THE DOLLAR RUPEE STORY !!!

On 22nd November 2011 Rupee touched its year high of Rs. 52.73/1$, making RBI governor to give public statements. If US dollar weakens importers are benefited and exporters are at loss. Whenever Dollar weakens against Indian Re exporters blasts their feelings & so RBI have to step forward for their help. But have you ever imagine that once our 1 INR was equal to 1$ but eventually $ become strong against INR, how read on to know this -

When India got independence in the year 1947, there were no loans or external Debts on Indian government. The exchange rate as on 15 August 1947 was 1US$ equal to 1.00 INR. With the introduction of 5 year plans Indian government needed foreign borrowing and started devaluing INR. Which was further influenced by Indo- China war in 1962 and Indo- Pak war in 1965 which devalued INR more as India needed large funds for buying weapons.

In the year 1966, 6 June at the time of  Mrs. Indira Gandhi as the prime minister, inflation was increasing at a tremendous rate and also to keep on the aids given by US to India, USA government demanded and pressurised Mrs. Gandhi to devalue INR against US$. And kept the rate of 1US$= 7.50 INR. The then ministers Mr.Krismachari & Mr.Kamraj opposed these policy but it was of no use as Mrs. Gandhi was interested in getting help from US and kept INR weak against US$.

US$ grew stronger after 1971 –

After the year 1970, US$ grew stronger against INR due to incompetence of Indian politicians and bully of US. The exchange rate in 1970 was 1US$= 7.47 INR, which rise to 1US$= 8.40 INR in 1975, after the assassination of Mrs. Gandhi in the year 1984, and due to Boffors scandal tumbling Rajiv Gandhi’s government made the INR weaker and the rate was 1US$= 12.36 INR in the year 1985. In the year 1990 1US$ was equal to 17.50 INR.

Drastic drop in 1991 –

Whenever India faced economic or political problem, US made India to devalue INR against US$ by offering funds or trade benefits. In the year 1991 under the Narshima Roa government, India faced a drastic drop in INR against US$. At that time the Indian Forex reserve dropped to its bottom and there was a time where the balance of Forex reserve was such that India would be able to pay just 3months of Import bills. To fill in this gap India borrowed huge amounts from International Monetary Fund’s (IMF) with the condition that INR will be devalued against US$ and due to this 1US$ became 24.58 INR from Rs.16.31/1$. During this period exporters flourished as their exported products gained them more value in Rupee term.

History of Rates slowdowns -

In the year 1992 1US$ was equal to 28.97 INR; in 1995 1US$ was equal to 34.96 INR; in 2000 1US$ was equal to 46.78 INR; In the year 2002 June 1US$ was equal to 48.98 INR; After June 2002 INR became stronger against US$. In the year 2002 of December 1US$ was equal to 48.14 INR; in 2003 1US$ was equal to 45.57 INR; in 2004 1US$ was equal to 43.84 INR.

During the year 2004-06 RBI started buying $ and Indian Forex reserve raised to $200 cr, RBI stopped buying $ from January 2007 when 1US$ was equal to 44.25 INR; On 16^th May 2007 1US$ was equal to 40.79; on 27^th October 07 1US$ was equal to 39.21 INR it’s all time high when FII’s were flowing in tones of money in Indian capital markets; on 3^rd march 2009 1US$ was equal to 52.16 INR which was all time low of Indian Rupee. Which is now broken.

What can be the real value of US$?

Today $ is high against Re. But to determine the real value of any currency we have to see its Purchasing Power. This is known as Purchasing Power Parity (PPP).

The purchase rate of any product in US is compared with the rate to be given in Indian currency to buy that same good. For example to buy 1 dozen of fruit will costs 1$ in US, that same fruit would cost Rs.15 in India per dozen(of course inflation & other factors are not considered). This was just an example but to know real effective rate of any currency REER or Real Effective Exchange Rate index is referred to.

What Real Effective Exchange Rate (REER) index?

REER index measures a domestic currency’s competitiveness against other major currencies and is an indicator of currencies relative value versus foreign currencies. REER index is the 6 currency basket which uses 3 year moving averages for calculating weights of the index taking 2004 -05 as base year. The 6 currency REER index in India is calculated using Euro, US Dollar, Yen, Pound Sterling, Hong Kong Dollar & Renminbi. REER relates to purchasing power parity hypothesis. It's the invoicing currency that has more weightage and since 80 % of our trade is done in US$ it is assigned more weightage in REER INDEX.

It is believed that RBI intervenes currency market to suppress Rupee if REER index approaches 105 & props Rupee up if REER gets close to 95. REER above 100 indicates relative strength of the currency. REER levels as on 25 Aug 2011 was at 117.01 implies that rupee is weaker compared with the base year of 2004-05.

There is also a 36-currency REER index, which is also used to measure competiveness of currency. However, this index is not used too frequently since CPI data for many nations comes with a 3-month lag. On an average basis, the 6-currency real effective exchange rate (REER) appreciated by 12.7 per cent in 2010-11, the 30-currency REER by 4.5 per cent and the 36-currency REER by 7.7 per cent.

REER Trends:

The 6-currency REER index rose to 112.76 in the period leading up to the economic crisis in 2007-08. During the crisis, REER weakened as rupee depreciated due to fall in capital flows. In one of the sharpest fall during the period, it fell to 93 levels in March 2008. REER stood near 100 for almost two years in 2008 and 2009. As the economy gathered pace, REER started appreciating and scaled to 116 by April 2010. From April 2010, REER has stayed around 115 for 17 months. REER strength and weakness before and after the crisis have been due to demand and supply factors led by capital flows. However, recent slide in rupee has been triggered by euro-zone problems.


READ HERE FOR MORE ON US DOLLARS - CLICK HERE

Is it Time to worry about the Dollar??

The Fed’s so-called “QE2″ (Quantitative Easing/second round) which is purchasing of U.S. Treasury bonds by printing more and more currency notes to fulfill its purchases are supposed to come to an end on June 30, 2011, which would make July a crucial month – for the US economy, for the performance of the dollar and most of all for the Emerging Markets like INDIA.

For the last two years, the U.S. economy has been supported by the twin catalysts of fiscal and monetary stimuli. Fiscal stimulus seems to continue for some time as US have year’s $1.6 trillion deficit. But monetary stimulus is another matter. 

Since QE2 began in November 2010, the Fed has been buying about two-thirds of the Treasury bonds issued – or about $600 billion ($60,000 Cr) of the $900 billion ($90,000 Cr) in total bonds to be issued between November and June. Simply extending QE2 won’t solve this problem. The Fed would then be buying both too much of debt and not enough of debt at a same time.

Treasury bond purchases of $75 billion ($7,500 Cr) a month would be enough to push inflation sharply upwards. This is, after all, the very same policy that gave the German Weimar Republic its trillion-percent inflation. On the other hand, even if the Fed buys $75 billion ($7,500 Cr) of Treasuries a month, this will bring with them the need to place an additional $75 billion ($7,500 Cr) worth of bonds every month. And with inflation rapidly accelerating, the chances of a bond market and dollar crisis would still be great, which will affect the flows of foreign money (FII’s money) to the emerging markets like India. This is a concern!!!!

The one way to avoid the Death of the Dollar

With the U.S. market struggling under the burden of rising inflation and some ill-advised monetary and fiscal moves, the death of the dollar is looming as a worst-case – but still possible – scenario.

The Fed has one chance to avoid this outcome. Just to have a chance of staying level with inflation. U.S. central bank policymakers must boost short-term interest rates at least to the 3% level. That would burst the global commodities bubble like one in Sliver, and reduce inflationary pressures. With that, the Fed could then –continue with a “modified QE3.” For instance, it could buy $50 billion ($5,000 Cr) of bonds in the third quarter and $25 billion ($2,500 Cr) in the fourth quarter, thus breaking the Treasury bond market. With inflationary pressure reduced by the interest-rate increase, the chances of a Treasury-bond-market meltdown would thus be reduced to almost zero. Interest rates would rise and bond prices would decline, but it will be in an orderly manner. And inflation, if it continued, would do so at a more-moderate pace.

In fact, even inflation – should it remain stronger-than-desired – could be moderated, simply by raising rates a bit more, perhaps in several increments. And the U.S. dollar would be saved. There’s only one problem with this scenario and that won’t happen unless Bernanke won’t boost rates.

Visit my previous post on click here-  US PRINTING NOTES

THE YUAN DE - PEGGING STORY........

                    Almost for 2 year’s Chinese government with the help of People’s Republic Bank Of China – the Chinese central bank had managed to keep the value of their currency Yuan pegged to the value of US dollar. One $ was worth around 6.82 Yuan.

                    China is an export driven economy. Their main export market is the US. So when an Chinese company exports goods to US it gets paid in US$. These $ are converted to Yuan, it means $ are sold and Yuan is bought. Over a period of times, as exports keeps going up, more $ are sold and more Yuan are bought. This of course increases demand for Yuan & it starts to appreciate or increase in value against $. And an appreciation in currency is detrimental to exporter.

                    This means, suppose say a Chinese exporter exports goods worth $100000. When he converts them at 1$=6.82 Yuan he gets 682000 Yuan ($100000x6.82) in return. Now say the Yuan appreciates and 1$=6.6 Yuan, then the exporter will get 660000 ($100000x6.6). Thus he will not make the same amount of 682000. If he wants to make the same money he will have to raise prices. It’s well known that Chinese compete on price & not quality, the exporter may not be in position to raise prices. This is were the government comes in by ensuring that the value of the Yuan stays constant around 6.82 to $, so that the exporter does not have to deal with any fluctuation in currency.

                    Government of china in order to maintain Yuan at 6.82 to $ starts selling Yuan & buys $. Because when lots of $ come into china to buy Yuan, pushes up the demand of Yuan & Central Bank of China starts selling Yuan & buys $. This ensures that there are enough Yuan in market & its value dos not appreciate.

                    Now China has suddenly decided to de-peg its currency as US feels that China is a currency manipulator, US feels that china has held the value of Yuan against the $ constant & this is what has kept their export machinery chugging along. They feel this has led to situation where Americans citizens continue to buy cheap Chinese goods instead of home grown ones.If Chinese government had not involved itself with the foreign exchange market & let it work independently then the flow of $ into china would have ensured that the Yuan would have appreciated against $.

                    Suppose if 1 $ = 6 Yuan, means exporter exporting goods worth $100000 would make 600000 Yuan. Under the pegged regime he would have earned 682000 Yuan. Now, to earn that much, he has to sell goods for $113666.7 (682000/6). This means he has to increase its price to 13.67%. This in turn would make Americans buy American goods instead of low priced Chinese goods. Nobel Prize winning economist Pual Krugman had earlier proposed to impose a 25 % surcharge on Chinese imports to US. He felt that this will make Chinese goods expensive & will result into Americans buying more US goods. Basically the allegation against china on being currency manipulator have been growing in US, and US the biggest market for china do not want US to take any strict steps that would hurt its exports. So it wants to de-peg it currency against US$.

                    Currently if something worth $1000 it will be worth 6820 Yuan in china if it is imported, if 1$ = 6 Yuan, then it would be worth 6000 Yuan which is lower. So some experts believe that this will make Chinese buy more imported goods & that in turn will help the exports across the globe. China will take time to change its spending habits. Currently china’s saving rate is 54 %.

                    And off course in order to maintain the peg, the Chinese Central Bank bought $ & sold Yuan that explains Foreign Exchange Reserve of $ 2.4 trillion. And all this money found its way back primarily into US & other western economies, helping them to finance their fiscal deficits. Now if these Chinese really let the Yuan float even partially, its rate of accumulation of Forex reserve might slow down. This means lesser $ to help finance the fiscal deficit in the US.

QE2 coming to an end and QE3 could follow!!!

As told on blog on QE earlier, by JUNE 30^th 2011, the Fed will be winding down its second round of quantitative easing. I.e.QE2. By announcing quantitative easing Fed made an impression to the world that they’re willing to do whatever is necessary to maintain growth, which promoted higher stock prices, made people and companies feel a little more financially stable and wealthy, which will then translate into consumer spending & subsequently unemployment will go down. The employment situation do showed some increase in hiring & a drop in the unemployment rate below 9.0 %, all due to QE program. Now when the unemployment rate ticked back up again above that high benchmark of 9.0%, and weekly initial jobless claims have been firmly above 4,00,000 for several weeks, people have started talking about QE3 i.e. third round of quantitative easing !!!

Well, the perception of “easy money” was enough to encourage speculators and traders to make a leveraged bets on both stocks & commodities. As said, stocks and commodities went higher. And the jobs data improved a little bit all due to blessing of QE2.

Now, when the QE2 is coming to an end, the perception of 2011 recovery has evaporated as the economic data from mid-summer signaled another round of recession coming back. At the opening of the year, many economists were projecting U.S. to grow as high as 5 %; the Fed was thinking 3.4 % to 3.9 % of growth which was above average year of economic expansion.

The U.S. has grown at a historical average of 3 % per year. Even with unprecedented stimulus it’s been growing below the trend since 2006. Recent data suggests that another round of recession is coming …A recent study showed that since 1948 whenever the US GDP fell below 2 %, it normally predicted recession for the U.S. economy.

In April 2011, the Bureau of Economic Analysis (BEA) gave their advanced estimate for Q1 2011 which said that growth will be at 1.8 %, Unemployment will hover around 5 % higher than pre-crisis levels.

Even after the two rounds of quantitative easing by the Fed and two rounds of fiscal stimulus by the U.S. government, employment will still sits about 5 % over the long run “natural rate” of unemployment, housing prices will remain anywhere from 20 % to 50 % below its peak levels. The government has recapitalized the banks, the Fed has kept mortgage rates historically low, and various failed mortgage revival programs have been floated, housing is still at 32 % down from 2006 highs.

As all can see that consumer credit peaked in 2008 when Lehman Brothers failed, it likely means that the world is in for another seven years of economic uneasiness.

In Asia, traders have been anticipating QE3, sending the Indian rupee, Singapore dollar, Malaysian ringgit, Indonesian rupiah & even Thai bhat went higher, QE3 could turn into massive capital inflows in Emerging markets like India boosting growth, creating an illusion of false recovery, but in reality they would be just bubbles. If QE3 is not announced then in that case US markets can collapse by 10 % or so making treasury yields to rise, USD would strengthen and commodities like Gold, Silver & Oil would see a minor dip in their prices.  And if QE3 happens it will make US $ to crash. US $ will loose its value among all major currencies across the world , crude oil prices will jump up, prices of commodities like Gold will shot up, Equity markets around the world especially Emerging markets will rise and India will be benefited by it if India’s own internal problems are solved by that time.

With all of this in mind, even though the easy money policies of the Fed have been highly scrutinized, in my view Fed may delay the announcement of QE3 which can cause markets to take a down turn for a while and on announcement of QE3 markets will raise again. There are lots of issues around the Indian equity markets such as high inflation, 2G scam, Government facing public agitation on corruption, such issues were keeping investors away form our markets for a while, but on announcement of QE3 our markets will raise again, I believe that stocks specific investments during the down turn would bring good returns, in the mean time I would be going for 45 % in stocks & 25 % in Gold & rest to hold cash, this would be my strategy for the time being.

But one thing of sure QE3 would bring another violent downturn for the global economy!!!!!

CLICK HERE FOR PREVIOUS POSTS ON QE 

QE3 ANNOUNCED BY FED TO PRINT $480 BILLION!!!

Fed to Print $480 BILLION AGAIN!!!

Yesterday, Fed chief Ben Bernanke proved that what many have suspected all along is indeed true: The U.S. Federal Reserve will not patently stop printing money!

Mr. Ben Bernanke announced that the Fed is going to do the same old thing, it’s going to hold interest rates near zero as far as the eye can see... And it’s going to print a whopping $40 Billion (Rs.2,21,680 Cr $/Rs.55.42) new dollars per month in an attempt to stimulate the economy — a whopping $480 billion (Rs.26,60,160 Cr $/Rs.55.42) per year! In short, it’s doing the same things it has done since 2008, but expecting better results, In any way you look at this, that’s The Very Definition Of INSANITY!! The Fed has Already held interest rates near zero percent for four long years, now. Plus, it has already created $1.8 trillion out of thin air through QE I and QE II... And it has already bought hundreds of billions of dollars more worth of long-term Treasuries as part of Operation Twist 1 and 2. 

So what’s the result?

NO IMPACT WHATSOEVER ON THE REAL ECONOMY!

Sure — all that free, easy money will temporarily excite the stock markets around the world but despite everything the Fed has done ... the

** Unemployment has stayed over 8 % for 42 straight months ...

** The average family home is Still falling in value ...

** Profits of many major corporations in US are Still sinking ...

** The U.S. economic growth is Still grinding to a near standstill ...

** And now, as America approaches the precipice of its great fiscal cliff, the stock market looks for the entire world as if it’s a massive bubble about to burst!

** Worse is that, the middle class — the very backbone of the U.S. economy — is getting eaten alive:

HOUSEHOLD INCOME IS PLUNGING: The U.S. Census Bureau just reported that real median household income has now fallen for the fourth straight year. Income has fallen so low, in fact, that when you adjust for inflation, the median family has the same income today as it did in 1967 , now that was the 45 long years ago!

THE INCOME GAP IS WIDENING ALARMINGLY: The Census Bureau is also reporting that the movement of income away from the middle class has just hit a record high. That’s terrible as typically this kind of increasing disparity in income occurs just before economic calamities — and today, it’s more extreme even than before the 1929 stock-market crash and the Great Depression!

U.S. POVERTY IS AT ALL-TIME RECORD HIGH LEVELS: Finally, as if to add insult to injury, the Census Bureau also reports that a staggering 46.2 million Americans now live in poverty! And not only isn’t the Fed Helping ... its failed efforts to revive the economy is creating a second crisis: Thanks to the Fed’s past money-printing gambits, the Producer Price Index just jumped 1.7% in August — hands-down the biggest surge in producer price inflation going back to June of 2009!

**********************************

Make no mistake:

The U.S. economy is broken.

Nothing the Fed can do will fix it.

**********************************

To the contrary: The Fed’s easy money policies Created this crisis by inflating the housing bubble. Now, they’re only making matters worse — doing absolutely Nothing for the job market, while driving inflation higher! And as America’s great Fiscal Cliff approaches — the catastrophe that JPMorgan says will push America “head-first into the fiscal meat grinder” — the storm clouds are darker than ever.

The Gold has raised 111.58 % from QE1 to QE3 : Gold jumped after this QE3 by FED the third round of monetary stimulus called Quantitative Easing. QE has been a massive boon for gold, when FED flooded markets with nearly Zero money or free money, gold’s allure as a store of wealth & an inflation hedge is burnished. Loose monetary policy weakens the dollar boosting the GOLD. Fed’s nearly ZERO interest rate policy and bond purchasing under QE1 kicked off on 16^th December 20008 and Gold was $837.50 an ounce, & today Gold is at $1772 an ounce this means Gold raised to 111.58 % on back of QE1 & QE2 which followed in Nov 2010. So QE & Gold has always been supporting each other..SO ALWAYS BUY GOLD

Impact of QE3 on India: As for India, off course in near term the pattern of QE has always been strong for emerging market like India and for their currencies and even stronger for commodities. The QE programme is good for India for a day or two as it will help the rupee a little bit and at a same time QE surges commodity prices, which is bad for India as it imports most of the commodities to meet its growing needs of the economy, Brent crude is at $115 and any raise in its prices will make inflation to climb again making life difficult for RBI, remember QE2 which was announced on Nov 04 2010 in which Indian Market made a high of 6338 on NOV 05 2010 and had a one way decline post that & so QE2 turned out to be disastrous for India as it stoked inflation. India is not a obvious QE play now, as Indian markets has its own set of problems like high inflation, policy paralysis and of course the scams and political unrest. The diesel price hike of Rs.5/liter is the positive step and so the FDI policy in aviation but these have a short term sentiments..

In short, US FED with the announcement of QE3 gives the clear message to the market that rates will remain this low till 2015 with a hope that this low rates will revive economic growth, but on India one should remain cautiously Bullish, one must look at classic defensive's like pharma, consumer stocks with a risk of breakdown between the investment cycle & the consumer cycle weighs heavily on them.  

CLICK HERE FOR PREVIOUS POSTS ON QE 

NIFTY TRADES IN US FROM TODAY : S&P DOW JONES WILL JOIN INDIAN MARKETS SOON

Scheduled to Launch Monday, July 19, 2010

CME Group has partnered with The National Stock Exchange of India (NSE) and Standard & Poor’s to offer trading institutions two smart new ways to take part in the dynamic opportunities of the Indian stock market. E-mini and E-micro S&P CNX Nifty futures (Nifty 50 futures) are scheduled to begin trading on Monday, July 19, 2010.

The contracts will be listed and traded on the CME Globex platform, providing nearly round-the-clock trading access. Trading hours will be Monday-Friday, 3:30 p.m. – 3:15 p.m. the next day (except Friday, which closes at 3:15 p.m.) with a trading halt Sundays-Thursdays from 9:30-10:30 p.m. CDT (8:30 p.m.-9:30 p.m. CST) coinciding with the hour prior to the NSE open.

Cross-Listing Arrangement on March 10, 2010, CME Group and NSE announced cross-listing arrangements that Include license agreements covering benchmark indexes for U.S. and Indian equities. The agreement provides CME Group with rights to create and list U.S. dollar-denominated futures contracts for trading on CME, while providing NSE with rights to create and (subject to the regulatory approval) list Rupee-denominated futures contracts on the S&P 500 and Dow Jones Industrial Average (DJIA) for trading on NSE. Combine with other benchmark index contracts to express views on the direction of India’s market vs. the U.S. stock market (E-mini S&P 500 futures), vs. a broader view of world’s emerging markets (E-mini MSCI Emerging Markets futures) or to capitalize on arbitrage opportunities from short-term price differences vs. the SGX futures contract on the S&P CNX Nifty Index. You also can trade the contracts outright to hedge your risk from existing exposure to the Indian stock market.

What does IDRs means to an Indian sharesholders in terms of Taxations.....

Like Global Depository Receipts (GDR’s) & American Depository Shares (ADS’s), IDR are the derivative instrument with parent companies shares as the underlying asset, they allow foreign companies to raise money in India. An IDR holder acquires the same rights as a shareholder, except that he/she can neither attend the AGM nor vote on resolutions. NRI’s can trade in the IDR’s.

The biggest question doing the rounds is – what could be the tax implications for the Indian IDR holder? The good news is that IDR does not come under the purview of Securities Transaction Tax. But the IDR holder will have to pay tax on the dividend income earned. It is not yet clear whether the tax payable would be equal to the Dividend Distribution Tax which for the current fiscal stands at 16.61%. So tax seems sure but the rate is yet unsure.

Then there is the question of short and long term capital gains tax?

Currently, Long term gains made from Indian Stock Exchanges (stock held for more than 12 months) is completely exempted from tax while Short term capital gains tax (held less than 12 months) stands at 15%. But the IDR does not fall under the STT, so maybe it will not enjoy the same benefits as the shares listed on the Indian Exchanges enjoys. So this means that IDR’s will be taxed like any other asset –long term tax- held for over 36 months would be around 20%. Short term tax, when asset is held for less than a year, will be like regular income earned, at 30.9%.

There is no real clarity yet on this treatment of tax but surely, the Govt will have to bring a notification soon. A quick resolution on the tax angle is urgent and imperative or else it could undermine the very lure of this IDR.

According to the red-herring prospectus, the legal regime for IDR’s is still to be tested; investors in IDR’s may not get the benefits of a bonus issue or a rights issue; Even dividend income on IDR’s will be taxed in the hands of the investors and long-term capital gains tax will be another additional burden. Standard Chartered Bank has said whenever the company and/or the depository is unable to make bonus issues or rights issues available to the IDR holders, the depository will try and sell the deposited property that is the subject of the distribution on behalf of the IDR holders and distribute the net proceeds thereof as a cash distribution to the IDR holders.

Standard Chartered said it has agreed that for all corporate actions including voting, rights issues, the payment of dividends and other distributions, it will treat IDR holders on an equitable basis vis-à-vis other holders of shares in the home country (the UK). However, it pointed out that in circumstances where certain corporate actions, which are available to the holders of shares in the home country of the company and other jurisdictions where its shares are listed, are not permitted by Indian laws to be offered to IDR holders.

There is also a term called "Fungibility", now what does this means & how it relates to IDR/ADRS ?

The actual meaning of the word fungible is the ability to substitute one unit of a financial instrument for another unit of the same financial instrument. However, in trading, fungibility usually implies the ability to buy or sell the same financial instrument on a different market with the same end result.

Its a financial instrument (i.e. individual stock, futures contract, options contract, etc.) is considered fungible if it can be bought or sold on one market or exchange, and then sold or bought on another market or exchange.

For example, if one hundred shares of an individual stock can be bought on the NASDAQ in the US, and the same one hundred shares of the same individual stock can be sold on the London Stock Exchange in the UK, with the result being zero shares, the individual stock would be considered fungible. There are many fungible financial instruments, with most popular being individual stocks, some commodities (e.g. gold, silver, etc.), and currencies.

Fungible financial instruments are often used in arbitrage trades, because the difference in the price (the arbitrage part) often comes from a difference in location (the fungible part). For example, if the Euro to US Dollar exchange rate was 1.2500 in the US and 1.2505 in the UK, an arbitrage trader could buy Euros in the US, and then immediately sell Euros in the UK, making a profit of 0.0005 per Euro (or $5 per €10,000), because Euros are a fungible financial instrument. Similarly it implies to Stocks IDRs etc.

MCX (Multi Commodity Exchange) : IPO SUBSCRIBE !!!

Price Band: Rs. 860 - Rs. 1032, Face Value: Rs.10.

Minimum Lot Size: 6 Shares.

Issue opens on: 22nd February 2012, Wednesday.

Issue closes on: 24th February 2012, Friday.

Listing on: 9th March 2012.

Total No. of Shares offered: 64,27,378 shares or 12.60 %

Employee Reservation: 2,50,000 shares.

Net Public Offer: 61,77,378 shares.

QIB Book: 3,088,689 shares.

Non – Institutional Bidders: 9,26,607 shares.

Retail Book: 21,62,082 shares.

Equity Shares outstanding prior Issue: 5,09,98,369 shares.

Equity Shares outstanding post Issue: 5,09,98,369 shares.

Total Size of the Issue: Rs. 552.75 Crs - Rs. 663.30 Crs.

IPO GRADING: 5/5 - CRISIL – Strong Fundamentals.
FAIR VALUE RANGE - Rs. 1200 - Rs. 1400.

KEY FINANCIALS (Consolidated)	31 Mar 2010	31 Mar 2011	31 Dec 2011
Total Income (Rs. in Cr)	493.70	447.56	474.50
Net Profit (Rs. in Cr)	220.80	176.27	217.95
Net Profit margin (%)	35.70	39.40	47.00
EPS (Rs.)	43.29	34.56	42.74
Net Asset Value (Rs.)	136.63	166.45	210.58
Return on Equity (%)	21.40	22.80	32.20
Return on Capital Employed (%)	31.30	31.80	45.10

MULTI COMMODITY EXCHANGE OF INDIA LIMITED : MCX Stock Exchange Limited was originally incorporated as a private limited company on April 19, 2002 as Multi Commodity Exchange of India Private Limited and subsequently converted into public limited company on May 16, 2002 in 2008 and is based in Mumbai, India. MCX Stock Exchange Limited provides a trading platform in currency derivatives in India. The company offers trading in currency futures contracts in four currencies consisting of the U.S. Dollar-Indian Rupee (USDINR), Euro-Indian Rupee (EURINR), Pound Sterling-Indian Rupee (GBPINR), and Japanese Yen-Indian Rupee (JPYINR). The company, through its subsidiary, MCX-SX Clearing Corporation Limited, offers clearing and settlement services in multi asset classes.  MCX enjoys the leadership position in the commodity futures industry, the market shares in terms of total value of commodities futures contracts traded on MCX in Fiscal 2011 was 82.4 % of the Indian commodity futures industry. There are over 30 commodity futures and options exchanges worldwide that trade commodities ranging from energy, metals, agriculture to livestock in many countries including the United States, China, Japan, Malaysia and the United Kingdom. In 2011, MCX stood at 5^th place among the global commodity bourses in terms of futures contracts traded, during the period between January and June 2011 about 127.8 million futures contract were traded on MCX. MCX ranks no.1 in silver, no.2 in natural gas, no.3 in crude oil and gold futures trading. The company reaches out to about 800 cities and towns in India with the help of about 1,26,000 trading terminals. MCX COMDEX was the first and only composite commodity futures price index. MCX has main competitor is National Commodity & Derivative Exchange Ltd (NCDEX) – Mumbai; National Multi Commodity Exchange Ltd  (NMCEX)- Ahmedabad; Indian Commodity Exchange Ltd (ICEX) – Gurgaon; Ace Derivates and Commodity Exchange (ACE) – Ahmedabad.

MCX holds 5 % in Dubai Gold and Commodity Exchange and the book value of this investment was Rs. 2.185 Cr as of December 31, 2011; 100 % in MCX Clearing Corporation Ltd; 5 % in MCX SX; 26 % in MCX-SX Clearing Corporation Ltd; 51 % in SME Exchange of India Ltd with initial investment of Rs. 5,10,000

MCX derives its income primarily from transaction fees with respect to the trades executed on MCX Exchange, annual subscription fees, member admission fees, terminal charges, proceeds of sale and dividends from investments and interest from bank deposits. Commodities play an important role in India‘s economy. India has over 7,000 regulated agricultural markets, or mandis, and the majority of the nation‘s agricultural production is consumed domestically, according to the Agricultural Marketing Information Network. India is the world‘s leading producer of several agricultural commodities. The agriculture sector accounted for approximately 14.2 % of India‘s gross domestic product (GDP) at a constant price (2004-05) for the fiscal 2011. India‘s GDP at current market prices for the fiscal 2011 was estimated to be Rs. 78,779.47 billion (Source: Economic Survey 2010-11). There are currently 21 commodity exchanges recognised by FMC in India offering trading in over 60 commodity futures with the approval of FMC. In the fiscals 2009, 2010 and 2011, the total value of commodities traded on commodity futures exchanges in India was Rs. 52,489.57 billion, Rs. 77,647.54 billion and Rs. 119,489.42 billion, respectively. The total value of commodities traded on commodity futures exchanges in India for the first nine months ended December 31, 2011 was Rs. 137,228.55 billion.  

Out of the Offer of a total of 64,27,378 Equity Shares, 26,43,916 Equity Shares are being offered by FTIL, 21,12,025 Equity Shares are being offered by SBI (Equity), 7,81,508 Equity Shares are being offered by GLG, 3,90,754 Equity Shares are being offered by Alexandra, 2,46,175 Equity Shares are being offered by Corporation Bank, 1,48,000 Equity Shares are being offered by ICICI Lombard and 1,05,000 Equity Shares are being offered by Bank of Baroda. The Equity Shares being offered by the Selling Shareholders under the Offer have been held by such Selling Shareholders for a period of more than one year prior to filing of the Draft Red Herring Prospectus with SEBI.

Comparisons with Industry as on 31st March 2011

Exchange	Currency	Share Price	Shares O/S (mn)	Market Cap (mnUS$)	EPS Estimate FY13	P/E FY13e	EV/Sales FY13e	EV/EBITDA FY13e
CME	US$	291	67	19295	17.90	16.20	0.90	8.50
ICE	US$	133	73	9644	8.00	16.50	2.30	8.80
MCX	INR	1032	51	1053*	NA	NA	NA	NA

*1US$=Rs.50

According to me one should definitely look for subscribing Multi Commodity Exchange India Ltd IPO as it will be the first listed exchange on Indian bourses taking the country at par with other markets like US, UK, Japan, Australia, Singapore & Hong Kong. Globally , Exchanges trends to trade at average of 5 times their book value and 18 - 20 times their earnings. Long term investors should look into subscribing the IPO for good opportunity. Short term investor can subscribe for listing gains.

VINATI ORGANICS LTD: SPECIAL IN SPECIALITY CHEMICALS !!!

Scrip Code: 524200 / VINATIORGA

CMP:  Rs. 465.35; Market Cap: Rs. 2,400.79 Cr; 52 Week High/Low: Rs. 591.00 / Rs. 360.95

Total Shares: 5,15,91,025 shares; Promoters : 3,73,03,247 shares – 72.31 %; Total Public holding : 1,42,87,778 shares – 27.29 %; Book Value: Rs. 109.63; Face Value: Rs. 2.00; EPS: Rs. 25.50; Dividend: 175.00 %; P/E: 18.39 times; Ind. P/E: 16.35; EV/EBITDA: 11.45 times.  

Total Debt: Rs. 65.30 Cr; Enterprise Value: Rs. 2,438.95 Cr.

                                                               

VINATI ORGANICS LIMITED: The Company was founded in 1989, Vinati Organics Limited (VOL) is an India-based company, which manufactures specialty organic intermediaries and Monomers. The Company is engaged in manufacturing of speciality organic intermediates and monomers, including IBB (Isobutyl Benzene), ATBS (2 Acrylamido 2Methylpropane Sulphonic Acid), NaATBS(Sodium Salt of 2 Acrylamido 2Methylpropane Sulphonic Acid, Diacetone Acrylamide and Isobutylene. The company gave bonus in November 2007 in ratio of 1 new share for every two shares held and then company split face value of its shares from Rs. 10 to Rs. 2 in October 2009. IBB finds application in the manufacturing of Ibuprofen, while ATBS is a specialty monomer with multiple applications such as industrial water treatment, oil field applications, construction chemicals, hydrogels for medical applications, personal care products, emulsion polymers, detergents, textile print pastes, adhesives and sealants, thickeners and paper coatings. In an effort towards backward integration, VOL executed a project for its ATBS plant to manufacture isobutylene (IB), which is one of the major raw materials. The IB plant in India is the largest plant with a capacity of 12000 TPA. Besides, VOL also manufactures Normal Butylbenzene (NBB), Sodium Salt of 2-Acrylamido 2- methylpropanesulfonic Acid (NaATBS), N-Tertiary Butyl Acrylamide (TBA), Hexenes and other industrial monomers on a small scale. The recent addition to its product portfolio includes isobutylene, high purity methyl tert butyl ether (MTBE) and methanol.  The company’s products are exported to customers across the US, Europe and Asia. VOL is a market leader in its chosen product categories with presence across more than 22 countries globally. Company has plants in Mahad-Raigad which the biggest IBB manufacturing facility in the world. This plant has specialized equipment for the production of IBB that adheres to the highest standards of quality and purity. Company’s Ratnagiri plant has customized equipment for the manufacture of ATBS, TBA, IB, HPMTBE, DAAM and other speciality chemicals. ATBS is engaged in Emulsions for paints and paper coatings, water treatment chemicals, adhesives, hydrogels and absorbents, textile, auxiliaries, detergents and cleaners, acrylic fibre, construction polymers and oil field polymers. VOL’s products are Speciality Monomers 2-acrylamido 2-methylapropane sulphonic acid (ATBS) Sodium salt of 2-acrylamido-2-methylpropane sulphonic acid (NaATBS) N-Tertiary Butyl Acrylamide (TBA); N-Tertiary Octyl Acrylamide (TOA); Diacetone Acrylamide (DAAM) Specialty Aromatics Iso Butyl Benzene (IBB) Normal Butylbenzene (NBB). C 10 Aromatic Solvent, Hexene; its other Speciality Products includes Isobutylene (IB); Methanol; High Purity- Methyl Tertiary Butyl Ether (HP-MTBE); Miscellaneous Polymers; Vinflow HT; Vinplast 245 (Acrylic Super Plasticizer). Vinati Organics Ltd is locally compared to IOL Chemicals and Pharmaceuticals Ltd, Deepak Nitrite Ltd, Paushak Ltd, Dharamsi Morarji Chemical Co Ltd, Navin Flurine Industries,  Panama Petrochem Ltd, Manali Petrochemicals Ltd, Adi Finechem ltd, Camphor and Allied Products Ltd, Resonance Specialties Ltd, Camlin Fine Sciences Ltd, Diamines And Chemicals Ltd, and globally with  BASF, AkzoNobel, Clariant, Evonik, Cognis, Kemira, Lanxess, Rhodia, Wacker and Croda from Europe, Huntsman, Ashland, Chemtura, Rockwood, Albemarle, Cabot, W.R. Grace, Ferro Corporation, Cytec Industries and Lubrizol of USA. 

Investment Rationale:

Established in 1989, Vinati Organics Ltd is a speciality chemical company producing aromatics, monomers, polymers and other speciality products. It is the world’s largest manufacturer of Isobutyl Benzene (IBB) and 2-Acrylamido 2- Methylpropane Sulfonic Acid (ATBS). The company’s products are exported to customers across US, Europe and Asia. VOL is a market leader in its chosen product categories with presence across more than 22 countries globally. Global Chemical Industry Chemicals are an essential part of our modern life and have a wide range of product based applications. In fact, the global chemical output, valued at $171 billion in 1971, is estimated to have increased to about $3.9 trillion value-wise in 2015. This industry faced a number of initial challenges, with the most important ones being in the form of the global meltdown of 2009 and the consequent economic headwinds. However, a series of cost-cutting measures, along with cash management, deleveraging of balance sheets, and divestment of underperforming businesses helped it to counter this scenario. The volume of global chemical output was expected to increase by 2.4 % in 2015 as against 2.7 % in 2012. The growth is likely to improve further to 3.8 % in 2016, given the improving economic conditions. According to the American Chemistry Council (ACC), the regions that are expected to lead this growth include the Asia Pacific, the Middle East, and Africa. The global speciality chemicals market is expected to grow at a CAGR of 5.16 % over the period 2013 to 2018. One of the key factors contributing to this market growth is the increasing demand for specialty chemicals products in the rapidly developing countries of the APAC region. The global specialty chemicals market has also witnessed an increase in merger and acquisition related activity, as key market players increase their attempts to penetrate the emerging markets. However, the increasingly stringent health and environmental regulations could pose a challenge to the future growth of this market. India’s growing per capita consumption and demand for agriculture-related chemicals offers a goldmine of opportunities for the domestic chemicals industry. With an increased focus on improving products and the usage intensity of speciality chemicals, the industry is poised to record strong future growth. The total market size of the domestic chemicals industry is expected to grow from US$ 108 billion in 2011 to US$ 290 billion in 2017. This segment includes dyes and pigments, leather chemicals, personal care ingredients and other speciality chemicals (excluding pharmaceuticals and agrochemicals). In 2015, the Indian chemical industry earned revenues in the range of US$ 155-160 billion. It is likely to grow further at a rate of 11 % to 12 % over the next two to three years. Indian Specialty Chemicals Market including knowledge chemicals as active ingredients in agrochemicals and pharmaceuticals has the potential to grow at a rate of 15 % p.a. to reach USD 40 billion by FY 2017. This growth potential is significantly higher than the projected 3 % p.a. growth rate for the global chemical industry or even the 10 % p.a. growth rate envisaged for the domestic sector. The chemicals industry in India is the largest consumer of its own products, consuming as much as 33 % of its total output. Given the promising growth trends witnessed in the chemicals industry, this internal consumption is all set to rise even further. The Indian chemicals industry has a diversified manufacturing base that is characterised by world-class product offerings. There is a substantial presence of downstream industries in all segments. At the same time, this large and expanding domestic chemicals market also boasts of a large pool of highly-trained technical personnel. Promising Export Potential Chemicals constitute 5.4 % of the overall domestic export volumes. India already has a strong presence in the export market in the sub-segments of dyes, pharmaceuticals and agro chemicals. India exports dyes to Germany, the UK, the US, Switzerland, Spain, Turkey, Singapore and Japan. Vinati Organics Ltd entered ATBS manufacturing by getting technology developed from National chemical Laboratories, Pune, and setting a manufacturing plant with an initial capacity of 1,200tpa in 2002. VOL was the third company globally to enter ATBS after Lubrizol and Toagosei. Acrylamide tertiary butyl sulfonic acid is a vinyl polymer. Led by its excellent hydrolytic and thermal stability properties, ATBS finds wide application in emulsions for paints and paper coatings, water treatment chemicals, adhesives, hydrogels and super absorbents, textile auxiliaries, detergents and Cleaners, acrylic fiber, construction polymers, and oil field polymers. But due to the captive manufacturing practice of Lubrizol and Toagosei, ATBS was not available at the right price-quantity for other applications. Leveraging the short‐supply position in ATBS, VOL continuously expanded its capacity to 26,000tpa in FY13 and emerged as the largest manufacturer of ATBS in the world with over 45 % of global market share. Its robust client base across various markets, including the US, Europe, Asia, the Middle East, and China, has been a key to VOL’s success in ATBS. It has some of the world’s largest specialty chemical companies in its client list, including BASF, Dow chemicals, Nalco Company (USA), AkzoNobel, SNF Floerger, Ciba, and Clariant chemicals, among many others. Vinati would be launching 4 new products next year- PTBT/ PTBBA (Para Tertiary Butyl Toluene / Para Tertiary Butyl Benzoic Acid), IBAP (Isobutyl AcetoPhenone), TB Amine (Tertiary Butyl Amine), 1 niche customized product. PTBT/PTBBA is an IB derivative which would be sold in the domestic market. Currently it is imported in India. The company claims to have a better & cost effective technology for these products and aims to entirely capture the domestic market by substituting the imported products and repeat the success story of IBB. With IBAP, Vinati would be forward integrating from IBB. IBAP is subsequently used in making Ibuprofen. Vinati claims to have a better and cost effective technology for IBAP too. While steady expansion in geographic reach and client base offered scale to VOL’s ATBS operation, its strategic backward integration to IB (Isobutylene) manufacturing made it the price Leader. VOL is the only backward‐integrated ATBS manufacturer in the world. VOL’s price leadership in ATBS contributes 46 % of its total sales is a key to its sector leadership in profitability. VOL launched innovative and cost competitive products like ATBS, IBB, and IB, supported by its technological tie‐ups with National Chemical Laboratories (India), Institut Francais du Petrole (France), and Saipem S.p.A. (Italy), respectively. Its continued captive research on productivity and efficiency earned it global leadership in ATBS and IBB. VOL is the largest manufacturer of IB India. Leveraging its in‐house research, it introduced new products, which like N‐Tertiary Butylacrylamide (TBA), NTertiary Octyl Acryl amide (TOA), High purity Methyl‐Tertiary Butyl Ehter (HP‐MTBE) and Diacetone Acryl amide (DAAM) and these new product lines make up about 15 % of its revenue share. The new products are fully integrated with existing ones as by‐products, co‐products, or their further processed products, which make VOL the most cost‐effective producer of these products. In its product pricing pattern, Vinati charges mark up as absolute value per kg which ensures consistent profit for its irrespective of general pricing trend of its raw material or finished product. IBB and IB pricing is negotiated with clients on a monthly basis whereas ATBS pricing is revised with a lag of one quarter. VOL has renowned clientele like BASF, Nalco, Shasun Chemicals, SMF, Clariant Chemicals are among its top 10 clients. The top 10 clients account for 50 % of revenue. Vinati's customer count is more than 60 and it exports to 22 countries. And its Export contributes around 66 % of revenue. All of its exports are dollar denominated. Leadership in sector capacity expansion and pricing power makes Vinati Organics a strong player in the Specialty Chemicals segment and with strong management it will surely prove its leadership.  

Outlook and Valuation: 

Vinati Organics, a leader in specialty chemicals, follows the strategy of becoming the market leader in whichever product it deals in and enters into a new product only if it has a better technology. It has a product portfolio of 15 products of which IBB (Isobutyl Benzene), ATBS (2-acrylamido 2-methylpropane sulphonic acid), IB (Isobutylene) and HP MTBE (High Purity- Methyl Tertiary Butyl Ether) garner 90 % of revenue. Specialty chemicals business is knowledge as well as process-driven. It takes years of knowledge and trial and error to develop the chemistry to meet not only international purity standards but also achieve a favourable price-performance ratio. Also, specialty chemicals are required to meet customized needs of different customers. One of VOL’s products, IBB, which is used as a raw material for manufacturing ibuprofen, demands a purity level of 99.5 %, as per international standards. Given its usage in making drugs, consistency in quality is of utmost importance. Although VOL started its business in 1992 by setting up an IBB plant in Mahad with an initial capacity of 1,200mt, it took eight years of concentrated efforts to get the commitment from its client. Starting 1998, VOL was able to sell at the most 100mt of IBB to clients. However, consistent improvement in IBB quality and multiple visits to US-based clients finally gave VOL its first major IBB order in late 2006. VOL not only meets, but also beats industry standards in purity by manufacturing IBB with purity ratio of 99.8 %, the highest level globally. VOL’s another product, ATBS, had to go through a rigorous process before the company could come up with a marketable product. Since December 2002, production of ATBS has been streamlined and the first batch of commercially manufactured ATBS was shipped to VOL’s clients globally. However, clients rejected the ATBS produced by VOL because of quality problems. VOL then started providing 18 different parameters for its product on the basis of which the quality of ATBS could be accessed. The learning process lasted till 2005 when it finally made a breakthrough. The acceptable quality of ATBS for Enhanced Oil Recovery (EOR), one of the areas where ATBS is used, is even higher than its usage in other applications. Weight of ATBS should be higher than 400,000 amu for it to be used for EOR. The company’s ATBS product successfully achieved high purity standards with a purity tolerance level of 0.5 % against the accepted global tolerance level of 3.0 %. VOL, in a tie-up with National Chemical Laboratory or NCL under the guidance of Dr. Barve, was able first to achieve this feat in India. NCL has exclusively licenced this technology to VOL. The process developed by NCL is protected by two US patents. VOL’s other two major products - IB and HP-MTBE - are of equally superior quality. The company’s IB product achieved a 99.85 % purity standard, which is among the highest in the world. HP-MTBE achieved a purity standard of 99.95 %, accepted as one of the highest globally. Hence, it is believed that given the time and complexity involved in making these products, it is extremely difficult for a new entrant to foray into this business. The specialty chemicals which VOL produces accounts for a tiny portion of total raw material costs of VOL’s clients and hence, the incentive for clients to change its supplier is very low unless the supplier is not able to provide good and consistent quality products. There are very few players present in this segment. It takes a long time to build quality products that are acceptable at the global level. Hence, a small player can’t start from scratch because the gestation period is very high. A bigger player may not like to get into this business as it is completely value-driven and not volume-driven. Revenue from specialty chemicals would make up tiny portion of total revenues of a big player. Hence it will be less beneficial for them to get into this space. The above two factors give companies like VOL tremendous pricing power. Even if VOL decides to marginally increase its prices, the impact of that increase on the bottom-line of clients will be minimal. This is evident from VOL’s highly consistent margin profile since the past five years.  Isobutyl Benzene (IBB) was VO’s first product. It is a specialty chemical widely used as an intermediate in the preparation of Ibuprofen, an anti‐inflammatory/antiarthritic/ analgesic medicine for pain relief. Ibuprofen is primarily manufactured in India, China, and in the USA. It is also used in the perfume industry. VO is a market leader in IBB with more than 70 % global market share. It has the largest IBB manufacturing capacity in the world at 14,000TPA at Mahad, Maharashtra. It has acquired the technology to produce IBB from Institut Francais du Petrole (IFP), France. This is a mature product with demand of 20,000 TPA globally, growing at 5 % p.a. Vinod Banwarilal Saraf (a BITS Pilani graduate and an industry veteran) has been the key driving force behind the successful introduction of products such as IBB/ATBS and in the scaling up to global levels. He has hands‐on expertise in Grasim Industries in new chemical and petrochemical projects identification, technical tie‐ups, and feasibility studies. He worked as Managing Director in Mangalore Refinery & Petrochemicals Ltd. Mr Saraf’s decades of hands on industry expertise helped VO deliver 5‐8‐fold growth in revenue/profits over the last eight years. His leadership would ensure sustained business progress. Vinati Organics has capex of Rs. 200 Cr to be complete in FY17. The new products are likely to be launched throughout FY17 in a phased manner and ramp up will happen in subsequent 6months. At peak utilisation, Vinati is eyeing asset turnover of 2- 2.5x from these products. VOL has 5 MW Co-gen power plants in which it is investing Rs. 50 Cr, which would result in savings of Rs. 8 Cr in power costs starting FY18.While the company focuses on maintaining leadership position in each of its products, new product launches are expected to contribute to total revenue from 2HFY17. Reduction in prices of crude oil will lead to almost no demand for EOR (Enhanced Oil Recovery) chemicals. EOR constitutes 15% of ATBS revenue, which will lead to volume decrease in FY16 for VOL. And it is believed that the demand scenario to turn favourable from FY17E onwards on the back of new product launches and expectation of higher demand from user industries with favorable business dynamics. VOL's revenues and profits have grown at a CAGR of 24 % and 22 % over FY 11-15 respectively. The return ratios (ROE, ROCE) of the company have remained above 30 % over FY 11-15, despite a drop in leverage to 0.2x in FY15 from around 1x in FY13. The company's margins also have remained in low to mid 20s which was 26.5 % in FY15. VOL is looking to fund its current expansion worth Rs. 150 Cr through internal accruals. And as a diversified specialty chemicals company, VOL is a play on three key emerging trends like rising demand for specialty chemicals in India which is expected to be at 15 % CAGR from FY15-FY20E, the migration of global chemical manufacturing from China to India where Asia is expected to have 70 % production share by 2030 and established product positioning & lowest cost producer. The promoters of VOL currently holds 72.31 % stake in company and they have informed stock exchanges that they intend to increase their stake to 75.00 % which is to purchase 9 lakh shares at a price sub Rs. 500 per share from the secondary market from June 7, 2016 to December 6, 2016, if price goes above Rs. 500 they will refrain from buying. This buyback from the promoter is to offset the dilution done due to conversion of FCCB. At the current market price of Rs. 465.35, the stock is trading at a PE of 24.11 x FY16E and 19.88 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 19.30 in FY16E and Rs. 23.40 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also .

KEY FINANCIALS	FY15	FY16E	FY17E	FY18E
SALES (₹ Crs)	766.30	604.70	718.90	841.00
NET PROFIT (₹ Cr)	115.80	99.40	120.90	149.60
EPS (₹)	22.40	19.30	23.40	29.00
PE (x)	17.60	20.50	16.90	13.60
P/BV (x)	4.70	4.00	3.30	2.80
EV/EBITDA (x)	11.10	12.10	10.00	7.90
ROE (%)	26.70	19.40	19.80	20.30
ROCE (%)	33.00	25.70	26.80	28.00

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*As the author of this blog I disclose that I do not hold  VINATI ORGANICS LTD in my any of the portfolios.

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This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 

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I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article. 

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