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

20

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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