Why too much cash is bad for a mutual funds scheme’s health

With the stock market going through volatile times, many fund managers seem to be moving to cash. According to data from Ace Mutual Fund database, more than 20 diversified equity funds currently have a cash allocation of above 10 percent in their portfolios. While it may seem like a safe call, Many fund manager say that it should depend on the fund’s mandate. Many fund houses have in-house rules that forbid their fund managers from going into cash above five-six percent.

To reduce the mid-cap pain

The ongoing correction in mid- and small-cap stocks has forced many fund managers to seek refuge in cash. “Many funds with a mid- and small-cap mandate and even others that had taken large exposure to these stocks during the rally have been hit in a big way. These funds have moved into cash to reduce the pain from the correction.” Funds that have booked timely profits in mid- and small-cap stocks too have been left holding high levels of cash.

Many funds are still adjusting their portfolios to comply with Sebi’s new categorisation norms. If, for instance, large-cap funds had taken high exposure to mid-caps to boost their returns, they are now selling those stocks to turn compliant with the new norms.

26859_20160128-Learning-480px

Another reason is that political uncertainty is affecting sentiment. “Several state elections are due this year, and then we have the general elections next year. Many fund managers are sitting on cash because of the current volatility in the markets, and to see how things shape up politically. Some funds, such as value funds and dynamic asset allocation funds, allocate to equities based on market valuations. When valuations move high, they move into cash.

How to choose the best mutual fund for your portfolio

Steady inflows, but few opportunities

Many fund managers are also facing the problem of plenty. While the industry is receiving monthly inflows of Rs 75 billion through systematic investment plans, there aren’t many opportunities due to the high valuations in the midcap and smallcap segments. Even many large-cap stocks seem overvalued.

1530117850-1841There are risks too

During the financial crisis of 2008, many fund managers had gone heavily into cash to prevent their funds from correcting deeply. However, when the markets rebounded in 2009, these funds were left on the sidelines. Their performance took a knock, and it took them several quarters to catch up with peers who were fully invested. After this, many fund houses introduced internal rules stipulating that fund managers should not gain more than five percent exposure to cash. When fund managers take high cash allocation calls, it implies that they are trying to time the market, a tricky thing for any fund manager to pull off consistently.”

When funds take large cash calls, it also skews the investor’s asset allocation. A simple example will help illustrate this point. Suppose that an investor wants 50 percent equity and 50 percent fixed income exposure in his portfolio. He invests the 50 percent in an equity fund. But the fund manager invests only 70 percent of his fund portfolio in equities. As a result, the investor’s equity allocation falls to 35 percent. This is a more conservative allocation than he desires and could affect his long-term returns. Asset allocation is best left to investors themselves.

Exceptions to this rule

While most equity funds should stay almost fully invested, dynamic asset allocation funds and value funds are exceptions. Dynamic asset allocation funds, as their name implies, take asset allocation calls, often based on a formula. When markets become expensive, as indicated by price to earnings (P/E) or price to book value (P/BV) ratio, they reduce allocation to equities, and vice-versa.

What are Dynamic Funds? ( Video )

Value-oriented funds are the other exception. Quantum Long Term Equity Value Fund, for instance, doesn’t shy of parking a considerable portion of its portfolio in cash if the situation warrants. Says Atul Kumar, head-equity funds, Quantum Asset Management: “If we find value in stocks, we stay invested. But many of the stocks that we held reached the sell limit we had set for them, so we were forced to sell them. We are also finding fewer new opportunities. That is why our cash level has gone up. It is not a tactical call. It comes out of our bottom-up, process-driven approach.”

PPFAS Long Term Equity Fund currently has a cash allocation of 23.28 percent. Explaining the fund’s approach, Rajeev Thakkar, chief investment officer and director, PPFAS Mutual Fund says: “We don’t start off with any target cash position. Our objective is to deploy everything in equities. But if we find stocks worth investing in only up to 77 percent of our corpus, then 23 percent will be the residual cash that will lie around till we find suitable opportunities.”

Going into cash can prove advantageous in certain situations. Says Thakkar: “If there is a significant correction, the cash position could become a significant factor responsible for outperformance.” He adds that being in cash also gives the fund manager opportunities to buy stocks at attractive valuations when the markets or select stocks correct.

According to Radhika Gupta, CEO edelweissamc taking large cash calls in long only funds … something to avoid because it distorts the asset allocation of an investor, given they are investing in a relative return fund.

EPFO withdrawal: Get provident fund money fast, here is how

In a significant decision, the retirement fund body Employees Provident Fund Organization (EPFO) on Tuesday gave more flexibility to subscribers for withdrawing their employee provident fund (EPF) kitty. EPFO subscribers will now be given the option to partially withdraw from EPF kitty after one month of unemployment or leaving the job. The EPF account holder can also keep its account active with the EPFO. The latest move will benefit about 5.5 crore subscribers. EPFO manages a corpus of over Rs 10.5 trillion.

EPFHere are five things to know about the new provident fund (PF) withdrawal rules:

1) Currently, an EPFO subscriber can withdraw the accumulated funds in EPF kitty after two months of unemployment and settle the account in one go.

2) Under the new EPF withdrawal rules, EPFO subscribers will an the option to withdraw 75% of accumulated corpus after one month of unemployment and at the same time keep the account active.

EPFO starts Investment in equity markets from Today

3) Also under the new rules, EPFO subscribers will have the option to withdraw the remaining 25% of their funds and go for final settlement of account after completion of two months of unemployment.

4) “EPFO has decided to amend the scheme to allow members to take advance from its account on one month of unemployment. He can withdraw 75 percent of its funds as advance from its account after one month of unemployment and keep its account with the EPFO,”

How to withdraw your PF for purchasing home

5) The new rules would give an option to subscribers to keep their account with the EPFO, which they can use after regaining employment again. “EPFO are trying to give subscribers a window to take out a sizable portion of the corpus, yet not close the account. When he gets a new job, he can transfer the old account money to the new account with the new employer,”

Currently, an EPFO subscriber needs to contribute to his EPF account consecutively for at least 10 years to become eligible for a pension. However, if a person closes his or her EPF account two months after losing a job, it may affect the person’s pension eligibility.

In another development, the central board of EPFO has also sought the approval of the finance ministry before deciding on diversifying its equity portfolio beyond the Nifty 50 and Sensex 30 stocks. The EPFO had started investing in ETFs in 2015 with a mandate of investing 5% of its investible deposits in the equity-linked schemes. The proportion was increased to 10% in 2016-17 and 15% subsequently in 2017-18.

Varroc Engineering IPO Review

Varroc Engineering Pvt Ltd is global providers of automotive parts. The company manufactures and supplies components and subassemblies for automobile, consumer durable, and white goods industries. They offer injection molded engineering plastic components, multilayer co-extruded thermoplastic sheets, injection and compression molded automotive and allied rubber products, polyurethane foam seat assemblies, rear view mirrors, air cleaner assemblies, and acrylic and polyurethane painted parts.

The company has three subsidiaries namely, Durovalves India Pvt Ltd, Varroc Exhaust Systems Pvt Ltd and Varroc European Holding BV. The company is based in Aurangabad, India with manufacturing plants in Noida, Gurgaon, Delhi, Pantnagar, Chennai, Pune, and Mumbai, India; Amsterdam, the Netherlands; Warsaw, Poland; and Milan, Italy.

Varroc Engineering Pvt Ltd was incorporated in the year 1988. During the year 2001-02, the company entered into technical collaboration/ assistance agreements with Mitsuba Corporation, Japan for the manufacture of Flywheel Magneto Assemblies and Driver Gear for Starter Motor. Also, they came into technical collaboration/ assistance agreements with Shindengen Manufacturing Company Ltd, Japan for the manufacture of CDI & RR.

VarrocDuring the year 2004-05, the company entered into agreements with Electric Components & Industries Europe Srl, Italy for the acquisition of designs of Electronic Dashboard and LED Tail Light relating to the manufacture of dashboard instrument cluster and lighting equipment of motorcycle.

During the year 2005-06, the company increased the production capacity at various units namely Auto Electric Switches at Waluj Pant-IV, Plastic Auto Components at Pune Plant-I, Rear view Mirror Assembly at Pune Plant-II and Automobile Seat Assembly at Pune Plant-II. They commenced commercial production in their Binola Plant and Waluj Plant-VII from January 1, 2006 and March 1, 2006 respectively.

Varroc Engineering Ltd. raised Rs 583.73 crore by selling shares to 30 anchor investors.

The international anchor investors included Schroder International Selection Fund, Nomura Fund Ireland Public Ltd., DSP BlackRock, First State Investments, while L&T Mutual Fund, Bajaj Allianz Life Insurance, ICICI Prudential AMC, Kotak Mutual Fund and SBI Mutual Fund were some of the domestic funds which participated in the anchor allotment.

List of the anchor investors

Download (PDF, 493KB)

The promoter and two investors will sell shares to raise up to Rs 1,950 crore through the IPO of the Aurangabad-based company which supplies parts to Jaguar Land Rover, Bentley and even Tesla Inc.

Tata Group’s investment arms – Tata Capital and Omega TC – and promoter Tarang Jain will offload 2 crore shares at Rs 965-967 apiece. The world’s sixth largest exterior automotive lighting maker won’t get any share of the proceeds.

Varroc Engineering IPO Dates & Price Band:

  • IPO Open: 26-June-2018
  • IPO Close: 28-June-2018
  • IPO Size: Approx Rs.1945 Crore (Approx)
  • Face Value: Rs.1 Per Equity Share
  • Price Band: Rs. 965 to 967 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 2,02,21,730 Shares

Market Lot:

  • Shares: Apply for 15 Shares (Minimum Lot Size)
  • Amount: Rs.14,505

IPO Allotment & Listing:

  • Basis of Allotment: 3-July-2018
  • Refunds: 4-July-2018
  • Credit to demat accounts: 5-July-2018
  • Listing: 6-July-2018

The promoters:

Tarang Jain

Main objects of the issue are:

1) to achieve the benefits of listing the Equity Shares on the Stock Exchanges and
2) to carry out the Offer for Sale by Selling Shareholders

Lead Managers:

Citigroup Global Markets India Private Limited
Credit Suisse Securities (India) Private Limited
IIFL Holdings Limited
Kotak Mahindra Capital Company Limited

Registrar to the IPO:

Link Intime India Private Limited

Our Strengths

We believe that the following are our primary strengths

Strong competitive position in attractive growing markets

Our Strategies

Focus on high growth markets for our Global Lighting Business

Focus on increasing customer revenue for our India Business

Continue to invest in our R&D, design, engineering and software capabilities in order to capitalize on future trends.

Pursue strategic joint ventures and inorganic growth opportunities

Focus on operational efficiency

123

Qualitative Factors

Strong competitive position in attractive growing markets

Strong, long-standing customer relationships

Comprehensive product portfolio

Low cost, strategically located manufacturing and design footprint

Robust in-house technology, innovation and R&D capabilities

Consistent track record of growth and operational and financial efficiency

ICICI Sec. IPO Review and the list of anchor investors

45

Positive

The company’s Global Lighting Business, which focuses on the design, manufacture, and supply of exterior lighting for passenger vehicles, is the sixth-largest tier-1 automotive exterior lighting manufacturer globally and one of the top three independent exterior lighting players (by market share in 2016) (Source: Yole).

Strong, long-standing relationships with many of its customers. In the Global Lighting Business, it has a relationship with a large British car manufacturer since 2006. In the Indian Business, it has a longest-standing relationship is with Bajaj since 1990.

It has a comprehensive portfolio of products in the markets which allow it to be a one-stop-shop for the customers and to cross-sell products.

A global footprint of 36 manufacturing facilities spread across seven countries, with six facilities for the Global Lighting Business, 25 for India Business and five for other Businesses.

Key Parameter 

The Revenue is growing at CAGR of 13.96% from FY15 to FY18.

The PAT is growing at CAGR of 10.43% from FY14 to FY18.

The company is has total debt of around 1390 Cr on books as on 9MFY18.

The Company’s EBITDA Margins are in the range of 6-10% in last 4 years.

The Company is generating positive cash flows from operations from FY13-17

Financials:

Total Income of 2016-17 INR 9702.87 Crore

Total Income of 2017-18(9M) INR 7415.42 Crore

Net Profit of 2016-17 INR 303.39 Crore

Net Profit of 2017-18 (9M) INR 307.96 Crore

Earnings per Share (EPS) INR 27.74

Earnings per Share 2017-18 (9M) INR 22.84

Earnings per Share 2017-18 (12M) INR 30.45( expected )

Equity Capital as on 31.12.2017 INR 134.81 Crore

Upper Price Band/last EPS: 31.76

Book Value of the Share as on 31.12.2017 INR 212.06

Upper offer price/Book Value Ratio: 4.56

Return on Net Worth: 13.88% for 2016-17

ICICI Sec. IPO Review and the list of anchor investors

Negative

There is outstanding litigation against its Company, its Subsidiaries and its Directors which, if adversely determined, could affect its business and results of operations.

Pricing pressure from customers may adversely affect its gross margin, profitability and ability to increase its prices, which in turn may materially adversely affect its business,results of operations and financial condition.

Its business is dependent on certain major customers, with whom we do not have firm commitment agreements. The loss of such customers, a significant reduction in purchases by such customers, or a lack of commercial success of a particular vehicle model of which we are a significant supplier could adversely affect its business, results of operations and financial condition.

Varroc is exposed to counterparty credit risk of its clients and any delay in receiving payments or non-receipt of payments may adversely impact its results of operations.

Varroc is heavily dependent on the performance of the global passenger vehicle market and the two wheeler and three wheeler markets in India. Any adverse changes in the conditions affecting these markets can adversely impact its business, results of operations and financial condition.

Varroc failure to identify and understand evolving industry trends and preferences and to develop new products to meet its customers demands may materially adversely affect its business.

Varroc is subject to environmental and safety regulations that may adversely affect its business and we have been subject to environmental notices in respect of certain of its manufacturing facilities and may be subject to further notices in the future.

Varroc employees are members of unions and we may be subject to industrial unrest, slowdowns and increased wage costs, which may adversely affect its business and results of operations.

Varroc insurance coverage may not be adequate to protect us against all potential losses, which may have a material adverse effect on its business, financial condition and results of operations.

Varroc has unsecured borrowings that may be recalled by the lenders at any time.

Varroc has experienced negative cash flows in prior periods and any negative cash flows in the future could adversely affect our financial condition and the trading price of its Equity Shares.

Valuation

At the higher price band of Rs 967, the P/E on FY 2018 EPS (on current diluted equity of Rs 13.48 crore) of Rs 33.4 works out to 29. Currently, all the comparable listed players are trading at very high P/E multiples.

Minda Industries, Motherson Sumi Systems and Endurance Technologies are some of the comparable listed peers. Minda Industries reported consolidated net sales of Rs 4470.56 crore and Pat of Rs 310.19 crore in FY 2018, giving an EPS of Rs 35.6. At the current market price of Rs 1262, the stock trades at around 35.4 times its FY 2018 consolidated earnings.

Motherson Sumi Systems reported consolidated net sales of Rs 56293.32 crore and Pat of Rs 1597.01 crore, giving an EPS of Rs 7.6. At the current market price of Rs 307, the stock trades at around 40.5 times its FY 2018 consolidated earnings.

Endurance Technologies reported consolidated net sales of Rs 6538.14 crore and Pat of Rs 390.75 crore, giving an EPS of Rs 27.8. At the current market price of Rs 1262, the stock trades at around 45 times its FY 2018 consolidated earnings.

Grey Market Trend

As on 26 June 2018 GMP Rs. 62/-, Kostak Rs.350/-

Disclaimer: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

 

RITES Ltd IPO Review

RITES Ltd. are a wholly owned Government Company, a Miniratna (Category –I) Schedule ‘A’ Public Sector Enterprise and a leading player in the transport consultancy and engineering sector in India and the only company having diversified services and geographical reach in this field under one roof.(Source: IRR Report). Based on Public Enterprise Survey 2015 – 2016

RITES Ltd. Company is ranked no. 1 based on net profit and dividend declared in Industrial Development and Technical Consultancy Services sector (Source: IRR Report) .

RITES Ltd. have an experience spanning 44 years and have undertaken projects in over 55 countries including Asia, Africa, Latin America, South America and Middle East regions. RITES Ltd. are the only export arm of Indian Railways for providing rolling stock overseas (other than Thailand, Malaysia and Indonesia). RITES Ltd. are a multidisciplinary engineering and consultancy organization providing diversified and comprehensive array of services from concept to commissioning in all facets of transport infrastructure and related technologies.

RITES Ltd. have significant presence as a transport infrastructure consultancy organization in the railway sector. However, RITES Ltd. also provide consultancy services across other infrastructure and energy market sectors including urban transport, roads and highways, ports, inland waterways, airports, institutional buildings, ropeways, power procurement and renewable energy. RITES Ltd. have, over the years, served various public sector undertakings, government agencies and instrumentalities and large private sector corporations, both in India and abroad.

RITES Ltd. were incorporated by the Ministry of Railways, Government of India (“MoR”) and have the benefit of being associated with the Indian Railways, which is the fourth longest rail network in the world (Source: IRR Report ).

RITES-Limited-1Since its inception in 1974, RITES Ltd. have evolved from its origins of providing transport infrastructure consultancy and quality assurance services and have developed expertise in Design, engineering and consultancy services in transport infrastructure sector with focus on railways, urban transport, roads and highways, ports, inland waterways, airports and ropeways;

Leasing, export, maintenance and rehabilitation of locomotives and rolling stock;
 
Undertaking turnkey projects on engineering, procurement and construction basis for railway line, track doubling, 3rd line, railway electrification, up gradation works for railway transport systems and workshops,railway stations, and construction of institutional/ residential/ commercial buildings, both with or without equity participation; and
Wagon manufacturing, renewable energy generation and power procurement for Indian Railways through our collaborations by way of joint venture arrangements, subsidiaries or consortium arrangements.

 

RITES-Limited-2

In India, its clients include various central and state government ministries, departments, instrumentalities as well as local government bodies and public sector undertakings.These include Indian Railways,NTPC, Dedicated Freight Corridor Corporation of India Limited,High Speed Rail Corporation of India Limited, Public Works Department,DMRC, Steel Authority of India Limited, Rashtriya Ispat Nigam Limited, Hindustan Petroleum Corporation Limited, Bharat Coking Coal Limited, Metro Link Express for Gandhinagar and Ahmedabad (MEGA) Company Limited,Indian Port Rail Corporation Limited, Airports Authority of India, among others. We also engage with various large private sector corporations including L&T Metro Rail (Hyderabad) Limited, Kanti Bijlee Utpadan Nigam Limited(KBUNL), Cimmco Limited,Titagrah Wagons Limited, Snowmex Engineers Limited, Unity Infraprojects Limited, Rajdeep Buildcon PrivateLimited, Mahalsa Constructions Private Limited, Marymatha Constructions Limited,AFCON Infrastructure Limited, INCAP, ARK Services, MNEC Consultants Private Limited, Indian Geotechnical Services Limited,Geokno India Private Limited and NATRIP Implementation Society among others.

RITES Ltd IPO Dates & Price Band:

  • IPO Open: 20-June-2018
  • IPO Close: 22-June-2018
  • IPO Size: Approx Rs.466 Crore (Approx)
  • Face Value: Rs.10 Per Equity Share
  • Price Band: Rs.180 to 185 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 2,52,00,000 Shares
  • Discount: Rs.6 (Retail & Employees)

Market Lot:

  • Shares: Apply for 80 Shares (Minimum Lot Size)
  • Amount: Rs.14,800 (For HNI & QIB)
  • Amount: Rs.14,320 (For RII & EMP)

Allotment & Listing:

  • Basis of Allotment: 28-June-2018
  • Refunds: 29-June-2018
  • Credit to demat accounts: 02-July-2018
  • Listing: 03-July-2018

Lead Managers:

1. Elara Capital (India) Private
2. IDBI Capital Market Services Limited
3. IDFC Bank Limited
4. SBI Capital Markets Limited
4 book running lead managers handled 31 Public issues during last 3 years and out of which  10 issues closed below the offer price on listing day.

Registrar to the IPO:

Link Intime India Private Ltd

The Offer and the Objects

This IPO is part of Government’s disinvestment plan.

The government wants to divest 12.6 percent of its stake in the company.

The IPO comprises an offer for sale (OFS) of 2.52 crore shares.

Competitive Strengths

Comprehensive range of consultancy services and a diversified sector portfolio in the transport infrastructure space

Large order book with strong and diversified clientele base across sectors

Technical expertise and business divisions with specialized domain knowledge

Experienced management personnel and technically qualified team

Strong and consistent financial performance supported by robust internal control and risk management system

Preferred consultancy organization of the Government of India including the Indian Railways

Strategies

Leverage our experience and continue to build on our core competencies in transport infrastructure sector

Strengthen our EPC/Turnkey business

Expand our international operations

Expand our operations in the power procurement and renewable energy sector through our subsidiary, Railway Energy Management Company Limited, which is the only entity mandated for procurement of power from third parties and for captive renewable energy generation, for the Indian Railways

Overview of Indian Infrastructure Industry

GoI has been very proactive and has brought in a variety of measures to step up public investments – which include substantial increase in budgetary outlays in high – impact sectors, push for private sector investments, building institutional capacity through establishment of new infrastructure PSUs, and intensive implementation follow – up for completion of projects. This is reflected in the strong growth of the infrastructure sector since 2002. The sectoral investments over the last 3 five year plans are shown in the table below.

infrastucture
trend

Positive

The standalone order book of Rs 4818.68 crore end March 2018 included 353 ongoing projects of over Rs 1 crore each. Around 53% of the orders are from consultancy services, 3% from leasing services, 14% from overseas customers and around 30% is from turnkey construction projects. Of the total contracts on hand, 77% are from Central and state governments and the rest from others. The order book comprises a highest value export order of Rs 680 crore from Srilankan Railways for supply of locomotives.

Most of the local and global clients are Central government, state governments, national governments, governmental instrumentalities, corporations, authorities and PSUs and large private organisations. There has been no incidence of any bad debts or non-recovery of dues.

As per the Planning Commission, railways will see an investment of around Rs 4.9 trillion in the 13th Five_year Plan ending in March 2022 (FY 2022) compared with Rs 2.4 trillion in the 12th plan that ended in FY 2017. A significant increase in investments will boost the order book and earnings.

The asset-light business model is useful to make handsome gains.

More than 65% of the revenues come from sale of services and around 25% from sale of products and rest from others.

Hindustan Aeronautics Limited IPO Review and Current GMP

Negative

There are outstanding legal and tax proceedings involving the Company. Any adverse decision in such proceedings may expose us to liabilities or penalties and may adversely affect its business, financial condition, results of operations, cash flows and future prospects.

RITES Ltd. depend on the Ministry of Railways, GoI (“MoR”), central/state governments and central/state PSUs fora significant portion of contracts on its order book which are awarded on a nomination basis. There is no assurance that future contracts will be awarded to us on nomination basis by these clients. This may result in an adverse effect on its business growth, financial condition and results of operations.

RITES Ltd. depend on the MoR for a significant portion of its business including equipment, technical staff etc. Any changes in the government policies or decisions by the MoR may result in an adverse effect on its business growth, financial condition and results of operations.

RITES Ltd. current order book may not necessarily translate into future income in its entirety or could be delayed. Some of its current orders may be modified, cancelled, delayed, put on hold or not fully paid for by its clients, which could adversely affect its business reputation, which could have a material adverse effect on its business, financial condition, results of operations and future prospects. negative

RITES Ltd. face certain competitive pressures from the existing competitors and new entrants in both public and private sector. Increased competition and aggressive bidding by such competitors is expected to make its ability to procure business in future more uncertain which may adversely affect its business, financial condition and results of operations.

RITES Ltd. are dependent on the line of credit provided by the GoI and other funding agencies provided to countries that we operate in. In the event there is any change in the policies of the GoI or the funding agencies or the countries utilization of line of credit or the line of credit is withdrawn or reduced, its business and operations may be adversely affected.

The GoI has significant influence over its actions which may restrict its ability to manage its business. Any change in GoI policy could have a material adverse effect on its financial condition and results of operations. Further, announcements by the GoI relating to increased salary and allowances for government and public sector employees will increase its expenses and may adversely affect its financial condition in the years of implementation.

RITES Ltd. enter into joint ventures and consortium arrangements for completion of its projects which may expose us to additional liabilities on account of its partners failure or underperformance and any premature termination of which, may adversely affect its business, reputation, financial condition and results of operations.

Financials

Date Total Revenue Total Expenses Profit after Tax
9M FY 2018 Rs. 1,061.1 Rs. 669.4 Rs. 239.0
FY 2017 Rs. 1,563.7 Rs. 1,044.7 Rs. 353.3
FY 2016 Rs. 1,226.7 Rs. 773.2 Rs. 280.0
FY 2015 Rs. 1,159.1 Rs. 691.8 Rs. 314.0
FY 2014 Rs. 1,223.5 Rs. 835.8 Rs. 258.8
FY 2013 Rs. 1,083.1 Rs. 753.5 Rs. 238.1
**(All Figures in Rs. Crores)

 Valuations

  • Earnings Per Share (EPS): Rs. 17.64
  • Price/Earnings (P/E) ratio: Rs. 10.20 – Rs. 10.48
  • Return on Net Worth (RONW): 17.28%
  • Net Asset Value (NAV): Rs. 102.06

Grey Market Trend

As on 19 June 2018 GMP INR 32, Kostak INR 400

Disclaimer: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

SBI Small & Midcap Fund to reopen for investments via SIP mode

The SBI Small & Midcap Fund, which was suspended for new investments in October 2015, will reopen for fresh subscriptions through the systematic investment plan (SIP) mode from May 16. It will be called SBI Smallcap Fund and have an investment cap of ₹25,000 per month and per PAN card.

SBI
It is the first fund to reopen for fresh subscriptions after many smallcap funds had put restrictions on inflows because of rising inflows, higher valuations and lower investment opportunities. It was closed for a subscription since it had a capacity constraint of ₹750 crore on its assets under management. 

Download the Factsheet

Download (PDF, 149KB)

Following the introduction of new rules by the Securities and Exchange Board of India (Sebi) for rationalisation of mutual fund schemes, the fund will now fall in the smallcap category. The erstwhile SBI Small & Midcap Fund had emerged from the acquisition of the Daiwa Industry Leaders Fund by SBI in November 2013.

Download the current portfolio

Download (PDF, 84KB)

As per the new rules, a small cap fund can buy stocks beyond 251st stock in terms of market capitalisation. Prior to this, the scheme could buy small-cap stocks only beyond 401st stock in terms of market capitalisation. “These new norms give us 150 more stocks to choose from with higher market capitalisation and hence and we are in the final process of taking internal approvals for opening the scheme for SIPs only.

Download the Fund managers Factsheet

Download (PDF, 100KB)

The fund, with assets of ₹770 crore, is managed by R Srinivasan and is among the best performing smallcap funds. In the past one year, it generated returns of 35.2 per cent, compared to the category average of 17.75 per cent. In the past five years, the fund returned an annualised 36 per cent, compared to the category average of 31.58 per cent. Investors have been flocking to mid-cap and small-cap schemes in the past three years owing to higher returns from such schemes. Several funds in these categories have placed restrictions on inflows because the available stocks are limited and liquidity is low. Reliance Small Cap Fund, L&T Emerging Business Fund, DSP Blackrock Small Cap Fund and Mirae Asset Emerging Bluechip Fund are some funds which have put restrictions on fresh lumpsum investments and SIP inflows into their schemes.

Mutual Fund Investment are Subjected to Market Risks, Read all Scheme Related Document Carefully.

Disclaimer: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

Canada has NO Gold but a Mountain of Debt… Things Will End Badly

While other central banks have been busy increasing their gold reserves, Canada sold off all its gold reserves in 2016. The Bank of Canada ranks last globally out of 100 major central banks.

There is precedence in a central bank selling off its gold, and it didn’t work out very well. In 1999, when the price of gold was low at $282.40 an ounce, the United Kingdom sold half of its gold reserves, worth approximately $6.5 billion. The sale raised $3.5 billion. By 2007, the price of gold had risen to $675.00 an ounce, and the UK had lost more than £2 billion. This financial disaster, known as Brown’s Bottom, did not work out well. And Canada appears to be following in its footsteps.

gold

With many uncertainties globally, Canada’s gold sale could have serious consequences.

In this age of fiat currency, many people forget that gold is actually money, and has never stopped from functioning as a reliable store of value. Gold is a relatively liquid currency and one of the most highly traded.

According to Canada’s senior Finance Department economist Morneau, the reason for the gold sale was the cost involved in storing the gold and the fact that gold offers a poor return. That seems like strange logic since gold has outperformed the S&P 500 since 2000. The price of gold went from $35.00 an ounce in 1967 to over $1,300 today.

Can the ideal equity portfolio beat inflation substantially?

Central banks have been big buyers of gold since 2010. The prime buyers have been Russia and China, but most other central banks have scrambled to follow suit.

On the other hand, Canada has now joined developing countries such as Angola, Belize and Tonga that have no gold reserves at all.

Is Canada headed for disaster?

Canada’s current reserve position of $10,412 billion in the IMF entitles it to 2.26 percent of votes within the organization. It has reduced its reserve position by $1.2 billion. With the sale of gold, Canada is greatly reducing its voting power in the IMF.

Is Canada’s financial power gradually diminishing along with its gold reserves? It seems to have created a mysterious scenario of “ … and then, there were none.”

chart-4-768x644

Following the sale of its of gold, Canada’s market debt has surpassed $1 trillion in a historic milestone.

chart-5-1-768x644

This debt is mostly due to the uncontrolled borrowing made possible by the Bank of Canada’s easy lending policies. Canada has a current debt ceiling of $1.168 trillion, and it is anticipated that Parliament will have to increase that ceiling in the near future. According to the government, it has the power to borrow to refinance its massive debt. But borrowing will only serve to increase the already existing mountain of debt further. Canada has become one the leaders in global debt, and its solution appears to be to continue adding to it with new borrowing. Canada household debt now equals 101 percent of its GDP.

Canada is not situated in a good financial place. Any shift in the global economic wind would leave Canada in a very precarious position.

Ironically, Canada’s record debt comes at a time when economic growth is at 3% (2017) which was the highest in six years and many economists expect this to continue.

Gold Vs Equity Return ( Image and Video )

That optimism, however, is misleading. Canada’s economic growth comes at a time when its total deficit spending has increased to beyond $18 billion. Outstanding corporate credit reached a historic high of $803 billion in 2017.

In addition, Canada is facing a mortgage bubble, with homeowners who bought lavish houses on easy credit now finding themselves unable to afford increased interest rates on their mortgages or being unable to sell a house they can no longer afford.

Canada’s financial policies has been a puzzle to many. While other countries are amassing gold, it has deliberately sold off all its gold reserves, while other countries are attempting to reduce massive debts, Canada appears to plan on increasing its own.

Countries that have historically valued gold have been or have strived to be global powers. The mere ownership of gold has always been a sign of authority. Canada, on the other hand… is flying solo, and might be heading for a crash.

 

Source : Gold Telegraph

10 things I have learned about investing

Following these simple yet indispensable investment insights can save you a lot of regret and sleepless nights.

You don’t make money by watching TV:

There are many business-news channels now which claim that they help you make money. Ever wondered why they never advertise the track record of the recommendations they make? Or why they only seem to talk about the winning recommendations and not the losing ones? Or why they seem to talk about ‘global cues’ driving the stock market all the time?

Most of the business news TV is best for understanding things in retrospect. In fact, when the business TV wallahs don’t have a reason for what is driving the stock market, they say, ‘global cues’. Also, the short-term orientation of TV channels will essentially make your broker, and not you, rich.

You don’t make money by reading newspapers either:

All the business newspapers these days have a strong personal-finance as well as a stock-market section. But a lot of the analysis on offer is full of hindsight bias, i.e., they come up with nice explanations of things after they have already happened. Further, newspaper reporters can get analysts to say things that fit in with the headline that has already been thought of. Analysts are more than happy saying these things in order to see their name in the newspapers. And it is worth remembering that newspapers have space to fill. So they will write stuff even if the situation doesn’t demand it.

Kirang Gandhi

SIPs work best over the long term:

If you were to ask a typical fund manager about how long one should stay invested in an SIP, the answer usually is three to five years. Honestly, I think that is too low a number. I started my first SIP in December 2005. And more than ten years later, I am actually seeing the benefit of having invested for so long. Also, it is worth remembering that SIPs over the long term are about a regular investing habit which gives reasonable returns than the possibility of fabulous returns that one might earn by choosing the right stock. This is an important distinction that needs to be made.

EMI VS SIP ( Be controlled or take control )

Don’t chase fund managers:

I did this during the 2007-2008 period and lost a lot of money doing it. I think it’s best to stick to investing in good large and mid-cap funds which have had a good track record over a long period of time, instead of chasing the hottest fund managers on the block. The funds with the best returns in the short term (one to three years) keep changing, and there is no way you can predict the next big thing on the block; the point being, investing should be boring. If it is giving you an adrenaline rush, you are not doing the right things.

Endowment policies are not investment policies:

Endowment policies sold by insurance companies are a very popular form of investing as well as saving tax. One reason for this is because they are deemed to be safe. But have you ever asked how much return these policies actually give? If I can be slightly technical here, what is the internal rate of return of an average endowment policy in which an individual invests for a period of 20 years? You will be surprised to know that such data are not available. But from what I understand about these things, endowment policies give a lower rate of return than inflation. So why bother? Endowment policies are essentially a cheap way for the government to raise money, given that most of these policies end up investing the money raised in government bonds. That is all there is to it. If you want to finance the government, please do so, but there are better ways of earning a return on your investment.

LIC Jeevan Labh Plan : Reviews/Features/Return Sheet

What are ULIPs? I am still trying to understand:

ULIPs are unit-linked investment plans, essentially investment plans which come with some insurance. The trouble is if they are investment plans, why are there no past returns of these policies available anywhere? But what are ULIPs? I have put this question to many people, but I am yet to receive an answer. What is the best-performing ULIP over the last five years? No one has been able to give me that answer. This is not surprising, given how complicated the structure of an average ULIP is. Hence, if you want to invest indirectly in equity, it is best to stick to mutual funds.

Sensex/Nifty forecasts are largely bogus:

Towards the end of every year or even around Diwali, all broking houses come up with their Sensex/Nifty forecasts for the next year. Usually, these are positive and expect the index to go up. At the same time, they are largely wrong. You can Google and check. Hence, treat them as entertainment but don’t take them seriously. Stock brokerages bring out such forecasts because it is an easy way to get some presence in the media. Both TV and newspapers, for some reason I don’t understand, are suckers for Sensex as well as Nifty forecasts.

Don’t buy a home unless you want to live in it or have black money:

Much is made about excellent returns from property. The trouble is there are no reliable numbers going around. It’s only people talking from experience. But when people calculate property returns, they do not take a lot of expenses into account. Also, when people talk about property returns they talk about big numbers: ‘I bought this for `20 lakh but sold it for a crore.’ This feels like a huge return, but it doesn’t exactly take into account the time factor as well as loads of expenses and other headaches that come with owning property. Further, these days there are other risks like the builder disappearing or not giving possession for a very long time. This leads to a situation where individuals end up paying both EMI as well as rent. Also, property returns have been negative in many parts of the country over the last few years. And given the current price levels, I don’t think buying a home is the best way to invest currently.

Real estate rental yield is below one percent

Gurus are good fun:

In my earlier avatar as a journalist, one widely followed stock-market guru told a closed gathering of investors that Sensex would touch 50,000 level in six to seven years. He said it very confidently. Confident stock-market gurus make for good newspaper copy. I wrote about it and the story was splashed on the front page of the newspaper I worked for. It was October 2007. Nearly nine years later, the Sensex is at half of the predicted level. The point is that gurus might be good. They might have the ability to predict things in advance. But then, why would they give their insight to the media, and in the process, you, dear reader, for free? Remember this, next time you see a guru making a prediction.

Low interest rates on loans also mean low interest rates on your fixed deposits:

This is something that many people don’t seem to understand. People want low interest rates on their loans, but they are not happy with low-interest rates on their deposits. Banks fund loans by raising fixed deposits. They can’t cut interest rates on their loans unless they cut interest rates on their deposits. It’s as simple as that. Nevertheless, I wonder why people can’t seem to understand this basic point.

 

By Vivek Kaul

Want to invest your FD proceeds in mutual funds? Here is how to do it

Most individuals can’t think beyond bank deposits when it comes to deploying their savings. However, fixed deposits do not pay much, and the interest is added to the income and taxed as per the Income Tax slab applicable.

This is the main reason why many investors investing in debt mutual funds instead of parking money in bank deposits. Debt mutual funds may offer market linked returns, which could be marginally higher than bank deposits.

If invested with a horizon of more than three years, debt mutual funds may offer better after-tax returns. Investments in debt mutual funds held over three years are taxed at 20 percent with indexation benefit. The indexation helps to bring down the actual taxes to a single-digit in an inflationary scenario.

graph2

If you are investing for less than three years, both bank deposit and debt mutual funds are taxed similarly. Returns or interest would be added to the income and taxes as per the income tax slab applicable to the investor.

If you would like to explore debt mutual funds, here is some help.

Point to note: there are several kinds of Debt mutual funds. You should choose a scheme that matches your investment horizon and risk profile.

Liquid Funds are very low-risk funds. They invest in highly liquid money market instruments. They invest in securities with a residual maturity of upto 91 days. Investors can park money in them for a few days to few months. These funds may offer marginally higher returns than bank deposits.

For eg. Portfolio of Aditya Birla Sun Life Floating Rate ST

Download (PDF, 113KB)

Floater funds are mostly invest in floating rate instruments. These schemes will invest at least 65 per cent of the total asses in floating rate instruments.

For eg. Portfolio of Kotak Floater ST
 

Banking and PSU funds are predominantly invest (80 percent of assets) in debt instruments of banks, public sector undertakings and public financial institutions.

For eg. Portfolio of ICICI Prudential Banking PSU Debt

Manage your portfolio and enter into the next level of your financial status

Fixed Maturity Plans (FMPs) are a good alternative to fixed deposits for investors in the higher tax bracket. These are closed-ended debt mutual funds with defined maturity. FMPs usually invest in securities which match their tenure and follow buy and hold till maturity strategy. This makes it free from interest rate risk. An FMP may match the yield offered by its portfolio constituents with minute deviations. FMPs also have credit risk, which means that its returns will be hit ..

For eg. Portfolio of Reliance FHF XXXV S16

Download (PDF, 116KB)

Short-Term Funds invest mostly in debt securities with an average maturity of one to three years. These funds perform well when short-term interest rates are high. They are suitable to invest with a horizon of a few years.

For eg. Portfolio of Franklin Templeton Franklin India Low Duration

Download (PDF, 116KB)

Dynamic Bond Funds have an actively-managed portfolio that varies dynamically with the interest rate view of the fund manager. These funds invest across all classes of debt and money market instruments with varying maturities. They are ideal for investors who want to leave the job of taking a call on interest rates to the fund manager.

For eg. Portfolio of IIFL Dynamic Bond

Download (PDF, 88KB)

Income Funds are highly vulnerable to the changes in interest rates. These funds invest in corporate bonds, government bonds and money market instruments with long maturities. They are suitable for investors who are ready to take high risk and have a long-term investment horizon. The right time to invest in these funds is when the interest rates are likely to fall.

For eg. Portfolio of Baroda Pioneer Dynamic Bond

Download (PDF, 82KB)

Mutual fund Strategy: Time to invest in accrual and short-term bond funds

Credit Opportunities Funds are the debt funds which invest in corporate bonds and debentures of credit rating below AAA. The idea is to invest in low-rated securities with strong fundamentals which are expected to see a rating upgrades in the future, benefiting the portfolio and investors. These funds involve high credit risk. A default or a downgrade in a rating of the scheme’s portfolio holdings may hit the returns badly. Their portfolio consists government securities and T-Bills ..

For eg. Portfolio of IDFC Credit Opportunities

Download (PDF, 100KB)

Gilt Funds invest in government securities. They do not have the default risk because the bonds are issued by the government. However, these funds are highly vulnerable to the changes in interest rates and other economic factors. These funds have very high interest rate risk. Only investors with a long-term horizon should consider investing in them.

For eg. Portfolio of HDFC Gilt Short Term

Download (PDF, 82KB)

Debt-oriented Hybrid Funds invest mostly in debt and a small part of the corpus in equity. The equity part of the portfolio would provide extra returns, but the exposure also makes them a little riskier than pure debt schemes. Investors with a horizon of three years or more can consider investing in them.

For eg. Portfolio of Tata Retirement Savings Conservative

Download (PDF, 96KB)

 

RATING

Note: Past performance of fund does not guarantee the future returns.

Mutual Fund Investment are Subjected to Market Risks, Read all Scheme Related Document Carefully.

Disclaimer: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

 

ICICI Sec. IPO Review and the list of anchor investors

ICICI Sec. is a leading technology-based securities firm in India that offers a wide range of financial services including brokerage, financial product distribution and investment banking and focuses on both retail and institutional clients. It has been the largest equity broker in India since fiscal 2014 by brokerage revenue and active customers in equities on the National Stock Exchange, powered by its significant retail brokerage business, which accounted for 90.5% of the revenue from its brokerage business (excluding income earned on our funds used in the brokerage business) in fiscal 2017.

ICICI Securities Raises Rs 1,718 Crore From Anchor Investors.

Download (PDF, 1.85MB)

 

ICICI-Securities-IPO

Its retail brokerage and distribution businesses are supported by its nationwide network, consisting of over 200 of its own branches, over 2,600 branches of ICICI Bank through which its electronic brokerage platform is marketed and over 4,600 sub-brokers, authorized persons, independent financial associates and independent associates as at September 30, 2017.

ICICI Sec. is empanelled with a large cross-section of institutional clients.

IPO Dates & Price Band:

  • IPO Open: 22-March-2018
  • IPO Close: 26-March-2018
  • IPO Size: Approx Rs.4017 Crore (Approx)
  • Face Value: Rs.5 Per Equity Share
  • Price Band: Rs.519 to 520 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 10%
  • Equity: 77,249,508 Shares

Market Lot:

  • Shares: Apply for 28 Shares (Minimum Lot Size)
  • Amount: Rs.14,560

Allotment & Listing:

  • Basis of Allotment: 2-April-2018
  • Refunds: 3-April-2018
  • Credit to demat accounts: 4-April-2018
  • Listing: 5-April-2018

The promoters:

ICICI Bank Ltd.

Lead Managers:

DSP Merrill Lynch Limited

Citigroup Global Markets India Private Limited

CLSA India Private Limited

Edelweiss Financial Services Limited

IIFL Holdings Limited

SBI Capital Markets Limited

Object of the issue:

The objects of the Offer for the Company are to achieve the benefit of listing the Equity Shares on the Stock Exchanges and for the sale of Equity Shares by the Promoter Selling Shareholder. Further, the Company expects that the listing of Equity Shares will enhance its visibility and brand image and provide liquidity to its existing shareholders.

i3
i5

Our Strengths

Largest Equity Broker in India Powered by Our Proprietary Technology Platform.

Natural Beneficiary of Fundamental Transformation in the Indian Savings Environment.

Strong and Growing Distribution Business with an “OpenSource” Distribution Model.

Superior Customer Experience through Product and Technology Innovation.

Strategic Component of the ICICI Ecosystem.

Strong Financial Performance with Significant Operating Efficiency.

Experienced Senior Management Team.

i8Our Strategies

Strengthen its Leadership Position in the Brokerage Business.

Continue Investing in Technology and Innovation.

Strategically Expand its Financial Product Distribution Business Through Cross-Selling.

Leverage its Leadership in Equity Capital Markets to Strengthen its Financial Advisory Businesses.

Diversify its Revenue Streams and Continue Reducing Revenue Volatility.

Future Supply Chain Solutions Ltd IPO Review

Negative

Some of its Directors, its Promoter and certain Group Companies are involved in certain legal and other proceedings.

i1

General economic and market conditions in India and globally could have a material adverse effect on its business, financial condition, cash flows, results of operations and prospects.

ICICI Sec. rely heavily on its relationship with ICICI Bank for many aspects of its business, and its dependence on ICICI Bank leaves us vulnerable to changes in its relationship.

The operation of its businesses is highly dependent on information technology, and ICICI Sec. are subject to risks arising from any failure of, or inadequacies in, its IT systems.

ICICI Sec. rely on its brokerage business for a substantial share of its revenue and profitability. Any reduction in its brokerage fees could have a material adverse effect on its business, financial condition, cash flows, results of operations and prospects.

ICICI Sec. is subject to extensive statutory and regulatory requirements and supervision, which have a material influence on, and consequences for, its business operations.

ICICI Sec. may fail to detect money laundering and other illegal or improper activities in its business operations on a timely basis.

There are operational risks associated with the financial services industry which, if realised, may have a material adverse effect on its business, financial condition, cash flows, results of operations and prospects.

ICICI Sec. faces intense competition in its businesses, which may limit its growth and prospects.

ICICI Sec. may not be able to sustain its growth or expand its customer base.

ICICI Sec. faces certain other risks related to its distribution business, which accounts for a significant portion of its revenue and profitability.

ICICI Sec. face various risks due to its reliance on third-party intermediaries, contractors and service providers.

ICICI Sec. face various risks in relation to its investment banking business.

ICICI Sec. may incur losses on its treasury and trading business from market volatility or its investment strategies.

Its Promoter, ICICI Bank, and some of its Directors and related entities may be subject to conflicts of interest because they compete against us and have interests in companies which are in the same line of business as us.

Credit risks in our day-to-day operations, including in its investment portfolio, may expose us to significant losses.

ICICI Sec. have experienced negative cash flows in the prior years.

Cash Flow

i2Financial

Its profit after tax was INR 717.5 million, INR 891.9 million, INR 2,938.7 million, INR 2,387.2 million, INR 3,385.9 million and INR 2,460.5 million in fiscals 2013, 2014, 2015, 2016 and 2017 and the six months ended September 30, 2017, respectively, and its return on equity has exceeded 30.0% for each measured period since fiscal 2013. For fiscal 2017, our return on equity was 69.2%.

Comparison of Listed Peers

i4Valuations

Annualised EPS works out to Rs 10.48 for the year ended March 2017. At the upper end of the price band, shares will trade at 49.6 times its earnings.

High valuations despite less capital intensive business.

Grey market premium

Current GMP is Rs.6/-, and  Kostak is Rs.300/- (sellers)

 

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here

Hindustan Aeronautics Limited IPO Review and Current GMP

Hindustan Aeronautic is engaged in manufacturing, development, design, repair and servicing of products like helicopters, aero-engines, aero space structures, aircraft and many more. Hindustan Aeronautic India has the unique products portfolio and the operations have names like Bangalore Complex, MiG Complex, Helicopter Complex, Accessories Complex, and Design Complex and they have over 11 production division with 11 R&D centers in India.

Their major domestic customers are Indian Air Force, Indian Army, Indian Navy, Indian Coast Guard, Indian Space Research Organisation, Defence Research & Development Organisation, Ordnance Factory Board, ,Border Security Force, Oil & Natural Gas Cooperation of India, Govt. of Karnataka, Govt. of Jharkhand, Govt. of Maharashtra, Geological Survey of India, Bharat Heavy Electricals Ltd. They export their products in France, USA, Mauritius, Israel, Ecuador, Namibia, Nepal, Russia, UK, Oman, Malaysia, Thailand, Germany and Vietnam. The company received “Excellent” rating from Government of India from 2002 to 2016.

Hindustan Aeronautics is ‘Navratna’ company since June 2007 and the largest DPSU in India. It is the 39th largest aerospace company in the world in terms of revenue. The company was also awarded Raksha Mantri’s Award for excellence in performance under institutional category in FY 2008, FY 2010, FY 2011, FY 2013 and FY 2016.

386_Para_hawk-i

IPO Dates & Price Band:

  • IPO Open: 16-March-2018
  • IPO Close: 20-March-2018
  • IPO Size: Approx Rs. 4482 Crore (Approx)
  • Face Value: Rs.10 Per Equity Share
  • Price Band: Rs.1214 to 1240 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 34,107,525 Shares
  • Discount:  Rs.25 for Retail & Employee

Market Lot:

  • Shares: Apply for 12 Shares (Minimum Lot Size)
  • Amount: Rs.14,580 (For Retail & Employee)
  • Amount: Rs.14,880 (For QIB & HNI)

IPO Allotment & Listing:

  • Basis of Allotment: 26-March-2018
  • Refunds: 27-March-2018
  • Credit to demat accounts: 27-March-2018
  • Listing: 28-March-2018

The promoters:

The President of India

Acting through the Department of Defence Production Ministry of Defence.

 Lead Managers:

SBI Capital Markets Ltd
Axis Capital Ltd

Registrar to the IPO:

Karvy Computershare Pvt Ltd.

387_Para_alh civil 3

111

Outlook of the Indian Aerospace and Defence Sector

India has the third largest military in the world and is the sixth largest spender in Defence. India is also one of the largest importers of conventional defence equipment and spends approximately 30% of its total defence budget on capital acquisitions. 60% of Indian’s defence – related requirements are currently met through imports.

In addition, the ‘ Make in India ’initiative by the Government is focusing its efforts on increasing indigenous defence manufacturing with the aim of becoming self – reliant.

The opening up of the defence sector for private sector participation is helping foreign OEMs to enter into strategic partnerships with Indian companies and leverage opportunities in the domestic market as well as global markets.

India’s focus on indigenous manufacturing in the defence sector has yielded certain benefits as the MoD over the last two years unveiled several products manufactured in India including the LCA Tejas, the composites sonar dome, a portable elemedicine system for the armed forces, penetration – cum – blast and thermobaric ammunition specifically designed for the Arjun tanks, the Varunastra heavyweight torpedo manufactured with 95% locally sourced parts and medium-range surface-to-air missiles. The Defence Acquisition Council under the MoD cleared defence sector transactions with a value of more than 820 billion under the buy and Make (Indian) and Buy Indian categories. These transactions include the procurement of Light Combat Aircraft, T-90 tanks, mini UAVs and light combat helicopters.

121Our Strengths

India has the third largest military in the world and is the 6th largest spender in the defence sector.

60% of total defence requirements of India as on today is met from imports. Hindustan Aeronautics is poised to gain under the ‘Buy and Make (Indian)’ procurement category. The company has all the necessary capabilities and technology (including licensed technology) to capture maximum relevant defence budget spend going ahead.

Long credible history of research, design and development, manufacturing and maintenance, repair and overhaul (“MRO”) services.

Setting up a goal: First step to Financial Planning ( Video )

Established track record in offering product lifecycle support extending to periods beyond four decades.

Indian armed forces plan to procure more than 1000 rotary wing aircrafts and will revamp their fleet in next 10-20 years.

Strong design and development capabilities.

Leadership position in the Indian aeronautical industry and strong GoI support.

Diversified product portfolio.

Strong financial track record.

Experienced management team and operating team.

141

Our Strategies

Expand its operations through partnerships or collaboration.

Diversify through expansion in new growth areas.

Diversify further into the civil aircraft segment for both manufacturing and servicing opportunities.

Develop in-house capabilities to design and develop specialized products including aero – engines.

Leverage Existing Cost Advantage.

Developing Human Capital.

Enhancing customer satisfaction.

Optimising operations towards becoming a lead integrator of aircraft platforms.

151

Negative

There are outstanding legal and tax proceedings involving its Company. Any adverse decision in such proceedings may expose us to liabilities or penalties and may adversely affect its business, financial condition, results of operations and cash flows.

Hindustan Aeronautics depend heavily on MoD contracts. A decline or reprioritisation of funding in the Indian defence budget, that of customers including the Indian Army, Indian Air Force and Indian Navy (the “Indian Defence Services”), Indian Coast Guard, Border Security Force, Central Reserve Police Force and Paramilitary forces or delays in the budget process could adversely affect its ability to grow or maintain its sales, earnings, and cash flow.

As a result of national securities concerns,certain information in relation to its business and operations is classified as ‘secret and confidential’ pursuant to which we have not disclosed such information in this RHP nor provided such information to the BRLMs and other intermediaries and advisors involved in the Offer.

The MoD contracts are not always fully funded at inception and are subject to termination. Its inability to fund such contracts at the time of inception or any termination could have a material adverse effect on its financial condition and results of operations.

Its Company is not in compliance with certain provisions of the Companies Act and/or SEBI Listing Regulations in relation to terms of reference of the Audit Committee and the Nomination and Remuneration Committee.

Ongoing disclosure of information in relation to its Company after the listing of the Equity Shares on the Stock Exchanges may be limited and may not be in compliance with the SEBI Listing Regulations and other applicable laws.

The GoI has significant influence over its actions which may restrict its ability to manage its business. Any change in GoI policy could have a material adverse effect on its financial condition and results of operations.

EMI VS SIP ( Be controlled or take control )

Its current order book may not necessarily translate into future income in its entirety. Some of its current orders or requests for a proposal which we have received may be modified, cancelled, delayed, put on hold or not fully paid for by its customers, which could adversely affect its results of operations.

Hindustan Aeronautics is involved in a dispute with the Ministry of Defence of Ecuador relating to their termination of an agreement with us relating to the supply of helicopters to the Ecuadorean Air Force. Its revenue and exports may be adversely affected as a result.

Hindustan Aeronautics also operate in evolving markets, which makes it difficult to evaluate its business and future prospects.

Its earnings and margins may vary based on the mix of its contracts and programs, its performance, and its ability to control costs.

Its business could be materially adversely affected if any default of its causes an aircraft or helicopter accident.

ALH Dhruv Helicopters supplied to the Ecuadorean Air Force were involved in accidents, and The Ecuadorean Ministry of Defence has designated the company as a defaulting contractor and has barred it from bidding for future contracts. This can affect the future exports and company’s ability to bid outside India.

The aircraft such as MiG-21 variants, MiG-27 and the Su-30 MKI, as well as engines and other accessories, and repair and overhaul services for these aircraft that are manufactured in India are done through transfer of technology from Russian OEMs as well as pursuant to inter-governmental agreements with Russia. The United States, the United Nations Security Council and other jurisdictions and organizations have implemented comprehensive economic sanctions targeting Russia in recent years. This can have an adverse impact relating to the supply and support from Russian OEMs for the aircraft that Hindustan Aeronautic manufacture under transfer of technology with such OEMs.

Valuation

On the performance front, Hindustan Aeronautic has (on a consolidated basis) posted turnover/net profits of Rs. 17362.00 cr. / Rs. 994.10 cr. (FY15), Rs. 18754.80 cr. / Rs. 2004.30 cr. (FY16) and Rs. 19596.90 cr. / RS. 2624.70 cr. (FY17). For the first half of the current fiscal, it has earned a net profit of Rs. 391 cr. on a turnover of Rs. 5665.90 cr.

For last three fiscals, it has posted an average EPS of Rs. 54 and an average RoNW of 17.67%. Hindustan Aeronautic’s last three fiscal’s EPS stands at Rs. 73 (FY17), Rs. 42 (FY16) and Rs. 21 (FY15). PAT margins for these fiscals were 14%, 12%, and 6% respectively. It has posted CAGR of 9% for revenues, 62% CAGR in PAT for last three fiscals. The issue is priced at a P/BV of 3.46 on the basis of its NAV of Rs. 358 as on 30.09.17.

It has no listed peers to compare with. Hindustan Aeronautic’s sale to Indian Defense Services accounts for nearly 92% (on an average) of its revenues. According to management, first-half results cannot be annualized to compare as it always does better in the second half due to billings only on delivery of products. However, if we annualize latest earnings and attribute it on its paid-up equity then asking price is at a P/E of 53, but if we consider FY 17earnings, then P/E comes to 17.

Grey Market premium

Current GMP is Rs. 4/- and Kostak is Rs. NIL

 

Only LIC policyholders money can save this IPO.

 

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here