Editorial Beloved Readers, The time of festivities has finally arrived with Delhi's chilling winter and 2017 rapidly moving towards its end. This year was a roller coaster ride not only for us but also for the Indian economy. While we started this year with hopes and a dream of pursuing an MBA, now we are almost halfway through. Seniors are looking forward to the new stint in their corporate lives. Indian economy has been on an upswing in 2017 with various events and reforms like demonetization, GST, improvement in ease of doing business rankings, bagging the fastest growing economy title leaving China behind. With Christmas right around the corner, let's all spread the joy and happiness to everyone around us and be a better version of ourselves with each passing year. We wish you all Happy Holidays and a Merry Christmas!! Keep Reading! Feel free to send us your bouquets or brickbats!! We are always on the look out for valuable and constructive feedback from our readers.
PARV SURANA, RITU RAJAN
CONTENTS
FINSHORTS
COVERSTORY
2
- India Upgraded from Stable to Positive, Modinomics Lauded
4
NATIONAL
- RBI holds the Repo Rate
7
MARKET
8
CLASS TALKS
- Overview On Dividends
11
SCAMS, SCANDALS, STORIES
-Ketan Parekh
13
WIZARDS
- JACK MA
15
The Editorial Team.
Facebook: https://www.facebook.com/FinNiche/
- Chaayos
17
TBA Trades
18
LOCK THE STOCK
START UP TRACKER
- ONGC
20
26
FINQUIZ
1) COVER STORY - SAUBHAGYA SCHEME 2
1
FINSHORTS
SUSWETA BANIK
1. RBI maintains a neutral stance in the 5th bi-monthly MPC meeting The repo rate and reverse repo rate remain unchanged at 6% and 5.75% respectively and economic growth projection is retained at 6.7% for FY'18 by RBI. However, the inflation forecast for the remainder of the current financial year has been raised to 4.3-4.7%. 2. Salil S. Parekh appointed as CEO and Managing Director of Infosys Capgemini executive Board Member Salil Parekh has been designated as Chief Executive Officer after a 2-month executive search post Vishal Sikka’s resignation. 3. FRDI Bill, introduced in the Lok Sabha in August 2017, presently under the deliberation of Joint Committee of Parliament The Financial Resolution and Deposit Insurance Bill 2017 aimed at limiting the fallout of the failure of financial institutions. Some of its provisions like “bail-in” clause have been termed anti-public as it states that depositor’s money could be used by failing financial institutions to stay afloat. However, Govt. claims FRDI Bill clauses to be aimed towards protecting depositors’ interests. 4. Instant Triple Talaq Bill cleared by the Union cabinet The Bill titled "The Muslim Women (Protection of Rights on Marriage) Bill" proposes that a woman who has been divorced through Triple Talaq, can approach a magistrate and seek maintenance from her husband. 5. A new panel formed by the Finance Ministry to frame response on the bitcoin issue RBI Deputy Governor B P Kanungo, SEBI Chairman Ajay Tyagi and I-T secretary are few members of the committee formed after Bitcoin advanced over 1600% to $17,040 on December 15 against $1,000 in January this year. The IT Department is surveying operations at the major e-currency exchanges across the country. 6. US Federal Reserve hikes interest rates by 25 basis points on December 13 Apart from the present hike, the US Fed projected three more rate hikes for 2018. The Fed’s decision led to BSE Sensex and NSE Nifty open on a firm note on December 14. The US economy is expected to grow 2.5 per cent both in 2017 and 2018. 7. GST Council decides to go for early implementation of e-Way Bill for inter-state movement of goods The Council had decided that the e-way bill which is generated on the GST Network portal and required for movement of goods worth more than Rs 50,000 would be introduced in a staggered manner from Jan. 1, and will be rolled out nationwide from April 1. The revenue shortfall is one 2
of the major reasons of the rollout timeline review. 8. Outlook for Indian corporate sectors is stable except Telecom according to Moody's The stable outlook for non-financial corporates is supported by the expectation that GDP growth of around 7.6% will lead to higher sales volumes and EBITDA growth of 5%-6% over the next 12-18 months. A negative outlook was received by the Telecom sector of India due to intense competition and heavy debt loads which will continue to pressure cash flows. 9. Mobile operators to submit their network-related data as asked by Telecom regulator Trai A fresh format for mobile operators to report quality data every quarter has been issued by Trai based on its new Quality of Service (QoS) formula. Under these parameters, call drops will now be measured at mobile tower level instead of at telecom circle and operators might face a maximum penalty of Rs 10 lakh for non-compliance. 10. WPI inflation touches 8-month high of 3.93% while CPI inflation touches 15-month high of 4.88 Sharp rise in onion prices and costlier seasonal vegetables has led to the spike in inflation. The industrial output growth also slowed to a three-month low of 2.2% in October due to slowdown in manufacturing and consumer durables sectors. 11. Maldives deemed as an important partner by China in building the 21st Century Maritime Silk Road (MSR) A crucial free trade deal has been signed between Maldives and China along with 11 other agreements on economy, human resources, oceans, environment, health care, and finance. India has strong reservations over the MSR and did not endorse it over concerns of increasing Chinese influence in the Indian Ocean. 12. MDR charges on digital transactions up to Rs 2,000 to be beared by the Government RBI had announced new norms according to which MDR charges to be fixed at 0.40% for small merchants with turnover upto Rs 20 lakh during the previous financial year and at 0.90% for other merchants limited to Rs 1,000 per transaction. This would impact the digitization strategy and hence government has planned to borne the MDR charges for two years with effect from January 1, 2018 by reimbursing the same to the banks.
3
COVERSTORY
SNIGDHA RAO
INDIA UPGRADED FROM STABLE TO POSITIVE, MODINOMICS LAUDED
India’s sovereign rating has been upgraded a notch higher by Moody’s , thus endorsing the Indian Prime Minister’s reform policies. It has moved the rating from the lowest investment grade of BAA3 to BAA2 , thereby changing the investment outlook from stable to positive. Such an upgrade would help the ruling government to counter continuous criticism from its political rivals. It would also attract foreign portfolio investments and make external commercial borrowings cheaper for Indian business. Apart from the sovereign upgrade, the agency has also revised the ratings for corporate entities. Explaining the upgrade, Moody’s statement said that the upgrade has been made with the expectation that the economic and institutional reforms being implemented will in time to come enhance the growth potential of India. Finance Minister Mr. Arun Jaitley lauded the upgrade and said that it would be an answer to all those detractors who doubted India’s reform process. Financial markets applauded the upgrade and it was evident when BSE Sensex went up by 235 points up and closed at 33,342, NIFTY closed at 10283 while the rupee closed at 65.02 per dollar, up 0.47% from its previous close. State Bank of India chairman Rajnish Kumar said that after a period of pain, the economic reforms that the government initiated have finally began to bear fruit. The government’s fiscal policies are getting applauded apart from the bank recapitalization code and GST reform. However, the upgrading is not without its conditions. Moody’s has stated that the rating could again be downgraded if the fiscal condition of the economy deteriorates considerably. Another important point to be noted here is that this upgrade comes on the heels of China’s downgrade due to soaring debts.
4
Indian government is going through a wide range of economic reforms as it recently introduced GST which promises to reduce barriers between inter-state sales. The rating agency amongst other factors also recognized that the reforms implemented to date will advance the government’s objectives of improving business culture, fostering productivity, increasing foreign and domestic investment and ultimately stimulate strong and sustainable growth. It also acknowledged improvements made to monetary policies and other measures undertaken to address the issue of growing NPAs. However, land and labor market reforms need to be implemented for increasing the ease of doing business in the country. With the increase in the foreign reserves of the country and improvement in grading by credit rating agencies, it can be understood that India is possibly becoming one of the most desirable country to invest in. The likely appreciation of the domestic currency will increase liquidity in the market. It then again becomes the prerogative of the government to control this liquidity by strengthening the monetary policy. In conclusion, it can be said that the reforms taken up the government which were criticized for being too unconventional and poorly executed are finally showing their results. We should just hope that the country continues to maintain this positive streak and take this upgrade as a motivation for further betterment of the economy as a whole.
5
NATIONAL
AKSHIT GOYAL
RBI HOLDS REPO RATE
As it was already expected, RBI on Wednesday,6th December 2017 in its fifth Bi-monthly policy review statement for 2017-2018 kept the repo rate unchanged at 6.0 %. Policy repo rate i.e. the repurchase rate, is the rate at which RBI provides money to the commercial banks. The marginal standing facility rate and bank rate were also kept stagnant at 6.25 %. The decision was taken after inflation reached to a seven-month high value. Out of five bi-monthly statements issued this year, RBI reduced the repo rate only once to 6.0% from 6.25%. For third and fourth quarters of FY 18 RBI has increased its inflation projection to 4.3-4.7% from 4.2-4.6% as projected in October. The present rates are as follows Cash Reserve ratio (CRR) Statutory liquid ratio (SLR) Reverse Repo rate
4.00%
Marginal standing Facility Rate Bank Rate
6.25%
Repo Rate
6.00%
19.5% 5.75%
6.25%
6
Repo rate for past 10 years
The response of the financial markets to no change in policy rate was not good. Sensex fell by 205.26 points whereas rupee weakened by 13 paise to close at 64.5150 against the dollar.
According to RBI governor Mr. Urjit Patel, the decision was arrived upon after considering the rise in prices of food and fuel and inflation expectations. According to several surveys, corporates are also experiencing rising input costs and there is a growing risk of pass through to retail prices in near terms. The governor said, “In addition, the committee expressed concern about the implications for the inflation outlook of (a) possible fiscal slippage and (b) global financial instability heightening asset price volatility.�
Indicators like inflation, oil and commodity prices have been rising which leaves no reason for RBI to cut repo rate even in next meeting scheduled in February. The panel also stated that partial rollback of excise duty and a decrease in revenue due to GST has also lead to decrease in revenue leading to further increase in fiscal deficit. Many of the economists are predicting tighter policy in 2018. According to Shilan Shah, an economist at Capital Economics, with strengthening growth and pressure building on prices, RBI is least likely to cut repo rate despite pleas from the government. Instead, the debate might shift to tightening of monetary policy in 2018.
7
MARKET
ANIRUDH MITTAL
*Change shown on the daily basis as of 15thDecember After the election polls in Gujarat and Himachal Pradesh and in the wait of the results Sensex and Nifty both closed this week on a high note. The BSE Sensex rallied 375 points intraday after exit polls predicted that the BJP will retain power in Gujarat, but the index corrected from day's high in late trade as a caution towards actual state election results. After starting weak in December as Nifty opened below its 50 Day Moving Average, and hit a 2 week low despite encouraging GDP results for India, the Indian market stabilized in the following week. Though the global financial markets closed with mixed sentiments as investors remain concerned over the Republican tax Bill in the US and a slate of policy meetings scheduled for
*Source: bseindia.com, nseindia.com, moneycontrol.com 8
NIFTY AUTO NIFTY BANK NIFTY ENERGY NIFTY FMCG NIFTY IT NIFTY METAL NIFTY PHARMA
1-Dec-17
15-Dec-17
% Change
11188.2
11448.0
2.32%
25192.0
25440.3
0.99%
13941.1
14203.8
1.88%
25666.8
26430.8
2.98%
10948.5
11288.3
3.10%
3617.9
3665.9
1.33%
9083.9
9100.3
0.18%
BSE AUTO BSE BANK BSE ENERGY BSE FMCG BSE IT BSE METAL BSE PHARMA
1-Dec-17
15-Dec-17
% Change
24954.7
25549.2
2.38%
28436.3
28740.1
1.07%
4127.9
4219.9
2.23%
10284.4
10552.8
2.61%
10592.8
10897.6
2.88%
13659.4
13868.4
1.53%
13856.0
14035.8
1.30%
Source: bseindia.com, nseindia.com, moneycontrol.com United Nations in its 'World Economic Situation Prospects' report described the outlook of India as largely favourable one and expressed hope that India’s GDP would grow at a healthy rate of 7.2% with a possibility that it may increase to 7.4%. On the other hand, Asian Development Bank (ADB) was conservative and lowered the forecasted GDP growth to 6.7% from 7.0% for the current fiscal year and to 7.3% from 7.4% for the next year. ADB took this stand considering the fact that growth in the first half of 2017 was slow due to demonetization and GST. Also fast rising oil prices is another concern for India as it is hugely dependant on the oil imports. However, ADB hopes that the economic growth will pick up in the later part of the year as the Govt. is taking steps to ease compliance with GST and bank recapitalization. In the FMCG sector, ITC has set up a new integrated food manufacturing and logistics facility at Kapurthala (Punjab) which is one of the 20 food processing units that is planned by the company with a total investment of Rs 100 billion. It should be noted that FMCG companies like ITC are investing heavy in the agriculture and food segments considering the fact that there is huge potential in this area. Similarly, in the cement industry, UltraTech Cement is setting up a 3.5-million-tonne greenfield cement plant at Pali (Rajasthan) for Rs 18.5 billion. The company looks to capitalize on the government's intentions to focus on infrastructure and affordable housing. The plant is being set up in the country’s fastest growing market and the highest cement consuming state in the Northern parts of the country. From the Auto sector, Maruti Suzuki India hit its 52-week high mark, and is supposed to carry this bull rally in the future too. The company is expected to raise its prices too considering the rise in the cost of equipment's, parts, fuel, transportation and processing which is putting a burden on the company’s bottom line.
9
In the Banking Sector, Canara Bank is planning to raise capital of Rs 35 billion through Qualified Institutional Placement (QIP). And with FRDI Bill gone to the Cabinet for amendments’ considerations, bank unions have shown concerns about the bill and how it may impact the Indian Banking Sector negatively opposite to the thinking of the Modi Government.
Monthly Top Gainers NIFTY50 Symbol
Last Traded Price (LTP)
LTP (17th Nov)
30 Days % Change
MARUTI
9150
8337
9.75%
HINDPETRO
443.8
413.45
7.3%
INFY
1019
965.5
5.5%
Monthly Top Losers NIFTY50 Symbol
Last Traded Price
LTP (17th Nov)
30 Days % Change
INFRATEL
354.25
380.55
-6.9%
TCS
2543.95
2708.2
-6.1%
HINDALCO
243.95
258.9
-5.8%
Source: bseindia.com, nseindia.com, moneycontrol.com
10
CLASS TALKS
ASHWIN BANSAL ARUSHI BHAMBRI
OVERVIEW ON DIVIDENDS Financing, Investments and dividend decisions are most crucial for long term sustainability and profitability of an enterprise. Passage of wealth to shareholders from the company’s reserves takes place via the mode of dividends. Alternative way of paying dividends to shareholders is through issuing bonus shares (which are additional shares issued to shareholders free of cost). Financial managers have to analyze various legal and tax aspects of choosing between alternatives of providing returns to shareholders with the objective of wealth maximization. Dividends play a vital role in formulation of finance decisions of a firm as earnings could be utilized either to pay dividends to shareholders or retain it for financing investment projects. Dividend paying firms have a policy of maintaining a constant payout ratio and would avoid any huge variations in payout-ratio. ITC is one of the companies which has a track record of declaring a steady stream of dividends to its shareholders.
Conceptual Theories Modigliani-Miller Theory of irrelevance says that a method of earning’s split between dividend and retained earnings is immaterial to the investors. The residual dividend policy states that when a firm has additional surplus cash after meeting all its financing investment requirement than and only than should a firm go for dividends, for dividend paying firm Decline in the value of existing share price = Dividends paid P0 = 1/1+r *(D1 + P1) Clientele Theory says that company should target its share issues to investors whose needs are aligned to company’s dividend policy. Arguments in favor of relevance of dividend policy are that shareholders would prefer cash dividends against future possible capital gains, transaction cost are involved in buying and selling of shares, tax policy is one of the major determinant while evaluating shareholder’s preference for distribution of earnings. While formulating dividend policy of a firm future investment opportunities, shareholder preference, liquidity position, control of the firm, stability of dividends, access to capital markets, cost of raising equity externally, taxation and legal aspects are significant. Dividend Growth Model is used for valuation of shares for dividend paying firms P0 = D0(1+g) / Ke – g where P-0 = Intrinsic value of Stock Price based on DDM, D0 = Dividend today, g= growth rate of dividend in the upcoming future, Ke = required rate of return of equity investors. Growth rate is calculated as g=br where b is proportion of profits that is retained and r is return on equity shares. Earnings to shareholders can be distributed by the way of dividends, bonus shares and share buybacks. All of above mentioned methods have same effect on shareholder’s net worth. Dividends can be paid out of past profits to maintain the stability of dividends year after year. Interim dividends are also declared by firms in between a particular financial year
11
Now we will try to analyze dividend policy of ITC to judge the impact of dividend policy on the share price of the company
Current Dividend Policy of ITC Dividend History: On 1 July, 2016 ITC declared a bonus issue 1 share for every two equity shares of Re.1 each. The bonus share issue benefitted all eligible employees of the company and its subsidiaries who have been granted ESOPs. Positive signal was conveyed to the market by issuing bonus shares. This also meant that the company will continue declaring dividends though number of shares have increased implying better return in the long run. Table below shows the trend of Dividend Per Share along the years 2013-2017. Narration Dividend per share
Mar-13 5.25
Mar-14 6
Mar-15 6.25
Mar-16 8.5
Mar-17 4.75
The fall in dividends is 44% from 2016 to 2017.
Payout Ratio: Dividend payout ratio has been kept stable for ITC except for the year in which ITC issued bonus shares. Narration Dividend Payout Ratio
Mar-13 55.92%
Mar-14 54.32%
Mar-15 52.14%
Mar-16 73.33%
Mar-17 56.56%
Shareholder Profile: ITC shareholder profile of banks, mutual fund houses and insurance companies stands at 55%, which shows that the company is heavily dependent on individual rather than promoters. It has to keep its investors happy by giving them huge dividends.
Agency Cost: ESOPs outstanding for ITC at the beginning of financial year 2017 was 3,01,29,927 which is valued at around INR 8540 crores. Since ITC has significant stock options, dividend payments would ensure that dividend policy is in alignment of all the stakeholders like shareholders interest, managers and employee motivation.
The Free Cash Flow Hypothesis: It states that payment of dividends can decrease the level of funds available for consumption to the corporate managers. The current cash and cash equivalent is INR is 2747 crores. The company is inclined towards maintaining cash balance and increasing current ratio, they have managed to do this while maintaining increase in dividends. Liquidity Ratio Current Ratio (X) Quick Ratio (X)
Mar-17 3.59 2.44
Mar-16 1.65 1.07
Mar-15 2.05 1.38
Mar-14 1.82 1.18
Mar-13 1.7 1.06
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SCAMS, SCANDALS, STORIES GAURAV SHARMA
KETAN PAREKHThe Bombay Bull
Year 2000 saw a time when India was struggling between an open outcry trading system and the new online trading system. The Bombay Stock Exchange policy makers were half asleep when Ketan Parekh, a (not so) innocent investor drove the stock market to give stupendous results. To silently trigger the stock market, using his connections, in order to get huge gains was his forte.
Ketan Parekh was a Chartered Account by profession and had started handling his family’s brokerage business. He was the apprentice of Harshad Mehta, the big bull himself, which answers the question about his core method of trading i.e. to illegally trade on the stock market. On normal days he used to keep a low profile, however time and again a little celebration with the big company heads and the Richie Riches of the country was required in order to keep his wheel turning. Ketan Parekh was known to silently trigger the stock markets by investing huge amounts from his big connections. With his financial knowledge, big pocket connections, cunning mind and a low profile, Ketan Parekh was able to create even create 200% annual returns on some stocks. His tricks of trades always had a back stories which were only known to him and his close ones. He presented himself as the follower of the IT industry, an industry which had presented itself to the Indian stock market at that time. It was also a time when there was an IT boom and digitalization was just trying to move up the graph. This information was enough to keep the trade industry law makers and regulators away from his wrong motives and to make them believe that his gains on the stock market were honest. However, his side had a different story to tell.
It appeared that the stocks he was picking were due to high fundamental background work being done on them, but in general he was just picking out stocks which had low market capitalization and low liquidity, so that they can be bought at low value and then be massively pumped up. The heavy volume of money he was putting in was coming from his own connections in major companies.
13
People would believe that the stocks in which he was investing have a bullish trend, which would attract more investor and it would further drive up the stock. Then after reaching a satisfactory high, Ketan Parekh used to slowly pull out the money in order to get capital gains. However his portfolio used to consist only 10 stocks which were known as K-10. These stocks also had a story behind them. What seemed to be a simple trading by a brokerage house had illegalities behind it. The 10 stocks he was investing in were the stocks of the same companies from whom he was borrowing money to invest. The companies were giving away the surplus to drive up the stocks and keep the stakeholders happy. This could be directly connected with the illegal concept of insider trading. The second was his under the table connection with a few officials of Madhavpura Mercantile Commercial Bank. The officials who were bribed lend him a huge amount of unsecured loan for investment. These loans were first sanctioned, then the money was invested by him, the capital gains were earned and then at a later stage the collateral was collected. This kind of trading could not have lasted long. With huge gains comes huge risk too, and an illegal practice always attracts too much attention. Ketan Parekh used to also invest in Calcutta Stock Exchange due to its lack of regulation. This trading was not carried out by himself, but by a few connections he had in brokerage houses of Calcutta. However after sometime, a bear trend started to set in on the 10 stocks he was investing in. The bank also stopped lending him money because of an exceeded lending limit. A seize had come to his trading practice and suddenly the market for those 10 stocks was falling drastically. This forced the brokerage houses in Calcutta to pull out the money which further brought down the market. All this came to light and soon Ketan Parekh was arrested. He was tried in the court and sentenced to one year imprisonment. He was also banned from trading and the ban continues till date. This dark period in the history of trading woke up the policy makers and regulators of the Stock Exchanges to further work on their laws in order to strengthen the trading system.
14
WIZARDS
SOUMYA RUP CHANDA
JACK MA
With the sounding of the opening bell at the NYSE on Sept. 19, 2014 history was created. Alibaba, the Chinese e-commerce giant had just raked in 25bn $ in the largest ever IPO in the world. The shares started trading at a markup of 35% above the listed IPO price of 68$. All this came about due to the vision and unflinching determination of one man, who had put in the hard yards and worked in the trenches tirelessly to see this very moment, Jack Ma- The Chairman and founder of Alibaba. The wizard behind Alibaba’s phenomenal rise. His is a rags-to-riches story. Inspirational and heart-wrenching in equal amounts. A testament to the courage and sheer determination of the man. Jack Ma, was born as Ma Yun on Sept. 10th, 1964 in Hangzhou, China to a family of traditional storytelling performers. He was an ordinary child with ordinary hobbies. He has two siblings, an elder brother and a younger sister. When President Nixon visited Hangzhou in 1972, it opened up the tourism industry for the town. Ma used to give guided city tours to the visiting tourists in exchange for English lessons. He was given the nickname ‘Jack’ by a tourist. Ma had understood early on in life that the only way that he could get ahead was by education and so he applied for college. But he failed the entrance exam to the college twice. On the third try, he passed and went on to attend the Hangzhou Teachers Institute, graduating in 1988. His next failure came while looking for a job, when he got rejected dozens of times, once even from KFC. But not one to accept defeat, Ma kept looking and finally landed a job as an English teacher at a local university. He also opened up a translator service on the side. In 1995, while in the US for a client, he had his first brush with the internet. Company lore has it that Ma searched for beer online and came up with a blank for any product from China. This immediately led him to foresee the tremendous business potential of the internet and how this could become a revolutionizing factor for small and medium enterprises from China. In 1999 after a couple of failed attempts, Ma and 18 of his friends launched Alibaba from an apartment in Hangzhou with a dream of taking the potential of China’s small and medium businesses international. Initially, he tried to raise funds from the Silicon Valley, but he was met with repeated denials. Eventually, Ma succeeded in securing funds from Goldman Sachs and Softbank. In 2003, Alibaba launched ‘Taobao.com’, an online auction site like Ebay that provided a zero-commission marketplace for millions of China’s small and medium businesses. Today Taobao is the third most visited website
15
website in China and the twelfth most in the world. ‘wanneng de taobao’ is a common phrase in China, which means that you can find everything on Taobao. To ‘tao’ in China is to look for a product online. Besides Taobao, Alibaba also has Tmall and Alipay. Jack Ma today features on TIME’s list of 100 most influential people in the world and is the richest man in China with a wealth of 46.6bn $ and is ranked 15 on the Bloomberg Billionaires Index. Alibaba presently has 400 million active buyers and just generated a record 25.3bn $ in sales on 11/11 Singles Day in China, 40% higher than its Singles Day sales in 2016. Jack says he came up with the name Alibaba while sitting in a coffee shop in San Francisco inspired by the Arabian Nights story of Alibaba and the Forty Thieves. Just like in that story, the cave reveals a treasure trove of riches, similarly, Jack Ma the charismatic founder of Alibaba has used his ingenuity to reveal the power of Chinese consumers to the world.
16
START-UP TRACKER
SHASHANK MALLA
The Chaayos Story In India, the word “chai” is more than just a cup of tea. It is something that everyone starts their day with. An obligatory drink to help wake you up in the morning as well as a refreshing drink with afternoon or pre-evening snacks. Our past and current generations both have experimented with different flavours of chai, as a matter of fact there happens to be a unique description of a perfect blend for every ‘chai addict’. But even though it is such a prominent and famous drink, we have never heard of any famous brand or chain outlet dedicated to only chai. There are several coffee chains present in every corner of any city but there was a time until very recenty when one could not get a neat and clean cup of tea with a pleasant ambiance at a café. People depended on their home or some street side shop for a cup of tea of their choice. This is the core seed behind the establishment of Chaayos. Chaayos is an enterprise by two techies - Raghav Verma and Nitin Saluja who graduated from IIT Delhi and IIT Bombay respectively. Before the foundation of Chaayos, they used to work in an American consulting firm Opera Solutions. Nitin was always a chai freak who met Raghav through a mutual friend. They both shared the idea and convinced themselves to kick off this crazy idea. Both quit their top paying IT jobs and contributed every ounce of blood and sweat to their startup. Nitin handled business areas like
product development and supply chain and Raghav handled the areas business development and marketing. Chaayos began its journey by opening its first store in Gurgaon Delhi in DLF Cyber City. Presently they have 40 stores running in Delhi and Mumbai. They are planning to open more than 50 cafes in Mumbai, Bangalore and Delhi in the next 18 months. As of now, they have 200 plus staff and sell close to 500 orders per day. Like every other business Chaayos needed investors to raise funds to grow its business. Chaayos obtained funds from Zishaan Hayath in the angel round and also raised 5 million dollars from Tiger Global Management. The company is betting that their next stage of its growth would be driven by home delivery services along with packaged tea blends that it sells through its stores and online channels. Currently they are selling close to ten thousand cups of tea in a month and are aiming to sell over 3 million cups of tea within 2 years with plans to open “chai” (tea) on demand services. For this reason, they have tied up with several logistic companies to deliver tea within a particular time frame. Nitin and Raghav have taken a simple and modest concept to great heights. But for both of them, this stage is the beginning. They are all prepared with new ideas and working on collaborating them with the concepts already implemented.
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TBA Trades
ANANYA NATH
We have gone through many types of securities through our various editions and hopefully, you found them all insightful till now. Today we shall be discussing TBA or To-Be-Announced. A TBA is basically a forward agreement to purchase or sell a basket of mortgage securities on a monthly settlement cycle with certain characteristics of the basket specified. They were established in the 1970s and now almost 90% of agency Mortgaged Based Securities (MBS) trading occurs in the TBA forward market. But first what are Mortgaged Based Securities? A MBS is a type of asset-backed security that is secured by a mortgage or collection of mortgages. This security must be categorized in one of the top two ratings as stated by an recognized credit rating agency. It usually pays periodic payments that are akin to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution. In spite of the sub-prime mortgage crisis agency MBS market continued to grow significantly. The key reason behind this is that each bond carries a credit guarantee by a guarantor (Fannie Mae, Freddie Mac and Ginnie Mae in the USA). This implies that each bond either carries an explicit government credit guarantee or is perceived to carry an implicit one, thus protecting investors from credit losses in case of default on the underlying mortgages. The guarantor in exchange for monthly guarantee fees forwards mortgage principal and interest of the underlying mortgage. Thus, the credit risk is borne by the guarantor and not the investor. However, there is still an uncertainty regarding the repayment of mortgages by the underlying borrowers. This is known as repayment risk.
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The TBA trade is similar to other forward contracts. Due to trading in a small concentration of contracts, the value of TBA trades amount in as much as $100 million to $200 million.
Trade Day: The two parties, the buyer and seller agree upon a price for delivery of an agency MBS of a given volume at a specific date. What is special about the TBA trade is that the actual identity of the TBA trade that is the CUSIP is not specified on the trade date. Instead, six parameters are agreed upon by the buyer and the seller which are: issuer, maturity, coupon, price, par amount and settlement date. The coupon varies in 50 basis point increments keeping with the underlying MBS. Two days before settlement: Two days (Forty-eight-hour day) prior settlement date, the seller provides the buyer with the identity of the pools (basket of mortgages) it intends to provide on settlement day.
Settlement day: The seller delivers the pools.
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LOCK THE STOCK
SUNIL KUMAR BEHERA ATUL RANJAN
Oil & Natural Gas Corporation Limited ONGC is an Indian multinational oil and gas company. It’s a public-sector undertaking (PSU) of the government of India, under the administration of the Ministry of Petroleum and Gas. It was incorporated in 1956 by Government of India and currently operates in India as well as 18 other countries through its own subsidiary ONGC Videsh. It produces around 77% of India’s crude oil production and around 62% of its natural gas. It is the largest profit-making PSU in India. Established: 1956 Chairman/Managing Director: Shashi Shankar NSE Script Code: ONGC CMP: 184.50INR +0.60 (0.33%) (as on 14th Dec)
Last 2-Year Share Performance
ONGC’s performance since mid-2014 has been adversely affected by the global weak oil prices, in which the first quarter of FY2016 did see ONGC touch its record low. It has tried to counter this low price by leveraging its robust reserve-placement ratio and creating more energy reserves with a planned expenditure of $12.5 billion through 2021 .It has issued bonus shares in the ratio of 1:2 in December 2016, which gave a boost to its share value and ONGC touched its last 52 weeks high during Jan 2017.
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2-year comparison with BSE Sensex:
*Source: www.moneycontrol.com
2-year comparison with BSE Sensex:
*Source: www.moneycontrol.com As discussed, the last two years performance of ONGC has been poor compared to both NSE and BSE due to the weak global oil prices. It has outperformed during the first quarter of 2017 pertaining to the dividends and bonus issue in last quarter of 2016.
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Business Performance across group: ONGC Videsh Limited: ONGC Videsh has aquired 26% holdings in Vankorneft, the second largest field by production which accounts for 4% of production in Russia. This acquisition leads to around 49.8% indian companies holding on Vankorneft oil field. It has an increase of 43% in it’s production by reaching the highest ever production of 12.80 MMtoe. This performance led it to positive PAT despite the low oil prices during FY’17. ONGC Mangalore Pertrochemicals Ltd: It has achived highest revenue of Rs. 52,565 million because of high export and better capacity utilisation during FY’17. It has been quite successful in creating a niche presence in the international market. ONGC Tripura Power Company: It has generated record 4170 million units in 2017, which was able to provide power to 35% power requirement of North-Eastern states. It has increased turnover to Rs 12,628 Million which was an increase of 22% from 2016. ONGC Nile Ganga BV (ONG BV)- ONGC Nile Ganga BV is a wholly owned subsidiary of OVL and has equity in producing field in Sudan. Mangalore Refinery and Petrochemicals Limited (MRPL) - Mangalore Refinery and Petrochemicals Limited (MRPL), located in Mangalore city, it has got high flexibility to process Crude oils with high degree of Automation. It’s a subsidiary of ONGC working in the downstream sector of Oil & Gas Industry and is one of the best PSU refinary of India having highest throughput of 16.27 MMT in FY’17. ONGC Narmada (ONL): It is engaged in E & P activities in Nigeria. It holds 13.5% of PI in deep water exploration Block-2 in Nigeria-Sao-Tome & Principe. ONGC Amazon Alaknanda (OAAL):- Its subsidiary of OVL & holds stake in Exploration & Production activities in Colombia through Mansarovar energy Columbia ltd,a 50:50 JV with sinopec of china.
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ONGC Mittal energy : OVL has entered 51:49 JV with Mittal Investment Sarl (MIS) Ratios EBITDA Margin Net Profit Mar-gin ROE ROA Earnings Yield Price to Book Value
2017
2016
2015
2014
2013
EBITDA/Net Revenue
35.24%
36.80%
30.19%
32.31%
30.36%
Net Profit/Net Revenue Net Profit/Shareholder's Equity Net Profit/Average Total Assets
14.35%
10.87%
10.98%
15.27%
14.77%
9.26%
7.64%
10.15%
15.39%
15.87%
5.53%
3.96%
5.42%
8.15%
9.55%
0.09
0.08
0.07
0.1
0.09
1.07
0.99
1.45
1.58
1.75
EPS/Market Price Market Price/Book Value
SWOT Analysis: Strength:
Strong financial backing from Govt. of India Takeover of HPCL will result in economies of scale through creation of a large size company Production of about 70% of India's crude oil requirement Growing scale of operation in foreign countries No threat of new competitor Deregulation of petroleum prices gives headroom for profit generation
Weakness:
Red tapism in decision making as a result of being under Union ministry Ever changing domestic laws regarding petroleum products Increasing humanitarian and rehabilitation issues at new discovery sites
Opportunities:
Large number of oil field discoveries within the country as well as outside Incremental shift of usage towards Natural gas Acquired stakes in foreign entities can bring upto 25% of crude oil requirement for its refineries
Threats:
Use of Hydrocarbon fuel resulting in environmental degradation may result in bleak future prospect
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High dependency on oil import from mid-east region resulting in high volatility of input price
Peer Analysis:
Future Forecasts Share Price:
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Earnings per Share:
Recent NEWS:
ONGC PLANS TO RAISE OIL OUTPUT BY 4 MT BY 2020 (aimed at supporting the Prime Minister Modi's target to reduce country's import dependence by 10 percent) GOVERNMENT TO GIVE 60% STAKE IN ONGC FIELDS TO PRIVATE FIRMS (identifies 15 producing oil and gas fields for handing over to private players to increase output) ONGC TO DOUBLE GAS OUTPUT BY FY22 (will invest Rs92,000 crore in 35 major projects) RIVALS RIL, ONGC TEAM UP TO SHARE INFRASTRUCTURE (DGH grants its approval to the contractors) ONGC finds 'first' proof of hydrocarbons in Kutch (while drilling the GK-28-12 well) ONGC'S PRODUCTION (of natural gas rises to 23.28 BCM in 2016-2017 from 22.53 BCM in 2015-2016) ONGC EXPECTS TO COMPLETE HPCL STAKE BUY BY DEC 2017 ( ONGC favours merger of MRPL with HPCL) ONGC HITS PAY DIRT AT MUMBAI HIGH (with a new discovery estimated at 20 million tonnes of oil equivalent
DISCLAIMER: This research report is a written or electronic communication that includes research analysis, research recommendation or an opinion concerning securities or public offer, providing a basis for investment decisions. The views expressed therein are based solely on information available publicly/internal data/other reliable sources believed to be true. The information is provided merely as a complementary service and does not constitute an offer, solicitation for the purchase or sale of any financial instruments, inducement, promise, guarantee, warranty, or as an official confirmation of any transactions or contract of any kind.
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FINQUIZ
ARCHIT BASER
1) a) b) c) d)
Which company’s ticker symbol is ‘C’ on the NYSE? Chevron Coca-Cola Cisco Citigroup
2) a) b) c) d)
The first Indian woman to be the CEO of a Foreign Bank was… Tarini Vaidya Indira Nooyi Naina Lal Kidwai Chandrika Krishnamurthy
3) a) b) c) d)
Who is known as ‘Oracle of Omaha’? Mark Zuckerberg Jeff Bezos Jack Ma Warren Buffet
4)
Deutsche Bank Twin Towers have a very crafty name, the two aspects of every financial transaction. Guess the name of twin towers. Receipt & Payment Debit & Credit Income & Expense Profit & Loss
a) b) c) d) 5) a) b) c) d)
Which is the only country having only paper currency and no coins and it introduced cheques only in 1997? Bulgaria Istanbul Vietnam Nigeria
6)
The man who broke the Bank of England because of his $1 Billion in investment profits during the 1992 ‘Black Wednesday’ UK currency crisis was?
a) b) c) d)
George Soros Adam Ricki Charles Smith Micky Munds
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7) a) b) c) d)
Observe the analogy & guess the appropriate term for the situation. Up – Bulls, Down – Bears, No Significant Movement -?? Panda Chicken Rooster Turtle
8) Which term is used for “Money which is used to purchase assets that will remain permanently in the business and help it to make profit”? a) Cash Expenses b) Employee Benefit Expenses c) Working Capital d) Fixed Capital 9) a) b) c) d)
Who is known as father of accounting? F.W. Taylor Luca Pacioli John Keynes Adam Smith
10)
Identify the logo.
a) b) c) d)
Union Bank of Nigeria Starling Bank Lloyds Bank Merrill Lynch
Answers: 1-d, 2-a, 3-d, 4-b, 5-c, 6-a, 7-b, 8-d, 9-b, 10-a
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