The IBS Times 180th Issue June 2015

WE THE PEOPLE (U.S. PRESIDENTIAL ELECTION 2016) BY APOORVA ANUSHA

The IBS times

June 2015, Issue No. 180, Volume I

A FARMER’S PLIGHT BY ALISHA SINGH

THE BIG HIT; TASTY OR HEALTHY BY PRIYANKA MALIK

TANK YOU MARKET

BY KOLISETTY AISHWARYA

HIGHER THE PRICE; HIGHER THE RETURN?

BY AVIK CHAKRABARTY

1|JUNE2015

FinStreet, IBS Hyderabad

ISSUE NO. 180, June 2015, Volume I

What’s Inside

Page 7

U.S. PRESIDENTIAL ELECTIONS 4 A FARMER’S PLIGHT

12 TASTY OR HEALTHY?

How Monsoon affects the economy Impact analysis of Nestle on the Stock Market; whether is a big hit or and market of India? RBI’s just another small economic wave.

Contingency Plan to deal with economy.

19** HIGHER THE PRICE HIGHER THE RETURN? Factors to consider before buying a share. How to be a successful capitalist?

10 INTEREST RATE CUTS

14 Tank You Market

22 AIRLINES IN INDIA

How rate cut implementation brings relief to borrowers. What gets cheaper? Advantages of a lower repo rate.

The most famous Market Watch of The IBS Times to help you to keep an eye on the stocks to catch and stocks to drop.

Sky is clear, Smooth Take Off is near. Read all about the ongoing events in Indian Aviation Industry.

17 SUGAR GULT CONDITION 25 JSW ENERGY Update yourself with the knowledge of whether the 2nd largest producer of Sugarcane “INDIA” is going for a new peak or is in for a downfall?

2|JUNE2015

From Vriddhi’s Research Corner, we bring to you our analysis whether to play with the shares of JSW ENERGY or is it better to avoid them?

** COVER STORY

INTELLIGENCE BEYOND SUCCESS

LETTER FROM THE EDITOR TEAM IBS TIMES Dear Readers,

KAUSHIK CHANDELL (EDITOR-IN-CHIEF)

Greetings from Team FinStreet!

AVIK CHAKRABARTY (MANAGING EDITOR)

With this attitude, The IBS Times started on 8th July, 2008 as a weekly newsletter. Since then, with the love and affection of our readers we grew from just being a newsletter to a rich in content, knowledge sharing India’s one of the most read college magazine. This long journey of almost 8 years saw a lot of changes, from the format to several teams but one thing remained constant i.e. knowledge sharing.

ALISHA SINGH APOORVA ANUSHA KOLISETTY AISHWARYA MANJARI SHARMA NAVJOTH SAHU PRIYANKA MALIK RAHUL MISHRA

RIPU TANDON SACHI KHESKANI SAMEENA USMAN SRISHTI KARMAKAR

“The Journey of thousand miles begins with one step.”

So without wasting any more time, we proudly bring to you the 180th issue of The IBS Times.

This issue shares the insight on the upcoming Monsoon and its effect on Indian Economy. We have also shed some light on the US Presidential Elections 2016 with the candidate profiles of all 6 contesting parties. Also, in this issue we have discussed about the Interest rate cuts and how’s it going to be beneficial for a common man along with a report on Nestle Issue and what are its consequences on Indian market. Our most famous Market Watch goes with the name of Tank You Market again trying to bring the best speculative report for you to invest. We also bring to you an article on Sugar Cult condition in brief stating about the sugarcane situation in World’s 2 nd largest sugarcane producing country. This issue further brings for its new readers a comprehensive report on how to invest and where to invest with the cover story “Higher the price; Higher the return”?

From the investment point of view, this issue also brings to you an exhaustive report on JSW Energy

by Team Vriddhi Research.

Hope you have an enriching experience reading The IBS Times. Your feedbacks and opinions will help us make it better.

Kaushik Chandell

-WALT DISNEY

3|JUNE2015

MONSOON AND IT’S IMPACT

A FARMER’S PLIGHT

-Alisha Singh

Majority of the Indian population is dependent on farm

food inflation. High inflation limits scope for the

income and over 40% of the cropped area does not have

Reserve Bank of India (RBI) to cut high interest

any alternative source of irrigation other than the rains.

rates, which hamper business activity by making

Millions of farmers eagerly wait for the rains to

borrowing costlier. A good monsoon raises rural

commence summer sowing of major staples, such as

incomes, which helps the economy by fueling

rice, sugar, cotton, coarse cereals as half of India’s farm

demand for manufactured items.

output is obtained from summer crops which are totally dependent on the monsoon. For good farm output, the

How monsoon impacts the economy and market of India?

rains have to be not just robust but also evenly spread across states. The monsoon also replenishes 81 nationally-monitored

water

reservoirs

vital

for

drinking, power and irrigation. Normal rains act as a strong check on food inflation by increasing food output and availability. A drought instantly puts pressure on prices. Food inflation, if unchecked, can push up core inflation, such as prices of manufactured goods. The 2009 drought resulted in one of the highest inflation levels seen in almost a decade. If rains are deficient during June and July (the most crucial sowing months) it will automatically result in lower food output thereby knocking up retail food prices.

The monsoon rains are vital for farm output and economic growth in India, the world's secondbiggest producer of rice, wheat, sugar and cotton.

Farm sector constitutes for about 15 percent of India's nearly $2 trillion economy, leaving Asia at third place. India is largely self-sufficient in major food grains such as rice and wheat, but drought can send the country to global markets. In 2009, India had to import sugar, sending global prices to record highs and pushing up inflation. Higher farm output would rein in food prices and help the government to take steps to cut the fiscal deficit and farm subsidies.

India's food inflation rose to 10.66 per cent in May

The government has estimated that India’s economy

from 10.18 per cent in April, as per the latest figures.

will grow at 4.9% in 2013-14, the second successive

A stronger economic outlook can lift sentiment in

year of sub-5% growth. With the manufacturing sector

equity markets, mainly of companies selling

showing little signs of revival, all hopes rest on this

products in rural areas, including consumer goods

year’s monsoon rains to turn the economy around.

and automobiles. Monsoon rains impact demand for

Adequate rains, apart from acting as a strong check on

gold in India, the world's top consumer of the metal,

inflation by boosting farm output, are critical for swift

as purchases get a boost when farming incomes rise

recovery, as India’s gross domestic product slowed

amid high crop output. India is currently struggling

down sharply to 4.7% in the quarter ending December.

with high inflation, driven in part by food and fuel

A strong farm sector output is critical to bring down

prices. A normal monsoon would ease supplies and

food inflation. High inflation limits scope for the

could rein in food prices. It would also help to

Reserve Bank of India (RBI) to cut high interest rates,

support incomes and thus allow the government

4|JUNE2015

prices. A normal monsoon would ease supplies and could rein in food prices. It would also help to support incomes and thus allow the government more flexibility on passing on high oil prices on to consumers and cutting subsidy bills. Reducing inflation could prompt the central bank to ease monetary policy after eight successive interest rate rises.

RBI (Reserve Bank of India)’s Contingency Plans to Deal with Monsoons

also stated that, “inflation is expected to be

Government is trying to put in place a “contingency

pulled down by base effect till August but to

plan” to deal with the possibility of a below normal

start rising thereafter to about 6 per cent by January 2016 — slightly higher than the

monsoon and its impact on food grain production and prices. The India Meteorological Department has meanwhile further lowered monsoon forecast to

projections in April”. 

Citing reasons for lower production in 201415, RBI said that agricultural activity was

“deficient” for the current year, followed by unseasonal

adversely affected by unseasonal rains and

rains and hailstorms in March 2015, which have already

hailstorms in north India during March 2015,

impacted food grains production

impinging on an estimated 94 lakh hectares of area sown under the rabi crop.

Against this backdrop, the RBI aims at:  

Strong food policy and management which will

estimated more than 5 per cent drop in total

be important to help keep inflation and

food grains production at 251.12 million

inflationary expectations contained over the

tonnes for 2014-15 crop year, as against a

near term. The food management plan should

record 265.04 million tonnes production in

comprise of storage of adequate quantity of

the year-ago.

seeds and fertilizers for timely supply, crop



Reflecting this, the Agriculture Ministry has



“Successive estimates have been pointing to

insurance schemes, credit facilities, timely

a worsening of situation, with the damage to

release of food stocks and the repair of

crops like pulses and oilseeds — where

disruptions in food supply chains, including

buffer food stocks are not available in the

through imports and de-hoarding.

central pool — posing an upside risk to food

Inflation control will also be helped by limiting

inflation,” RBI said.

the increase in agricultural support prices



Food inflation has softened to 4-month low

assuming reasonable food management; RBI

in April, but the impact of unseasonal rains is

also stated that, “inflation is expected to be

yet to show up. In April, wholesale inflation

pulled down by base effect till August but to

has dipped to record (-)2.65 per cent, while

5|JUNE2015

improving the economy. Hence, we observe that monsoons and capital markets go hand in hand and how vital monsoon is for a country like India.

Fig: Agri. Minister Radha Mohan Singh in April, but the impact of unseasonal rains is yet to show up. In April, wholesale inflation has dipped to record (-) 2.65 per cent, while that of retail inflation has fallen to 4-month low of 4.87 per cent in the same period.

The government is ready with contingency plans in 580 districts to deal with poor monsoon, as stated by Agriculture Minister Radha Mohan Singh. The Minister said that the government has sufficient buffer stock of wheat and rice to deal with any shortages.

Conclusion The above discussion clearly states that as of now the Indian government is at a sorry state when it comes to handling drought or monsoon impacts. The contingency plan is still at its developing stage which would take time to put into practice, till then a farmer’s hands are tied which eventually causes depression thereby making the farmers commit suicide. Hence, a farmer’s plight remains unheard in a country like India who plays an eminent role in the production of crops thereby improving the economy. Hence, we observe that 6|JUNE2015 monsoons and capital markets go hand in hand and how

vital monsoon is for a country like India.

US PRESIDENTIAL ELECTIONS 2016

WE THE PEOPLE

-Apoorva Anusha

58th presidential election of United States is awaited

includes primaries, eligibility of voters, the running

next year in 2016. The election is held under the Federal

of each state’s Electoral College and the running of

Election Commission created in 1975 by an amendment

state and local elections. The financing of election

to the Federal Election Campaign Act. According to

has always been controversial. As private sources

Article two of the United States Constitution, the

make

individual who wants to serve as president of the United

contributions especially in federal elections, even

States must be a natural born citizen of the United

voluntary public funding is also allowed.

States. He should be atleast of 35 years of age and

The most common method of election used in U.S

should have been a U.S (Unites States) resident for a

(United States) election is the ‘first-past-the-post’

period of more than 14 years.

system. In this one candidate wins by receiving more

Barack Obama, present president of U.S. (United

votes than any other. It can be used for single and

States) and a former U.S. (United States) Senator is

multiple member elections. The elections are

going to complete his second and final term in office on

expected to be held on 8th November 2016 which is

January 20th 2017. As per the twenty-second

Tuesday. The date could have been 1st November

amendment to the United States Constitution, Barack

2016 or 15th November 2016 but the day Tuesday

Obama is ineligible to be elected to a third term due to

won’t change. Because there is religious belief

term limits. So US presidential election of 2016 is going

behind this day. The main reason are weather,

to be held on Tuesday, 8th November 2016. In all the

harvests and worship. It was believed that people

states except Maine and Nebraska, the winner of the

will worship on Sunday, then ride to their country

popular vote in the state wins all the electoral votes of

seat on Monday and then vote on Tuesday. And all

the state. Other states may also become competitive, if

this should get over before market day that is

the close race of 2016 differs from the close races of the

Wednesday.

2012 election. Or it may also happen that 2016 becomes

There are two major parts in the modern nomination

a landslide election which means that one candidate or

process of U.S (United States) presidential election.

party receives an overwhelming majority of the votes or

One is presidential primary election and the other is

seats. Part of the reason for landslide victory is

caucuses, which is held in each state separately. The

sometimes a bandwagon effect. Ronald Reagan was the

primary elections are run by state and local

U.S (United States) president who has landslide victory

governments whereas caucuses are organized

in 1984.

directly by the political parties. Some states use

Most parts of elections are regulated by state law. It

either of them and some use combination of both.

includes primaries, eligibility of voters, 7|JUNE2015

up

substantial

amount

of

campaign

In case if none of the candidates receives majority of

THE

CANDIDATES

OF

DEMOCRATIC

the electoral vote, the president is determined by the Z

PARTY AND THEIR PROFILE:

rules outlined by the 12th amendment. The selection of the president is then decided by a ballot of the Hose of





There are some typical periods of the presidential

July to early September – Nominating conventions



Martin O'Malley, Governor of Maryland 2007–



Bernie

Sanders,

U.S.

Senator

from Vermont since 2007; U.S. Representative 1991–2007; Mayor of Burlington 1981–1989.

Late September and October – Presidential election

THE CANDIDATES OF REPUBLIC PARTY

debates

AND THEIR PROFILE:



Early November – Election Day



December – Electors cast their electoral votes



Early January of the following calendar year –



January 20 of the following calendar year

Carson,

former

Director

of

Hospital. 

Ted Cruz, U.S. Senator from Texas since 2013; Solicitor General of Texas 2003–2008.

– Inauguration Day 

There are six party in total. They are the Democratic Party, Republic party, Independent and third party

Ben

Pediatric Neurosurgery for Johns Hopkins

Congress counts the electoral votes 

candidate

2015; Mayor of Baltimore 1999–2007.

(including those of the minor third parties) 

presidential

2001.

– Primary and caucus debates



2001–2009;

in 2008; First Lady of the United States 1993–

announce their intentions to run

January to June – Primaries and caucuses

Rhode

Hillary Rodham Clinton, U.S. Secretary of

York

Spring of the previous calendar year – Candidates



of

State 2009–2013; U.S. Senator from New

election process. They are:

Summer to December of the previous calendar year

Governor

Island 1999–2007.

United States Constitution.



Chafee,

Island 2011–2015; U.S. Senator from Rhode

Representatives. It is one of the two houses of the



Lincoln

Carly Fiorina, former Hewlett-Packard CEO 1999–2005; California Senate nominee in 2010.



Lindsey Graham, U.S. Senator from South

candidates, constitution party, green party and

Carolina since 2003; U.S. Representative from

libertarian party. All the parties have announced their

South Carolina 1995–2003.

own candidates. Let’s see about the profile of the



candidates.

Mike Huckabee, Governor of Arkansas 1996– 2007; presidential candidate in 2008; former television host.



George Pataki, Governor of New York 1995– 2006

8|JUNE2015 

Rand Paul, U.S. Senator from Kentucky since



Vermin

Supreme,

performance artist

and

perennial candidate from Massachusetts.

THE

CANDIDATES

OF

CONSTITUTION

PARTY AND THEIR PROFILE: 

Steve Stockman, U.S. Representative from Texas 1995–1997, 2013–2015; candidate for the U.S. Senate in 2014.



George Pataki, Governor of New York 1995–2006.



Rand Paul, U.S. Senator from Kentucky since 2011.



Rick 2015,



Perry,

Governor

Lieutenant

of

Texas

Governor

2000– 1999–

THEIR PROFILE: 

Darryl Cherney, musician and environmental

2000, Commissioner of Agriculture, 1991–1999.

activist from California; formed an exploratory

Marco Rubio, U.S. Senator from Florida since

committee.

2011; Speaker of the Florida House 2007–2009. 

THE CANDIDATES OF GREEN PARTY AND

Rick

Santorum,

from

Pennsylvania

U.S. 1995–2007;



Senator

Jill

Stein,

2012

presidential

nominee

from Massachusetts; formed an exploratory

U.S.

committee.

Representative from Pennsylvania 1991–1995; THE

presidential candidate in 2012.

CANDIDATES

OF

LIBERTARIAN

PARTY AND THEIR PROFILE: THE CANDIDATES OF INDEPENDENT AND 

THIRD PARTY AND THEIR PROFILE:

Gary Johnson, Governor of New Mexico 1995– 2003; presidential nominee in 2012.



Roseanne Barr, entertainer from Hawaii, Peace and Freedom Party.



Zoltan Istvan futurist, writer, transhumanist,

Transhumanist Party.

Terry Jones, pastor for Dove World Outreach Centre from Florida; presidential candidate in 2012, independent candidate. 

Juaquin

James

Malphurs

Flame), rap artist from Georgia.

9|JUNE2015

Jesse Ventura, Governor of Minnesota 1999– 2003.

philosopher from California; founder of the 



(Waka

Flocka

KEY POLICY RATE CHANGES

INTEREST RATE CUTS; A RELIEF TO BORROWERS

-Ripu Tandon

Effective from the eighth day of June 2015, the

stay.”

reduction in the key policy rates by the Reserve Bank

monetary policy statement of December had said that

of India would be the third decrease in the key policy

“if the current inflation momentum and changes in

rates in this year. With the help in reduction of the repo

inflation

rate to 7.25% by the Central Bank would eventually

developments are encouraging, a change in the

result in decrease of EMI’s. The RBI decided to take

monetary policy stance is likely early next year,

the advantage of the subdued inflation which eventually

including outside the policy review cycle”.

lead to the decrease in the rate. The reduction in the

Leading to the cut in the interest rates SBI, nation’s

repo rate would lower the cost of funds for the banks

top lender by assets, decided to cut its lending rate

and hence, signaled them to reduce the lending rates.

by 15 basis points to 9.7%. Some of the smaller

"Banks have started passing through some of the past

lenders have announced a reduction in the interest

rate cuts into their lending rates, headline inflation has

rates by 25 to 30 basis points. Though quite a few of

evolved among the projected path, the impact of

the banks have started passing on the benefits of the

unseasonal rains has been moderate so far, administered

monetary easing to the broader economy, it is the

price increases remain muted, and the timing of

quantum of interest rate cuts that lag the reduction in

normalization of US monetary policy seems to have

the policy rate. Taking the example of SBI for the

been pushed back. With low domestic capacity

current year, it has reduced its rates to 30 basis

utilization, still mixed indicators of recovery, and sudu

points. One of the most interesting factor is that,

D investment and credit growth, there is a caw for a cut

about eight of more than a two dozen lenders who

in the policy rate today" RBI governor Raghuram Rajan

dominate India’s banking sector and are having more

said.

than 70% share of assets are yet to announce any cuts

The reduction of these rates gave the evidence that the

in the interest rates in the current year. However,

Central Bank of India recognizes the need to put the

bankers have blamed tight liquidity and slower credit

economy on a strong or sounder footing. This comes

growth as the reasons for not cutting the rates

regardless of the factor that India outpaced China, by

aggressively. "There is not overmuch of liquidity.

growing 7.5%. The move also comes as a message that

More of liquidity would also enable better

any further cuts would be unlikely. But at the same

transmission of rate cuts," State Bank of India

time, as per Mr. Raghuram Rajan, Governor of RBI,

Chairman Arundhati Bhattacharya.

“Room may open up if monsoon is better, govt. Action can mitigate rise in food prices, and if energy prices stay.” The central bank in its fifth bi-monthly monetary policy 10 statement had said that “if the | J U N E 2of0 1December 5 current inflation momentum and changes in inflation

The central bank in its fifth bi-monthly

expectations

continue,

and

fiscal

What gets Cheaper?

the current situation, it could have considered a

Home Loans

deeper cut in repo rate by 50 basis points.

Auto Loans

“Governor Rajan himself has acknowledged the fact

Personal

Finance

Loans

the investment in the economy is weak and corporate results are poor, but still he has refrained himself from taking somewhat bolder steps. At least 50 basis

RBI governor Raghuram Rajan said in a post-policy conference: “Banks need to bring down lending rates. I can only invest in deposits and my deposit rates have come down by 100 bps in the last few months. So, there

points cut in repo rate was required along with a reduction in the cash reserve ratio (CRR) so that banks are able to reduce their cost of funds,” said Rana Kapoor, president, ASSOCHAM.

is room for some of that to be passed on to the lending

Even though the India Inc. was looking for a further

side as well. Banks should pass through the sequence of

reduction in the lending rates, the Real Estate firms

rate cuts into lending rates.”

are somewhat hopeful that the move would spur the

Rating agency Crisil said in a report: “Between January

demand int he Real Estate Sector.

and April, rate cuts by the RBI failed to translate into lower lending rates in the economy -- the very reason why the RBI held back from cutting rates in April.

Consequent to this, nearly 9 banks have cut their base lending rates in a 15-25 bps range between the last policy meeting on April 7 and now. Slower transmission of policy rate cuts into lower lending rates can mean slow growth. Banks also find it difficult to lower lending rates, given the challenges to interest income and high level of non-performing assets (NPAs) and weak credit demand. Nevertheless, the RBI believes three factors make it possible for banks to ease lending rates at a faster pace.”

Anil Kumar

Sharma, CMD, Amrapali Group, said buyers were in a wait-and-watch mode to make any investment due to unfavourable market sentiments, low purchasing capacity and prevailing high interest rates. He said the rate cut would gradually propel growth of the realty sector.

Surabhi Arora, associate director,

research, Colliers International, said this was the third policy rate cut in the last five months, where the central bank had cut the rates by 75 basis points cumulatively. “With further reduction in policy rates, we can expect a further rate cut for home loans from banks in coming months. There is an overall increase in market momentum in terms of commercial leasing, employment, but the residential market has

Though welcoming the rate cut, India Inc. today said

still not picked up to its earlier level. The rate cut will

that the Central Bank should have gone far deeper to

help to reduce the overall burden for residential

stimulate growth.

buyers and may boost residential sales,” she said.

As per Jyotsna Suri, president,

FICCI, said the RBI’s decision to cut repo rate by 25 basis points is a welcome move. But considering the current situation, it could have considered a deeper cut 11 | J U N E 2 0 1 5

in repo rate by 50 basis points.

IS IT A WAKE UP CALL?

THE BIG HIT; TASTY OR HEALTHY?

-Priyanka Malik volumes. Other than the Maggi bouquet of products

There is no sincerer love than the love of food.

-George Bernard Shaw Indian cuisines are diversified as the nation itself. There

the compounded annual growth rate of all other segments of Nestle has been negative.

are several region specific cuisines with varying tastes

The future seems bleak as after the controversy the

because of a wide range of spices, herbs, fruits,

firm might find even more difficult to push the

vegetables

their

volumes in the market. With a wide product range

preparation. Over the years there has been a shift in the

the firm was still able to manage a profitability of

food habits of people and the consumption of fast foods

around 20-22% for over a decade. But the recent

and quick serves have increased manifold. With the

scenario would cause the firm to spend more on

changing habits has evolved the popularity of MAGGI

rebuilding the brand thereby indicating a steep

noodles in India.

decline in the near future. Further, it can be said that

and culinary styles used for

After arriving in India in 1983 via a trusted brand of Nestle, the popularity of the snack has just increased

there will be lower dividends. Nestle pays half of its profits earned as dividends to its shareholders.

because of its ‘two- minute noodles’ campaign and its initiative to spread a liberating message for women.

Maggi along with the complimentary products- soup mixes, sauces and cup noodles contributes more than 20% of Nestle India’s revenue which is around 15bn Rupees. Presence of Lead and MSG (Monosodium glutamate) in the samples of Maggi in some outlets of UP has broken the trust of people and has caused a

The company was considered to be a safer

severe blow to the parent company Nestle as well. The

investment and this controversy would lead to re-

stock has been recalled from the shelves creating major

routing of the plans of buyers with low risk appetite

back-end issues. The iconic ‘two minute’ snack has

who are interested in buying stocks of the blue chip

been banned from six states with Tamil Nadu being the

firms. The scenario brings about Warren Buffet’s

first one to initiate. Since the goodwill has been

investment ideology of buying business in distress.

damaged the brokerages and analysts have also become

The ideology states- ‘Great investment opportunity

cautious and the stocks of Nestle plunged by 15% in

comes around when excellent companies are

five trading sessions. From past five years, the company

surrounded by unusual circumstances that cause

has seen a decelerating revenue growth and declining

the stock to be misappraised.’

volumes. Other than the Maggi bouquet of products the compounded rate of all other segments 12 | J Uannual N E 2 0 1growth 5 of Nestle has been negative.

is still under scrutiny, tests are being performed and the verdict is awaited people are apprehensive of stocks performing well. Whereas, as per the other group of analysts there lies an opportunity and Nestle can still come with a bang just like Cadbury did years ago.

While some are seeing the downfall in the stock prices there are still some who can afford to be patient enough and expect the stocks to recover in around 6-8 months therefore, seeing the opportunity in investment in this firm. FSSAI has imposed new regulations on the companies associated with the food sector like Dabur, ITC, Britannia, Pepsico, HUL etc. to declare clearly the ingredients used in their packaged foods. Also, it can be said that if Maggi loses its share because of this controversy the other players in the ready to eat noodles- ITC and Nissin will gain the market shares for the coming quarters.

CEO Paul Bulcke has declared in a recent conference in Mumbai that Maggi noodles are safe to consume and they always stand by the set standards. Also, the firm has challenged the decision of banning Maggi noodles in the Mumbai High-court. While the product is still under scrutiny

13 | J U N E 2 0 1 5

MARKET WATCH

TANK YOU MARKET

-Kolisetty Sai Aishwarya

The month of June started of eventfully for the Indian

The gaining stocks comprised of Tata Motors and

markets as well as the markets abroad. The tables have

Sun Pharma.

turned completely if we look back and try to compare

Global Markets.

the movements of the prices of various segments traded in the markets. The stock prices have been falling for quite a while now and the crude oil prices have taken the

upward

turn.

Thus

analyzing

the

factors

contributing to the rollercoaster rides the markets have been taking, the question is how much an investor is able to make even in the not so profitable markets.

Jens Weidmann, the influential president of Germany’s central bank, warned Athens on Thursday that time was running out for Greece to avoid insolvency and argued other European leaders should not underestimate the impact a Greek bankruptcy would have on the rest of the Eurozone.

Despite the mounting pessimism, Greek banking

RBI rate cuts:

stocks rallied strongly on Thursday morning and

The country viewed the RBI rate cuts for the third time

investors were buying the country’s sovereign debt.

this year. The repo rate is now down by 0.25 making it

The country’s main stock market index, the Athens

7.25. On June 2nd 2015 the rate cuts portrayed a positive

General, rose 5.8 per cent to 805.41 in morning

image encouraging the banks to cut down on lending

trading. Its top five gainers were all banks, with Bank

rates visibly encouraging the lending of funds for the

of Piraeus rising 14 per cent and Alpha Bank, 11 per

banks. The rate cut was mainly an emphasis on two

cent.

aspects, the curbing on inflation which is still high

Sovereign debt yields also fell, with the yield on

concern for our country and the delayed and deficient

sovereign paper due in 2017 down 41 basis points at

monsoons that the country has been witnessing. The

25.45 per cent; 10-year yields were 10.7 basis points

RBI declared the projections of the economic growth

lower at 11.55 per cent.

has been lowered from 7.8 to 7.6 and has said that

In other global news we have the US jobs data out in

inflation needs to be brought under a check and

the open and this are the major changes that have

sustainable growth must be encouraged. The market

been witnessed.

reactions to the rate cut seemed not so satisfying as the rate cuts led to SENSEX drop by 250 points with HDFC



month of May which surpassed the count of

and ICICI suffering a marginal loss among the financial

last year.

sector and on the FMCG market was blown down harshly with stocks like ITC falling down by 1.5% after the ban of loose cigarettes.

Employers have added 280000 jobs in the



The official unemployment rate is about 5.5 per cent and hourly wages have rised y 0.3 per cent in the last month.

The gaining stocks comprised of Tata Motors and Sun 14 | J U N E 2 0 1 5

Pharma.

x z

The strong job data has pressurized the Australian dollar and New Zealand dollar against the US dollar.

Indian Markets.

nifty 8500 8400 8300 8200 8100 8000 7900 7800

nifty

sensex 28000 27500 27000 26500 sensex 26000 25500

15 | J U N E 2 0 1 5

The RBI rate cuts definitely showed its reactions on the stock markets as the markets crashed from the beginning of June. In other news we have the Maggie ban led to the Nestle stocks to drop more than 10 per cent and is trading at rupees 6000 in the Indian stock market. The ban showed good opportunities to the rivals of Nestle like ITC and Bambino Agro as well as

drop in stockpiles since last July and the sixth-

the HUL’s prompt move to withdraw Knor noodles

straight decline since stockpiles hit their highest

which led to the gain in their stock prices.

level in more than 80 years in April. The decline was

The mid of June can expect a potential merger between the two companies Vedanta and Cairn who are expected to sign this deal as both the companies were hard hit by the commodity cycle and the oil cycle. The cash flow on Cairn’s balance sheet could be used to pay off Vedanta’s debt which amounted to about 17000 crore.

due to a large drop in imports, as wildfires halted some Canadian production, and increased refinery activity. Light, sweet crude for July delivery settled up $1.29, or 2.1%, at $61.43 a barrel on the New York Mercantile Exchange, the highest settlement since Dec. 9. Brent, the global benchmark, rose 82 cents, or 1.3%, to $65.70 a barrel on ICE Futures

ICICI Bank has a new chairman now. The non-

Europe.

executive chairman Mr. Mahendar Sharma the former vice president of HUL has been asked to fill the chairs of K V Kamath who is now going to be joining the new

Thus eventful was just to give you a small gist of how the markets have been surprising us. The sentiments that have caused the imbalances would eventually

Development Bank set up by the BRICS.

settle down with the changes in various factors and U.S. oil prices rose to a new 2015 high Wednesday after

the stability in the economy. But as we know, risk is

U.S. data showed stronger-than-expected demand for

not knowing what we are doing and hence we need

crude oil and gasoline. Prices have wavered in recent

to take every step wisely in this volatile market.

weeks, pivoting around $60 a barrel as investors weighed a continued oversupply of oil against signs of stronger demand and expectations that output may be shrinking. U.S. crude-oil stockpiles dropped by 6.8 million barrels in the week ended June 5 to 470.6 million

barrels,

the

U.S.

Energy

Information

Administration said Wednesday. Analysts surveyed by The Wall Street Journal had predicted a 1.8-millionbarrel decrease on the week. It was the biggest weekly drop in stockpiles since last July and the sixth- straight | J U stockpiles N E 2 0 1 5 hit their highest level in more decline16since

than 80 years in

SUGAR IDUSTRY OVERVIEW

SUGAR GLUT CONDITION

-NAVJOTH SAHU

India's sugar production is expected to be on an all-time

producing regions. The market has already been

high of 28.4 million tons (MT) in the ongoing financial

awash with supplies, thanks to the fifth straight year

year, 2014-15, as mills have already produced 27.95

of surplus sugar production through 2014-15.

MT so far which is said to be the highest as per the

The Stocks of Sugar is estimated to be on a six years

Indian Sugar Mills Association (ISMA). As compared

high and this has created a very huge pressure to

to about 24.04 MT of sugar produced till May in the last

sugar prices in the country, the buffer stock of sugar

2013-14 sugar season (October-September), the Indian

have worsen the sugar glut for the third straight year

sugar industry has so far produced a record 27.95 MT,

in the row. During 2006-07 the Sugar industry

Industry body Indian Sugar Mills Association (ISMA)

produced a high of 27.95 MT sugar but the

said in its latest estimate. With the highest production

conditions are not the same this time, the farmers are

count was given by Maharashtra at 10.47 MT of

unable to repay the loans and thus the banks have

sugarcane crushed and produced so far, followed by

refused to supply further lend the farmers with any

Uttar Pradesh and Karnataka at 7.09 MT and 4.89 MT

credit facility. As compared to the sugar season of

respectively. With the Monsoon on the door waiting to

2006-07, the current sugar season is worse, as Rs

rush in a very short span of time, the crushing operation

22,000 Crore cane arrears of farmers are still

have been coming near to its end and with this only 19

pending, prices both in domestic and global market

mills are operational at present. With a very high

have fallen to the lowest levels in the last 6-7 years

production of Sugar in the country the next big threat

which seems to be the major point as pointed out by

the industry is going to face is the sugar glut that is the

the Indian Sugar Mills Association. The next step in

prices of sugar have shown a downward motion in the

the row is the industry have come forward to ask for

market.

help from the State as well as the Centre. The

According to the Indian Sugar Mills Associations, the

Industry have demanded that government should

sugar production in the country have taken an eight year

come out with some substantial assistance for

high which is approximately 16 % high from the

sugarcane farmers and the sugar industry, otherwise

previous year production till 31st May. But the Bulk

many sugar mills cannot start their operations in

production of Sugar have now turned the Industry into

2015-16.

a major area of concern. The more than expected output

Since the de-regularization of the sugar sector in

has further disturbed by giving an over-supply in the

1998, private factories have registered steady growth

market and continues to pressure ex-factory sugar

in the country. Many of the loss making cooperative

prices, which are already at six-year lows in key

mills were sold to the private factories. BB

producing regions. The market has already been awash

Thombare, president of the Western India Sugar

with supplies, thanks to the fifth straight year of surplus

Mills Association (WISMA)

17 | J U N E 2 0 1 5

sugar production through 2014-15.

while the price of raw material is fixed the end product’s price is volatile. The revenue sharing model of 70:30 suggested by the Rangarajan Committee would have made sense for the industry instead

of

remunerative

government price.

fixing

The

the

fair

Commissioner

and of

Agricultural Cost and Prices, this year has talked about setting up of a special fund to bridge the gap between fair and remunerative price and the cane price realized in the 70:30 formula and have Thombare, president of the Western India Sugar Mills Association (WISMA) said this would be the first instance when the private mills would be registering losses in the state of Maharashtra. According to Thombare the Industry have been affected by the global glut and low prices as the cooperative sector. Although the industry had tried to keep the losses at minimum but this year the balance sheets would be in red for most of the companies.

Fig: Shri B.B. THOMBARE Thombare who is also the chairman and managing director of Natural Sugar Mills the state’s first private mill, said the major issue facing the industry is that while the price of raw material is fixed the end product’s price is volatile. The revenue sharing model of 70:30 18 |suggested J U N E 2 0 1by 5 the Rangarajan Committee would have made sense for the industry instead of

demanded to implement the same.

COVER STORY

HIGHER THE PRICE; HIGHER THE RETURN?

-Avik Chakrabarty

A common saying says, "Don't judge a book by its cover." Some equally valid words of wisdom for investors could be, "Don't judge a stock by its share price." Despite much readily available information for investors, many people still incorrectly assume that a stock with a small dollar price is cheap, while another with a heftier price is expensive. This misconceived

expensive. Some investors think that a four-digit

notion can lead investors down the wrong path and into

share price is bad, and they feel that Rs 150 stock has

some bad decisions for their money.

a better chance of doubling than the Rs 1000 stock.

This is a misguided view, because the Rs 150 stock

The cheapest stocks - "penny stocks" - also tend to be

might be considerably overvalued, and the Rs 1000

the riskiest. That stock that just went from Rs 100 to Rs

stock undervalued. The opposite also could be true

10 might end up at zero. And a stock that goes from Rs

as well, but share price alone is no sign of value.

10 to Rs 40 might double again to Rs 100. Looking at a

Market capitalization is a clearer indication of how

stock's share price is only useful when taking many

the company is valued, and gives a better idea of the

other factors into account.

stock's value.

Many Factors to Consider

Are investors considering buying a share worth

Investors often make the mistake of looking only at stock price, because it is often the most visibly quoted

Rs 36,000? Or are they deterred by the high share price.

number in the financial press. However, the actual

The Rs 10,000 price tag per share probably had put

dollar price of a stock means very little unless many

many people off buying MRF three years ago.

other factors are considered. For example, if Company

However, had it been bought at that time, the returns

A has a Rs 1000 crores market capitalization and has

would have been huge today. The stock has zoomed

100 crores shares, while Company B has a Rs 100

to Rs 36,000 now. MRF is not an isolated instance.

crores market capitalization and 10 crores shares, both

Today, there are five more stocks trading at more

companies will have a share price of Rs 10, but

than Rs 10,000 a share and another nine quoting at

Company A is worth 10 times more than Company B.

more than Rs 5,000. They were pricey earlier too, but

A stock with Rs 1000 share price may be intimidating to many retail investors, because it seems very

have yielded massive returns over the past one, three and five years.

expensive. Some investors think that a four-digit share

Bank's London Inter-Bank Offered Rate (LIBOR) -

|JU N Ethey 2 0 1feel 5 that Rs 150 stock has a better price is19 bad, and

based lending facility.

chance of doubling than the Rs 1000 stock. This is a

So should such stocks be bought?

These blockbuster returns show that investors should not get too caught up with a stock's absolute price. The price should not make any difference to the investor.

Even if someone buys one share at Rs 30,000 or 1,000 shares at Rs 30 each, it will have no material impact on the gains that could be made.

A common feature among these companies is the dominant position they enjoy in their respective businesses. They boast of superior return ratios and healthy operating margins, indicating high efficiency.

These are quality stocks backed by competent management. Coupled with the limited supply of such shares in the market, the stock price just keeps

also condense the development in the trade between the nations. But as it is said when it is right, it is right.

The step taken by Government of India and the Asian Development Bank may result in further better relation among the countries which may even surpass the trade of Silk routes among the nations.

climbing. It is the high demand and low supply that

MRF

makes the stock price higher because those who own

The largest player in the tyre industry proved its

the shares do not want to sell.

mettle during the downturn when it outpaced peers.

These stocks are held mostly by institutional investors who can afford to invest large sums. However, for the ordinary investor whose outlay per transaction is not more than Rs 20,000-40,000, these stocks are out of reach. These stocks are also crying for a split.

Its well diversified presence across segments such as two-wheelers, passenger cars and commercial vehicles allowed it to post 19% revenue growth over the past five years, while increasing its market share to 29% from 25%. It also continues to boast of the highest operating margins in its sector.

That would increase the number of outstanding shares and the lower price would make them accessible to more investors. With more investors comfortable trading in them, the liquidity in these counters would improve and reduce the impact cost of trading.

However, many of these companies choose to keep their shares exclusive and avoid wider participation from the market. The following are the five most expensive stocks.

Eicher Motors The maker of Royal Enfield motorcycles is riding high on the growth of the brand. At a time when most two-wheeler makers are coping with sluggish demand, buyers of Royal Enfield bikes face a 4-5 month waiting period. Besides, the company's commercial vehicles unit also looks set for a turnaround. The premium valuations for the stock should sustain given the high growth trajectory and cult status of its primary offering.

20 | J U N E 2 0 1 5

Page Industries

and cult status of its primary offering.

quantity of the shares.

Page Industries

Follow a portfolio approach

Undergarments maker Page Industries' robust business fundamentals were evident during the last five years when overall volumes grew at a healthy CAGR of 20%, even as its peers struggled. The company enjoys strong brand equity for its 'Jockey' range of innerwear and derives strength from its wide distribution network.

Instead of obsessing over the number of shares to be bought, give weight to the aggregate value of the purchase you need to make. The position, or investment exposure, that you take in any single stock should be guided by your asset mix. However, a single stock should not constitute more than 10%-

Shree Cement

15% of the total. The value of the purchase should be

One of the lowest cost producers of cement in India,

such that the stock weight in the portfolio does not

Shree Cement has been operating at over 90% capacity

exceed this level. Now if an investor can put an upper

utilisation for the last couple of years. It boasts of

limit for exposure to a single stock up to 10% of the

highest EBITDA/tonne in the industry owing to high

total portfolio. With that if he or she could avoid

usage of alternate fuel, logistic advantage and self-

taking concentrated exposure with large positions in

sufficiency in power supply. Its capacity expansion

just a handful of stocks. This is to ensure that a sharp

plans coupled with cost-saving initiatives are expected

drop in the value of a single stock does not jeopardize

to lead to better volume growth.

the investors’ entire stocks portfolio. At the same

Bosch

time, any allocation of say, less than 5% of the

With its superior technology and market share in excess

portfolio will not have any meaningful impact on the

of 70%, this engines components maker holds huge

overall returns.

bargaining

Stagger accumulation

power

with

original

equipment

manufacturers. The unmatched pricing power allows

Should an investor buy an entire lot of the chosen

the company to generate superior returns. The company

stocks at one go or stagger the purchase? Experts

has the advantage of access to its parent company's

contend that when building a portfolio for the long

advanced technologies. The company will benefit from

run, a creeping accumulation strategy works best.

changes in emission norms.

Assuming the fundamentals of a company remain in

Price should not be criterion to decide how many

place, one may use a staggered approach to add to

shares to be bought.

the existing holding in the company. This also

Too often, the share price becomes the deciding factor.

reduces risk to some extent.

Some investors tend to prefer buying shares of stocks quoting at a low price, because they get to buy larger quantity of the shares. For instance, if the price of company 21 |ABC's J U N Eshares 2 0 1 5 is Rs 30, one could buy 1,000 shares for Rs 30,000. A pricey stock, on the other hand,

AVIATION SECTOR ANALYSIS

AIRLINES IN INDIA: SKY IS CLEAR, SMOOTH TAKE OFF IS NEAR

-Sachi Kheskani

“The world is focused on Indian aviation – from manufacturers, tourism boards, airlines, global businesses to individual travellers, shippers and businessmen… If we can find common purpose among all stakeholders in Indian aviation, a bright future is at hand.”

-Mr Tony Tyler, Director General and CEO, International Air Transport Association (IATA).

The above quoted thought very well displays the amount of belief Mr. Tyler has in the Aviation industry's growth potential which can be witnessed in the Indian Aviation sector, with current price levels of

Airlines, b) Low Cost Carrier (LCC) and c) Luxury Airlines. The domestic share if Airlines is provided for in Exhibit I.

crude oil. Crude oil prices and profitability of aviation sector are without doubt interlinked as the margin

India’s scheduled airlines carried 67.73 million

saved in buying aviation fuel reflects in balance sheet

passengers in 2014 compared with 61.42 million

as net profit. Moreover, the last few months have seen

passengers in 2013, and 58.81 million in 2012,

tailwinds converging for India's airlines such as

according to the DGCA. Aircraft movements,

improvement in demand and therefore passenger load

passengers and freight at all Indian airports are

factors (PLFs), a largely stable rupee-dollar exchange

expected to grow at a rate of 4.2 per cent, 5.3 per cent

rate, and most importantly, a steep fall in crude oil

and 5 per cent, respectively, for the next five years,

prices. This article shall highlight the nitty gritties of

according to estimates by Airports Authority of India

running an airline in India along with a basic

(AAI). FDI inflows in air transport (including air

understanding of aviation industry.

freight) during April 2000 to January 2015 stood at US$ 562.65 million, as per data released by

For better understanding on aviation sector it is

Department of Industrial Policy and Promotion

pertinent to know that its components which are as

(DIPP). Government agencies have projected that

follows: 1. Aircraft Manufacturer, 2. Airlines, 3.

around 500 airports in all, both Brownfield and

Airports and 4. Tour Operators and Agents. The Indian

Greenfield, would be required by 2020. The private

Aviation Industry is sub divided into: 1. Scheduled

sector is sought to be involved in a big way through

Airlines 2. Unscheduled Airlines and 3. Air Cargo. The

different PPP models, with substantial involvement

Airlines in India are segmented as a) Full Service

of state support in terms of financing, concessional

Airlines, b) Low Cost Carrier (LCC) and c) Luxury

land allotment, tax holidays and other incentives.

22 | J U N E 2 0 1 5

Airlines. The domestic share if Airlines is provided for

The airlines are projected to record a collective

in Exhibit I.

operating profit of Rs 8,100 crore (US$ 1.29 billion)

possibly SpiceJet should be able to report a profit after tax.

As per the Crisil Report, it is expected that competition will be moderate and existing airlines will go slow with domestic capacity additions due to current financial stress. SpiceJet has reduced its fleet size from 58 to 37 aircraft in the current year - while capacity

addition

by

new

entrants

such

as AirAsia and Vistara is expected to be gradual. land allotment, tax holidays and other incentives. The

Reporting net profits would be a problem, especially

airlines are projected to record a collective operating

for three carriers - Jet Airways, Air India and Spice

profit of Rs 8,100 crore (US$ 1.29 billion) in fiscal year

Jet - which account for about 75% of the commercial

2016, according to Crisil Ltd. For Air India, Jet Airways

aircraft fleet in India but over 93% of the sector's

and Spice Jet can achieve net profit targets only after

debt of Rs 705 billion as of March 2014. A

undertaking massive re-capitalisation of INR 350

recapitalization of around Rs 350 billion is

billion.

recommended for these three carriers for 15 % of

There has been an improvement in the operating

their revenues are eaten up by Interest on is

environment of Airline companies in India due to

recommended for these three carriers for 15 % of

falling crude prices as the air turbine fuel is expected to

their revenues are eaten up by Interest on debt. In

cost 25 % less for fiscal 2016 as compared to 2014.

order to halve these, a recapitalization would work

Moreover the demand for airline services is expected to

wonders in posting net profits to its financial

soar. Fuel costs account for 45-55% of the revenue of

statements. Airlines in India generally report load

domestic airlines. A 4% reduction in fuel cost may

factors more than 65%, which is a health load factor

potentially add around 2% to operating margins. Crude

to cover operational costs at the current yields and oil

oil prices in the Indian energy basket averaged $59.07

prices. Therefore, the airlines in India should be able

per barrel in April, as against $84.16, $105.52, $107.97

to be EBITDAR (earnings before interest, taxes,

and $111.89 in 2014-15, 2013-14, 2012-13 and 2011-

depreciation, amortization and rentals) positive this

12, respectively. It is predicted that Full-service airlines

year.

may not be able to do this because their fares have fallen to near low fare levels, and they have way too many

A classic example of SpiceJet Ltd can be cited which

overheads to get rid of if they want to report a profit

is India’s second largest low-fare airline, as it

after tax whereas more disciplined airlines like IndiGo

reported profits in the fourth quarter, after six

and GoAir (run by Go Airlines (India) Ltd), and

straight quarters of losses. However, Spice Jet’s

possibly SpiceJet should be able to report a profit after

profit is aided by lower fuel costs, benefits of

tax.

renegotiated contracts and settlements, while a net

23 | J U N E 2 0 1 5

gain on an insurance claim helped the company post

profit is aided by lower fuel costs, benefits of

The Interest cost seems to be hurting more,

renegotiated contracts and settlements, while a net gain

with Rs.4,000 crore a year.

on an insurance claim helped the company post a profit.

Jet Airways (India) Ltd, the country’s second largest

Road Ahead

airline by passengers, reported a fiscal fourth-quarter loss as it took an impairment charge on an investment

There is large untapped potential for growth in the

in its subsidiary JetLite (India) Ltd and several other

Indian aviation industry due to the fact that access to

one-off items. The Mumbai-based airline reported a net

aviation is still a dream for nearly 99.5 per cent of its

loss of Rs.1,728.99 crore for the quarter ended 31

large population, nearly 40 per cent of which is the

March, 2015 compared with a net loss of Rs.2,153.57

upwardly mobile middle class. Therefore it makes

crore in the year-ago period. However, excluding these

sense to target the bottom of the pyramid which

one-off items, results were positive on operations terms.

LCC's are doing very well! Also it is critical for the

In the case of Jet Airways, aircraft fuel costs now only

industry stakeholders to engage and collaborate with

account 24.7% of the operating cost. This was lowest in

the policy makers to come up with efficient and

at least six years.

rational decisions that will shape the future of the Indian civil aviation industry. With the right policies

Encashing on the good times, IndiGo, run by InterGlobe

and a relentless focus on quality, cost and passenger

Aviation Ltd, is preparing a $400 million IPO,

interest, India would be well placed to achieve its

according to two people familiar with the development.

vision of becoming the third largest aviation market

IndiGo, the most profitable Indian airline, did not offer

by 2020 and the largest by 2030. If at all there is

comments. Rival low-fare airline GoAir is also

anything that could go wrong, it could be Oil prices

preparing

rising or worse Airlines engaging in price wars to

for

an

IPO.

Another

low-fare

airline, AirAsia India, is expected to break even as soon as it starts flying its sixth plane. Full-service airline Vistara, run by Tata SIA Airlines Ltd, launched on 9 January 2015. Meanwhile, state-run Air India Ltd is also set to post a small operating profit this fiscal year on estimated lower fuel cost and higher passenger growth. The airline is set to report operating profit of Rs.6 crore even as it is expected to post a net loss of Rs.3,500 crore on sales of Rs.21,050 crore. On consolidated basis, Air India’s profit will be over Rs.500 crore on a revenue of over Rs.25,000 crore.

The Interest cost seems to be hurting more, 24 | J U N E 2 0a1year.

5 with Rs.4,000 crore

lure passengers!

VRIDDHI’s RESEARCH CORNER

COMPANY IN FOCUS: JSW ENERGY

-Satyam Sureka

Industry – Power Generation and Distribution

base year for calculating national accounts to 2011-

Management - Sajjan Jindal, Chairman & Managing Director

12 from 2004-05 also shows the great positive signs

Current Market Price – Rs. 103.00 Market Capitalization – Rs. 19,500.25 Cr P/E – 19.78

for the economy.

Encouraged by the greater macro-economic stability and the reformist intent and actions of the government, coupled with improved business

Industry P/E – 14.80

sentiments in the country, institutions like the IMF

EPS (TTM) – Rs. 6.01

and the World Bank have presented an optimistic

Book Value – Rs. 42.70

growth outlook for India for the year 2015 and

Price/Book – 2.78

beyond. The possible headwinds to such promising

Dividend (%) – 20.00

prospects, however, emanate from factors like

Dividend Yield (%) – 1.68

inadequate support from the global economy saddled

ECONOMIC REVIEW

with subdued demand conditions, particularly in

A political mandate for reform and a benign external environment have created a historic moment of opportunity to propel India onto a double-digit growth trajectory. Decisive shifts in policies controlled by the Centre combined with a persistent, encompassing, and

Europe and Japan, recent slowdown in China, and, on the domestic front, from possible spill-overs of below normal agricultural growth and challenges relating to the massive requirements of skill creation and infrastructural improvements.

creative incremental approach in other areas could

With such encouraging statistics together with the

cumulate to Big Bang reforms. Brighter prospects in

new reforms and policies India is on its way to

India owe mainly to the fact that the economy stands

becoming a robust and stable economy.

largely relieved of the vulnerabilities associated with an

INDUSTRIAL OVERVIEW

economic slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances, and oscillating value of the rupee in 2011-12 and 2012-13. Inflation and CAD have been controlled to greater extents with the CAD at $32.40 billion (1.7% of GDP) in 2013-14 and the latest CPI number at 5.37% and WPI at -2.06%. The latest GDP

The Indian Power Industry is one of the largest and most important industries in India as it fulfils the energy requirements of various other industries. It is one of the most critical components of infrastructure that affects economic growth and the well-being of our nation.

growth for India at 7.50% YoY after the revision in the

India has the world’s 5th largest electricity

base year for calculating national accounts to 2011-12

generation capacity and it is the 6th largest energy

25 | J U also N E 2shows 0 1 5 the great positive signs for the from 2004-05

consumer accounting for 3.4% of global energy

economy.

consumption. Due to the fast-paced growth of the

generation capacity and it is the 6th largest energy

power generation, power transmission, mining,

consumer accounting for 3.4% of global energy

power plant equipment manufacturing and power

consumption. Due to the fast-paced growth of the

trading.

Indian economy, the country’s energy demand has grown at an average of 3.6% p.a. over the past 30 years.

Power Generation: JSW Energy currently produces 3,140 MW of power. Additionally, another 8,630 MW of capacity is under various stages of implementation

and

development.

Operational

plants - The Vijayanagar plant produces 860 MW of power. 1,200 MW imported coal-based thermal plant in Ratnagiri, Maharashtra. The Company’s wholly owned subsidiary, Raj WestPower Ltd operates the 1,080 MW lignite-based thermal power plants in Barmer, Rajasthan.

Mining: Acquired lignite mines in Barmer and thermal coal mines in South Africa and has also formed a Joint Venture for the development of a India had a total installed capacity of 253.4 gigawatts

thermal coal block in Odisha.

(or GW) at the end of August. India ranks third

Power Transmission: Joint venture Jaigad Power

in countries with the highest installed power generating

Transco Limited is an intra-state transmission system

capacity. China and the U.S. are the top countries.

that connects the Ratnagiri power plant to the

As per India’s 12th five year plan starting 2012, government has a target of capacity addition of 89GW. The total capacity addition during FY 13-14 was ~19GW against the addition of ~23 GW in FY 12-13

national grid.

Power Plant equipment manufacturing: The Company has entered into a Joint Venture with Toshiba to manufactures supercritical steam turbines and generators.

which is in line as per the target set.

COMPANY REVIEW 14.44%

JSW Energy Limited is in the business of power

6.41%

Promoters

generation and transmission primarily in the states of Karnataka, Maharashtra, Rajasthan, Himachal Pradesh, and Chhattisgarh. JSW Energy has its presence across the entire value chain of the power sector including power generation, power transmission, mining, power 26 | J U N E 2 0 1 5

plant equipment manufacturing and power trading.

FII's 4.15%

DII's 75%

Others

Major Power Plants

Name

and Configuration

Technology

Fuel Source

Power Offtake

Sub-critical

Captive lignite Long Term

Project Cost

Capacity Barmer

8*135 MW

pithead

(1080 MW)

Ratnagiri

4*300 MW

(1200 MW)

lignite Mines

of

INR 7,160mn

PPA

based TPP

BLMCL

Sub-critical

Imported

Long

TPP

Thermal Coal

PPA

Term INR 54,492mn and

Merchant Baspa II

-

Hydro

-

Long

(300 MW) &

PPA

Karcham

Merchant

Term INR 97,000mn and

Wangtoo (1091 MW) Vijaynagar

2*130 MW and

Sub-critical

Gas & Imported Long

(860 MW)

2*300 MW

TPP

Thermal Coal

PPA

Term INR 30,960mn and

Merchant

Analysts Recommendation JSW Energy is one of India’s fastest growing power companies with 3,140 MW of operational capacity and 8,360 MW of projects under implementation and development phase which will take the total capacity to 11,500 MW. It also reached quarterly PAT of 325 crore in 4QFY15, up by 86% over corresponding quarter of the previous year. PLF in the same quarter was seen at 79% as against 62% in the corresponding quarter of the previous year.

With the coal auction in progress and the company looking to acquire one of the coal blocks the company is in a sound position. In the ratios we can see that the company has shown good numbers with strong Inventory Turnover Ratio and Interest Cover. Also the company has been showing an uptrend for over a year which I think will continue due to the company’s strong fundamentals and good projects.

Call: BUY with a short term target of Rs.126 and a long term target of around 140.

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KNOWLEDGE ENHANCER

Wall Street is a not only a physical location in lower Manhattan, it is also a colloquial expression that can be used to describe the entire stock market. After all, it was on Wall Street where the NYSE was created its earliest form in 1792. A group of two dozen stockbrokers and store owners gathered under a buttonwood tree to create the Buttonwood Agreement, which gave them membership on the New York Stock Exchange. As part of that agreement, the Bank of New York was the first of five securities that began trading on the NYSE.

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