration activities. Hence, PPCL feels it will able to generate profit in the coming years. However, adopting a conservative accounting approach, PPCL has stopped recognizing deferred tax assets from FY 2013. The auditors of HPCL have drawn attention to captialisation of net additional expenditure by HPCL Mittal Energy (HMEL), a JV company. HMEL completed mechanical completion of all the units and obtained approvals from relevant authorities. Its plant commenced refining of crude oil in FY 2012 and capitalised most of the units. However, based on technical opinions, HMEL in FY 2013 realised that the plant was under test-run due to high complexity involved in integrating the petrochemical complex up to December 2012. After this, the plant started producing commercially feasible quality and quantities of finished goods. Consequently, net additional expenditure of Rs 2817.6 crore (including Rs 548.2 crore up to 31 March 2012 under Exceptional items) was capitalised in FY 2013. Further, depreciation charge of Rs 82.5 crore for FY 2012 was netted with the charge in FY 2013. Last, the recognition of minimum alternate tax (MAT) credit entitlements of Rs 406.8 crore on 31 March 2013 of HPCL was on the basis of cogent evidence that it will be able to avail the credit in the specified period. Based on the High Court (HC) order, oil and gas exploration company Oil India has paid the decreed amount of Rs 99 crore in FY 2013. This amount was owed to a contractor. The companys appeal against the decreed amount has been admitted by the HC and pending disposal. Oil India considers the amount as recoverable and, thus, has not treated it as expense. The statutory auditors have commented on this treatment without qualifying their audit report. Conclusion Several of these PSUs are leaders in their industries. The government has honored them with tags such as navratna, maharatna, mini ratna and so on. It is essential to ensure their books of accounts are free from auditors comments and qualifications. Stock market regulator Securities Exchange Board of India has expressed discomfort over qualified audit reports of listed companies on several occasions. It would be better for it to start with PSUs. S Khedekar
to loss-making joint venture (JV) and about accounting policies in their report for the consolidated books of accounts for FY 2013. The auditors of Bharat Oman Refineries (BORL), a JV company, have drawn attention to the recognition of deferred tax assets of Rs 697.8 crore. BORL is a equal JV between BPCL and Oman Oil Company. The JV commenced operations of its six milliontonne per annum (mtpa) grassroots refinery at Bina in Madhya Pradesh. As per BPCL, in view of the binding agreement entered into by BORL for off-take of the products manufactured by BORLs refinery at prices determined considering international prices, BORL is certainly going to turn around. Therefore, the deferred tax asset can be realised. The consolidated accounts have been prepared by BPCL in accordance with AS21 on consolidated financial statement and AS-27 on financial reporting of interests in JVs. However, according to the auditors, BPCL has not used uniform accounting policies nor has disclosed together with the proportions of items to which the different accounting policies have been applied. The statutory auditors of Hindustan Petroleum Corporation (HPCL), another government-owned oil refining and marketing company, have relied on the estimates and assumptions made by the company in arriving at recoverable value of assets based on the desired margin. Prize Petroleum Corporation (PPCL), a wholly owned subsidiary of HPCL, has recognised deferred tax asset of Rs 10.5 crore in the earlier years. This was despite continuous losses reported by PPCL. The PSU had accumulated losses of Rs 35.1 crore as on 31 March 2013. HPCL has initiated various steps like acquisition of new assets and
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N.A.V. CORPUS MAX. EXIT (Rs) LATEST (Rs cr) LOAD (%)
3 MON
1 YEAR
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SCHEME/INDEX NAME
Debt Income Funds Tata Dynamic Bond Fund - Plan A (G) Birla Sun Life Medium Term Plan (G) Tata Fixed Income Portfolio-Sch-C2 (G) ICICI Pru Flexible Income Plan - Regular (G) Tata Fixed Income Portfolio-Sch-A3 (G) Gilt Funds Sundaram Gilt Fund - (G) Religare Invesco Gilt - Short Duration (G) IDFC G Sec Fund - STP (G) DSP BR Treasury Bill Fund (G) Kotak Banking and PSU Debt Fund (G) Short Term Income Funds Birla Sun Life Short Term Opportunities (G) Taurus Short Term Income Fund (G) Sundaram Select Debt - STAP (G) Templeton india Low Duration Fund (Growth Plan) Tata Short Term Bond Fund - (G) Liquid Funds Principal Retail Money Manager Fund (G) Religare Invesco Overnight Fund (G) Escorts Liquid Plan (G) Morgan Stanley Liquid Fund (G) SBI Magnum InstaCash - Cash Plan Floating Rate Funds SBI Magnum Floating Rate Plan-LTP (G) UTI-Floating Rate Fund - STP (G) Escorts Short Term Debt Fund (G) Birla Sun Life Floating Rate - LTP - Retail(G) Tata Floater Fund (G) Global Funds FT India Feeder - Franklin U.S. Opportunities (G) ICICI Pru US Bluechip Equity Fund (G) DSP BR US Flexible Equity Fund (G) Birla Sun Life Inter Equity - Plan A (G) DWS Global Thematic Offshore Fund (G) Fund of Fund IDFC All Seasons Bond Fund - Plan A (G) FT India Life Stage FOF-50s + Floating Rate Pl (G) IDFC Asset Allocation FoF - Conservative (G) ING Financial Planning - Cautious (G) Quantum Multi Asset Fund (G) Index Sensex Nifty BSE 100 BSE 200 S&P CNX 500 21143.01 6291.10 6311.69 2523.58 4899.95 9.10 9.69 10.28 10.59 11.56 9.01 7.68 8.78 8.60 8.62 8.73 6.48 5.67 4.20 3.41 19.12 23.94 13.28 12.32 11.42 6.13 42.99 15.83 1.72 2.78 0.50 0.25 1.00 0.50 1.50 0.73 0.79 0.73 1.07 0.25 1.75 4.17 3.66 1.82 5.34 3.93 5.01 3.56 1.95 8.33 8.08 7.68 6.85 6.69 6.59 17.49 15.70 15.01 16.16 13.17 545.78 199.24 112.49 91.46 10.69 1.00 3.00 1.00 0.00 1.00 1.73 2.95 2.07 2.94 1.66 7.65 4.88 9.19 6.80 6.21 27.18 21.24 21.17 18.91 19.62 57.18 47.70 45.97 35.90 32.90 19.15 2026.09 18.92 216.35 1880.57 99.61 3338.50 8.13 1369.97 2052.94 0.50 0.00 0.00 0.25 0.00 0.73 0.49 1.00 0.25 0.22 2.56 2.31 2.57 2.44 2.43 5.58 4.94 4.53 4.60 4.68 10.12 9.80 9.44 9.42 9.41 1411.14 1474.57 19.40 1233.74 2774.89 13.96 14.33 197.53 611.49 3398.31 0.00 0.00 0.00 0.00 0.10 0.32 2.13 0.80 0.17 0.16 2.47 2.10 2.43 2.35 2.37 5.02 4.57 4.86 4.90 4.83 9.78 9.78 9.72 9.39 9.32 20.02 2182.68 21.45 13.61 23.04 1743.23 129.65 1461.94 1792.33 458.31 1.00 0.25 0.75 0.50 0.50 1.00 0.62 0.84 0.77 1.22 2.79 2.48 2.29 2.50 2.52 3.62 5.11 3.61 4.58 3.56 10.16 10.15 9.97 9.57 9.17 20.55 1393.13 17.34 25.50 27.77 19.30 207.13 4.95 867.00 177.89 0.00 0.00 0.00 0.00 0.00 0.89 0.51 0.38 0.50 0.56 3.50 2.15 3.12 2.17 2.40 7.88 5.96 5.39 6.07 5.17 19.26 15.05 10.69 10.07 9.95 18.46 14.82 15.14 234.93 15.16 330.59 1817.70 0.22 10044.60 3.49 0.50 2.00 0.75 0.00 0.25 0.74 1.50 0.15 0.52 0.15 1.98 2.97 2.46 2.50 2.17 1.92 3.43 4.74 4.84 4.73 10.33 10.27 9.94 9.66 9.46
Mutual Fund
N.A.V. CORPUS MAX. EXIT (Rs) LATEST (Rs cr) LOAD (%) EXPENSE RATIO (%) ABSOLUTE (%) 6 MON CAGR (%) 3 YEARS 5 YEARS
3 MON
1 YEAR
8.40 10.20 9.84 9.48 9.59 10.40 9.19 6.91 8.27 8.42 10.22 10.10 11.12 9.87 9.00 8.90 8.51 10.12 NA 9.12 9.76 8.98 10.30 9.47 9.41 NA NA NA 19.57 15.21 8.07 7.25 7.91 NA NA 1.22 1.02 0.88 0.11 -0.03
5.18 NA 6.71 7.99 7.42 7.32 6.07 5.28 6.22 6.32 8.94 7.28 7.63 NA 6.71 6.09 6.25 8.78 NA 7.51 7.88 7.65 8.91 8.55 7.93 NA NA NA 18.27 16.07 4.59 9.99 NA NA NA 16.81 16.11 16.74 16.77 16.28
Returns are calculated as per adjusted NAV price for the respective period ended 30 December 2013.
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Not only make informed investment decision, but also keep yourself informed after investment
Capita Telefolio gives one well-researched BUY every Friday and another on Wednesday (after market closing). Subscribers can dial our Interactive Voice Recording (IVR) system at Mumbai to listen to this choice pick and log on to http:\\www.telefolio.com to enjoy many useful features. Telefolio Plus subscribers can also access full research report backing the recommendations on http:\\www.telefolio.com. For Telefolio Plus subscribers we have completely redesigned the http://www.telefolio.com with a new look and many new useful features. Subscribers to Telefolio Plus can now enjoy the following additional premium tools. Trade based on price movement Track online top gainers and losers from the Telefolio scrips and decide to buy/sell based on the price movements. Set price levels as alerts and get Emails on set price levels to help you remind about buying/selling. Prepare yourself for upcoming corporate actions See all the upcoming Corporate actions (like board meetings, AGM dates, book closures, ex-bonus dates, ex-dividend, etc) of Telefolio companies scheduled in the next 30 days and choose to buy/sell based on these triggers. Act on the news Get live news (including stock exchange announcements) of all Telefolio companies and act on the news.
React to the results Get results as soon as they are declared. Also read detailed Quarterly updates after each quarterly result to assess the financial progress of each Telefolio company to help you add/reduce accordingly. Analyse and keep updated For each Telefolio company research report, balance sheet and profit & loss account, corporate actions, directors' report and management discussion, quarterly results, quarterly updates, shareholding pattern, share price history and chart are given. AGM/Analyst Meet/Conferance Call reports are also given for select companies. This will help you do a detailed analysis as well as keep yourself fully updated with operational, financial and stock price performance of the Telefolio companies. Select IPOs An IPO diary to keep you updated with scheduled IPOs as also our Rating on each important IPO. Tracking operational, financial and stock price performance of the companies was never easier than this. The market cannot be timed. But you can tame the market and come out trumps if you have the right information at the right time. To make informed decisions, you need to have all the information at your disposal at the click of a button. Invest in Telefolio and Telefolio Plus to reap the power of knowledge.
Scrip
Rec. Date
30-Aug-13 03-Jul-13 10-Jul-13 18-Oct-13 18-Jan-13 19-Apr-13 09-Jan-13 01-Oct-13 13-Sep-13
Scrip
Rec. Date
22-Feb-13 14-Aug-13 26-Jul-13 31-Jul-13 25-Sep-13 15-Feb-13 28-Aug-13 09-Aug-13 29-May-13
TVS Motor Co VST Tillers Tractors MindTree Fiem Industries TCS Mah & Mah Fin. KPIT Cummins Info Suprajit Engg. Tech Mahindra AIA Engineering
Rallis India Bayer CropScience Bharat Forge Kalpataru Power Tr. Biocon Essel Propack Essel Propack Entertain. Network Va Tech Wabag Goodyear India
03-May-13 1,152
21-Aug-13 1,236
10%
till 15 Jan. 2014
2 Year 9,521
(104 recs @ Rs 92 each)
3 Year 11,902
(156 recs @ Rs 76 each)
W'day Telefolio
5,951
(52 recs @ Rs 114 each)
9,521
(104 recs @ Rs 92 each)
11,902
(156 recs @ Rs 76 each)
8,331
(52 recs @ Rs 160 each)
13,330
(104 recs @ Rs 128 each)
16,663
(156 recs @ Rs 107 each)
8,331
(52 recs @ Rs 160 each)
13,330
(104 recs @ Rs 128 each)
16,663
(156 recs @ Rs 107 each)
F'day Telefolio + W'day Telefolio F'day Telefolio Plus + W'day Telefolio Plus
10,712
(104 recs @ Rs 103 each)
17,139
(208 recs @ Rs 82 each)
21,424
(312 recs @ Rs 69 each)
14,996
(104 recs @ Rs 144 each)
23,993
(208 recs @ Rs 115 each)
29,992
(312 recs @ Rs 96 each)
And your benefits are... If you opt for only W'day or F'day Telefolio, you pay Rs 5,591 for 52 recommendations, costing Rs 114 each. But if you opt for a 3-year combo Telefolio offer, you pay only Rs 21,424 for 312 recommendations, thus costing only Rs 69 each. Further, if you opt for a 3-year combo offer paying Rs 21,424 or Rs 29,992 , you will also get 78 fortnightly copies (3-years subscription) of Capital Market magazine (costing Rs 3,900 on the stands) FREE! + Books worth Rs 1250.
@ All Capita Telefolio subscriptions are inclusive of all taxes.
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ApnaMoney
Money Matters
Investment Strategy
of the fund was quite good at that time. I sold the units a year ago as the fund was not able to beat the benchmark over one year. Today, the fund has bounced back and is beating the benchmark over the short and long term. Should I reinvest in this fund again?
francis_joy
The home -saver loan account is a good place to park temporary surplus. You should not look at it as an investment option. Home loan is one of the cheapest sources of borrowing for an individual. Considering the tax benefits under Sections 80 C and 24 of the Income Tax Act, 1961, the effective cost of home loan is even lower. Thus, closing this account before tenure is not generally recommended. But it also depends on the asset class you wish to invest in. If you wish to take exposure to equities, then investment in an equity mutual fund can fetch decent return over a period of eight-10 years. It also offers good liquidity. Systematic saving in such options helps investors to counter the volatility. Patient and disciplined investing in an actively-managed equity fund can generate better return over the post tax cost of your home loan. On the other side, if you wish to invest in traditional options such as fixed deposits (FDs), bonds and debentures, the post tax return may be lower than your cost of funds if you choose a highly rated instrument. Investment in Public Provident Fund and fixed maturity plans may not provide you the required liquidity. Thus, you may keep the surplus in the home-saver loan account rather than investing in fixed income options. I had invested in ICICI Pru Dynamic Plan three years ago. The past performance
Mutual funds are long-term investments. Their performance should be viewed over a longer horizon. The fund recently completed 10 years. As per statistics, it was able to beat the benchmark nine out of the ten years. This shows the ability of the fund to generate the alpha for investors. The nature of the fund is such that it may underperform the benchmark in the short term as it decreases its equity exposure if the market enters the overvalued zone and invests aggressively if the market is in an attractive zone. The strategy of the fund has worked over the long period of time. Thus, you may invest in this fund if you have a long-term horizon. You also need to be patient and should keep faith in the fund you have chosen. With its track record, the fund will generate good return over the coming years if the equity market shows some strength. There are lots of close-ended new fund offers (NFOs) in the market. Most of them have positioned themselves as value funds with mandatory dividend option. Should I prefer open-ended funds or close-ended funds through NFOs?
kirtika_rao
vesting in NFOs. Investing in a closedended fund will mean that you are locking the funds for a few years. These funds have a mandatory dividend option so that they can return the money to investors through hefty dividends if the fund manager thinks that he has generated handsome return and there are not many new opportunities available. Also, most of the funds do not intend to convert to open-ended funds once the lock-in period is over. This is a good sign as most fund houses have open-ended value funds in their portfolio and adding one more similar fund in their basket does not make much sense. One advantage close-ended funds have over open-ended funds is that the fund manager can invest with a clear horizon and does not have the pressure to perform every day like a fund manager of an open-ended fund. Investing in an open-ended fund comes with some advantages. One, you have all past data on which you can bank on to check if the fund is a consistent performer. You have liquidity at hand as units can be redeemed at will anytime. So if you are convinced about the objective of the fund, have confidence in the fund manager and do not mind forgoing liquidity for a long period, then you can consider these NFOs. Otherwise, it is better to invest in open-ended funds as you have the flexibility to redeem if you require money or if the fund does not perform well. Rahul Mantri ...................................................................
The queries have been answered keeping in mind that the investors understand the risks involved in various investment options discussed in the column. Capital Market or the writer cannot be held responsible for any loss arising due to the investment descision taken by investors based on the solutions given. Readers may e-mail their queries to: money-matters@capitalmarket.com
Investing through NFOs is a risky decision, especially if it is a closed-ended fund. You do not have any past data to rely on. Thus, you will have to bet on the fund manager and his past record if you are in-
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