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Chaanakya Tracking the economy….
A Wealth Incorporation
Publication
February 16, 2013
Vol. 6
Issue 19
Christ University
Institute of Management
2
Index
News
National 3
International 5
Rates and Graphs 7
Contemporary Articles
SARBANES-OXLEY ACT-a door to opportunities 9
Trading Opportunities of Securitised Debt 10
Investor Check
Minuscules Rule The Initial Offer Setup 11
Commodity Market 12
Red Chilly
Stock Watch Tribhovandas Bhimji Zaveri Limited 13
Alumni Speak: Mr. Vinod Kumar S 17
Debate:
Taxing the super-rich 19
Scams Stamp Paper Scam: Telgi Scam 20
Did You Know? 21
Buzzword 22
Crossword 23
National News
Srivishnu Garbham [I MBA J]
Finance Ministry to decide on tax benefits for CSR after Budget
The Finance Ministry is expected to take a view on providing tax benefits for expenditure on social welfare activities by companies after the Budget. Against the backdrop of the
government making Corporate Social Responsibility (CSR) spending mandatory in the
proposed new Companies Act, various firms are pitching for tax benefits on such expenditure. Emphasising that money spent on CSR does not go to the government coffers,
the money should be invested for community development.
Union Budget 2013: Real estate biz seeks easy finance, FDI: Knight Frank
The budget for 2012-13 did not have much to offer for the real estate sector and without any
stimulus it is not surprising that the difficult conditions in the sector escalated further. With
absorption of commercial real estate having fallen as also housing, the industry finds itself in
a tight corner with mounting debts and declining profits.
Finance minister hints at changes in Budget to boost equity culture
Finance minister P Chidambaram indicated that he would bring in major changes in the
Budget to boost equity culture among retail investors and address concerns that this group
preferred financial assets over physical ones, mainly gold. The FM said he would change the
rules governing the Rajiv Gandhi Equity Savings Scheme (RGESS) to give more tax incentives and relax the eligibility criteria for people who can invest in stocks through this
channel. He also asked financial sector regulators to agree to a universal 'know your
customer' (KYC) guidelines to aid investing in mutual funds.
GMR Infra Q3 net loss doubles to `217 crore on finance cost
GMR Infrastructure's consolidated net loss doubled to `217 crore in the third quarter of
financial year 2012-13 from `108 crore in a year ago period, impacted by steep finance cost
and poor show from power business. While finance cost rose 245per cent to `525.75 crore,
power segment's loss quadrupled to `57.5 crore.
Finance ministry questions CSO's growth estimate
The finance ministry on Friday said the Central Statistics Office may have underestimated
economic growth and the full year tally may be 5.55per cent or more, amid criticism over the way the UPA had handled the economy during its nine years in office. Statements from the
finance ministry are surprising as CSO is the official statistician and come a day after it
released advance estimates that suggested that gross domestic product would expand 55per cent during 2012-13, which is below the government and RBI's projection of 5.55per cent.
4
Finance Minister for lower interest rates
Finance Minister P. Chidambaram has advised banks to try and rationalise interest rates on loans offered to customers. He underscored the point that lower interest rates would act as a
spur to economic growth and alter customer sentiment. While, to a large extent, lower interest
rates depend on policy rates, banks can attempt to improve their operating efficiency, reduce costs and pass on the benefit to borrowers through lower interest rates.
Hold Torrent Pharma: Sushil Finance
Torrent Pharma (TPL) has reported decent set of numbers which are above our estimates for
Q3FY13 registering a YoY revenue growth of 14.5per cent majorly supported by a 14.25per cent growth in international business and a 12.55per cent growth in the domestic market.
However, EBIDTA grew by 32.65per cent on the back of a forex gain coupled with a
licensing & litigation fee received during the quarter.
Finance Ministry's `25,000 crore largesse could push oil firms into profit
The North Block sent letters of comfort detailing a payout of `25,000 crore in compensation
to the three public sector oil marketing firms for the subsidy they provide in the sale of diesel,
cooking gas (LPG) and kerosene. Of the `25,000 crore, Indian Oil will get `13,474.56 crore,
BPCL `5,987.25 crore and HPCL `5,538.19 crore. The Finance Ministry has already given
`30,000 crore in subsidy to the oil firms in the first two quarters. The actual disbursement,
based on the comfort letter of the ministry, will be made after Parliament has approved the supplementary demands for grants in the forthcoming Budget session.
Dewan Housing Finance forays into education loan space
Dewan Housing Finance Limited (DHFL) has forayed into the education loan space with
Avanse Financial Services, a non-banking financial company (NBFC).International Finance
Corporation (IFC) has agreed in-principle to pick up a 20 per cent stake in Avanse for `10
crore, said Kapil Wadhawan, CMD of DHFL. Avanse will offer education loans starting from
`50,000 and there will be no cap on the upper limit. The base rate will be 11.5 per cent and the spread would be charged after evaluating the loan application on the nature of course,
reputation of the institution and placement track record of the institute.
Manappuram Finance Q3 net down 485per cent to `84 crore on low yields
Manappuram Finance today reported 48 per cent decline in net profit at `84.38 crore in the
third quarter ended December 2012 due to a fall in yields on advances in a tight regulatory
environment that led to lower disbursements. The leading gold financing company had posted
net profit of `161.37 crore in the corresponding period of previous fiscal. Operating income
during the reported quarter fell 19 per cent to `586.20 crore from `721.37 crore a year ago.
5
International News
Sailabala Nayak [I MBA I]
JP Morgan may release London 'Whale' report
JPMorgan Chase & Co‘s board will consider releasing an internal report in the wee(14-19th Jan‘13) that faults Chief Executive Officer Jamie Dimon‘s oversight of a division that lost more than
$6.2 billion on botched trades, according to two people with direct knowledge of the matter. The final
report, which builds on a preliminary analysis released in July, is critical of Dimon, 56, former Chief
Financial Officer Doug Braunstein, 51, former Chief Investment Officer Ina Drew and others for
inadequately supervising traders in a UK unit that built up a large and illiquid position in credit
derivatives last year, these people said.
Euro Leaders Declaring Worst Is Over Turn to Economy Woes
European leaders declaring they‘ve gained the upper hand in the three-year-old debt crisis are
sharpening efforts to channel a rebound in financial markets to an economic recovery to chip away at soaring unemployment. Even as euro-area chiefs call for more time to lock in a bailout package for
Cyprus and elections loom next month in Italy, German Finance Minister Wolfgang Schaeuble said
Jan. 11 that the single currency is ―over the worst of the crisis.‖
Deutsche Bank Derivative Helped Monte Paschi Mask Losses
Deutsche Bank AG (DBK) designed a derivative for Banca Monte dei Paschi di Siena SpA at the
height of the financial crisis that obscured losses at the world‘s oldest lender before it sought a
taxpayer bailout. Germany‘s largest bank loaned Monte Paschi (BMPS) about 1.5 billion euros
($2 billion) in December 2008 through the transaction, dubbed Project Santorini, according to more
than 70 pages of documents outlining the deal and obtained byBloomberg News. The trade helped
Monte Paschi mitigate a 367 million-euro loss from an older derivative contract with Deutsche Bank.
Rio CEO Albanese Steps Down as $14 Billion Writedown Looms
Rio Tinto Group (RIO), the second-biggest mining company, will take about $14 billion of
write downs for failed deals in aluminum and coal led by Chief Executive Officer Tom Albanese, who
departs after almost six years in charge. The 55-year-old New Jersey native is leaving as a result of the
$38 billion takeover of Alcan Inc. in 2007, a deal that soured as China‘s emergence as the largest
aluminum producer left Western rivals few markets to chase. Rio is writing down 70 percent of the
value of Albanese‘s A$3.9 billion ($4.1 billion) purchase of Mozambique coal producer Riversdale
Mining Ltd., less than two years after closing it.
Jobless Claims in U.S. Fell to Lowest Level in Five Years
The number of Americans filing first-time claims for unemployment insurance payments fell more
than forecast last week to the lowest level in five years, pointing to further improvement in the labor
market. Applications for jobless benefits decreased by 37,000 to 335,000 in the week ended Jan. 12,
the lowest level since the period ended Jan. 19, 2008, Labor Department figures showed today.
U.K. Finance Industry to Cut 43,000 Jobs, CBI Survey Says
The U.K.‘s financial industry will lose 43,000 jobs in six months, according to a forecast from the Confederation of British Industry, as companies shrink and reduce costs. Banks (F3BANKS), insuers,
asset managers and other finance firms probably cut 25,000 positions in the last three months of 2012
and may eliminate 18,000 jobs in the first quarter of this year, according to a study by Britain‘s
biggest business lobby group and PricewaterhouseCoopers LLP, published today.
6
Swiss govt to accept group requests for banking info from Feb
Switzerland will be able to provide banking and other details sought by other countries, including
India, from next month about a ‗group of persons‘ even without their individual identification, provided the information has not been requested as part of some ‗fishing expedition‘. A new Tax
Administrative Assistance Act will come into force on February 1 and a resolution to this effect has
been passed by the Switzerland‘s Federal Council, as per a senior official in the Swiss Finance
Ministry.
IMF Cuts Forecast on Second Year of Europe Contraction
The International Monetary Fund cut its global growth forecasts and now projects a second year of
contraction in the euro region as progress in battling Europe‘s debt crisis fails to produce an
economic recovery. The world economy will expand 3.5 per cent this year, less than the 3.6 per cent
forecast in October, the Washington-based IMF said today in an update of its World Economic
Outlook report. While the fund projects growth this year increasing from last year‘s 3.2 per cent pace, it expects the 17-country euro area to shrink 0.2 per cent in 2013, instead of growing 0.2 per cent as
forecast in October.
Apple Inc misses forecast for third straight quarter
Apple Inc missed Wall Street's revenue forecast for the third straight quarter after iPhonesales came in
below expectations, fanning fears that its dominance of consumer electronics is slipping. Shares of
the world's largest tech company fell 10 per cent to $463 in after-hours trade, wiping out some $50
billion of its market value — nearly equivalent to that of Hewlett-Packard and Dell combined.
Tripling in Debt to $1.7 Trillion Drags on Economy
Chinese companies are spending more than ever to service debt after their borrowing almost tripled
over five years, prompting strategists to warn of rising default risk and a threat to economic growth.
Total short- and long-term borrowing by 3,895 publicly traded non-financial companies rose to
almost $1.7 trillion in their latest filings, from $604 billion at the end of 2007, data compiled by
Bloomberg show. Financing costs, including interest, on all forms of debt climbed to the highest level
as a percentage of gross domestic product last year, according to Sanford C. Bernstein & Co.
HSBC sells $7.4-bn Ping An stake to Thai billionaire
HSBC Holdings Plc‘s $7.4 billion sale of its stake in Ping An Insurance (Group) Co to Thai
billionaire Dhanin Chearavanont was cleared by regulators, helping Europe‘s largest bank by market value revive earnings. The transaction will generate a $2.6 billion profit for HSBC, bolstering
Chief Executive Officer Stuart Gulliver‘s efforts to improve profitability hurt by US probes of money
laundering and compensation claims from UK clients. CP Group said on January 11 it had the
resources to complete the purchase, damping concern the deal would collapse after Caixin Online
reported that China Development Bank Corp. withdrew financing.
Osborne sets out new law to break up errant banks
British banks that fail to shield their day-to-day banking from risky investment activities will face
being broken up, Chancellor George Osborne said on 4th Feb‘13.Britain is shaking up its system of
bank regulation following the 2008 financial crisis, when the government poured £65 billion ($102 billion) of taxpayers' money into rescues of Royal Bank of Scotland and Lloyds. The sector has also
come under fire for rigging the Libor global interest rate, mis-selling insurance, breaking money
laundering laws and paying bonuses widely seen as excessive. Banks were already expected to have
to ―ring-fence‖ operations such as standard bank accounts and payments from their riskier investment
banking activities, which will hit major players such as Barclays, HSBC, and RBS.
7
Rates
Gaurav Agarwal [I MBA M]
Repo Rate 7.75%
Reverse Repo 6.75%
Call rate 7.00%-7.60% Inflation 7.18% for January 2013
Forex Reserve $295.154 Billion as on 1st February, 2013
91day T-Bill 7.9770% IIP 1.1% for December 2013
6.09 GS 2019 8.0907%
Graphs
Gaurav Agarwal [I MBA M]
29500
30000
30500
31000
31500
32000
32500
33000
Gold(per 10 gram)
Gold(per 10 gram)
53
53.5
54
54.5
55
55.5
56
14
-Jan
17
-Jan
20
-Jan
23
-Jan
26
-Jan
29
-Jan
01
-Fe
b
04
-Fe
b
07
-Fe
b
10
-Fe
b
Rs/$
Rs/$
8
105
108
111
114
117
120
Oil(per bbl) rs.
Oil(per bbl) rs.
1000000
3400000
5800000
8200000
10600000
13000000
15400000
17800000
5000
5200
5400
5600
5800
6000
6200
14
-Jan
17
-Jan
20
-Jan
23
-Jan
26
-Jan
29
-Jan
01
-Fe
b
04
-Fe
b
07
-Fe
b
10
-Fe
b
futur…open …
5400
5600
5800
6000
6200
17,600.00
18,000.00
18,400.00
18,800.00
19,200.00
19,600.00
20,000.00
sensex nifty
9
SARBANES-OXLEY ACT-a door to opportunities
Amrutha Anil [I MBA K]
The Sarbanes-Oxley Act, popularly known as SOX, refers to the federal law, The American
Competitiveness and Corporate Accountability Act of 2002. SOX often regarded as a
breakthrough in the federal system, was introduced after the Enron and Worldcom scandals.
The Sarbanes-Oxley Act contains eleven areas that require a public company to adhere to, including senior executives taking individual responsibility for the accuracy and
completeness of corporate financial reports, and enhanced reporting requirements for
financial transactions. The Sarbanes-Oxley Act also describes the penalties for non-compliance including severe fines and even jail time, for individuals who are found
responsible for their firms' non-compliance. Hence, the manufacturing companies are now
forced to allocate many resources and money to ensure that the internal and external auditors
are satisfied with the SOX reporting. This change did cost companies a great deal of time and money. This is where KPMG and other such auditing firms came to play a huge role.
Career Opportunities
Sarbanes-Oxley has created a pool of accounting jobs, especially for those who have learned
the new accounting rules and procedures. Career opportunities are open for both internal auditors and external auditors in order to provide unbiased reports.
Due to the compliance rules established by SOX, and increased compliance requirements, the
compliance officer's job has become more demanding because companies must file many reports with the Securities and Exchange Commission. The implementation of SOX has
created a new, sustained demand for accountants. The plethora of jobs that have been created
because of the act include auditing jobs, internal auditor jobs, cost accountant jobs, and accountant jobs.
With a shortage of qualified accounting professionals in the job market and growing demand
for their skills, companies will resort to recruiting and hiring professionals with higher
salaries and bonuses. To look into the Indian scenario where SOX is widely implemented in
the IT industry, it is expected that the job requirements are to increase. But it is not enough if
the companies have qualified professionals, rather it is equally required that they comply with
the law. In a scenario where scams are making headlines every second, SOX is inevitable.
Firms like KPMG have admitted that they require more professionals to handle the SOX. In a
recent survey conducted by monster.com, it is found that the accounting professionals are
more in demand after the implementation of SOX. Another survey proves that women
accounting professionals are finding more opportunities in the field and KPMG is among the
few companies to have so. Thus SOX is surely a breakthrough in terms of opportunities in the
financial sector.
Sources:
http://career-advice.monster.com/job-search/company-industry-research/sox-is-a-hot-
skill-in-accounting/article.aspx
10
Trading Opportunities of Securitised Debt
Vineet Kumar T V [I MBA K]
When we think of trade in the financial market, two things come into our mind: high return
and the risk associated with it. We always need high returns for our investments with
minimum risks.
Here is an opportunity for mainstream investors to own high yield assets through investing in
securitised debt in BSE. A securitised debt instrument was listed for trading on the Bombay stock exchange‘s debt segment on January 15th 2013 for the first time ever. It is a pool of
loan assets from eight microfinance institutions and was created by IFMR capital. Asirvad
Microfinance Private Limited, Chaitanya India Fin Credit Private Limited, Disha Microfin Private Limited, Fusion Microfinance Private Limited, Grama Vidiyal Microfinance
Limited, Sonata Finance Private Limited, Suryoday Micro Finance Private Limited and
Utkarsh Micro Finance Private Limited are the eight MFI‘s which contribute to the pool of
loans. These entities have portfolios diversified across 11 states such as Tamil Nadu, Karnataka, Gujarat, Uttar Pradesh, Uttarakhand, Madhya Pradesh, the National Capital
region, Haryana, Orissa, Bihar and Maharashtra. The listing event was conducted at the
International Convention Hall at BSE and had representation from a variety of stakeholders including regulators and transaction participants. The first ever secondary trade in the listed
SDIs occurred with Ratnakar Bank which acquired a Series A1 SDI from Axis Bank on the
exchange.
Securitization of debt which is also known as asset securitization is a process by which
identified pools of receivables, which are usually illiquid on their own, are transformed into
marketable securities through suitable repackaging of cash flows that they generate in the future. Theoretically, all assets generating stable and predictable cash flows can be taken up
for securitization. In practice however, much of the securitised paper issued have underlying
periodic cashflows secured through contracts defining cash flow volumes, yield and timing. Construction contracts, real estate mortgages, credit card payments, car loans and export
orders are some of the future cash flow contracts that can be used to secure securitised debt.
The two contracts that come along with the instrument are to pay the interest on the debt and
an asset to be seized if payments are not made. In a securitised debt instrument, a pool of loan assets is transferred to a Special Purpose Vehicle (SPV), or an enterprise. The SPV then
issues bonds to the investors. The SPV manages the cash flows of the loan assets, which
would be used to service the bond obligations.
It has been rated A+ by CRISIL and it bears 115per cent interest rate of interest. Most times a
small or medium MFI finds it difficult to provide a portfolio which is large enough to be taken to the capital markets. But through this instrument, by pooling loans from multiple
MFIs, it is possible to reach a critical portfolio size that can attract mainstream investors.
Introduction of securitised debt instrument will bring greater transparency and sustainability
in IFMR Capital‘s efforts towards financial inclusion, simultaneously marking a milestone for debt securitisation in India.
Sources:
http://www.ifmr.co.in/blog/2013/01/15/in-a-first-ifmr-capital-lists-securitised-debt-on-the-
bse/ http://www.ehow.com/list_6732226_listing-securitised-debt-instruments.html
11
Investor Check
MINUSCULES RULE THE INITIAL OFFER SETUP
Abhishek Aggarwal [I MBA I]
Yet again SME IPO‘s are proving to stand on their promises. One such IPO is that of Esteem Bio Organic Food Processing which had its T-day on 07th February 2013. This stock showed
good response when its issue price was concerned i.e. `25 and in its second day of inception
it reached to a high of `27.80. Its intraday trade volume was also very promising which was
at levels of 8, 58,000 shares. If the same trend of trade volumes is reflected by the stock in the
coming week, the investors should surely look forward on increasing their margins by buying
in excessive numbers.
In Addition, V Mart Retail IPO got oversubscribe by 1.2 times. Rumours were going on in
the market that the 38 Lakh equity shares on offer won‘t make up for minimum subscription, but it got through. But, it was strange on the part that the maximum bids came at a price
between the price band (195-215) and not at the upper limit of the price band. Also, for about
185per cent of this IPO over and above, V Mart Retail got anchor buyers in the form of IDFC Premier Equity Fund & Morgan Stanley Mutual Fund which got these 6,74,400 shares at an
agreed price of `210 each. From the total issue size constituting 25.045per cent of the post
issue paid-up capital of the company including the anchor investors‘ part, about 28 Lakhs shares were for fresh issue and about 17 Lakhs shares were put on as offer for sale.
Now, let me throw upon some light on the upcoming IPO‘s and yes you guessed it right it is
from BSE SME exchange by a Gujarat based synthetic manufacturing company Kavita
Fabrics. In the absence of a price band, the price is fixed at `40 and 12.75 Lakhs shares are
up for issue from which around 2 Lakh shares are reserved for corporate buyers and the
remaining comprise as net issue to public. This IPO is a stake sale due to which the Promoters' holding will be reduced from 56.785per cent to 35.935per cent post issue. The
issue opens on 20th February 2013 and closes on 22nd February 2013. Any rating from a
Credit Rating agency is yet to come but it is advised for the investors to go for this issue keeping in mind the performance of the company in the past three years.
Sources:
http://www.moneycontrol.com/news/ipo-new-listings/esteem-bio-closes-at-premium6listing-
day_820176.html http://www.moneycontrol.com/news/ipo-issues-open/sme-kavita-fabrics-ipo-to-openfebruary
-20_821438.html
http://www.vccircle.com/news/2013/01/31/av-birla-group-backed-v-mart-raises-money-anchor-investors
12
Red Chilly
Vattam Bharghav [I MBA V]
Chilly is the dried ripe fruit of the genus Capsicum. In India chilly is traded as dried chilly
commonly known as lal mirch (hindi). Dried chilly in India is majorly used as spice in curried
dishes.
Andhra Pradesh is one of the biggest producers of dried chilly in India producing Guntur
Sannam grade chilly. Till 19-09-2012 the area under chilli, in major producing area of Andhra
Pradesh is 97,872 hectare compared to 117,308 hectare last year. Farmers were expected around 305per cent crop shortage due to current season lower prices and erratic monsoon. In
some regions farmers have already shifted to cotton and other cash crops.
The bullish rally of chilly started in the last week of December due to the above-mentioned
reason. Poor rainfall throughout the season also supported prices to trade steady with positive
sentiments. Though the acreage is less the availability of chilly is not expected to be lesser
than the previous year backed by the ample availability of stock. But practically the possibility of traders releasing their stock into the market is low as it increases the supply and reduces the
prices. During the first week of February, the commodity has seen a correction in its price and
expected to grow back.
In NCDEX (National Commodities and Derivatives Exchange Ltd.) Chilly is measured in
units of Quintals and sold in lots of 5 Quintals.
Current performance of Chilly in the Commodity Market:
Chilly is presently being traded with a spot price of `6804/Quintal (6th February, 2013).
The current Spot prices in NCDEX for Chilly futures are (6th February, 2013):
`6804 / Quintal for 20 March, 2013.
`6976 / Quintal for 19 April, 2013.
`7400/ Quintal for 20 June, 2013.
`7544/ Quintal for 19 July, 2013.
Due to the low supply concerns, the price of chilly is expected to go to levels of `7100/
Quintal in the coming month.
Sources:
http://www.indianspices.com/html/s0623chl.htm http://www.agriwatch.com/storydetails.php?Red-Chilli-Area-Down-by-16.5-in-Major-
Growing-Regions&st=NEWS&commodity_id=29&sid=231678
http://www.commodityonline.com/commodity-market/commodity-prices/red%20chilli http://www.commodityonline.com/news/ncdex-chilli-trend-bullish-profit-booking-expected-at
-higher-levels-52458-3-52459.html
http://www.ncdex.com/GlobalSearch/Search.aspx?
13
Tribhovandas Bhimji Zaveri Limited
Ankit Dewani[I MBA K] SriKrishna Sajja[I MBA M]
About the Company:
Tribhovandas Bhimji Zaveri Limited is an India-based jewellery retailer. The Company is
engaged in manufacturing or trading and selling of jewellery. The Company sells gold jewellery and diamond-studded jewellery. It also sells other products, including platinum
jewellery, jadau jewellery and silverware. The design and manufacture of its products and
silverware is done either in-house or by third parties. As of March 31, 2010, the Company
had 12 showrooms under the trade name of Tribhovandas Bhimji Zaveri. It has two designer boutiques under the trade name Krsala, which predominately sell diamond studded jewellery.
Four of its Tribhovandas Bhimji Zaveri showrooms are in Mumbai, Maharashtra; one is in
Thane, Maharashtra; two are in Hyderabad, Andhra Pradesh; one is in Vijayawada, Andhra Pradesh; one is in Ahmedabad, Gujarat; one is in Surat, Gujarat; one is in Indore, Madhya
Pradesh; and one is in Kochi, Kerala.
Financial Estimates & Figures
Net Sales at `5.77bn v/s our estimate of `5.2bn. Gross margin declined by 234bps
QoQ to 175per cent. EBITDA at ` 436mn (estimate of ` 450mn) as EBITDA margins
stood at 7.65per cent (est of 8.6%)
PAT was inline with our estimate at `247mn (estimate of ` 240mn).For 9MFY13,
revenue grew by 8.45per cent to `12.1bn, the growth was muted mainly on account of poor performance in 1HFY13
EBITDA remained flat at `1bn as margins declined by 70bps YoY to 8.55per cent.
Higher other expenditure due to ad spends and new stores impacted operating perform-
ance.
PBT grew by 115per cent YoY to `835mn mainly on account of lower interest cost.
PAT at `600mn was up 18.65per cent YoY.
Key Highlights:
Demand sluggishness witnessed in the month of Dec 2012 and Jan 2013 after strong
festive demand in Oct 2012 and Nov 2012.
Same store sales growth during the quarter was flat in value terms and witnessed a
decline in volume terms.
Share of gold coin was higher due to festive season and Diamond share was at 245per
cent v/s 275per cent in Q2FY13.
Gross margin profile was lower QoQ on account of incentive schemes mix in favour of
gold and higher share of gold coins.
Gold loan amount stood at `1.5bn which is 295per cent of the total gold inventory.
The company indicated that in an event the recommendation made by the working
committee of RBI is accepted, it would plan to pass on the increased in interest cost to
the consumers. However, we have taken a full impact of shift towards base rate.
14
Results Impact & Ultimate Consequences:
Margins decline due to lower share of diamond, high share of gold coins and discounts
offered.
Reducing estimates to factor in higher interest cost by 8-95per cent.
Any regulations impacting Gold demand a key risk.
Financial Figures :
15
Sales Figures:
Graph as on (11/02/13)
The graph, with the 6 months movement has shown a growth of more than 1005per cent. It
has also added on to the growth and the demand due to the festival seasons like Dhanteras,
Diwali.
16
Valuations of the Firm (as on 11/2/2013)
CAGR of 375per cent and PAT CAGR of 435per cent during FY12-15E. It is an
estimate to factor in the impact of increase in interest rate.
While the long term story of shift towards large brand jewelers remains impacted
there is an overhang on the stock on account of recent initiatives from government
to curtail gold import. Regulations to impact the gold demand are a key risk. At a CMP of ` 194, the stock trades at 12x FY14E and 8x FY15E.
A special pick definitely due to the Gold rates fluctuations & the growing demand.
Expectation of outperforming due to results.
CMP: 194
TARGET: Rs280
Duration: 6 months
17
Alumni Speak
Mithil Kumar A [I MBA L]
Name: VINOD KUMAR S
Company name, designation held: Northern Trust ,Technical Coordinator
Put some light on your Company, the job profile and the role you play in your organization?
Northern Trust is one of the world's leading asset management, asset servicing and banking firms,
serving successful individuals, families and institutions around the globe.
NT provides trust, custody, investment management, and banking services to individual and
institutional clients throughout the world.
I am currently working as a Technical Coordinator for Portfolio Statements Audit & reporting team
consisting of 38 employees. My role is to train the team members to understand the client reporting
and the audit process and relate the market movements to the client investments. I also place controls
to ensure that there are no errors in the audit and the client reports and our clients are produced with
the best and up to date reports.
What encouraged you to choose this industry and join the particular company?
I was looking for a well established and stable financial organization which is good to start my
professional career and which can help understand the corporate life better and also learn the
custodial services market.
How is your experience in the company as well as industry so far?
Northern Trust is a very good company to start with. This has highly encouraging management, people
friendly environments and endless scope for learning and professional development and growth. I have
been enjoying my work and the organization .
How is professional world different from the life in MBA?
Two years MBA program would try to mould you to be a best fit to any organization. Here you are
only preparing yourselves to face the life. The one who makes the best use of it will know how to live a
life in the professional world. Everything and anything you learn in MBA is useful in your
career\professional world, some way or the other. It is more challenging but fun to face it.
Are there any additional courses / certifications that you recommend in this field?
The office here is consisting of Back-end processes majorly. So, a B.Com would also do. There are
multiple processes. But for advancing In Internal Audit, Global Investments, Risk Analytics etc, an
MBA\CA\CFA is a must.
18
Who is your role model and how he/ she inspires you?
There are many great leaders whose stories keep inspiring me. Indra Nooyi (CEO, Pepsi Co) is one of
my role model and who is also known as the most powerful woman. Her bold global strategies,
smartness and her leadership stories always keep me inspired.
What are you doing to ensure that you continue to grow and develop in industry?
I am currently studying for FRM (Financial Risk Management) and I am also planning to take up CFA
post completion of FRM. This would definitely add more knowledge and help me grow with a higher
scope in Investments and Risk segment.
What are the characteristics you believe one should possess to join this company?
Anyone who is looking for a first job and gain a good first job experience and also closely learn the
Organizational work culture and also understand the Investments and custodial services market can
join this company.
What are the opportunities for us (juniors) in your company?
Opportunities are always there.
Will you be willing to come and share more about the industry and the company and your
experience with us in an alumni interface?
Yes, anytime.
What are your short-term, mid-term and long-term plans, respectively, for future?
Completion of FRM and CFA certifications are short term. My mid term goals are to learn more of
Risk related services and gain a good experience in that. And also to aim to become a highly reliable
and strong financial consultant\Advisor for corporate & HNIs. Long term goals is to Retire and start
as professor\consultant for MBAs and other management institutes.
Any message for Christites?
Christ University is a great place to be in. These two years of MBA is a great opportunity to learn and
develop yourself to become a great professional personality in any Organization. You need to identify
the Financial market that would like to be in. Find out the best place that you would love to work in
and that matches your skills and values. Work hard and ensure that you get it.
Enjoy your life every minute. Do what you love and love what you do!
19
Taxing the super-rich
Akanksha Bansal I MBA L]
Sabahat Bashir[I MBA I]
―When the government requires more resources, the very rich should willingly pay a little
more‖, as said by Finance Minister Mr. P. Chidambaram. Will taxing the super-rich make
India Inc. edgy or will it bring any improvements in the fiscal deficit by pushing up the revenues?
Thinking sensibly, a floating market is the need of the hour to bring back the economy on the right track. Though a stable tax rate is good, but when the economy needs more resources to
brush up its deficits, the very rich should be ready to give out a little more. As per the
finance ministry data, out of 3.24 crore tax payers, over 4 lakh earn above 20 lakh and contribute more than 605per cent to the tax collection. On the other hand, those earning
below 5 lakh comprise 895per cent of taxpayers and contribute 105per cent of total tax
collection. According to survey by National Council of Applied Economic Research, more
than half of India‘s rich are evading taxes. Therefore enforcing the increased taxes on the rich may be politically correct.
Greater tax collection is helpful in mobilising the country‘s resources and tax evasion poses a serious threat to a nation‘s economy. These collections may be used for generating new jobs,
increasing revenues, create demand and drive the economic growth. The benefits obtained
from taxing the rich can be passed on to the lower income groups.
Taxing on the other hand can prove a blunt instrument in the markets. To regulate the inflows
from FII, the government will not be in a position to upset the super rich by imposing
additional taxes. Some might even debate that higher taxes may discourage the spirit of entrepreneurship and deteriorate the investor community‘s confidence. It may even result in
relocation to profitable abode, increased tax evasion, black economy etc.
Traditionally, a lower tax regime has resulted in greater tax collections in the country. With
stringent measures to ensure adequate tax collection and regulate evasion, tax collections can
be improved to a significant level. With the sole objective of increasing revenues, we cannot
take the easiest route of taxing the super-rich in the economy and putting the country‘s investment future in jeopardy.
With a lot being said about taxing or not taxing the super-rich, the major concern still re-volves around tax evasion. How can it be eliminated or can it ever be? The question persists
for us to think upon.
Sources:
http://newindianexpress.com/editorials/article1435826.ece
http://www.business-standard.com/article/opinion/broadening-the-net-113011000079_1.html
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Stamp Paper Scam: Telgi Scam
Akansha Jha [I MBA I]
The tentacles of fake stamp and stamp paper scam, better known as the Telgi Scam was
masterminded by Abdul Karim Telgi . Once referred as the mother of all scam, it penetrated
12 states and involved `178 crore. Between 1992 and 2002, 12 cases were registered against Telgi relating to counterfeit stamps in Maharashtra alone and 15 cases in other parts of the
country. It was perhaps our system‘s failure that he escaped despite committing such acts.
Telgi‘s father, who was an employee of Indian railway died when he was very young. His
mother Shariefabee Ladsaab Telgi took care of him. As a child he was very hard-working.
He sold fruits and vegetables to earn money to pay for his education. Telgi moved to Saudi
Arabia and returned after seven years.
Telgi along with his 300 people as agents started counterfeiting and selling stamps. These
were sold to bulk purchasers such as banks, insurance companies and other similar firms. For this, he used to wash cancelled stamp papers with chemicals to make them look as good as
new. He sold them through his network of front men. He also involved officials at the
Security Press in Nashik, where stamp papers are printed and started to use government
machinery to print stamp paper. He eventually bought some of the machinery and started counterfeiting on his own. His ―executives‖ would approach big corporations such as Indian
Oil or the Life Insurance Corporation and offer them discounts of up to 5per cent – a
substantial amount given that most stamp vendors give discounts up to 2.5per cent.
There were few reasons why Telgi was not getting caught. Firstly he was very clever and he
made good contacts with politicians. Secondly he used to record all his conversation during a deal and later uses it to blackmail .According to Public Prosecutor Thakare, he recorded them
with the introduction by the person he spoke to so he had enough evidence to blackmail.
This counterfeiting career ended when Telgi and several of his associates were imprisoned for ten years on January 2006. Later on 28 June 2007 Telgi was sentenced to rigorous
imprisonment for 13 years for scandals he committed. He was also fined with `100 crore and
Income Tax department confiscated his property.
Source:
http://oakblue.wordpress.com/2010/09/19/telgi-and-the-fake-stamp-paper-scam/
21
Did you Know?
Mezzanine capital
Tina Patricia D‘Souza [I MBA N]
Mezzanine capital, in finance, refers to a subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common
shares. Mezzanine financings can be structured either as debt (typically
an unsecured and subordinated note) or preferred stock.
It is a hybrid of debt and equity financing that is typically used to finance the expansion of
existing companies. Mezzanine financing is basically debt capital that gives the lender the
rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as
banks and venture capital companies.
Mezzanine capital is often a more expensive financing source for a company than secured
debt or senior debt. The higher cost of capital associated with mezzanine financings is the
result of it being an unsecured, subordinated (or junior) obligation in a company's capital structure (i.e., in the event of default, the mezzanine financing is only repaid after all senior
obligations have been satisfied). Additionally, mezzanine financings, which are
usually private placements, are often used by smaller companies and may involve greater overall leverage levels than issuers in the high-yield market; as such, they involve additional
risk. In compensation for the increased risk, mezzanine debt holders require a higher return
for their investment than secured or more senior lenders.
Mezzanine financings can be completed through a variety of different structures based on the
specific objectives of the transaction and the existing capital structure in place at the
company. The basic forms used in most mezzanine financings are subordinated notes and preferred stock. Mezzanine lenders, typically specialist mezzanine investment
funds, look for a certain rate of return which can come from:
Cash interest — the periodic payment of cash based on a percentage of the
outstanding balance of the mezzanine financing. The interest rate can be either fixed
throughout the term of the loan or can fluctuate (i.e., float) along with LIBOR or other base rates..
PIK interest — Payable in kind interest is a periodic form of payment in which the
interest payment is not paid in cash but rather by increasing the principal amount by
the amount of the interest (e.g., a $100 million bond with an 8% PIK interest rate will
have a balance of $108 million at the end of the period but will not pay any cash interest) .
Ownership — Along with the typical interest payment associated with debt,
mezzanine capital will often include an equity stake in the form of attached warrants or
a conversion feature, similar to that of a convertible bond. The ownership component
in mezzanine securities is almost always accompanied by either cash interest or PIK
interest and in many cases by both.
Mezzanine lenders will also often charge an arrangement fee, payable upfront at the closing
of the transaction. Arrangement fees contribute the least return and are aimed primarily to cover administrative costs and as an incentive to complete the transaction.
22
The following are illustrative examples of mezzanine financings:
$100,000,000 of senior subordinated notes with warrants (105per cent cash interest,
35per cent PIK interest and warrants representing 45per cent of the fully diluted own-
ership of the company)
$50,000,000 of redeemable preferred stock with warrants (05per cent cash interest,
145per cent PIK interest and warrants representing 65per cent of the fully diluted own-
ership of the company)
In structuring a mezzanine security, the company and lender work together to avoid
burdening the borrower with the full interest cost of such a loan. Because mezzanine lenders will seek a return of 145per cent to 205per cent, this return must be achieved through means
other than simply cash interest payments. As a result, by using equity ownership and PIK
interest, the mezzanine lender effectively defers its compensation until the due date of the security or a change of control of the company.
Mezzanine financings can be made at either the operating company level or at the level of
a holding company (also known as structural subordination). In a holding company structure, as there are no operations and hence no cash flows, the structural subordination of the
security and the reliance on cash dividends from the operating company introduces additional
risk and typically higher cost. This approach is taken most often as a result of the structure of the company's existing capital structure.
Sources:
http://www.investopedia.com/terms/m/mezzaninefinancing.asp
Buzzword
Iceberg Order Definition :
Iceberg Order is a large single order that has been divided into smaller lots,
usually through the use of an automated program, for the purpose of hiding the
actual order quantity.
. When large participants, such as institutional investors, need to buy and sell large
amounts of securities for their portfolios, they can divide their large orders into
smaller parts so that the public sees only a small portion of the order at a time - just as the 'tip of the iceberg' is the only visible portion of a huge mass of ice. By hiding
its large size, the iceberg order reduces the price movements caused by substantial
changes in a stock's supply and demand.
23
Crossword
Ganesh Prabhu [I MBA K]
Across 1. an upper limit placed on the payoff of a
trade, limiting the upside to the buyer and the
downside to the seller.
4. __ purchase system is a system in which people usually agree to pay for goods in parts
or a percentage at a time.
7. To save money people open Savings bank__ 9. A situation where a person or company is
unable to pay its debts
10. Of, or related to, public money. 11. the ability or ease with which assets can be
converted into cash.
12. The rate of interest earned through a
security by an investor on investing. 14. Increase in the value of something.
Happens generally to buildings.
15. A certificate of debt. generally long-term, under the terms of which an issuer contracts to
pay the holder a fixed principal amount on a
stated future date (maturity date) and usually a series of interest payments during its life.
Down 2. Method of selling commodity by bidding
and in this the highest bidder wins the com-
modity.
3.A person who owes money to another 5. basic share type for a company to raise
capital
6. The decrease in value due to wear and tear, decay, decline in price.
(Generally considered for machinery)
8. A broker‘s fee is given for assisting in buying or selling securities.
13. the actual price of a commodity is also
called its _ price
24
Sailabala Nayak
Eldho Poulose
Editor
Srivishnu Garbham &
Sailabala Nayak
News
Gaurav Agarwal
Graph & Rates
Abhishek Aggarwal
Investors check
Akanksha Bansal &
Sabahat Bashir
Debate
Tina Patricia D’Souza
Did You Know
Mithil Kumar A
Alumni Speak
Eldho Poulose
Contemporary Articles
Akansha Jha
Scams
Vattam Bhargav
Commodity Market
Ankit Dewani
Buzz Words
Ankit Dewani &
SriKrishna Sajja
Stock Watch
Paridhi Goyal
Review Committee
Arpita Samanta
Creative Head &
Design
Team Members
25
About Us
Chaanakya is the official Finance Magazine of
Wealth Incorporation, the Finance Club. It is released fortnightly.
Its objective is to keep each & everyone abreast with the activities
and events of the world of finance.
Christ University Institute of Management
Christ University, Hosur Road,
Bangalore - 560029,
Karnataka, India
Tel: +91-80-4012 9531/9532
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