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HUL-GSK Deal explained

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      HUL-GSK Deal explained by Stocksbaazigar Let’s discuss some important points of HUL-GSK Deal before discussing what to do in HUL shares?  Hindustan Unilever Ltd. acquired GlaxoSmithKline Consumer healthcare at a share swap ratio of 4.39:1, valuing the all-stock merger at Rs. 31,700 Cr. Bank of America Merrill Lynch was the sole Advisor of HUL for this deal while GSK was adviced by Morgan Stanley & Co. International Plc and Green Hill & Co. International LLP. Following the issue of new HUL shares, Unilever’s holding in HUL will drop from  67.2% to 61.9%. GSK Plc. will become the second largest shareholder in merged entity with 5.7% stake. It can offload this stake to any Investors and HUL does not have exclusive rights to buy these shares. For HUL India Foods and Refreshment contribute 18% of the revenue, whereas the proportion for the parent Unilever is 41.7% After the merger, the combined revenue of HUL’s Foods and Refreshment revenue will cross Rs.10,000 Cr.   After completion of the deal, HUL will become India’s largest Food company listed on Indian Stocks Market.  Boost, Maltova and Viva brands will be owned by HUL. However, Horlicks brand which is currently owned by GSK Plc. is acquired by parent company Unilever. HUL will pay for its royalty in India. Horlicks is Market Leader in Malt-based Beverages with 43% Market share in India followed by Bourvita of Mondelez International which has Market Share of around 13%. HUL will get distribution rights of  Oral Health Care and OTC products of GSKCH like Sensodyne, Crocin, and Eno for five years. This deal in the health and wellness category is very strategic and transformative as there will be great synergy in topline and costs after the merger. HUL reaches 8.2 Million outlets. It will help GSK’s brand reaching three-fold of the current distribution. HUL’s Margin in food business will get enhanced by 900 basis points to 27% from the current 18% of sales with sustainable profitable growth. HUL will increase it’s margin by 8 to 10% in medium terms after this Merger. What to do in shares of HUL after the announcement of the deal now? From last three months Nestle, HUL and Private Equity were eying for this Merger. But Market knew that only HUL had the Muscles to Pull the deal as it offered all-stocks deal whereas others offered Cash or combination of Cash-Shares deal. HUL gave good valuations to GSK, which is evident from the Swap-ratio finalized in the deal.   GSK share should move up after this news while HUL share should correct. This seems Win-Win deal but if you will study it closely, you will realize that GSK got a slight advantage in it. Distribution Muscles of HUL will help GSK brand products penetrate the Indian Market more effectively. HUL definitely has long-term benefits of this deal as explained in the discussion. But on short-term we might see some profit booking in the stock as it has already priced-in this HUL-GSK deal in Stock Price of HUL. HUL reached to 1800+ from 1500+ in just 3 months. HUL is a bluechip stock which has given consistent returns to its shareholders. Analysts have given thumbs up to this deal and have increased its 1-year target from 1800 to 2010-2050 now. (Disclaimer: Stocksbaazigar Mr. Deepak Doddamani is NSE’s Certified Investment Analysis Professional and NSE’s Marketing Professional Level – 4. He is not SEBI Registered Advisor. Stocksbaazigar is not responsible for any of your Gains/Losses. Please consult your Financial Advisor before taking any investment related decisions. Thank you) Video explanation on HUL-GSK deal:

Corporate Governance Issues in Sun Pharma explained

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Corporate Governance Issues in Sun Pharma explained by Stocksbaazigar              In past, IT  & Pharma stocks always acted as ‘Defensive sectors’ in falling Market. But in the last few years, we saw that IT sector stocks showed good synergy about rising and falling patterns but Pharma sector stocks had no specific direction, all credit to USFDA. Investors had to be very stock-specific and approach individual stocks differently in this basket.         In 2015 when Founder and MD of Sun Pharmaceutical Industries Ltd. Mr. Dilip Sanghvi became the richest person of India for a very short time, the stock of Sun Pharma traded above Rs 1000 per share price for a while. But then the ‘Halol’ night-mare started haunting the investors. Halol plant of Sun Pharma contributed 8-10% of the total revenue to the company. The delay in the resolution of regulatory issues raised by USFDA at Halol plant affected the approval of new drugs coming from the facility, which delayed its pick-up in US markets. Dilip Sanghvi is known as a visionary leader who successfully acquired sick companies and converted them into profitable ones. Sun Pharma acquired companies Caraco, Taro, Ranbaxy, Dusa, Insite Vision and URL etc aggressively. These all acquisitions had strategic reasons and made Sun Pharma 5th largest company of the world in Speciality business. But Ranbaxy deal came with Insider Trading allegations and Taro deal came with price erosion in their product portfolio.  Promoter’s interest in investing in unrelated businesses like Oil & Gas, Solar, Wind energy etc. unrelated businesses also affected Investor’s confidence in Sun Pharma stock post-2015. In the month of June, when Gujarat facility received its first approval in Cancer drug after the gap of 4 years, Sun Pharma share rallied to give it’s 52 Week high of 678.80. After 2 months, Sun Pharma again came under the scanner of US Food and Drugs Administration (USFDA) which issued 6 observations related to deficient procedures at Sun Pharma’s manufacturing facility of Halol. Sun Pharma shares corrected from the top and tried to take some support at 600 price level. Unfortunately, bad quarterly results pushed Sun Pharma further down to the price level of 485. On 29th November 2019 SEBI decided to re-open the Insider trading case against Sun Pharma after a 150 pages letter from a Whistleblower  (perhaps an ex-employee). From 495 to 402 stock fell by almost 23% in just one week.  After some clarification by Mr Dilip Sanghvi himself and an Investor’s conference call share of Sun Pharma rose up to 425 levels but only to hold 400 level support intact. The overhang of Corporate Governance Issue will keep this stock volatile for some more time. Institutional Investors have already exited the stock, that’s why company reduced to 1/5th of it’s Market cap after Macquire’s report of 29th November on ‘Corporate Governance Issues’ in Sun Pharma Industries Ltd. It means only retail investors are stuck in this company and stock will move up again only after Management of Sun Pharma answers all the un-answered/avoided questions by Big Investors.   Clarifications on the allegations: Let’s discuss the important questions raised by Australian brokerage firm Macquarie on Sun Pharma in its note and what Mr Dilip Sanghvi clarified about it in his conference call 1) Inadequate disclosures related to promoter’s brother-in-law Sudhir  Valia in the company Clarification:  Sanghvi said Sudhir Valia doesn’t have anything to do with Operations of Sun Pharma. He only gave financial and strategic advice. 2) About Re-opening of ‘insider trading case’ by SEBI Clarification: Shanghavi said that company is not aware of that as SEBI didn’t inform them anything about a complaint of Whistleblower and re-opening of Insider Trading Case. 3) About guarantees  which were given to real estate firm Surakhsha reality whose founding member is Sudhir Valia Clarification:  Management said it didn’t give any loan or bank loan guarantee to Suraksha realty 4) Questionable selection of London-based firm Jermyn Capital for managing $ 275 million FCCBS issued during 2004-2007. A note says Indian arm of Jermyn Capital has links with Ketan Parekh and Dharmesh Doshi, banned traders who rigged stocks prices and caused Share Market Crash of 2002 Clarification: Mr Shanghvi said J P Morgan was lead Manager and Jermyn Capital only co-managed it 5) About Insider Trading in Sun Pharma during Ranbaxy acquisition Clarification: No Insider traded in Sun Pharma before Ranbaxy Acquisition. The decision of acquisition of Ranbaxy was taken in a meeting conducted on Sunday. Being trading Holiday decision was not shared with SEBI on the same day. 6) Macquarie notes that some of Dilip Sanghvi’s stocks investments in a personal capacity as Natco Pharma also had bulk deals done by Orange Mauritius. Orange is FII sub-account of First International Group which has links with Dharmesh Doshi and Jermyn Capital Clarification: Minority stake in Natco Pharma by Dilip Sanghvi was already disclosed by him 7) Some of Sun Pharma’s subsidiaries are audited by Valia and Timbadia, whose one of partners was allegedly involved in a Stock rigging scam leading to freezing of his accounts. Clarification: This matter is 20 years old. The Subsidiaries in question are non-material for the company and account only for 0.6% of the consolidated revenue of the company. None of the partners of this audit firm or the firm itself was a party to this investigation. 8) About forceful acquisitions Clarification: Management clarified that Sun Pharma never arm-twisted any entity for its acquisition. Taro Pharma’s acquisition was done after a favourable court ruling. 9) Sun Pharma’s domestic formulations business being routed through a related party, Aditya Medisales Ltd (AML) Clarification:  Domestic formulation business transactions with AML exists from past many years. It became a related party in FY18. This arrangement was done for tax-purpose and can be re-looked if Investors demand. 10) Why did Sun Pharma lend to four Individuals without Security? Clarification: This too is a 20+-year-old event which involved money of few lakh rupees only and the loans are fully recovered. The loans were given as per business policies and guidance of applicable laws … Read more

Is it right time to buy G.M. Breweries?

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  About G.M.Breweries Ltd: G.M Breweries is one of the Multibagger stock of this decade. It gave multi-bagger returns to investors who spotted it in 2010 when it was trading in two digits only.  The 52-week high price of G.M. Breweries is 1057.95 and 52-Week low price is 491. This company is one of the best fundamentally strong small-cap company in the beverages and distilleries segment. The company was incorporated in December 1981 by Mr. Jimmy William Almeida. His aim was to create a quality country liquor brand available at cheaper prices for a cost-sensitive segment. It went public in 1993 when Almeida decided to share his wealth among stakeholders. GMBL  featured in Forbes 200 companies list. As per the website of G.M. Breweries, GMBL is engaged in activities of manufacturing and marketing of alcoholic beverages; such as Country liquor (CL) and Indian Made Foreign Liquor (IMFL). The GMBL company has state of the art fully automatic bottling plant in Virar, Palghar district of Maharashtra State, India.  It has a capacity of 13.76 Cr liter per annum. Around 49% of the capacity is being utilized to manufacture 50,000 cases a day. GMBL is a pioneer of introducing country liquor in PET bottles and also introducing 180 ml liter bottles in CL market. It boasts of 70% of Market share in Country Liquor in Mumbai, Navi Mumbai, and Thane areas while 25% market share in entire Maharashtra where it faces fierce competition with an unorganized player in CL category. G.M.Breweries has 4 main products in CL categories wiz. G.M. Santra, G.M Doctor, G.M. Limbu Punch, and G.M. Dilbahar Saunf. Apart from these it also markets its products brandy, rum and whiskey under brand names like Pioneer Doctor Brandy, Pioneer Special Doctor Brandy, Hot Shot Rum and Reporter Choice Whisky. But the most leading and prestigious blend of GMBL remains G.M. Santra which is made from premium distilled molasses based rectified spirit of Multi Pressure Vaccum Distillation Plant. G.M. Santra is no.1 Country Liquor brand in Maharashtra from last 12 years thanks to its Orange Blended organoleptic taste and aroma. Gas Chromatography is used to ensure the consistency of blend.  Clarity of liquor is due to fine filtration from 0.4-micron resin bonded cellulose cartridge filtration system. Basic Fundamental Analysis of G.M. Breweries: As  per the table data above recorded on 1st Dec 2018 1) You can see P/E of GMBL is very low compared to Industry P/E.  It is undervalued 2) The company gave 30% dividend  (Rs 3 per share) which makes it good investment stock too. As per the table data above 1) Revenue of G.M. Breweries is consistently increasing and so as the Net Profit (except the dip in 2017)or thanks to the increase in changes in inventory of FG, WIP, and Stock in trade. 2) While Sales in 2017 saw hike due to the ban on Poisonous Liquor in Maharashtra which may have increased demand for CL. Shareholding Pattern Promoter holds 74.43%, FIIs 2.38%, FIIs 0.3%  FIIs have increased their holding gradually. Total debt/ Equity ratio is 0 for 3 consecutive years. The company is  Debt free and Cash rich. Average ROCE is 26%  and Average ROE is 24% Company’s Net Worth has increased over the year and it has not yet its capacity fully. It means if it starts Double Shift company can easily increase its Production remaining Profitable and it can easily penetrate in other states too. This company has got enough experience now and it can definitely go for some Corporate Action now. It can enter in Foreign Markets like other Asian Countries first where CL type cost-sensitive segments can be targeted. G.M. Breweries had land in Wada, Thane too which can be used for expansion purpose in future. Is it right time to Buy G.M.Breweries? CMP of GMBL on 1st Dec 2018 is 670 on NSE. The stock is close to its important support of 665. It can reach 1000 again in the year 2019 if Maharashtra Government doesn’t include a decision to Ban Liquor in Maharashtra in its Manifesto. Govt is yet to decide GST level for Liquor segment. If it brings CL in a lower bracket, our target will be easily achieved. We are all aware of ‘Election time malpractices’ by Political parties in India, liquor consumption always increases during this period. Before 2019 Loksabha Election I see tremendous demand in CL category of liquor. GMBL will be the prime beneficiary. Also in the Winter, December is the month of highest consumption of liquor in India thanks to chilling cold and Christmas-New year vacations. To Summarize, G.M. Breweries is actually well-placed right now. The risk to Reward ratio is favorable in GMBL and one can definitely invest in it from the short-term view of 850 (most conservative target). (Disclaimer:  Stocksbaazigar Mr. Deepak Doddamani is not a SEBI registered Advisor. He is NSE’s Certified Investment Analysis Professional and NSE’s Marketing Professional Level – 4. Please consult your Financial Advisor before taking any investment related decisions. Stocksbaazigar is not. responsible for any of your Gains/Losses. Thank you.) Video explanation on G.M.Breweries

Venkys Ltd : The best stock to buy for Winter

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In India, after the October heat ends, we enter in Winter. Till December, the temperature falls further and we normally face very chilling days during Christmas vacation. Room Heaters, Liquors, Woolen Clothes etc. industries earn good profits during Winter in India. Smart Investors take an early position in the shares of companies like Bajaj Electricals, Havells, United Spirits, Radico Khaitan, Monte Carlo etc. As per my experience, Venky’s Ltd is one of the best stock to buy for the Winter season. SKM Egg Products Export (India) Ltd. is one more company which also performs well in Winter but we will discuss the Market Leader in its Sector today i.e. Venky’s Ltd. Venkateshwara Hatcheries group (V H Group) was started in 1971 by ‘Father of Indian Poultry Industry’ Dr. Banda Vasudev Rao who revolutionalized the Poultry Industry of India. For his contribution to the Indian Poultry Industry in India, he received one of the highest honor conferred by the President of India ‘Padma Shri’.       Banda Vasudeo Rao was born in 1935 in Chanchalguda in Hyderabad. His involvement in Poultry business started in the 60s. Before it, he did various jobs like trained for Railways Police, Telephone Operator, Secretary to State Minister etc. One day he responded to the Advertisement of ‘Poultry and Dairy Farm training Program’ by RajendraNagar Agriculture University and ended up taking Admission in the same. He became the best pupil of Prof. Moore under whom he did his first Project of tending 500 birds satisfactorily. Impressed by this, Moore transferred all the knowledge he had to B.V. Rao. Uttara Devi,  wife of B.V.Rao sold her Jewelry to buy 7 Acre land in Pune where he started Venkateshwara Hatcheries. Since then there was no looking back. In his lifetime, B.V. Rao started various companies related to his core business and created one of the largest Conglomerate which pioneered the Modern Poultry Business in India. He also founded The National Egg Coordination Committee (NECC) on 14th May 1982 to decide the prices of eggs across the country and help marketing of eggs on the line of Kuril’s Co-operative Movement of distribution of Milk. Rao served as the President of World’s Poultry Science Association (WPSA) India Branch from 1993-1996. After the death of Dr. B.V. Rao, his daughter Anuradha Desai served as Chairman and his sons Balaji and Venkatesh Rao are sitting on the Board of V H Group (now known as Venky’s – a name of one of the flagship company of V.H. Group). Currently, the group has various companies under it ranging from the Poultry industry, Animal Vaccines, Humans Vaccines, and Healthcare products, and sports. etc. The Group includes: Venkateshwara Hatcheries Pvt. Ltd Venky’s Ltd Venco VRB B.V. Bio-Corp Ltd Uttara Foods and Feeds Pvt Ltd Uttara Implex Pvt Ltd. Eastern Hatcheries Ltd Venky’s Brazil Ltd Venky’s London Ltd Venky’s Vietnam Ltd Venky’s Singapore Pvt. Ltd V.H. Group Bangladesh Bala Industries and Entertainment Pvt Ltd. Venky’s is headquartered in Pune and has offices in more than 13 different countries.  It has production facilities in India, Bangladesh, Switzerland, and Vietnam and it exports to more than 42 countries. India is the third largest producer of Eggs after China and the USA. In India, the per capita consumption of Eggs is 68 eggs per annum and that of Chicken is 2.5 Kg per annum. As per Nutrition Standards, the per capita consumption of Eggs should be 180 eggs per annum and that of Chicken is  10 Kgs per annum minimum. It means Indian Poultry Industry has great opportunities ahead. Venky’s SPF Eggs is at par with the Internationally accepted quality of Eggs. That’s the reason, it is India’s leading exporter in foreign countries. Venky’s Stock was one of the Multibagger of FY 2017-18 and gave excellent returns to investors. It gave a dividend of as high as Rs. 6 per share in last quarter. Unfortunately, it posted bad results in the quarter ended in September 2018 where Standalone Sales were down by 14.55%. But if you will compare the results of the Last Three Years, you will realize that normally their September quarter results are always subdued.  But the best part is the company has given good profit growth of 52.57% in last 5 years and it has been reducing its debt significantly.  The fair value of the Stock is 2810. Currently, it seems to be undervalued. One can definitely buy it with SL at 2100 for the short-term target of 2800. (CMP 2351.60). In winter demand for Eggs and Chicken increases, the prices will surely go up. It will help boost the profit margin of Venky’s Ltd and December quarter results will be very good. Considering all these factors, I feel Venky’s Ltd can be a good bet as a Winter stock. In the comment, do let me know what do you think about this? (Disclaimer: Stocksbaazigar Mr. Deepak Doddamani is not a SEBI registered Advisor. He is NSE’s Certified Investment Analysis Professional and NSE’s Certified Marketing Professional Level -4. Please consult your Financial Advisor before taking any investment related decisions. Thank you.) Video explanation for Venky’s Ltd

Jet Airways Financial Crisis Explained

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Is Jet Airways the next KingFisher Airlines? Can Tata Group really acquire control of JetAirways? Will Naresh Goyal cede his control? Will Etihad buy more stake of JetAirways? What role will Government Play? What should an Investor of Jet Airways do? Is it safe to trade in such a volatile stock? Let’s discuss the current Financial Crisis in Jet Airways in detail in this post. Current Updates: On 26th Nov. 2018 Jet Airways handed over pink slips to 16 more employees. Last month it laid off 20 employees. Jet Airways is rationalizing the human resource for the cost-cutting purpose. They have been delaying Salaries of employees from last few months. September Salary dues will be paid to employees on 5th December 2018. Jet Airways has around 16000 employees and more lay-off is possible in near future. What is the Crisis all about?  Recently, one of the leading Newspaper claimed that Jet Airways has left with only 60 days of funds for carrying out its Operations. On the same day, Management of JetAirways denied this News and ensured the Investors that Jet Airways posted losses for 3 consecutive quarters and it is definitely facing a Financial crisis due to increasing Aviation Fuel prices and depreciating Rupee but Management of JetAirways is taking all the right steps to overcome the Financial Crisis. Effect on Share Price of Jet Airways:  52-week high of Jet Airways was 883.65 and a 52-week low was 163.  Clearly, when Brent Crude Oil price rallied from 45 to 87 Jet Airways stock price fell from 883.65 to 163. From 3rd Oct 2018, Brent Oil started correcting again which resulted in some delivery based buying in JetAirways. When the stock was trading near 220, the Speculation that Delta Airways will buy 24% stake from Etihad in Jet Airways and Tata Group too will buy Majority stake from Naresh Goyal created a buzz in the Market. The stock reached 280 within no time. On the previous day of Tata Group’s Management Meeting stock rose by 25% in a single day and more 8% rise took Jet Airways to 346 on next day (16th Nov 2018). After the Market hours. Jet Airways released a press note in which it clarified that any such news of Tata Group buying Jet Airways is only a Speculation and only preliminary discussion is going on. Profit booking dragged Jet Airways down after that. But for few days it managed to hold SL of 300 intact.  On 26th November 2017 stock broke the resistance of 300 as Market came to know that Naresh Goyal is not ready to cede its control in JetAirways and looking for more cash from its old Stakeholder Etihad Airways for its Operations. Why Tata Group deal isn’t materializing?  Founder Naresh Goyal and his wife have 51% stake in Jet Airways. Etihad Airways own 24% stake in Jet Airways. Rest 25% of shares are held by minority shareholders and retail investors. Tata Group owns AirAsia and Vistara Airlines which is a joint venture with Singapore Airlines. Tata wanted to buy out entire 51% of Naresh Goyal to acquire the Jet Airways which can make them second largest Airline in India after Indigo. But Naresh Goyal was ready to dilute his equity to as low as 15%. This meant that Tata Group should give profitable exit to Etihad by buying their 24% to reach the magic figure of 51%.  The government wanted Tata to help Jet Airways in this Crisis as they themselves can’t bailout Private Airlines and crash of Jet Airways is not good for Customers as well as 16000 employees of Jet Airways. What steps did Goyal take after Tata Group – Jet Airways deal didn’t Materialize?    Naresh Goyal and his team met Tony Douglas, Group CEO of Etihad Airlines last Sunday. Goyal offered to dilute his equity from 51% to as low as 15% and requested Etihad to double its stake in Jet Airways in exchange of Cash Infusion. Naresh Goyal prefers dealing with Etihad than accepting the deal offered by Tata Group. This way Etihad Airlines may hold as high as 49% in Jet Airways in the coming future depending on how much Cash they will infuse in the beleaguered Jet Airways. This is not the first time Aviation sector facing Financial Crisis. In India, we saw consolidation in this sector since 2010. Kingfisher Airlines closed its operation in 2012. Since then Jet Airways is handling 17.8%  passenger market share with its fleet size of 124 which serves 67 destinations across the world.              What to do in Jet Airways shares now?  The rally in stock was due to Speculation that Tata Group will acquire Jet Airways. But now as we all know that Naresh Goyal is taking help of Etihad to revive debt-ridden Jet Airways, the stock has started to cool off. We may see stock falling up to levels of 240-260 again this week. The fundamentals of Jet Airways company are really bad and this stock is no more an Investment bet. High-risk traders can trade in stock but Stop Loss of the Stock can be as deep as 240 which doesn’t make any sense to trade in stock. I would suggest you, stay away from this stock for now. Indigo is always a better option if you want to invest in the Aviation sector. Disclaimer:   This post is for Educational Purpose. Stocksbaazigar Mr. Deepak Doddamani is NSE’s Certified Investment Analysis Professional and NSE’s Certified Marketing Professional level – 4. He is not SEBI registered Financial Advisor. Please consult your Advisor before taking any Investment related decisions. Thank you. Video explanation on Jet Airways crisis.

Muhurat Trading Stocks for Vikram Samvat 2075

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Stocks to buy on Muhurat Trading of Samvat 2075 Samvat 2074 went really bad thanks to increasing crude prices and depreciating Rupee. We have seen how Stocks corrected by 50-60% in a year. Portfolios of Investors who invested in last Muhurat trading day is now in deep red. Loksabha Elections and States Elections are all aligned in Samvat 2075. The market will remain volatile and rangebound till results of Loksabha elections. After which we can get a good rally of more than 1000 points in Nifty in one year.  12000 on Nifty can be achieved within the next 18 to 24 months. So clearly, this correction in Market should be utilized to build your Portfolio rather than short-term trading in it. In Samvat 2074, many of the Investment Ideas given by Stocksbaazigar Mr. Deepak Doddamani gave very good returns. This year we believe that one should focus on investing in Bluechip Stocks which are now available at lower valuations than last year’s Diwali. The volatility in Midcaps and Smallcaps will increase in recent future. Every dip will be used for buying in these stocks but at every rise, same stocks will be sold. Effectively, from this Diwali to next Diwali these indices will not perform the way it performed in calendar years 2016-2017. The trend of 2018 will continue for some more time till the global scenario gets normalized. This is the reason, we are betting on Bluechip companies like Maruti Suzuki, Bajaj Finance, Britannia, HDFC Bank, ICICI Bank, HUL, Infosys, Asian Paints, Titan and Reliance Industries etc. We have shared a list of 50 stocks which can give good results in Samvat 2075. These stocks are recommended by leading Financial Services of India and compiled for benefits of Investors. You can select your Muhurat trading picks from this list itself. Disclaimer: Please consult your financial advisor before taking any investment decision. This blog is only for educational purpose. Do not consider it as recommendations. Stocksbaazigar is not responsible for your gains/losses. You can Instamojo @Stocksbaazigar to support this Blog. Thank You

IL&FS Crisis explained

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                          IL&FS Crisis explained      Whether the Holding firms in key sectors should remain listed on not? Whether Government should bail out IL&FS or not? Whether LIC, SBI, HDFC should infuse more funds in IL&FS or not? Whether NHAI should pay it’due to IL&FS to give it some relief? Whether IL&FS should sell its assets to fight liquidity crisis? Whether Investors should remain invested in NBFCs or not? Whether it’s a right time to invest in NBFCs and HFCs? Is IL&FS Crisis equivalent to Lehman brothers of 2008? There are many questions raised in the minds of Investors today. Therefore it becomes very important now to understand what is IL&FS Crisis in detail. In this post we will discuss the profile of IL&FS, What is IL&FS Crisis? Is it really as big as Lehman Brothers crisis? What are the effects of IL&FS mess? What is the solution taken by the Government? What should Investors do about IL&FS and other NBFC shares now? etc. Profile of IL&FS Name: Infrastructure Leasing and Financial Services  (IL&FS) Industry: Infrastructure development and finance/ Non-Banking Financial Company (NBFC) Founded: 1987 Founded by: IL&FS was formed as an ‘RBI Registered Core Investment Company’ by three financial institutions namely, Central Bank of India, Housing Development Finance Corporation (HDFC) and Unit Trust of India (UTI) to provide finance and loan for major infrastructure projects. Headquarters: Mumbai, Maharashtra, India Website: www.iifsindia.com Tagline: Partnerships, Innovation and Empowerment for sustainable infrastructure development Total Subsidiaries: 256 Major Shareholders:  Life Insurance Corporation of India, State Bank of India, ORIX Japan, ADIA Well known projects: 9.28 km long Chenani-Nashri tunnel located at NH44 in J & K,  GIFT City Gujarat Total Assets: Rs. 1.15 Lac Crores What is IL&FS Crisis? Defaults on loans and bonds by IL&FS in July to September 2018: Two of the Subsidiaries of IL&FS defaulted on payment obligations of the loan (including interest), inter-corporate deposits, term deposits, short-term deposits to other lenders and failed to meet the commercial paper redemption obligation due on 14th September. On 27th September one of the subsidiaries of IL&FS defaulted on repaying of Rs.450 Cr worth of inter-corporate deposits to Small Industries Development Bank of India (SIDBI). IL&FS is unable to pay short-term loan worth Rs. 1000 Cr given by SIDBI. Accumulation of very high debts: IL&FS is funding the long-term Inftrasture project of durations 20-25 years by taking loans of duration 8-10 years from its lenders. Most of the projects funded by IL&FS are Government Projects because of which they normally get delayed, the cost escalates and there is a delay in receipt of payment too. This systematic investment error has increased a debt-to-equity ratio of IL&FS to 18.7. Due to the 2013 Land acquisition bill, many of the projects funded by IL&FS became unviable. The group IL&FS is sitting on Rs. 91000 Cr debt through its 24 direct Subsidiaries, 134 indirect subsidiaries, six joint ventures, and fours associate companies. IL&FS Credit rating affected adversely: On 27th September 2018, IL&FS informed the BSE that it has defaulted on repayment of short-term deposits of Rs. 52.4 Cr and term deposit of Rs. 104 Cr. Consequently, rating agency ICRA degraded credit rating of IL&FS from AA to Junk. This jeopardized the Investors of the IL&FS and other NBFCs. Domino Effect of IL&FS Crisis: Holding Firm IL&FS Group is not listed in Market. It’s subsidiaries IL&FS Networks Ltd, IL&FS Investment Managers and IL&FS Engineering and Construction companies are listed in the market. On 14th Sept. all the three shares fall to their 52 Week Low and since then they are making new lows every week. Investors reduced their positions in SBI, HDFC, LIC subsidiaries, exited NBFCs and also booked profits in Housing Finance Companies after they came to know about IL&FS Financial Crisis. We saw Nifty coming down by almost 600 points after they realized how NBFCs and Banks are inter-linked. The government decided that it won’t bail out IL&FS as it is a Private company. It also questioned why Regulators and Investors didn’t question Managing Committee of IL&FS when they came to know about increasing debts of IL&FS Group companies. The domino effect of IL&FS Crisis is not good for Indian Economy which is already suffering from external factors like increasing crude prices and global economic slowdown which is depreciating the Indian Rupee. Is IL&FS Crisis as big as Lehman Brother Crisis? The panic created by IL&FS Crisis has made Investors compare it with Lehman Brothers Crisis of 2008.  We must understand that IL&FS Crisis is not an Insolvency Crisis, it is Liquidity Crisis. So, comparing it with Lehman Bros. crisis is absolutely wrong.IL&FS has assets worth Rs. 1.25 Lac Crores vs Debt of 91,000 Cr. Out of which 60,000 Cr worth debt is from the projects like Road, Water and Electricity which directly or indirectly depend on decisions of Government like Land Acquisition etc. As Government knows how ‘Domino Effect can harm the entire Indian Economy. Therefore Government has assured that it will help IL&FS wherever possible. IL&FS is facing a liquidity crunch which can affect its day to day operations. It is not good for investors too. Major Investor like LIC will definitely bailout IL&FS after IL&FS agrees to sell some of its assets first. IL&FS Crisis is really big but it is definitely not as big as Lehman Brothers Crisis. Solutions to IL&FS Crisis: IL&FS has identified 25 projects for sale. The company has already received some 14 offers for same. Key Investors has more than Rs 4500 Crore rights share for sale. In 18 months IL&FS can reduce its debt from 91000 Cr to 30,000 by implementing the Assets Sale Plan. LIC may infuse fund in IL&FS to take care of its day to day operations once this Assets Sale Plan is executed. NCLT has replaced the existing board of Directors of IL&FS by appointing new BoDs in their place. The new board consists of Kotak Mahindra Bank Director Mr. Uday Kotak,  Former IAS officer and Tech … Read more

Yes Bank shares tumbled to 52 Week Low price. What to do now?

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 Yes Bank at 52 week low, What to do in YES BANK now?        It seems that the problems for YES Bank will not end soon. This is for the second consecutive day, YES Bank shares have fallen by more than 9%. Today on 28th September 2018 Yes bank share touched 165 on NSE today. It is said that Madhu Kapur has sold some shares (0.04% stake) of YES Bank in the market on 21st September.        Yes Bank was trading at 319 when the RBI first questioned the discrepancy between the NPAs shown by Bank and the actual NPAs RBI estimated. There was a difference or misappropriation of about 319% which raised the alarm for all the Investors of YES BANK and they all started exiting the stock. YES Bank share corrected by 34% that day with low of 210 and closed near 226. On Wednesday Yes Bank Management sought an extension of at least 3 months for CEO and MD Rana Kapoor after the step-down date of 31st January 2019 decided by RBI. The share price was 2% up but couldn’t stay in green for long. Investors hoped that 200 will become support for YES bank and decided to bottom fish in the same. But share broke that important psychological level today and touched it’s 52 week low of 165 so far.    What will happen in the share price in the future?      The recent turmoil in NBFCs, HFCs and Financial Sector in stock has pulled Sensex down by more than 1100 points in intraday last week. The government can not afford big damage to Banking and Financial system of India before upcoming elections. Modi government has already announced Mergers of Public sector banks to reduce their effective NPAs. Major private banks like Axis Bank, ICICI Bank and Yes Bank are already facing the Leadership Crisis, as none of them was prepared for the untimely exit of their CEOs/MDs. But Corporate Governance issues have forced them to step down before completion of their tenure. Same is true for Yes Bank. In the Article of association of the company, there is a clause that Rana Kapoor cannot be removed from the Managing Committee/ Board of the company. So directly or indirectly he will lead the organization in the future as well. Therefore once the successor/Leader is confirmed stock will see good rally again.      What to do in YES Bank now? Valuation-wise YES bank was very expensive stock above 300 (post-split). 28% CAGR growth has made many Investors rich in this company in the past. As this stock is available in cheaper valuations sooner or later good buying will emerge in this bank. Traders can keep Stop Loss of 180 and Buy it for the short team targets of 200, 220 Investors should accumulate this bluechip stock by nibbling small quantities ( as we can’t predict exact low level, let’s wait for the double bottom structure to confirm the exact level to enter the stock if you want to buy lump sum in one shot)   Disclaimer: Please consult your financial advisor before taking any investment decision. This post is only for educational purpose. I am NSE’s Certified Investment Analyst and can give my views on Investment. I am not SEBI registered Advisor so I can not give any Recommendations. Don’t consider my views as my recommendation. Thank you.  

Is Sintex Plastics really a Multibagger stock?

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         In 2017 Diwali, Sintex Plastics Technology Ltd (SPTL) stock was recommended by many experts in their ‘Muhurat Picks’. It was trading above 90 that time. One year target in SPTL was given in the range of 120-180 by different analysts. Retail Investors invested in it hoping it will become a ‘Multibagger Stock’ in a year. Nifty started correcting from 10200 and consensus selling triggered great fall in Midcap companies. Sintex Plastics Technology Ltd. share price too corrected in this fall. SPTL was recently demerged from the Sintex Industries Ltd that year and therefore no Technical Data was available to predict the extent of fall in Share Price of SPTL. This made people think that 70-75 is the right level to accumulate more stocks of SPTL, which resulted in ‘good money following the bad money‘. SPTL formed temporary bottom near 56 and now trading near 61. The question remains the same – Is Sintex Plastics Technology Ltd. really a Multibagger Or is it just a ‘black hole’ sucking money of Investors? In this post we will try to find it out.       Company Info:  Sintex Industries was incorporated as Bharat Vijay Mills Ltd. in 1931. It started its composite textile business in Kalol, Gujarat same year. In 1995, it was renamed as Sintex Industries Ltd. It was listed on BSE in 2000. In September 2016, Board of Sintex Industries approved demerger of its ‘custom moulding business’ and ‘prefab business’ from Sintex Industries to Sintex-BAPL and Sintex-Infra Projects, respectively as wholly owned subsidiaries of Sintex Plastics Technology Ltd. In May 2017, Sintex Industries Ltd. started trading ex-scheme as purely Textile business while all its non-textile businesses were listed under Sintex Plastics Technology Ltd. SPTL is India’s largest water tanks manufacturer. Apart from providing water management solutions, SPTL provides Structural, Electrical, Environmental, Energy, Interior, Material handling, Telecom and Industrial solutions. Sintex Plastics has strong presence in Asia, Africa, Europe and America.   Fundamentals of SPTL:   Let’s discuss these numbers one by one. Market Capital of Sintex Plastics Technology Ltd. (SPTL) decreased significantly after this fall in Share Price. Current Market Capital is 3736.33 Cr. Management is expecting that once the newly listed business gets settled properly and starts making positive cash-flows, it will improve their debt structure too. As company is operating in India and abroad, it has to deal with different loan interest rates and therefore company will take two more quarters to streamline it’s Cash Flow Structure. Management is targeting for Market Capitalization of 10 Cr within 4 yrs. Sales Turnover last quarter was 0.42 Cr. Sintex Plastics Technologies Ltd. reported muted results as there was de-growth of 7% QoQ in revenues. 33% decline in Pre-Fab and Monolithic business affected company performance. If you will see the Second table properly, you will come to know that total income from operations and net sales is increasing quarter to quarter. Then why there is decline in net Profit? Yes, you guessed it right. Taxes, Interests and Depreciation has been adjusted on quarterly basis to streamline the newly listed company which is hardly 1 yr old now (demerged entity). Taxes of 13.3 Cr paid after this quarter. If you remember, one-time legal expenses of demerger process were paid last quarter. Total de-merger cost of 45 Cr reduced net profit last quarter. This quarter GST amount will affect the final calculations again. Company already faced 15 non-working days thanks to GST. Total Assets of the company is 414.20 Cr while net debt is 3330 Cr. Company has reduced debt of Rs. 82 Cr this quarter. Please note, the FCCBs which they converted in equities to reduce the debt has added additional equities of 1.5 Cr in Market. This lead to heavy supply in Market which resulted in profit booking by FIIs who hedged their positions. This was the prime reason behind the share price fall from October. We can say company has managing it’s debt very well which is good news for Investors. No doubt promoters have confidence in company and so they are aiming to increase their stake by more 10% gradually to reach 40% Book Value of the company is 50.80. Current Market Price is 60.80. Share is fairly valued and available at cheap valuations. Downside is limited and upside is 100% considering 1 yr conservative target of 120 given by expert analysts. So clearly, it is attractive opportunity for short to long-term investors. Industry P/E is 36.96. Peers of SPTL are trading at very higher P/Es. This is one more reason why it is the right time to start accumulating the stock. Face value is 1. Company is not giving any dividends to investors as it is recently de-merged entity. F.V is low, so those who invest only for Dividend income should look for better opportunities in Market. Company is not only reducing the debt but also reducing the cost of borrowing, which is good thing. SPTL is not getting any new order from Government but it has 6 months of Govt. projects in their pipeline. SPTL is expecting that before elections of 2019, Govt. will definitely try to do something for Rural population. Govt. Expenditure on affordable housing, Swachcha Bharat (hygiene/plastic toilets), irrigation, water storage and rain water harvesting etc projects will increase, which means more business to SPTL.  Company is not relying completely on Govt. projects. It is focusing more on retail segment. Instead of reaching customers directly, it will focus on creating strong network of agents and distributors. SPTL will focus on CSR related activities to support Govt. in it’s missions. Good for its Prefab business.  Foreign business of SPTL is doing good. European business is on strong footing. SPTL is gaining good market in Africa. In Asia it is among the leaders of the Plastic Industry. So clearly future looks bright too. SPTL has great reputation of providing accurately calibrated water tanks. The quality of Water tanks is so good that one tank can last longer than life of the buyer. … Read more

What to do in ICICI Bank now?

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                 ICICI Bank corrected by 15% from the Peak, Is it right time to invest in ICICI Bank now?        After the whopping $ 129 Bn PNB Scam in India, all the Public Sector banks shares collapsed by 20-25% in last two months. Recently, when Investors started accumulating shares of some undervalued Public Sector banks, a news of involvement of ICICI Bank and Axis Bank in PNB Fraud case broke out. ICICI tumbled by 8-10% after that. Axis bank declared that it already got rid off all the credits by Nirav Modi – Choksy and has no exposure to the giant PNB Fraud. In the preliminary inquiry, ICICI Bank too cleared it’s stand and got away safely. At that point shares of ICICI banks started to show some recovery and reached near 280 level. But then a Tweet by MP Subramanian Swamy on 2nd April demanding CBI Probe against Avista Advisory Firm in Videocon-Loan Scam, shook the market again, which resulted in biggest one day fall in ICICI Bank on 2nd April 2018 after 2015. Shares of second-largest lender of India ICICI Bank slumped by 5.9% that day. Let us understand what is this (alleged) Loan-Scam in detail.           ICICI Bank has faced many controversies in past. It was accused of using goons as ‘recovery agents’ for recovery of loans from defaulters and other inhuman practices to recover money from ‘credit card’ holders in past. In the sting operation by ‘Cobrapost’, they showed how ICICI Bank is involved in ‘Money Laundering cases’ 2013? I still remember how share price tumbled from 324 level then and never crossed 300 for several years after that. But in all those cases, employees held responsible and appropriate actions were taken against them. This time MD & CEO of ICICI Bank, the most celebrated successful Woman of India Mrs. Chanda Kochhar is involved in the case. That is why we saw share falling by almost 15% from the peak in very few days. Here people may feel that Subramaniam Swamy is the Whistle-blower in this case, which is not true. Arvind Gupta, Founder, and Trustee of Indian Investors Protection Council were the first to highlight this issue in his blog post “Banking Sector NPAs from Mighty corporate cons.” In this post, he cited the connection between Venugopal Dhoot, promoter of Videocon with Deepak Kochhar, husband of Chanda Kochchar and owner of NuPower Renewables. Arvind Gupta pointed out ‘Conflict of Interest’ involved in loans sanctioned to Videocon Industries by ICICI Bank and 12 more such cases. Unfortunately, Government ignored them all till cases like Vijay Mallya, Nirav Modi started coming out in India. This loot of taxpayer’s money has the potential to replace the Government in 2019, because of which Govt. started probing into these cases one by one as a last-minute-fixing measure.        ‘Quid Pro Quo’ means – a favor or advantages granted in return of something. CBI is inquiring Mrs. Chanda Kochhar in accusations that Venugopal Dhoot (Videocon Industries) provided Crores of Rupees to a firm promoted by Deepak Kochchar (NuPower Renewables) six months after Videocon got Rs. 3250 Crores loans from ICICI Bank in 2012. Deepak Kochhar, husband of Chanda Kochhar always kept a low profile. He has entrepreneurial experience of more than 20 yrs in Financial Services and Renewable Energy. He founded NuPower Renewables in 2008. In just 10 yrs, this company has renewable energy assets worth 770 MW (and in the pipeline) located in Maharashtra, Karnataka, Andhra Pradesh, TamilNadu, Rajasthan, and Madhya Pradesh. With the help of Venugopal Dhoot, Deepak Kochchar acquired around 92% stake in NuPower Renewables so far. As per Swamy’s allegations Avista Advisory firm of Rajiv Kochchar; brother of Deepak Kochhar has helped Videocon get this loans from ICICI Bank. Denying the accusations Rajiv Kochhar said that Avista Advisory has more foreign Clients than Indian. He also said his firm advised NuPower Renewables over Foreign Currency Convertible Bonds (FCCBS) and it has nothing to do with ICICI Bank. There is no relation between Avista Advisory Firm and ICICI Bank. In this case, Board of ICICI Bank is backing their CEO Chanda Kochhar. Rajiv and Deepak Kochhar and Venugopal Dhoot – all denying the allegations. Chanda Kochhar was part of the board which released loans to Videocon Industries in 2012; which has now become one of the biggest parts of NPAs of ICICI bank. After SBI started bankruptcy proceeding against Videocon in January 2018 in National Company  Law Tribunal (NCLT), this case of Quid Pro Quo basis Loans surfaced again. From the preliminary observations, we can see that Venugopal Dhoot and Deepak Kochchar have scratched each other’s backs and Chanda Kochhar is aware of it. But as you all know that in India such high-profile cases never reach to their logical conclusions. After the completion of the inquiry, Chanda Kochhar will get clean-chit from CBI. ICICI Bank will get clean-chit from RBI and Investor community will forget the case completely. In my opinion, ICICI Bank is one of the largest private sector banks in India which comes under ‘too big to fall‘ category. Every dip in the share price should be utilized for accumulating stock for long term investment. The pain in the share price is temporary and won’t affect the fundamentals of the company much. Investors always see at Price to book ratio and NPAs of Banks when they take their investment decisions in Banks. Clients of Avista Advisory and Stakeholders of NuPower Renewables are not at all worried about the recent development in this case. Why should Investors in ICICI Bank worry much about it then? Negative sentiments have dragged ICICI Bank stock down by more than 15% now. The downside from this level is limited. One can wait for the formation of a temporary bottom on a technical chart and then start buying small quantities of ICICI Bank shares. Remember, in long term, Private Sector Banks gives more returns than … Read more

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