Regulations by SEBI

Mutual funds are regulated primarily by Securities and Exchange Board of India (SEBI). In 1996, SEBI formulated the Mutual Fund Regulation. Along with SEBI, mutual funds are regulated by RBI, Companies Act, Stock exchange, Indian Trust Act and Ministry of Finance. RBI acts as a regulator of Sponsors of bank-sponsored mutual funds, especially in case of funds offering guaranteed returns. In order to provide a guaranteed returns scheme, mutual fund needs to take approval from RBI. The Ministry of Finance acts as supervisor of RBI and SEBI and appellate authority under SEBI regulations. Mutual funds can appeal to Ministry of finance on the SEBI rulings.

Some SEBI Regulations for Mutual Funds

Mutual funds must set up AMC with 50% independent directors, a separate board of trustee companies with minimum 50% of independent trustees and independent custodians to ensure an arm’s length relationship between trustees, fund managers, and custodians.  SEBI takes care of the track record of a Sponsor, integrity in business transactions and financial soundness while granting permission. The particulars of schemes are required to be vetted by SEBI. Mutual funds must adhere to a code of advertisement.

As per the current SEBI guidelines, mutual funds must have a minimum of Rs. 50 crores for an open-ended scheme, and Rs. 20 crores corpuses for the closed-ended scheme.  Within nine months, mutual funds must invest money raised from the saving schemes. This protects the mutual funds from the disadvantage of investing funds in the bullish market and suffering from poor NAV after that. Mutual funds can invest a maximum of 25% in money market instruments in the first six months after closing the funds and a maximum of 15% of the corpus after six months to meet short-term liquidity requirements. SEBI inspects mutual funds every year to ensure compliance with the regulations.

Structure of Mutual Funds

Mutual Funds in India primarily have a 3-tier structure i.e. Sponsor (1st tier), Public Trust (2nd tier) and Asset Management Company (3rd tier). Sponsor is any person who himself or in association with another corporate, establishes a mutual fund. The Sponsor seeks approval from the Securities & Exchange Board of India (SEBI). Once SEBI approves it, the sponsor creates the Public Trust as per the Indian Trusts Act, 1882. Since Trusts have no legal identity in India, the Trust itself cannot enter into contracts. Thus, Trustees are appointed who are authorized to act on behalf of the Trust. The instrument of trust must be in the form of a deed between the Sponsor and the trustees of the mutual fund registered under the provisions of the Indian Registration Act. The Trust is then registered with SEBI leading to formation of mutual fund. Henceforth, the Trust is known as mutual fund. Sponsor and the Trust are two separate entities.

Shriram Transport Finance Corporation Ltd

shri ram

Shriram Transport Finance Corporation Ltd (STFC), a part of the “SHRIRAM” conglomerate, has significant presence in financial services viz., commercial vehicle financing business, consumer finance, life and general insurance, stock broking, chit funds and distribution of financial products such as life and general insurance products and units of mutual funds.

Incorporated in the year 1979 and registered as a Deposit taking NBFC with Reserve Bank of India, STFC was set up with the objective of offering the common man with a host of products and services that would be helpful to him on his path to prosperity. Over the decades, the company has achieved significant success in reaching this objective, and has created a tremendous sense of loyalty amongst its customers.

STFC decided to finance the much neglected Small Truck Owners. Shriram started lending to the Small Truck Owner to buy new trucks. But found a mismatch between the Aspiration and Ability. The Truck Operator was honest but the Equity at his command was not sufficient to support the credit levels required to buy a new truck. STFC helped them transition from being a driver to being an owner.

STFC is a part of a huge Shriram Group conglomerate that handles the financial services section of the group. The business dominates in financing vehicles especially in the rural areas and there it is beating its competitors. STFC is also engaged in pre-owned commercial vehicle (CV) financing business and offers ancillary services, such as finance for working capital, engine replacement, bill discounting, credit cards and tire-loans as the financial support system. Shriram Automall India Limited is the Company’s subsidiary.

STFC has performed quite well in the past few quarters with Net profit increasing QoQ, with profit of ₹448.68 Cr in the first quarter of the financial year 2017-18, ₹479.11 Cr in the second quarter (Sept 17), ₹495.63 Cr in the third quarter (Dec 17). The final quarter showed a dip in profit to as low as 144.60 Cr though the net sales increased at a substantial rate of 5.22%. The company maintains a healthy dividend payout of 18.53%.

The company is performing better as compared to previous years. Its net profit is increasing QoQ, as is its Net sales. It needs to focus on its ROE which is as low as 12.59% for the last 3 years which shows inefficiency in utilization of funds. The stock is currently priced at ₹1627.55 and is expected to go down to as low as ₹1407.74 with profit expected to decrease slightly but the net sales is expected to increase in the same rate in the coming 2 years.

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3M- An array of products

3M graphic

Compiled by Srishti Shrivastava

3M India Limited is the Indian arm of 3M Company, USA. The Company markets about 7000 products in India with leading positions in health care, industrial markets, display and graphics, consumer and office, transportation, safety, security and protection services. 3M is among the leading manufacturers of products for many of the markets it serves.

In India, 3M has manufacturing facilities at Ahmedabad, Bangalore, Pune and has a R&D Center in Bangalore. 3M India manages its operations in five operating business segments: Industrial and Transportation; Health Care; Display and Graphics; Consumer and Office and Safety, Security and Protection Services. These five business segments bring together common or related 3M technologies that enhance the development of innovative products and services and provide efficient sharing of business resources. These segments have worldwide responsibility for virtually all 3M product lines. The 3M products are sold either directly to users or through numerous wholesalers, retailers, converters, distributors and dealers in a wide variety of trades in many countries around the world. The Management of the Company believes that the confidence of wholesalers, retailers, converters, distributors and dealers in 3M and its products has contributed significantly to 3M India’s growth and its position in the marketplace.

Talking about the segment-wise growth drivers of 3M India, 3M Car Care sales growth was fueled by launch of new formats like fuel station outlets and mobile detailing units. The Traffic Safety & Security Division continues their growth path in the road safety market with launch of new products like Conspicuity Tapes, Solar RPMs, flexible median markers, etc. The division continues to educate the market with Night Demos, Key Opinion Leader(KOL) programs, Contractor Programs, etc., while participating in key industry events like Inter traffic, IRF (Indian Road Federation) Road Safety Week, IRC (Indian Road Congress) Annual Exhibitions, CII Conferences, NHAI events, etc., to propagate use of road safety products to save lives on the road.

3M Healthcare has been continuing efforts in digital space. Sales through e-commerce for both medical and dental products have gained traction and are achieving growth year on year. There is continued growth in the office supplies channels with Post-it & Scotch range of products aimed at office workforce segment.  For Renewable energy business, there is increased usage of Energy Management and safety films due to enhanced focus on energy efficiency & green buildings, security concerns and the growing usage of glass in commercial and residential complexes. The Go-to-Market strategy to expand reach into smaller cities through the extended sales representative model has been successfully scaled up leading to higher level of penetration of 3M products in markets that were earlier not covered.

Recently 3M India has partnered with Automotive OEM’s to develop products aimed at reducing diesel vehicle emissions, VOC free under body protection and reducing water use for car cleaning. Also, 3M aims to step up growth by leveraging domain expertise in domestic markets such as Consumer and Healthcare. 3M is also expanding the reach of its solutions that help combat deteriorating air quality and water quality. 3M is also leveraging its expertise in the area of sustainability to work with the Government and other Companies on green initiatives and solutions. 3M targets to have 10% of its sale through e-commerce in the next 5 years.

The Company registered an overall turnover growth of 10.53% for the financial year ended March 31, 2017. The Industrial business grew by 9.91%, health care business grew by 15.37%, safety and graphics business grew by 14.46%, consumer business grew by 10.56% and energy business grew by 4.68%.

I expect the company to grow at a rate of 21.74 percent based on how much are they reinvesting into the business and how well are they reinvesting using retention ratios and efficiency ratios. I expect the company to clock EPS of Rs.339.76 FY-19. Also, sales for the year 2019, is expected to grow at 21% when compared to previous year i.e. from Rs.2859 crores to Rs.3459.39 crores. Giving it a median PE of 70 the stock could go up to 23783.31 an upside potential of 16.18%.

https://drive.google.com/open?id=1eFRpgXqfPi6NP9PVryt_iLLQZPK6Komp

 

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Marico Positional Call

MARICO GRAPHIC

Report dated on 23 April, 2018; Compiled by Sandip Patel

Marico Limited is one of India’s leading consumer product companies operating in the beauty and wellness space. Currently present in 25 countries across emerging markets of Asia and Africa, Marico has nurtured multiple brands in the categories of hair care, skin care, edible oils, health foods, male grooming and fabric care. Marico’s India business markets household brands such as Parachute, Parachute Advansed, Saffola, Hair & Care, Nihar, Nihar Naturals, Livon, Set Wet, Mediker and Revive among others adding value to the life of 1 in every 3 Indians. The International business offers unique brands such as Parachute, HairCode, Fiancée, Caivil, Hercules, Black Chic, Isoplus, Code 10, Ingwe, X-Men and Thuan Phat that are localized to fulfill the lifestyle needs of its international consumers. Charting an annual turnover of INR 59 billion (Financial Year 2016 – 2017) across the entire portfolio, Marico’s sustainable growth story rests on an empowering work culture that encourages its members to take complete ownership and make a difference to the entire business ecosystem.

New product launches during First Quarter of 2018

  • Saffola Edible Oil launched its new packaging with relevant benefit positioning for each of the variants derived from factors affecting heart health.
  • Exciting and super nourishing range of fruit-based hair oils under the Hair & Care brand available in two variants: Green (which contains the extracts Olive, Sweet Lime and Green Apple) and Orange (which contains the extracts of Strawberry, Orange and Pomegranate).
  • Parachute Advansed Men Range;
  • Set Wet Gels with New Exciting Packaging;
  • Set Wet Beard Gels & Cream;
  • Set Wet No-Gas & Blast

Technical Rationale

The stock is in a sloppy uptrend which has witnessed a price-wise correction after recording new high. The 50-week and 100-week moving averages have subsequently given a strong support to show a bounce back to record new highs in stock price.

Currently 50-week moving average is giving a good healthy support and a good price volume action helping to surpass the hurdle of price decline.

RSI and Stochastic have given a positive signal as both of the indicators are above the neutral line which shows a good positive trend continuation to record a new high.

MACD is trading above its average and have recently given a bullish crossover in the stock price to give a positive buy signal.

As per the Current weekly set up, I believe that the stock will move higher by utilising prior consolidation

On the higher side, the stock will face a major hurdle at Rs. 374, which is coinciding with prior high connecting trend line. However, in any case of decline, the stock will get a strong support at its 100-week moving average which is nearly placed at Rs. 295.

marico 1

Conclusion: A long position in stock of Marico limited can be initiated in the range of Rs. 315-325 with the Stop Loss of Rs. 295 and the Target of Rs. 374.

Mahindra & Mahindra positional call

Mahindra Technical

Report Dated on 20 April 2018

Mahindra and Mahindra Limited (M&M) is an Indian multinational car manufacturing corporation headquartered in Mumbai, Maharashtra, India. It is one of the largest vehicle manufacturers by production in India and the largest manufacturer of tractors in the world. It is a part of the Mahindra Group, an Indian conglomerate.

Mahindra & Mahindra, brands its products as “Mahindra”, produces SUVs, saloon cars, pickups, commercial vehicles and two wheeled motorcycles and tractors. It owns assembly plants in India, Mainland China (PRC), the United Kingdom, and has three assembly plants in the United States. Mahindra maintains business relations with foreign companies like Renault SA, France.

Mahindra produces a wide range of vehicles, including MUVs, LCVs and three-wheelers. It manufactures over 20 models of cars, including larger, multi-utility vehicles like the Scorpio and the Bolero. It formerly had a joint venture with Ford called Ford India Private Limited to build passenger cars.

Mahindra began manufacturing tractors for the Indian market during the early ’60s. It is the top tractor company in the world (by volume) with annual sales totalling more than 200,000 tractors. Since its inception, the company has sold over 2.1 million tractors. Mahindra & Mahindra’s farm equipment division (Mahindra Tractors) has over 1,000 dealers servicing approx. 1.45 million customers.

The business has a presence in almost every segment of the automobile industry with a portfolio ranging from SUVs, luxury SUVs, Sedans, Pick-ups, light, medium and heavy Commercial Vehicles to three-wheelers. Their customer base spans rural and urban India.

tractor

Mahindra and Mahindra is world’s largest tractor brand by volume, India’s largest utility vehicle manufacturer and several of our businesses enjoy leadership positions in the industries in which they operate. They remain committed to investing in technology, growing our global presence and maintaining our leadership position.

One sector that will be a big beneficiary of the government’s rural push is the tractor space of Mahindra and Mahindra.

Technical Rationale:

The stock is in the strong-up trend as it’s placed positively up from its 20, 50, 100 and 200 weeks moving average. Recently making an all-time high of Rs818.80 on 17th April 2018 by taking a good support at 20 weeks moving average.

The stock reversed after taking strong support of its 200 week moving average and currently placed above its 20 weeks moving average.

MACD is trading above its average and recently gave a bullish crossover showing positivity in stock. RSI and Stochastic is trading at a median level of 70 which is a sign of bullish trend and a trend continuation northwards.

I believe the stock will keep on moving higher and will achieve a desired Medium term target price of Rs900.

In case of any decline, the stock will get a good support at the level of 750 which is the level of its 20- week moving average. In a short term view the RSI and Stochastic may show a level of overbought which can show a short term decline in the stock price.

On the higher side, a major hurdle can be seen at the level of 900, which is coinciding with prior high connecting trend line.

m&m

Conclusion: Long position can be taken in the range of Rs 795 – 810 with the stop loss of Rs 750 and for the target of Rs 900.

 

Symphony India Ltd

A symphony for the Summer

Symphony is a company engaged in manufacturing Air coolers having presence Globally. Symphony is the world leader in evaporative Air cooling. Headquartered in Ahmedabad Symphony has the presence in 60 countries across U.S., Europe, Asia and Africa. Symphony has 15 manufacturing units 30,000+ distributors spread across the country. Globally it has two subsidiaries. IMPCO, Mexico and Keruilai Air Coolers, China. Through the years Symphony has devoted single-mindedly to one business, Air Cooling with about 50+ residential cooler models plus a wide variety of commercial coolers.

Having 30,000+ distributors across the country for residential coolers symphony also boasts of enterprise customers such as Maruti Suzuki, DHL, Asian Paints, Pepsi, Hero, Raymond etc and the global clientele of Walmart, Home Depot etc. Continue reading Symphony India Ltd

The FANG of India

Have you heard the story of FANG ? Those tech giants which have changed the world making life easier? Oh I am sure you have! They are otherwise known as Facebook, Amazon, Netflix and Google. They are the stocks which have shown historic growth. We know that these companies are barely a decade or 2 old. Facebook for instance was listed in the year 2012, became a part of S&P 500 in the year 2013 and ever since there has been no turning back for the stock. FANG have added trillions in Market Cap in the S&P 500’s Market Cap. If you have been in the U.S market scene and not invested in these stocks, it would be very difficult for you to beat the market.

So what are the characteristics that makes these companies so special that they could beat the market returns? What allows them to grow? What makes everyone rush to buy these companies? Lets try to answer that.

  • Scaling Success.
    It is a general belief in the stock market that the bigger you get the more unsustainable it is for you to maintain that growth. These companies defied this belief of the market and have continuously managed to successfully maintain their growth rates.
  • Bigger Slice of a Bigger Pie.
    Whatever business mammoths are into, they expanded their markets and captured a big portion of these markets. While attracting customers and also changing the way their businesses are run.
  • Profitability.
    These companies are some of the biggest money-making machines. Facebook and Google are enormously profitable. Amazon and Netflix have lower margins now but they are continuously expand margins and will be bigger in the future.
  • Captain of the Pirate Ship.
    All these companies are headed towards Glory by their Founders. Facebook has Mark Zuckerberg, Google has Larry Page, Amazon has Jeff Bezos and Netflix has Reed Hastings. their founders passion and vision is what drove these businesses to such heights.

So these are the factors that are common in all of these companies which they share. Now comes the interesting part. Why analyse these companies in the first place? What good is the analysis if you could not apply it to another market? My market!

So what i tried was to run these characteristics of FANG to the Indian Markets. A lot of companies would fit the bar. But my assumption is one company which strongly fits the bar. Any Guesses? Its Avenue Supermarts Ltd. Avenues, as per what i feel fits the bar in the following ways.

  • Scaling Success.
    The numbers of Avenues is pretty solid. The company has been growing on a continuous basis in double digits since inception from close to 500 crores 10 years back to over 14000 crores in revenues TTM FY-18. The profit growth for 5 years has been more than 50% CAGR, and still is able to achieve the same with ease.
  • Bigger Slice of Bigger Pie.
    Avenues operate with their retail brand called D-Mart. D-Mark is a superstore which changed the face of Brick and Mortar Superstores. D-Mart Strategically expands in cities with huge population with growing incomes. They offer various discounts to the customers to lure them. They are cheaper than most other stores and quality better than most others. D-Mart has changed the face of Supermarts in India and is easily the most well-known brand wherever they are established.
  • Profitability.
    Avenues unlike the whole E-tailing business does not intend to attract the customer  only by offering massive discounts and taking losses in their books. They have built strategic partnership and focus solely on making profits at the same time offering discounts which cannot hamper their books.
  • The Captain of the Pirate Ship.
    Avenue was started by the legendary Radhakrishna Damani. Many might not know him but everyone who is in the D-street scene and business world knows him. He is the Ben Graham to the Warren Buffett of India (Rakesh Jhunjhunwala). His vision and his brilliant sense of business has driven Avenues to heights which one could only imagine.

This was my idea of the closest resemblance to the FANG. I am pretty sure that there are many more emerging FANG’s in India, so go ahead and apply these characteristics to filter companies and find another FANG.

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Veto Switchgears and Cables Ltd

Veto is a company engaged in the manufacturing of wires and cables, Electrical accessories and all types of LED lighting’s, CFL’s and Fan’s. The company has manufacturing facilities in Haridwar and Varanasi. Products are made using Advanced technology, resulting in being the leading supplier of electrical goods in Gulf Countries.

The company has two brands Veto and Vimal. The products are sold under these brands by a large network of distributors and dealers throughout the country. The company also supplies electrical goods in the Gulf. There has been a major success in some of the biggest cities of the UAE. LED floodlights and slim panel lights were launched in the CY 17 as “Vyoma”.

Wires and cables play a major role in today’s digitally enriched lives and finds usage across a number of applications in several other Industries as well. Veto Switchgears is well positioned to take advantage of this booming digital age. The company derives 40% of its revenues from Wires and Cables business having a stronghold in Rajasthan and Gujarat where it competes with the likes of Havells and Finolex.

New focus is to expand its reach across various states like Maharashtra, Punjab, M.P, Haryana, U.P, Jharkhand, Kerala and Assam by  expanding its distributors across these states. Launching retail outlets are also a step taken by the company.

Lighting and Fittings is where the major action is happening. Growth is being aided by various government initiatives. This segment saw a growth in revenues of 42% in the previous 9M ended Dec-17. The company has been reducing Debt and has been delivering a good consistent profit growth.

I expect the company to grow at a rate of 11.75 percent based on its reinvestment and efficiency ratios which i think are to be sustainable. The company will be able to sustain its current profit margins and i expect the company to clock EPS of Rs. 11.19 FY-19. Giving it a median PE of 25 the stock could go up to 280 an upside potential of 44%

https://drive.google.com/open?id=1mxyKgp_EobdI9EOlfr-XCH8AJEZsftVM

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How much do you guarantee?

Friday 1

Just recently I went for a meeting with a potential client to introduce my services. We were having a brief conversation about the services provided which made him pretty interested in stocks. While discussing returns he asked me “How much do you guarantee on investment?” It brought me back to that finance class, where we used to use this question a lot. But back then it was easy, the answer was found using few numbers and calculations. As the reality struck, it is very well understood that it’s better said than done!

So, what is this guarantee investment or risk free rate as we term it in finance? Risk free rate is the rate which you can make on an investment guaranteed. To most Indians guaranteed investment is that fixed deposit interest that we make on our Banks FD’s. And who would argue that point? I mean who thinks that banks wouldn’t pay back the money? The RBI has gone ahead and declared a few banks like SBI and ICICI too big to fail. And probably they are! But what about the smaller ones?

In the Financial Crisis of 2008, 19 cooperative banks went bankrupt. Last year Fitch even warned about a debt default possibilities in certain mid-sized state-run banks. The point here is that many of these institutions do carry a risk of default. So what is truly risk free?

The answer to that would be sovereign bonds. A government would never default. They could just print more money, however even this notion was challenged by Greece in 2015 when they defaulted on their sovereign bonds.

In valuations, we have a way of calculating the number. When we talk about risk free rates, we talk about no re-investment risk & default risk. Depending on the valuation tenure, you should accordingly choose the sovereign. You cannot choose a 3 year government bond for a 10 year valuation. If your valuation is 3 years, you use the Treasury Bill yield. If your valuation is more than 3 years, use a government bond yield. The Gold Standard of risk free rates are the 10 year government bonds. Here’s a list of all the government bonds that you can use as well as the Treasury Bills. As of this writing the 10 year government bond yield is 7.468%

List of all sovereign bonds issued by our government