Long term investment strategy (not named yet)


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This strategy was designed in Oct 2010 and the report below was created

in 31st Oct 2010. Now (17th May 2012) results are compared with Sensex

and this strategy to invest is proving to be really successful for long

term investing with 40.5% excess returns than Sensex for the same

period. To see return calculation go to the last page.

Published in: Economy & Finance, Business
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  • Gains of 735% in less than 4 years when Nifty (benchmark broader market index) gave only 22% returns, if you would have invested using this strategy when this paper was done i.e. October 2010 & investment was done on 1st November 2010 and comparing to closing prices of Friday 11 July 2014 also dividends are ignored for convenience of calculation.
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Long term investment strategy (not named yet)

  1. 1. Long Term Investment StrategyThis strategy was designed in Oct 2010 and the report below was created in 31st Oct 2010. Now(17th May 2012) results are compared with Sensex and this strategy to invest is proving to bereally successful for long term investing with 40.5% excess returns than Sensex for the sameperiod.To see return calculation go to the last page. Submitted By:- Tanesh Gagnani (081121) Rohit Mehta (091162)
  2. 2. StrategyWe have devised an investment strategy of our own with main focus on finding companies which havebeen consistently improving their performance. Here ‘performance’ implies both companies ownprofitability and returns for investor. The objective of this strategy is very similar to that of the strategiesof Philip Arthur Fisher i.e. investing in a few outstanding stocks rather than lot of good investments, butthe implementation of strategy is somewhat different from that of Fisher’s. Fisher’s strategy focused onthe business of the company with main focus on issues such as products offered by the company, itsresearch and the quality of management as a whole etc. but our main focus is on the financialperformance of company whatever the product may be.This approach is a mix of strategies of major investment gurus like Philip Arthur Fisher (smallcompanies), Benjamin Graham (low or moderate P/E and P/BV), etc.The criteria chosen to filter companies are 1. PBITDM (%): This ratio as it tells us the amount of money the company is earning on its sales. Higher value is appreciated for this ratio as that would indicate that the company is able to keep its earnings at a good level via efficient processes that have kept certain expenses low. a. Usage: A filter was applied on all the companies being traded on BSE that company should have continues year on year growth in PBITDM(%) for the last 4 years. b. Logic: For a company to have continuously improving PBITDM(%) can be a result of improving efficiencies of that company and if the processes within the company has been improving for the last 4 years, then it is likely that this is a result of efficient management. Which means the company is likely to have better future prospects. 2. APTAM (%): A companys after-tax profit margin tells us the percentage of money a company actually earns on sales. it helps to measure of how well a company controls its costs after taxes. A high after-tax profit margin is generally seen as better but a low after-tax
  3. 3. profit margin is not necessarily a negative sign. Some companies and industries are expensive to run and have low margins by their nature. a. Usage: A filter was applied on all the companies being traded on BSE that company should have continues year on year growth in APTAM (%) for the last 5 years. b. Logic: For a company to have improving APTAM (%) for the last 5 years means that company is generating greater amount of funds which is likely to result into a greater reinvestment which will result into growth or greater dividends either way investors are bound to profit, either from increase in stock prices or in a more direct way of dividends.3. RONW (%): It is the ratio of net income after taxes to total end of the year net worth. This ratio indicates the return on stockholders total equity. Higher value of RONW is preferred. RONW indicates how efficiently the company is using the equity to generate profits. a. Usage: Just as before here also a filter was applied on all the companies being traded on BSE that company should have continues year on year growth in RONW (%) for the last 5 years. b. Logic: A direct implication can be drawn about improving RONW (%) is that company is generating greater amount of percentage funds on the shareholder’s money which is invested and since here the filter is of continues 5 years of improving RONW (%) we can imply that company is performing extremely well. What we do not mean with this: DeBondt and Thaler (1985, 1987) report found out that long-term past losers outperform long-term past winners over the subsequent three to five years. We are not challenging their research. Their findings were in relation to market price movements whereas we have filtered companies on the basis of ‘company’s performance’ and not the performance of their stock. We believe that improved performance of company will eventually result into increase in share price.
  4. 4. Stocks selected after applying filters Average Growth Average Growth in Average Growth in Company Name in PBITDM (%) APTAM(%) RONW (%) Priya Ltd. 0.24 0.48 0.54 Jaysynth Dyestuff Turn Around Turn Around (India) Ltd (NMF*) (NMF*) -0.61 BCL Industries & Infrastructures Ltd 0.32 0.89 0.69 Zensar Technologies Ltd 0.05 0.12 0.15 Simplex Castings Ltd 0.12 0.36 0.39 Relaxo Footwears Ltd 0.11 0.19 0.24 Ajanta Pharma Ltd 0.11 0.12 0.29 Himalya International Ltd 0.28 0.43 0.43 Sanco Trans Ltd 0.28 0.52 0.44 Patels Airtemp (India) Ltd 0.17 0.28 0.29 Turn Around Turn Around Globsyn Infotech Ltd 0.32 (NMF*) (NMF*) Turn Around Turn Around Gini Silk Mills Ltd 0.15 (NMF*) (NMF*) Jolly Board Ltd 0.52 1.02 0.92 HEG Ltd 0.20 0.20 0.23 LIC Housing Finance Ltd 0.03 0.08 0.18 Genesys International Turn Around Turn Around Corporation Ltd 0.24 (NMF*) (NMF*) Glodyne Technoserve Ltd 0.23 0.22 0.06
  5. 5. Redington India Ltd 0.14 0.18 0.14 Hawkins Cooker Ltd 0.25 0.32 0.33 Goodricke Group Ltd 0.34 0.58 0.67 Turn Around Turn Around Bata India Ltd 0.25 (NMF*) (NMF*) DFM Foods Ltd 0.10 0.09 0.40 Alka Securities Ltd 0.38 0.75 0.90 Compact Disc India Turn Around Turn Around Ltd 0.55 (NMF*) (NMF*)*Company turned around from negative to positive and hence the CAGR became mathematically not-meaningful
  6. 6. Basis of Selecting 6 companiesFrom the above 24 companies 6 companies were zeroed in with an idea of reducing risk. Which is doneby choosing companies of as different sectors as possible this again was done by finding out sectors towhich each company belongs to and then assigning an industry group i.e. combining related industriesinto one and then choosing fundamentally sound companies with low(in comparison to their subindustry) P/E and P/BV while maximizing diversification.Following is the list of companies with industries in which they belong to latest Industry P/E latest P/E Industry Company Name TTM P/BV TTM Industry Grouping Solvent Extraction - BCL Industries & Infrastructures Ltd 7.87 0.49 15.32 Large Chemicals Dyes- Jaysynth Dyestuff (India) Ltd 2.69 0.51 8.92 Intermediaries Chemicals Cloth, apparel Bata India Ltd 25.31 6.7 18.25 Footwear and accessories Cloth, apparel Gini Silk Mills Ltd 4.77 1.65 11.29 Textiles and accessories Cloth, apparel Relaxo Footwears Ltd 13.7 4.51 18.25 Footwear and accessories Genesys International Corporation Ltd 31.92 7.13 14.34 software Computer Globsyn Infotech Ltd 0 0.51 8.74 software Computer Glodyne Technoserve Ltd 18.64 6.09 14.34 Software Computer Redington India Ltd 30.59 4.91 36.84 Computer -HW Computer Zensar Technologies Ltd 8.02 2.5 14.34 Software Computer Domestic Hawkins Cooker Ltd 14.07 13.67 17.66 appliances Domestic goods Decorative Jolly Board Ltd 8.39 2.05 16.28 wood based Domestic goods
  7. 7. Electrodes Engineering andHEG Ltd 8.62 1.87 8.27 Graphite metal Engineering andPatels Airtemp (India) Ltd 5.49 1.62 18.51 Engineering metal Casting Engineering andSimplex Castings Ltd 5.11 1.08 12.19 Steel/Alloy metalCompact Disc India Ltd 1.29 0.6 33.7 Entertainment Entertainment FinanceAlka Securities Ltd 0 2 20.25 Investment FinanceLIC Housing Finance Ltd 15.28 3.38 22.07 Finance FinancePriya Ltd. 6.08 0.33 205.53 Trading Large FinanceDFM Foods Ltd 10.75 2.85 12.58 Food Processing FoodGoodricke Group Ltd 7.83 2.75 7.56 Tea FoodHimalya International Ltd 8.56 1.21 20.11 Food Processing FoodSanco Trans Ltd 10.33 2.07 30.64 Misc. Misc.Ajanta Pharma Ltd 8.62 1.52 11.07 Pharmaceuticals Pharmaceuticals 1. BCL Industries & Infrastructures Ltd: a. The biggest problem with this company is the number of traded of this stock are also very few, this may create problems while exiting (we simply may not be able to find a buyer for a long time while selling this stock). b. Operating profit of this company has seen a major decline for the year 2010. 2. Jaysynth Dyestuff (India) Ltd:
  8. 8. a. The one major problem with this company is that latest data for this company is not available and hence this makes the investment very risky. b. Number of traded of this stock are also very few, this may create problems while exiting (we simply may not be able to find a buyer for a long time while selling this stock).3. Bata India Ltd: a. Higher than industry P/E. b. Bata has seen a steady rise in cash from operating over the last few years. c. One of its subsidiaries has been a non-performer for a very long time and hence a liability.4. Gini Silk Mills Ltd: a. The biggest problem with this company is the number of traded of this stock are also very few, this may create problems while exiting (we simply may not be able to find a buyer for a long time while selling this stock). b. Cash for operations became negative in 2007 from which is recovered. c. Financial data for 2010 is not available. d. Financial performance has significantly improved over the past 4 years (till 2009).5. Relaxo Footwears Ltd: a. Financial data for 2010 is not available. b. Financial performance prior to that was extremely good. c. Number of traded of this stock are also very few, this may create problems while exiting (we simply may not be able to find a buyer for a long time while selling this stock).6. Genesys International Corporation Ltd: a. The biggest problem with this company is the number of traded of this stock are also very few, this may create problems while exiting (we simply may not be able to find a buyer for a long time while selling this stock). b. Its cash from operations has seen huge fluctuations.7. Globsyn Infotech Ltd:
  9. 9. a. Cash from operations are on continues decline from 2008 onwards. b. Higher profits are not a result of operating activities and hence should not be considered sustainable over a long period. c. Very poor cash position. d. It has a low RONW% but it is on continues increase. e. Latest data for this company is not available and hence this makes the investment very risky. f. Number of traded of this stock are also very few, this may create problems while exiting (we simply may not be able to find a buyer for a long time while selling this stock).8. Glodyne Technoserve Ltd: a. Latest data for this company is not available and hence this makes the investment very risky. b. Number of traded of this stock are also very few, this may create problems while exiting (we simply may not be able to find a buyer for a long time while selling this stock). c. Its financial performance has been very good in the last 5 years.9. Redington India Ltd: a. Performance is moderately good but it is a small company and hence considered a risky investment which makes it an unattractive investment.10. Zensar Technologies Ltd: a. Performance has been constantly improving since 2006. b. Very good cash position. c. Steady rise in RONW%. d. Better than industry P/E.11. Hawkins Cooker Ltd: a. Financial performance has been exceptional over the years.
  10. 10. b. Very good cash position. c. Steady rise in RONW%. d. Better than industry P/E.12. Jolly Board Ltd: a. Its cash from operating activities is negative for the year 2009. b. Number of traded of this stock are also very few, this may create problems while exiting (we simply may not be able to find a buyer for a long time while selling this stock).13. HEG Ltd: a. Operating cash flows dipped in 2009 but they were completely recovered in 2010. b. Number of traded of this stock are also very few, this may create problems while exiting (we simply may not be able to find a buyer for a long time while selling this stock).14. Patels Airtemp (India) Ltd: a. Cash from operating activities is good. b. Financial performance has been good. c. RONW%, PAT% are excellent. d. Financial ratios have been continuously improving e. Better than industry P/E.15. Simplex Castings Ltd: a. Latest data for this company is not available and hence this makes the investment very risky. b. Cash from operating activities dipped in 2008. c. Number of traded of this stock are also very few, this may create problems while exiting (we simply may not be able to find a buyer for a long time while selling this stock).16. Compact Disc India Ltd: a. Company seems fraudulent. b. It has a very poor revenue reorganization policy.
  11. 11. c. Huge debtors. d. Very poor cash position. e. Number of directors in board is only 3 with no independent director, may get delisted.17. Alka Securities Ltd: a. Latest data for this company is not available and hence this makes the investment very risky. b. Excellent growth in profits and RONW% seems like a good investment for someone with high risk propensity.18. LIC Housing Finance Ltd: a. It has very good cash from operating activities, continuously increasing. b. RONW%, PAT% are excellent. c. Financial ratios have been continuously improving d. Better than industry P/E.19. Priya Ltd: a. Performance is moderately good but it is a small company and hence considered a risky investment which makes it an unattractive investment.20. DFM Foods Ltd: a. Performance has been moderately good till 2009. b. There is a significant improvement in financial performance in 2010 it will become a excellent investment if it is able to repeat this performance for the next few years.21. Goodricke Group Ltd: a. Cash from operating activities has increased significantly. b. Its RONW% is constantly increasing mostly due to constantly improving operating margins.
  12. 12. 22. Himalya International Ltd: a. Latest data for this company is not available and hence this makes the investment very risky. b. Excellent growth in profits and RONW% seems like a good investment for someone with high risk propensity. c. Its financial performance has been excellent till the time for which data is available (2009).23. Sanco Trans Ltd: a. Company has shown excellent growth in the last 5 years barring 2010. b. Growth can be attributed to increase in exports. c. This growth is likely to continue as the exports from our country increase. d. Better than industry P/E.24. Ajanta Pharma Ltd: a. Company has very good cash from operating activities. b. Company is aggressively investing its cash also. c. Company has shown wonderful growth over the past 5 years. d. Better than industry P/E.
  13. 13. Six companies finally selected are latest Industry Company P/E latest P/E Industry Name TTM P/BV TTM Industry Grouping Zensar Technologie s Ltd 8.02 2.5 14.34 Software Computer LIC Housing Finance Ltd 15.28 3.38 22.07 Finance Finance Ajanta Pharma Ltd 8.62 1.52 11.07 Pharmaceuticals Pharmaceuticals Patels Airtemp Engineering and (India) Ltd 5.49 1.62 18.51 Engineering metal Sanco Trans Ltd 10.33 2.07 30.64 Misc. Misc. Hawkins Domestic Cooker Ltd 14.07 13.67 17.66 appliances Domestic goods
  14. 14. Analysis for selected Six CompaniesLIC Housing finance Ltd.Industry AnalysisSince the 1970s, the Indian government had given special emphasis to the housing industry and madeproviding housing one of its main objectives. However, due to the scarcity of finance, owning a house remained a distant dream for the average Indian; even a lifetimes earnings and investments were notenough to fund the purchase of a house.As a result, even by 2001, the country faced a shortage of 19.40 million dwelling units. The housingfinance industry emerged as the answer to the problem of housing by providing finance to individualsplanning to own a house (Refer Exhibit II for information about the concept of housing finance).
  15. 15. Till then, banks had offered personal loans for properties. But these loans were restricted to bank andgovernment (public sector) employees. Private sector employees had to undergo a lot of hardship toobtain housing loans.To take care of this problem and to boost investment in the housing industry, the governmentestablished the Housing Development Finance Corporation Ltd (HDFC) in 1977.The objective of HDFC was identified as promoting home ownership by providing long-term finance tohouseholds for their housing needs.During the 1980s and 1990s, increased urbanization and the migration of the rural population to thecities resulted in heavy demand for housing. This created a great need for housing finance.Housing finance sector benefited from realty boom since 2002-03. But in the past few months, thedemand for new dwelling units has turned sluggish partly due to skyrocketed prices, slowdown ineconomy and relatively higher interest costs. Further, as there is general expectation of a likely fall inrealty prices, many prospective buyers have postponed their purchase decisions.Thanks to falling interest rate regime in the country, housing finance companies in India too haveresponded warmly by lowering their lending rates. All banks and most financial institutions offeringhome loans have enable home seekers to avail best loan under competitive rates. State Bank of India,IDBI, HDFC, Punjab National Bank, LIC Housing Finance Ltd. and some finance companies have a numberof schemes across all categories of housing requirements most important of which are the purchase offlats, construction of residential houses and also for repairs, renovations, additions andalterations/improvements.Industry Expectations from Union Budget 2009-10Ensure parity between HFCs and banks on CAR requirement
  16. 16. There should be parity between banks and HFCs as far as risk weight (RW) and Capital adequacyrequirement (CAR) are concerned. CAR for Housing finance companies is 12% as compared to 9% forbanks even though the risk weight on housing loans is same for Banks & HFCs at 50% for loans up to Rs30 lakh with LTV up to 75% and for loans above Rs 30 lakh it is 75%.Increase deduction under Section 80 Cthat currently allows Rs 1 lakh deduction on various payments / deposits including principal amount ofhousing loan to be raised to Rs 3 lakh i.e. Rs 2 lakh exclusively to be allowed for principal repayment.Double the deduction on interest payment of self occupied properties to Rs 3 lakhThe deduction of interest on housing loans is 100% for rented dwelling units and Rs 1.5 lakh for owneroccupied houses. Deduction available should be 100% of interest for both rented as well as owneroccupied houses. In case 100% deduction is not agreed, limit of deduction should be raised from Rs 1.5lakh to Rs 3 lakh.To Increase deduction under Section 36(1) (viii) of IT ActCurrently 20% of profit derived from business of providing long term housing finance is deducted fromincome carried to special reserve. But earlier this rate used to be 40% of profit derived from business ofproviding long term housing finance. The Association claims for restoring 40% deduction instead of 20%prevailing now.To extend section 36(1) (vii a) of IT Act to HFCsDeduction for bad and doubtful debts equivalent to 10% of the doubtful and loss assets is available tobanks. This should be extended to Housing Finance Companies like for banks and all the bad debtsshould be considered for deduction on provisions made and interest de-recognized as per theRegulators directions.
  17. 17. Reintroduce section 10(23G) of IT ActThis was omitted by Finance Act 2006 wef 01-04-2007. It used to exempt income from investment byHFCs in housing projects, which were treated as infrastructure.Analyst ExpectationThe Housing Finance companies have sought for parity between HFCs and Banks. They have alsorequested for increasing the deduction under Section 36(1) (viii) from current 20% to 40% which willhelp in improving the thin margins of HFCs and in turn increase their resources for affordable lending.Moreover extending section 36(1) (vii a) to HFCs that are presently applicable to banks will ensuresustained growth of Housing sector and also help them to efficiently handle their NPAs.By increasing the deduction under Sec 24(b) of the Income Tax Act, 1961 to Rs 250000 and also allowingRs 2 lakh as deduction exclusively for principal repayment. We could see some spurt in demand fromhome loan segments, which will prove beneficial for HFCs.Companies to Watch: 1.) HDFC 2.) LIC Housing Finance 3.) Dewan Housing FinanceOutlookThe second half of Year 2008-2009 was bad for the real estate market owing to global economic crisis.Real estate industry has gone through unprecedented liquidity crunch and slows down in demand. Theuncertain financial outlook for most consumers has pulled down the home seekerssentiments. Nevertheless we currently see the home loan market is hotting up with promise of moregoodies from the HFCs side. We expect the Union Budget 2009-10 to bring in more cheer to thissegment by way of more concessions and grants.
  18. 18. Sector Ratios Year 2010 2009 2008 2007 2006 2005 No. Of Companies 6 10 12 13 13 6 Key Ratios Debt-Equity Ratio 8.51 6.63 7.25 8.48 8.07 8.14 Long Term Debt-Equity Ratio 8.34 6.05 6.75 8.06 7.7 7.93 Current Ratio 14.17 7.6 8.85 10.5 10.68 12.84 Turnover Ratios Fixed Assets 11.73 25.45 20.79 15.52 11.84 9.49 Inventory 65.29 323.76 143.12 83.86 70.48 67.9 Debtors 2,916.75 440.13 629.72 1,021.80 3,043.48 4,247.81 Interest Cover Ratio 1.42 1.38 1.43 1.4 1.42 1.47 PBIDTM (%) 88.48 94.56 88.91 90.4 88.24 87.78 PBITM (%) 88.13 94.39 88.71 90.13 87.86 87.41 PBDTM (%) 26.4 26.14 26.69 25.88 26.28 28.37 CPM (%) 20.94 18.03 19.2 20.15 20.77 20.78 APATM (%) 20.59 17.86 18.99 19.88 20.39 20.4 ROCE (%) 8.53 11.56 10.43 9.41 8.44 8.99 RONW (%) 18.98 16.7 18.45 19.71 17.81 19.23Highlights: • The profit margin for industry has increased in the current period to 20.94% (APATM) due to increase in profits from individual disbursement and project loans. The increase in margins is
  19. 19. also due to reduction in administrative expenses taken up by companies like LICHFL and HDFC. This has also resulted in a better interest coverage ratio • The Debt-Equity ratio has increased for the industry to 8.51 from 6.63 a year earlier due to better availability of funds on account of better economic growth; this has also resulted in fall in ROCE due to higher Debt. • The RONW has increased beyond FY2008 levels after falling in FY2009 • CRISIL Research estimates housing finance disbursements to have grown by 18 percent in 2009-10 to Rs.1, 38,200 crore as compared with Rs.1, 17,000 crore in 2008-09.The following factors have supported a healthy growth in 2009-10: • Reduction in interest rates: Aggressive interest rate schemes launched by public sector banks led to intense competition in the industry and reduction in interest rates by 200-250 basis points, thereby benefiting the consumer; • Increase in balance transfer cases: Lower interest rates also increased the incidence of balance transfer cases in 2009-10, thereby contributing significantly towards disbursement growth. The growth without balance transfer is estimated at 11.9 percent;
  20. 20. • Pent-up demand from 2008-09: Lower property prices in the first half of 2009-10 encouraged first-time buyers to purchase new homes, leading to consumption of the previous years stock; • Rise in average ticket size: The second half of 2009-10 saw property prices rise in major markets (mainly Mumbai and Delhi), along with new project launches with larger area by many builders. This led to an overall increase of 8 to 9 percent in average ticket size of loans and contributed towards value growth in 2009-10.Housing constitutes over 70 percent of the real estate sector and is amongst the three basic necessities of life viz. Food, clothing and shelter. However, it is largely ignored. The estimated shortage in dwelling units during the period 2007-12 is 5.57 crore approx. With increase in urbanisation and improving affordability, the demand for mortgage loans will continue to grow at a healthy pace.Company AnalysisCompany backgroundThe largest housing finance company in India and recognized by National Housing Bank is known as LICHousing Finance Limited (LICHFL), having network of six regional offices, 126 marketing units acrossIndia and overseas representative offices in Dubai and Kuwait. The Company was promoted by LifeInsurance Corporation on 19th June 1989. The main objective of the company is providing long termfinance to individuals for purchase / construction / repair and renovation of new / existing flats / houses.The Company also provides finance on existing property for business / personal needs and gives loans to
  21. 21. professionals for purchase / construction of Clinics / Nursing Homes / Diagnostic Centres / Office Spaceand also for purchase of equipments.During the year 1989, the company had introduced various schemes like, Griha Prakash a generalscheme, Griha Tara under which it accepts only Bima Sandesh Plan as Life Insurance Corporation, GrihaShobha for Non Resident Indians (NRI) and Griha Lakshmi for people to have a second house. In the yearof 1994, LICHFLs status was converted to Public Limited Company from Private Limited Company. Thecompany had decided to carry out fund based and one-fund based activities during the period of 1996via debt securitization, lease and hire purchase, renting of properties and giving guarantee to co-operatebodies. In the period of 2001, the company had launched its new scheme called Griha Vikas. In 2002,LICHFL had signed a deed of assignment to take over individual housing loan portfolio of Citibank. Thecompany had unveiled a new project for elderly people called LICHFL Care Homes in the year 2003.LICHFL had successfully concluded its maiden offering of Global Depository Shares (GDS) in the year2004 and also the company had introduced flexi-fixed scheme offering fixed rate of interest for first fiveyears and variable thereafter.In October of the year 2005, the company had started offering of New Griha Laxmi housing loansagainst the security of certain approved financial assets like Bank Fixed Deposits, National SavingsCertificates and Life Insurance Policies. In the year of 2006, the company had introduced new GrihaJestha for senior citizens for buying unit of LICHFL Care Homes Limited. First time since its inception, thecompany had launched maiden Fixed Deposit Scheme in May of the year 2007, LICHFL decided to raiseresources from individual depositors via an attractive Fixed Deposit scheme. The Company had formedthree new wholly owned subsidiaries in 2007-08 to manage its interests in financial services, venturefund and asset management. In February of the year 2008, LICHFL had launched reverse mortage forsenior citizens above 60 years of age. In 12th March of the same year, the company had launched a newventure capital fund for realty projects. CRISIL assigns AAA (so)/Stable rating to Series A1, A2 to thecompany in June of the same year 2008.The Company is marching with the vision of to be the best housing finance company in the country andalso with the mission of Provide secured housing finance at an affordable cost, maximizing shareholdersvalue with higher customer sensitivity.
  22. 22. Sector AnalysisYRC Aggregate H D F C Dewan LIC Housing HUDC ICICI Home Housing Fin. O Fin 201003 201003 201003 201003 201003Key RatiosDebt-Equity Ratio 8.51 6.37 10.67 10.7 3.56 9.22Long Term Debt-Equity 8.34 5.84 10.67 10.45 3.51 7.21RatioCurrent Ratio 14.17 8.03 57.6 12.77 11.24 3.95Turnover RatiosFixed Assets 11.73 0 0 0 0 0Inventory 65.29 0 0 0 0 0Debtors 2,916.75 0 0 0 0 0Interest Cover Ratio 1.42 0 0 0 0 0PBIDTM (%) 88.48 96.8 88.31 94.67 87.09 86.24PBITM (%) 88.13 96.64 88.03 94.49 86.92 86.18PBDTM (%) 26.4 34.63 20.66 26.17 31.25 13.27CPM (%) 20.94 25.04 15.47 19.07 19.76 9.97APATM (%) 20.59 24.88 15.18 18.89 19.58 9.91ROCE (%) 8.53 10.52 10.79 10.07 9.88 10.82RONW (%) 18.98 19.95 21.82 23.56 10.14 12.72http://www.capitaline.comHighlights: • The company has a higher Debt-Equity ratio then the industry standard and is also the highest in its peer group. This has lead to increase in interest payments resulting in lower
  23. 23. profit margins but highlight the fund generating capability of the company. The company has started accepting deposits from the public, as on 31st March, 2010, the outstanding amount on account of public deposits was Rs. 326, 19, 37,820/- • The company has the highest RONW among its peer group and is also higher than the industry average. The P/E ratio of the company is 18 which is lower when compared to others like HDFC (34.2) and show that price appreciation can be expected in the future.Company FinancialsKey financial ratios Mar-1 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 0 9 8 7 6 5 Key Ratios Debt-Equity Ratio 10.7 11.26 10.87 10.42 9.77 9.38 Long Term Debt-Equity Ratio 10.45 11.07 10.72 10.26 9.69 9.31 Current Ratio 12.77 13.84 15.98 15.77 19.05 22.22 Turnover Ratios Loans Turnover 0.11 0.12 0.11 0.1 0.1 0.1 Advance / Loans Funds (%) 109.29 108.42 107.71 107.71 109.21 108.95 Tot. Income / Capital Employed (%) 10.66 11.69 10.99 9.68 9.43 9.56 Interest Expended / Capital Employed (%) 7.3 8.1 7.46 6.71 6.28 6.09 PBIDTM (%) 94.67 94.37 92.28 91.76 87.24 83.14 PBITM (%) 94.49 94.2 92.11 91.52 86.89 82.84 PBDTM (%) 26.17 25.11 24.36 22.39 20.62 19.4 CPM (%) 19.07 18.42 17.77 17.72 16.51 13.74 APATM (%) 18.89 18.25 17.6 17.48 16.16 13.43 ROCE (%) 10.07 11.01 10.12 8.86 8.2 7.92 RONW (%) 23.56 26.15 22.94 19.32 16.42 13.33
  24. 24. http://www.capitaline.comDuPont model Mar- Mar- Mar- Mar- Mar- Mar- 10 09 08 07 06 05 PBIDT/Sales(%) 94.67 94.37 92.28 91.76 87.24 83.14 Sales/Net Assets 0.09 0.11 0.1 0.09 0.09 0.09 PBDIT/Net Assets 0.09 0.1 0.09 0.08 0.07 0.07 PAT/PBIDT(%) 19.95 19.34 19.07 19.05 18.52 16.15 Net Assets/Net Worth 11.26 12.38 12.11 11.58 11.24 10.24 ROE(%) 23.56 26.15 22.94 19.32 16.42 13.33HighlightsPerformance/Operation HighlightsDuring the year, the Company sanctioned Rs.18,043.17 crore and disbursedRs.14, 852.93 crore registering a growth of 65.56 percent and 69.52 percent respectively. Forthe year ended March 2010, the Companys total income from operations was Rs.3,456.24 croreas against Rs.2,880 crore during the same period last year. Net profit for year ended March2010 zoomed toRs.661.64 crore when compared to Rs.531.62 crore in the correspondingperiod last year, thereby achieving a growth of 24.45 percent. The outstanding mortgageportfolio as at March 2010 was Rs.38,081 crore as against Rs.27,679 crore on March 2009 thusregistering a growth of 37,58 percent.MarketingLIC Housing Finance is one of the largest housing finance companies in India having one of the widestnetworks of 158 marketing offices as on 31st March, 2010 across the country and representative officesin Dubai and Kuwait. The Company continues to serve the customers at their door step through HomeLoan Agents, Direct Selling Agents and Customer Relation Associates. During the year, the Company also
  25. 25. participated in property exhibitions in various parts of the country and the same has been an impetusfor successful marketing tool.Recovery ManagementThe gross net performing assets (NPA) as on 31st March 2010 stood atRs.263 crore as against Rs.297 crore as on 31st March, 2009 registering a reduction of 11percent. The gross NPA of the company stood at 0.69 percentas on 31st March, 2010 as against 1.07 percent as on 31st March, 2009. NetNPAs were 0.12 percent as against 0.21 percent for the corresponding dates.The provision cover on the NPAs stood at 82.4 percent as on 31st March,2010. The net interest margin for the year stood at 2.70 percent.Outlook for 2010-11The initiatives taken by the Company during the year are expected to improve its operationaland financial performance. Major initiatives taken by the Company include: • Expanding its operations by establishing new business centres. • Increasing its distribution by appointing new agents and activising mare agents. • Supplementing its distribution channel by operationalising a new company LICHFL Financial Services Limited. • Incentivising and motivating the marketing intermediaries systematically for improving productivity.
  26. 26. • Raising funds through loans at attractive rate of interest and terms. • Maintaining good relations with lenders for reducing overall cost of funds. • Reviewing the existing lending rates at regular quarterly intervals in view of the change in interest rate scenario, thereby insulating the stakeholders of risk of interest fluctuation and passing on the benefits as applicable to the customer. • Timely review of credit appraisal system to improve the loan asset quality. • Initiating steps to upgrade Information Technology platform to ensure prompt and effective service to the clientele. • Initiating brand building measures to generate general awareness and improve the image of the Company and also increase the overall market share • Swift, appropriate and competitive pricing of its existing loan schemes to attract new customers.Call on LIC housing Finance LtdWe have given it a ‘BUY’ recommendation.This recommendation is given keeping in mind • Shortage of housing finance in the country • Industry’s growth expectations. • Support of mother holding company LIC India Ltd • Positive trends in profit margins and other financial indicators for past years which is expected to continue in the future.
  27. 27. Hawkins cookers LtdIndustry AnalysisThe Size of Pressure Cooker industry in India is projected at INR6.50 Bn and cookware is projected asRs.1, 500 Mn. Another Big potential, Modular Kitchen Market size is expected to around INR10 Bn.Overall, the entire kitchenware industry is worth about INR38 Bn. the pressure cooker industry has beengrowing at a rate of 10% YOY for last 5 years. It suffers from low entry barriers. As a result, the markethas regional and unorganized players along with national companies likeHawkins and TTK Prestige, which commands over 50%, share in the domestic pressure cooker market.There are about 250 brands of pressure cookers in the market. According to industry sources, 90% ofurban India already owns a pressure cooker whilst barely 22% of rural India owns a pressure cooker.The demand from urban India will be predominantly from upgrading whereas additional pressurecookers and emergence of new households is the great opportunity in rural India. The growth indemand for domestic home appliance products especially, the kitchenware production continues to risein tandem with the increase in income and living standards of the people both in the urban and ruralareas of the country. The growth rate of the industry is likely to be around the 14% mark in the comingyears.Key Risks
  28. 28. Saturation of market: The growth rate of the industry is dependent on the ability of players to tap therural market. However if this does not materialize then the industry may experience a flat sales growthrate.Non-Diversified Business: Pressure cookers contribute to over 80% of Hawkins topline. Any downturn inthe industry can cause the sales to drop substantially.Inflation risk: Pressure cooker industry has suffers on account of rise of input prices and not all costs aretransferable to the customers.Excise duty: Increase or decrease in excise duty has a high impact on the bottom line of the pressurecooker industry. An increase in excise duty can’t be ruled out as economic stimulus is taken back by thegovernment in phased manner.Leading PlayersThere are four major/leading players in the industry: - • Hawkins Cookers • Gorani Inds. • Panasonic Home • TTK PrestigeSector Ratios Lates Year t 2009 2008 2007 2006 2005 2004 2003 2002 2001 No. Of Companies 15 6 10 11 13 10 11 12 12 11 Key Ratios Debt-Equity Ratio 1.46 0.46 0.69 1.2 1.82 2.02 2.26 2.12 1.73 1.3
  29. 29. Long Term Debt- Equity Ratio 0.75 0.24 0.41 0.74 1.05 1.1 1.13 1.02 0.91 0.75 Current Ratio 1.34 1.36 1.44 1.41 1.32 1.39 1.3 1.28 1.44 1.59 Turnover Ratios Fixed Assets 3.67 4.05 4.37 3.95 3.58 3.57 3.18 3.21 3.08 2.94 Inventory 5.95 6.69 7.01 6.15 5.44 5.45 5.06 4.77 4.56 4.98 Debtors 7.68 7.41 8.57 8.05 7.39 7.36 6.13 5.66 5.31 4.73 Interest Cover Ratio 2.68 6.36 4.69 3.97 3.4 2.14 1.69 0.34 0.8 1.18 PBIDTM (%) 7.06 9.57 9.05 7.79 9.21 6.14 7.04 3.16 5.69 7.84 PBITM (%) 5.14 8.61 7.41 6.26 7.35 4.63 5.4 1.56 3.92 5.96 -1.4 PBDTM (%) 5.14 8.22 7.47 6.21 7.05 3.97 3.84 2 0.78 2.78 -1.0 CPM (%) 4.07 6.04 6.09 4.86 4.99 3.78 3.38 3 0.89 1.96 -2.6 -0.8 APATM (%) 2.15 5.09 4.45 3.33 3.12 2.27 1.74 4 8 0.07 ROCE (%) 10.76 27.9 23.88 15.88 15.42 8.83 9.86 0 0 8.97 RONW (%) 9.56 25.01 25.36 18.37 16.14 10.41 8.91 0 0 0.16Highlights: • The number of companies has increased sharply from FY 2009 indicating towards growing competition in the market. • The companies in the sector have started borrowing heavily for expansion to make the most of high growth opportunities due to strengthening of the economy after recession, as can be seen from increase in sector Debt-to-Equity ratio to 1.46 from 0.46 • Profit margins had been rising till FY 2009 but have fallen in current year on account of rising input cost and increase in tax rates.
  30. 30. Analysis of the company with respect to the sectorCompany BackgroundStarted in 1959 by a professional manager turned entrepreneurs when pressure cookers were virtuallyunknown in India, Hawkins Cookers was known as Pressure Cookers and Appliances. In 1986, thecompany acquired the present name. It is a leading manufacturer of cookers with a 32% market share,competing with more than 100 models of cookers in the market, from both the organised andunorganised sectors. Hawkins has an extensive product range consisting of pressure cookers, cookeraccessories, non-stick cookware, cuisinettes and stilton cookware.The company markets its entire product range in the domestic market under its own brand name,Hawkins, while it exports its products to the US under the Futura brand name. It is sold in some of thetop departmental stores in Europe and America. The company also exports to Yugoslavia, Japan,Panama, Mexico, Finland and the Netherlands.
  31. 31. In 1989, with the sale of cookers crossing the one crore mark, it joined a select group of companieswhich have sold more than one crore consumer durables. The company diversified by launching blendedspices, specially formulated for pressure cooking. PCA Engineers, a subsidiary, was merged with thecompany in 1993 and its entire business and undertakings were transferred to Hawkins.Hawkins cookers is a manufacturer of pressure cookers and cookwares incorporated in 1959 as a privatecompany and converted into public company on 1st Feb 1975. In fiscal end 2010 it reported sales of295.41 crore. Hawkins is the number one brand in thr pressure cooker market in India.Hawkins cooker is headquartered in Mumbai, India. It has manufacturing units in Janpur, Thane andHoshiarpur. The company primarily caters to the domestic market with over 90% of the total sales beingcontributed by the domestic market. The company has more than 68 valid patents and designregistration in force in 7 countries. It has a strong R&D effort and has not imported ant technology forpast 7 years.The strength of Hawkins lies in its brand and distribution activities which were revamped after thecompany suffered losses in FY 01 and FY 02. However inspite of the diversification, pressure cookercontributes more than 80% of the revenue. The segment is a mature segment and the urban market aregrowing at a very slow rate. The oppurtunities lies in the rural market and other kitchen appliancesmixer grinder.
  32. 32. Investment HighlightsWell Established Brand Name: Hawkins has a strong brand presence which is well established from thelast 4 decade in the minds of Indian people. Hawkins brand has traditional pressure cookers like HawkinsClassic, Hawkins Bigboy, Hawkins Contura, Hawkins Ventura and Hawkins stainless Steel. ‘Futura’ brandhas both cookers and cookware. ‘Miss Mary’ brand has pressure cookers which give trouble free service,totally safe and don’t leak properties.Huge capacity available to meet the increase in demand: The Company has low capacity utilization withutilization of 31.5% in FY2009 and an average utilization of 25% in the last 5 years. No future capitalexpenses are required to fuel expansion for Hawkins in Pressure Cooker segment. It can very wellincrease its capacity utilization with the increase in demand.Growing Brand Aspiration, Rural development & Rising Income to spur demand: Brand awareness hasbeen growing with the change in changing lifestyle of the society. Also rural development and fast-changing demographics have led to a growing demand for additional homes, which in turn haveincreased demand for kitchen appliances. Shrinking household sizes due to nuclearisation, coupled withhigher incomes, are expected to drive demand for household products, including kitchenware.Strong Return on Equity: The company has been maintaining a very healthy return on Equity from thelast 5 years. Its ROE has grown from 26.2% in 2005 to 81.8% in the year 2009 to 112.25% in 2010.Comparitive Analysis of Hawkins Cooker Ltd with the leading players in the IndustryYRC Aggregate Hawkins TTK Gorani Panasonic Cookers Prestige Inds. Home 201003 201003 200903 200903
  33. 33. Key RatiosDebt-Equity Ratio 1.46 0.32 0.11 1.61 0.13Long Term Debt-Equity 0.75 0.32 0.03 1.37 0.13RatioCurrent Ratio 1.34 1.44 1.36 2.78 1.35Turnover RatiosFixed Assets 3.67 8.15 6.68 0.75 3.76Inventory 5.95 10.43 9.26 2.14 9.02Debtors 7.68 10.81 9.47 2.16 16.12Interest Cover Ratio 2.68 33.68 22.73 6.5 5.11PBIDTM (%) 7.06 20.07 15.96 14.45 4.61PBITM (%) 5.14 19.49 15.26 9.09 2.93PBDTM (%) 5.14 19.49 15.28 13.05 4.04CPM (%) 4.07 13.04 10.84 13.05 2.98APATM (%) 2.15 12.47 10.15 7.69 1.29ROCE (%) 10.76 132.85 69.18 4.68 16.14RONW (%) 9.56 112.25 51.28 6.97 8.01Highlights: • The company has Debt-Equity ratio which is significantly lower than the industry average. It also has a much higher interest coverage ratio of 33.68 which indicates that the company can easily borrow in the future to generate capital if needed in the future. • The return on net worth and ROCE of the company is far higher than the industry average or peer group indicating towards better utilisation of capital and a more efficient use of financial leverage. • The profit margin of Hawkins is 12.47(APATM %) which is six times the industry average and highest in peer group. The company has made efforts to control costs even in good times and has more efficient operational capabilities.Company financials:
  34. 34. Mar-1 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 0 9 8 7 6 5Key RatiosDebt-Equity Ratio 0.32 0.36 0.51 0.86 1.39 1.94Long Term Debt-Equity Ratio 0.32 0.36 0.43 0.49 0.72 0.96Current Ratio 1.44 1.35 1.28 1.22 1.23 1.24Turnover RatiosFixed Assets 8.15 7.51 6.73 5.96 4.9 4.46Inventory 10.43 9.74 9.05 8.89 6.53 5.82Debtors 10.81 10.65 10.33 10.43 10.63 8.7Interest Cover Ratio 33.68 22.43 13.2 7.66 3.88 2.05PBIDTM (%) 20.07 12.72 9.58 8.09 6.58 6.24PBITM (%) 19.49 12.07 8.86 7.26 5.54 5PBDTM (%) 19.49 12.18 8.91 7.15 5.15 3.8CPM (%) 13.04 8.16 5.9 4.89 3.82 3.7APATM (%) 12.47 7.51 5.18 4.06 2.78 2.46ROCE (%) 132.85 96.74 69.45 47.84 25.89 18.13RONW (%) 112.25 81.85 61.45 49.67 31.01 26.27DuPont Model Mar-1 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 0 9 8 7 6 5 PBIDT/Sales (%) 20.07 12.72 9.58 8.09 6.58 6.24 Sales/Net Assets 5.77 7.17 7.77 6.72 5.09 3.77 PBDIT/Net Assets 1.16 0.91 0.74 0.54 0.33 0.24 PAT/PBIDT (%) 62.15 59.03 54.03 50.13 42.2 39.42 Net Assets/Net Worth 1.32 1.33 1.4 1.65 2.11 2.69 ROE (%) 112.25 81.85 61.45 49.67 31.01 26.27
  35. 35. Call on Hawkins Cookers LtdWe have given it a ‘BUY’ recommendation.This recommendation is given keeping in mind • Hawkin Cookers constantly improving efficiency which is reflected by RONW (%), ROCE (%), APTAM (%) and PBITDM (%). • Industry’s growth expectations. • The company is well positioned to take advantage of growth in demand in the market competitively ( directors report) • FOB value of exports was Rs.1 14.8 million, down 10% over the previous year mainly owing to delayed shipments because of product scarcity. Foreign Exchange used in the year under report was Rs.6.9 million (previous year: Rs.10.4 million). • The ROE has shown continuous improvement from the last five years and the trend is expected to continue in the future
  36. 36. Sanco Trans Ltd.Sector Analysis: LogisticsThe logistics segment can be broadly categorized into three segments– transportation,warehousing and value add services.Transportation: By providing transport facilities one earns freight as revenues. Transportationcan take place through surface that is by road and rail, or one can use air or water transportdepending upon urgency and cost feasibility.  Rails are operated by Indian Railways, a government undertaking. Till 2007, Container Corporation was the only player who operated container trains. But in 2007, container rail freight services were privatized but still Concor, a government undertaking, is the dominant player.
  37. 37.  Ocean or Sea freight has recently been witnessing robust growth with increase in foreign trade. Olympics and booming emerging economies like China and India supported growth of this segment with increase in transportation of iron ore, coking coal, steel etc.  Air freight segment accounts for a small pie of India’s freight market but is growing at a fast pace. Liberalisation and globalization has given a fillip to the growth of this segment. Sophisticated machinery components, pharmaceutical dyes, fruits, vegetables, flowers, fish and meat form part of air cargo.Warehousing: Warehousing is nothing but storage of product and goods to be transportedwhether inbound or outbound. The size of the segment in 2006 was estimated at Rs 1.2 trillion.Warehousing facility needs do change depending upon the mode of transport.. Privatisation ofcontainer rail transport is expected to drive growth of Container Freight Stations (CFS) andInland Container Depots (ICD). Such warehouses are used for transhipments. There aredifferent types of warehouses such as multimodal, port based, air cargo transhipments etc tocater to the needs of different modes of transport.Warehousing has also been dominated by small players who lack scale, handling and stackingtechnologies. In general, warehousing and packing losses account for little over 25% of totallogistics costs.Value added services: Apart from transportation and warehousing, logistics industry comprisesof other related services such as packaging, labelling and assembling, express services,tracking and tracing, cold chain, third party logistics etc. Again, depending upon mode oftransport, service requirements differ. In case of rail transport, service such as stuffing, de-stuffing, rail container services are required. On the other hand, in case of water and airtransport, services such as custom clearances, freight forwarding is provided.
  38. 38. Company AnalysisSanco Trans Ltd operates as a logistics company primarily in India. The company provides variousservices, such as air cargo, stevedoring, warehousing and distribution, transport, container terminal,customs clearance, multimodal transport operation/freight forwarding, and civil engineering. SancoTrans Ltd was incorporated in the year 1979 as a private limited company. In the year 1986, thecompany was converted into public limited company. By this time, the company has established theirniche in the market for the high quality of services in the Transport and Clearing & Forwarding sector.The company is having a covered warehouse space of 100,000 sq. ft, open warehouse space of 60,000sq ft, and having a capacity to store and handle 1,500 TEUs. They cater to clients like ABN Amro CentralEnterprises, Bharat Heavy Electricals, Bharat Petroleum Corporation, Chennai Petroleum Corporation,Hindustan Petroleum Corporation and several others.During the year 2007-08, the company acquired additional land measuring about 5.40 acres adjacent tothe existing plant of operation at a cost of Rs 853 lakh to handle increased volume of business. Also,they improved their operating fleet by acquiring Reach Stacker, Fork lifts, Tractors Trailers, Lightcommercial vehicles at a total cost of about Rs 381 lakh.The company is taking the necessary steps proactively to upgrade their facilities by increasing thecapacity of their container storage yard and attendant requirements of operating fleet and equipmentsat an estimated capital cost of nearly Rs 900 lakh.
  39. 39. Key Financial Ratios Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Key Ratios Debt-Equity Ratio 0.65 0.98 1.11 0.85 1.15 Long Term Debt- Equity Ratio 0.62 0.94 1.01 0.62 0.71 Current Ratio 1.42 1.21 1.05 0.96 0.93 Turnover Ratios Fixed Assets 1.37 1.87 1.74 1.93 1.75 Inventory 265.84 342.61 2,864.00 3,269.00 5,026.00 Debtors 5.23 7.47 6.34 5.32 4.72 Interest Cover Ratio 6.32 9.81 7.18 5.72 4.16 PBIDTM (%) 24.53 31.62 21.53 17.47 15.2 PBITM (%) 22.02 29.9 19.88 15.23 13.57 PBDTM (%) 21.05 28.57 18.76 14.81 11.94 CPM (%) 14.61 18.92 12.52 10.68 8.75 APATM (%) 12.1 17.2 10.87 8.44 7.12 ROCE (%) 29.43 59.48 42.54 40.47 31.28 RONW (%) 25.58 63.8 46.4 40.09 34.52DuPont Model Mar-10 Mar-09 Mar-08 Mar-07 Mar-06
  40. 40. PBIDT/Sales(%) 24.53 31.62 21.53 17.47 15.2 Sales/Net Assets 0.57 0.73 1.61 2.42 2.27 PBDIT/Net Assets 0.14 0.23 0.35 0.42 0.34 PAT/PBIDT (%) 49.31 54.41 50.49 48.34 46.86 Net Assets/Net Worth 3.33 3.98 2.19 1.69 1.92 ROE(%) 25.58 63.8 46.4 40.09 34.52Highlights: • Sanco Trans has been constantly reducing its debt for 5 years its debt-equity ratio in 2006 was 1.15 and by 2010 they have reduced it to 0.65. • Company has increasing its profit margin constantly for the last 5 years barring 2010 in which the profit margin took a dip from 2009 levels still the CAGR% has been 12.7%. • In the last 5 years after tax profit margin has increased from 7.12% to 12.1% for 2009 the APTAM (%) was 17.2% it dipped to 12.1%. • ROCE (%) and RONW (%) peaked in 2009 to the levels of 59.48% and 63.8% respectively. Both ROCE (%) and RONW (%) have shown a sharp decline 2010 to the levels of 29.43% and 25.58%.Competitor Analysis:Since it is a very fragmented industry there are not many companies in the same sector to comparesanco Trans Ltd. with them. Therefore we have compared Sanco Trans Ltd. with companies which caterto niches or are one off listed players belonging to miscellaneous category in various databases (here wehave used capitaline) which are of similar size.
  41. 41. APTAM Company Name Sales NP (%) P/E P/BV Contract Advt. 51.79 8.48 0.163738 0 0 COSCO (India) 57.52 0.58 0.010083 37.3 1.13 ETC Networks 52.05 2.66 0.051105 98.1 2.46 Sanco Trans 50.51 6.12 0.121164 8.8 2 Urja Global 49.66 0.4 0.008055 0 7.08 Aggregate Sanco Urja Contract ETC COSCO sector Trans Global Advt. Networks (India)Key RatiosDebt-Equity Ratio 1.11 0.65 0 0 0.25 1.52Long Term Debt-EquityRatio 1.03 0.62 0 0 0.25 0.58Current Ratio 1.29 1.42 12.88 1.55 2.74 1.68Turnover Ratios
  42. 42. Fixed Assets 0.35 1.37 2,483.00 4.43 1.74 3.07 Inventory 6.61 265.84 0 0 23.81 1.94 Debtors 5.61 5.23 0 2.03 2.2 6.93 Interest Cover Ratio 1.79 6.32 0 0 4 1.25 PBIDTM (%) 17.38 24.53 0.97 27.77 32 7.26 PBITM (%) 12.89 22.02 0.97 24.91 26.87 5.83 PBDTM (%) 10.16 21.05 0.97 27.77 25.28 2.61 CPM (%) 7.59 14.61 0.81 19.23 18.05 2.96 APATM (%) 3.11 12.1 0.81 16.37 12.92 1.53 ROCE (%) 3.7 29.43 2.05 47.99 14.34 6.85 RONW (%) 1.82 25.58 1.68 31.55 8.65 4.53Highlights • Sanco Trans has APTAM (%) on the higher side compared to its peers. • Sanco Trans has very low P/E ratio compared to its peers. • Sanco Trans has a good RONW (%) considering that fact that it had declined to a great degree it is a very good buy. • Sanco Trans also has best intrest coverage ratio among peers. • Before Tax Profit Margin is also on the higher side. • Sanco is a high growth company and it has a P/BV at 2 which is fairly low.
  43. 43. Call on Sanco Trans Ltd..We give a ‘BUY’ recommendation for Sanco Trans Ltd.This recommendation is given keeping in mind • Sanco’s track record of improving profitability (barring 2010) makes it a great buy. • Fairly low P/E for a high growth company. • Industry’s growth expectations (trade and construction are bound to grow in emmergind economy like India). • Low P/BV at just 2 • Excellent cash positionPatels Airtemp LtdINDUSTRY ANALYSISThe Engineering sector is the largest sector in the overall industrial segments in India. The sectoremploys over 4 million skilled and semi-skilled workers (direct and indirect). It is a diverse industry witha number of segments, and can be broadly categorised into two
  44. 44. Segments:• The Heavy Engineering Segment, and• The Light Engineering SegmentThe sector is relatively less fragmented at the top, as the competencies required are high, while it ishighly fragmented at the lower end (e.g. unbranded transformers for the retail segment) and isdominated by smaller players.1.1 The Heavy Engineering SegmentThe heavy engineering goods accounts for bulk of the engineering goods production inIndia. Most of the leading players are engaged in the production of heavy engineering goods and mainlyproduces high-value products using high-end technology. Requirement of high level of capitalinvestment poses as a major entry barrier. Consequently, the small and unorganised firms have a smallmarket presence.1.2 The Light Engineering SegmentThe light engineering goods segment, on the other hand, uses medium to low-end technology. Entrybarrier is low on account of the comparatively lower requirement of capital and technology. Thissegment is characterised by the dominance of small and unorganised players which manufacture low-value added products. However, there are few medium and large scale firms which manufacture high-value added products. This segment is also characterised by small capacities and high level ofcompetition among the players.The major end-user industries for heavy engineering goods are power, infrastructure, steel, cement,petrochemicals, oil & gas, refineries, fertilisers, mining, railways, automobiles, textiles, etc. Lightengineering goods are essentially used as inputs by the heavy engineering industry.GOVERNMENT POLICIES AND INITIATIVESGovernment of India reviews its Foreign Direct Investment (FDI) policy regularly, in a bid to attract moreinvestment. Recently, the government permitted 100 per cent FDI in construction and developmentprojects. India has opened up to private sector participation and FDI in infrastructure projects for power,roads, ports, mining sector, and pharmaceutical sector.
  45. 45. Around 36 per cent of the total FDI is directed towards engineering industry through an automaticroute, but subject to a limit of US$ 2 million of lump sum payments. Royalty payment is restricted to 5per cent and 8 per cent on domestic and exports respectively.Depreciation on general plant and machinery is proposed to be around 15 per cent.These initiatives of the government serve as a catalyst to further raise the demand for engineeringgoods and machinery.Some specific initiatives by the government, which positively impact the engineering sector are:• Removal of tariff protection on capital goods.• Delicensing of heavy electrical industry and allowance of 100 per cent FDI.• Various initiatives focused on infrastructure development and construction.• Initiatives to increase power generation and improve quality of power supply.• The reduction of custom duties on various equipments.These above initiatives are aimed at creating a facilitating environment in which the engineering sectorcan thrive. They have also helped the sector in becoming competitive.Leading PlayersFollowing are the major/leading players in the industry: - • Avtec • Batliboi • Brady & Morris • Cenlub Inds. • Cont. Valves • Electrotherm(I) • Envair Electrody • Fluidomat • G G Dandekar
  46. 46. • GEI Industrial • Hari Machines • Hercules Hoists • Mazda • Mirch Tech. • Patels Airtemp • Pitti Lamination • Remi Proc. Plant • Rolcon Engg. Co. • Shivagrico Impl. • Stewarts & Lloyd • T & I Projects • Tulive Developer • United Van Der • UT • Veritas (India) • Viksit Engg.Sector RatiosYear Latest 2009 2008 2007 2006 2005 2004 2003 2002 2001No.Of Companies 111 32 57 84 36 52 66 74 72 66Key RatiosDebt-Equity Ratio 1.32 1.25 0.91 0.79 0.86 0.78 0.82 1.19 1.75 1.73Long Term Debt-Equity Ratio 0.93 0.8 0.6 0.53 0.55 0.45 0.54 0.89 1.29 1.29
  47. 47. Current Ratio 1.25 1.32 1.37 1.32 1.31 1.26 1.15 1.18 1.34 1.38Turnover Ratios Fixed Assets 2.02 2.31 2.72 3.04 2.72 2.52 1.52 1.25 1.4 1.69 Inventory 4.23 4.16 4.44 4.3 4.48 4.6 4.32 4.05 3.36 3.69 Debtors 4.6 4.13 5.05 5.77 5.31 4.96 3.93 3.31 2.99 3.46Interest Cover Ratio 2.87 2.25 3.52 4.97 5.2 4.74 2.86 2.02 0.6 0.49PBIDTM (%) 13.02 13.14 14.15 13.65 13.11 11.39 11.15 10.94 6.94 6.06PBITM (%) 10.8 10.43 11.87 11.7 11.49 9.73 8.51 7.81 3.75 2.94PBDTM (%) 9.25 8.51 10.78 11.3 10.9 9.33 8.17 7.08 0.71 0CPM (%) 6.6 6.3 7.55 8.2 8.27 7.46 5.59 4.38 -0.52 -1.57APATM (%) 4.38 3.58 5.28 6.24 6.64 5.8 2.95 1.25 -3.71 -4.69ROCE (%) 16.37 14.5 21.13 24.61 24.55 19.86 11.69 9.64 0 0RONW (%) 13.7 11.1 17.95 23.88 27.22 20.61 6.83 3.13 0 0Highlights: • The number of listed companies has increased sharply from 32 in FY 2009 to 132 in current period indicating towards a higher competition in future as well as the high growth of the industry. • The industry is showing positive trends in operating profits as well as Profit margins (APATM) which have increased after falling from FY 2008 to FY 2009 • The ROCE and RONW have also shown positive trend but have not returned to even 2008 levels. The fall in FY 2009 was mainly due to economic downturn globally but as things have started improving in the developed markets the production as well as profitability is also increasing.Analysis of the company with respect tothe sector
  48. 48. Company BackgroundPatel Airtemp India Ltd. was promoted by shri Narayanbhai.G. Patel & associates who have been in thebusiness of design and fabrication of process equipment and engineering goods.The company wasincorporated on august 28, 1992 under the companies act, 1956 mainly with the object of taking overtwo of the 8 existing units of the group in order to create a harmony in the groups product range and toavoid competition among the group companies. These two existing profit making companies viz., M/sPatel Airtemp Private Ltd. and M/s Gujarat Patcon Pvt Ltd. have been merged into Patels Airtemp (India)Ltd. The company set up a new fully equipped plant as unit No.3 of the company at Village Santej,Mehsana District (state notified backward area) near Ahmadabad.The group promoted by Shri N.G.Patel and associates, earlier comprised of eight concerns which wereengaged in the fabrication/manufacturing of engineering components and products. The existingproduct range of the group includes heat exchangers, shell and tube water cooled condensers, airconditioning and recreation and process cooling equipment industrial fans and blowers, axial flow fans,heavy duty compressors, fans coil units and air handing units.During 1996-97, The Company embarked upon an expansion cum diversification project by setting upunit no. 4 of the company which is adjacent to the unit 3 located at Rakanpur. The company hasacquired technology from M/s Tek-fins, USA and the project is already in the pipeline. Total cost of theproject is Rs 1150 lakhs.The company manufactures a wide range of engineering equipment such as heat exchangers, pressurevessels, industrial fans and blowers as well as air-conditioning and refrigeration equipment. Thecompanys product range is used extensively as capital equipment in several projects like fertilisers,petrochemicals, cement, agro-chemicals, chemicals, pharmaceuticals, power plants, etc. With the thirdunit on stream, the company manufactures special pressure vessels like horten spheres, LPG bullets andstorage vessels for hazardous chemicals.Company has completed two prestigious Jobs for Nirma Ltd for their LAB as well as Soda Ash Project.These jobs were successfully completed with rigid quality specifications. Similarly, Company also
  49. 49. executed certain critical jobs pertaining to ventilation and Air conditioning Equipment & Project for M/sReliance Petroleum Ltd- Jamnagar, also some Special Heat Exchanger for Indo Gulf Fertilisers & over 16Bullets for IOCL for its various plants located all over country. Company also seriously exploring thepossibility of going for the lucrative line of Turnkey Projects.During August 2004, the Vatva division of the company has been demerged into Patels Airflow Ltd.Inconsideration, thereof One equity share of Rs.10/- each of Patels Airflow Ltd has been issued for everyFour existing equity shares held. Consequently the existing equity shares of Rs.10/- each get reduced toRs.7.50 each, which were consolidated into three equity shares Rs.10/- each for every Four Shares ofRs.7.50 each.2005Delistes shares of Company voluntarily from The Stock Exchange,Ahmedabad (ASE) w.e.f. February 28, 2005
  50. 50. Investment Highlights: • The company has grown its top line by more than 30% and bottom line 40%+ in the last 6 years. However at the same time the growth has come from extremely small base. The company has paid off its debt and is now debt free. • The company has a fairly diverse clientele and supplies its products to a wide variety of industries such as cement, chemicals, petrochemicals, textiles and engineering. In addition the company has the benefit of an ever expanding and growing market for its products. • The company has been business since 1973, but has started doing well for the last 5 years. The ROE of the company has increased from 7% to around 30% in 2009. The company is almost debt free and may have some excess cash by the end of 2010. • The company has bagged orders aggregating Rs 16.30 crore from Indian Oil Corporation for supply of heat exchangers for Paradip refinery project, OrissaComparitive Analysis of Patel Airtemp Ltd with the leading players in the Industry
  51. 51. Rolcon Patels GEI Electro Remi Fluid Pitti Cont. Engg. Airtem Avte Indus therm(I Proc. oma Lamina Valve Aggr Co. p c trial ) Plant t tion s egat 20100 201 2009 2009 20040YRC e 201003 3 003 03 200903 200903 03 200903 3Key RatiosDebt-EquityRatio 1.32 0.02 0.32 0.97 0.93 2.43 0.8 0.28 1.16 0.69Long TermDebt-EquityRatio 0.93 0.02 0 0.63 0.41 1.69 0.46 0.23 0.68 0.69Current Ratio 1.25 1.87 1.72 1.09 1.53 1.34 0.96 2.03 1.23 4.16TurnoverRatiosFixed Assets 2.02 2.12 4.24 1.25 5.6 2.47 2.29 2.04 2.95 0.48Inventory 4.23 28.79 14.69 6.5 3.47 4.55 3.95 5.7 5.25 2.39Debtors 4.6 7.63 3.26 4.56 3.84 6.64 4.78 3.79 6.76 3.92Interest CoverRatio 2.87 17.38 10.9 2.4 2.14 1.67 4.57 8.89 1.7 0.33 13.0 16.9 14.2PBIDTM (%) 2 10.39 20.42 5 5 14.35 16.09 17.6 10.29 6.12 13.4 15.6PBITM (%) 10.8 7.2 19.26 8.98 9 11.3 14.37 5 8.22 2.04 13.2 15.8PBDTM (%) 9.25 9.97 18.65 1 7.95 7.59 12.95 4 5.46 0 11.3 10.7CPM (%) 6.6 7.78 12.61 8 5.12 6.11 8.55 5 4.36 0APATM (%) 4.38 4.59 11.45 3.41 4.36 3.07 6.83 8.8 2.29 -4.08 16.3 10.5 28.5 31.0ROCE (%) 7 23.01 41.86 7 1 13.62 18.79 9 17.87 0 18.3 23.4RONW (%) 13.7 14.94 32.92 7.91 9 12.56 16.06 9 10.75 0Highlights • The company has a low Debt-Equity ratio in comparison to industry standards as well as within the peer group. The company has managed to pay most of its debt in recent past and is in a favourable position to generate capital for future growth if needed. It’s long term Debt-Equity ratio is 0. The company also has a higher interest coverage ratio when compared to industry standards. • The high inventory turnover ratio indicates a lower inventory carrying cost and efficient operations when compared to industry.
  52. 52. • Patels Airtemp Ltd has the highest profit margin (APATM) in its peer group and also has a high ROCE and RONW in relative comparison which make the future prospect of price direction favourable.Company Financials Mar-1 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 0 9 8 7 6 5Key RatiosDebt-Equity Ratio 0.32 0.31 0.35 0.45 0.7 0.92Long Term Debt-Equity Ratio 0 0.01 0.1 0.25 0.36 0.5Current Ratio 1.72 1.63 1.54 1.52 1.42 1.4Turnover RatiosFixed Assets 4.24 5.03 4.52 3.7 2.8 2.62Inventory 14.69 12.91 12.3 9.9 6.12 5.12Debtors 3.26 4.03 4.49 4.66 3.74 4.65Interest Cover Ratio 10.9 11.07 7.06 4.04 2.57 2.12PBIDTM (%) 20.42 17.5 15.64 11.62 10.82 10.6PBITM (%) 19.26 16.59 14.61 10.31 9.16 8.83PBDTM (%) 18.65 16 13.57 9.07 7.26 6.43CPM (%) 12.61 10.75 9.54 6.75 5.77 5.4APATM (%) 11.45 9.84 8.51 5.44 4.1 3.62ROCE (%) 41.86 46.98 46.35 29.73 18.99 16.98RONW (%) 32.92 36.57 36.3 22.59 14.41 13.28DuPont Model Mar-1 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 0 9 8 7 6 5 PBIDT/Sales(%) 20.42 17.5 15.64 11.62 10.82 10.6 Sales/Net Assets 1.87 2.49 2.76 2.84 2.11 1.87 PBDIT/Net Assets 0.38 0.44 0.43 0.33 0.23 0.2 PAT/PBIDT(%) 56.07 56.25 54.43 46.86 37.91 34.15
  53. 53. Net Assets/Net Worth 1.35 1.29 1.34 1.35 1.55 1.86 ROE(%) 32.92 36.57 36.3 22.59 14.41 13.28FUTURE PROSPECTSThe Company is in engineering industry and is engaged in Manufacturing/fabricating tailor mademachines and therefore, the order Book position of such type of company can play pivotal role inthe growth of the Company. The Company is having confirmed orders of about Rs.58 Crores onhand as on 22nd May, 2010. Thus, inspite of the general slowdown,As per the present policy of the Government of India, there is a thrust on development of variousinfrastructure sectors and accordingly Government is continuously spending and developingrefineries, fertilize projects, thermal power plant and nuclear power plant. There is wide scopefor the Company to supply the Capital goods equipments to the Companies under this segment.Thus the Company can supply equipments like Shell & Tube heat Exchangers, Pressure Vessels& Columns, Air Cooled Heat Exchangers and Air Conditioning and Refrigeration equipments tothis segment.POSITIVES:1.CONSISTENT GROWTH2.VERY LOW DEBT3.CONSISTENT DIVIDEND PAYMENT SINCE 3 YEARS4.MARKET PRICE CLOSE TO BOOK VALUE5.VERY GOOD GROWTH PROSPECTS IF ECONOMY GETS BACK ON TRACK6.CHEAP VALUATIONS AND CONSISTENTLY GOOD RETURN RATIOSNEGATIVES:1.COMPANY IS A SMALL PLAYER AND HENCE RISKS ASSOCIATED WITH SMALL AND
  54. 54. MICRO CAPS1.POOR LIQUIDITYCall on Patels Airtemp LtdWe have given it a ‘BUY’ recommendation.This recommendation is given keeping in mind • Patels Airtemp Ltd constantly improving efficiency which is reflected by RONW (%), ROCE (%), APTAM (%) and PBITDM (%). • Industry’s growth expectations. • Low debt of the Company and its potential to generate capital for future growth
  55. 55. Ajanta Pharma Ltd.Sector AnalysisThe Indian Pharmaceutical industry is highly fragmented with about 24,000 players (around 330 in theorganised sector). The top ten companies make up for more than a third of the market. The revenuesgenerated by the industry are approximately US$ 7.6 bn and have grown at an average rate of 10% overlast five years. The Indian pharma industry accounts for about 1% of the worlds pharma industry invalue terms and 8% in volume terms.In the recent past, Indian companies have targeted international markets and have extended theirpresence there. While some companies are exporting bulk drugs, others have moved up the value chainand are exporting formulations and generic products. India also offers excellent exports opportunitiesfor clinical trials, R&D, custom synthesis and technical services like Bioinformatics.Sector TrendsIndian Pharmaceutical sector witnessed a growth of 17.7% for the year 2009-10 and this growth is likelyto continue in the current year also with good signs such as 23.9% Y-o-Y growth in April 2010. This is alsoa increase when compared to growth in March 2010 which was 18.8%. The value growth as per MATwas recorded a growth of 18.8% in the month of April 2010 compared to 17.7% in the month of March2010 and 10% in the month of March 2010. As per IIPA, the value growth recorded in the month ofApr10 was 17.2% comparable to 17.1% in the month of Mar10. In terms of therapies value growth,Anti- Diabetic therapy has recorded 26%, Dermatology by 22%, Cardio Vascular System, Central NervousSystem and Respiratory have recorded 21% and followed by Anti-infective up by 15%.Financial Ratios for Pharma sector
  56. 56. Year 2010 2009 2008 2007 2006No.Of Companies 128 52 56 68 52Key RatiosDebt-Equity Ratio 1.17 1.22 1.16 0.95 0.75Long Term Debt-Equity Ratio 0.72 0.75 0.78 0.6 0.43Current Ratio 1.37 1.47 1.5 1.46 1.44Turnover Ratios Fixed Assets 2.54 2.63 2.8 2.69 2.52 Inventory 5.54 5.1 6.26 6.44 6.3 Debtors 3.91 3.24 3.51 3.59 3.4Interest Cover Ratio 2.27 1.75 2.73 3.72 3.76PBIDTM (%) 11.72 9.91 14.23 13.52 13.13PBITM (%) 9.73 7.89 12.44 11.78 11.52PBDTM (%) 7.43 5.4 9.68 10.36 10.06CPM (%) 5.57 3.77 8.17 8.65 8.35APATM (%) 3.57 1.75 6.38 6.91 6.75ROCE (%) 11.97 8.23 13.24 13.83 14.39RONW (%) 8.33 3.97 14.51 15.69 14.62Highlights: • The total number of listed companies in the pharma sector has more than doubled.
  57. 57. • All the profitability ratios have worsened in the last 5 years which is likely due to increased competition.Company Analysis:Key Financial Ratios: Mar-10 Mar-09 Mar-08 Mar-07 Mar-06Key RatiosDebt-Equity Ratio 1.35 1.42 1.07 0.83 0.77Long Term Debt-EquityRatio 0.88 0.83 0.55 0.37 0.35Current Ratio 1.62 1.64 1.75 1.92 2.13Turnover RatiosFixed Assets 1.96 2.19 2.63 2.65 2.52Inventory 3.77 3.39 3.65 3.75 3.45Debtors 4.22 3.58 3.67 3.41 3.29Interest Cover Ratio 2.76 2.18 2.63 2.59 2.06PBIDTM (%) 18.84 18.96 16.01 14.85 13.74
  58. 58. PBITM (%) 13.71 14.88 13.62 12.11 10.83PBDTM (%) 13.88 12.12 10.84 10.18 8.5CPM (%) 12.55 10.71 8.49 8.29 7.79APATM (%) 7.42 6.63 6.1 5.55 4.87ROCE (%) 13.67 13.87 15.04 14.2 12.31RONW (%) 17.4 14.93 13.96 11.91 9.81DuPont Model Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 PBIDT/Sales(%) 18.84 18.96 16.01 14.85 13.74 Sales/Net Assets 1.01 0.82 0.97 1.08 1.1 PBDIT/Net Assets 0.19 0.16 0.16 0.16 0.15 PAT/PBIDT(%) 39.37 34.98 38.09 37.35 35.46Net Assets/NetWorth 2.16 2.58 2.23 1.9 1.75 ROE(%) 17.4 14.93 13.96 11.91 9.81Highlights • Over the last 5 years company’s debt-equity ratio has improved significantly. • Increased debt has resulted into a decreased cost of capital, thus increased profit margins. • Company’s return on net worth has almost doubled over the last 5 years.
  59. 59. • Company’s after tax profit margins have grown almost 80% over the last 5 years.Competitor AnalysisCompetitors of Ajanta Pharma Ltd. considered on the basis of companies being in the same industry andsimilar sales as that of Ajanta Pharma. We have assumed companies in the same industry and of similarsize will be in a similar risk class. Sharon Industry Arvind Ajanta Plethico Bio- Twilight Aggregate Remedies Pharma Pharma Med. Litaka Key Ratios Debt-Equity Ratio 1.17 1.59 1.35 0.96 2.45 2.59 Long Term Debt-Equity Ratio 0.72 0.62 0.88 0.88 1.36 1.27 Current Ratio 1.37 1.45 1.62 4.25 1.72 1.62 Turnover Ratios Fixed Assets 2.54 6.67 1.96 3.22 6.67 7 Inventory 5.54 7.82 3.77 28.21 5.7 8.45 Debtors 3.91 3.25 4.22 1.4 3.68 2.91 Interest Cover Ratio 2.27 2.08 2.76 3.83 2.55 2.35 PBIDTM (%) 11.72 10.22 18.84 27.21 9.7 13.89 PBITM (%) 9.73 9.54 13.71 25.9 8.71 13.2 PBDTM (%) 7.43 5.64 13.88 20.45 6.28 8.27
  60. 60. CPM (%) 5.57 4.12 12.55 20.38 5.43 6.64APATM (%) 3.57 3.44 7.42 19.08 4.43 5.95ROCE (%) 11.97 15.97 13.67 9.75 10.89 25.25RONW (%) 8.33 14.91 17.4 14.05 19.14 40.78DuPont Model APTAMCompany Name Sales NP (%) P/E P/BVAjanta Pharma 381.65 28.5 0.0746758 10.5 1.67Arvind Remedies 297.77 10.58 0.0355308 0 0.56Plethico Pharma. 471.47 90.44 0.1918256 14.5 1.9Sharon Bio-Med. 496.58 21.52 0.0433364 7.1 1.23Twilight Litaka 491.96 32.63 0.0663265 11.2 3.94Highlights • Its debt even after increasing is on the lower side when compared to industry peers. • Ajanta Pharma has the lowest inventory among its peers. • Ajanta Pharma also has the highest before tax profit margin.Call on Ajanta Pharma Ltd.
  61. 61. We have given it a ‘BUY’ recommendation.This recommendation is given keeping in mind • Ajanta Pharma’s constantly improving efficiency which is reflected by RONW (%), ROCE (%), APTAM (%) and PBITDM (%). • Industry’s growth expectations.Zensar Technologies Ltd.
  62. 62. Sector analysisInformation Technology sector can be broadly classified into software development, software services,software products, consulting services, BPO services, e-commerce & web services, engineering servicesoff shoring and animation and gaming. Banking, Financial Services and Insurance (also known as BFSI) isan industry name commonly used by IT/ITES/BPO companies to refer to the services they offer tocompanies in these domains. US contribute more than 50% of the revenues for the Indian IT companies.Rupee movement vis-à-vis dollar plays a major role on the earnings of the Indian IT companies. Thecontracts are either value based or hourly billing. Indian IT services gets tax exemption under Sec-10A(for STPs, software technology parks), which exempts companies from taxes on export revenues.Sector Trends:Software sector continued its good performance in quarter ending March 2010 this was attributed tostrong volume growth. Unlike quarter ending December 2009 in which the growth was mainly attributedto Banking Financial Services and Insurance (BFSI) sector this quarter showed a more inclusive growthwith sectors like telecom and manufacturing verticals also picking up.The employee addition was high in the quarter and so was the employee attrition giving signs of goodtimes to come. Infosys Technologies added 9313 employees on gross basis and 3914 employees on netbasis. TCS added 16851 employees on gross basis and 10775 employees on net basis. Volume growth continues Mar-10 Dec-10 Var. (%) Net Sales 32810 32193 2 OPM (%) 26 26.3 Operating Profits 8539 8476 1 Other Income 659 386 71 PBIDT 9198 8863 4 Interest 130 200 -35 PBDT 9068 8662 5 Depreciation 1042 1100 -5