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Fundamentals March 12, 2013


Nik's Diary
Indian markets opened in the green tracking positive trade in the major Asian Indices like Nikkei, Hangseng and Shanghai which are higher by 0.4% to 0.6%. SGX Nifty too is currently trading higher by ~0.3%. US markets which opened marginally lower during the opening trade, ended the day higher after shrugging off some disappointing news from overseas, including weaker than expected readings on Chinese industrial production and retail sales. Lack of major U.S. economic news kept some traders on the sidelines, enabling the upmove in the markets. However, European markets were mixed on Monday with poor economic data from China and downgrade of Italian credit by Fitch resulted in decline of some of the markets. Meanwhile India’s Key benchmark indices fell marginally on Monday snapping the four-day gaining streak. The EXIM data released on Monday indicated that the country’s trade deficit had reduced in February, which is a positive for the economy. The markets would keenly observe the economic data to be released pertaining to IIP and Inflation expected to be released during the week.

REPCO HOME FINANCE IPO
Ajcon Global has come out with its report on Repco Home Finance (RHFL) IPO. According to the research firm, the company is valued at 2.36x - Book Value /share at upper end of the price band. One can subscribe to this issue, says Ajcon Global. RHFL is promoted by The Repatriates Cooperative Finance and Development Bank Ltd. (Repco Bank Ltd.), a Government of India owned enterprise, in April 2000. The Company is regulated by the National Housing Board. RHFL is engaged primarily in the business of financing i) the construction and/or purchase of residential and commercial properties including repairs and renovations (Individual Home Loans); and ii) loans against properties. RHFL focuses on the largely under-penetrated customer segment, both salaried and self employed, which has helped the Company grow profitability. As of December 31, 2012, the Company had 73 branches and 19 satellite centres located in Tamil Nadu, Karnataka, Andhra Pradesh, Kerala, Maharashtra, Odisha, West Bengal, Gujarat and the Union Territory of Puducherry. Further, as of December 31, 2012, 77 of its branches and centres were located in tier 2 cities and tier 3 cities, and at the peripheries of tier 1 cities. The company is faced with a deteriorating trend in its profitability and its asset quality indicators over the last two-three financial years. RHFL’s profitability indicator nevertheless continues to remain healthy (ROE: 22.3% in fiscal 2012) vis-à-vis industry standards and it currently has a comfortable capitalization profile (gearing 8.3 times in March, 2012). The Company’s gross NPA and net NPA as at September 30, 2012 stood at 2.12% and 1.6% respectively. The robustness of the risk management systems is demonstrated by the fact that the total amount of loans written off since inception till September 30, 2012 was only Rs. 3.7 crores (0.08% of its total disbursements of Rs. 4,313 crores for the same period. At the upper band of the issue price, RHFL is valued at 2.36x Book Value /share at upper end of the price band which we believe is in line with the industry. With due consideration to factors like a) low cost operations and strong profitability with robust margins, b) favorable housing finance sector outlook, c) established presence in South India (strong brand name), especially in Tier II and Tier III cities, for over a decade focusing on niche customer segment, d) strong asset quality (low NPAs) with robust risk management systems, we recommend investors to "SUBSCRIBE" the issue, says Ajcon Global research report. Source: Moneycontrol

Trade deficit cools down to USD14bn in February 2013 as exports pick up
Exports rose 4.2 per cent to $26.25 billion in February, compared with $25.2 billion in February 2012. This is a consecutive month’s rise in exports, according to data released by the Ministry of Commerce and Industry today. This financial year, only three months recorded a rise in exports — April 2012 (3.23 per cent), January (0.82 per cent) and February (4.23 per cent). In February, imports grew just 2.65 per cent to $41.18 billion, compared with $40.12 billion in February 2012. The trade deficit declined to $14.92 billion, compared with $20 billion in January. The relatively slow growth in imports increases the likelihood of India’s current account deficit narrowing. “Europe is performing better now. The decline has been arrested. Sectors which have large weightage, especially engineering and refined oil, have started performing better. There is also a marginal improvement in textiles exports,” Commerce Secretary S R Rao told reporters, adding the rice, oil meals, chemicals and pharmaceuticals segments had also fared well. Rao said it was expected the government would announce the annual supplement to the Foreign Trade Policy by the end of this month. “We are actively involved in consultations with chambers, export promotion councils, various departments and state governments and are trying to arrive at a package of incentives that would be announced soon.” On March 22, Anand Sharma, minister of commerce and industry, would convene a meeting of the Board of Trade. Cumulative exports during the April-February period fell 4.03 per cent to $265.94 billion from $277.12 billion in the year-ago period. If the $300-billion export target for this financial year is to be met, exports in March have to stand at more than $34 billion. Even if the $300-billion target is met, exports would still be lower than the commerce department’s target of $360 billion. It would also be lower than $305-billion exports recorded in 2011-12. For the April-February period, imports rose 0.25 per cent to $448.04 billion, against $446.94 billion in the corresponding period of 2011-12, data showed. As a result, the trade deficit for the April-February period stood at $182.09 billion, against $169.81 billion in the corresponding period of 2011-12. In the last financial year, the trade deficit had reached a record high of $185 billion. Ajay Sahai, director general of the Federation of Indian Export Organisations, said this year, the trade deficit might stand at $190-195 billion. The high trade deficit is leading to a rise in the government’s current account deficit (CAD). In the first six months of this financial year, CAD stood at 4.6 per cent of the gross domestic product, against four per cent in the corresponding period of the previous financial year. In February, oil imports stood at $15.15 billion, 15.45 per cent higher than in February 2012. Oil imports during April-February stood at $155.57 billion, 11.92 per cent higher than in the year-ago period. Non-oil imports stood at $26.03 billion in February. This was 3.57 per cent lower than the $26.99-billion non-oil imports in February 2012. Non-oil imports in April-February stood at $292.46 billion, 5.03 per cent lower than in the year-ago period. Director General of Foreign Trade Anup K Pujari said currently, India had trade imbalance with 83 countries, while it was trade-surplus with 152 countries. “We are eagerly awaiting the announcement of the Foreign Trade Policy, where important issues such as SEZs (special economic zones), fiscal incentives, reducing the cost of credit, as well as transaction costs, would help Indian exporters become more competitive,” said Sanjay Budhia, chairman of the Confederation of Indian Industry’s National Committee on Exports and Imports. Apparel Export Promotion Council chairman A Sakthivel said growth in exports for two consecutive months indicated a gradual recovery in the economy. Source: BusinessStandard

CDMA auction over: Sistema bids for eight circles
Sistema Shyam TeleServices (SSTL), which was the lone bidder in the 2G spectrum auction for CDMA services, won spectrum in the 800 MHz band in eight circles for R3,639 crore on Monday. However, no money would flow into the government’s coffer immediately as the company has been allowed to adjust R1,626 crore it paid as entry licence fee bundled with start-up spectrum of 2.5 MHz for 21 circles in January 2008. According to the terms of deferred payment, Sistema needed to pay 25% of the final bid amount within 10 days, which gets adjusted against the licence fee it paid in 2008. This would be followed by a payment moratorium until March 2016. “The government has confirmed that SSTL can offset its licence fee of R1,626 crore that it had paid earlier against its current bid. After March 2016, the balance amount of R2,013 crore will be paid in 10 equal annual instalments,” the company said in a statement. The company, which provides telecom services under the MTS brand, had lost 21 2G spectrum licences in February 2012, when the Supreme Court cancelled 122 licences allotted during the tenure of the former telecom minister A Raja. The circles won by SSTL India include Delhi, Kolkata, Gujarat, Karnataka, Tamil Nadu, Kerala, Uttar Pradesh (West) and West Bengal. “With the Rajasthan circle also a part of MTS India’s footprint, we would be able to service 40% of country’s population, address over 60% of data business potential, safeguard 75% of our current revenues and significantly optimise our losses,” Vsevolod Rozanov, president & CEO, SSTL, said. The Indian unit of the Russian conglomerate Sistema had applied for spectrum in 11 circles but bid for only eight. It will stop operations in the three circles of Mumbai, Maharashtra and Eastern Uttar Pradesh where it did not bid. This will affect 15% of its 2,850 employees or about 420 staff, apart from impacting 1.5 million subscribers. “Full efforts are being made to absorb the maximum number of employees in other circles. In addition, care is being taken to place some of the employees in other companies,” the company said. After the poor response in November, when there were no bids for airwaves in the 800 MHz band, the government cut the base price of spectrum by 50% to make it easier for Sistema to bid and procure spectrum as the government needed to accommodate the Russian government’s request that the company’s investment in India be protected. Two other new entrants in 2008, Norway’s Telenor and India’s Videocon, whose licences too were cancelled last year in February, had bid in the November auctions and managed to re-enter the market. Sistema had not participated in the November auctions. The March 11 auctions were slated for 1,800 and 900 MHz spectrum bands but no bidders came forward and so it had to be scrapped. Source: FinancialExpress







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