September 2014 – OneMint

SREI Infra 11.75% NCDs – September 2014 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

SREI Infrastructure Finance Limited has launched its public issue of Non-Convertible Debentures (NCDs) from today, September 29. The company has set Rs. 250 crore as the base size of the issue, but it has the green shoe option to retain oversubscription to the tune of Rs. 1,500 crore. The issue is scheduled to get closed on October 31.

The company is offering interest rates in the range of 10.95% to 11.75% per annum for a period of 2 years to 5 years, which works out to be 11.25% to 11.75% effectively.

Additional 0.25% to Existing Shareholders/Bondholders/Senior Citizens – Like Manappuram Finance, SREI Infra will also reward its existing shareholders and bond investors by offering an additional interest rate of 0.25% per annum. Senior citizens aged 60 years or above will also get this additional coupon. To be eligible for this additional 0.25%, the investors will be required to hold their investments on the record date for the purpose of interest payment.

Coupon Rates for Non-Retail Investors – Unlike Manappuram Finance, which has kept its interest rate same for all categories of investors, SREI Infra is offering coupon rates which are 0.45% to 0.50% higher than the rates it is offering to its non-retail investors.

Categories of Investors & Allocation Ratio – The investors would be classified in the following three categories and each category will have the following percentage fixed during the allotment process:

Category I – Institutional Investors – 20% of the issue size is reserved

Category II – Non-Institutional Investors including corporates – 20% of the issue size is reserved

Category III – Retail Individual Investors including HUFs – 60% of the issue size is reserved

NRI Investment – Foreign investors including foreign nationals and non-resident Indians (NRIs) are not allowed to invest in this issue.

Ratings & Nature of NCDs – Credit rating agencies CARE and Brickwork Ratings have rated this issue as ‘AA-’ and ‘AA’ respectively, a rating which is a notch higher than the Manappuram issue of ‘A+’ in relative terms. Also, as mentioned above also, these NCDs are ‘Secured’ in nature and the claims of its investors will be superior to the claims of any unsecured creditors of the company.

Listing, Demat & TDS – These NCDs will get listed only on the Bombay Stock Exchange (BSE) within 12 working days from the closing date of the issue. Investors have the option to apply these NCDs in physical form as well as demat form, except Series III and Series VI NCDs which will be allotted compulsorily in the demat form.

As always, TDS will be applicable on the NCDs taken in the physical form if the interest amount exceeds Rs. 5,000. However, there will be no TDS on NCDs taken in a demat form.

Minimum Investment – Like Manappuram issue, the investors will have to put in at least Rs. 10,000 in this issue as well i.e. at least 10 bonds of face value Rs. 1,000 each.

Should you invest in these NCDs?

Concerns which I have with SREI Infra include its ineffective management, average financials and lousy debt management. These are the most important factors for me to consider while investing in any company whether I am investing in its equity or debt.

However, it seems like the Modi government is committed to resolve issues which are hindering the growth of India’s infrastructure sector. So, if one is hopeful that India will have a speedy recovery with its stalled infrastructure projects, then I think one should definitely invest with companies like SREI Infra.

Moreover, as the interest rates are headed lower, interest rates of 11.25% to 11.75% are definitely higher and quite attractive. Any improvement in SREI’s financials going forward will result in a reduced risk for its investors.

Application Form of SREI Infra NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in SREI Infra NCDs, you can contact me at +919811797407

Book Review: To kill a Mockingbird

I’ve recently finished reading Harper Lee’s – To Kill a Mockingbird, and I really enjoyed this classic novel. The novel is set in a fictional small town in Alabama during the Depression, and is narrated by Jean Louse Finch or Scout who is 5 when the story starts, and is 8 when the story ends.

The story is about Scout and her older brother Jem growing up to witness the injustices and wrongs in the world, and their relative reaction and adjustment to it.

Most of the first half of the book revolve around the children playing, and giving a glimpse into their world, and while the story is interesting, I wasn’t sure what to make of it till the second half of the book starts.

The second half of the book is where the story picks pace, and where the main incident takes place. As you read further in the book, the more sense the previous pages start to make, and you begin to appreciate how the characters have developed, and how the outlook of the children have changed based on the events unfolding around around them.

I think this is a good story, especially for all parents because it shows how Scout and Jem’s father – Atticus Finch, who is a respectable lawyer, and moral compass of their town brings up his children and teaches them about morality, and the co-existence of good and bad in people.

I also think this is one of the best titles that I’ve ever come across. Killing a mockingbird symbolizes killing innocence, and destroying something which has caused you no harm.

Throughout the book, several characters are introduced who symbolize the killing of a mockingbird in varying degrees, suffering caused to them because of no fault of their own.

The book is beautifully written, and all the characters develop wonderfully, and the contrast between how they react to the injustices in the world around them is quite moving.

Although not a parent myself, I feel that parents will especially enjoy this book because of the connection between Atticus Finch and his children, how he raises them, and how that influences their outlook of the world as they grow up.

I couldn’t put this down once I started reading it, and highly recommend it.

Shemaroo Entertainment IPO Review

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

After huge subscription for Snowman Logistics and Sharda Cropchem IPOs and a grand listing received by Snowman, next company in line to get itself listed on the stock exchanges is Shemaroo Entertainment Limited. The issue opened today for subscription and will remain open for two more days to close on September 18th.

The company plans to raise up to Rs. 120 crore from the issue and has fixed the price band between Rs. 156 to Rs. 170 a share. Retail individual investors will get a discount of 10% on the issue price, so the price band for them will stand between Rs. 139.50 to Rs. 153. Depending on the retail investors’ response, the company will issue approximately 71 lakh to 77 lakh new shares in this IPO.

Promoters of the company are currently holding 90.14% stake in the company, which will come down to around 65% post this offer period.

About Shemaroo and its Business

Shemaroo is into the business of content aggregation and subsequent distribution of that content for broadcasting on television platforms, new media platforms like internet, DTH, mobile etc. and home videos i.e. Blu Ray, DVDs and VCDs. The company distributes content over which it has either complete ownership rights, referred to as “Perpetual Rights” or limited ownership rights, referred to as “Aggregation Rights”.

Perpetual Rights gives Shemaroo the rights to distribute content worldwide for a perpetual period across all mediums. Aggregation Rights are restricted by either period of usage, distribution platforms, medium and geography or combination thereof. Titles where Shemaroo has Perpetual Rights or Aggregation Rights are known as their “Content Library”.

Shemaroo’s content library consists of more than 2,900 titles spanning new Hindi films like Queen, Bhaag Milkha Bhaag, Dedh Ishqiya, The Dirty Picture, Kahaani, OMG: Oh My God!, Black, Ishqiya, Omkara, amongst others and Hindi films classics like Zanjeer, Beta, Dil, Disco Dancer, Mughal-e-Azam, Amar Akbar Anthony, Namak Halaal, Kaalia, Madhumati etc. Out of these 2900+ titles, Shemaroo has perpetual rights of 759 titles and aggregation rights of 1,289 titles.

Objectives of the Issue – Out of Rs. 120 crore issue size, Shemaroo will use Rs. 106 crore to fund its working capital requirements and rest of the proceeds will be used for general corporate purposes.

Minimum/Maximum Subscription – Market lot of the issue is 85 shares and thus the investors would be required to invest at least Rs. 11,858 in this issue. Retail investors would be able to apply for a maximum of 1,275 shares at the ‘Cut-Off’ price.

Listing – The company will get its shares listed for trading on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 12 working days from the closing date of the issue.

Risks

* Company’s ability to successfully acquire the required content depends on its ability to maintain existing relationships and form new ones, with industry participants. While Shemaroo has benefitted from its long-standing relationships with certain industry participants in the past, there can be no assurance that it will be able to successfully maintain these relationships and continue to have access to content through such means.

* The media and entertainment industry keeps on undergoing significant technological developments. Its failure to adapt to new distribution technologies or alternative methods of product delivery and storage or changes in consumer behaviour could have a material adverse effect on its business prospects, financial condition and results of operations.

Anchor Investment – Two Anchor Investors, HDFC Mutual Fund and Birla Sun Life Mutual Fund, have been allotted approximately 21.18 lakh shares of the company at Rs. 170 per share, which works out to be approximately Rs. 36 crore.

HDFC Trustee Co. has been allotted approximately 8.82 lakh shares for HDFC Prudence Fund and 2.94 lakh shares for HDFC Capital Builder Fund, whereas Birla Sun Life Mutual Fund has been allotted 9.41 lakh shares for its seven equity schemes, including Series 1-Series 4 of Birla Sun Life Emerging Leaders Fund, Birla Sun Life Pure Value Fund and Birla Sun Life New Millenium Fund.

Financials of the Company

(Figures are in Rs. Crore, except per share data & percentage figures)

Valuations & Financial Standing of the Company

If you look at Shemaroo’s revenues, EBITDA and profit after tax for the past few years, it seems the company is consistently making decent profits and the margins are fairly healthy. It has registered 68% growth in its revenues, 86% growth in its EBITDA and 100% growth in its net profit between FY11 and FY14.

But, the trouble seems to be a part of Shemaroo’s balance sheet. The company has a debt of Rs. 151 crore, out of which Rs. 141 crore is short term debt. It paid Rs. 19 crore as interest charges during FY14 on the debt it has taken.

As on March 31, 2014, inventory levels and trade receivables of the company stood at Rs. 200.51 crore and Rs. 140.55 crore, which represent approximately 75% and 53% of its sales respectively. Such high levels of inventories and trade receivables sound quite alarming to me. The company do not expect any immediate improvement in the current situation anytime soon either.

Comparing the financials of Shemaroo with Eros International suggests that there is very little difference between the price multiples at which Eros is trading on the stock exchanges and at which Shemaroo is seeking the investors to invest in its shares. Given the complexities of its business model and the troubled financial standing Shemaroo has, I would say that the investors should not invest in this issue, rather they should invest their money in some other fundamentally sound businesses.

Manappuram Finance 11.75% NCDs – September 2014 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Gold finance company, Manappuram Finance Limited (MFL), has decided to launch one more issue of its non-convertible debentures (NCDs) from tomorrow i.e. September 15th. The company plans to raise Rs. 300 crore in this issue, including the green-shoe option to retain oversubscription to the tune of Rs. 150 crore. The issue is scheduled to get closed on October 8, 2014.

The company is offering XI different options of interest payments with investment periods ranging from 400 days to 75 months and coupon rates falling between 10.50% p.a. to 11.75% p.a. Due to the compounding effect, these coupon rates will result in an effective yield of 10.50% p.a. to 12.13% p.a.

Interest rates offered by Manappuram Finance are 0.75% higher than the rates offered by Muthoot Finance in its NCD issue which is getting closed on September 18. Though both these issues are ‘Secured’ in nature, with this 0.75%, the company is trying to compensate the investors for the extra risk they will have to bear with its NCDs.

Additional 0.25% to Existing Shareholders/Bondholders – The company has decided to reward its existing shareholders and bond investors by offering an additional 0.25% p.a. in respect of Series VI or Series VII bonds. To be eligible for this additional 0.25%, the investors should hold their investments on the record date of interest payment.

“Double Your Money” Option – Like its previous offerings and also with the Muthoot issue, Manappuram is offering to double your investment amount in 75 months. Muthoot is doing it in 78 months and the last time Manappuram came out with its NCDs in December 2013, this duration was 70 months.

Coupon Rates for Non-Retail Investors – Like the last time, Manappuram has kept its interest rate as the same for all categories of investors, retail as well as non-retail investors.

Categories of Investors & Allocation Ratio – The investors would be classified in the following four categories and each category will have the following percentage fixed during the allotment:

Category I – Institutional Investors – 10% of the issue size is reserved

Category II – Non-Institutional Investors including corporates – 20% of the issue size is reserved

Category III – High Networth Individuals including HUFs – 20% of the issue size is reserved

Category IV – Retail Individual Investors including HUFs – 50% of the issue size is reserved

Note: Investors investing Rs. 5 lakh or less will be considered as the retail investors.

NRI Investment – Unlike its previous issue, non-resident Indians (NRIs) are not eligible to invest in this issue.

Ratings & Nature of NCDs – CRISIL has assigned “A+/Stable” rating to this issue which is a notch lower than ‘AA-/Stable’ rating ICRA has assigned to the Muthoot issue and reflects its stable outlook for the issue. However, as mentioned above also, these NCDs are ‘Secured’ in nature and the claims of its investors will be superior to the claims of any unsecured creditors of the company.

Listing, Demat & TDS – Investors have the option to apply these NCDs in physical form as well as demat form and post allotment, these NCDs will get listed on the Bombay Stock Exchange (BSE).

Taken in the physical form, the interest earned will be taxable as per the tax slab of the investor and TDS will be applicable if the interest amount exceeds Rs. 5,000. However, NCDs taken in the demat form will not attract any TDS.

Minimum Investment – The investors will have to put in at least Rs. 10,000 in this issue i.e. at least 10 bonds of face value Rs. 1,000 each.

Should you invest in these NCDs?

Interest rates have already started their move to the southward direction as there is enough liquidity in the system. Banks and deposit-taking NBFCs have also reduced interest rates on their deposits and some of their loans.

With markets going up steadily, the government is trying hard to bridge its fiscal deficit target by selling its stake in some of the bigger PSUs like SAIL, ONGC, Coal India, NHPC etc. Successful stake sale in these companies will help the government control its market borrowings, which in turn will put some more pressure on the interest rates to go down.

Though the market sentiment towards the gold financing business as well as the financial standing of the company has improved slightly as compared to the last time it came out with its NCDs issue, I am not very comfortable making such an investment or advising my clients to invest their money with Manappuram. However, investors with a high risk appetite and in the lower tax brackets may consider investing in this issue as an alternate to company deposits or bank FDs.

Application Form of Manappuram NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in Manappuram NCDs, you can contact me at +919811797407

Sharda Cropchem IPO Review

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

IPO season is back again. With the stock markets making new lifetime highs every other day and still showing no signs of tiredness, it seems to be the best of the times in the last few years for companies to raise fresh money by issuing new shares or for existing stakeholders to cut their stakes.

After a bumper response to Snowman Logistics IPO, Sharda Cropchem has decided to get itself listed on the bourses. The IPO, which opened the day before yesterday i.e. 5th of September, will run for two more days to close on September 9.

Objectives of the Issue – The company is not issuing any fresh shares in this IPO, rather the existing shareholders are either making an exit or cutting down their stakes. The company is presently owned by the Bubna family with 84.13% shareholding and the rest 15.87% shares are owned by HEP Mauritius Limited. Post successful completion of this issue, HEP Mauritius would be able to completely exit the company and the promoter shareholding would fall to 75%, thus making this IPO a 25% stake sale.

The offer will carry 2,25,55,124 (approximately 2.26 crore) shares during this period in the price band of Rs. 145 to Rs. 156 per share.At Rs. 156 per share, the existing shareholders will be able to realise Rs. 351.86 crore from the new investors, thus valuing the company to be worth Rs. 1,407.44 crore. 35% of the issue size, i.e. approximately 79 lakh shares, have been reserved for the retail individual investors.

Sharda Cropchem’s Business

Sharda Cropchem is a crop protection chemical company primarily engaged in the marketing and distribution of a wide range of formulations and generic active ingredients globally. It does not produce any of these products though. The company is also involved in order based procurement and supply of belts, general chemicals, dyes and dye intermediates.

The company claims that identifying generic molecules, preparing dossiers, seeking registrations, marketing and distributing formulations or generic active ingredients in fungicide, herbicide and insecticide segments are its core strengths. As of August 5, 2014, the company has over 180 Good Laboratory Practices (GLPs) certified dossiers and as of July 15, 2014, it owns over 1,040 registrations for formulations and over 155 registrations for generic active ingredients across Europe, NAFTA, Latin America and rest of the world.

The company has a presence in over 60 countries with over 100 people working in its own sales force and over 440 people working as the third party distributors.

No IPO Grading – As the issue is an offer for sale by the existing shareholders, it has not been graded by any of the rating agencies.

Risks

* As the company does not produce any of the formulations or generic active ingredients on its own and is highly dependent on the third party manufacturers for the continuity of its operating activities, it seems such a high dependence in a competitive world poses a big risk for the company.

* A substantial portion of the company’s sales gets undertaken against future payments on an ‘unsecured’ basis. So, any major default by any of its customers could result in a substantial loss for the company and its shareholders. The company states that its credit period ranges between 30 days to 180 days. But, looking at its debtor-turnover ratio of 187 days during FY 2013-14, 178 days during FY 2012-13 and 194 days in FY 2011-12, it gets fairly clear that the credit period has always remained stretched and carries a high risk for the company & its shareholders.

* The company has stated that as far as its overseas investments are concerned, there have been instances in the past of delays and failure in making the necessary filings with the RBI.

Also, non-appointment of a whole-time secretary from March 2007 to January 2009 as mandated by the company law board, not conducting internal audit for four consecutive years from FY 2009-10 to FY 2012-13 and significant delays in payment of service tax are some of the instances which reflect the unprofessional attitude of the management in all these matters.

Though the central bank, the company law board or any other regulatory authority has not imposed any kind of penalty in any of these matters, such instances in future could result in penalties or operating inefficiencies for the company.

Financials of the Company

(Figures are in Rs. Crore, except per share data & percentage figures)

Peer Comparison

Valuations

Total income of the company has jumped from Rs. 449.36 crore in FY11 to Rs. 814.74 crore in FY14, posting a growth of 38% in FY12, 27.82% in FY13 and 2.79% in FY14. Net profit of the company grew even healthier at 65.85% in FY12, 22.79% in FY13 and 26.70% in FY14. Looking at its strong growth and based on its valuations purely, the company is fairly valued, rather cheaply valued relative to its peers. So, if the sentiment remains buoyant, there is a reasonable scope of listing gains.

But, as a large chunk of the company’s revenues come from its trading activities or from marketing and distribution of formulations and ingredients produced by some third party manufacturers, I would say it is very important for the investors to ensure that the management of the company is highly efficient, their intent is absolutely clear to grow the shareholders’ wealth and the company has a long enough history of sustainable profits. As I am not sure about any of these factors, I would like to wait for at least a few more quarters before I finally decide to make an investment in the company.

Increase in PPF Investment Limit to Rs. 1.5 lakh Notified & Acceptable Now

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Starting today, I would like to remind my clients or those investors, who have the habit of depositing their hard earned money in their respective Public Provident Fund (PPF) accounts in the first week of April every year, that now onwards they can use the opportunity of topping up their PPF investments by an additional Rs. 50,000.

Announced in Budget 2014 by the Finance Minister Arun Jaitley, increase in the investment limit of PPF from Rs. 1 lakh to Rs. 1.50 lakh got notified by the Government of India on August 13 and the Reserve Bank of India (RBI) on August 22. Here are the links to their respective notifications:

Ministry of Finance Notification

RBI Notification

The same has now been brought to the notice of all the post offices as well as some of the nationalised/commercial banks which are authorised by the Government and the RBI to open PPF accounts and accept deposits in these accounts.

Nationalised or commercial banks, which have been notified and have started accepting the increased limit of deposits, include State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), ICICI Bank, Axis Bank, Canara Bank, Andhra Bank, Allahabad Bank, Bank of India (BoI), Oriental Bank of Commerce (OBC), Bank of Maharashtra (BoM), Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Syndicate Bank, UCO Bank, Punjab & Sind Bank (PSB), Union Bank of India, United Bank of India, Vijaya Bank, IDBI Bank, State Bank of Patiala, State Bank of Bikaner & Jaipur (SBBJ), State Bank of Travancore (SBT), State Bank of Hyderabad and State Bank of Mysore.

Make PPF deposit between 1st & 5th of a month to earn maximum out of it

As most of the investors know, interest on our PPF deposits gets calculated on the minimum balance lying in the account between 5th day and the last day of a month, it is advisable for an investor to deposit cash in the account between 1st and 5th day of that month or if a cheque is deposited, then it gets cleared on or before 5th day of that month.

Features of Public Provident Fund (PPF)

For those investors, who are yet to open a PPF account, I would like to quickly highlight some important features of this most loved investment:

* A PPF account can be opened by a resident individual in his/her own name or on behalf of a minor of whom he/she is the guardian.

* A PPF account can be opened at a post office or some of the nationalised or commercial banks mentioned above.

* The minimum tenure of a PPF account is 15 years which can be further extended in blocks of 5 years each.

* Though the tenure is 15 years, investors are allowed to have premature withdrawals or avail the loan facility subject to certain terms and conditions.

* Interest Rate on PPF deposits is notified by the Government of India every year and the rate remains fixed for the whole of that financial year. For FY 2014-15, the rate stands at 8.70% per annum compounded annually.

* Investments made in a PPF account qualify for deduction under section 80C of the Income Tax Act, 1961.

* It is one of the only three investment schemes in India which still qualify as Exempt-Exempt-Exempt (EEE) from taxation point of view. The other two being the Employees’ Provident Fund (EPF) and Equity-Linked Savings Schemes (ELSS).

* Non-Resident Indians (NRIs) are not allowed to open a PPF account. Even Hindu Undivided Families (HUFs) are no longer allowed to open it.

With economic growth finally gaining some strength to touch 5.7% in the first quarter of the current financial year, inflation showing early signs of slowing down, global economies consolidating on their recovery path, the Modi government showing some early signs of taking action on its strategies laid down in the first 100 days and the Indian stock markets gaining strength steadily, would you still be investing in PPF or rather invest in ELSS this year to take part in the growth of Indian economy? Please share your views.