Spandana Sphoorty Financial IPO – A Spunky Player

  • Date 06th Aug; IPO Opens 5-7th Aug at Rs. 853-856
  • Valuations: P/E 17.6 times TTM, P/B 2.4 times (Post IPO)
  • Mid Cap: Rs. 5,505 cr. Mkt cap
  • Industry – NBFC MFI
  • Advice: SUBSCRIBE
  • Overview: Spandana is a rural focused NBFC-MFI with a geographically diversified presence in India. It offers income generation loans under the joint liability group model, predominantly to women from low-income households in rural areas. They are the 4th largest NBFC-MFI and the 6th largest amongst NBFC-MFIs and SFBs in India, in terms of AUM. Revenues, NII and profit for FY19 were ₹1,049 cr., ₹640 cr. and ₹312 cr. resp. Capital adequacy is 39.6% which is very safe. Spandana exited from CDR in March 2017 and the operations are stable now. At a P/B of 2.4 times & PE of 17.6 times (post IPO), the valuation look attractive.
  • Risks: 1) Economically and politically sensitive sector 2) Significant exposure to unsecured loans.
  • Opinion: Investors can SUBSCRIBE to this IPO with a 2 year perspective.

Here is a note on Spandana Sphoorty Financial (Spandana) IPO.

IPO highlights

  • The IPO opens: 5-7th Aug 2019 with the Price band: Rs. 853-856 per share.
  • Shares offered to public number 1.40 cr. The FV of each is Rs. 10 and market Lot is 17.
  • The IPO in total will collect ₹1,200 cr. while selling 21.8% of equity. IPO is both an Offer for Sale by current shareholders (OFS) and a fresh issue of shares. The OFS proceeds would be ₹800 cr. at UMP and fresh issue size is ₹400 cr.
  • The Promoters are Padmaja Gangireddy, VSR Reddy Vendidandi and Kangchenjunga Ltd. that own 81.22% in Spandana which will fall to 62.58% post-IPO. The major selling shareholders are Kangchenjunga, VSR and Padmaja Gangireddy, see Exhibit 1(a). The IPO is being launched to provide partial exit to existing promoters as well as for Spandana to augment the capital base (Fresh Issue).

jainmatrix investments, spandana IPO

Exhibit 1(a) – IPO Selling Shareholders; Exhibit 1(b) – Shareholding pattern

  • The IPO share quotas for QIB, NIB and retail are in ratio of 50:15:35.
  • The promoter Kangchenjunga Ltd is a holding co. incorporated in Mauritius. It is a private company with limited liability, which holds a Category 1 Global Business License to carry out activities as an investment holding company and to acquire, invest in and hold securities of Spandana. The Class A shareholders of promoter Kangchenjunga are seen in Exhibit 1(b).

The unofficial/ grey market premium for this IPO is Rs. 18-20/share. This is small.

Introduction

  • Spandana is a rural focused NBFC-MFI with a geographically diversified presence in India. It offers income generation loans under the joint liability group model, predominantly to women from low-income households in rural Areas. As of FY19, they were the 4th largest NBFC-MFI and the 6th largest amongst NBFC-MFIs and SFBs in India, in terms of AUM. See Exhibit 2(a).
  • Revenues, NII and profit for FY19 were ₹1,049 cr., ₹640 cr. and ₹312 cr. resp. It has 7,062 employees (June 2019). 85% of their gross loans were Abhilasha loans, and 86% of the loan book is unsecured.

jainmatrix investments, spandana IPO

jainmatrix investments, spandana IPO

Fig 2a – Loan products (above) and Fig 2b AUM Spread

  • Spandana was incorporated as a public company in 2003 and registered as an NBFC with the RBI in 2004. Soon they registered as an NBFC-MFI in 2015. In October 2010, the MFI industry (including Spandana) was severely impacted as the govt. of AP promulgated the AP Microfinance Ordinance 2010, which enforced several restrictions on the operations of MFIs. This impacted Spandana collections, cash-flow, its ability to service debt, and so their growth and profitability.
  • Spandana’s lenders referred them to the corporate debt restructuring (CDR) mechanism of RBI to restructure borrowings and revive business. The CDR plan allowed them to get cash-flow relaxations to continue their portfolio diversification, process improvement and cost rationalization. Their operations turned profitable from FY14.
  • Spandana exited CDR in March 2017, which enabled it increase lender base, diversify its borrowings to new banks and NBFCs and also issue NCDs in the capital markets. As a result, during FY18, with increasing flow of capital, they expanded their operations and were able to utilize the existing branch network and employees (earlier underutilized due to lack of capital). Prior to their exit from CDR in 2017, they had limited access to capital, due to which they had to offer loans in lower ticket sizes than the demand from clients.
  • Distribution is strong as in 2019 they cover 16 states and 1 UT across India through 929 branches.
  • Leadership – Padmaja Gangireddy (MD), Sudhesh Chandrasekar (CFO), Abdul Khan (Strategy Officer).

News, Updates and Strategies of Bandhan

  • Prior to 2010 Andhra Pradesh MFI crisis, 51% of Spandana loan book was concentrated in AP. Post the debacle they have tightened internal controls to manage risk better by restricting (a) loan book exposure to a max of 22.5% for 1 state (b) loan book exposure to a max of 2.5% for each district (c) loan book exposure to a max of 0.3% for each branch.
  • Spandana’s business strategy is as follows:
  • To leverage their popular income generation loan products to derive organic business growth.
  • To leverage existing branch network by increasing loan portfolio and employee productivity.
  • To increase its presence in under-penetrated states and districts.
  • To further diversify their borrowing profile; and reduce their cost of borrowings.

Various shareholders invested in Spandana over the years. The average cost of acquisition per share for those shareholders is as follows:

jainmatrix investments, spandana IPO

Exhibit 3 – Cost of shares by investors

  • In Jun 2018 20.3L shares were allotted to Padmaja Gangireddy and 72K shares to Abdul Feroz Khan by private placement at Rs. 235.4/share. In IPO this has grown by 3.6 times in just over a year.
  • Spandana has raised Rs 360.28 cr. from 18 anchor investors by allotting 42,08,886 shares at a price of Rs 856, the upper band of its IPO. Among the 18 anchor investors, Wells Fargo Emerging Markets Equity Fund, Goldman Sachs India Ltd, ICICI Prudential Life Insurance Company and Bajaj Allianz Life Insurance Company have been allotted about 4.40 lakh shares each.
  • Spandana IPO was subscribed 6% on the first day of bidding on Monday (5th Aug).

Micro Finance and Banking Industry Outlook in India

  • Financing needs in India have risen along with economic growth over the past decade. By complementing banks and other financial institutions, NBFCs help meet this need.
  • MFI is a volatile sector that can be badly affected by economic and political events. Spandana’s operations were also affected post AP ordinance in 2010. It went into CDR however later came out of it in Mar 2017. In Nov 2016, the Indian government announced the demonetization of currency notes of ₹500 and ₹1,000 denominations. Though demonetisation affected the retail sector’s credit performance in FY17, which dropped 300 bps from FY16, growth remained higher than industrial and agricultural credit growth in FY17. The retail segment was negatively impacted by the demonetization driven slump in the real estate sector. Retail credit grew 16% YoY, while industrial credit contracted YoY by 2%. Such events have affected collection efficiencies which could happen in the future as well.
  • Spandana has a 2.6% market share basis its GLP. See Exhibit 4

jainmatrix investments, spandana IPO

Exhibit 4 – Market share and AUM growth for MFI players over the years

  • The share of adults with a bank account in India has more than doubled to approximately 80% since 2011, largely supported by the Pradhan Mantri Jan Dhan Yojana (PMJDY) a scheme of the GOI, which led to account growth and traction in savings. However, while significant traction is present on the deposit side, India is still among the Top 3 nations with unbanked people in the world, reflecting the strong need for an enhancement of the financial inclusion agenda.
  • The microfinance sector in India has grown at a CAGR of 23.1% over the past 10 years to reach ₹2,633 bn. as of FY19, despite some setbacks that have impacted the industry’s growth. The industry has evolved over time, starting with the Self-Help Group (SHG) Bank Linkage program and not-for-profit organisations (NGOs) being the key participants in the sector, to the scaling of NBFCs, the conversion of Bandhan Financial Services into a universal commercial bank and the launch of the Small Finance Banks. Presently, the demand for micro credit is primarily being serviced by industry participants such as MFIs, NBFC-MFIs, SHG, Banks, SFBs, NGOs, and other informal lenders.
  • The MFI sector has potential to grow the client base as well as ticket size per borrower. The micro-credit opportunity is about ₹5-6 tn. supported, considering the addressable market of low-income households in India. The traction in disbursements is expected to sustain and the industry is projected to witness a portfolio growth in the range of 20-24% p.a. over the medium term. Within this, the pace of growth of the non-SHG portfolio is expected to be higher at 25-30% p.a. Further, the ticket sizes are likely to go up in the states where the penetration levels are high. Overall client growth may be 8-10% and loan outstanding per borrower may increase by 12-15%.
  • Current challenges in the Indian BFSI sector include the collapse of IL&FS, a liquidity shortage in the BFSI sector, an NPA crisis in PSBs, real estate loans troubles and weakness in DHFL and Yes Bank.
  • Per management, MFI customers are unaffected by these industry events and are doing better.

Financials of Spandana

jainmatrix investments, spandana IPO

Fig 5 – Spandana Financials

Note: 1) Data for FY15-FY16 are per Indian GAAP, FY17-FY19 is basis IND AS with FY18-FY19 are consolidated 2) NIM or Net Interest Margin = Net Interest Income / Annual Average Gross AUM (%)* 3) NIM-R is net interest margin computed as Average Interest Charged less Average Cost of Borrowing. 4) Diluted EPS has been calculated after considering fresh shares to issued post IPO.

  • Spandana’s revenues, NII and PAT over the years are in Fig 5. Revenues, NII & PAT have grown at 33.9%, 34.5% and 31.2% resp. from FY15-FY19. These are good growth numbers.
  • Spandana had a RoE of 16.51% and RoA of 8.2% in FY19. This is moderate and sustainable as the business operations have stabilized now. NIM and NIM-R have stabilized for Spandana over the last 3 years. NIM at 16.39% for FY19 is the highest in the industry.
  • The PAT for FY17 surged 82.3% as it took a deferred tax credit of ₹421 cr. PBT for FY17 was ₹35 cr.
  • Spandana has the best asset quality in the industry. The NNPA as of FY19 stood at 0.02%. The NPA’s have largely come from unsecured personal loans, agri loans as well as MSME loans.
  • NBFCs are required to maintain a CRAR consisting of Tier I and Tier II capital which should not be less than 15% of its aggregate risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items. The Tier-I capital was required to not be less than 8.5% by FY16 and 10% by FY17. Spandana has an aggregate CRAR of 48.96% and Tier 1 capital to the extent of 48.52%. This is much higher than what RBI has prescribed which is a positive.

Benchmarking

We benchmark Spandana against peers, See Fig 6.

jainmatrix investments, spandana IPo

Fig 6 – Benchmarking

  • PE of Spandana is the lowest in the peer group. This makes the offering attractive on relative basis.
  • In terms of PB, the valuations are average. This is on an adjusted basis post dilution.
  • The 3 year sales and PAT growth is robust. However Bandhan continues to be the sector leader. The Cost/Income ratio too is low. The PAT margin (PAT/Income) as well as the NIM is highest amongst the peer group. This is a positive. The RoE is average among peer group.
  • GNPA is very high while NNPA is fine. The reason for this is loans outstanding from the AP crisis of 2010. However these are provided for by Spandana.
  • Overall we see Spandana as a MFI rapidly emerging from CDR and stabilizing operations well.

Positives for Spandana and the IPO

  • Spandana has suffered heavily and learnt its lessons in the 2010 AP MFI debacle. It emerged from CDR in 2017 after repairing its books. It now has geographically diversified operations which help in risk containment and business resilience. It also will target 25% CAR to ensure safety of operations.
  • They have a good branch network, with a current AUM of Rs 5 cr. /branch. Per management the focus now will on assets growth to Rs 10 cr. / branch.
  • Spandana’s growth has been achieved despite difficult conditions in MFI industry. After the AP crisis in 2010, there was demonetisation in 2016 and many farm loan waivers. But Spandana did well.
  • The asset quality of Spandana is robust with NNPA at 0.02% for FY19. Financially the firm is well managed with moderate return ratios, superior margins and has high growth rates. The IPO valuations at PE of 17.6 times and PB 2.4 times are also attractive.
  • Spandana has an experienced management team. Ms. Padmaja Gangireddy has 24 years of experience in Indian MFI.

Risks and Negatives for Spandana and the IPO

  • Spandana’s MFI loan portfolio is unsecured, and in the event of non-payment by a borrower, they may be unable to collect the unpaid balance.
  • The operations are still concentrated in the states of Karnataka, MP, Orissa, Maharashtra and Chhattisgarh. Any adverse developments in these states could affect business.
  • The promoters and certain directors have entered into ventures that may lead to potential conflicts of interest with their business. For instance, their Individual Promoter, Padmaja Gangireddy, owns 68.3% shareholding in Abhiram Marketing, a group company engaged in consumer goods, whose retail products are sold at their branches (and from whom they receive a sales commission). There is no assurance that the interests of Abhiram Marketing will align with Spandana’s business interests.
  • Any downgrade of Spandana’s credit ratings may increase their borrowing costs and constrain their access to capital and debt markets and, as a result, may adversely affect their results of operations.
  • MFI industry has enjoyed high growth and margins for the last few years. However the market may be getting crowded with several Private Banks acquiring or setting up MFI subsidiaries, Bandhan Bank getting a universal license and many MFIs getting SFB license.

Overall Opinion and Recommendation

  • The microfinance sector promises to extend credit to the underbanked and informal sector people for financial services penetration into rural India. The potential is immense and is barely tapped.
  • Spandana has a decent size, strong financial performance, recent recovery, good asset quality and an experienced management.
  • It is now the 4th largest NBFC-MFI with AUM, and post CDR has grown rapidly. It has a different DNA and may remain sharply focused on a national presence in only MFI loans for the next few years.
  • The management appears conservative and should able to target growth with lower risk taking.
  • At a P/B of 2.4 times & PE of 17.6 times (post IPO), the valuation look attractive.
  • Opinion: Investors can SUBSCRIBE to this IPO with a 2 year perspective.

Download Report:

The entire report can be downloaded, Click JainMatrix Investments_Spandana IPO_Aug2019

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no stake ownership or known financial interests in Spandana or any group company. Punit Jain intends to apply for this IPO in the Retail category. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

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Expectations and Thoughts on a New India – Post Elections Note

Date: 1st June 2019

Recent Events – Elections

  • Last week we had an election result day and the 2019 central election came to a dramatic end. We welcome the second term of BJP and the National Democratic Alliance at the center.
  • The 6 week long 7 phase election was an emotional, high decibel multimedia war among the parties and participants. I am so glad we fight this way. People argue, they criticize, they pull up history, they express themselves, and they get angry. They decide whom to vote for. Then they stand peacefully in a line to vote, and accept the outcome.
  • This is far better than a civil war or an agitation or a set of bandhs and protests. Thank you India. :-)

THE Economic Environment

  • Growth is slowing in the Indian economy to 7% and below. This is weak as we have a low per capita GDP. To absorb the population growth in jobs, we have to target 8% plus growth.
  • The slowdown is a culmination of multiple events – high interest rates relative to inflation; weakness in sectors like real estate, automobiles, consumption and low rural demand. BFSI sector has issues like a liquidity challenge affecting NBFCs, NPA issues in PSBs and the IL&FS crisis. Exports have slowed down as global demand is down due to weak growth and a tariff war between USA and China. The private sector is not investing.
  • Even though the above laundry list of issues is depressing, the economy also has a number of positives. Our IT and ITES sector continues to bloom. Sectors like pharma, automobiles, telecom and retail have achieved impressive scale. The large corporates have in general improved balance sheets and are low on debt. Private sector does have investment firepower in place if they see good opportunities. We are past several difficult structural reforms like GST, RERA, demonetization, shell company crackdown and Bank NPAs, and with this election result market uncertainties are much lower. We have rich human resources and need to tap this well.
  • Corporate India has to grip the large opportunities up for grabs – housing, infrastructure push from govt. including roads, railway, airlines and airports, gas distribution and water supply, mobile and telecom based opportunities, consumption by a large population, eCommerce, digital and Aadhar validation based business models.

A Wish List for Modi 2.0

As an investor, I have many hopes and expectations from this new government. Extending from governance to education to the corporate sector, this is my list:

  • How can justice be delivered faster? The numbers of pending cases in lower courts to SC are scary. The main issues are – slow resolution, and cases in lower court routinely reopened in higher courts. Our suggestion is to – have no vacancies for judges, courts open all year long, push for mediated solution rather than court battle, time bound cases (no tareek pe tareek) and low acceptance in higher courts. Digital solutions can speed access and enable common judgements for similar cases. The NCLT driven IBC code has also proven its usefulness. However this needs to be tightened based on the experience so far, to be faster and with higher success rates.
  • Do we have the right education systems today? The problems extend from low penetration and presence of schools, high dropout rates, poor learning and skill building outcomes, overlaps between state and central boards, many languages and high study load for students. Our suggestions are – more and better govt. schools, coordination between central and state boards on content and timetables, free and compulsory (penalty parents punishable) govt. education till 10th, digital tracking of schools, teachers and students, better curriculum of less rote and more experiential, discovery and project based learning, emphasis on sports with good facilities, and zero homework. Competition is always good, so all education should be freed from govt. license shackles. The best universities will naturally thrive.
  • Is the right way Garibi Hatao or Amiri Badhao? Both are important. On the former side, the excellent work on toilets, housing for all, LPG, ration card based subsidies, farmer schemes, cooperatives, good supply chain to agriculture needs to continue. Electricity for all, better quality electricity, lower leakages, pension for 60+ age, unemployment measurement and schemes (MGNREGA) needs to be bolstered. All subsidies and subsidized product distribution needs to go through Aadhar verification to plug leakages. On the latter side, corporates need to be encouraged as they generate employment, good salaries and taxable profits. Real Estate and Textiles need revival. Exports and a good startup environment is important.
  • Need for Infrastructure: This is obvious, and a crying need. While some progress has been made on Roads and Electricity, much more needs to be done here; and in Railways, Airways, Ports, Water supply, Healthcare and Education, Municipal reforms and Town planning, local transportation and Police reforms.
    1. Suggestions – funding is as important here as detailed planning. Pension and Insurance funds should be allowed and enabled to invest in Infra.
    2. Projects have to be reasonably profitable for private sector operators, with lower risks and permit challenges.
    3. Development of 1-2 new metros in every state. The current 6-7 metros are overcrowded and infra is stretched. The next 20-30 cities need to develop systematically to take pressure off these metros. The Smart Cities Mission needs to be accelerated.
  • Public Sector Enterprises: The Govt. should not be in any operational firm that has no national Interests. Firms like SAIL, NTPC, HPCL, BPCL, many parts of Indian Railways, BSNL, MTNL, Coal India, etc. should be freed from the chains of PSU restrictions, allowed to operate freely and generate reasonable returns. The PSUs and govt. ministries have assets worth lakhs of crores that are generating low single digit returns. GoI should monetize firms, assets and lands and sell to investors – foreign, Indian or even their own employees, through IPOs, auctions and management takeovers. And fund Infrastructure, Education and social needs.
  • The role of Regulators: The right way to encourage growth in a sector is to have a Regulatory authority that ensures a level playing field and meet national and business objectives to develop the sector. It has to include a think tank and sector experts. Regulators for every sector should be much more dynamic, open to discussion and forward looking, with minimum regulatory and legal overlaps. They must enable minimum ROI for new sector entrants. The success of SEBI, IRDAI, TRAI, etc. has to be extended to Hospitals, Education, Pharma, automobiles, chemicals, etc. to roll out required standards & compliance, and encourage growth and penetration.
  • Taxes, Interest Rates and more on Corporate Sector: The laundry list of urgent needs is
    1. Corporate taxes need to be lowered. This was a Modi 1.0 promise – lower taxes and fewer tax concessions.
    2. The current interest rates in India are very high in the global context, as well as given the low domestic inflation. Rates need to lowered – through RBI intervention and easing up of foreign borrowing.
    3. Simplification of GST to 2-3 levels. Inclusion of liquor, petro products and cigarettes
    4. SEZ model revival and encouragement of exports
    5. Labor reforms. Firms should be able to hire (and fire) more easily and with lower overheads.
    6. We need to officially and robustly measure & track Unemployment. This is a key economic measure.
    7. Auditors have an important role in prevention of financial crimes. Perhaps a regulator is needed for Statutory Auditors to keep up standards and prevent problems early.
  • Do we need to export more or import less? Both. Many high tech products like auto steels, specialty chemicals, commodities, oil, gold, machinery, chocolates and consumer products are imported for factories and consumers here. Local manufacturing needs to step up to fill these needs. Also exports is still not happening on a good scale. We are running a trade deficit. This has to be filled up by IT & ITES, pharma, automobiles, engineered products, steel, aluminum, petro products, gem & jewellery, tourism, airport /aviation and seaports /shipping.
  • Environmental protection: As the globe gets hotter, the oceans dirtier and forests thinner, it’s sad to see USA dropping environmental concerns and reneging on commitments. In the war on air, water and plastic pollution, India has a secret weapon – low cost of operations. It’s possible to recycle old ships (Alang), electronics /ewaste, newspaper and most dry waste, and generate a wage for workers and a profit for the business. However we need to protect our borders from waste dumping. And the Ministry of Environment, Forest and Climate Change needs to proactively reach out to industry, municipal corporations and volunteers to enable and scale these activities.
  • Thoughts on Ministerial Changes:
    1. In Singapore, the minister appointed for an Industry is often a very respected senior business executive from the sector, who transitions from a CEO role, to developing the sector for the nation. Knowledge of individuals gets institutionalized. This has allowed Singapore to progress very fast, it is now a Developed economy. India must adopt this model as in many ministries leadership requires a lot of industry knowledge.
    2. In India, we saw the Railways and Coal ministries work together innovatively due to a common Minister. Such strong coordination is needed to solve challenges such as Kashmir (Home and Defense), Transportation (Ports, Road, Rail, Air) and Energy (Electricity, Petroleum, Solar, Wind, Coal, Hydro,) etc.

Conclusion

  • Execution, administrative reform and good governance have been key observations in Modi 1.0. National pride, Industrial progress and social capital are coming together well.
  • We need to do even better in this new regime to take Indian GDP to 8-10% growth range and lift standards of 130 crore / 1.3 billion Indians.
  • Also see A Vision for the Indian Economy‘ 

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

IndiGo – Spreading Wings but Oil Squeeze

  • Date: 09th May 2019
  • Industry – Airlines 
  • CMP: Rs 1,575 
  • Large Cap of Rs 58,000 cr. mkt cap 

jainmatrix investments, indigo airlines

  • Overview: IndiGo is the market leader in Indian aviation with a low cost carrier model. It has a dominating domestic market share of 46.9%. The revenue and profit were Rs 23,967 crores and Rs 2,242 cr. resp. for FY18. The Income, EBITDA and profits have grown 31.6%, 26.6% and 21.3% CAGR over 8 years. The aggressive growth plans are in place for capacity addition. The Airline industry in India is going to see massive growth. With a big population, low penetration and weak railway sector, it should continue to grow at 15% over next few years. IGO has a strong brand and a leading domestic market share, consistent delivery and high growth. It has executed well on its LCC strategy. IGO has expanded the market with its growth. It will continue to dominate Indian skies due to network effect and good capacity additions. The IGO share is high due to market share gains, the Jet failure and Boeing grounding, inspite of high ATF prices. However there are several risks.
  • Key risks: 1) crude price rise affects ATF prices leading to sharp profit falls 2) large sector capacity adds puts pressure on prices 3) The risk of an engine failure is still there

Get the recommendation and free research report: For our Investment recommendation and free access to the entire 8 page PDF report:

    1. fill your correct details on page – https://jainmatrix.com/talk-to-us/ 
    2. In Question or Additional Information section, write – Indigo Airlines
    3. You will receive the report in about 1 working day.

On 30th May, 2017 we had published a report for subscribers for a HOLD call at Rs. 1,060 after sharp share price fall on account of a one-time event. The share price is up 49% since then. SIGN UP for the investment service subscription to gain exclusive access to high quality investment reports.

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Punit Jain discloses that he has been an investor in IGO since Nov 2015. He has also flown Indigo Airlines several times as a normal paying customer. Other than this JM has no known financial interests in IGO or Interglobe Aviation or any related firm. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

RVNL IPO – Railways’ Growth Engine

  • Industry – Railway Transportation PSU in PMC space
  • Mid Cap of Rs. 4,000 crore
  • IPO Opens 29th Mar – 03rd Apr 2019; Price range Rs. 17-19/share
  • Valuations: P/E 6.9 times TTM; with a discount for Retail investors
  • Advice: SUBSCRIBE for listing gains

Summary

  • Transportation Infrastructure is a crying need in India. With Airlines, Roads and Ports sectors making good progress, the final frontier is the Indian Railways. The sleeping giant of IR appears to be getting up in the last few years.
  • IPO Overview: RVNL is a Delhi based PSU into PMC of Railway projects like track laying, electrification, bridges etc. Its FY18 revenue, EBITDA and PAT were Rs. 7,822 cr., Rs. 614 cr. and Rs. 570 cr. resp. Revenue has grown at an impressive 33.7% and PAT at 19.2% over the last 3 years. Valuations are attractively low with a FY18 PE of 6.9x for the IPO. It has an asset light model. A good kicker should come from Q4FY19 results and listing gains in a positive market. Governance appears good and transparent within the PSU limitations.
  • Key Risks: 1) Change in Central Govt. 2) De-emphasis on infra and railways by govt. 3) Issue of a contingent liability 4) Weak infra funding environment.
  • Opinion: Investors can SUBSCRIBE to this IPO with a listing gains and a 2 year perspective.

Here is a note on RVNL IPO.

IPO highlights

  • The IPO opens: 29th Mar-03rd Apr 2019 with the Price band: Rs. 17-19 per share. A discount of ₹0.50 per share on the offer price has been offered to retail and employee bidders.
  • Shares offered to public number 25.34 crore of FV Rs. 10 and each market lot is 780 shares.
  • The IPO will raise Rs. 482 cr. for 12% equity by current promoter i.e. Govt. of India with no dilution. The IPO share quotas for QIB, NIB and retail are in ratio of 50:15:35.
  • The unofficial/ grey market premium for this IPO is Rs. 1-1.5/share. This is a positive.

Introduction

  • RVNL – Rail Vikas Nigam Ltd – is a Delhi based PSU into PMC of Railway projects like track laying, electrification, bridges etc.
  • Its FY18 revenue, EBITDA and PAT were Rs. 7,822 cr., Rs. 614 cr. and Rs. 570 cr. resp. Revenue has grown at an impressive 33.7% and PAT at 19.2% over the last 3 years.
  • RVNL is a Miniratna (Category – I) firm incorporated by the Ministry of Railways (MoR) in 2003, as a project executing agency for MoR to undertake rail project development, mobilization of financial resources and implementation of rail projects for golden quadrilateral, port connectivity and project execution. RVNL mobilizes finances and forms project specific SPVs with private participation.
  • The railway projects include new lines, doubling, gauge conversion, railway electrification, metro projects, workshops, major bridges, cable stayed bridges, institution buildings etc.
  • Since 2003, RVNL has got 179 projects of which 174 are sanctioned for execution. Out of these, 72 have been fully completed for ₹20,567 cr. outlay and the balance are ongoing. They have an order book of ₹77,504 cr. as on Dec 2018 for 102 ongoing projects.
  • During FY18, they completed 885 RKm (Route kilometre) of project length which included 315 RKm of track doubling and 425 RKm of rail electrification.
  • RVNL earnings are from a management fee on the annual expenditure incurred for the execution of projects, of 9.25% for metro projects, 8.5% for other plan heads and 10% for national projects.
  • Their activities under the various plan heads can be classified as under:
    1. New lines: is augmenting the rail network by laying new lines to achieving seamless multi-modal transportation network across the country and connecting remote areas.
    2. Doubling: Doubling involves the provision of additional lines by way of doubling the existing routes to enable the Indian Railways to ease out traffic constraints of single line or construction of 3rd/4th line to increase the capacity. RVNL is a significant contributor to the doubling projects and has been contributing to a third of the total doubling being completed / commissioned on Indian Railways for the last three years. (Source: CARE)
    3. Gauge conversion: includes conversion of meter gauge lines to broad gauge railway lines.
    4. Railway electrification: This includes electrification of current un-electrified rail network and electrification on the new rail network, generally from diesel run trains.
    5. Metro projects: This includes setting up of metro lines and suburban network in larger cities.
    6. Workshops: This includes mfg. facilities, and workshops for repairing and mfg. rolling stock.
    7. Others: This includes but is not limited to construction of traffic facilities, railway safety works (building of sub-ways in lieu of crossings), other electrification works, training works, surveys, construction of bridges including rail over bridges, etc.
  • As a PMC (Project Management Consultant) firm, its services comprise of: (i) project development and execution of works related to creation of rail infrastructure; (ii) creating project-specific SPVs for encouraging private participation in the funding of railway projects; (iii) undertaking execution of railway projects under specific financial arrangement for the MoR and other Govt. departments; (iv) and other ancillary services like bankability studies for projects and preparation of detailed project reports.
  • It has an asset light model where the contractor identified for project execution brings in all the people resources and machinery required.
  • RVNL has a lean organization with only 541 employees of which 150 are regular and 391 are on deputation and may return to their home employer over time.
  • Leadership in RVNL is Pradeep Gaur (53) is CMD, Ajay Kumar (56) is Director (Personnel), Vijay Anand (59) is Director (Projects) and Arun Kumar (59) is Director (Operations). They are all professionals with experience in Indian Railways and Metro corporations.

Financials and Segments

  • We can see a solid growth of financials. FY19 so far does not look good, but we typically see H2 and Q4 as better than H1. See 4 year financials of RVNL in Fig 1.
  • The emphasis in RVNL is on new lines, lines doubling and Metro projects. See business segments as reflected by the Order Book as on 31st Dec 2018 in Fig 2.

jainmatrix investments, RVNL IPO

Fig 1- RVNL FY18 Financials
jainmatrix investments, RVNL IPO
Fig 2 – RVNL Order Book Segments

Industry thoughts:

  • Over the last few decades, the Indian Railways (IR) has not developed as fast as Roads, Ports and Airline sectors. It has struggled with its public service role as the dominant transporter of passengers. Most of the passenger services are priced at a discount and profits are from the goods services.
  • However capacity constraints like tracks have forced IR to de-emphasize goods services.
  • Productivity improvements have suffered in IR due to large and ageing workforce, legacy organization issues, weak governance in the past and slow decision making. Corruption has been an issue in IR in recruitment, private contracts and public services.
  • Computerization has helped improve the Reservation system in IR. However there is still a long way to go in passenger capacity utilization, flexible pricing and ease of access.
  • In recent times we have seen a dramatic improvement on many of these parameters in IR.
  • In 2016, IR announced a capex plan of Rs 8,60,000 cr. over 5 years i.e. 2016-20. The capex plan is 90% more than the capital outlay in the previous 15 years.
  • IR may be a critical element of India’s future growth story if it improves productivity, technology upgrades, goods transportation focus, financial sensitivity and improves services.
  • RVNL is a key growth arm of IR and may have a good role to play in the transformation of IR in terms of capacity increase, new tech initiatives, metro projects, high speed train lines, etc.
  • RVNL is also one of the second generation PSU firms that are lean in terms of employees, have a sharp business focus and outsource routine tasks to firms and have high productivity.
  • MoR has under it group firms Indian Railways, Concor, RITES Ltd., IRCON, IRFC and RVNL.
    • IR is the monopoly operator of rail based passenger and goods transportation services.
    • Concor is a listed container focused transport firm running multi modal services.
    • IRCON is a multi national consultancy firm active in transportation and infra, listed recently.
    • RITES is a turnkey construction firm active in Rail and non-rail infra areas, listed recently.
    • Indian Railway Finance Corporation (IRFC) is the dedicated financing arm of the Indian Railways for mobilizing funds from domestic as well as overseas Capital Markets.
    • In this comparison it is clear that RVNL has a focus on India based Railways related work as a PMC consultant. There is little overlap with group firms.

Benchmarking

We benchmark RVNL against other comparable Indian Railway firms, and also KEC which is a private sector infra EPC firm. See Exhibit 3.

jainmatrix investments, RVNL IPO

Exhibit 3 – Benchmarking

  • The PE post IPO is low. This provides a safety net for IPO investors.
  • Return ratios are good among the PSU pack.
  • Debt is high but this is expected from an infra projects firm. Also it is a pass through debt, with IR making the payments as per schedule.
  • 3 year growth of revenues and PAT is excellent.

Positives for RVNL and the IPO

  • We have seen a flurry of new initiatives in IR and a slew of new projects and technology initiatives. The GoI is serious about change. So RVNL may see acceleration in business.
  • Many private sector suppliers to IR have reported good growth in orders booked and revenues, across parts supply, and projects related to track laying and electrification. Many of these initiatives may be run by RVNL. Also it is notable that GoI is procuring from reputed private sector firms and taking their help to ramp up its operations.
  • RVNL is a lean and productive firm, and with this listing, may be allowed to chart an Indian Railways independent part to growth and impact. Infra development is a high potential sector.
  • It has attractive valuations with low PE and PB, moderate return ratios and a high 3 year revenue and PAT growth. The over 4%+ dividend yield is good.
  • An order book of Rs. 77,500 cr. gives business visibility of 10 years.
  • BV of Rs. 4,062 cr., and BVPS of Rs. 19.4/share is close to IPO price.

Risks and Negatives for RVNL and the IPO

  • Typically infra projects have issues like land acquisition and govt. clearances which delay execution. This is true for railway projects too with suburban and metro projects.
  • Funding of infra projects is underdeveloped in India. Long term funds from insurance and pension firms do not flow smoothly to infra, so projects become riskier with shorter term and more expensive funding. It is also exposed to financial variations like the current NBFC liquidity issue.
  • On many parameters IR is weak when compared internationally, such as speed of trains, passenger services in trains and at stations, etc. Conversely many improvements are possible.
  • The MoR and IR have been slow to grow in the Metro segment in India. As a specialized suburban train, the Metro is seen as an essential urban solution in Tier 1, 2 and 3 towns.
  • As a MoR firm, with IR as the key group firm, RVNL may be constrained by their slow approvals and permissions. There are worries around political compulsions in MoR.
  • Also RVNL has got projects by default from IR in the past due to relationship and structure. However in future and after RVNL listing, the flow of new projects is not assured.
  • There is a contingent liability of Rs. 3774 cr. This is due to a demand from a contractor. However RVNL feels that the demand is not as per agreement, also if the charge is enforced, it will add to the project cost and be reimbursed by respective clients.
  • H1 FY19 performance indicates no growth over FY18, however financials for PSU could be skewed towards H2 and Q4 which is usually the best quarter for infra/ GoI firms.
  • Of the 10 IPOs made by PSUs in the last 2 years, only 2 have generated positive returns. Balance 8 are down 30% on average. IRCON is down 16% since listing.
  • Political risk: With elections due in 1-2 months, we note that RVNL has accelerated performance in the current term of GoI. A change in leadership or party in power at MoR may affect future growth.

Overall Opinion and Recommendation

  • Infrastructure is a crying need in India. With Airlines, Roads and Ports sectors making good progress, the final frontier is the Indian Railways. The sleeping giant of IR appears to be getting up in the last few years.
  • RVNL represents the new initiatives, new technologies and expansion projects for IR. The current path is of acceleration, ambitious growth and standardization across India. The challenge is to get IR to grow in double digits, improve productivity, cover the country better and lower costs.
  • Valuations are attractively low with a FY18 PE of 6.9x for the IPO. A good kicker should come from Q4FY19 results and listing gains in a positive market.
  • Governance appears good and transparent within the PSU limitations.
  • Key risks are 1) Change in Central Govt. 2) De-emphasis on infra and railways by govt. 3) Issue of contingent liability 4) Weak infra funding environment.
  • Opinion: Investors can SUBSCRIBE to this IPO with a listing gains and 2 year perspective.

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no stake, ownership or known financial interests in RVNL or any group company. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

Market Outlook – Jan 2019

JainMatrix Investments takes a long hard look at 2018 and then builds the 2019 Outlook. 

What happened in 2018 – making sense of it 

  • CY2018 was a challenging year for investors. Many global equity indices gave negative returns, see Table 1.

jainmatrix investments, outlookTable 1 – Global Equity Indices (click to enlarge)

  • The Indian markets in 2018 were affected by various domestic and international factors.
    • The introduction of LTCG tax in Jan 2018 started the negativity after a very positive 2017.
    • Mutual Fund schemes were reclassified as mandated by SEBI, which led to MFs shifting the funds to LC stocks from Mid, Small and Micro caps and a sharp correction in MSM share prices. This was unexpected.
    • There were corporate scams (Punjab National Bank and Gitanjali Gems), auditor resignations and a new surveillance system (ASM framework) put in place by the exchanges to curb excessive trading.
    • The unfolding of the IL&FS crisis and the liquidity stress affected the NBFC sector.
    • Brent crude prices rose to $84/barrel creating worries over India’s deficit. The INR also weakened to Rs. 75/USD. Crude rose from May-Sept 2018 only to plunge sharply after that.
  • However it wasn’t all bad news in 2018. On the positive side,
    1. GDP rose sharply, as did govt. spending in Infra space. Inflation fell, giving debt investors better real returns. Domestic investors moved into equity even as FIIs withdrew from debt & equity markets.
    2. Broader corporate earnings improved after a weak 2017 due to Demon and GST. Exports sectors like IT and gems & jewellery did well due to USD strengthening against INR.
  • See Fig 2. It can be seen that Nifty fell after Sept then recovered to stay positive by year end. Mid-caps and Small caps did badly in 2018. This was a Risk-Off year after Risk-On years of 2016 and 2017.

jainmatrix investments, outlookFig 2 – Benchmark Indian Indices

  • In USA Trump reduced taxes, which gave a boost to the markets. However he soon imposed tariffs on China and broke international agreements. Interest rates were raised by the Fed. after 8-10 years of quantitative easing and low rates. The govt. has shutdown following Trump’s order for a demand to build a wall between USA and Mexico.
  • A look at Dow Jones Industrial Average (USA) and Sensex, see Fig 3, indicates that over the longer term there is a similar pattern. However in the shorter duration the movements could be more influenced by domestic factors playing out.
  • Fig 4 shows the year wise performance of these Indices.

jainmatrix investments, outlookFig 3 – Sensex and DJIA 5 year movement and Fig 4 – Year Wise Performance of Indices

the 2019 OUTLOOK

  • The 2019 outlook has key factors:
    1. On Interest rates there should be a reduction by RBI as inflation is in check and growth will be encouraged.
    2. Elections: The Rajasthan, MP and Telangana election results were BJP losses but the market was not affected. Our feeling is that coming elections will be hard fought. However the worst case scenario is not very bad for the markets and India is on a growth and reforms path that should continue.
    3. Currently the BFSI sector is recovering from the IL&FS and liquidity crisis. The central govt. and RBI have taken measures to resolve these. Interest rates have hardened. The NCLT lead NPA resolution process is bringing confidence back to markets and strengthening Banks.
    4. Auto sector is slowing in Q3, partly due to credit issues. Cement is seeing good volumes but weaker margins. Capital goods, construction and infra are positive. Power sector looks steady. Consumption sector remains strong.
    5. Real estate is weak due to RERA, GST and crackdown on black money. Demand for new housing will remain weak until prices correct, except in affordable segment. Rentals demand will be robust.
    6. We do have a situation where GoI will increase public spending. In the private sector, growth is pushing capacity utilizations, profitability is increasing and there is some reduction in overall corporate debt levels.
    7. Given weakness in USA, Europe, China and Japan, India may become a favorite again among Emerging Markets for FII flows into equity and debt.
  • The outlook on USA equities is bearish on fears of slowing growth, govt. uncertainty and rising interest rates. The tariff war is more harmful to American business, and the Trump brand is causing uncertainty.
  • In Fig 4 India on average has seen 12% growth in 4 years, lower than the long term Sensex average of 13-14%. We expect a mean reversion to higher levels.
  • This market needs patience 
  • Post elections, we project a return to Risk-On for Indian stock markets. Long term investors can expect markets to be weak in H1 CY2019 and a recovery post elections.

We wish our readers a happy and prosperous new year!

Disclaimers

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Punit Jain has no shareholding in any listed firm mentioned in this article. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain is a registered Research Analyst and compliant with SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

The NBFC sector selloff – is it overdone?

In the last few weeks, shares of some NBFC/BFSI stocks have fallen between 15-60%. Here we try to find out the key causes, possible timelines and suggest next steps for investors. 

The recent developments in Indian Banking Financial Services and Insurance (BFSI) sector have created a fear of systemic risks – causing stocks in general, specifically NBFCs, to correct sharply.

The IL&FS Default

  • IL&FS is a core investment firm and the holding company of the Group with firms in infra, finance, social and environmental services. IL&FS is a “systemically important” NBFC firm as per RBI.
  • In Sep2018 IL&FS Financial Services, a group firm, defaulted in payment obligations of bank loans, term and short-term deposits. It failed to meet the commercial paper (CP) redemption due on Sept 14, 2018. After this ICRA downgraded the ratings of its short-term & long-term borrowing programs.
  • The short-term paper of IL&FS saw a credit rating fall to a rating of D on 17 Sept (indicating default), down from a rating of A4 (as on 8 Sept) and A1+ (as on 6 Aug). Similarly, ILFS Financial Services short-term paper credit rating fell to ‘D’ on 17 Sept, down from A4 (as on 8 Sept) and A1+ (19 Feb).
  • Infra sector in India does face challenges like long gestation periods, low returns, and funding issues. Investments in infra should be financed by long gestation sources like insurance and pension funds.

Spill over effect on equity market

  • IL&FS has total debt of Rs. 91,000 cr. at the group level from 350+ direct and indirect subsidiaries, JV’s and associate companies. Of this debt, 61% is in the form of loans from financial institutions, indicating its woes could spread to other shadow banks.
  • Fresh inflows into MFs, especially into debt funds, slowed, and debt fund managers began to adopt a “wait and watch” policy on deploying fresh funds. A few MFs started selling short term debt instruments issued by NBFC companies including those funding the housing sector. There are concerns over short-term liquidity in the market for CPs raised by NBFCs. Further, there is also an uncertainty about the ability of certain NBFCs to raise capital.
  • Fresh bond issuances by NBFCs declined and the costs of borrowing rose. Post the default, there was a sharp decline in bond prices for HFCs which brought funding/liquidity situation of NBFCs into fresh scrutiny. This resulted in a sharp sell-offs in anticipation of rising borrowing costs, tightening liquidity situation which could impact growth sharply in turn also. Hence there was a double blow to stock price targets from earnings downgrade as well as valuation multiples downgrade (faltering growth).

What added fuel to fire?

The macro is also seeing headwinds such as:

  1. The NPA issues around Public Sector Banks (already under resolution)
  2. High Crude Oil Prices and Depreciating Rupee against USD
  3. Consistent selloff by FIIs of debt & equity; and Trade War fears
  4. Regulatory Whip on private banks – Yes Bank, Kotak Mah. Bank, Axis Bank and Bandhan Bank
  5. The merger of 3 PSBs
  6. Upcoming State and General Elections
  7. Market Rumors causing volatility
  8. Mid-year cash flow issues due to advance tax and bank repayments

Regulatory Rescue and other Positives  

  • The RBI, Finance Ministry and MCA have stepped in quickly to avert a crisis. They  took control of IL&FS, and with NCLT approval, reconstituted the board and it is now headed by Uday Kotak as chairman. The new board is focused on turning around the operations of IL&FS soon.
  • The RBI will infuse Rs. 36,000 crores through open market purchase of bonds to ease liquidity concerns.
  • A reduction in excise duty was announced to reduce petrol & diesel costs.
  • The RBI MPC kept interests rates unchanged, indicating that inflation is under control and giving a thrust to economic growth.
  • Domestic liquidity and growth of MFs was strong recently and should continue.
  • India’s GDP grew at 8.2% cent in Q1 of FY19. This is an outstanding number,the highest growth in two years. Surely the growth will also reflect in the BFSI sector, as this sector addresses both consumer and industrial credit.

Which stocks got affected the most?

  • A lot of private sector banks and many of the HFCs from the NBFC space were affected. Here is how the share prices have moved in the last 1 year.

jainmatrix investments, nbfcFig 1 – One year Normalized Price Graph / Fig 2 – In Percentages jainmatrix investments, nbfcNote: The share prices in Fig 1 have been scaled for a better representation of relative movement of all the stocks over 1 year, which may not reflect the actual share price. The 9 stocks chosen above are an incomplete but sufficient representation of the sector. 

The Outlook

  • After a few weeks of uncertainty and liquidity dry-up, the financial system will surely rebound. Short term interest rates are firming up too.
  • IL&FS may undergo a restructuring; a fresh infusion of funds – maybe a rights issue and a sale of assets will help the firm meet its debt obligations. Some strategic announcements should happen in 1-2 months.
  • The developments around IL&FS and the macro economy do call for a correction in stock prices. However the correction has been overdone in BFSI/NBFC stocks.
  • Long term investors should look at selectively accumulating the beaten down quality stocks when some signs of recovery are in place.

Appendix / Legend – Sorry we keep using shortforms

  • BFSI – Banking Financial Services and Insurance
  • NBFC – Non banking Financial Services company
  • CP – Commercial Paper
  • HFCs – Housing Finance companies, a type of NBFC
  • RBI – Reserve Bank of India – India’s Central Bank and regulator for banking sector
  • MPC – Monetary Policy Committee, a group from RBI
  • FIIs – Foreign Institutional Investors
  • MF – Mutual Fund Industry
  • NPA – Non Performing Assets
  • NCLT – National Company Law Tribunal, is a quasi-judicial body in India that adjudicates issues relating to Indian companies.

Disclaimer 

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Punit Jain has positions in some of the firms mentioned in this report. JM objective is to draw attention to the sector rather than any specific stock. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JM at punit.jain@jainmatrix.com.

This market needs Patience

Dear investor,

You got into an amusement park. And decided to take a peaceful ride, say a merry go round. You sat down, and found to your surprise that you are actually on a High Thrill Ride, buckled in, and you cant get off.

The market today is a little bit like this ride – it can be described as a Bull market undergoing a correction.

I would like you to see this 20 minute YouTube video. Its an interview with a great Indian investor, Mr Raamdeo Agrawal. The video in Hindi describes his own journey and has important lessons for the long term investor.

(Credits – thanks to Mr. Raamdeo Agrawal and CNBC Awaaz for this content).

Think of this market correction as an opportunity. Your already invested portfolio will recover soon. In fact it is time for you to confidently continue your investing in a market looking more reasonable. 

JainMatrix Investments provides 3 Model portfolios – Large Cap, Mid & Small Cap and Satellite portfolio. These solid research backed portfolios are all you need for your long term investments.

You just need to stay calm and ride out this high thrill ride. To meet your goals. 

Here’s to your Happy and profitable investing.

Punit Jain
JainMatrix InvestmentsBangalore

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DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.