Money Bol » Equity

Pros and Cons of Credit Card

Vineet Patawari — Thu, 02 Feb 2012 16:47:53 +0000

The Pro’s and Con’s of Getting a Credit Card

If you have been considering applying for a credit card, you may have already been shopping around for a cheap credit card. It is hard to miss out on stories in the media regarding consumers paying high interest rates and paying high annual fees on their credit cards. So by shopping around, you no doubt want to find a card with a low rate and preferably no annual fees. Before you continue shopping, though, you may want to consider if you do want a credit card after all as well as how you plan to use it if you do get one.

The Pros of a Credit Card
There are some advantages to carrying “plastic” in your wallet on a regular basis. If you find a cheap credit card, you can simply slide it into your wallet and enjoy the peace of mind that comes with knowing you have some extra cash on hand to use as needed. You may not plan to charge new purchases to the card, but it’s nice to know that if you have the need for cash due to an emergency and are unable to get cash any other way, you can use your card. Many people also use their credit card to build up a higher credit score. By making small purchases on the card regularly and then paying the balance off in full each month, you can establish or build a great credit rating.

The Cons of a Credit Card
The cons of using credit cards are well-noted by stories covered in the media on a regular basis. There are numerous stories about people who are buried under a pile of credit card debt. Many people are carrying thousands, or even tens of thousands, of dollars in credit card debt. These are balances that may be incurring interest charges of hundreds of dollars per month in some cases, and it can take years to pay off these balances. In some cases, credit cards can lower a person’s credit rating when payments are not made regularly or when high balances are carried. Plus, because it can take so long to pay these high balances off and because interest charges and annual fees eat into your future income, credit cards can affect your long term financial future, too.

As you can see, there are some reasons to keep at least one credit card in your wallet at all times. However, you do want to find a cheap credit card with a low or no annual fee and a low interest rate. You also want to use the card responsibly and pay off the balance each month to minimize the negative aspects of using credit cards.

Mistakes Mutual Fund Investors Must Avoid

Vineet Patawari — Sun, 30 Oct 2011 17:33:40 +0000

Last few months have been difficult for equity investors in India and all around the world because of the rough weather and high volatility in the global as well as Indian markets. In times like this lot of investors, especially the lesser active ones, want to take advantage of the correction by investing in equity linked instruments like mutual funds. The decision of selecting mutual fund is based on sound underlying principles that it is a professionally managed, well diversified investment avenue to directly participate in the equity markets without worrying about timing the market.

In such difficult times we have to ask a few difficult questions to ourselves before committing our money to any mutual fund scheme. Here I give you three questions which you must contemplate on –

Do I understand the risk associated with market linked instruments like mutual fund? It may be safer than direct investment in shares but it has got its own problems and risks. Because of enough diversification, stock specific risk might be reduced but the market risk still remains.
How to make intelligent choices between different types of funds –balanced versus diversified equity (all stocks), open-ended versus closed-ended, SIP versus lump sum?
What is the objective of buying the mutual fund? For tax saving you’ve tax saver funds (ELSS), if you are bullish on a particular sector, say pharma, you have sector specific funds like “Reliance Pharma Fund”, if you want regular cash flow from your investment, you can opt for dividend option of a fund.

4 mistakes mutual fund investors should avoid

Not reading Offer Document Carefully: Don’t miss reading about the following things in the offer document (prospectus) of any mutual fund AMC
1. Verify that you have received an updated version of the offer document. Otherwise, your decision will be based on out dated information, specially the historical performance of the fund.
2. Investment objective of the fund. It can be – to generate regular income or long term capital appreciation or to closely match returns of a benchmark or something else.
3. Risk factors should be properly evaluated against your own risk appetite. Credit risk, market risk, interest-rate risk etc. are all crucial and should be analyzed based on your expectations (protection of capital or regular flow of income or something else) from the investment.
4. We’ve all heard that past performance is not an indication of future returns. However, we must read the historical performance of the fund critically, looking at both the long and short-term performances.
5. Fees and expenses include various commissions named as entry load and exit load. Though entry load is restricted by SEBI but there are certain adjustments with your NAV to compensate the middle-men. These are paid in the form of upfront and trailing commissions.
Choosing sectoral funds without analyzing the sector: It is very important to understand the risk-return profile of a sector fund. Investment in sector fund has to be timed very cautiously as the return will have the seasonality effect of the underlying sector. If you have entered into the right sector at the right time and if that sector performs, your investment in the fund will give you substantial return, most of the time more than market returns. For example Reliance Diversified Power Sector Fund gave handsome returns in the period 2004-06. Downside of sector funds is that individuals like us can seldom time the market properly. If you have not seen 2-3 market cycles, then you should remain away from sector funds.
Investing based on short term performance of the fund: Reading too much into 1 month, 3 months and 6 months performances, without checking the consistency of returns in longer terms like 3 years and 5 years can be very risky. Relying on researches like “last month, equity funds with higher exposure in defensive sectors like health care and FMCG, fared the best” can be misleading as the trend may be very short lived.
Not knowing the underlying securities of your fund: Without knowing the composition of the portfolio of your fund, it is not possible to get the desired diversification. Take an instance where you invest in a few mutual funds to obtain a diversified portfolio. However, if all these funds hold same underlying shares, bonds, etc. you are not getting the required diversification. You must also know on what sectors your fund is overweight and on what sector it is underweight, which helps you map it to your risk appetite.

IPO Note – SRS LIMITED

Guest — Mon, 22 Aug 2011 05:32:35 +0000

I have generally observed that during a bear phase in the market, companies defer their fund raising plans. I was going through the IPO column of NSE and came across 3 companies. Two of them had already announced their plans however, one, SRS Limited’s IPO will open on August 23. I found this company a bit interesting and hence thought of doing some research on the same. Here is what I found.

Company and business

SRS Limited is a diversified company with a business portfolio which includes cinema exhibition, food & beverages, retail & manufacturing and retailing of jewellery. SRS Limited was incorporated in August 2000 with the objective of becoming a FMCG company. Initially it came as SRS Commercial Company Limited and was later renamed to SRS Entertainment Limited in January 2005. The retail arm of the group is consolidated under two brands namely SRS Value Bazaar and SRS Fashion Wear. The Company has 23 retail stores in North India. SRS cinema operates in six cities with 11 properties having 30 screens and 7608 seats. SRS Food court runs under the SRS 7 dayz brands under the name “Punjabi Haandi” which runs 11 food courts across north and Central India.

Sectors’ summary

Film Exhibition has a huge scope of expansion. As per an industry survey, the screen density in India is less than 12 screens per million which is quite low compared to other developed countries.

Food & Beverage industry has grown significantly over the years. According to the industry source estimates, the industry will reach by $300-350 billion by 2015 from an estimated $150-200 billion in 2006-2007.

Retail Sector industry in India has grown at a CAGR of 10-12 per cent. Apart from this the industry was impacted by economic condition. In coming days it is expected to revive from the slowdown.

Gems & Jewellery market is one of the leading contributors to India’s export revenues. The Indian jewellery retail market was estimated to be about Rs. 973 billion in 2009-10. Gold jewellery accounts for around 80 per cent of the Indian jewellery market.

Objective of the issue

The company aims to raise Rs 203-227 crore through the issue of 3.5 crore equity shares of face value Rs 10 each with an issue price of Rs 58-65. Expansion across business segments being the primary aim. Various expansion plans are-

Setting up movie screens in 15 locations across India with 51 screens and approximately 13,840 seating capacity
Setting up of 29 new Retail stores in various locations across India
Setting up of 17 new jewellery retail outlets by the end of 2013
Setting up of 33 additional food & beverages outlets with an estimated area of 181,500 square feet by the end of 2013.

Risk factors

SRS Limited has had negative cash flow in the past three years. The Company’s cash flows from operating activities have been negative in the financial years ended 2009, 2010 and 2011 mainly because of increase in the Company’s operations which have resulted in substantial increase in working capital required by it. The promoters of the company are involved in certain proceedings which could affect the business. As per the financial statement as on 31 March 2011 of the company it has some contingent liabilities which may adversely affect the financial position of the company.

Key financials

Cash flow of the company for last three years:

Profit and Loss Summary of Last two years :

IPO GRADING

SRS Limited grading is done by ICRA and has been assigned ICRA IPO grade of ‘3’ to the proposed IPO reflecting average fundamentals.

OVERALL VIEW

It is advisable to subscribe to the IPO as there are huge expansion plans of the company. The company is clear about its objective and good scope of diversified sector gives a positive signal. Despite the negative cash flow, company earns a huge profit after tax which further puts a SUBSCRIBE to IPO.

Author: Satish Tayal, MBA (ISBM), is a intern at Kredent Group.

Trading as a Career

Praveen Bajaj — Fri, 12 Aug 2011 05:31:53 +0000

If you are considering a career in finance, as many fresh B.Com, BBA & MBA graduates do, and all you have found are placements in the Financial Services sector, then maybe you have not considered a very large area of finance – the Capital Market.

Opportunities in core finance careers in the Capital market are innumerable – ranging from analysis & trading of different asset classes to brokerage to investment banking & private equity. The jobs with no front end involvement are those of Analysts & Traders. Of them the most lucrative is that of a Trader.

Not many are aware, but trading can be pursued as a full time career and not as a mere part time investment opportunity.

Two factors which create significant opportunities for traders are Volumes on major exchanges across the asset classes viz equity, commodity and currencies, which have more than doubled in the last 2 years, and increased number of instruments and contracts available for trading in the Indian capital markets.

What kinds of Trading Careers are available?

There are many kinds of trading – starting at arbitrage & jobbing and escalating to Options & Multi-Asset trading with opportunities in Spreads, Options, Momentum & Technical Trading lying in between. With a market capitalization of over 67 Trillion rupees – and growing – there are great opportunities in the Indian Markets. Not many are aware, but trading can be pursued as a full time career and not as a mere part time investment opportunity.

What you need to become a Trader?

Trading is a career meant for highly self motivated individuals who are capable of analyzing and acting upon information at a rapid pace – daily fluctuations in prices can cause severe changes in fortune. Traders need to be able to work successfully independently with little supervision. If they are unable to, they find themselves out of a job. It is possible to become an independent trader, provided you have the knowhow and necessary tools – capital, a terminal & analysis software.

How to get started in a Trading Career?

There are few, if any, recognized institutions in India which provide formal education on the trading profession. The basics of capital markets are taught, however, proper instruction on trading and analyzing securities, commodities & currencies are neglected. The lack is made up by institutions hiring graduates, engineers & MBAs as traders and then spending thousands of rupees training them to do the job they were hired for.

The other option – if you are not hired right out of college for a trading position – you can consider doing a certified professional trading course and subsequently seek trading position with any of the proprietary trading firms.

What is the Career Path of a Trader?

The basic job doesn’t change – traders are supposed to develop their skills and use their experience to generate higher profits in trading. Career paths for traders consist of expanding on 3 successive levels –

Volume of Exposure – capital amount available to a trader for usage
Strategies Utilized –Jobbing, view based spread trading, technical analysis, Option trading, Greeks trading, Multi Asset Trading

Asset Classes – equities, commodities, currencies & derivatives

Is this the right career for you?

After receiving all the details of trading as a career, the last thing you must gauge is if trading is the career for you. If you enjoy a fast paced work environment, being independent & fast in your decision making, have a good head for numbers and like creating opportunities for yourself then trading might be a perfect fit for you.

Beginner’s Guide for Stock Market

Praveen Bajaj — Fri, 10 Jun 2011 22:58:31 +0000

I recently come across many freshers who have heard people talking about share markets and movement in equity prices but they do not understand what exactly stock market is and what goes on there. I thought of answering some of the basic questions through this post.

What are shares or stocks or equity?
In simple terms share or stock is a certificate issued by the company, which entitles its holder to be one of the many owners of the company. We can also say that its a part of the capital of the company which is invested by its holder. The holder gets the voting rights in certain company’s issues. The benefits of owning a share is capital gains by selling off the shares and dividends generated.

What is share market?
Stock market or equity market is a place which, might or might not have a physical existence, for trading of stock at an agreed price. There are two types of market which can be classified as: Primary market and Secondary market.

What is primary and secondary market?
An investor can get shares from both primary and secondary market. Primary market is a market where the securities are bought by way of public issue directly from the company. In this market form, only companies can issue share to the investors. The issue is commonly termed as Initial Public Offering (IPO) or Follow-on Public Offering (FPO).

Secondary market is a market where the securities are traded after they are initially offered in the public market. Secondary market is the huge market and most of the trading is done in the secondary market. It can also be said as organised market for used securities. This market form is known as Stock exchange where buyers and sellers of securities transact among each other. Most popular stock exchanges in India are Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

How to trade in stock market?
Trading in stock market involves taking a call on the future prices of the securities that you decide to trade on. This call can be taken with the help of n-number of ways which comprise of various forms of analysis like fundmental analysis, technical analysis, quantitative analysis and so on. You can do any/all of this either yourself or listen to many finance gurus who advise you on this matter.

Trading in a stock market consists of certain hassle-free procedure. Every transaction is carried out the licensed member called broker. An investor can trade in any of the stock exchanges to which his broker provides access to. The brokers have a network of sub-brokers who provide the order to the brokers. The retail investors should identify a sub-broker for regular trading in shares and can place his order of purchase and sale through the sub-broker. The order will be transferred to the main broker for execution. Since these transactions are carried on electronically, the time gap between placing orders by investors and the order reaching the market servers is of fraction of a second. In order to operate through a broker or sub-broker, investor need to have a demat account.

What is a demat account?
Demat account means dematerialised account. Nowadays it is essential to open a demat account if you want to buy or sell stocks. Opening an Individual Demat Account is a two-step process: It is obvious that you have to open a bank account to make cheque payment etc. You approach a DP which you can get from the list of NSDL and CDSL and fill up the account opening booklet. You will then need to fill up an account-opening booklet. You will then receive an account-opening number and DP ID number for the account. Now you can trade easily in stock market.

Is there any difference between Investment and Trading?
Many people confuse between trading and investment but fact is they are not same. While purchasing any stocks your aim behind purchasing must be clear. A question needs to be ask before purchasing a stock “Do you want short term benefit or long term gains.” It is nothing but the difference of the length of the time you hold onto the assets.

Investors are generally interested in the long-term gain and less concerned about short-term fluctuations in prices. An investor relies mostly on Fundamental Analysis and adopts a “buy and hold” approach for his investment which means buys the shares for the long terms.

Trader on the other hand, is interested in attempting on profit on just short term price fluctuations. The amount of time an active trader holds an asset is very short, it can be some days, in many cases minutes or sometimes even seconds.

I hope this answers a lot of the basic queries of the un-initiated. Would update you with more articles related to basics of securities markets through future posts.

Author: Satish Tayal, MBA (ISBM), is an intern at Kredent Group.

Aanjaneya Lifecare Limited

Praveen Bajaj — Wed, 11 May 2011 11:00:42 +0000

Overview- Company and business

Aanjaneya Lifecare limited was incorporated in 2006. The company is a research based pharmaceutical company with manufacturing and marketing capabilities in APIs (Active Pharmaceutical Ingredients) mainly focus on anti-malarial and (Finished Dosage Forms) FDFs. Company is the largest manufacturers if quinine salts in the world. The company started its manufacturing activities in the year 2007. The company also have a small R&D block in Mahad, Maharashtra. Company have a product portfolio of Anti malarials, Animal Health Product and Anti-cancer. The manufacturing facilities have been approved by various regulatory authorities and are ISO 9001-2008 and WHO GMP certified.

Industry Analysis

World pharmaceuticals industry is growing by leaps and bounds and India is showing the most promising signs in the industry with generics constituting a significant portion of Indian pharmaceuticals industry. The Indian generics business is getting special attention and

respect from all major leading pharmaceuticals companies across the world. The

pharmaceutical industry in India is estimated to be worth about US$ 10 bn, growing at an annual rate of 9%. The global pharmaceutical market grew by 4.8% to reach USD 773 billion in 2008 from USD 715 billion in 2007. The

CAGR for the period 2001-2007 was 10.5%. The two largest markets, the US and Europe

, which contributed almost 72.3% to the global market in 2008, achieved growth rates of 1.4% and 5.8% respectively. The European market is expected to grow with a CAGR of 2-5% for 2008–2013.

Objective of the issue

The company aims to raise around Rs 120 crore through the issue of 50 lakh equity shares at higher end of price band of Rs 228-240 a share. The company has decided to utilise Rs. 26.56 crore in for the setting up of the Anti Cancer facility at our existing location in Mahad, which is expected to commence commercial production in April, 2012.

The company has proposed to use Rs. 14.79 crore for the establishment of a cGMP block for manufacturing APIs at our existing location which is expected to commence operations in the September, 2011. The company also propose to use Rs. 8.67 lacs for the establishment of a multipurpose block for manufacturing APIs at our existing location which is expected to commence operations in the April, 2012.

The Research and Development team at, Maharashtra is engaged in improving the processes for existing products thereby improving the cost efficiencies. The company will utilise Rs.19.08 crore for the expansion of our existing R & D centres for lab scale development work.

These are the major money to be utilised after the issue.

Risk Factor

There are several risk factor related to the company which must be kept in mind before investing. The company is involved in certain outstanding proceedings which are pending. Any adverse outcome of the above can harm the smooth running of the business.

The Company entered into a Working Capital Consortium Agreement with State Bank of India and The Shamrao Vithal Cooperative Bank Limited whereby raising a term loan of Rs. 115.07 crore. This entails substantial leverage on the part of the company and increases the financial risk of the company considerably.

The company also have the negative cash flow during the year. If they are not able to generate sufficient cash flows, it may adversely affect our business and financial operations.

			(IN CRORE)
Particulars	2008	2009	2010

Cash flow for operating activity	(2.34)	(21.93)	0.48

Cash flow for financing activity	(10.69)	(2.97)	(38.8

Ipo Grading

Aanjaneya Lifecare limited grading is done by CRISIL. CRISIL Equities has assigned a CRISIL IPO grade of ‘1/5’ to the proposed IPO. The assigned grade reflects the weaker fundamentals and company’s limited corporate governance practices.

Key Financials

			(IN CRORE)
Particulars	2008	2009	2010

TOTAL INCOME	22.38	91.15	169.35
TOTAL EXPENDITURE	17.31	80.24	139.56
PAT	2.31	5.1	15.07

Overall view

It is not advisable for the subscriber to subscribe for the IPO. The cash flow of the company is negative which is a warning signal. Moreover the company’s financials are not strong. The price of the issue is quite high as compared to the company’s strength. The company have many object and fund allocation plans which seems risky.

Author: Satish Tayal, MBA (ISBM) is an intern with Kredent Group

Muthoot Finance- Follow up note

Praveen Bajaj — Sat, 07 May 2011 11:59:21 +0000

Muthoot Finance Limited, the second IPO in the year 2011 listed at a premium on debut on both NSE and BSE. At NSE Muthoot Finance Limited opened at Rs. 196.60, a premium of 12.34% against the issue price. The issue price was Rs. 175 a share. The script had touched the high price of Rs. 198.90 with a total turnover value of Rs. 1,067.4 crore. Subsequently it had touched an intraday low of Rs. 161.40. MFL finally closed at 172.40 on NSE registering a decline of 1.3% from the issue price.

The issue opened for subscription 18-Apr and closes on 21-Apr with 100% book building process. The price band of the issue of the IPO was Rs. 160-175 and size of the IPO was Rs. 901.25 crore through the issue of 5.15 crore equity shares. The IPO was oversubscribed 24.55 times.

The Way forward for gold loan market

As per the red herring prospectus of the company gold loan market is expected to grow at between 35% to 40% over the next couple of years. Moreover the market is yet not penetrated. It is expected that Gold market will provide enough opportunity for portfolio expansion and retain attractive margin to NBFCs, banks and new entrants. As we know that gold loan market is a huge market in India and it is always in the secure zone. The company had also decided to use the available issue funds to meet future capital requirements to provide for funding of loans to customer.

The Way forward for MFL

Muthoot enjoys the dominant position in the niche gold loan market generating net interest margin of over 10 per cent, return on equity of over 30 percent with huge growth potential and low default risk. MFL is already a largest gold financing firm with a market share of 18-20 per cent.

The closest competitor of MFL is Manappuram which is one-third of Muthoot’s size in the gold loan market. Therefore MFL is the flagship in gold loan market.

The net worth of the company has shown an increasing trend. In 2006 net worth of the company was Rs. 90.43 crore which has increased to Rs. 584.19 crore in 2010. The shows the strength of the company and its growing market. Moreover it is also expected that its net profit will reach great heights in coming two years. Net profit of the company has increased from Rs 26.88 crore in the year 2006 to 228.51 crore in 2010.

What should you do now??

It is advisable to hold the share for the long term profit because the company is focusing on long term benefit rather short term gains. The objective and plans of the company are clear. Moreover the industry is growing at a good pace and expected to rise in coming years. Investor may expect returns more than the market rate of return considering the good positioning in the sector and better financials of the company.

Author:Satish Tayal, MBA (ISBM) is an intern with Kredent Group.

Sanghvi Forging and Engineering Ltd

Praveen Bajaj — Fri, 06 May 2011 09:11:39 +0000

Overview- Company and business

Sanghvi Forging and Engineering Ltd is an ISO 9001-2008 certified company. The inception of the company was in 1990. It is a Vadodara based company. SFEL is engaged in manufacturing and marketing of forging product for the non-automotive sector. It manufactures stainless steel forged and Machine Subtends, Forged Flanges, Forged fitting and CNC Machined Forged parts for various industries oil & gas, fertilizers, power etc. The company also exports the products mainly at Europe, Middle East and Canada. The total installed capacity of forged flanges is 3600 MTPA. The company is an approved global vendor of General Electric (GE) and it has obtained an approval of Mazagaon Dock, a GOI enterprise manufacturing submarines and vessels for defence, and Kuwait National Petroleum Corporation.

Industry Analysis

The Indian Forging industry has now emerged as a major contributor to the manufacturing sector of the Indian economy. Forging industry is in the list of the industry type which grows with the GDP of the country and Indian GDP is at growing stage. Forging industry also enjoys the benefits of opportunity of huge exports. The SMEs form the backbone of the industry. The organized sector accounts for about 65-70% of the total forging production in the country. Moreover the industry is already transformed from labour-intensive to capital-intensive.

The Indian Forging industry has been growing at a CAGR of 29%. The capacity of the industry is estimated to be around 1.5 million tonnes. During the year 2007-2008, the overall production of forgings increased to about 1.2 million tonnes. India exports huge forgings. In 2007-2008 exported forgings value was about US$ 472 particularly to USA, Europe and China.

Objective of the issue

The size of the IPO is Rs. 36.90 crore with an issue price of Rs. 80-85 per equity shares through 100% book-building process. There are various objective of the company to raise money. The company is setting up a 15000 MTPA open die forging unit at Vadodara. The total estimated cost of the project is around Rs.120.39 crore including margin money which will be partly financed by this issue.

The total estimated issue expense of the company is 300 Lacs which is 7.05% of the issue size which includes legal fee, advertisement fee, registrar fee to name a few.

Remaining part of the project will be financed by means of term loans and internal loans to the extent of Rs 72 crore and through internal accruals of Rs 5.25 crore. The company has already availed a term loan of Rs. 50 crore from State Bank of India and Rs. 22 crore from Bank of Baroda.

Risk Factor

Weaknesses related to the new projects are highlighted in appraisal report which are mainly high cost estimation and delay in implementation. Currently the implementation is at a preliminary stage. The construction has acquired a leasehold right at Vadodara but the activity is yet to commence. This can increase the capital cost.

As per the financial statement 31 December 2010 the company has contingent liabilities of Rs. 454.86 lacs which may affect the financial condition.

Ipo Grading

The IPO grading of the company is graded by CARE. CARE has assigned a ‘CARE IPO GRADE 3’ to the company which is average. The grading is assigned on the scale of Grade 5 to Grade 1 where Grade 5 indicate strong fundamentals and Grade 1 indicate weak fundamentals.

Key Financials

			INR(IN LACS)
Particulars	2008	2009	2010

Total Income	2387.8	2952.83	2910.55
Total Expenditure	1852.83	2412.35	2305.47
PBT	396.87	350.75	416.06
PAT	252.35	232.38	274.09

Overall view

It is advisable for the investor to subscribe the issue of Sanghvi Forging and Engineering Ltd. The grading of the company is also average which indicates towards positive fundamentals. The company will begin manufacturing critical products like rotors for turbine, tube sheet for oil and gas, shafts for ship building and heavy engineering, which currently are being imported from Korea, Italy and Japan. There is also opportunity for growth and expansion as it has a huge scope for exporting the product.

Author: Satish Tayal (MBA ISBM) is undergoing his summer interhship at Kredent Group

Muthoot Finance IPO- Right Price, Right Opportunity, Right Time

Praveen Bajaj — Thu, 21 Apr 2011 08:43:51 +0000

Company and business

Muthoot finance Limited is Non-Banking Finance Company, headquarters in Southern India state of Kerala. MFL is a subsidiary of Muthoot Capital Service Ltd.

MFL provide personal and business loan secured by gold jewellery or gold loans to individuals particularly to whom loans are not available at all. Muthoot Group is into diversified business which includes hospitality, health care, media, education, information technology, foreign exchange, insurance distribution and money transfer service. The company also operates three windmills in the state of Tamil Nadu but the same forms a very small segment, about 0.23% of the total revenue.

About Gold financing

Gold Finance is a personal and business loan secured by gold jewellery, or gold loans to the the individuals who have the jewellery but unable to access loans in short period. There are several schemes varying from company to company. Gold Loan market is the fastest growing loan finance market. The market grew 46% CAGR over FY07-10 driven by expansion. Gold loan market is expected to rise at 40% over the next three years, based on competitive landscape and changes in the trends. It is also expected that the gold loan market will welcome enough opportunities for portfolio diversification and expansion and can yield huge margins to NBFC. Among loan product basket lending against gold is the most favourable retail loan product. Du-point analysis reveals that gold finance business generated – 4% ROA in the past five years in India. It is believed that gold finance sector continues to rise and yield good margins.

Key highlights

Muthoot finance limited is the largest gold financing company in India in terms of loan portfolio. As on march 2010 Gold Loan portfolio comprised approx 2.8 million loan accounts in India. The company is also expecting to grow the gold loan book by another Rs.10000 cr in the next one year. Muthoot finance enjoys a 20% market share in the Rs.65000 cr organised gold market.

MFL has huge branch presence with 2611 branches across, except northeast. MPL is planning to set up at northeast after the IPO.

In financials, MFL has had an average return on net worth (RONW) of 39% which is far better than its competitor Manappuram having only 19.61%. MFL have higher scale in terms of gold loan portfolio of Rs.128.9 billion as compared to its peer Manappuram General Finance with 1800 branches and gold loan portfolio of 65 billion. Its assets under management (AUM) increased to Rs.74.38 billion as on March 31, 2010 from Rs.33.69 billion as on march 31, 2009. Net profit of the company is continuously rising and it has clear plans of branch expansion and improvement in the branch productivity. Net profit in FY08 was 63.1 crore which has increased to 291.5 crore in FY11.

Key Financials

Rs in crore	FY08	FY09	FY10	8MFY11
Net Interest income	178.1	296.5	603.7	706.8
PPP	97.7	148.9	347.7	442.4
Net Profit	63.1	97.9	228.5	291.5

Risk factors

Recently RBI circular have removed gold-loan from agricultural loan priority sector category. The removal of this priority sector benefit will marginally diminish the attractiveness of bank lending to this sector. The main impact of this regulatory change is that the borrowing cost of the gold loan player’s will adversely impact the Net interest margin and portfolio growth of the company. Apart from this, some of the bank had already entered into gold finance in recent past years. This competition can hamper the profit margin and return ratio.

One factor which is not consistent internally is that MFL pays higher compensation to the director. In 2010 it was Rs 192 million, which amounts to 8.4% of the net profit. It is far higher than peer company Manappuram General Finance pays 900,000 rupees , or 0.08% of its net profit as director’s compensation

IPO grading

The IPO has been graded by CRISIL Limited and ICRA limited. Muthoot Finance Limited has been assigned IPO GRADE 4/5 in their letters dated March 09, 2011 and March 07, 2011 respectively. According to the scale determined it indicates that the Issue are above average.

Overall view

It is advisable for the investor to subscribe the IPO of Muthoot Finance Limited keeping in mind its medium term benefits and reasonable price price ban fixed by the company. The credit rating assigned by CRISIL and ICRA is also above average which indicates the strong fundamentals of the company. Despite some regulatory issue it is advisable because reasonable price and industry growth balances the chart.

Author: Satish Tayal, MBA (1st year, ISBM), is an intern at Kredent Group which also undertakes various Share Market Related Courses.

10 Commandments of Successful Investing

Praveen Bajaj — Thu, 07 Apr 2011 18:51:13 +0000

Let me unveil the 10 commandments of successful investing today. These commandments strictly followed can make you a successful investor; make you richer. The successful legendary investors like Benjamin graham, warren buffet have followed these principles. So why not you…?

Decide your investment strategy and stick to it:

An investor may invest in SIP and when the market continues to fall he will discontinue his SIP. But market crash is the right time to continue your SIP. Because, during the market crash you will get more number of units and the averaging works out in your favour.

Another investor may decide 50:50 as his debt:equity asset allocation ratio. When the market goes up he may want to invest more in equity and hence he may change his asset allocation to 30:70. Actually when the market goes up one need to reduce his equity exposure to bring the portfolio back to his predetermined asset allocation ratio.

Don’t change your strategies midway. You know what is best for you and this applies to deciding with foresight the ideal investment strategy for you. Once the strategy is set, do not fluctuate in your decision each time you decide to invest. This would only mean losses instead of profits.

Conduct your own research on stocks:

It is not advisable to just depend on hear say and decisions of your neighbor, friend, relative or tips from the media or your stock broker and invest in stocks. It may seem easy but could amount to gamble. Being an informed investor investing your hard-earned money needs you to ensure if the investment would meet your financial goal. This could be done through research from various sources.

Learn to overlook short term fluctuations:

If you want to be a successful investor, you need to understand that it is futile to be affected by short-term fluctuations of the stock market. Investing in good and reputed portfolio ensures good quality of your investment and capital appreciation in the long run. The short-term volatility of the share market has got nothing to do with the long term performance of your investments and achieving your financial goals.

Resist investing in penny stock:

Some investors have a common misconception that it is better to invest in penny stock than in high value stocks. This is wrong as whether you buy stock at Rs.5. You need to see the background of the company before looking at the price of the share.

Discard the losers and pamper the winners:

There is a tendency among investors to sell off appreciated stock and to hold on to depreciated stock in the hope that it would rise. It is wrong, as it is possible that the shares which are not doing well may continue to underperform and the shares that are doing well may continue to perform in the future.

It is better to acknowledge you went wrong, swallow your pride and discard the loser stocks and lessen your losses. Your decision lies in deciding to suffer a one-time loss for future long-term gains.

Look before you leap

Even good company shares bought at the wrong price can be a poor investment choice. So devise some strategies like SIP, asset allocation to avoid this mistake.

Adopt an open-minded investment strategy:

It may be advisable to consider investing in good companies, however it is wrong to overlook the point that small start-up companies would make losses. Even such companies with good strategies and growth plans could contribute to long-term capital appreciation. Always have an open mind in taking your investment decisions.

Base your investment strategy on the future:

Investment decisions based on past happenings may not always be right. It is better to consider the happenings, but give more importance to the present and future prospects of the investment. An informed decision based on the fundamentals and mission of the company helps in long-term wealth creation.

Consider tax friendly investments:

Making investment decisions based on tax considerations may prove counter-productive. However minimizing taxes and maximizing returns after taxation would help. The long term capital gain tax is nil. So if you invest for a time horizon of more than one year you will have better post tax return.

Adopt a long-term perspective:

Adopting a long term prospective is advisable if you want to be a successful investor. If you want to get short term results, then you will be able to cultivate only coriander leaves. If you want to grow a large banyan tree then you need to wait for years. So if you really want to be richer and create wealth, you need to be a long term investor.

You could have seen a lot of success stories of people, who bought a good stock 10 or 15 years back and accumulated a good amount of wealth now because of the appreciation of those stock prices. But have you ever heard of a person accumulating wealth by trading in the stock market or moving in and moving out of the market?

By trading in market you may make profits in a few transactions, but you will not be able to make profits forever. There is a lot of difference between making profit in a single transaction and being a successful investor forever.

Knowing Vs Doing

There is a huge difference between knowing what we should do and actually doing it. The knowledge piece appears quite sexy; being interested, learning something new, coming up with that cool idea. The doing part sounds comparatively like routine work, no matter how easy this work may be to do or how obvious that it should be done.

Don’t fall into that “knowing Vs Doing gap”. Now you know the 10 commandments to successful investing and put it into practice to become richer.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in