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Thursday, November 24, 2011

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 16th May 2007 1US$ was equal to 40.79; on 27th 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 3rd 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

Wednesday, November 23, 2011

ADITYA BIRLA NUVO LTD: Value Unlocking Candidate !!!

Scrip Code: 500303 ABIRLANUVO
CMP:  Rs. 913.90; Buy at Rs.900 levels.
Short term Target: Rs. 950, Long term Target – Rs. 1050; 
STOP LOSS – Rs. 810.00; Market Cap: Rs. 10,373.65 Cr; 52 Week High/Low: Rs. 994.00 / Rs. 707.00
Total Shares: 11,35,09,729 shares; Promoters: 5,79,44,697 shares –51.05 %; Total Public holding: 5,55,65,032 shares – 48.95 %; Book Value: Rs. 475.41; Face Value: Rs. 10.00; EPS: Rs. 33.60; Div: 55.00 %; P/E: 27.19 times; Ind. P/E: 24.44; EV/EBITDA: 16.59
Total Debt: Rs. 4006.21 Cr; Enterprise Value: Rs. 15,259.11 Cr.

ADITYA BIRLA NUVO LTD: The Company was incorporated in 1956. Aditya Birla Nuvo Limited is a large diversified conglomerate, which engages into apparel, viscose filament yarn, carbon black, branded garments, textiles, agri business activities, life insurance business, IT solutions & telecom business. Its Apparel business consists of Madura Garments Lifestyle Brands Division, Peter England Menswear Brands Division, Peter England Fashions & Retail, Madura Garments Lifestyle Retail Co. Ltd., and Madura Garments Exports Ltd. Its Agri Business manufactures and markets urea, agricultural seeds and agrochemicals under the brand name of Birla Shaktiman Urea Gold, Birla Shaktiman Urea KrishiDev neem coated, traded fertilizers, Birla Shaktiman seeds - mainly paddy and wheat, and Birla Shaktiman pesticides. Its Viscose Filament Yarn (VFY) unit, consist of Indian Rayon, producer of viscose filament yarn in India. Company’s IT services business consists of Aditya Birla Minacs IT Services Ltd., which offers clients domain-centered solutions for the financial supply chain, enterprise solutions and business assurance. Its Life Insurance business consists of Birla Sun Life Insurance Company Limited (BSLI), which offers insurance-related wealth accumulation products and services for individuals, groups and NRIs. ABNUVO’s Asset Management consists of Birla Sun Life Asset Management Company Limited (BSLAMC), a joint venture between the Aditya Birla Group and Sun Life Financial Services of Canada, which provides ethical, innovative, research and analysis based investments and wealth management services. & also operates as the investment manager of Birla Sun Life Mutual Fund. It also includes ADITYA BIRLA MONEY which provides money management & brokerage services to domestic & international clients. ADITYA BIRLA NUVO is the major share holder with 51 % in telecom company - Idea Cellular Limited (IDEA), which is a major GSM mobile service operator in India.

Investment Rationale:
Manufacturing business:
This segment witnessed expansion led by revenue growth, margins impacted by raw material cost push. The manufacturing business (comprising of agri, carbon black, rayon and textiles) saw a strong revenue growth of +25.5 % on a Y-o-Y basis for the quarter, largely driven by a growth in textiles, agri and rayon yarn. Sales in the insulator segment declined by 8.2 % YoY as the dispatches got deferred. The EBIDTA margin in the manufacturing segment declined to 13.1 % during the quarter as against 17.6 % in Q2FY2011. EBIDTA remained flat at Rs. 44 cr against Rs. 42 cr in Q2FY2011. The business reported a profit of Rs. 12 cr for the quarter against Rs. 16 cr in the same quarter last year

IT & IT SERVICE:
ABNL acquired 11.72 % holding in Aditya Birla Minacs. The IT and the ITES subsidiaries have been merged and ABNL holds 99.71 % in the merged entity. For the quarter, the segment posted a top line growth of 19% on a Y-o-Y basis to Rs. 481 cr.

TELECOM:
Idea Cellular (Idea) services, Margins contracted due to the higher rural subscriber base Subdued revenues and the increasing overheads, coupled with enhanced losses from the circles resulted in an operating margin contraction from 26.7 % to 25.7 % in the quarter under review. Consequently the EBITDA declined by 1.4 % on a sequential basis. Earnings are down due to subdued operating performance, increased charges on 3G related expenses, and a foreign exchange (forex) loss; the reported earnings were down by a substantial 40.3 % on a sequential basis. GSM operators including Idea have increased tariff rates by 20%. But, with all this adversities the telecom business’ profitability was up by 37.2 %. The revenue and operating profit and OPM are likely to remain strong. It is expected that Idea can post a compounded annual growth rate (CAGR) of 23 % in the EBITDA over FY2011-13.

Life Insurance Business:
The efficiency and cost management efforts in the life insurance business made this segment to post an increase in profitability from Rs. 22.5 cr in Q2FY2011 to Rs. 105 cr in the quarter. The life Insurance business is in line with the industry trend, the new business premium for Birla Insurance also showed a deceleration of 14 % on a Y-o-Y basis. Last year with effect from September 1, 2010, the new ULIP guidelines came into force, which has not affected the new business premium much. With waning base & a growing in-force book and a lower new business strain led to a significant uproar in the profitability. The net profit showed an around 5x fold rise from a mere Rs. 20 cr in Q2FY2011 to Rs. 97 cr in Q1FY2012. For the full year FY2011 the insurance arm’s NBAP margin was amongst the highest in the industry at 27.5 % with the exit margin at 22 %.  Going forward, it is believed that second half of FY2012 is likely to witness a good growth in the new business premium. Thus experts estimate a 7 % growth for FY2012. The management remains confident of the medium to long term growth trajectory of the business and has guided for a steady and stable new business shall achieve a premium (NBAP) margin of 20-21 %.

Branded apparel:
This segment showed robust performance led by a strong volume growth of 28 %, the net sales showed a growth of 24 % on a Y-o-Y basis while the same store sales growth for the quarter stood strong at 15%. Due to rise in cotton prices and the mandatory excise duty level, the margin expanded from 9.4 % to 9.8 %. But the EBITDA posted a strong 28.9 % growth. The company launched 90 Exclusive Brand Outlets (EBOs), the company now has presence of 1,021 EBOs or a 1.5 million square feet of retail space. Company continues to explore value unlocking opportunities and is awaiting foreign direct investment (FDI) guidelines in this respect. Which is expected soon may be by end of DEC 2011.  

Outlook and Valuation:
Recently Department of Industrial Policy and Promotion (DIPP) floated the cabinet note proposing a 51% FDI in multi-brand retail and hike of 100% in single-brand retail. At present, the country allows 51% FDI in single brand retail, 100% in cash and carry (wholesale) business, but bars it completely in multi-brand retail. Cabinet have laid few conditions like  for Single Brand Retail - Cabinet note proposes that products should be sold under the same brand internationally;Single brand product only for manufactured brands;Foreign investor should be the owner of the brand. For Multi brand retail - note proposes that minimum amount to be brought in by Foreign Direct Investment should be US$ 100 million; At least 50 % of total FDI should be in back ended infra; 30 % of procurement of manufacturing products should be done from small industries; Government will have first right to procurement of agri products; fresh agri products can be unbranded; Retails locations should be in cities with the population above 10 lakhs. If this proposed note is approved in this winter session of parliament then the major beneficiary will be ADITYA BIRLA NUVO. On consolidated basis Aditya Birla Nuvo Ltd (ABNL) reported strong Q2FY2012 results with the consolidated net revenue growth of 17.80 %, operating profit growth at 25 % and adjusted profit grew at 11.6 % Y-o-Y basis. The company had strong growth in the fertilisers and agri business followed by telecom and the fashion & lifestyle business which led to the revenue growth, Efficiency and cost management efforts in the life insurance and the telecom businesses resulted in a strong operating performance. ABNL is best valued using the sum-of-the-parts (SOTP) method. Looking at the robust and resilient performance of the key segments, ADITYA BIRLA NUVO can bought with the price target of Rs. 1,050. 

KEY FINANCIALS FY10 FY11 FY12E FY13E
NET PROFIT (Rs. Crs) 283.80 302.2 367.50 473.00
EPS (Rs.) 25.00 26.60 32.40 41.70
PE (x) 38.10 35.70 29.40 22.80
P/BV (x) 2.30 2.20 2.10 1.90
EV/EBITDA (x) 17.60 15.50 13.90 11.80
ROCE (%) 7.70 8.20 8.90 10.00
RONW (%) 6.10 6.30 7.10 8.30
I would buy ADITYA BIRLA NUVO LTD with a price target of Rs. 1050 for the short term and Rs. 1150 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 810.00 on every purchase.
As the author of this blog I disclose that I do hold ADITYA BIRLA NUVO LTD in my investment portfolio.

Sunday, November 13, 2011

CRISIL LTD: Make your portfolio rate good !!!


Scrip Code: 500092 CRISIL

CMP:  Rs. 929.30; Buy at Rs.910-920 levels. 
Short term Target: Rs. 1000, 6 month Target – Rs. 1150; STOP LOSS – Rs. 856.00; Market Cap: Rs. 6,595.09 Cr; 52 Week High/Low: Rs. 936.70 / Rs. 560.00
Total Shares: 7,09,68,440 shares; Promoters: 3,72,09,480 shares –52.43 %; Total Public holding: 3,37,58,960 shares – 47.57 %; Book Value: Rs. 51.08; Face Value: Rs. 1.00; EPS: Rs. 25.60; Div: 2000 %; P/E: 36.30 times; Ind. P/E: 34.60; EV/EBITDA: 24.52
Total Debt: Rs. NIL ; Enterprise Value: Rs. 6595.09 Cr.

CRISIL LTD: The Company was founded in 1987 and is headquartered in Mumbai, India. CRISIL Limited operates as a subsidiary of Standard & Poor's. It was formerly known as The Credit Rating Information Services of India Limited and changed its name to CRISIL Limited in December 2003. CRISIL Limited - together with its subsidiaries, provides ratings, research, and risk & policy advisory services primarily in India, United Kingdom and United States. It offers services in the areas of credit ratings; research on Indian economy, industries, companies; also provides with fund services, risk management & infrastructure advisory services. The company provides research and analytics services to commercial and investment banks, insurance companies, corporations, consulting firms, private equity players and asset management firms. It offers ratings for long-term instruments, such as debentures/bonds and preference shares, fixed deposits and loans, as well as pass through certificates and structured finance instruments and short-term instruments comprising commercial papers, certificates of deposits, and short-term debts. The company also provides equity and corporate research, industry reports, customized research assignments, subscription to data services, and initial public offer grading services. In addition, it offers fund research, rankings, and ratings to mutual funds industry; infrastructure advisory services in the renewable energy, transportation and logistics, oil and gas, and minerals sectors; and risk management services to banks, financial institutions, and corporations. The company has a joint venture with the National Stock Exchange of India Limited to provide various indices and index-related services and products to the capital markets.

Investment Rationale:
CRISIL witnesses robust growth in credit rating business. CRISIL currently has 60 % market share of the credit ratings business and 51 % market share in bank loan ratings (BLR).  Nearly 20,000 of the 35,000 clients are the clients who have taken loans of less than Rs. 10 crores & are yet to be rated. The growth will come from newer clients as there are enhancements of the limits of the existing clients and annual surveillance fees. More growth is expected from this segment. Basel II norms specify mandatory credit ratings for bank loans above Rs. 5 crores. The recent incidence of scams is also prompting more small and medium companies to get the respectability of an independent credit rating while raising funds. Apart from that, new products like Education ratings will continue to add to growth. The government and the regulators are currently focusing to increase access of the infrastructure sector to the bond market and to do so they have increased the FII limit in corporate bond to US$ 40 billion from US$ 20 billion; increased credit enhancement schemes for infrastructure entities and draft new CDS guidelines issued by RBI. In Dec'2010, CRISIL acquired Chicago-based Pipal Research Corp. - one of the leading players in the knowledge process outsourcing (KPO) industry from First Source Solution for US$13 mn (around Rs. 58 cr).  Pipal has a strong presence in the corporate sector mainly in North America and Europe and reported revenue of US$8 mn (around Rs. 37 cr) in FY2010. Pipal’s client base includes leading telecommunications, technology, consumer packaged goods and industrial companies. Pipal research is of the same size as what was Irevna in 2005 when CRISIL acquired it. Pipal has 30 Fortune 500 clients. The entire integration process is over and CRISIL is bullish on both Irevna and Pipal for CY'11. Infact, there is a significant increase in staff cost during Q1 CY'11 as the headcount of Pipal has increased by more than 1/3rd during the quarter. In Research business, the margins for CY'10 stood at about 32 % as against 36 % Y-o-Y largely due to forex losses. When CRISIL acquired Irevna in 2009, CRISIL’s turnover stood at Rs. 537 crores. Irevna acquired 23 new clients and its total number of clients stood at 63. This business derives its synergies from its tie ups with banks and as a provider of research for its treasury products. CRISIL launched CRISIL Real Estate Star (CREST) Rating, a first-of-its-kind service for retail investors in the real estate sector. It provides a city specific all round assessment of real estate projects and helps buyers benchmark and identify quality project within a city. The product has received an encouraging response from all stake holders, developers, buyers, investors and bankers. CRISIL has already evaluated 29 projects across 10 cities. CRISIL has also expanded operations at Global Analytical Center (GAC) to support Standard & Poor’s (S&P). It has expanded its geographical presence with sales office in Sydney and research center in China. With over 5500 bank loan ratings (BLR) outstanding which is the largest number of BLR in India; 2434 new ratings assigned during the year, the company has crossed one of the milestone of 17,500 small and medium enterprises (SME) ratings; 7800 new SME ratings was assigned in 2010.

Outlook and Valuation: 
CRISIL has been Ranked # 1 firm in the world in financial services research, risk management and actuarial services, corporate finance support and financial services analytics by the Black Book of Outsourcing – a Data monitor company which also assisted the Ministry of Rural Development, Government of India (GoI), in a unique and innovative public-private-partnership project to provide urban services in rural areas (PURA); the pilot project promises to be the first of many such endeavors. Helped the Ministry of Non-Conventional Energy, GoI, design the framework for exchange of renewable energy purchase obligations, and a platform for trading in renewable energy certificates. CRISIL received a renewed mandate from the World Bank to conduct training program in enhancing the regulatory reform capabilities of member regulators of the East Asia Pacific Infrastructure regulators forum (EAPIRF). CRISIL has won key accounts in the public and private banking sector – portfolio of customers now includes 9 of India’s top 10 banks. It also entered the global arena, winning two prestigious mandates including a reputed multilateral development institution in South East Asia. CRISIL has developed a loan origination system to enable automation of a bank’s credit appraisal process as an important module in its internal rating platform. The Company has a downside risk with respect to the slowing down of our economy. However this may get offset by the low value 20,000 odd SME’s accounts it expects to be added in Q3 of CY11. The company stock is trading currently near its 52 week high, in spite of the fact that most other stocks are trading at a huge discount of their inherent strength of the fundamentals of the company. CRISIL always trades at high P/E , the stock is not exactly cheap, but it commands a higher PE because of its strong market share & robust financial numbers that shows immunity to current economic downturn. CRISIL registered strong top-line growth in 2QCY2011. The company’s net sales grew by 35 % y-o-y to Rs. 203 crores led by strong growth in research segment because of addition of Pipal’s.
Recently Company declared split in face value of shares from Rs. 10 to Re. 1.00 on 20th JULY 2011, stock quoted ex split basis from 28 Sep 2011. Crisil declared its Second buyback program which has already started from NOV 3rd, 2011, The buy back is for the aggregate amount of Rs. 87 Cr & the shares would be bought back up to Rs. 1,000/Share.
CRISIL's average operating cash flow over the last 4 years stood at Rs. 280 Cr. CRISIL completed its previous buy back in Nov, 2010 of 1,28,156 (12,81,560 post split) shares at an average price of Rs. 6,200 (Rs. 620 post split), totaling to Rs. 79.5 Cr. As per the current buy back rule Section 77A(2)(c) - a company can buy back 25 % of its Total paid up capital & free reserves, for CRISIL it amounts to Rs. 86.97 Cr (25 % of 347.87 Cr). At Rs 929.30/shares, CRISIL can buy back up to 9,36,188 shares or 1.31 % of the equity.

Peers comparison
Company Face Value (Rs.) EPS (Rs.) P/E Ratio RoNW (%) Book Value (Rs.)
CRISIL 1.00 25.60 36.3064.70 51.05
ICRA 10.00 33.26 27.7123.90242.34
Credit Analysis & Research Ltd*10.00 31.89  ---  30.11 105.92
(* Proposed IPO)
Some Key Financials
KEY FINANCIALS FY10 FY11 FY12E FY13E
SALES (Rs. Crs) 628.40 809.50 980.70 1173.50
NET PROFIT (Rs. Crs) 164.50 200.10 244.60 293.20
EPS (Rs.) 23.20 28.60 34.90 41.90
PE (x) 36.20 29.40 24.00 20.00
P/BV (x) 19.10 22.70 11.90 8.40
EV/EBITDA (x) 26.50 20.40 16.30 13.30
ROCE (%) 48.60 70.10 65.00 49.20
RONW (%) 64.70 83.30 76.70 65.30

I would buy CRISIL LTD with a price target of Rs. 1000 for the short term and Rs. 1150 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 856.00 on every purchase.
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