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IL&FS Crisis explained

29th January 201923rd October 2018 by stocksbaazigar

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?

28th September 201828th September 2018 by stocksbaazigar

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?

3rd February 20194th April 2018 by stocksbaazigar

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

Fortis – Manipal Deal explained

31st March 201831st March 2018 by stocksbaazigar

Fortis Healthcare Ltd (FHL) share price tumbled by 13.29% on the final trading day of Financial year 2017-18. Stock closed on 123.35 on NSE. This fall was due to disappointment of Investors who exited Fortis healthcare after Fortis-Manipal deal terms and structure came out. In the press conference, Bhavdeep Singh, CEO of Fortis gave details about the merger and called it as the deal which can decide the future path of Indian Healthcare sector. His emphasis was on convincing Investors that deal is good for both the parties and combined entity will become the largest Hospital chain of India. But this could not stop the downfall of share prices of Fortis healthcare and Fortis Malar in market, as Investors realized that it was good deal but at poor valuations. There is nothing for Fortis Investors in it. Firstly, there is no open offer to Fortis Healthcare shareholders to tender their shares if they want and secondly SWAP ratio for deal is 100:10.38 which means each share holder of Fortis Healthcare Ltd will get 10.38 shares of Manipal Hospitals against their 100 shares of Fortis Healthcare. Luckily Fortis Malar shareholders got some relief when Manipal Health Enterprises launched an open offer for 26% of Fortis Malar hospital’s shares at a price of Rs. 64.45 per share. Fortis Malar Hospitals share closed on 58.10 on 28th March. Let’s us try to break-down the deal details for further understanding. 1. What is the Fortis-Manipal deal? As per the press release of Fortis Healthcare, Fortis healthcare announced demerger of it’s hospitals into Manipal Hospitals. Board approved sale of its 20% stake in SRL Ltd to Manipal Hospitals, which comes around Rs.720 Cr. The deal infuses Rs. 3900 Cr of fresh capital from Manipal Hospital’s Dr. Ranjan Pai and TPG Capital Asia to complete RHT transactions and to fund growth initiatives. The remaining FHL company will be an investment holding company with 36.6% stake in SRL. In future Manipal Hospitals will increase it’s stake in SRL to 50.9% stake buying stakes from this holding company gradually. 2. What to do in Fortis healthcare now? This deal will reduce FHL into only an Investment holding company. It will take 8 to 12 months to complete the merger. Manipal Hospitals will list on Market after this merger gets completed. Investors of Fortis Healthcare will get shares of Manipal Healthcare Enterprises Ltd. (Manipal Hospitals) as per the swap ratio mentioned above. So clearly Fortis Healthcare Ltd Investors are losers here. Major Investors might give approval to this deal sighting the good future of combined entity and complete closure of unpredictable entity with lots of corporate governance issues. Assets of FHL will go into the hands of good Management. But Minority shareholders will have to book losses in the shares or wait for 1 complete year to see how Manipal Hospitals performs after listing on Market after this reverse- merger deal? 3) How will be the combined entity? Manipal Hospitals is part of ‘Manipal Education and Medical Group’ owned by Dr. Ranjan Pai and backed by TPG, an asset firm who has good experience in Healthcare sector investment. The combination of Manipal Hospitals and Fortis Healthcare will create largest healthcare provider company in India. With more than 11000 installed beds capacity, 4200+ doctors, 9300+ nurses and 11400+ staff, it will serve India and overseas patients in their hospitals in Dubai, Singapore, Mauritius and Sri Lanka. The combined entity will be valued near Rs. 15000 Cr after the deal gets completed. Clearly, Dr. Ranjai Pai and his Manipal Hospitals are clear Winners in this deal. As per my opinion, instead of buying Fortis Healthcare and waiting for 1 long year Investors should buy Manipal Hospitals Ltd. only after its listing. We will see more pain in Fortis Healthcare Ltd share in first week of new Financial year 2018-19. After which funds will definitely accumulate it at lower valuations. Fortis earned higher brand name than Manipal, but Manipal Hospitals is definitely larger player than Fortis when it comes to Market Valuations. Fortis Healthcare Ltd. has seen really bad controversies in last few years – thanks to it’s promoters Singh Brothers who tried to chew more than they should have. From 1996 to 2011, Fortis Healthcare expanded aggressively. But then the Corporate governance issues, legal suits against promoters, stakes selling and exit by them etc. – all made it controversial company to invest. Big Investors like Rakesh Jhunjhunwala, Radhakishan Damani anticipated this deal and invested in Fortis Healthcare at lower valuations. They too are waiting for things to get sorted. Let’s hope that under the leadership of Dr.Pai, this upcoming combined entity will flourish and gives the much needed leadership to Indian healthcare sector where serving India will take priority over looting the patients with unreasonably high bills. (Disclaimer: Please note, this is educational post and Stocksbaazigar is not responsible for any losses/risks you may suffer due to blindly following the post. I have not advised anything or recommended anything in this post)

HEG and Graphite India

31st March 201831st March 2018 by stocksbaazigar

HEG, Goa Carbon and Graphite India – Top 3 Gainers of FY 2017-18 FY 2017-18 has been the year of complete roller-coaster ride for Market Participants. We saw Nifty rising from 9200 level to 11200 and then falling sharply to 9950 again in the same financial year. In this volatile market whoever entered at right time and booked profits at peak, earned good returns. While those who didn’t took their profits home are sitting on huge losses. Some of the stocks have reached the level of year 2013 – mostly public sector companies like Public Sector Banks. Investors will have to wait for two years now to get profitable exit from these stocks. Market will definitely become nervous before Loksabha Elections in India. We might see Nifty levels of 9500 to 9300 before these elections. F & O data suggests that Upside is capped for Nifty at 10500. Therefore, it becomes very important to be highly selective about your bets in this choppy market. Before starting new financial year, I decided to have a good look at the Top Gainers and Top Losers of the Financial Year 2017-2018. The top three Gainers are related to Electric Arc Furnaces wiz Graphite Electrodes exporters HEG and Graphite India and Catalyst Coke Manufacturer Goa Carbon. So let’s discuss about Graphite related 2 stocks in this post. First let us see how they performed in FY 2017-18? Performance of HEG, Goa Carbon and Graphite India in 1 yr. 2. What is the reason of these extra-ordinary returns? Graphite stocks have become Multibagger stocks this year – thanks to transformation happening in Iron & Steel industry. The metal industry is becoming environment-friendly in last few months thanks to global pressure. Traditional Induction Furnaces used in steel and ferro-alloys manufacturing industries are now getting replaced by environment friendly Electric Arc Furnaces. Graphite Electrodes are used in these electric arc furnaces. This has increased demand of Graphite Electrodes in Markets like India and China. China, alone has shut down Induction capacity worth 175 metric tonnes in this year. Secondly, Graphite Manufacturers who weren’t practicing Environment-friendly manufacturing methods/practices were also cracked down by China. This is one more reason why China has become net importer of Graphite electrodes. China has recovered from slowdown of commodity markets of 2015 and started increasing the production of Steel and other Ferro-alloys again. This has increased the exports revenue of Indian Graphite Manufacturers which are using their 75 % of total capacity to reach the demands. 3. Let’s see fundamentals of HEG, Goa Carbon and Graphite India in the financial year 2017-18 to understand the picture better. From the table above, you can clearly see how the Income from Operations of the Electrodes manufacturing has increased in these companies and how it is affecting their quarterly results positively. It is expected that in the coming year company like HEG will utilize it’s 85% of capacity which will also increase it’s Profits further. So clearly, every dip in the Share Price is being utilized by Investors to accumulate these stocks. 4. Can the demand in Graphite sustain? This is the most important question one must ask before investing in these companies. The production of Graphite Electrodes will depend on their demand in Steel and Ferro-alloys industry. The slowdown in commodity market followed by cycle change in the metal sector has brought great consolidation in this market. It is expected that due to shortage of steel scrap and steel, demand for blast furnaces and electric arc furnaces will keep increasing in the FY 2018-19 too. Graphite Electrodes demand in China is around 666kT while potential demand outside china could be around 770 kT. Global Supply of Graphite was merely 789 kT in the FY 2017-18. From this demand-supply imbalance you can clearly say that Graphite companies will perform really well in the new Financial year 2018-19 too. Investors should definitely keep ‘Graphite Electrodes’ related companies on their radar. Fundamentally these companies look really good. [Disclaimer: Kindly note that Goa Carbon’s performance depends on Coke Trends. Hence, I have preferred to analyse only HEG and Graphite India in this post. Please consult your Financial Advisor before taking any investment decisions. Stocksbaazigar is not responsible for any of your losses/risks. This is an educational post and not a recommendation or advise. I have discussed only fundamental aspects here. Investments should be done only after doing both Fundamental and Technical analysis of stocks.]

Stocksbaazigar – The ultimate wealth creator

27th January 201921st March 2018 by stocksbaazigar