Future Gazing – Business and the Internet of Things



The original Factors of business and production were Money, Materials, Machines and Men.  They still are, but with a few big changes caused by – the Services sector, the Internet of Things and the Smartphone. In this article, let’s engage in some present and future gazing, and discuss the changes in these Factors:


We can already see how money has been transformed over the last few years. At the click of a button, money moves across continents. In India we have a partially convertible currency. Even so this affects Indian investors:

International Currency Money for Forex Trading

International Currency Money

  1. Our stock exchanges seem to be powered by FII money, rather than domestic funds (as of now). The US Fed’s quantitative easing program and its expected taper, may change both sentiment and actual flow of money.
  2. FDI is a good source of long-term investments into the Indian economy. China famously attracted massive FDI over the last decade, powering an exports and manufacturing boom. FDI needs to perk up in India.
  3. The banking collapse of 2008 in USA, and its influence on the Indian market is a grim reminder of the global effects of US money problems. 
  4. Plastic (and virtual) money today is a massive change at an early phase. Within the country, transfers and payments are becoming faster, cheaper, efficient and traceable. It’s conceivable that in a few years even small change transactions will be fulfilled using Cards.
  5. RBI has done a good job of bringing the country closer financially. Banks talk to each other, and services are delivered in a uniform way. This needs to improve through banking sector growth and innovation.
  6. The next, and complex task is to track and bring black money into the system. To do this, the government needs to encourage and reward transparency and disclosures. Will it bite the bullet? Its to be seen.


While a lot of the materials we use are the same as decades ago, like Fuels and Commodities, there is a small but growing element of R&D driven new materials. These power advances in Space and Defense sectors, and can soon diffuse into our daily lives. One example is usage of plastics, aluminium and carbon in automobiles. Another is mixing ethanol with Petrol, a green innovation. And 3D printing. Solar power is now almost comparable in total cost to that from fossil fuels, due to improvements in fuel cell materials and manufacture.

Machines (and Computers, Applications and Mobiles)

A couple of decades ago Machine meant tools and devices used in factories. Now things have changed:

  1. The Services sectors have taken off, with 60% of the Indian economy from Services. These of course extend across Agriculture, Retail, IT and BPO, Tourism, Construction, etc. So instead of the Machine, the tool of creation could now be a shop, a mobile phone or a computer.

    Mobile Phone

    Mobile Phone (Photo credit: johnmuk)

  2. As factory machines improved manufacturing productivity, today computers improve office productivity across the spectrum of firms. From courier boy to CEO, office employees benefit from emails, internet search and use of office applications to do work faster, more accurately and better retrievable.
  3. The cutting edge now is the Internet of Things. This refers to using internet to monitor, maintain and control a range of Machines and devices in our daily personal life, or life at work. While computers and smartphones provide access to this world, machines like Automobiles and airplanes are rapidly becoming totally wired, whose entire data is already available real time. These are just a small step away from full internet based personal access and control.
  4. Internet now permits all this data and services to be accessed remotely – it doesn’t matter if the user is in the same city or another continent. This is an opportunity for Indian businesses, not just IT/ software and BPO but across the board such as Lawyers, CAs, design firms, ad agencies, consumer electronics firms, factory services firms, etc. The question to be asked is – how can internet improve what I want most from my business. This could be service delivery, client communication, satisfaction assessment, machine monitoring and maintenance, logistics tracking, etc. And there could be a superior, cheaper way …..
  5. ERP systems that captured all the business activities and reported and reconciled transactions were a black box to the outside world. They now need to open up. Its safer now. Data storage can be in remote data centers. Better suppliers and vendors are a few clicks away. Collaboration is easier. Customers want to connect with your systems and receive accurate routine information. Service providers can handle your accounting, payroll, HR and IT systems from afar, using the best applications and resources, helping you focus on your core competencies.
  6. The Smartphone is now at the center of innovation. Computer sales have flattened, while smartphones seem to be just taking off. This digital extension of a person is always on, as adaptable as a computer, and new apps and small hardware tweaks are going to push the limits of its utility for years to come. The basic phone, TV, computer, camera and internet are already integrated. Whats Next is that this device will power and control the (personal) internet of things. And the business Internet of Things will not be far behind.

Finally Men

Men (and women) as the creators and users of these new tools of business need to, more than ever before, embrace change. The changes are in new ways of doing things, in new locations where things can be done and in new tools to be used.

  • Creators in the IT industry need to build apps and make solutions. Users need to try out these new ways and new sites and adopt the useful.
A very important business man in an office.

A man in an office.

  • The Social Networking phenomenon has in recent years introduced us to Facebook, LinkedIn and Twitter, allowing us to find and communicate with anyone on the globe. Blogging and Support sites allow us to solve our problems using experiences from others to help us along. Google search helps find answers from content accessible online. The Internet of Things is Social Networking extended to devices and things around us. The difference is that on Social networking you laugh, cry, inform and update. With the IoT, you monitor, control, and order the things/ devices. For business, this is very powerful.
  • The basis of this is of course education. More specifically, computer education. The young seem to embrace this effortlessly. Recent experiences showed that young children when exposed to computers for the first time often in a few months learn to use the device quite well for a range of tasks. Without even a teacher to show them how. The older folks will learn more slowly, but this needs to be done.
  • Education is one sector that can be transformed using the computer. A single teacher instead of teaching 30 students in a physical class can teach 200 in a live video streaming session. And 20,000 by creating a packaged video/software module delivered on demand over internet maybe with limited supervisory assistance. The possibilities are limitless, especially given India’s current education and literacy challenges, and the visible demographics.


The internet boom of 1999 came too fast, promised too much, and burst. Today 14 years later, we are seeing some real benefits. As the Factors of Production have changed, so have the problems we face. But think of the potential windfalls from new solutions. There is no option to innovation.  

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Bharat Forge – the Forging Giant Returns

CMP: 291          Date: 12-08- 2011          Advice: Invest in SIP fashion

  • Till 2006 Bharat Forge (BF) was primarily an auto components firm. A number of mergers and acquisitions in the 2004-07 periods saw BF also enter in several new geographies. Manufacturing is in 11 locations and 5 countries: India (4), Germany (3), China (2), Sweden (1) and USA (1).
  • In the last 3 years, BF has executed a de-risking plan and enter into new verticals. For BF the focus in the Non-Auto business is on growing sectors like Power Plants, Marine, Construction & Mining, Oil & Gas, Energy, Aerospace and Railways, and Import substitution for BHEL.  JVs are with respected partners, like NTPC for power, Alsthom for Thermal/ Nuclear turbine/ generation sets and UK based David Brown for gear box manufacturer
Bharat Forge

Change in Revenue Segments

Fig 1 – Business Segments in 2011 (click chart to expand)

 Bharat Forge has successfully diversified from Auto into other verticals, de-risking their overall business profile

Current Business Outlook

  • The fall in auto demand in 2007-09 saw cost cutting measures rolled out to lower the break even for manufacturing facilities. Capacity utilization improved from 53% in 2009, to 70% for standalone and 45% for international entities in 2010. Additional improvements have contributed significantly to profits. All overseas subsidiaries, including its JV in China, FAW Bharat Forge, have see a turnaround and have started contributing to the bottom line, a year ahead of the 2012 target.
  • The auto market began to revive in 2009, and BF was best placed to take advantage of this trend.
  • In June 2011, Bharat Forge quarterly revenues surged to 857 crores, an all time high.
  • The Business environment and demand situation has now become very positive. BF is able to take advantage of surging demand due to spare capacities, low cost production, global presence and nimble design capabilities. Also a series of well timed entries into new non-automotive markets.
Bharat Forge

Quarterly sales and Net Profits

 Fig 2 – Quarterly revenues have surged (click chart to expand)

 Business is surging, in both Auto and non-Auto segments. Profit growth follows in a phased manner, as investments in new businesses break even

Valuations are low, growth is high

  • The stock price peaked in 2006 and has not touched those levels since. But BF has seen a dramatic business recovery in the last two years in terms of Earnings per share – EPS, which has already risen to all time highs.
  • While the BF stock has given investors only 11% CAGR returns over a 7-year period, the aggressive nature of this firm means that the initial period of rapid gain was followed by a period of restructuring and consolidation. The expectation now is another period of rapid gain on all parameters.
  1. Adjusted EPS has seen a recovery post ‘09 and is now into all time high territory
  2. Debt-equity is 0.74 as of Mar’11 (down from 1.21 in ‘10). This is comfortable, and safe.
  3. ROCE and RONW are in 15-17% range indicating healthy returns.
  4. PE has fallen to reasonable levels (compared to historical) indicating safety in investments at this level.
  5. PEG is in the range of 0.3, indicating indicates high safety and undervalued status
Bharat Forge

Fig 3 - EPS and Cash Flow

Bharat Forge

Fig 4 - Price and PE

Fig 4 – PE has fallen to attractive levels, and combined with robust business performance gives us a very good entry point for long term investments – (click chart to expand)

Bharat Forge

Fig 5 - Price and EPS

Fig 5 – Adjusted EPS has retraced rapidly and is into all time high territory


  • Bharat Forge has been in a period of consolidation, and will see a break out soon
  • EPS has moved to all time highs. With a suitable lag, this will be followed by stock price also moving into new highs. The stock will appreciate to Market Price of 700 in 12-14 months. This is based on an expected PE of 30 range and continued EPS growth seen since the bottom of June 2009.
  • This is an excellent entry point for this stock as it is currently underpriced and ‘out of favour’. The current market weakness has dragged down the market price of the stock. With overall Sensex / market recovery expected in 6-9 months, this share price is expected to recover rapidly.


  • Auto sector demand in India has been tapering off in recent months. It is expected to have lower growth for 2-3 quarters before recovering. Auto Exports however from India are accelerating.
  • Headwinds, such as Higher raw-material costs like steel and power may restrict margin expansion and EPS growth. The rising commodity costs have hit manufacturers like Bharat Forge.
  • In recent months the increase in interest rates and slowdown in the economy has slowed the growth of the auto industry, particularly in India.
  • However, both these events appear to have played out/peaked, and will stabilise/ reduce in the near future.
  • Business complexity has increased due to addition of a number of new verticals. However, BF is already seeing exciting success from the new ventures.
  • An increase in working Capital in the firm in 2011 saw the Cash Flow fall this year. This stems from investments in new businesses as well as new investments in the Auto business to increase capacity and de-bottlenecking.
  • External factors like stock market sentiments. However our current view is that this will revert to a positive state over the next 9-12 months.
  • Check back on the website www.jainmatrix.com for updates.
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L&T Finance Holdings – IPO – Invest

Price band 51-59 ; Issue period Retail – July 27 – 29, 2011.        

(For a detailed note on L&T Finance Holdings IPO with analysis, business charts and IPO risks, subscribe for free to this blog, on the right panel)

Update on July 28th

  • On the second last day, the IPO has already been subscribed 1.21 times, with breakup of QIB (0.72), HNI (0.5), Retail (2.21), Employees (0.51) and Shareholders (0.96).
  • Retail has the highest oversubscription till now !! This is a new phenomenon. Looks like QIB’s are worried about USA’s debt problems, and a dull Sensex with an Interest Rate increase over last 2 days has affected overall demand.
  • The investment limit for Retail is Rs 2,00,000. If you want to maximise your subscription, bid for 3300 (33X100 lot size) shares at Cut Off for an investment of Rs 1,94,700.
  • Good luck !!

Report on July 25th

L&T Finance Holdings is a high quality NBFC offering. Buy with a 2-3 year investment perspective.

L&T Finance Holdings – Description and Profile

  • This is the first public issue from the house of L&T since the parent’s listing way back in 1950
  • L&T FH is the holding company for the financial services business of the L&T Group. L&T FH has four arms that manage the mutual fund, asset financing, infrastructure financing and working capital funding businesses. This includes firms like L&T Infrastructure Finance, L&T Finance, India Infrastructure Developers, L&T Investment Management and L&T Mutual Fund Trustees.
  • L&T FH plans to mobilize Rs 1,245 crore, for a 14.2% dilution (17% total dilution including pre – IPO placement), valuing the firm at Rs 8,700 – 9900 crores.

L&T – Snapshot

  • L&T is a proxy for infrastructure, machinery and construction in India. The recent aggression and focus on core competence by management in the last decade has yielded results – of excellent growth and profits.
  • Over the last 10 years, L&T share has shown results:

–          Share price increased 48% CAGR

–          EPS has increased 31% CAGR

My conclusion is that L&T has rewarded shareholders over the years,  grown consistently and transparently, and built a good reputation. And this rubs off very positively on L&T FH.

L&T FH Financials

  • At Rs 59 (upper end of the price band), the L&T FH valuations are at 2.2 times the consolidated FY-11 book
  • The capital adequacy of L&T Finance and L&T Infrastructure Finance is 16.5 per cent.
  • Business Assets of L&T F and L&T IF combined are 11,491 crores as of Mar 2010; Assets have grown at 77% CAGR over the last 5 years
  • Combined PAT is 267 crores in Mar 2010; PAT has grown 62% in last 5 years
  • These high growth rates are expected to continue for many years, as Infrastructure spending in India is on the upswing.
  • Another attractive investment in this space is Yes Bank, see the report

IPO Offer:

  • The IPO price band is 51-59 per share; Issue period for Retail is July 27-29, 2011.
  • Investor categories includes – interestingly – Shareholders, in addition to the usual QIB, NII (HNI), Retail and Employees. Shareholders can decide if they wish to bid for shares under shareholder quota or Retail/HNI, as multiple bids may be rejected.
  • The purpose of the IPO is:
  • Retire Rs 345 crore of inter-corporate deposits. The inter-corporate deposit was taken from L&T to support the capital needs of its subsidiaries last fiscal.
  • To support capital adequacy ratio of its subsidiaries. Around Rs 570 crore would go to L&T Finance,and Rs 535 crore would be used for augmenting capital of L&T Infrastructure Finance.
  • P/E at upper end may be around 21 times.  The IPO has been rated – IPO GRADE 5 by the Agencies – CARE and ICRA, indicating superior fundamentals

Opinion, Outlook and Recommendation

  • All the large Capital Goods and Infrastructure firms worldwide have created finance arms/ tie-ups to bundle their product with financing. This provides a good synergy as the product is capital intensive e.g. GE Capital, Airbus and Boeing financial arms, etc.
  • The L&T Finance business will be better valued as an independent company, rather than as a mere subsidiary
  • L&T FH is well diversified as a firm, and is present in the high growth areas of Infrastructure financing and Rural development
  • The prospects for L&T are good over the next decade. L&T FH has strong synergies with the parent firm, and by independent listing, will be able to manage it’s capital needs and growth better
  • Invest with a 2-3 year horizon.
  • Check back on this website www.jainmatrix.com for updates

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These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

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Sparkling Power Finance Corp FPO – May 10-13

Update on late May 12th!

  • PFC FPO got over subscribed 3.6 times on Thursday.
  • While the FII portion was subscribed a healthy 6.9 times, the HNI (0.01 times) and Retail (0.34 times) subscribers are waiting for the last day. This indicates a likely surge tomorrow in the latter two categories.
  • The maximum subscription amount for Retail is Rs 2,00,000. For Retail, if you want to maximise your subscription, bid for 1064 (28X38) shares at Cut Off (could be as low as 183.35) for an investment of Rs 1,95,084
  • Good luck !!

FPO Note – May 10th

Power Finance Corp is a power sector PSU available at attractive valuations. Demand in the sector remains robust. Subscribe to the FPO.

Power Demand:

  • The Indian power generation sector faces huge demand growth. See graph (we are in 11th Plan now)
  • Plan vs Achievement has been as low as 51.5% in the 10th Plan
  • The shortfall of peak power has been 8-12% in the last decade.
  • Over 40% of Indian population still don’t have access to electricity
Power Finance Corp - FPO

Capacity addition – Power

Power Finance Corp  – Description and Profile

  • PFC is a firm that funds and stimulates power generation capacity in India. It is a Navaratna PSU registered as a NBFC with ‘Infrastructure Finance Company’ status.
  • PFC has a market share of about 20% in the Indian power lending industry, across all entities, NBFCs/ Banks, private/ public, and Indian/ MNCs.
  • PFC lends to a number of power generation firms, and is a nodal agency for Ultra Mega Power Projects (UMPPs), and the R-APDRP program (Restructured Accelerated Power Development and Reform Program), and for  other government driven power initiatives
  • It also lends to related sectors like Transmission Projects and Distribution, and runs the DRUM program (Distribution Reforms, Upgrades & Management).

PFC Stock evaluation, performance and returns

  • PFC first got listed in a Jan 2007 IPO, and got oversubscribed by 75 times; and the IPO price was set at Rs 85.
  • Investors in the Jan 2007 IPO of PFC have earned a 22% CAGR return to date
Power Finance Corp - FPO

PFC investor Returns

  • PFC has certainly outperformed the NIFTY since it’s IPO.
Power finance Corp - FPO

PFC has outperformed the Nifty

  • Key financial metrics of PFC are showing a steady uptrend
Power Finance Corp - FPO

PFC – financial snapshot

  • Quarterly profits are showing steady growth (except the last quarter)
Power Finance Corp - FPO

PFC – Income and Profits

Lending to Power sector

  • PFC is a nodal agency to facilitate implementation of Ultra Mega Power Projects; these have a capacity of 4,000 MW. PFC charges consultation fee of Rs 15 crores for accomplishing the legal approvals and consultation for a UMPP, thus acting as a one-stop solution provider.
  • The Ministry of Power, Govt. of India has launched the Restructured Accelerated Power Development and Reform Program (RAPDRP) in July 2008 with focus on establishment of base line data and fixation of accountability, and reduction of AT&C losses through strengthening and up-gradation of transmission and distribution network and adoption of information technology during XI plan.
Power Finance Corp - FPO

PFC – Asset and Borrower profiles

  • On the Assets side, PFC is primarily into Generation; the borrowers are mostly State Government bodies
  • PFC is allowed to raise tax-free retail bonds; this has allowed it access to lower cost capital.
  • PFC’s loan book grew at an annualized rate of 22.8 per cent over the period FY06 – FY11
  • PFC is also analyzing entry into funding for Nuclear Power plants.

FPO Offer:

  • The price band is fixed between Rs 193 – 203 per equity share. The offer will be open from May 10-13.
  • Retail investors are offered a discount of 5 per cent in the issue price
  • The IPO will raise funds of Rs 4400 – 4,700 crores at the lower and upper ends of the price band.
  • The follow-on public offer (FPO) comprises a fresh issue of 17.21 crore equity shares by the company and an offer for sale of 5.73 crore equity shares by the Government of India. Currently Government holds 89%. The FPO would result into equity dilution of 14.99%.
  • The purpose of the IPO is to
  • Help PFC keep capital adequacy ratio at 15% over the next few years – it has fallen to 16% now after the lending operations of this year.
  • Strengthen the Balance sheet
  • At the upper end of FPO pricing, of Rs 203,
  • P/E will be 8.9 times (Industry average is 12.2)
  • P/B will be 1.88 times
  • Dividend rate will be 2.2% – fair returns, and note that dividend payout will continue to increase
  • Note that Retail may be allotted at 5% below 193 – that makes it quite attractive.


  • Power generation project execution: This was the primary risk a few years ago, with delays and technology challenges. But of late with the opening up to the Private sector, the execution capabilities are improving
  • Power generation operations – Electricity payments from SEBs. The State Electricity Boards – SEBs cash losses have risen from Rs 6,500 crores in 2006-07 to Rs 28,400 crores in 2008-09. This may affect the payments to electricity plants, which in turn can affect PFC. However SEBs are undergoing restructuring in the States, and these should emerge stronger over the next few years
  • Power generation operations – Fuel supply linkages
  • Most power generation projects have Coal as fuel. Coal is generally supplied by Coal India Ltd. – which has not been able to meet production targets in recent quarters.
  • There have also been supply chain issues with coal – such as inability of Indian Railways to handle transportation.
  • Coal is also being supplied from Australia. This supply got affected recently due to floods there.
  • The fuel supply risks are being addressed in new projects by long term commitments from suppliers for new power generation projects.
  • While PFC’s gross and net NPAs have remained negligible in the last five years, defaults – it does not make provisions for loans turning bad – and higher credit costs could impact its balance sheet and earnings.

Opinion, Outlook and Recommendation

  •  India is a power deficit country and the current growth path will require continued capacity additions and efficiency improvements for foreseeable future.
  • PFC will see it’s role expanding for facilitating and funding power sector projects
  • PFC is another monopoly PSU and will execute on government objectives, in an assured returns environment.
  • The Indian government continues to offer PSUs at attractive valuations in public offerings
  • PFC can be a Core holding in the Core – Satellite portfolio for investors.
  • The current FPO offer is at 52 week low of market price. The fall in share price by 45% from the Oct 2010 peak has made current valuations attractive. This reduces the risk of the asset at this price.
  • Watch for subscription data till May 12th to get a better idea of allotments – or even better, check back on this website www.jainmatrix.com for updates :-)
  • Do you find this report useful? Please comment below. You can also subscribe for my posts by filling the ‘Sign me up’ box on top right of this page.


These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/
Performancing Metrics

Future Ventures IPO note – April 2011

Update on April 29th

  • Future Ventures has got a dull response till today. The overall subscription is 1.52 times the offer.
  • QIB section is oversubscribed 0.26 times, HNI is (strangely) 7.8 times and Retail 0.6 times.
  • Poor response may be not just because of poor reviews (see my IPO note below) but also concurrent investments in Muthoot Finance IPO as well as the falling Sensex over the last few days.
  • Good luck with your investments !!

IPO Note – Published on: Apr 23, 2011

Future Group – Promoter

  • Future Ventures is a part of Future Group, which owns companies like Pantaloon Retail India (Big Bazaar, Food Bazaar), Future Value Retail and NBFC Future Capital Holdings, Future Generali Insurance, Futurebazaar India, etc.
  • The core business of the Future Group is Retail, but subsidiaries are present in consumer finance, capital, insurance, leisure and entertainment, consumer brands, retail real estate development and retail media and logistics. The key promoter is the well-known Mr. Kishore Biyani.
  • Two of these group companies are listed entities, Pantaloon Retail India and Future Capital Holdings.
  • These two have not exactly outperformed in the last few years in the market.

Pantaloon Retail – Financial snapshot

A 5-year view of the share price of Pantaloon Retail. (click on graphic to enlarge)

Future Ventures IPO

Chart 1: Pantaloon Retail Share Price

A view of financials of Pantaloon Retail. (click on graphic to enlarge)

Future Ventures IPO

Chart 2: Pantaloon Retail financials

  • While revenues are high/have grown fast, there have not been corresponding EPS growth (due to dilutions), and the P/E still remains very high
  • Current market cap – 6000 crores

Future Capital Holdings

  • Had IPO in Feb 2008
  • The stock has suffered an average 40% fall in share price annually in the last 3 years
Future Ventures IPO

Chart 3: Future Cap Shares

A view of financials of Future Capital. (click on graphic to enlarge)

Future Ventures IPO

Chart 4: Future Cap Financials

  • Sales have not increased steadily; Profits have increased, but P/E still remains very high
  • Current Market cap – 1060 crores

The short profiles of group companies show that while the ‘BigBazaar’ brand is very good, and revenue growth high, the group has not been able to translate it’s ambitious plans into profitable businesses, and benefit shareholders.

Future Ventures – Business Profile

  • Future Ventures is like a holding company, that invest in and operates businesses in ‘consumption-led’ sectors in India, sectors which will grow as the purchasing power of Indian consumers increases, and caters to their changing tastes, lifestyle and spending habits.
  • Future Ventures has so far invested around Rs 450 crore in apparel makers, and Rs 250 crore in processed foods and consumer goods space.
  • The Company has 14 companies in its portfolio, and owns brands in fashion, FMCG, food processing and home products.
Category Company Products/ Market Remarks
Retail distribution 1.   Aadhaar Retailing Limited Rural and semi-urban retail distribution of agricultural and consumer products Majority stake
FMCG 2.   Future Consumer Enterprise Ltd. Brands such as Tasty Treat, Clean Mate, Care Mate, Premium Harvest and Fresh and Pure, being marketed through Big Bazaar and Food Bazaar. Majority stake
FMCG 3.   Future Consumer Products Ltd Brand ―Sach. Majority stake
Fashion 4.   Indus League Clothing Limited Ready-made garments under brands like Indigo Nation, John Miller, Scullers and Urban Yoga Majority stake
Home Products 5.   Indus Tree Crafts Private Limited Domestic retailing and distribution of a wide range of environmentally and socially sustainable products. Majority stake
Fashion 6.   Lee Cooper India Limited A manufacturer and retailer of denims, trousers, jackets, shirts and shoes under the Lee Cooper brand. Majority stake
Fashion 7.   Biba Apparel, Holds 17.3% stake in Biba, which will be upped to 28% soon
Food Processing 8.   Capital Foods A food processing company with brands like Chings Secret, Smith & Jones, Raji, Mama Marie and Kaeng Thai.
Consumer 9.    Amar Chitra Katha Stake to increase to 26% from 13.7% presently
Fashion 10.     AND Designs India Ltd; Global Desi Luxury clothing brands
Fashion 11.     Holii Accessories Private Ltd A joint venture with Hidesign India Private Limited for leather handbags and wallets
Fashion 12.     Celio Future Fashions Ltd A JV with a French brand of men‘s apparel and accessories
Fashion 13.     Turtle Limited Manufacturer, distributor, exporter and retailer of men‘s wear products.
Retail 14.     SSIPL Retail Ltd A retailer of Nike branded products, wholesaler of footwear, sportswear and apparel, and a manufacturer and distributor of footwear.


  • Future Ventures tries to exercise operational control or influence in the business ventures in which it invests
  • They pursue appropriate longer-term value creation strategies, which may include unlocking value in their business ventures through public market or private sales.
  • Future Ventures is also looking to invest in more ‘mature opportunities’ in companies which, it believes, have unrecognized growth potentials or are undervalued or in which it can identify hidden assets or recovery potential.


  • The company had consolidated net worth of Rs 738 crore as of December 31, 2010, with the value of investments pegged at Rs 112 crore.
  • For the nine-month period ended in Dec 2010, it had a total income of Rs 399 crore (primarily through retail sales of merchandise from its subsidiaries) with a net loss of Rs 14.67 crore.
  • Company officials claim that most of the companies that Future Ventures has invested in are breaking even at the EBITDA level and the results will improve going ahead. /This does seem like a tall claim :-).
  • The company is not expensive at around 1.1x post IPO book value (at upper band).
  • Market cap after successful listing would be about Rs 1800 crores

Negatives/ Challenges/ Concerns

  • For many portfolio companies, this is very early in the investment cycle. It is actually Private Equity companies that invest in such early stage, high risk businesses.
  • Most businesses are small and are many years and crores of rupees away from break-even volumes, a national recognized brand and profitability. Even with Pantaloon’s clout in distribution, it will take many years of investment to start making profits.
  • Intellectual Property – royalty payments to be made to Future Group for ‘Future’ trademark.
  • While there is a common ‘consumption‘ theme in the Portfolio companies, there are few synergies among them. Eg. A high-end fashion label from a well-known designer has little rub off on Amar Chitra Katha comics for kids or Chinese food sauces.
  • It’s possible that Pantaloon Retail may soon launch a number of Retail formats, but Future Ventures is a shaky ‘backward integration’ for Pantaloon Retail.
  • Maze of portfolio companies, difficult to value and project financials.


  • The IPO has been priced at Rs 10-11 a share. It is open for subscription from April 25-28 for Institutional investors and till April 29 for Retail.
  • The company will raise Rs 750 crore rupees through its initial public offering of shares, of which Rs 120-150 crore will be invested in existing businesses, while the remaining amount will be used for new acquisitions
  • Besides various privately held group firms of Kishore Biyani, Pantaloon Retail is the largest shareholder of Future Ventures with 18 per cent stake that will fall to 9.5-10 per cent post issue. Promoters’ combined holding will drop down to around 31-32 per cent post IPO while that of  Bennett Coleman & Co Ltd (Times of India Group) will see its 12 per cent stake drop to around 6.5 per cent, according to industry estimates.
  • This is the second attempt by the company to raise money via an IPO. It had earlier filed for an IPO just when the financial crisis began, then cancelled it.

Investment Advice

  • Avoid the issue for the following reasons:
  1. This is an investment vehicle in a clutch of firms that need heavy investments to grow in terms of brand and scale of business
  2. There is a bad record of profitability in the current business
  3. Poor track record of the promoter, of shareholder value creation in previously listed firms.
  • Watch subscription figures of IPO till April 28 to set expectations
  • Check back on the website www.jainmatrix.com for updates.
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These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/

Performancing Metrics

My investment rupee says Yes Bank

Yes Bank is an aggressive high potential new generation bank. The recent fall in prices by 28% makes this an attractive entry point for long term investment.

There is an updated report of Yes Bank available at link The Brave Warrior of Indian Banks by JainMatrix Investments includes Q1FY13 results, news updates and FY15 projections.

Yes Bank  – Description and Profile

  • Incorporated in 2003, Yes Bank received the only greenfield (Start up/New Bank) license awarded by the RBI in the last 15 years
  • Founded by bankers Rana Kapoor and Ashok Kapur, (combined stake 32.6%). Other shareholders are Rabobank 18.20%, AIF Capital (private equity), Orient Global (investment firm), Swiss Re, Khazanah Nasional (Malaysia Govt) all 3.5-5% each.
  • It has 185 Branches currently of which 14 were added in Q3 FY11.
  • Market cap is at Rs. 9,300 crores, putting it at #12-13 among all Indian banks, and #7 in private sector
  • The firm has about 4000 employees, including 970 hired already in FY11

Yes Bank has superior strategies

In spite of over a hundred banks as competition, Yes Bank stands out for the following reasons:

  • Seasoned, capable bankers as Management team
  • The firm is nimble and agile, and rapidly enters new high potential industries sectors for advisory, loan and banking services
  • Focus on Knowledge based approach to lending. Loans exposure is to sectors like Food and Agribusiness, Engineering, Infrastructure & Logistics, TMT (Technology, Media & Telecom) and Healthcare.
  • There are four business verticals in the bank: a) Corporate & Institutional Banking b) Commercial Banking c) Business Banking-SME d) Retail Banking.
  • The business focus was Corporate banking till now and on select sectors while providing the entire value chain in those niche sectors. Having achieved some scale, the bank is now widening focus into SMEs and Retail.
  • Aggressive Retail growth plans will help increase low cost CASA deposits, and increase margins. The RBI has granted license for 91 additional branches, so the total may increase to 250 by June ’11
  • Mistakes are made, but it learns from these, and exits fast (example – in 2007, there were a lot of complaints against complex foreign exchange derivative products sold to SMEs, that turned loss making. There were litigations against Yes Bank (and several other banks too). All these have been resolved.
  • Growth has been organic, and may remain as such. The executives believe that for Yes Bank, organic growth comes at a lower cost compared to available banking assets

Stock evaluation, performance and returns

  • It’s IPO in July 2005 was priced at Rs 45. It was 31 times oversubscribed. The maiden dividend was paid in 2010.
  • At CMP of Rs 277 today, the stock has shown a 33% annualized return over the last 6 years! (See Fig 1)
  • Income and Profit too have grown steadily (Fig 2)

Yes Bank, Stock appreciationFig 1 – Yes Bank stock performance (click to enlarge) Source: JainMatrix graphics

Yes Bank, Revenue, ProfitFig 2 – Quarterly income and Profit have grown steadily over the last 5 years Source: JainMatrix graphics

  • NII – the difference between Interest from Loans and Cost of loans – has grown at 41.5 % annually over the last 5 years. This is phenomenal, and indicates good margins
  • NII plus Other Income – Add to this income from fee based services like investment banking, advisory services, etc –  have grown at 37%

Yes bank, Price Earnings trendFig 3 – Price and PE Graph (click to enlarge) Source: JainMatrix graphics

  • After IPO, made at a high valuation, the PE stayed high for a few years (fig 3). The patient investor got rewarded in 2008-2011 period, where the share price rose rapidly.
  • There has been a recent fall, the PE now is low at 14.4 and this gives investors another opportunity to enter

Yes bank, EPS trendFig 4 – Price and EPS Graph Source: JainMatrix graphics

  • EPS (adjusted for equity dilutions) growth has been 36% CAGR over the last 5 years. The EPS quarterly graph (fig 4) shows an amazing parabolic rise. I would say it is a great company just achieving critical mass of size, brand and reach.
  • PEG is at 0.4 – indicates underpriced status, a very good investment opportunity
  • RoE is at around 20% – healthy statistic.
  • Price/Book is 3.08, this is fair for a mid sized fast growing bank.
  • Gross and Net NPAs are at 0.23% and 0.06%. This shows remarkable credit assessments and good processes
  • CASA ratio stands at mere 10.1% as on Q3FY11. This is low by general banking ratios, but this is being addressed aggressively.

Opinion, Outlook and Recommendation

  • India is an underbanked country. The RBI is actively encouraging new banks, and vast swathes of Rural India remain unbanked. The potential for Yes Bank to grow is large.
  • At the same time, competition in urban areas is high, due to presence of public sector, private as well as MNC banks.
  • RBI expects average industry growth rate to be 20% during FY11.  Yes Bank is expected to grow at a far faster rate than industry. It has well-defined, sustainable growth strategies in place.
  • Yes Bank will grow at 35-45% in terms of Profits and NII + fee Income for the next 5 years. With this trajectory, Yes Bank will join the ranks of large well managed private banks like HDFC Bank and Axis Bank
  • The fall in share price by 28% from the Nov 2010 peak to date has made current valuations attractive
  • However a look at the graph of DMA of the stock (fig 5) shows that the stock stays for long periods of time above or below the 200 DMA. It recently went below the 200DMA, so my advice is to wait for the stock to go above this before investing.
  • However retail investors can start to Invest systematically.

Yes Bank technical analysisFig 5 – Price and DMA chart (click to enlarge) Source: JainMatrix graphics


  • High competition
  • High interest rates and increased Costs – particularly employee costs
  • Execution risks in rapid bank branch growth
  • Current weakness may mean a period of falling prices before the appreciation resumes (fig 5)


These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/
Performancing Metrics

Steep Fall in Indices – Stay calm

Here is a quick round up – of the bad news:

  • Sensex is 17% down from November 2010 peaks. Particularly second half of Jan onwards, fall has been steep
  • Sensex is below its 200 Day Moving Average – DMA
  • FIIs are withdrawing funds from India. After investing $28 billion plus in 2010 they have now taken off $1.5 billion in 2011
  • Sensex represents large caps. Mid caps and small caps have fallen harder
  • A series of scams and bad news has hit us recently.
    • Telecom sector scam. Real estate loans scam. MFI sector bad news. Commonwealth Games scam.
    • High inflation. Soaring agriculture prices. Rising oil prices. Even other commodities are costlier. Metals. Energy.
    • Egypt and Tunisia have erupted and there is unrest here.

So what does an investor do? Calm down. And look at the good news.

  • India growth rate is as high as ever, at over 8% of GDP.
  • 3rd quarter corporate results show a steady growth in revenues, and a flat to positive profitability.
  • The US indices are up right now after a long time of poor performance. FIIs are happy to book some gains in India and invest in their own economy. Some short term money will definitely move away. Some of this money in fact is moving from Indian equity to Indian debt – to take advantage of higher returns.
  • Periodic scam news in India is only to be expected. Problems will be unearthed. SEBI and authorities will take action. Soon the issues should be ironed out. Whether it is Real estate loans or Telecom.
  • Definitely the government will not stand in the way of a going, successful business like telecom. But there needs to be a stable policy environment here. And interests of all – government, business and consumers need to be balanced out. A sector that today is 6-8% of the Indian economy in terms of direct & indirect revenues, definitely is important enough to be  well regulated.
  • New sectors like MFI are grey areas where governments have been taken by surprise. Soon monitoring and governance frameworks will emerge, and the panic will be over.
  • Agriculture is seeing higher demand (and prices) and will respond in one or two seasons with higher outputs.
  • Very soon, somewhere the Indian Indices and market will find support and strength will emerge again.
  • A lot of domestic institutions and Indian investors are only waiting to re-enter the market at lower levels

Relook at the big picture

  • As an investor, you need to have faith in the Indian economy and confidence that these are boom years where India goes from a poor/ emerging to a mid income/ developing economy. This is a 15 year story not a 1-2 year flash in the plan
  • Given this, any dip in the market is an opportunity to accumulate. The market will surely rise. For you, it is an opportunity to buy cheaper.
  • Your current portfolio may appear to be losing value, but if you can wait for 6-12 months, the situation will inevitably reverse.
  • Relook at your portfolio, identify the strongest stocks/ MFs that you have most confidence in, and invest in them at these lower levels.
  • Invest systematically, with a plan to buy on a monthly basis, spending a comfortable sum of money


These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com Also see: https://jainmatrix.wordpress.com/disclaimer/

Performancing Metrics