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Saturday, June 11, 2005
If India were a stock...
…would you buy? This is indeed a grueling question. However, to answer this in a clear manner is even perplexing. We have tried, in this article, to put forth the reasons to buy and not to buy India, if it were listed as a stock on a stock exchange. The points mentioned hereunder are only illustrative and not exhaustive.
Note: Hereunder, 'India ' will be used to refer to as a diversified company and a listed stock.
More >> here
Provogue - Equitymaster - Snippet
We are enthused by the industry in which Provogue operates, owing to the huge growth potential in RTW and of organised retailing in India. Each Provogue store has an average of 1,800 customers per day with a 50% conversion ratio and an average transaction size of Rs 1,600, which is above the industry average. Also, the time to market from ramp to rack is around 45 days, as compared to 100 days even for International major GAP, which is a big positive. Currently, the company outsources 50% of its work and going forward, plans to manufacture only 15% in house, which is a good strategy, as it will make it a focused designer house. Provogue contributes 1.5% to Shoppers Stop's revenues on 0.25% of retail space, which shows the company's brand strength. Also, inspite of roping in Bollywood stars, the advertising to sales ratio is a decent 8%, which is quite sedate, considering the industry the company operates in.
Unfortunately, there is no other listed company, whose business model is exactly same to that of Provogue's. In our view, the company is likely to clock over 25% revenue CAGR growth over the next two years, with revenues increasing to over 1.5 times its current size. This will be primarily led by its expansion plans. Also, as the company plans to increase its own stores, where it reaps higher margins, this is likely to reflect in atleast maintaining current profitability. The stock trades at a market cap/sales of 2x currently and based on our assumption, we anticipate it to be between 1x to 1.3x on FY07E revenues. In contrast, other retail companies are trading higher, which means that there is room for the stock to appreciate.
We believe organised retail is the future and going forward policy decisions like a central uniform VAT and allowing FDI in retail space will fasten the industry momentum. In our view as the issue is steeply valued based on current earnings, the company has left little on the table for the investors. Thus in totality, if one is looking for listing gains, there might me some, but fundamentally too, the stock looks good from a 2 year investment horizon. However, the company's business format is too dependent on up-market clients' and hence may get affected in an economic downturn. Thus, if you have a high-risk appetite, the issue is worthwhile to invest.
Thursday, June 09, 2005
Retirement Planning - Business Today
...And They Lived Happily Ever After Life after retirement can be blissful or miserable, depending on how well you plan for it. Here's what you need to do.
Elderly models are suddenly the flavour of the season. Pick up any newspaper or magazine or switch on any TV channel; chances are you'll find grandfatherly and grandmotherly figures lounging by poolsides, paragliding across exotic beaches and generally enjoying lifestyles that seem like straight lifts from the lives of the rich and famous. All the ads are hawking variations of the same product: retirement solutions. Indians, it seems, are planning for retirement like never before. And feeding this demand frenzy is a slew of financial products-from practically every financial institution in the country-"tailored to suit every individual's unique needs". These ads address a very real fear all of us have: of an abrupt descent into hardship after retirement.
And standing between those two old-age extremes is one eight-letter word: planning. As the Americans say, there's no free lunch. After all, for post-retirement life to be comfortable, you'll need money; and with your regular income drying up, you'll have to depend on what-and how well-you have prepared for it. Most people opt for the easy way out: they stash away a part of their income every month in a bank. In an age when practically everything (house, car, furniture, electronic gadgets and even personal accessories) can be-and are-bought through EMIs (equated monthly instalments), tucking away a fixed amount every month works like just another EMI. However, there are other options as well. Here's a detailed look at some of them.
Planning For Retirement
First, you need to know how much money you'll need every month after retirement. For this, sit with your investment planner and work out an estimate; issues such as your age, salary, lifestyle, inflation and expenditure on dependents have to be factored into this equation. The next step is deciding what investments you need to make to generate that amount after you retire.
Most retirement planners advise you to save 30-35 per cent of your annual income. The first priority for investments, according to Nilesh Shah, President, Kotak Asset Management, should be life insurance. It offers two benefits: it ensures that you get an assured amount after a given time period; and it also ensures that your dependents are financially covered in case of your accidental demise. The next investment option is a mix of public provident fund (PPF), employee provident fund (EPF), post-office schemes, ULIPs (unit-linked insurance plans, which have a combination of equity and insurance components) and mutual funds or stocks.
How you allocate your resources between debt and equity depends entirely on your risk appetite. Investments in equities give average annual returns of about 15 per cent, but carry huge downside risks. Debt instruments are safer but give only 7-9 per cent annual returns. It's your call, and you have to weigh the pros and cons carefully before deciding. The thumb rule says younger people can afford to lean towards equity, simply because they have more time to recover in case an investment goes horribly wrong. Women are increasingly joining the workforce and, consequently, adding to the family income. Says Kapil Mehta, Vice President (Strategic Intiatives and Business Development) at Max New York Life: "I see the intent (in planning for retirement) in women. They are also more aggressive while saving, but need to be more savvy." Women have more or less the same savings options as their male counterparts, give or take some. For instance, life insurance is cheaper for women than men (because women on average live longer and need to pay less premia), but pension plans are more expensive for them (because companies have to pay out money over a longer period of time). So, a working couple can optimise returns if the wife invests in insurance and the husband in pension plans.
Investing in property (second house or commercial property) is arguably the best option, though. Real estate, typically, gives 15-20 per cent annualised returns over a 10-15 year horizon. The rental income can be used to pay off the EMIs (if you've taken a loan to buy the property), during the term of the loan and provide additional cash flows thereafter. Alternatively, you can sell the property after a few years and invest the lump sum you receive elsewhere. But even here, Mehta of Max New York Life offers a word of caution. "People should be very careful about where they invest, because property prices in several areas are artificially inflated and, therefore, bound to fall," he warns.
Now, let us analyse the retirement plans of three individuals who belong to different age groups, and determine what they need to do. These can then serve as benchmarks for your own retirement plans.
Age-group Analysis
It's never too early to start planning for retirement; experts say the best time to start is in your late 20s or early 30s, when most people have settled down in their careers. John James, 30, belongs to this category. James, a senior training manager with BPO firm Vertex India in Gurgaon, lives with his wife Monisha, 29, an hr consultant with Aviva Life Insurance, son Joshua, 5, and daughter Myra, 2. His annual family income is Rs 15.5 lakh, and his investments include a Rs 20-lakh retirement policy, and a Rs 25-lakh life insurance policy, both from Life Insurance Corporation (LIC). He has also bought a Rs 28-lakh property in Gurgaon, which is likely to give him handsome returns in future.
V. Rajagopalan, Chief Actuary, ICICI Prudential Life Insurance, feels that given James' lifestyle and a 5 per cent rate of inflation, he will need at least Rs 1 lakh per month after retirement in 2030. To achieve this, James needs to save 25-30 per cent of his income every month for the next 25 years. The insurance policies are not hefty enough, feels Rajagopalan; they should be ramped up by another Rs 80-90 lakh. James also needs to increase his risk appetite and invest in stocks or ULIPs. And finally, he should review his financial status every three years.
The next age group we consider is 40-49, when you need to increase the tempo of your retirement planning. Some of your earlier investments should be maturing by this time. You can use this to pay for your children's education, for any big ticket items you might want to purchase, or you can re-invest this amount. At this stage in life, health insurance is also a must. Nitin Asthana, 43, Manager (Industry Affairs) at ITC in Bangalore, fits the bill. Asthana-who lives with his wife Seema, 42, a housewife, and teenage sons Shavang and Sharang, and has an annual family income of Rs 12 lakh (plus Rs 5 lakh in perks)-appears more inclined towards equity than James, and has invested in stocks that are now worth a neat Rs 22 lakh. He also has an insurance policy from LIC worth Rs 5 lakh, and has accumulated Rs 17 lakh in EPF and PPF. Further, he's bought a plot of land in Bangalore that's now worth Rs 12 lakh.
Asthana, according to ICICI's Rajagopalan, will require around Rs 70,000 per month after retirement in 2017. For this, he needs to save 30-35 per cent of his income, increase insurance investments to Rs 25 lakh, and scale down his exposure to equity now when the going is good. He also needs to choose a balanced ULIP with appropriate life cover, go in for health insurance, and review his financial status every two years.
The third age group we'll consider is the 50s. When you're in your 50s, all the planning should have been done already. Some really big-ticket expenses, such as children's marriage, or their education abroad, may be around the corner. Here, we'll analyse the investment profile of Ravi Grover, 53, Vice President (Sales), Eveready Industries, who's based in Kolkata. Grover has an annual family income of Rs 16 lakh plus perks, and his family consists of wife Vrinda, 52, a housewife, and son Dhruv, who's pursuing a PhD from the University of Southern California. Grover's investments-a life insurance policy from LIC worth Rs 1.5 lakh (an amount he has already received), stocks worth Rs 5 lakh, and Rs 10 lakh accumulated in PPF-look inadequate. The only plus is a plot he's bought in Gurgaon that's now worth Rs 35 lakh; its value is likely to escalate further by the time he retires. Rajagopalan reckons Grover will require around Rs 40,000 per month after retirement, assuming he does so at 58. To tide over the shortfall he's likely to face, Grover has to invest around 60 per cent of his savings in ULIPs that have high debt content, invest in post-office schemes, government bonds, and go in for medical insurance with a critical illness rider.
These examples should help you get a fix on what you need to do to ensure a comfortable retired life. Remember, starting early is the key. If you haven't done that already, you can't afford to delay any further.
Wednesday, June 08, 2005
Steel: The orphaned lot!
Have you heard of Tata Steel (or Tisco) lately on the bourses? Or for that matter Steel Authority of India (SAIL)? Well, largely, the possibility is that you haven't heard of these in recent times and even if you have, the chances are that the voices advocating an investment into these are rather subdued.
More here
Sunday, June 05, 2005
Biotech's Allure - Business Today
The AV Birla Group is reportedly considering a foray in biotech. What is it about the sector that's drawing India's big industrial houses like the Tatas, Reliance, and now the Birlas?
Reliance and Tatas are already going the whole hog at it. And it is only time before the AV Birla Group comes out with a concrete plan to enter the sunrise biotechnology sector. However, indications are that the Rs 30,000-crore conglomerate is looking for acquisitions in the biotech industry both in India and in the US.
Kumar Mangalam Birla, Chairman of the Aditya Vikram Birla Group, has been quoted as saying that the group is on the lookout for an opportunity in the biotech space. "India has an enormous competitive advantage and a resource pool in intellectual property," he had said.
Reports indicate that the AV Birla group has been in talks with two Hyderabad-based biotech companies, Bharat Biotech and Shantha Biotechnics. It's also talking to two US-based companies, Biosyn Biotech and Fortuna. Bharat Biotech and Shantha Biotechnics are closely-held companies, and have apparently been looking at various options to raise funds.
Recently, Tata Group Chairman Ratan Tata had said that his group is interested in the biotech sector. "In the area of biotech applications in the pharmaceuticals industry and in the area of drug research, there is considerable opportunity for us, which we are indeed looking at today," Tata had said.
In the biotechnology field, Tata Industries now has a small stake in the Bangalore-based Avestha Gengraine, a biotech firm founded by Villoo Morawala Patell. In fact, last year, when an Indian company developed the world's first recombinant human insulin, the Indian government sanctioned a flurry of biotechnology parks, and several research and development agreements were announced. With a new national biotechnology policy on the way, India has begun to look beyond the software and IT enabled services sectors at a new growth point for the country's economy: biotechnology and pharmaceuticals.
India's biotechnology sector is currently made of four major segments: bio-industrial products such as enzymes and bio fuel; bio-agricultural products such as genetically modified seeds, bio-fertilisers and bio-pesticides; bio-services such as contract research, contract manufacturing and clinical trials; and bio-pharmaceuticals. Bio-pharma covers vaccines, therapeutics, diagnostics and animal health care, and has emerged as the largest segment, thanks in part to strong clinical and research capabilities developed through bio-services.
In October, plans to set up special economic zones (SEZs) for biotechnology, including biotechnology parks and free trade warehouse zones, were announced. Biotech parks sanctioned include a Rs 100-crore venture in West Bengal, which will include a research centre for traditional medicine. Having identified IT solutions for the life sciences sector as another big opportunity for the country, the government has also sanctioned a bio-IT park, aimed as a geographic hub for bioinformatics, bioengineering, and pharmaco-genomics companies and research institutes.
Positive outlook for Infosys, Satyam
SBI (Rs 663.9): The expected short-term weakness in the stock materialised during the week. After dropping to a low of Rs 653, the stock closed marginally higher on Saturday. A close above Rs 690 would have positive implications and would help the stock move to the target zone of Rs 725-730. A close below Rs 640 would have negative implications. Hold with a stop-loss at Rs 640 and fresh exposures may be considered on a close above Rs 686. A close below Rs 640 would warrant dilution of holdings.
Reliance Ind (Rs 555): The stock managed to comfortably hold above the bearish trigger level of Rs 520 and also closed above the positive trigger level of Rs 540. This imparted strength and helped the stock post a sharp gain on Friday. The near-term outlook remains bullish and the stock appears on course to move to the target zone of Rs 575-580 that was mentioned last week. Hold with a stop-loss at Rs 530 for a portion of the holding and at Rs 520 for the balance. Partial profit-booking may be considered on a move to the Rs 575-580 range.
Tata Steel (Rs 353.3): The stock dropped to the first support zone at the Rs 340-345 range. Though it did breach the stop-loss level of Rs 348 during the intra-day trading on Friday, it managed to close above this level. The short-term outlook appears bearish and a close below Rs 343 would be a sign of weakness. Short positions may be considered on a close below Rs 343, with a price target of Rs 305-310. Stop-loss for short positions may be placed at Rs 358. A close above Rs 359 would impart strength and the stock could rally to the Rs 370-372 range subsequently.
Satyam Computer (Rs 465): The share price was confined to a narrow trading range last week. It, however, managed to hold above the stop-loss level at Rs 423. The near-term trend is bullish and the share price appears on course to move to the target zone of Rs 485-490. Remain invested with a stop-loss at Rs 423. Fresh long positions may be considered on a close above Rs 470, with a stop-loss at Rs 440.
Infosys (Rs 2237.2): The outlook is bullish and the share price could move to the Rs 2380-2400 band in the near term. Long positions may be considered on price weakness, with a stop-loss at Rs 2170. Shareholders may remain invested with a stop-loss at Rs 2120. Exposures may be enhanced on a close above Rs 2300, with a close stop-loss in place. The positive view would be negated if the share price closes below Rs 2100.
Follow-up
Cipla (Rs 288): The stock managed to hold ground and recorded a modest gain for the week. The near-term outlook remains bullish. The stock appears on course to move to the target zone of Rs 300-305. The positive view would be valid as long as the stock holds above Rs 270.
Investors may hold with a stop-loss at Rs 270 while fresh exposures may be considered on a move above Rs 296, with a stop-loss at Rs 280. A close below Rs 269 would blunt the positive outlook and would warrant dilution of holdings. A close above Rs 325 would confirm that the stock is in a long-term uptrend and exposures may be enhanced subsequently.
Arvind Mills (Rs 139.1): The stock was confined to a narrow trading range during the week. The long-term uptrend would resume on the completion of this corrective phase. As observed last week, investors who are comfortable with a "buy-and-hold" investment strategy may get opportunities to exit at the Rs 190-200 range.
Existing shareholders may remain invested with a stop-loss at Rs 120. Fresh exposures may be considered on price weakness, with a stop-loss at Rs 120. A close below Rs 120 would be a sign of weakness and would warrant dilution of holdings. Exposures may also be enhanced on a close above Rs 145, with a close stop-loss in place.
Source : B. Krishnakumar http://www.thehindubusinessline.com/
Hindu Businessline Recommendations
Buy >> Nilkamal Plastics, Vesuvius India, Union Bank Of India
Sell >> EIH, Bajaj Auto
Hold >> Tata Power
Weekly Technical Analysis
Markets are really in extremely overbought territory and also have been relatively stagnant, this last week. Still, with lot of bullishness in the air, though.
Positives
- All indicators maintaining their uptrend.
Negatives
- None in particular. Still extremely Overbought.
- MACD threatening to move down.
Last week was an indecisive week. With a few down and few up days. But we did close the week near the high of the week, which is very encouraging. Markets have had Only upside for nearly 3-4 weeks now. And for any healthy upside, a good Correction to the downside Must exist. Always remember, the demand and supply curve has to go up and then come down. It cannot go up all the time.
Theory is, where would you get the buyers from. After a point, the buyers are exhausted and sellers take control. If not for long, at least for sometime. And hence, we would not get too excited about going long at this point. Better to wait for a day or two to see what the market thinks should be the direction for the rest of the week. Before jumping into any of the stocks. Also if you notice, a flat Week means, losing steam. Hence, it adds to the cautious attitude one must possess in the following week.
Outlook
We would still hold our stance from last week. We are bullish and it is Only advisable to trade from the Long side. Definitely Short, if we break couple of major supports. One being the Trend-line(Lower), which is where we are hanging right now. And the other being a major support around 6630. As long as these critical levels are intact, go LONG.
Saturday, June 04, 2005
ITC & Mid-Day Multimedia
ITC
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,854
Current market price: Rs1,557.70
Price target revised
ITC reported an exciting growth of 18% in its revenues for FY2005 to Rs7,635 crore on the back of a strong growth in all its businesses. The revenues from the hotel business were up 124% year on year (yoy), that from the paperboard business was up 25% yoy and the revenue from the fast moving consumer goods (FMCG) business excluding that of cigarettes grew by 85% yoy. The cigarette revenue grew by 8.4% while the revenue from the agri-division grew at 4.2%. At 37% the operating profit margin (OPM) was stable for FY2005 while the post-tax profit (pre-exceptional) grew by 15.3% yoy to Rs1,837 crore. The reported numbers include Rs354 crore of exceptional items (profits) relating to the resolution of certain past litigations in favour of ITC.
We believe that all the non-FMCG businesses of ITC are gathering momentum and poised for a robust growth. The issues relating to excise and luxury taxes are now solved and the future litigation risks are at the bare minimum. ITC has announced a bonus/stock split and a dividend of 310% (40% pay-out). At 15x FY2007E earnings and an 18% compounded annual growth in the profit over the next three years, the stock's valuations are attractive vis-Ã -vis that of its peers. We are maintaining our Buy recommendation on ITC with a revised price target of Rs1,854.
Mid-Day Multimedia
Cluster: Ugly Duckling
Recommendation: Book Profit
Current market price: Rs65.7
Book out
One of the triggers for the stock in the near future could have been the new rate card that was expected in the month of May. However, the delay in the release of the new national readership survey has resulted in the delay in the release of the new rate card. The new rate card may also get delayed further looking at the head-on competition from "Mumbai-Mirror" in terms of the invitational price (Rs2 per copy as compared to Rs3 per copy for Mid-Day) and invitational advertisement rates.
As there are no positive triggers for the stock in the near term (the only one being the new FM radio policy expected at the end of June), we recommend investors to book out of the stock.
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