Why is the Equity Investment best option for wealth creation?

It is common knowledge that one’s asset allocation should be determined by one’s risk appetite. An investor who invested in the stock market when Sensex was at 21,000, would have thought that he is unfortunate or that share market is not for him and would have pulled out all the invested money when the sensex was below 10k, losing almost 90% of the capital.

Those who do not understand business logic or are afraid to take risk or simply not interested in stock markets would prefer a PSU bank FD at 5%, insurance policies, and any other government securities. All these investments would hardly fetch 8-12% pa whereas the inflation growth itself is 4-5%, thus leaving very little profits. Also the change in lifestyle attributes to the higher expenses & your investments look small when you do the analysis. One needs to understand simple logic of economics that the growing economy leads to higher inflation & improved lifestyle.

However, the general formula of investing is that you should invest (100-your age) %, (upto the age of 40 years) of your investible money in high risk – high return financial instruments such as equities or realty or any other business.

However, before taking risk, one should gauge their risk appetite on the following basis:

*Income level & security of income flow.
*Amount to be invested in comparison to one’s wealth (capacity).
*Ability to handle stress & fear of the unknown.

A person must have adequate life and medical insurance. I would suggest that this should be around five times your current annual income. Plus a good medical cover is a must. Premium, though not strictly an investment, should be added to the amount you have in non-equity investments. Apart from that, if you have any FDs or any other investment becomes the part of non-equity investment.

So, this clearly suggests that maximum amount must be allocated to equity investments. But the most important part about determining one’s risk profile is investing according to it, re-balancing to keep within the boundaries and above all resolving not to get distracted by the outside world.

Similarly while investing, the problem is external inputs — the excitement in the anchor’s voice on television, the intelligent analysis of the expert, the voice of the minister, the statistics and the graphs... they all call for action on your part. Yet the wise investor needs to look inwards.

However, there are certain rules one must follow while investing in equities to make it a wealth creating & risk-free asset. One should be very much disciplined in making equity investments.

*Invest in staggered manner. Buy & sell stocks in parts.
*Do not overtrade anytime. Always keep min 20-25% in cash.
*Invest with the horizon of long term (say 2-3 years).
*However, book your profits regularly.
*Believe in the growth story of the company you have invested in, if you are not confident; take your money out of that.
*Keep checking performance & news of the portfolio companies.

Your wealth at retirement will be influenced by:

- Your current age, and expected age at retirement.

- Your current savings and monthly savings.

- Current return on savings.

JP Associates - Good Diversified Play

The JayPee group is a diversified infrastructure conglomerate and has a formidable presence in Engineering & Construction along with interests in the power, cement and hospitality. The infrastructure conglomerate has also expanded into real estate & expressways.

Equity Share Capital - 280 Cr
No. of equity shares – 140,18,11,564
Promoter holding – 50.09%
Institutions – 33.94%
General Public – 9.97%

Market Cap – Rs. 5272 Cr
Book Value – Rs. 33
Reserves – Rs. 3,657.07 Cr
EPS (Rs) – Rs. 6.4

52 week high/low – Rs. 255.60/Rs. 47.05
CMP – Rs. 221

Diversified Conglomerate:
Jaiprakash Associates’s transformation from being primarily a civil contractor and regional cement player to one of the largest infrastructure asset plays in India over the last five years has been creditable.

It is well on track to become:
i) India’s 3rd largest cement group with a national footprint;
ii) India’s 3rd largest civil contractor;
iii) India’s 5th largest private sector power producer;
iv) India’s 6th largest real estate developer.

Jaiprakash Associates is well set to be among the top five players in power, cement and real estate in India. Doubling of cement capacity in three years, launch of 13m sq ft residential projects in two years and expeditious award of thermal power projects to established E&C players lend credibility to the group’s ambitious expansion plans. Treasury stocks in the parent company and consolidation of all power assets under the listed subsidiary (Jaiprakash Hydropower Limited, or JHPL) provide funding flexibility. More than doubling of cement volumes over FY09-11 and peak construction at captive projects should yield 44% earnings CAGR over FY09-11, similar to growth rates achieved over FY05-09.

Cost advantage provides visibility for land bank monetization:
Since November 2008, the company has successfully launched 9.6m sq ft residential projects in the Noida-Greater Noida region, when offerings from competitors have almost dried up. Owing to Rs800-Rs1000 psf land cost advantage, the company can out-price competition in any external environment, as reflected in 52-62% cut in prices in recent launches, as compared to the initial launch in November 2007.
Large contiguous land bank at its disposal should enable monetization at much higher prices once the network effect of a large township kicks in, in 5-6 years. NAV of Noida project at Rs6120 Cr translates into value of Rs4.9 Cr/acre.

Awards for 1.8GW on L&T and BHEL lend credibility to power expansion:
Awards for Bara and Karchana projects totaling 3.3GW over the next six months would provide further visibility. Value of the power business is at Rs. 15,300 Cr, implying 10% discount to current market price of JHPL. Our power valuations derive comfort from undemanding assumptions of merchant tariffs at Rs3 per unit. The key risk to our power valuation emanates from potential delays in commissioning of captive coal mines for Nigrie thermal power project.

Conducive capital markets to support achieving growth ambitions:
As per our estimates, the power subsidiary would require Rs4600 Cr over FY09-12 to fund equity commitment in ongoing projects. The parent has investment requirements of Rs3400 Cr over FY09-12. The parent balance sheet had cash balances of Rs2900 Cr as at end-FY09 and raised another Rs500 Cr through treasury share sales. Standalone debt-equity stands at 2.0x and consolidated debt-equity at 2.9x. Hence, scope for further debt financing is limited and the group needs to raise fresh equity in the near future.

Jaiprakash Associates’s transformation from being primarily a civil contractor and regional cement player to one of the largest infrastructure asset plays in India over the last five years has been creditable.

Cement capacity FY12ii
Holcim (ACC+Ambuja) - 54 m tonnes
AV Birla (Grasim + UT) - 54 m tonnes
Jaiprakash - 30 m tonnes

Power FY12ii capacity; Civil Contracts FY11 Revenues

Punj - Rs146bn
Tata Power - 7.4 GW / L&T - Rs468bn
Adani Power - 5.3 GW
Jaiprakash - 1.7 GW / Jaiprakash - Rs67bn
Source: Companies, IIFL Research

• As compared to 7.0mtpa operational cement capacity as at end-FY07, the commissioned capacity stands at 14.5mtpa currently. This rapid scale-up provides comfort in the company’s execution capabilities. The company plans to ramp up cement capacity to 30mtpa by FY12. We estimate that JPA has already committed 2/3rd of the investment required for the stated expansion.
• JPA has successfully launched 9.6m sq ft residential projects since November 2008, when competitor offerings have almost dried up, by cutting prices by 52-62%. Altering its real estate price points to reflect market realities underline agility in decision making.
• Kick-starting the Bina power project within a year after failed attempts by previous owners spanning a decade further solidifies its execution credentials. Placing orders on BHEL for equipment rather than relying on Chinese players reflects the company’s overriding concerns on long-term sustainability of its assets. Expeditious award of 1,320MW Nigrie power project to L&T and plans to award projects totaling 3.3GW in the next six months has improved visibility of scale-up in the power business.

Financial summary:
The total income for Q1FY10 was at Rs 2116.86 Cr as compared to Rs 1194.68 Cr in Q1FY09; an increase of 77%. EBIDTA for Q1FY10 stood at Rs 591.49 Cr; registering an increase of 66% as compared to Rs 355.57 Cr in the corresponding previous period. Net profit for the Q1FY10 improved to Rs 491.18 Cr as against Rs 125.21 Cr in Q1FY09, an increase of 292%. The earnings per share (EPS) for Q1FY10 stood at Rs 3.50 per share. PAT margin improved to 23.7% as against 10.80%.

Segmental Division Results Highlights – Q1FY10
Turnover from Cement Division (including cement products) at Rs 905 Cr ( Rs 577 Cr) registering growth of 57%, constituting 43% of the revenue.
Turnover from Engineering Division (including Wind Power) at Rs 1084 Cr (Rs 506Cr) registering a growth of 114%, constituting 51% of the revenue.
Turnover from Real Estate at Rs 95 Cr (Rs 75 Cr) registering a growth of 26%, constituting 4% of the revenue. While revenue from hotel business constituted 2% of total revenue.

For FY08-09, the Company’s revenues were Rs. 6,148Cr (Rs. 4274 Cr) The PAT amounted to Rs. 897 Cr (Rs. 609 Cr) registering an increase of 47.29% over the previous year showing EPS of Rs. 6.4 (Rs. 4.3).

Estimated earnings:
FY10E –
Revenues – 9,760.8 Cr
PAT – 1419.5 Cr
EPS – Rs. 10.1
FY11E –
Revenues - 12,921.4 Cr
PAT – 1877.2 Cr
EPS – Rs. 13.4
FY12E –
Revenues – 13482.7 Cr
PAT – 2066.2 Cr
EPS – Rs. 14.47

Profile of key projects:
Yamuna Expressway – real estate holds the key. The 165km-long six-lane expressway was awarded to JPA’s 100% owned subsidiary Jaypee Infratech and is being developed on BOT basis.
The expressway, located on the east of river Yamuna, will connect New Delhi and Agra via Noida, Ghaziabad, Meerut, Aligarh and Mathura. On completion, it will compete with the existing NH-2. This is the largest greenfield expressway project taken up by any private developer under public private partnership. The company expects to make the expressway motorable before the Common Wealth Games in October 2010. The management indicates that the construction work is on schedule. Till date, out of the total project cost of Rs 8,020 Cr, the company has spent Rs4050 Cr including the amount spent on acquisition of 3,991 acres of land for the expressway.

Ganga Expressway – The Ganga Expressway project envisages a 1,047km access-controlled eight-laned expressway along the Ganga River. This expressway will connect Greater Noida to Balia. The total estimated cost of the projects is Rs30,000 Cr.

This expressway project was tendered by the Uttar Pradesh government with the developers bidding for the size of land parcel required for commercial development. Jaiprakash Associates won the project in January 2008 by bidding for 30,000 acres of land along the expressway. The company intends to develop approximately 3.3bn sq ft built-up space on this land.

Valuation:
At current price of Rs. 220, it is quoting at P/E of 34 on FY08-09 basis which looks expensive against industry P/E of 22. Price/BV is 6.43. Also M-Cap/Sales ratio is around 5. However, project execution capability of management is very good & the company has large order book in its hand, so, one should buy this stock for the long term horizon. So, investment in staggered fashion & booking profits at every higher level would be highly recommended.

It’s a great stock that will show tremendous growth in future.

DUS KA DUM

Stock markets have gone up very sharply in the last six months with almost all indices generating good returns. However, given the fickle nature of liquidity and sentiments, experts advise investors to be cautious and also insure the downside risk to their portfolios in the short run with the help of a suitable F&O (futures & options) strategy. At the same time, however, experts remain optimistic about the potential returns which this bull market can generate in the long run. Their optimism stems from the government move to infuse growth in the economy, both through the fiscal and the monetary initiatives. According to their suggestion, the sectors linked to the economic recovery are the ones which look attractive at the current juncture.

1) Banking:
One sector which is likely to benefit on the back of economic up-tick is banking. A lower credit to GDP of 6% for India is significantly lower than its peers and augurs well for the long-term growth of the sector. In near term, a higher credit off-take from the industries and the retail segment is expected in 2HFY2010, which is expected to benefit the banking sector.Further, on the asset quality, the concerns on the rise of NPAs have receded to a large extent on the back of expected revival in the economy. Thus, we are positive on the banking space with a preference towards private banking companies, which have a better growth and profitability outlook.

Top Picks: SBI, ICICI, HDFC Bank, Axis bank, Allahabad bank, Bank of Rajasthan, BoB.

2) Auto:
The auto sector has been the beneficiary of the first round of up-tick in the economic activity. Generally also, demand for automobiles is linked to economic growth and rise in income levels. Per capita penetration at seven cars per thousand people is among the lowest in the world. Further, development of highways and roads, rural economy progress, increasing per capita income and higher disposable incomes among the youth are all positives for the sector.
In the segment, recommend buying into the commercial vehicles space, which is showing signs of a pick-up and provides a good risk-reward opportunity,

Top Picks: Maruti, Tata Motors, M&M, Bajaj Auto, Hero Honda.

3) IT:
Well-established and well-managed Indian companies have moved up the value chain in the last couple of years. So, the leading Indian software solution providers are not only cost effective but also extremely competitive and deliver quality services which their respective vendors have got accustomed to. Restructuring of leading global financial and corporate institutions will require a lot of software inputs. This is likely to substantially increase the business opportunities available for well established Indian IT companies.Also, domestic IT opportunities are likely to expand in a big way as substantial efforts are made to improve our infrastructure and revive our education system and health facilities. Insurance and banking are two other areas where a lot of IT services will be required.Majority of IT companies have good amount of cash in their balance sheets. Moreover they do not need capital to survive and grow their business. Cash is an extremely important asset in today’s volatile economic environment. This coupled with well-respected management and high corporate governance standards which many of the leading software companies adhere to, makes them an optimal choice for investors.

Top Picks: Infy, Tech Mahindra, TCS, ICSA India, KLG Systel, Glodyne Technoserve,

4) FMCG & Consumer Goods:
The various stimulus packages announced by government, thrust on rural development and the higher Sixth Pay Commission are expected to play a crucial role in boosting aggregate consumption demand in the Indian economy. Further, all the above factors would increase the disposable income of relatively young consumers and thus increase their purchasing power.

Top Picks: HUL, Marico, Videocon Ltd., Whirlpool Ltd., Godrej Consumer, ITC

5) Media & Entertainment:
The Indian media and entertainment industry is one of the fastest-growing industries in the country. With the growing popularity of Indian content in the world market in general and South Asia in particular, the Indian entertainment industry players are venturing abroad to tap this booming segment. This segment, therefore, also looks attractive.

Top Picks: Adlabs, Sun TV, NDTV, TV 18, Deccan Chronicle, Jagran Prakashan, Zee Ent, UTV, Hinduja Ventures.

6) Pharma:
The great outsourcing story of India still remains intact and moreover is finding recognition in more countries and business segments than ever before. For instance, outsourced manufacturing activities by global pharma firms are projected to increase to $31 billion by 2010 (Source: KPMG-CII Report). By maintaining lean cost structures and standing up to intense rivalry in the global contract research and manufacturing space, Indian firms have become an integral part of the global pharma manufacturing value chain, and can also be taken into consideration for investment.

Top Picks: Cipla, Ranbaxy, Sun Pharma, Dr. Reddy’s, Biocon, GSK Pharma, Dishman Pharma, Divi’s Lab.

7) Education:
The education sector also seems to be a good bet at the moment.We expect various reforms in the education sector with the Right to Education Bill all set to be enacted and new HRD ministry’s belligerent 100-day agenda. Further, the ministry has been keen to open up the education sector to foreign and private players. This will attract huge investment in the education & training sector.

Top Picks: Educomp Solutions, NIIT, Aptech, Core Projects & Tech.

8) Sugar:
The sugar production estimates for SY09E have been lowered to 15-15.5mn tonnes. If we add 15.5mn tonnes to the opening inventory of 8mn tonnes and further 1.5mn tonnes of imported sugar, the total available sugar in the current season would be around 25mn tonnes against the annual domestic demand of 22.5-23mn tonnes. Closing inventory would fall to less than two months of consumptions, putting the supply-side in a precarious situation for the next year.Sugar shortage will be more acute in the next season SY10E (Oct’09 to Sept’10), due to lower production during SY09E and exhausting the opening inventory to meet the annual demand. This should keep the sugar prices firm next year as well. Hence outlook for sugar companies remain positive.

Top Picks: Bajaj Hindustan, Balrampur Chini, EID Parry, Shree Renuka Sugar, Triveni Engg.

9) Metals:
China's economic stimulus plan and robust outlook for metals demand in China should give a needed boost to already buoyant industrial metals market. The world's fastest growing economy is dependent largely on other countries to meet its annual demand for base metals. Despite higher inventory levels in base metals, the prices have rebound from the lower levels and sustenance of demand from China is crucial going forward. The larger players producing metals such as aluminium, copper, zinc, steel and iron ore appear to benefit largely due to revival in the Chinese economy, and also seem to be a good bet.

Top Picks: Sterlite, Hind Zinc, Sesa Goa, Tata Steel, SAIL, Jindal Steel, Bhushan Steel, Hindalco

10) Cement:
The domestic cement industry is expected to witness substantial bunching up of capacities over the next couple of years. As per the announced capacity additions plans, around 85mn tonnes of cement capacity is expected to come on-stream going ahead. However, assuming 20% slippage due to delays in equipment procurement, land acquisitions, fund raising plans, etc. such huge capacity addition (70mn tonnes) is bound to create an oversupply situation and exert pressure on the cement prices, according to Angel Broking. Still selected stocks can be bought in this segment too, provided one is looking for good returns in the long run.

Top Picks: ACC, Gujarat Ambuja, JP Associates, Dalmia cement, Ultratech, Shree Cement, Birla Corporation, OCL India.

Amazing!! - Foreigners are more BULLISH on India

Foreign ownership in BSE 500 companies — which represent nearly 93% of the total market capitalization on BSE — are a tad higher than of the government, data from stock exchanges and think-tanks shows.

They controlled 22.9% of these companies, which cover all 20 major industries, against government's 21.8%. While on the face of it, promoters (29.3%) and the government seem to be India Inc's primary owners — the fact is foreigners come in second across all classes (portfolio, direct and subsidiary), owning more than the government does.

The Indian public owned 8.17% stake, insurers 4.74%, non-promoter corporates 4.16% and mutual funds 3.91%, data up to the June quarter showed. The 30-share sensex, which has been a stellar performer among global indices in 2009, is also firmly in foreign grips. Foreigners owned 26.1% in the 30 famous Indian firms, less than 32.2% owned by promoters, but almost double of the 13% held by the government.

"FII ownership of the broad market has risen to 15.7% (including American Depository Receipts / Global Depository Receipts) from 15% in March, reversing a six-quarter trend. In dollar terms, this represents a 64% rise in the FII portfolio to $148 billion by the end of the quarter (April-June), compared with a 45% rise in the markets," said Citigroup analyst Aditya Narain.

July has witnessed another $2.4billion in inflows — if this holds, or more money comes in, ownership will rise, though the market impact will probably be less. Foreign investor— who pumped in $5.6 billion over April-June 2009 — have reversed a six quarter flight. The market's sharp rise (49%) over the quarter would appear a cause and consequence of this inflow.

Bhushan Steel Ltd - Playing the right card of Backward Integration

The other day, on CNBC, investment Guru Mark Mobius, MD of Templeton Asset Management, said he was bullish on Indian commodities stocks. "People don’t realise India is one of the largest producers of iron ore in the world; companies like Sesa- Goa for example are good stocks to invest in," Mobius said, adding that steel and aluminum companies were worth looking at.

Bhushan Steel is all set to ride the boom in the Indian economy going forward with the solid plans of backward integration.

Equity Share Capital - 43.00 Cr
No. of equity shares – 4,24,71,662
Promoter holding – 69.15%
Institutions – 4.22%
General Public – 3.64%

Market Cap – Rs. 3450 Cr
Book Value – Rs. 476.7
Reserves – Rs. 19822 Cr
EPS (Rs) – Rs. 96.8

52 week high/low – Rs. 947/Rs. 260
CMP – Rs. 930

Company Profile:

Bhushan Steel Ltd formerly known as Bhushan Steel & Strips Ltd. is now India’s 3rd largest Secondary Steel Producer with an existing steel production capacity of 2.2 million tones per annum (approx.). The company has three manufacturing units in the state of Uttar Pradesh (Sahibabad Unit), Maharashtra (Khopoli unit), and Orissa Plant (Meramandali unit) in India and sales network is across many countries.

BSL is one of the last players to ride the band wagon of backward integration - is on the verge of commissioning its 2.2 mmT pa that will be fully ready and running by the second half of FY10 at an expense of Rs 6000 Cr. The green field facility will help the company service its requirement of the HR coils in-house, although it will be dependent on its requirement of raw material for Steel making on the spot market. Out of the 2.2 mmT steel made per year, 1.9 mmT will be fed to make Hot rolled coils (HR coils) while the rest for long products. The surplus HR coils would be offloaded to the market. Higher production will help drive the top-line of the company.

Back ward integration to drive the EBIDTA:
Bhushan Steel had been sourcing its raw material i.e. HR coils from different steel makers like SAIL and Tata Steel in addition to imports. With new steel making facility in force by Oct. ’09, its dependence on external suppliers will not only reduce but it will offload the surplus to the market. The company will gain from the increased spreads obtained due to the backward integration. Moreover, the gains from the sale of surplus Steel will shore up the top-line and the bottom line of the company.

Steel Demand to be robust:
India along with China is expected to be the only countries in the world to show positive growth in Steel making and consumption. Driven the stable government at the centre, Indian economy is expected to grow at a rate 5% plus rate discounting the failed monsoon. Steel and other metals would see a rise in consumption from the user industries. Automobiles and white goods industries are expected to put forth better growth numbers driven by the rising demand. Steel demand and hence prices are expected to be robust in the near to far future.

Further expansion:
Bhushan Steel has further plans of expansion by 3.2 mmT of Steel making by Oct.’12 at an expense of Rs. 6500 Cr. This will take the total capacity of the company to 5 mmT by FY13. With the increase in Steel making capacity the company is also planning to add the relevant downstream operations in future. Similarly, the company has been allotted iron ore and coal mines that will ensure its minerals security but it will take about 2-3 years to fructify.

Performance:
For Q1FY10, Net Sales were Rs. 1,337.5 Cr (Rs. 1,321.4 Cr) marginally up over previous year & Net profit was Rs. 171.9 Cr (Rs. 132.7 Cr).
For entire year FY08-09, total revenue grew by 19% to Rs. 4,957.6 Cr (Rs. 4,152.4 Cr) whereas Net profit was Rs. 411.3 Cr (Rs. 423.7 Cr), marginally declined. EBIDTA margins improved from 19% to 21% & EBIDTA was Rs. 1033.4 Cr (Rs. 807.4 Cr).
The estimated earnings for FY10 & FY11: Revenues of Rs. 5,510.7 Cr & Rs. 6987.2 Cr are expected which shows growth of 11.2% & 26.8%. Whereas Net profits of Rs. 569.7 Cr & Rs. 1,138.8 Cr, an increase of 38% & 50% Y-o-Y. This will result in an EPS of Rs. 134.10 & Rs. 268 from current Rs. 96.8.

Valuation:
At CMP of Rs. 930, the stock quotes at a PE multiple of 9.6x which is on the higher side. Also there is news of BSL planning to come out with an IPO of Bhushan Power. But if we look at the forward estimated earnings of FY10 & FY11, then it is available at P/E of 7 & 3.5 respectively which is in line with & below the industry standards. Price/BV ratio is around 1.9 to 2. Also if we think of expansion plans till FY13, then the sales could be four fold from now & besides that they may bring the IPO of Bhushan Power thus unlocking shareholders’ value. I think company will benefit from its endeavor of back ward integration and going forward it will reflect in the quarterly performance starting Q310 wherein it would have started partial production from Steel making units.

So, even if we consider P/E of 5x on FY11E earnings for the stock, it comes to around Rs. 1340, plus the Bhushan Power IPO & strategy of expanding total capacity to 5 million tones till 2013 will see upward revision of the price target. However, this is high beta stock, so it shows out performance in both directions & is highly volatile. Accumulate it for your mid-cap portfolio on every 10-20% decline for long term horizon of 3-5 years to reap the benefits of growing economy.

LIC HFL - Rock-Solid Performance Promises Wealth Creation

Amidst struggling realty market, investment in housing finance companies is expected to fetch decent returns in a volatile market. Huge untapped, under-penetrated housing market caters to significant growth opportunities to providers of housing finance companies. The long-term positive outlook on India's mortgage market evolves from the basic economic concept of demand and supply. Supply in the context of housing is far lower than demand, and this gap provides a huge opportunity of growth for providers of housing finance.

LIC Housing Finance ltd, with its strong fundamentals, focused approach, consistent performance & relatively cheap valuations, is definitely well poised to gain from the housing finance business.

Equity Share Capital - 85.00 Cr
No. of equity shares – 8,49,32,600
Promoter holding – 40.84%
Institutions - 42.37%
General Public – 11.54%

Market Cap – Rs. 4979 Cr
Book Value – Rs. 263
Free Reserves per share – Rs. 126
Reserves – Rs. 2149 Cr
EPS (Rs) – Rs. 62.59
Total Assets – Rs. 29,000 Cr

52 week high/low – Rs. 681/Rs. 151
CMP – Rs. 586

Company Profile:

LIC Housing Finance is in the business of home loans, commercial property loans mortgage & reverse mortgage and other loans related to house. The customer base includes general public, corporate, SMEs, builders etc.

It has a strong network with 6 Regional Offices, 13 Back Offices and 130 marketing units across India. In addition the company has appointed over 1352 Direct Sales Agents (DSAs), 7085 Home Loan Agents (HLAs) and 777 Customer Relationship Associates (CRAs) to extend its marketing reach.
The Company has set up a Representative Office in Dubai and Kuwait to cater to the NRIs in the GLCC countries covering Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia. The Company has over 10,00,000 house owners who have taken loan from the company.

Performance:
For Q1 FY10, LICHFL showed very good performance, company’s total income was Rs. 782 Cr (Rs. 622 Cr) & net profit was Rs. 124 Cr (Rs. 105 Cr), 20% jump and giving an EPS of Rs. 14.58 (Rs. 12.38).

Even during FY08-09, when the economy was in recession, LICHFL has shown excellent performance in the results.

The Company generated a total Income of Rs.2903 Cr (Rs. 2165 Cr) in 2008-09, out of which, Income from housing operations comprised Rs.2880.17 Cr. The PBT amounted to Rs.726Cr (Rs. 532 Cr) registering an increase of 36.47% over the previous year and the NP was at Rs.532 Cr (Rs. 387 Cr) indicating a growth of 37.31% over last year.

Net interest margin improved by 10 basis points from 2.85 percent in 2007-08 to 2.95 percent in 2008-09. Return on equity grew by 267 basis points from 21.13 percent in 2007-08 to 23.80 percent in 2008-09. Net profit margin improved by 49 basis points from 17.82 percent in 2007-08 to 18.31 percent in 2008-09.

The Company has given a dividend of 130% i.e. Rs.13 per equity share as compared to Rs.10 per equity share (100 per cent) for the previous year.

The Net Worth of the Company stands at Rs.2234.09 Cr, showing a growth of 21.97% over the preceding year. The Book Value of Share as on 31 March, 2009 has gone up to Rs.263.04 from Rs.215.66 while the EPS has increased from Rs.45.59 to Rs.62.59.

During FY08-09, the Company sanctioned individual loans for Rs.8186.02 Cr and disbursed Rs.7354.79 Cr. This constitutes 75.11% of the total sanctions and 83.94 % of the total disbursements respectively. LIC Housing is looking at disbursements of Rs 13,000 crore this fiscal.

The total loan portfolio increased to Rs.27679.28 Cr as against Rs. 21936.41 Cr in the previous year.

The Company has reduced the gross NPA during FY08-09 to Rs.297 Cr from Rs.372.92 Cr in the last year. The gross NPA ratio has come down to 1.07% from 1.70% and net NPA ratio has also come down to 0.21% from 0.64%. The Capital Adequacy Ratio (CAR) of the Company was 13.50% as against prescribed norms of 12% by National Housing Bank. The total assets of the company is around Rs. 29,000 Cr.

The company is also efficient in managing liquidity risks. This is evident as the proportion of assets maturing in one year is similar to the proportion of liabilities maturing within one year. This aspect is extremely vital as NBFCs which have financed long-term assets through short-term sources of finance face tremendous pressure in a scenario of tightening liquidity. Hence, it is clear that LICHFL has been able to efficiently manage all kinds of risks during testing times.

Future Outlook:
The finance minister in his recent budget, with a view to boost rural housing, has increased the allocation under the Indira Awas Yojna by 63%.

The additional Rs.2,000 Cr to NHB's Rural Housing Fund for refinancing will also encourage rural housing.

The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) allocation has been increased which would help towards the housing needs of the urban poor, besides the introduction of a new urban housing scheme announced by the President.
To meet the rising demand in future, LICHFL is looking to raise up to Rs 15,000 Cr of debt in the current financial year through options such as commercial paper (CP), non-convertible debentures (NCDs) and external commercial borrowings (ECBs). The company is also looking to raise additional funds through qualified institutional placement (QIP).

Valuation:

At current price of Rs. 620, it is quoting at P/E of 9.5 against its competitor HDFC at Rs. 2362, quoting at P/E of 28.5. Even though HDFC’s earnings growth stood at 15% compared to LCHFL’s 37.3%. However, HDFC's valuations command a premium as it is the largest player in the industry and LICHFL is mid-cap company. However, LICHFL’s Price/BV is 2.23. Also M-Cap/Sales ratio is around 2.3. With the dividend of Rs. 13 per share its dividend yield comes to around 2.22.

Clearly, there is a huge gap between its valuations and earnings growth. Given such a huge gap and consistent performance in the past three financial years, it will catch investors’ fancy sooner or later. So, I think the company has a lot of value to offer to the investors with long term horizon of 3-5 years. I recommend to 'accumulate' this stock on dips.

Reliance Capital - Future Financial Behemoth

No. of equity shares – 24,56,32,800
Face Value – Rs. 10
Promoter holding – 53.49 %
General Public holding – 14.33%

Market Cap – 20,816 Cr
Book Value – Rs. 277
Free Reserves per share – Rs. 228
Reserves – Rs. 227 Cr
EPS (Rs) – Rs. 41.3

Reliance Capital Ltd., a constituent of S&P CNX Nifty and MSCI India, is a part of the Reliance Anil Dhirubhai Ambani Group and is one of India’s leading and fastest growing privates sector financial services companies.

Reliance Capital has interests in asset management and mutual funds; life and general insurance: private equity and proprietary investments: stock broking: depository services: distribution of financial products: consumer finance; and other activities in financial services. It has presence in entire financial industry segment. It has also applied for banking license.

Reliance Mutual Fund is India's biggest Mutual Fund with average Assets Under Management (AUM) of Rs. 80,963 Cr (US$ 15.9 billion) as on March 31, 2009, and an investor base of 7.2 million. Iit has recently crossed 1 lac Cr mark.
Reliance Life Insurance is one of India's fastest growing life insurance company and among the top four private sector insurers. Reliance General Insurance is one of India's fastest growing general insurance company and among the top 3three private sector insurers.
Reliance Money is one of the leading retail brokerage houses and distributors of financial products in India with over 3 million customers. Reliance Consumer finance has a loan book of over Rs. 8,600 Cr at the end of March 2009.

Reliance Capital has a net worth of Rs. 7,491 Cr (US$ 1.5 billion) and total assets of Rs. 24,260 Cr (US$ 4.8 billion) as of March 31, 2009. The free reserves per share as of 31-Mar-09 are Rs. 228.78.

Latest Performance:

R-Capital’s Q1FY10 results were not very encouraging in both revenue and profits. On consolidated basis, Revenue declined 2.9% Y-o-Y to 1468 Cr (Rs. 1511 Cr) and PAT declined 56.0% Y-o-Y to Rs. 150.67 Cr (343 Cr).Much of the decline in profitability can be due to lower-than-expected income from proprietary investments. The company now has unrealized gains of Rs 500 Cr on its portfolio.

Reliance AMC’s revenue grew by just 2.3% Q-o-Q and 5.1% Y-o-Y, even though the AUM of the company has actually grown by 35-40% Q-o-Q, led substantially by equity assets, given the strong rise in equity values during the quarter. Profitability was low due to write-off of NFO expenses. Despite the somewhat weak financials, Reliance AMC continues to perform very well. It launched the largest NFO of the year – Reliance Infrastructure Fund – garnering over Rs 2300 Cr.

Reliance Insurance’s APE grew by 7.0% Y-o-Y. While not much in itself, the growth is commendable when compared to 18% Y-o-Y decline reported by the Private Sector Insurance companies as a whole. The company has improved its market share to 9.3% (from 8.5% in Q1FY09) and sustains NBAP margins at over 21%. The company is expected to divest either by way of private equity or IPO during the next 6-9 months. The total capital invested in the company stands at Rs 2700 Cr.
The loan book of the company remained nearly flat Q-o-Q at about Rs85bn. Provisions for bad loans shot up to Rs63.18Cr from Rs34.33Cr in Q4FY09. Gross NPAs stood at about 4.0%. Clearly the focus has substantially shifted to ensuring asset quality now. The proportion of Personal Loans has reduced from 15% to 11% Q-o-Q. Despite the 68% Q-o-Q improvement in equity market volumes, Reliance Money (its retail broking arm) reported a revenue decline of 13.1% Q-o-Q. With ADV remaining flat Q-o-Q at Rs1600 Cr, Reliance Money has clearly lost its market share during the quarter.

Reliance General Insurance continues to grow marginally; shows an improvement in its profitability. Although Gross Premium Written remained flat Y-o-Y, the company reported a profit of Rs9.8m compared to a loss of Rs142.4m in Q1FY09. The Combined Ratio stood at 108% (v/s 113% in Q1FY09).

Future earnings estimate:
Total income for FY10 is expected to grow by 7% to 6400 Cr (from 5,993 Cr for FY09) & for FY11, it could grow to 7,150 Cr.

Net profits for FY10 is expected to grow to 1,101 Cr (from 1,015 Cr for FY09) & for FY11, it could grow to 1,359 Cr. Thus expected EPS would be Rs. 44.7 & Rs. 55.2 for FY10 & FY11.

So at current price of Rs. 850, it is trading at a forward P/E of 19.8, 16.0 for FY10 & 11. Its Price/Book Value comes to around 2.6, 2.3.

Outlook:

Though overall results were disappointing in Q1FY10, R-Cap is expected to report better number in the quarter ahead from Asset Management, Financing and Life Insurance. Listing or stake sale in Life Insurance business also remains a potential trigger, going forward & it would re-rate the stock price. Apart from that, other subsidiaries are also performing well & will show handsome growth going forward under the aggressive management of Anil Ambani.

R-Cap has made lot of investments many industries, either in listed or in unlisted companies which will accrue great benefits for the shareholders. The book value of unquoted investments stood at around Rs. 5,800 Cr & market value is around 2,400 Cr. So, looking at all the factors, & being in finance sector, the company is going to be the behemoth finance company. I recommend to “Accumulate” this stock on every decline with long term view of around 2-3 years.

Godrej Properties IPO will push up price of Godrej Ind

I am very much bullish on Godrej Industries due to its stake in Godrej Properties.
Godrej Industries currently holds around 83% in GPL while the rest 18% is held by Godrej Family. (Also Read Godrej industries - Multibagger)

Godrej group's real estate company, Godrej Properties (GPL) is coming out with an IPO of Rs 600 crore in 3 months and sell 13% stake via this IPO, It is likely to issue 9 crore shares via IPO. The company is going to sell 3% stake to domestic funds in Pre-IPO sale.

Godrej Properties had filed DRHP (draft red herring prospectus) in June, 2008. As per the DRHP filed in 2008, IPO proceeds will be used for acquisition of land development rights for forthcoming projects, construction of forthcoming projects and repayment of loans.

Godrej Properties and parent company Godrej Ind has an agreement for charging royalty for usage of the Godrej brand. Godrej Properties has been granted the non-exclusive rights by Godrej Ind to use the recently refurbished 'Godrej' trademark and logo upon a payment of royalty of 0.5% of the GPL’s gross turnover per annum. On Godrej Properties' consolidated total income, the royalty payment would come to a little over Rs 1 Cr per annum.

Godrej Properties has a land bank of around 450 acres (19 million Sq Feet). The company is mainly into the high and middle-segment of the residential property space. It plans to get into the affordable-housing segment, which is least affected by the economic slowdown. It has already developed several properties in Mumbai, Pune, Kolkata, Bangalore, Hyderabad, and Ahmedabad. It now plans to expand its operations to Chennai, Kochi, the National Capital Region and Goa.

With the burgeoning aspirational Indian middle class looking at affordable housing in and around mega cities and tier I-II, Godrej Group is set to invest a whopping Rs 5,500 Cr on affordable housing scheme in Ahmedabad.

As per the signed MoU with the Gujarat government during the Vibrant Gujarat Global Investors’ Summit 2009, Godrej Properties will set up the mega residential cum commercial project between Ahmedabad and Gandhinagar, GPL will invest $1 billion on affordable housing project in the state that would come up between Ahmedabad and Gandhinagar. The project spread over 30 million square feet will have close to 30,000 units priced around Rs 25 lakh, also will have certain commercial units in the same project.

As per the MoU, the project expects to generate employment for 1000-odd people in the state. The company has been working on multiple affordable housing projects across Maharashtra, Karnataka, Tamil Nadu, West Bengal, NCR and Punjab. “With mortgage rates likely to come down in future, the demand for affordable housing would pick up across cities,” Adi Godrej said. Godrej Group expects to record a turnover of Rs 10,000 Cr in 2008-09, 20% more than the last fiscal, he added.

REALTY SECTOR - Out Of Blues

Six realty companies Emaar MGF, Sahara Prime City, Godrej Properties, Lodha Developers, Nitesh Estates and Sriram Properties plan to raise $2.5 bn via IPOs & will queue up to hit the capital markets this year, signaling that the worst may be over for Real Estate Sector.
Two reasons for this rush could be due to the better market condition compared to last year, and, most of these companies are in serious need of liquidity to repay the debts or to finance new projects.

Mahindra Holidays and Resorts, debuted on BSE 7% higher than its issue price.
So at-least 10% profit is not ruled out on the debut as per the current market conditions.

Godrej Properties, the real estate arm of the Godrej Group, plans to sell around 10% through its maiden public issue. Before that, the company will place 3.5% equity with select institutions. Godrej Properties recently announced plans to spend Rs 5,000 crore on township projects in Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, West Bengal and Delhi that would offer homes at less than Rs 20 lakh.

Mumbai-based Lodha Developers, which has just signed the largest property deal of the year so far to acquire Finlay Mills’ 10.3-acre property in central Mumbai for Rs 710 crore, plans to raise Rs 3,000 crore through an IPO. Part of the proceeds will be used to fund the Finlay Mills deal, which calls for full payment within three months. Lodha, which has been going through a financially tough time, will use the money to retire debts and fund ongoing projects. It is also planning to enter real estate markets other than Mumbai, said a top official, requesting not to be named.

Emaar MGF, a joint venture between Dubai-based Emaar Properties and MGF Development, is looking to raise Rs 4,000 crore this year. In May, a contractor alleged that the company was yet to pay around Rs 200 Cr to a contractor.

Sahara Prime City, the real estate arm of the Sahara Group, is expected to mop up $1 billion. NRI investor C Sivasankaran recently picked up a 49% stake in Sahara’s Aamby Valley project. The size of the transaction could not be verified.

Bangalore-based Nitesh Estates is planning to tap the capital markets to build its land bank and enter the western Indian market, particularly Mumbai.

Chennai-based Shriram Properties, part of the Chennai-headquartered diversified Shriram Group, has proposed Rs 500-700 crore initial public offering.