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Vol. XXVIII/17

Oct 14 – 27, 2013www.capitalmarket.com

MOHAN M SULE

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Oct 14 – 27, 2013 CAPITAL MARKET 3

The Satyam modelTo stem erosion in the shareholders’ wealth, the governmentshould sell the FTIL group through the auction routeThe explosion of the Rs 5600-crore NSEL scam is a vindication of Sebi’s former chief

C B Bhave’s tough stance against promoter Jignesh Shah’s proposal to start an equity

stock exchange after launching a commodity futures bourse. Besides insisting on

separating distributors’ commission from investors’ subscription, his crackdown on

mutual funds’ unit-linked insurance products had antagonised powerful asset manage-

ment companies as well as irked the Insurance Regulatory and Development Author-

ity and was the trigger for the setting up of a super regulator by finance minister

Pranab Mukherjee, apparently to coordinate between different regulating agencies

and avoid a turf war. Denial of extension to him was the collateral damage of the

ambition of an aide of the finance minister to see her close relative as the boss of UTI.

A vacancy was created at the country’s oldest AMC by shifting the incumbent to the

capital market regulator’s office, riding on the campaign launched against Bhave for his

inaction in weeding out fake subscribers at subsidiary NSDL, when he was the boss of

NSE, instead of focusing on the faulty proportionate allotment mechanism applicable

for distribution of IPO shares. The plan skidded, when the single largest shareholder

of the government-sponsored mutual fund, T Rowe Price of the US, raised objection.

The fourth largest mutual funds by assets remained headless for over two years till

July this year. The moral of the story is that some of the outrages in the Indian

financial world can be traced to political ties. Though MCX-SX got the green light

after the promoter agreed to bring down his shareholding to 5% in a predetermined

timeframe following a hard-fought legal battle, the truce was facilitated only after

there was a change of guard at the finance ministry and Sebi.

The promoter of Saradha chit fund could profit from the pyramid scheme either

because of complicity or indifference of local policy makers. The Sahara group pro-

moter has built a diverse empire by offering small savings schemes to the informal

sector clueless about the risk and returns correlation and benefiting from a nascent

regulatory environment with limited reach and power, confusion between regulators

over supervision of overlapping products, and the complex landscape in the politi-

cally important home state of Uttar Pradesh. Similary, Ramalinga Raju, the promoter

of Satyam Computer Services, had become the face of Andhra Pradesh’s transforma-

tion from a agri- and marine-based economy to a hi-tech destination for domestic and

foreign investors. His political reach cut across the aisle, enabling him to share a dais

with former US president Bill Clinton during the latter’s visit to the state in 2000.

While Raju was promptly arrested after his confessional statement to Sebi of havingdoctored his accounts for many years, Shah has blamed the professional management

of the spot commodity exchange. Considering that flagship Financial Technologies

India owned nearly the entire NSEL, the inference is that either he was sleeping at the

wheel or did not know the difference between a spot and futures market. In fact,

Shah’s was a classic derivatives strategy of hedging against both a bull and bear run by

running a regulated exchange as an entrepreneurial showpiece and at the same time

generating a spurious enterprise for high return.

This brings to the second realisation. The conflict between public interest and

making profit is sharper in certain businesses. Stock exchanges, often cited in this

context, cannot be run as non-profit organisations if they have to invest in offering

seamless services and create a secure environment for trading. Yet, the for-profit objec-

tive is leading to consolidation among global exchanges, eliminating price competition. If

they cannot be completely eradicated, it is essential to ensure that the damage due to

scams is limited. Fast-tracking trial is one of the ways and so also freezing and liquida-tion of the assets of the manipulator. This may not be fair to the other stakeholders.

Therefore, focus on consolidated results is an important lesson for investors. This will

prompt closer scrunting of the symbiotic relations between group companies. For

instance, flagship FTIL’s profit was being boosted by the illegal gains made by NSEL.

To solve the problem of the troubled group, the Satyam rescue could be an ideal tem-

plate. The government disbanded the board of directors and appointed a 10-member

committee of eminent professionals to run the software services producer, hit by a Rs

7000-crore hole in the balance sheet. Later, the IT company was auctioned to the highest

bidder. This is what should be done to the FTIL group to prevent further erosion in the

wealth of the shareholders and also to discourage the formation of bubbles.

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4 Oct 14 – 27, 2013 CAPITAL MARKET

Wealth creatorThere are several similarities

between a bonus issue and a

stock-split (‘Stocks: The bonus

benefits’, Sep 16-29, 2013).When these companies go ex-

bonus and ex-split, their market

prices are adjusted. In both

these cases, the stock price will

be reduced by half. The basic

principle is that the market

value of a firm remains the same.Kishor A M, via e-mail

As in a stock-split, the share

price is adjusted or lowered

after issue of bonus shares. The

stock becomes affordable and,

thus, attracts more investors.

The liquidity profile of the

stock improves. This is also a

welcome development because

the stock is tracked by more

investors. This way the public

scrutiny of a firm improves.Venkateswar Chatamoni, via e-mail

Compared with stock-splits,

bonus issues can create

shareholder wealth in the form

of higher dividend.Amithi Bunha, via e-mail

In a bonus issue, the face value

remains the same. Now

assuming the quantum of

ReadersReact

dividend in percentage remains

the same, shareholders of

companies issuing bonus

shares receive higher quantum

of dividend. Therefore, bonus

issues could be real wealth

creators for the shareholders.Kaustubh Sahai, via e-mail

Bonus issues could be traps.

Many firms with dubious

record of corporate governance

and not-so-exciting financials

opt for bonus shares to boost

sentiments. In such cases,

bonus shares could end up

destroying shareholder wealth.Esha Chaudhary, via e-mail

Most of the companies likely to

issue bonus shares are expensive

based on ratios such as price to

earning multiple or BV.Krishnakant Sundaram, via e-mail

FDI v FIIsIf the 1991 depletion of

foreign exchange reserves

demonstrated the perils of

being inward looking, the 1997

Asian currency turbulence

showed the dangers of

addiction to foreign money

(‘Global audience’, Sep 16-29,

2013). The 2013 current

account deficit storm illus-

trates that reforms have to be

ongoing and not selective.Shubhrato Das, via e-mail

India is witnessing a strange

paradox of foreign money

gravitating to the equity and

debt markets even as huge FDI

projects get stuck due to lack

of clarity on regulations.Pratik Kanojiya, via e-mail

The capital market is seeing an

influx of foreign investment.

The government has been

treating overseas portfolio

investors with a feather touch.

Telefolio scrips have a proven record

of over 10 years. Still young, fresh

and fast-growing. Check out for de-

tails at http://www.telefolio.com

Capital ine CSS database gives

extensive data on Commodities, Sec-

tors and the related Stocks.

The phasing out of P notes,

through which anonymous

foreign investors can invest in

Indian stocks, was rescinded

after the market displayed

withdrawal symptoms.

Differentiating investment

from tax havens between good

and bad is in a limbo to pacify

sulking investors.Iyer Arun, via e-mail

A preferential and differential

treatment is being meted out

to overseas investors in

stocks and bonds as against

those investing in green- and

brown-field projects despite

the flighty nature of the

former. Expediency is scoring

over permanency.Bilaal T, via e-mail

The current status of some

sectors getting a torrent of

foreign inflows while some

others languish capture the

unhealthy state of Corporate

India due to uneven reforms.Sethuraman Potti, via e-mail

Level of interestInvestors

should be

prepared for

the worse if

FIIs startoffloading

(‘Stocks:

Perched at the edge’, Sep 16-

29, 2013). Stocks with high

FII investment could be

subject to a brutal bear attack

in case FIIs continue to push

the exit button.D H Zende, via e-mail

In many companies FII

investment is stable though the

level could be high. But this

may not be a matter of concern

as these could be part of long-

You require an experienced and un-

biased service if you plan to invest, and

you require it even more if you have al-

ready invested.

Capitaline is an analyst’s delight, yet easy

to be trained upon. Even web pages can

be called inside the application.

For details see page 85 For details contact

91-022-25229720

For details contact

91-022-25229720

For details contact

91-022-25229720

term portfolio holdings.Neraj Agnihotri, via e-mail

Companies with high FII

holdings could witness wild

swings depending on the FII

activity. This could be a threator even an opportunity as

many of these companies are

quality stocks, which

investors can pick to be part

of their long-term portfolio.Maniraman S, via e-mail

Taking risks

In India, equity is completely

a risk capital (‘Compensating

minority shareholders:

Investors as warriors’, Sep

16-29, 2013). Investors not

only have to take the business

risk but also bet on thepromoters and their

creditentials. It is a sorry state

of affairs as even the authen-

ticity of reported numbers is a

risk investors have to take.Annu Manjrekar, via e-mail

Class action could be a messy

affair. One fear is that the

shareholders could drag

companies to the tribunal on

minor or non-issues. In short,

a bunch of influential share-

holders could exert unneces-

sary pressure on the manage-ment. This could hurt decision

making at companies.Chintya Gourishetty, via e-mail

Burnout

Company are burning cash

because of slowdown in the

domestic economy and no

major pick-up in global market

as well (‘Stocks: Squeezed

dry’, Sep 16-29, 2013).

Besides, a few are in trouble

due to company- as well as

industy-specific adversities.Sohail Lakdewala, via e-mail

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5Oct 14 – 27, 2013 CAPITAL MARKET

07 | Cover Story07 | Cover Story

15 | In Focus

Managerial remuneration

Fat cats

Gujarat NRE Coke

Crushed to bits

Jain Irrigation Systems

Setting price benchmarks

Debt heavy, debt light

Changing profile

28 | Off Focus

The interventionist government

Back to the old days

30 |Economy Pulse

68 | Stock Watch

Exide Industries

Charged well

Inside

www.capitalmarket.comIPO Ratings

You can get all IPO ratings on our website.Due to short lead times, we are not able to

carry some of the IPO ratings in thefortnightly magazine. But our web site will

give the ratings of every IPO on the day itopens for subscription.

Keep Your Portfolio Online

Several investors maintain their portfoliosonline at our site. Premium services(ApnaMoney) include alerts on all corporate

actions like board meetings, dividends etc.Also ready output statements segregatingshort-term and long-term gains.

‘Hot Pursuit’ captures market action tick by tick

EVERYDAY!

Sample some of the captions of 9 th October 2013:

Realty shares extend gains on RBI measures (9-Oct, 15:17 Hrs IST) More

L&T gains nearly 5% in two days (9-Oct, 14:46 Hrs IST) More

DLF spurts after divesting non-core asset (9-Oct, 14:00 Hrs IST) More

Jet Airways slips over 6% in two sessions (9-Oct, 12:11 Hrs IST) More

PTC India jumps after UP Power clears past dues (9-Oct, 09:34 Hrs IST) More

F R E E

Track stocks real-time on F R E E

F R E E

69 | Sector Specific

Rate-hike shock

71 | Apna Money

Giving what is due

No shock absorbers

A spring in their steps

Mutual Fund scoreboard

NCDs:Choosing liquidity or

higher return?

Nipping the bubble

Is separate return required for

each service provided?

Stocks: Steady and ready to go Some small- and mid-cap companies with a stable business model are creating

capacity to maintain the growth tempo

90 |Capitaline Corner

D B Corp

Eyeing the non-urban audience

32 | Corporate Scoreboard

61 | Consolidated Scoreboard62 | Company Index

66 | Bulletin

67 | Watch List

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7Oct 14 – 27, 2013 CAPITAL MARKET

StocksCoverStory

Stocks

Steady and ready to goSome small- and mid-cap companies with a stable business model are creating capacityto maintain the growth tempo

expenditure of Rs 375 crore in the year

ended 30 June 2013. It is almost through

with one cycle of capex and expects benefits

to start flowing in the current financial year.

Further, it has envisaged capex of about Rs

250 crore in the current fiscal. This is

significant investment considering the net

worth of Rs 878 crore at the close of the

fiscal ending June 2013.

The proposed investment by Supreme

includes many projects. Money will be spent

on a greenfield plastic piping system at

Kharagpur in West Bengal and a protective

packaging system unit at the Kharagpur

complex in Maharashtra. Besides, several

activities will be undertaken like

replacement of some moulding machines

with energy-efficient machines including

additional new products in the furniture

business, increasing pipe production

capacity at Gadegaon in Maharashtra and

introducing several new varieties of fittingsat the facilities in the Jalgaon district in

Maharashtra and Malanpur in the Bhind

district of Madhya Pradesh. It will be also

funding automation of several existing units.

Last, the company will be buying office

premises in Delhi, Hyderabad, Kolkata and

Chennai and at Ernakulam and Indore to

consolidate administration at one location

in these cities.

CoverStory

The health of the economy is the prime fac-

tor while exploring the equity market

for investment. At present neither the do-

mestic nor the international economic sce-

nario is encouraging. On the international

front, the US economy remains fragile.

Move south-wards, the apparent stability in

the European market is widely termed as

calm before the storm. China is the only

hope. However, its manufacturing sector is

moving at a snail’s space to recovery.

The local market continues to struggle

with high inflation and interest rates. The

decline in the rupee against the US dollar

has emerged as the top priority for policy

makers. Though policy paralysis seems to

have eased a bit of late, policies are tilted

towards populism as general elections are

fast approaching. Crucial bills such as land

acquisition and food security have been

cleared by parliament with an eye on votes.

India’s gross domestic product (GDP)grew by 5% — a decade low — in the fiscal

ended March 2013 (FY 2013). Going

forward, the scenario continues to be bleak.

Indeed, growth crawled 4.4% in the first

quarter ended 30 June 2013. This is the

lowest in any quarter over the last four years.

UK-headquartered Unilever, the second

largest fast moving consumer goods (FMCG)

company in the world, issued a profit warning

in September 2013. It expects lower sales

growth of around 3-3.5% in the third quarter

ended September 2013 from 5% in the first

half of calendar year (CY) 2013. The lower

growth will be mainly on account of

weakening demand in several emerging

markets in which Unilever operates.

Unilever says slowdown in the emerging

markets has accelerated as a result of

significant currency weakening, while the

developed markets remain flat to down. This

profit warning is ample evidence of the grim

global outlook. Back home, Hindustan

Unilever, the Indian subsidiary of Unilever,

is also likely to report lower growth.

The FMCG business is considered

immune to economic slowdown. With even

this segment facing demand tapering, the

situation is certainly hostile for businesses.

Domestic and global equities cannot sustain

the present higher level on liquidity alone.

Grassroots-level growth will certainly needto catch up.

In this grim scenario, there are

companies that are talking big, sounding

positive and confident about the future.

Their body language is optimistic and

unaffected by the current gloom. Supreme

Industries, the country’s largest plastics

processors, is one such company, bubbling

with confidence. The firm incurred capital

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ADVT

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ADVT

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StocksCoverStory

Supreme is showing confidence in its

business model and capabilities. Over the

last five years, turnover increased 2.6 times

and profit 5.4 times. The mid-cap stock is

commanding a high price to book value

(BV) (P/BV) ratio of five. The beta of thestock is 0.27. This means the stock is not

going to be extremely volatile in the future.

It has decent track record of dividends.

Greenply Industries is another company

that is enthusiastic about the future. The

leading manufacturer of decorative laminates

is on an expansion spree. It completed

acquisition of land in the Chittoor district of

Andhra Pradesh for setting up a new medium

density fibreboard (MDF) manufacturing unit

and is in the process of obtaining the requisite

statutory approvals.

Further, Greenply is expanding its

existing MDF unit at Pantnagar, Uttarakhand,to manufacture new value-added products.

It will be increasing the lamination capacity

and introducing laminated flooring and UV-

coated panels. The civil construction work is

completed and orders for machinery have

been placed and equipment has started

arriving at the site.

Acquisition of land adjacent to the

existing manufacturing unit at Behror,

Rajasthan, to manufacture new value-added

products has been completed. Purchase

orders for major imported capital goods have

been placed. Additionally, a veneer-cum-

plywood plant in Myanmar is poised to becommissioned.

In 2010, Greenply made the biggest

investment of its existence, of Rs 254 crore,

accounting for 40% of its consolidated gross

block. This expansion was mainly financed

through debt. Today, it is reaping the

benefits of this investment, becoming the

country’s number one plywood, decorative

veneer and MDF brand. Also, it is the largest

laminate company in Asia and the third

largest in the world by production volumes.

Over the last five years, the turnover and

bottom line of Greenply jumped over three

times. Projected revenue is Rs 2350 crore in

FY 2014, entitling growth of around 15%. A

high debt-to-equity ratio of 1.6 (consolidated)

is one of the concerns. But steps are been

taking to reduce it. Indeed, the ratio is already

down from 2 in FY 2012. The target is to lower

it to 1.1 (standalone) end FY 2014. Mutual

fund holding in the stock increased to 5.81%

from a mere 0.06% over the last four quarters.

Apart from the business confidence

shown by Supreme and Greenply about their

prospects, another striking similarity between

these companies is the low risk. Supreme’s

beta is 0.27 and Greenply’s 0.45. Hence, they

are not volatile compared with the overallmarket. Beta is determined considering the

period of last one year. The S&P BSE Sensex,

the stock market barometer, is the for proxy

for the stock market.

A beta of less than one indicates lower

volatility compared with the benchmark, the

Sensex in this case. A beta of one indicates

perfect co-relation between the stock and the

benchmark. If the benchmark moves up 10%

in a particular period, the stock should

ideally appreciate by 10%.

Both these stocks have created wealth for

their shareholders in the last five years.

Supreme belongs to the mid-cap category, withmarket cap of Rs 4334 crore, while Greenply

is in the small-cap category, with market value

of Rs 907 crore. Invariably, this also means

these stocks can reach greater heights aided

by robust performance going forward.

Capital Market spotted 10 companies

that are dreaming big and also have low beta

like Supreme and Greenply. They can be

termed as growth-oriented stocks with low

risk. The 10 companies have beta of less than

one. This means these counters are less

volatile compared with the overall market.

The focus is only on small- and mid-cap

stocks. This is considering the fact that these

two categories of companies can generate

far superior gains. But small- and mid-cap

companies are generally risky for investment

compared with large-cap companies and,

thus, only low beta stocks were explored.

Small-caps are defined as companies

with market cap below Rs 1000 crore and

mid caps as those with market value between

Rs 1000 crore and Rs 10000 crore.

Companies with market value below Rs 400

crore were ignored. Further, companies

trading at a premium to BV were picked.

As additional filters, emphasis was on the

dividend payment record and past financial

performance.

Vesuvius India is a subsidiary of UK-based Vesuvius, a leader in refractory

products, which holds 55.57% equity stake

in the Indian outfit. A fifth manufacturing

facility and also a research and development

(R&D) center will come up on 15 acres of

land purchased at Visakhapatnam in Andhra

Pradesh (AP) in March 2012. The capacity

of the refractory at the Kolkata plant was

doubled in April 2012.

Starting operations in 1994 with active

technology support of parent, Vesuvius has

four factories, one in Kolkata in West

Bengal, one at Mehsana in Gujarat, and two

at Visakhapatnam in AP.Being present in the single business

segment of refractories, the operations could

be viewed as too narrow or positively as

focused on a niche segment. The steel

industry is a key customer.

Debt-free, there was cash balance of Rs

72.1 crore on 31 December 2012. This is

little over one-fifth of the net worth. Thus,

funding for growth will not be a problem.

Bajaj Electricals expects to clock 25%

growth in turnover to Rs 4200 crore in the

current financial year from Rs 3388 crore

in FY 2013. Acquisition opportunities are

being explored to achieve the target. Apartfrom introducing new products in different

segments and price points, investment is

being ploughed into brand building.

Expansion of overseas business, which

contributes only 1% of total turnover, is

expected to boost the level to 3% in FY

2017. An R&D center is also contemplated.

Established in 1938, the electrical goods

and home appliance maker’s business is

divided into three segments. First, the

lighting segment includes lamps, tubes and

luminaries. The consumer durables segment

consists of appliances and fans. The third

segment is engineering and projects and

includes transmission line towers,

telecommunications towers, high masts,

poles and special projects. All the three

segments are expected to report double-digit

growth, going ahead.

Havells India is setting up a home-

appliances manufacturing unit at Neemrana

in Rajasthan, with a capital outlay of Rs 50

crore. This plant will have manufacturing

capacity of four lakh water heaters and is

Greenply Industries is on an expansion spree

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StocksCoverStory

Havells India aims for 10-11% growth this fiscal

likely to be operational in February 2014.

Another Rs 100 crore will go to increase

manufacturing capacity across various units.

There are 14 manufacturing units in India and

six across Europe, Latin America and Africa.

The 94 touch points include branches andrepresentative offices across 50 countries.

The aim is to achieve a growth of 10-

11% in the current fiscal. Over Rs 400

crore has been spent on advertising over

the last two years.

Against market perception that it is

largely betting on Royal Enfield, the

premium two-wheeler selling like hot cakes,

Eicher Motors is also putting serious

money into its equal joint venture (JV) with

AB Volvo, VE Commercial Vehicles, to

make commercial vehicles and buses. Since

inception of the JV in 2008, Rs 1300 crore

was invested. In CYs 2013 and 2014, withanother Rs 1200 crore is earmarked.

Royal Enfield continuous to report robust

growth and is likely to sustain the growth

momentum. In 2012, a lakh units were sold.

Volume grew by over 50% in CY 2012. In

the same year, 63 new dealers were added to

take the dedicated dealership network to 249.

No surprise that manufacturing capacity

is to be expanded. In April 2013, a second

dedicated plant at Oragadum, Chennai,

commenced commercial production.

Capacity will be further enhanced to 2.5 lakh

units from the present 1.75 lakh in a phased

manner by next year. The good part is the

incremental investment will not be much

compared with the initial investment. This

plant can achieve capacity of five lakh units.

Amara Raja Batteries is in the midst of

a major expansion drive, investing Rs 745

crore to augment capacity through green- and

brownfield expansion. The capital outlay for

various projects include Rs 190 crore for

medium valve-regulated lead acid batteries,

Rs 50 crore for large valve-regulated lead acid

batteries, Rs 405 crore for four-wheeler

batteries, and Rs 100 crore for two-wheeler

batteries. The company estimates this

investment will provide incremental revenue

of Rs 1675 crore at full capacity.The Galla family and Johnson Controls

Inc, USA, hold equity stake of 26% each in

the company. Founded in 1885, Johnson

Controls is a leading global player in power

solutions, with turnover of US$ 42 billion.

Amara is a major supplier to telecom

services providers, telecom equipment

makers, UPS (original equipment

manufacturers and replacement) producers,

power generating companies, the oil and gas

sector, and Indian Railways. Automotive and

industrial batteries are exported to Asia

Pacific, Africa and Middle East.Shilpa Medicare’s capital work-in-

progress was Rs 129.1 crore end March

2013. This amount is significant in relation

to the net worth of Rs 320 crore and market

value of Rs 636 crore. The drive to invest

in manufacturing continues, with Rs 70.8

crore incurred towards capital expenditure

in FY 2013.

Testing of machinery and other

equipment is in progress and other

expansion-related work is moving as per

schedule. Commercial operations of the

formulations plant are expected to

commence in the current fiscal. Other

expansion projects including a R&D centre

are progressing well. Indeed, the

Mahaboobnagar, AP, plant became partially

operational in June 2013. The facility to

manufacture formulations will commence

commercial production in stages.

The active pharmaceutical ingredients

and formulations maker’s key focus is on

oncology, with eight manufacturing plants.

Of these, seven are located in India. A bonus

issue in the ratio of one share for every two

existing shares was declared in May 2013.

In FY 2013, Venkys (India) completed

its expansion-cum-modernisation program

started in August 2011. This has led toincrease in the capacity of poultry and poultry

products and the animal health products

segments, modernisation in the oilseed

segment, and setting up of Venky’s XPRS, a

retail chain serving chicken delicacies.

Considering the growing demand,

another expansion program, with an

estimated capital outlay of Rs 125 crore, was

initiated in March 2013 to augment capacity

in the poultry and poultry products segment,

set up a new plant for processing oil seeds,

and expand the network of its XPRS outlets.

Funding will be through internal accruals and

long-term loans. The benefits are expected

to kick in from FY 2015. The debt-to-equityratio of 0.78 times is a worry in the short to

medium term. This is also because of the

volatile nature of the poultry industry, where

cost of feeds could unsettle profit equations.

By FY 2020, Petronet LNG aims to

have an overall storage and re-gassification

capacity of 30 million tonnes per annum

(mtpa). Capacity of the liquefied natural gas

(LNG) terminal at Dahej, Bharuch, Gujarat,

is being expanded to 15 mtpa from 10 mtpa.

This project, expected to cost around US$

590 million and to be completed in FY 2016,

involves construction of two additional

storage tanks, additional re-gas facilities of five mtpa, and four LNG truck-loading bays.

The expansion is progressing as per

schedule. Pre-qualification of prospective

bidders for selection of contractors for

engineering, procrurement and construction

contracts is over. The contracts are likely to

be finalised by the third quarter of this

financial year. Acquisition of land on the

south side of the existing plant is at an

advanced stage. Clearance has been received

for diversion of 22.62 hectares of forest land.

Further, a five-mtpa LNG terminal is

coming up at Gangavaram, AP, to meet the

increasing demand and supply gap in the

eastern and southern parts of the country. A

binding term sheet has been signed with

Gangavaram Port Ltd.

Petronet is the result of a JV formed by

the government to import LNG and set up

LNG terminals in 1998. Promoters are Gail

(India), Oil & Natural Gas Corporation,

Indian Oil Corporation, and Bharat

Petroleum Corporation.

Godrej Industries is in the process of

establishing a new chemicals manufacturing

facility at Ambernath, near Mumbai, at a cost

of Rs 300 crore. This plant is expected to

start commercial production in the third

quarter of FY 2014. This facility willmanufacture surfactants, fatty acids

including specialty grades and refined

glycerin. This modern plant will allow the

company to lower cost of operations.

On a standalone basis, Godrej Industries

makes chemicals that go into producing

personal and homecare and specialised

consumer products. Godrej Agrovet, the

subsidiary in which it holds 63.7%,

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StocksCoverStory

manufactures animal feeds, oil palm

plantations, genetic seeds, agro-chemicals,

and poultry and processed meat. Another

subsidiary Godrej Properties (61.5% stake)

develops residential and commercial real

estate projects. In FY 2013, an additional

equity stake was acquired in Godrej

Consumer Products (GCPL) for Rs 110 crore.

The 21.64% equity stake in GCPL is valued

at over Rs 6000 crore. Godrej Industries is

currently valued at Rs 8843 crore.

Lately, Godrej Agrovet established a

palm oil mill at Chintampalli in AP. Anotheroil mill will be commissioned in Mizoram

in the third quarter of FY 2014.

Mahindra Holidays & Resorts India

added 560 units to its room inventory, taking

the total to 2,480 units end FY 2013. The

addition includes two international

properties in Bangkok and Dubai. FY 2013

is the second consecutive year of reporting

a significant jump in inventory. Despite

economic slowdown, the plan to create

capacity is not being abandoned.

Work is going on five projects:

Assanora in Goa, Kanha in Madhya

Pradesh, Naldhera in Shimla, the secondphase at Virajpet at Coorg in Karnataka,

and Tungi at Lonavala in Maharashtra. In

the next few years, these projects will add

over 500 units to the inventory. Besides,

there are land banks at 10 destinations to

develop properties in future. Apart from

this, existing resorts have additional land

that can be utilised for expansion.

The vacation ownership and holiday

facilities provider, of late, has reported

slowdown in membership addition.

However, the expansion plans reveals the

belief in strong growth in the medium to

long term. In FY 2013, 17,489 members was

added compared with FY 2012’s 18,089.

Conclusion

Value of beta changes over time. Indeed,

beta calculated on the basis of historical data

could vary for different periods. Therefore,

beta for one year could be different from

beta for one month. Moreover, as beta of

the featured stocks is below one, these com-panies may not able to catch the overall trend

if the market reports sharp gains.

Investment, expansion or acquisitions

are the key words for equity investors.

Companies could deliver above-average

return if their growth plans are successful.

However, capital expenditure could turn out

to be a firm’s undoing if it is not able to

deliver profitable growth.

At the same time, nil or marginal

investment in businesses could mean

stagnation. Such companies could even

report de-growth in revenue and the bottom

line could come under pressure.Financial standing, recent operating

performance, level of leverage, past track

record in executing expansion projects or

handling acquisitions, ways and means of

raising resources to finance capital

expenditure, industry expertise, and market

understanding are important factors.

Financing arrangement can reveal how

much is through debt, equity and internal

accruals. Too much debt could result in

financial stress. Opting for equity issuance

would mean equity dilution, which could

lower return for existing shareholders.

Amara Raja Batteries will be funding its

capacity expansion plans through surplus

cash, internal accruals and moderate debt.

Its debt-to-equity ratio stood at 0.09 times.

Actually, it is zero-debt company

considering cash of Rs 411 crore on its

balance sheet close of FY 2013.

The quantum of risk that firms are taking

could be way too significant. Eicher Motors

will be investing Rs 1200 crore in a JV that is68% of its net worth. Companies in this league

include Amara Raja (70% of net worth) and

Shilpa Medicare (40% of net worth).

Essentially, investors should invest in such

companies based on their risk profile as failure

could translate into significant capital loss.

Certain projects have long gestation

period. In turn, this could mean risk of

execution of projects. Even the industry

scenario and the government policies could

change in the meantime, adversely

impacting the expansion plans.

Expanded capacities of companies going

on stream at the bottom of the economiccycle, after which the growth rate should

start looking up, is the ideal time to enter

the featured stocks. The country’s economic

growth hit a decade low in FY 2013 and the

current fiscal could be no different or even

worse. May be the stock market is moving

close to the bottom or has already hit the

bottom. In the present scenario, these low

beta stocks could be worth exploring.

— S Khedekar

Growth without volatility

Low beta stocks undertaking capital expenditure

COMPANY BETA CMP M-CAP 52-WEEK YEAR ROCE RONW DIVI. TOTAL DEBT DEBT- CHG IN TTM BV P/BV P/E

(Rs) (Rs cr) HIGH(Rs) LOW(Rs) ENDED (%) (%) (%) (Rs cr) EQUITY PAT(%) (Rs)Amara Raja Batteries 0.64 312.3 5333.2 328.7 207.8 201303 40.1 30.5 252 88.1 0.09 22.3 62.1 5.03 17.3

Bajaj Electricals 0.5 162.1 1617 233.4 149.9 201303 12.4 5.0 100 165.9 0.27 -66.4 72.2 2.25 40.5

Eicher Motors 0.63 3656.1 9875.1 3980.0 2205.0 201212 22.9 18.9 200 38.9 0.02 -4.6 649.7 5.63 30.0

Godrej Industries 0.89 263.7 8842.8 332.0 218.5 201303 5.9 5.2 175 2829 0.83 54.0 92.4 2.85 21.9

Greenply Industries 0.45 375.7 906.9 524.0 196.0 201303 19.7 28.6 60 685.8 1.66 103.3 196.4 1.91 7.6

Havells India 0.68 650.9 8124.5 817.0 556.8 201303 22.6 33.5 150 981.5 0.84 20.3 115.5 5.63 21.0

Mahindra Holidays 0.27 214 1899.5 358.0 206.0 201303 8.6 15.4 42 8.9 0.02 2.2 81.0 2.64 17.4

Petronet LNG 0.73 118.6 8895 175.2 106.1 201303 25.7 28.8 25 3034 0.79 3.0 59.3 2.00 8.1

Shilpa Medicare 0.51 173 636.6 218.8 136.2 201303 14.5 15.6 65 131.6 0.32 27.0 87.1 1.99 11.9

Supreme Industries 0.27 341.1 4333.7 379.5 270.0 201306 37.8 34.1 375 469.8 0.52 20.0 69.1 4.94 14.9

Venkys (India) 0.5 443.5 416.4 621.5 390.0 201303 10.6 7.6 50 315.1 0.78 -77.4 359.3 1.23 36.2

Vesuvius India 0.35 345.6 701.6 387.7 311.3 201212 25.5 17.4 45 0 0 28.8 169.1 2.04 10.5

BV: Book value. Consolidated financials considered wherever available. CMP (current market price) is closing as on 1 October 2013. TTM PAT: Trailing 12-month profit after tax is for the period ended 30 June 2013.Change in TTM PAT (%): TTM PAT is for period ended 30 June 2013 over the period ended 30 June 2012. P/BV: Price to book value. Source: Capitaline Databases

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1 5Oct 14 – 27, 2013 CAPITAL MARKET

InFocus

Managerial remuneration

Fat catsMany companies reporting poor financials are rewarding their

top brass with hefty compensation

Equity is a risk capital. However, this defi-

nition seems to be restricted only to the

minority shareholders in case of a few com-

panies. The market is abuzz about compa-nies reporting poor financials on one hand

but rewarding their top brass with hefty re-

muneration on the other. Worse, there are

companies paying excess remuneration

compared with what is prescribed in the

Companies Act, 1956.

Remuneration payable to top managers

is structured in a way to encourage perfor-

mance. This is one way to create a win-win

situation for the management and the share-

holders as well. Higher the profit, higher

would be the payout to the top manage-

ment as remuneration is linked with profit.

However, there is an issue in this arrange-

ment. This could result in the management

pursuing aggressive accounting policies to

prop up profit and, in turn, earn higher remu-

neration. Indeed, this was one of the key rea-

sons that resulted in debacle of US invest-

ment bank Lehman Brothers. Anyway sky-

high bonuses have always made headlines and

remained an issue on Wall Street. Even US

president Barack Obama has lost the battle

against Wall Street veterans on this issue.

InFocus

Hefty remuneration to top managers

when a company is struggling to survive is

ridiculous. Why should companies incur-

ring massive losses, not paying dividends,accumulating heavy debt, and whose share-

holders are unable to even recover book

value (BV) if the firm goes for liquidation

pay very high remuneration to their top

managers when the stock is

underperforming? There has to be a link

between performance and remuneration.

The responsibility of underperformance

primarily lies with the top management and

the controlling shareholders.

Broadly, two sections of the Compa-

nies Act, 1956, are applicable to managerial

remuneration. These include Section 198

(overall maximum managerial remuneration

and managerial remuneration in case of ab-

sence or inadequacy of profits) and Section

309 (remuneration of directors).

According to Section 198, the total

managerial remuneration payable by a pub-

lic or a private company that’s a subsid-

iary of a public company to its directors

and its manager in any financial year should

not exceed 11% of the net profit for that

financial year. The net profit should be

computed in the manner laid down in the

Section 349. Within the limits of the maxi-

mum remuneration, a company can pay a

monthly remuneration to its managing or

wholetime director.

If a company has no profit or its

profit is inadequate, it is not supposed

to pay to its directors, including any

managing or wholetime director or man-

ager, by way of remuneration. However,

in case of losses or inadequate profit, a

firm can pay remuneration in excess of limit specified with the approval of the

Central government. The new Companies

Act 2013, retains this provision.

There are a few safeguards against ex-

cessive remuneration. Approval of the share-

holders is required in certain instances. How-

ever, this is a mere formality as only a hand-

ful of companies are professionally man-

aged and most are driven by controlling share-

holders or promoters.

The second safeguard is that of ap-

proval of the Central government. But

this is also ineffective as companies gen-

erally manage to get the government to

stamp on excess remuneration. Indeed, if

the Central government rejects certain

cases of excess remuneration, companies

are known to have re-approached the gov-

ernment for reconsideration.

The executive chairman and vice chair-

man and managing director (MD) of real es-

tate company Housing Development &

Infrastructure (HDIL) did not take any

remuneration in the quarter ended 30 June

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1 6 Oct 14 – 27, 2013 CAPITAL MARKET

InFocus

2013. These two did not take any remu-

neration in the fiscal ended March 2013 (FY

2013) as well and were paid remuneration

of Rs 1.5 crore in FY 2012. A commission of

Rs 50 lakh and sittings fees of Rs 8.6 lakh

was paid to the executive chairman and vicechairman and MD in FY 2013. The stock is

available at Rs 36.6 against its BV per share

of Rs 247.8. HDIL is reeling under huge debt

of Rs 4018.8 crore, with debt-to-equity ra-

tio of 0.40 times.

IVRCL is another firm that is available

at fraction of its BV, with price to BV ratio

of 0.13. Due to inadequate profit, the com-

pany paid managerial remuneration aggre-

gating to Rs 57.3 lakh to executive directors

in the June 2013 quarter. This was in excess

of the prescribed limits and is subject to

approval from the Central government.

Pending approval from the government,the excess amount of Rs 3 crore, including

Rs 2.6 crore relating to the previous peri-

ods, was accounted as ‘Dues from directors’.

IVRCL reported losses in the last two fi-

nancial years and has accumulated heavy

debt. The debt-to-equity ratio stood at 2.2

end FY 2013.

The remuneration paid by Mukta Arts

to its MD for FY 2013 and from FY 2006 to

FY 2012 was in excess of the limits prescribed

under Schedule XIII to the Companies Act,

1956. The company made applications to

the Central government seeking post-facto

approval for earlier years, which is awaited.

The company is going to seek the Central

government’s approval in FY 2013.

Mukta Arts had received approval for

part of the excess remuneration paid In FY

2012. The company had made applications

requesting reconsideration and approval for

the balance excess remuneration as well. Pend-

ing final communication from the government

and application for FY 2013, no adjustment

has been made in the financial results. The

auditors continue to modify their report on

this matter. The stock is trading close to its

five-year low reported in July 2012.

Ramkrishna Forgings paid managerial

remuneration of Rs 3.4 crore in FY 2013. Of this, Rs 1.2 crore was in excess of the limits

as laid down in Section 309 (3) read with the

Schedule XIII of the Companies Act, 1956.

The company has sought approval of the

Central government for the excess remunera-

tion. The approval is awaited. The stock is

available at 40% discount to its BV.

Aptech has approached the Central gov-

ernment seeking approval for remuneration

paid to the MD in excess of limits aggregat-

ing to Rs 25 lakh for FY 2011 and Rs 67.5lakh for FY 2012. Government nod is

awaited. For excess remuneration of Rs 54.9

lakh paid to the MD for FY 2013, the com-

pany will be applying to the Central

government’s approval in due course. It has

reported wild swings in the bottom line over

the last one decade.

Managerial remuneration of Rs 1.3 crore

in the earlier year and Rs 27 lakh in the quar-

ter ended June 2013 paid by Kanoria

Chemicals & Industries is subject to ap-

proval of the Central government. Aimco

Pesticides’s managerial remuneration of Rs

77.4 lakh paid in the earlier years to the

directors including the ex-director is subject

to approval of the Central government.

Post shareholders’ approval, Seamec

sought approval of the Central government

for payment of excess remuneration of Rs 1

crore to MD for FY 2011 due to absence of

profit. The government had sanctioned Rs76.2 lakh. It has made representation for

review of partial sanction and a decision is

awaited. From a five-year high of Rs 254.7,

the stock has declined to Rs 42, a discount

of 70% to its BV of Rs 139.7.

Jyothy Laboratories’s employee ben-

efit expenses for FY 2013 included Rs 11.1

crore paid or payable in the year towards

remuneration to its wholetime directors. The

maximum remuneration payable under the

Companies Act, 1956, is Rs 1.9 crore. The

company computed the maximum remu-

neration payable as Rs 10.2 crore based on

the legal advice received by it. It has filed an

application with the Union government and

is in the process of obtaining shareholders’

approval for remuneration payable to

wholetime directors.

As the approval is pending, the excess

remuneration paid to the directors is held

in the trust by the directors. The amount

of remuneration as computed by Jyothy

is significant considering dividend of

Rs 41.5 crore paid in FY 2013 and Rs 20.2

crore in FY 2012.

Considering the absence of profit in FY

2013, Astrazeneca Pharma India sought

approval of shareholders by a special reso-

lution for remuneration aggregating to Rs 2.3crore for former MD Anandh Balasundram,

former wholetime director Ruby Lau, and

wholetime director Robert Ian Haxton for

FY 2013. The company reported loss of Rs

89.5 crore in FY 2013.

Bombay Burmah Trading Corporation

in FY 2013 paid remuneration to one of the

MDs in excess of the limits prescribed under

Companies Act, 1956. The excess remunera-

Executive Chairman and MD of HDIL did not take any remuneration in the June 2013 quarter

Tough job

IVRCL, available at P/BV ratio of 0.13,

paid managerial remuneration ofRs 57.3 lakh to EDs in the June 2013quarter due to inadequate profit

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InFocus

tion has been approved by the board of di-

rectors and the remuneration committee. The

application has been submitted to the Cen-

tral government for approval of the excess

remuneration of Rs 79 lakh. The approval is

awaited. The auditors have drawn attentionto this matter in their report for FY 2013.

Bharat Gear’s employee benefits ex-

pense included provision made on the basis

of shareholders’ approval for excess remu-

neration payable to the joint JMD. The

company has applied to the Central govern-

ment for requisite approval.

Hathway Cable & Datacom received

approval from the Central government for

remuneration paid to ex-MD in the June

2013 quarter. As per the approval, the com-

pany is required to recover Rs 3.8 lakh to-

wards sitting fees paid to him. This token-

ism may or may not help.Arshiya International is in the pro-

cess of making an application to the gov-

ernment for approval of the payment of

minimum remuneration as approved by the

shareholders at the annual general meeting

held in September 2012 in the years of loss

or inadequacy of profit to the chairman and

MD (CMD). Provision for the June 2013

quarter was made at 50% of minimum re-

muneration approved by the shareholders.

This was agreed upon by the CMD at the

meeting of the board of directors held in

January 2013.

However, considering the financial po-

sition of Arshiya, the CMD has not drawn

any remuneration since 1 April 2013. The

company is struggling with high debt, with

a debt-to-equity ratio of 2.8. The stock has

plunged from a five-year high of Rs 363.4 to

the present level of Rs 12.

Andhra Pradesh Paper Mills accrued

Rs 4.1 crore towards managerial remunera-

tion paid to the erstwhile directors in the

period ended 31 December 2011. This was

in excess by Rs 1.9 crore of the maximum

limits specified in Schedule XIII to the Com-

panies Act, 1956. At the annual general meet-

ing held in March 2012, the shareholders

had approved the remuneration. The com-pany approached the Central government

in April 2012 and received approval for re-

muneration paid to certain directors. It is

awaiting the approval for balance remunera-

tion of Rs 70 lakh to a director.

The auditors of New Delhi Televi-

sion (NDTV) qualified the books of ac-

counts for FY 2013 on remuneration of

Rs 1.6 crore paid for FY 2013 and for the

Jyothy Laboratories’s remuneration to its wholetime directors was Rs 11.1 crore in FY 2013

previous years to the directors of its sub-

sidiaries. The situation of excess remunera-tion emerged due to inadequacy of profit.

The respective subsidiaries have initiated

the process of obtaining the necessary

approvals from the Central government.

Further, the standalone and consolidated

financial results for FY 2013 included re-

muneration amounting to Rs 28.8 lakh and

Rs 38.1 lakh, respectively, paid to the di-

rectors. These exceeded the limits due to

inadequacy of profit.

Remuneration paid by NDTV

amounting to Rs 24.5 lakh accounted for

in the consolidated accounts was in ex-

cess for the quarter ended 30 June 2013.

The concerned subsidiaries are required

to obtain approval from the Central gov-

ernment. The auditors have qualified this

matter in their review report on the con-

solidated results of the quarter. Also, re-

muneration amounting to Rs 5.1 lakh and

Rs 9.2 lakh accounted for in thestandalone and consolidated accounts, re-

spectively, in the June 2013 quarter is

subject to the shareholders’ approval. The

company reported a turnaround, with

profit of Rs 1.9 crore in FY 2013 com-

pared with loss of Rs 87.3 crore in FY

2012 and Rs 173.9 crore in FY 2011.

The appointment and remuneration of

Rs 2.8 crore by erstwhile Mafatlal Denim

(MDL) to its managerial personnel is sub-

ject to the approval of the government. It

was a promoter group company now amal-

gamated with Mafatlal Industries. MDL

filed an application for reconsideration when

the default to the secured lender no longer

existed. The company in June 2013 received

approval from the Central government for

payment of remuneration and, thus, resolv-

ing the matter.

Conclusion

The capital market regulatory, Securities and

Exchange Board of India (Sebi), is planning

to come out with stringent norms to control

the menace of fat pays to top managers.

The market needs to wait and watch what

its solution is for this issue.

This problem can be tackled by the mi-

nority shareholders, provided institutionalinvestors take interest. Even media atten-

tion can deter companies from writing out

hefty cheques to its non-performing top

brass. Sebi is also making efforts to push

institutional investors like mutual funds to

take an active part in the decision-making

process. Are institutional shareholders lis-

tening and ready to stand up?

— S Khedekar

Chilled out

Due to no profit in FY 2013, Astrazeneca

Pharma India sought shareholders’ nodfor Rs 2.3-crore package to former MDand director and current director

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InFocus

Gujarat NRE Coke

Crushed to bitsAfter the trashing of accounts of the Australian subsidiary,

only a white knight can be a saviour

Small- and mid-cap companies continue to

struggle in the trading ring despite the S&P

BSE Sensex remaining firm at around the

20,000 level. Company-specific reasons likedebt or corporate governance issues are drag-

ging these two categories of stocks. Many

of them are available at way below their book

values (BVs).

Why would a stock trade at heavy dis-

count to its BV unless there are issues of

serious magnitude? Gujarat NRE Coke is

one such small-cap stock, available at 50%

discount to its BV of Rs 26.3 per share. The

discounting is not without reasons. There

are several uncertainties pertaining to its

Australian operations, which is reflecting in

the stock market performance. From a five-

year high of Rs 91.5, the scrip has nosedived

to present level of Rs 13, a massive wealth

erosion of 86%.

Gujarat NRE Coke is India’s largest in-

dependent manufacturer of metallurgical

coke. It derives 87% of its standalone rev-

enue from coking coal and coke segment.

The remaining 13% is contributed by the

steel segment. Also, it generates power

through wind turbines.

The statutory auditors’ report of the

Australia-based strategically-important sub-

sidiary, Gujarat NRE Coking Coal

(GNCCL), explains the bear attack on the

counter. Apart from two Indian subsidiar-ies, Gujarat NRE has nine Australian sub-

sidiaries including sub-subsidiaries. One of

these is GNCCL, which owns and operates

two hard coking coal mines in the Illawarra

region of New South Wales, Australia.

While auditing the consolidated ac-

counts, the statutory auditors of Gujarat

NRE have relied on the unaudited financial

statements of all the Australian subsidiar-

ies, whose financial statements reflected to-

tal assets of Rs 8532 crore and total revenueof Rs 1395 crore on 31 March 2013.

To put it in simple words, the consoli-

dated accounts of Gujarat NRE were pre-

pared based on the available management-

approved financial statements of the Aus-

tralian subsidiaries on 31 March 2013.

According to the auditors of Gujarat

NRE, the unaudited financial statements have

been approved by the management commit-

tee of the respective subsidiaries. The audi-

tors’ report on consolidated accounts of

Gujarat NRE was signed on 30 May 2013.

GNCCL is listed on the Australian Stock

Exchange (ASX). The consolidated financialsof GNCCL were filed with ASX on 30 May

2013. Subsequently, Grant Thornton Audit

Pty Ltd, the statutory auditors of GNCCL,

came out with its audit report, literally trash-

ing the books of accounts. “We have been

unable to obtain sufficient appropriate au-

dit evidence on the books and records and

the basis of accounting of the consolidated

entity,” says the audit report, signed by

Grant Thornton on 15 August 2013. The

auditors have raised concerns over multiple

issues including valuation and impairment

of assets, going-concern assumption, de-

ferred tax assets, recoverability of trade re-ceivable, and completeness of contingent li-

abilities and subsequent events disclosures.

“We were not provided with sufficient

appropriate audit evidence, or time, to

finalise procedures pertaining to various dis-

closures and transactions contained within

the financial report,” say the auditors.

On impairment of assets, the auditors

have commented that GNCCL obtained an

independent valuation of its mining assets

and mining licences. However, this valua-

tion is based on certain assumptions, which

may no longer be valid. The directors have

not obtained an updated independent valua-

tion to determine the extent of the impair-

ment to the carrying value of the mining as-

sets and mining leases.

The accounts of GNCCL are prepared

on a going-concern basis. However, the au-

ditors are doubtful whether the firm will able

to pay debts on time. The consolidated en-

tity reported a loss before tax of AU$ 11.21

crore including an impairment charge of

AU$8.37 crore in the fiscal ended March

Fall from grace

Gujarat NRE Coke is available at 50%discount to its BV of Rs 26.3 per share.

From a five-year high of Rs 91.5, thescrip has nosedived 86%

08Oct2012

Jan2013

08Oct

2013

60

80

100

120

140

Gujarat NRE Coke

BSE Sensex

Apr 2013

Jul2013

Base=100 as on 08 Oct 2012FV of Gujarat NRE Coke Rs 10.

Relative performance ofGujarat NRE Coke v BSE Sensex

7/27/2019 84679812_1.pdf



InFocus

2013 (FY 2013). Further, there is working

capital deficiency of AU$40.79 crore.

GNCCL is in breach of loan covenants.

It has significant creditors in arrears. As per

the auditors, the company has not able to

provide evidence to support the full amountof the replacement loan facility, which is

required to pay existing facilities. Though it

is looking at re-negotiating financing and rais-

ing money through additional equity fund-

ing, the auditors have significant doubt about

its ability to continue as a going concern for

the next one year.

GNCCL has recognised deferred tax as-

sets of AU$ 8.73 crore, which is included in

non-current assets. The company failed to

provide convincing evidence to the auditors

that sufficient taxable profit will be avail-

able in future to recover these losses. As a

matter of prudence and conservative ac-counting principles, the firm should not have

recognised the deferred tax assets.

The trade receivables include AU$2.77

crore due from GNCCL’s ultimate parent

company, that is, Gujarat NRE. The audi-

tors are not sure whether the company will

able to recover this amount.

Grant Thornton has questioned the

completeness of contingent liabilities and

subsequent events disclosures. “We were

unable to obtain sufficient appropriate au-

dit evidence to determine the completeness

of the contingent liabilities and subsequent

events disclosures,” reads the audit report.

Not expressing opinion on the financial

statement is a very rare development. Ba-

sically, investors are not supposed to rely

on the financial statements of

GNCCL.

On ASX, GNCCL has lost over

90% to the present level of AU$

0.08 from its five-year high of AU$

0.89 reported in January 2011. It is

quite evident that the market is far

from enthusiastic about the future

prospects of GNCCL.

The auditors of both these com-

panies — Gujarat NRE and GNCCL

— seemed to be lax in their fidu-ciary duties. How can the auditors

of Gujarat NRE rely on management

accounts considering the fact that

the Australian subsidiaries are way

too significant for the parent com-

pany? The Australian subsidiaries

account for 90% of Gujarat NRE’s

consolidated total assets and 65%

of consolidated total turnover.

The auditors of Gujarat NRE may have

considered the fact that Grant Thornton hadissued a clean audit report in FY 2012, indi-

cating all was well with the company earlier.

Last year, Grant Thornton had released its

report on 26 May 2012 for FY 2012. This

year, it was in mid August 2013.

Gujarat NRE had cancelled dividend de-

clared for FY 2012. Its shareholders ap-

proved the move through a special resolu-

tion during its annual general meeting held

on 30 September 2013. Apart from the fact

that dividend was announced out of reserves

and challenging market conditions, its bank-

ers were not pleased with the idea of paying

dividend. Is it not the duty of auditors to

exercise extra caution in such circumstances

while auditing the books of accounts?

With its harsh comments and observa-

tions, Grant Thornton has actually thrown

the books of accounts of GNCCL in the

dustbin. Considering its earlier report for

FY 2012 was absolutely clean without a

single red flag, how come the auditors

tumbled upon so many issues that they haverefused to provide an opinion? Grant

Thornton doubts whether the company can

survive in the next 12 months or not. These

comments must be a rude shock to the share-

holders. Why were the auditors not able to

spot a single problem with the books of ac-

counts of GNCCL earlier?

For investors, the pertinent question is

whether to refer to the auditors’ report while

evaluating companies for investment. The

whistleblower’s job executed by Grant

Thornton is too late for the shareholders to

salvage their investment. GNCCL is a penny

stock trading at AU$ 0.08.There is interesting comment in the an-

nual report (AR) of Gujarat NRE for FY

2013. As per the notes in the AR, GNCCL

has invested in mutual funds anticipating

better return. However, the value of these

investments have significantly declined due

to economic and financial crisis and im-

paired accordingly.

In May 2012, Jindal Steel & Power

(JSP) came on board as a strategic part-

ner. It invested in GNCCL at AU$ 0.25

per share, representing premium of 48%

to its then prevailing market price of

AUS$ 0.17. Simultaneously, JSR entered

into offtake agreement spanning over 10

years. It will source total of five million

tonnes at a price linked to a benchmark.

The company held around

20.77% equity stake in GNCCL

as on 12 August 2013.

In January 2013, there was talks

in the market that JSP could acquire

controlling stake in GNCCL. It could

emerge as white knight for Gujarat

NRE. Probably, this is one and only

hope for the company and its share-

holders to emerge from doldrums.

But will JSP be interested in

GNCCL as its turnaround could bepainful exercise and even futile?

GNCCL was hit with a workers’

strike over non-payment of salaries.

If the Australian assets go out

of its hand, the business left with

Gujarat NRE will not be significant

enough. It will be like starting from

scratch for the company.

— S Khedekar

GNCCL is down 90% from five-year high

Heavy load to bear

Gujarat NRE Coke has a debt-to-equity ratio of 1.7 times,with a marginal dip in net worth

YEAR END 201303 201203 201103 201003 200903

Net Worth (Rs cr) 1639.2 1663.9 1710.2 1449.2 1257.8

Sales (Rs cr) 2136.3 1398.3 1813.7 1439.9 1522.6

Other Income (Rs cr) 14.5 11.3 186.4 210.8 50.9

PAT (Rs cr) 62.4 -53.7 77.8 21.5 276.2

Cash Profit (Rs cr) 306.4 51.9 326.4 158.4 151.1

Book Value (Rs) 26.3 28.8 30.6 29.0 26.6

Dividend (%) 0 0 10 10 10

Debt-Equity Ratio 1.7 1.18 1.05 1.0 0.79

Interest Cover 0.97 1.19 1.5 1.2 3.4

PBIDTM (%) 31.2 32.8 30.8 24.3 32.4

ROCE (%) 0 0 7.3 6.2 16.9

RONW (%) 0 0 4.4 0.45 17.6

Consolidated financials.

Source: Capitaline Databases

7/27/2019 84679812_1.pdf


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InFocus

Jain Irrigation Systems

Setting price benchmarksImprovement in receivables, debt reduction and appreciation inthe rupee are crucial factors for the stock to bounce back

Jain Irrigation Systems has reported a massive

76% plunge from the five-year high of Rs

256. At Rs 62, the stock is at a striking distance

of its consolidated book value (BV) of Rs

47.3, which could be a crucial price benchmark

going forward. Is the worst over for the

counter? There is no straight answer to this

question. There are a few ‘ifs’ and ‘buts’.

There have been delays in repayment

of principal and interest on loans availed

from banks and financial institutions in the

fiscal ended March 2013 (FY 2013). There

were no amounts overdue on 31 March

2013, reads the annexure to the auditors’

report for FY 2013. Is this a red flag for

investors or a mere one-time and rare

instance of delay?

Consolidated debt increased three times

to Rs 3825 crore over the last five years to FY

2013. Standalone debt rose 3.2 times to Rs

2862.7. Consolidated debt-to-equity ratio

stood at 1.9 and standalone 1.3. The heftydebt is one part of the story. The other part is

that a significant portion of the standalone debt

is in foreign currency: 50% of total debt on 30

June 2013 and 46% of total debt on 31 March

2013. Exports were Rs 611.3 crore in FY 2013.

These are expected to provide cushion against

volatility in foreign currency market.

Consolidated foreign exchange loss was

Rs 131.5 crore in the quarter ended 30 June

2013 compared with Rs 114.2 crore in the

June 2012 quarter. This loss was treated as

‘Exceptional item’ as against the earlier policy

of adjusting it to ‘Finance cost’. In FY 2013,

foreign exchange loss was Rs 124.5 crore and

pertained to foreign exchange loans. Foreign

exchange debt is mainly in the form of foreign

currency convertible bonds (FCCBs), externalcommercial borrowings (ECBs) and foreign

currency term loans from institutions such

as Export-Import Bank of India.

The strategy of raising funds at lower

rates from overseas markets seems to have

cost dearly. Funds raised through ECBs are

with interest rate of 3.83%, while secured

loans from International Finance Corporation

(IFC), Washington, bears interest rate of 4.4%.

The decline in the value of the rupee against

the US dollar has turned foreign loans a costlieraffair. Thus, the movement in the foreign

currency market is of importance in future.

The rupee declined a little over 5% as

against the US dollar in the quarter ended 30

September 2013. It reported an all-time low

of 68.36. The Indian currency plunged a huge

9.8% in the first quarter ended 30 June 2013.

Over the short to medium term, it is likely

to remain volatile, keeping the shareholders

on the edge.

Finance cost was Rs 516.5 crore in FY

2013 as against Rs 476.8 crore in FY 2012.

This is a massive amount considering the

fact operating profit was Rs 698.6 crore inFY 2013 and Rs 849.9 crore FY 2012. The

interest burden is unlikely come down

substantially in the immediate future, though

efforts are on to lighten the balance sheet.

The effective interest rate on domestic

loans based on weighted cost was 11.26% in

the fourth quarter ended 31 March 2013. The

interest rate is unlikely to decline from this

level as borrowing from banks for working

capital requirements is at 13-14%. The rising

interest rate scenario prevailing in the economy

is going to adversely impact borrowing cost.

Long-term funds were raised to de-

leverage the balance sheet, re-finance short-

term loans, to lower cost of funds, and explore

opportunities in overseas markets in the food

and micro irrigation businesses. In October

2012, Rs 397.8 crore were raised by allotting

over 4.97 crore equity shares (face value Rs

2) at a premium of Rs 78 per share to Mount

Kellett and IFC on preferential basis. Mount

Kellett is a US-based investment firm focused

on global distressed, special situations and

opportunistic investing, with US$ 7 billion

under management.

Also, US$ 40 million were mopped up

through the issue of FCCBs and US$ 75

million through ECBs. In FY 2013, Rs 16.1

crore were raised through the issue of convertible equity warrant. These funds have

been collected to meet the long-term

requirement, repayment of short-term loans,

capital expenditure, and investment in

overseas subsidiaries. In the current fiscal

so far, US$ 10 million were gained through

FCCBs and US$ 65 million ECBs.

Impressed with the funding-raising efforts

in FY 2013, Care upgraded the credit rating

Weighed down

Over the last five years to FY 2013,

Jain Irrigation Systems’s standalonedebt rose 3.2 times, with 50% portionin foreign currency on 30 June 2013

* 7 October 2013

Base = 100 as on 1 October 2012. FV: Rs 2.

7/27/2019 84679812_1.pdf



InFocus

assigned to bank facilities and instruments dueto easing of liquidity pressure. For instance,

bank credit lines have been fully utilised,

observes the rating agency’s report.

According to Care, dependence on the

agriculture sector and government policies,

volatility in raw material prices, long

working capital cycles and high interest cost

are among the several negatives. However,

the rating agency have taken into account

the strong business profile and experience

of the promoters.

Established in 1986, Jain Irrigation is a

pioneer in micro irrigation systems (MIS)

in the country. The second largest MISplayer in the world is also the largest maker

of polyethylene pipes and one of three

largest manufacturers of polyvinyl chloride

pipes in the domestic market. Other agri-

businesses include plastic sheets,

dehydrated onions and vegetables,

processed fruits, tissue culture and solar

systems solar systems, comprise water

heating systems, panels, and water pumps.

Apart from 30 manufacturing plants,

the wide distribution network consists

of 5,485 distributors and 116 offices and

warehouses. Since 2006, 19 acquisitions

including plants were made. Of these,nine were overseas. This also explains

utilisation of funds raised by the

company over the last few years.

MIS is the largest revenue

contributor, with share of 45.5% in FY

2013 (54.2% in FY 2012), followed by

piping products 22.2% (20%), food

products 20.4% (16.9%), and solar

products 4.4% (3.4%). The business

model is in the process of changing, with

focus shifting from on MIS to otherbusinesses. That’s the reason the revenue

share of MIS witnessed a sharp reduction

of 870 basis points in FY 2013. Revenue

from MIS declined 14.5% in FY 2013.

Cash-flow management has emerged as

a major challenge. This also reflects the delay

in repayment of principal and interest. One

of the key reasons is the high receivables.

MIS is subsidy-driven business and delay

in subsidy on irrigation products is a normal

scenario. No surprise, consolidated net sales

In-house solution

Jain Irrigation Systems’s NBFC could be the role model to createfinancial liquidity in the farming sector

To tackle the issue of high receivablesresulting in severe pressure on the

balance sheet, the Jain Irrigation Systems

group has formed non-bank financial

company, Sustainable Agro Commercial

Finance (SAFL), which has raised Rs 60

crore in equity. Moreover, it is expecting

contribution from IFC, part of World

Bank, which intends to hold 10% equity

stake for Rs 6.9 crore in the company.

SAFL has started operations in

Maharashtra, with 22 branches divided

into four zones. This entity will finance

micro irrigation and other products for

tenure up to three years. It had sanctionedloans of Rs 36.5 crore and disbursed Rs

27.5 crore to 3,250 farmers till the close of

the fiscal ended March 2013 (FY 2013).

Overall disbursement is expected to

be around Rs 100-Rs 150 crore in FY

2014. Further, SAFL is likely to cover

25,000-30,000 farmers till the end of the

current fiscal.

SAFL could be the role model to create

financial liquidity in the farming sector. Jain

held 48.99% equity stake in SAFL on 31

March 2013. Going forward, it could spin

a surprise for its investors.

inched up 2.3%, while profit crashed 98%

in FY 2013. Of late, however, receivables

have shown favorable movement.

However, the receivable position is

improving. Consolidated trade receivables

declined Rs 316.5 crore in FY 2013 over FY

2012. Receivables are expected to come down

further in FY 2014. Various ways are being

explored to lower receivables (see box: In-

house solution).

The MIS business is back on growth

track, growing 13% in the first quarter ended

30 June 2013 over a year ago. Exports of

MIS rose 238% in the first quarter. Orders

on hand were Rs 1200 crore end June 2013

across all the divisions. According to the

annual report for FY 2013, the irrigation

business will be moving to the positive

revenue growth territory in FY 2014.

There is clear understanding of thestrategy going forward. There will be no

compromise on receivables and cash flows

even if it comes at the cost of growth. Besides,

reducing inventory level is another priority.

The working-capital cycle measured by

number of days’ sales outstanding (DSO)

stood at 170 days in FY 2013 compared

with 176 days in FY 2012, reflecting a

marginal improvement. However, this is still

high compared with 157 days in FY 2009

and 145 days in FY 2010. DSO is defined

as inventory plus receivables less

accounts payable.

There will be strict vigil on capitalexpenditure. As matter of fact, the capex

target has been reduced to Rs 130 crore

from Rs 180 crore in the current financial

year. The plan is to pare debt by Rs 500

crore end of FY 2014. Likewise, wind

assets worth Rs 64.5 crore are to be

divested. The sale proceeds will be

utilised to repay debt.

Outlook

The sharp correction in the stock could

be tempting for investors. Anyways,

Jain is one of the best plays on the rural

market. However, the company has along way to recovery. There are two

price benchmarks that are available over

the short to medium term. First, the two

tranches of FCCBs – one issued in FY

2013 and another in FY 2014 –have a

conversion price of Rs 115. Second, the

preferential equity shares were allotted

at Rs 80 per share including premium

of Rs 78 per share.

— S Khedekar

Financial profile

Jain Irrigation’s MIS is the largest revenue contributor,followed by piping, food, and solar productsYEAR END 201303 201203 201103 201003 200903

Net Worth (Rs cr) 2151.7 1718.9 1521.0 1216.7 861.2

Capital Employed (Rs cr) 5976.9 5567.2 4557.7 3718.6 2748.7

Gross Block (Rs cr) 3773.8 3352.8 2846.7 2326.6 1917.0

Sales (Rs cr) 5362.5 5241.2 4479.8 3652.7 3057.6

Other Income (Rs cr) 66.8 34.5 110.6 54.8 54.4

PBIDT (Rs c r) 698.7 849.9 858.5 690.4 452.0

PAT (Rs cr) 8.0 222.3 281.0 2 50.9 1 30.2

Cash Profit (Rs cr) 172.6 367.6 402.9 349.6 197.8

Book Value (Rs) 47.3 42.4 39.4 159.7 112.8

Dividend (%) 25.0 50.0 50.0 45.0 25.0

Debt-Equity Ratio (times) 1.92 1.99 1.88 1.90 1.62

Debtors Turnover 2.59 2.69 3.38 3.96 4.13

Interest Cover 1.00 1.48 2.25 2.68 2.08

PBIDTM (%) 12.50 15.94 18.78 18.56 14.38

PAT Margin (%) 0.17 4.29 6.30 6.69 4.23

ROCE (%) 8.86 13.81 17.68 18.10 15.35

RONW (%) 0.47 13.40 20.01 22.55 14.67

Consolidated financials.

Source: Capitaline Databases

7/27/2019 84679812_1.pdf



InFocus

creased to 1.68% in FY 2013 from 1.28%

in FY 2012. Public sector banks’ net NPA

ratio rose to 2.02% from 1.53. Private sec-

tor banks are relatively better with lowernet NPA of 0.52% in FY 2013 compared

with 0.46% in FY 2012. This is one of rea-

sons public sector banks such as State Bank

of India have reported correction over the

last four months. Certainly, this problem

is acute for PSU banks.

As there are companies saddled with

high debt, there are companies that have

kept away from debt with a zero debt or

near-zero debt balance sheets. This pru-

dent strategy stands out during periods of

business slowdown, when debt-laden

firms are dumped by investors. However,

this prudence could be termed conserva-tive in the heydays.

In short, leverage has emerged an impor-

tant parameter that the market focuses on

while exploring stocks. In this context, it is

essential to understand companies’ policies

and strategies on debt.

Shree Renuka Sugars’s debt-to-eq-

uity ratio increased to 5.5 times end of March

2013 from 0.91 times end September 2009.

The significant jump in debt was primarily

owing to the leveraged buyout of assets in

Brazil in 2010. Due to these acquisitions,

the company has significant presence in cen-

tre-south Brazil through Renuka Vale do Ivai

(100% owned), and Renuka do Brasil (59.4%

owned), with combined crushing capacity

of 13.6 million tones per annum (mtpa).

Shree Renuka’s profile improved with

this acquisitions. Globally, it is one of the

largest sugar producers, with total crushing

capacity of 22 mtpa. However, heavy debt

and swings in operating performance hasemerged as key concerns.

Due to worries over high leverage, the

Shree Renuka stock has collapsed 81% to

Rs 20 from a three-year high of Rs 106 in

November 2010. Presently, the stock is

available below its book value (BV) of Rs

22. This is rare considering the fact that the

company has generally commanded pre-

mium to its BV.

Shree Renuka is conscious about reduc-

ing its debt level. The company managed to

pare down its debt by Rs 1681 crore to Rs

8477 crore in FY 2013. It aims for signifi-

cant deleveraging in the next two years onhigher capacity utilisation across the group

and select strategic initiatives. However, the

company has not elaborated on strategic ini-

tiatives in the annual report for FY 2013.

Mint in September 2013 reported that

Shree Renuka is in talks with firms based

in the UK and Germany to offload its co-

generation asset in Brazil. The value of

these assets is estimated to be around Rs

2000 crore. The company has not issued

Debt heavy, debt light

Changing profileCompanies with zero debt or near-zero debt balance sheets

stand out during periods of business slowdown

External factors such as domestic and global

economic slowdown, policy uncertainty, and

high inflation and interest rates are crucial

reasons behind the disappointing perfor-mance of companies struggling on the trad-

ing floor. However, there are also company-

specific issues that have resulted in erosion

in the shareholders’ wealth. These are heavy

debt and poor corporate governance.

The number of companies referred to

the corporate debt restructuring (CDR) cell

has increased manifold during the last few

years. As per media reports, the CDR refer-

rals rose 40% to touch Rs 26386 crore in the

quarter ended 30 September 2013 compared

with Rs 18907 crore in the corresponding

period of the previous year. This reflects

the fact that debt remains the key concernfor several companies. Moreover, with the

gross domestic product hitting a decade low

in the fiscal ended March 2013 (FY 2013)

and no revival in economic fortunes in sight

in immediate future, financial stress is likely

to increase in future.

On the other hand, banks are staring at

deterioration in the asset quality and in-

crease in non-performing assets (NPAs).

The net NPA ratio of commercial banks in-

7/27/2019 84679812_1.pdf



InFocus

any clarification on this report. In May

2013, the company denied a report about

its Brazilian subsidiary, Renuka do Brasil,

raising around US$ 250 to US$ 350 mil-

lion through bond sale.

As against Shree Renuka, GlenmarkPharmaceuticals has managed to reduce

its debt over the last three years. The

company had debt of Rs 367.8 crore end

FY 2013. This is significantly lower com-

pared with Rs 1869.4 crore on 31 March

2010. The debt-to-equity ratio declined

from one to 0.20 in the same time. This

debt level is insignificant as Glenmark had

cash and bank balance of Rs 607 crore on

31 March 2013.

Despite reduction in the debt level,

Glenmark’s interest cost remained elevated

at Rs 160 crore in FY 2013 as against Rs

165.5 crore in FY 2010. This was primarilybecause of high component of foreign debt

and decline in the value of the Indian rupee

against the US dollar.

Indian companies have accumulated sub-

stantial foreign debt over the last one de-

cade. The low interest rates prevailing in the

western markets attracted a slew of compa-

nies to raise debt in foreign denomination.

However, volatility in the foreign exchange

markets has added to the worries of Corpo-

rate India. The recent and unprecedented

devaluation of the rupee, with the Indian

currency plunging to a historic low of 68

per US dollar, has virtually wiped out the

low interest rate advantage. Even hedging

comes with its own cost.

Tata Motors, the country’s largest com-

mercial vehicle maker, reported an impres-

sive decline in the debt-to-equity ratio, which

dropped to 1.4 times in FY 2013 from 4.8

times in FY 2010. The decline was purely

on account of the sharp rise in net worth in

the last three years. Otherwise debt had in-

creased in absolute terms to Rs 53591 crore

at the close of FY 2013 from Rs 35108 crore

end FY 2010.

The healthy jump in profitability added

to Tata Motors’s net worth, which increased

to Rs 37598 crore from Rs 8021 crore inthese three years. Profit jumped by almost

four times. No surprise, the interest outgo

increased 44% to Rs 3553 crore. Anyway

reduction in the debt-to-equity ratio is a

positive development as it reflects the

strengthening of the balance sheet.

The lesson from Tata Motors is that

investors should not only focus on debt but

also on change in the net worth level as well.

This is because interest cost may remain

static or even increase despite decline in the

debt-to-equity ratio.

In terms of deleveraging of balance sheet,

Mumbai-headquartered pharmaceutical

company Wockhardt would be an appro-

priate example. Its debt-to-equity ratio de-

clined to the present level of 1.3 from 4.9

times end FY 2010. Outstanding debt de-

clined to Rs 2070.5 crore in FY 2013 from

Rs 4017.5 crore in FY 2010. At the same

time, net worth improved from Rs 671.7

crore to Rs 2704 crore. Interest cost fell

20% in FY 2013 compared with FY 2012

due to reduction in debt in the year.

As per the annual report for FY 2013,

Wockhardt repaid loans of Rs 1521 crore

including settlement of the foreign currency

convertible bond (FCCB) loans. Also, a sub-

stantial portion of the Indian debt was re-

paid in FY 2013. The net debt-to-equity

ratio was around just 0.4 times at the close

of FY 2013, as per the company. The cash

and bank balance was at Rs 1096 crore on

31 March 2013.

As matter of fact, Wockhardt is a case

study. The stock has emerged unhurt after

plunging into red over hefty losses it re-

ported primarily on derivatives bets thatwent wrong. After reporting losses for two

financial years, the company bounced back

to profit in FY 2011.

Tata Global Beverages is another ex-

ample. What is special about the beverage

company with global ambition is the al-

most consistent decline in the debt-to-eq-

uity ratio over the last seven years. The

ratio improved to 0.21 in FY 2013 from a

seven-year high of 1.44 in FY 2007. Total

debt declined to Rs 1389 crore from Rs

4578 crore. The company is reaping rich

benefits of the reduction in debt, with its

interest cost falling by 70% to Rs 84.5 crore.

It had cash and bank balance of Rs 697.7

crore on 31 March 2013.

Taking Shree Renuka, Glenmark, Tata

Motors, Wockhardt and Tata Global Bever-

ages as lead examples, Capital Market spot-

ted two sets of companies. First, compa-

nies that have reported deterioration in the

debt profile. Second, companies that have

managed to strengthen their balance sheets

with improvement in the debt-to-equity ra-

tio. The high debt-to-equity ratio could put

severe constraints on future growth plans.

Companies with high debt-to-equity ratio

may find it difficult to raise finance from

banks and other financial institutions. Worse,

it could be difficult to raise equity as the

controlling shareholders may not get the

desired valuation.

To spot companies with drastic change

in their debt profiles, companies that are

fairly liquid and whose latest financial re-

sults are available were selected. Consoli-

dated financials were considered, wherever

available. Companies with marketcapitalisation of over Rs 100 crore were

taken into account. Companies were picked

primarily looking at the change in the debt-

to-equity ratio, net worth and absolute level

of debt. For this exercise, the last seven years

were taken into consideration. The debt-to-

equity ratio is based on the average of debt

and net worth considering figures for the

latest and previous financial years.

Glenmark Pharmaceuticals has managed to reduce its debt over the last three years

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InFocus

The lowest debt-to-equity ratio in any

of the last seven years was compared with

the debt-to-equity ratio reported in the lat-

est financial year. With this, companies with

a sharp rise in the debt-to-equity ratio were

shortlisted. As a next step, companies re-porting increase in absolute level of debt were

picked. Thus, there were 25 companies (See

table: Rise in financial stress).

Similarly, the highest debt-to-equity ra-

tio in the last seven years was compared

with the latest debt-to-equity ratio to deter-

mine companies that have managed to sig-

nificantly reduce their financial leverage.

Last, companies to have reported decline in

absolute level of debt were picked. At the

end, there were 25 firms (See table: Decline

in financial stress).

ConclusionWhile looking at the debt profile of compa-

nies, investors should glance at another set

of figures and ratios over five to 10 years to

get a holistic view. The crucial numbers to

look out for are debt, operating profit (OP),

the operating profit margin, and interest

outgo. Among ratios, debt-to-equity and in-

terest coverage are two important ones.

The ratios and figures could reveal half

the story. Cheap foreign debt has become

popular over the past one decade. How-

ever, this inexpensive foreign debt comes

with its own perils. A fluctuating rupee can

make this source of debt expensive and

endanger the balance sheet. The debt pro-

file well reveal how much debt is foreign

and how much is local. Also, proportion of

short-term debt to the overall outstanding

debt is important. Short-term debt is ex-

pensive as against long-term debt.

Last, and important, robust OP is an

equally critical attribute. OP largely depends

on the industry outlook and the position of

a company within the industry. High debt

and weakening operating performance could

be a deadly cocktail that could destroy share-

holders’ wealth. Moreover, debt could be

low but the scanty operating cash out flows

could make it mammoth.

— S Khedekar

Rise in financial stress

Companies reporting increase in the debt-to-equity ratioCOMPANY CMP MCAP 52 WEEK YEAR END TOTAL DEBT-EQTY BVPS INT. EXP OP D/E RATIO P/E P/BV

HIGH LOW DEBT RATIO (Rs) (Rs cr) (Rs cr) MAX MIN

Rs) (Rs cr) (Rs) (Rs) (Rs cr)

IFCI 22.4 3723 40.2 17.9 201203 22291 4.6 35.7 1955.6 2982.7 7.29 0 9 0.81

JSW Energy 44 7216.2 75 33.8 201303 10376.6 1.7 37.8 962.8 2810 3.18 0.52 6.5 1.16

Fortis Healthcare 98.5 4556.1 119.5 84 201303 6471.2 1.6 91.9 486.4 1473 2.63 0.58 13.4 1.04

Hindalco Industries 110.7 22844.8 1 37 83.1 201303 56906.1 1.4 168.6 2079.1 8809.8 1.69 0.63 13.1 0.65

Religare Enterprises 345.5 5167.9 3 66 250.4 201303 13364.5 3.9 208.9 1722.1 1524.6 4.15 1.33 -7.7 1.66

Pipavav Defence & Offshore 52.3 3846.7 98.4 40.7 201203 3010.1 1.4 31.8 257.7 444.6 1.6 0.52 113.2 1.93

Adani Enterprises 141.4 1 5545.7 296.9 126.1 201303 69457.5 2.9 195.1 3492.9 7 796 3 .05 1.73 16.7 0 .72

Bharti Airtel 322 128696.3 370.4 256.7 201303 7 2960.8 1.3 142.9 4947.7 25426.1 1 .32 0.33 58.4 2 .56

Larsen & Toubro 800 74020 1146.3 678.1 201303 65947.7 1.7 365.7 4610.3 13885.3 1.74 0.79 15.4 2.19

Adani Ports & SEZ 138.6 28690.9 175 117.8 201303 11585.8 2.5 35.7 541.8 2690.9 2.54 0.89 16.3 4.49

Bharat Petroleum Corporation 326.4 2 3601.3 4 49 2 56 2 01 303 33 156.9 1.9 2 32 2518 .3 8201.3 1.8 8 0.91 2 1.41

Reliance Power 67.6 18948.7 106.7 58.6 201303 27510.7 1.2 66.2 585.3 2070.1 1.18 0 18.7 1.02

Tata Power Company 7 8 18510.2 113.2 6 8.3 201303 3 7882.3 2.5 5 2 2635.5 5963.9 2.5 0.79 -53.5 1.5

Motherson Sumi Systems 2 29 13462.9 241.1 1 45 201303 4903.9 1.9 38.8 249.5 1798.2 1.88 0.65 26.4 5.91

Adani Power 32.1 9204.5 70 29.5 2 01303 41102.7 7.3 23.8 1646.4 1117.8 7.32 0.5 -3.5 2.14

Tata Motors reported an impressive decline in the debt-to-equity ratio in FY 2013

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InFocus

COMPANY CMP MCAP 52 WEEK YEAR END TOTAL DEBT-EQTY BVPS INT. EXP OP D/E RATIO P/E P/BV

HIGH LOW DEBT RATIO (Rs) (Rs cr) (Rs cr) MAX MIN

Rs) (Rs cr) (Rs) (Rs) (Rs cr)

GMR Infrastructure 22.4 8699.5 27 10.7 201303 42349.3 3.8 18.7 2099 3531.6 3.81 1.2 -60.6 1.2

Jaiprakash Associates 35.1 7777.8 106.8 28.4 201303 63111 3.8 55.7 4661.9 7023.3 3 .82 2.33 11.2 0 .63

Essar Oil 52.9 7544.8 96.2 46.1 201303 24741.9 12.9 8.1 3423.6 3539.2 12.92 2.22 -14.3 6.82

Hindustan Petroleum Corporation 1 90 .5 6 44 9. 2 3 81 .4 1 58 .5 2 01 30 3 4 57 36 .7 3. 2 3 94 .5 2 37 9.8 5 62 6. 2 3.2 1 .0 1 0 .7 0 .4 7

Tata Communications 202.5 5771.3 257.8 136.9 201303 12362.4 6.3 5 0 794.1 2390.5 6.29 0.43 -15 4.05

Videocon Industries 177.6 5661.4 246.3 163.8 201112 27283.4 2.5 23 6 1624.2 1372.4 2.49 1.05 -32.9 0.73

Jaiprakash Power Ventures 15.5 4539.2 46.9 8.6 201303 23014.9 3.3 2 2 1212.6 1996.8 3.32 0.86 1 9 0.7

CESC 339.6 4243 368 252.7 201303 9530.8 1.8 326.9 501.2 1522.4 1.8 1.03 6.8 1.04

Ashok Leyland 15.1 4004.4 28.7 11.8 201303 4355.4 1.2 11.9 376.9 1228.4 1.23 0.38 17.8 1.27

Jyothy Laboratories 169.7 2737.3 211 1 40 2 01303 625.9 0.9 36.2 68.2 91.9 0.94 0 33.4 4.69

Decline in financial stress

Companies recording fall in the debt-to-equity ratio

Glenmark Pharmaceuticals 537.2 14556.8 612 386.5 201303 367.8 0.2 102 160 1020.7 1.55 0.2 21.9 5.3

Shree Cement 4158.6 1 4488.4 5210 3412.7 201206 1704.2 0.8 1103.2 235.4 1796.2 2 .01 0.76 14.4 5.3

Britannia Industries 831.8 9969.1 864 4 00 2 01303 380 1 46.4 41.3 472.9 2.08 0.31 36 17.9

Tata Global Beverages 149.6 9251.3 181.7 122 201303 1388.7 0.2 77.1 84.4 826.3 1.44 0.18 22.7 1.9

Havells India 650.9 8124.5 817 556.8 201303 981.5 0.8 115.5 123.2 896.7 2.26 0.38 21 5.6

Wockhardt 496.3 5447.4 2166.1 344.2 201303 2070.5 1.3 219.2 215.4 2197.7 4.88 1.28 3.5 2.3

Strides Arcolab 860.8 5092.2 1224.9 552.7 201212 1594.5 1.2 342.6 193.4 1252.4 2.97 1.21 37 2.5

Max India 188.3 5007.8 266.7 150.5 201303 676.3 0.2 109.2 84.5 1212.6 2.41 0.19 39.7 1.7

MMTC 48.3 4825 776.8 37.2 201303 1679.4 1.6 14.9 250.8 151.5 3.66 0.86 -62.9 3.2

D B Corp 242 4438.3 280 196.3 201303 163 0.2 56.1 9.2 398.6 2.7 0.19 17.7 4.3

Unitech 15.8 4133.8 40.9 14.7 201303 5116.9 0.4 46.2 34.4 416.2 2.98 0.4 18.2 0.3

EIH 53.7 3066.4 83.3 43.3 201303 744 0.3 41.5 71.7 286.8 1.08 0.27 58.9 1 .3

Gujarat Mineral Development 88.9 2827 221.7 76 2 01303 0 0 79.7 0 1021.1 1.26 0 5.1 1.1

Omaxe 136.1 2361.4 171.2 134.9 201303 1082.2 0.6 107.1 126.4 258.6 2.5 0.6 22.2 1.3

Gujarat Pipavav Port 45.2 2182.7 54 41 201212 320.7 0.5 25.1 68.4 197.3 4.5 0.5 19 1.8

Fresenius Kabi 128 2025 154.2 78.5 201303 140.2 0.2 42.6 -2.6 138 2.45 0.23 28 3

Whirlpool of India 156.8 1988.7 289.5 141 201303 0 0 47.6 3 2 42.5 1.23 0 17.6 3.3

DCM Shriram Consolidated 58.1 963.1 86.4 4 9.1 201303 1556.8 1.2 90.1 154.8 520.5 2 .36 1.2 3.4 0.6

Hindustan Media Ventures 113.9 835.6 156.9 102.4 201303 3.2 0 69.3 5.3 141 1.57 0 8.8 1.6

Som Distilleries & Breweries 279.6 769.5 304 156.5 201203 11 0.2 34.1 0.1 29.2 4 .23 0.21 37.4 9.8

Fairfield Atlas 241.2 658.8 242.9 95.4 201303 36.2 0.4 42.1 2.9 55.2 19.32 0.38 19.7 5.7

New Delhi Television 85 547.7 100.9 51 201303 222 0.6 30.3 22.9 59.3 3.18 0.04 138.3 2.8

Gammon Infrastructure Projects 6.7 494.8 16.7 6.1 201303 533.5 0.6 9.7 42.5 97.3 3 .89 0.56 358.5 0.8

Force Motors 291.8 384.5 525 225 201303 68.9 0.1 875.9 8.3 97.9 4.1 0.06 21.1 0.3

Sayaji Hotels 130 227.8 139 107 201203 155.4 1.4 68.6 25.2 52.5 3.64 1.39 35.6 1.9

Consolidated financials taken into consideration wherever available. CMP: Current market price is closing as on 1 October 2013. BVPS: Book value per share.OP: Operating profit.P/E based on latest TTM (trailing twelve months). Max D/E Ratio& Min D/E Ratio: Maximum and minimum debt-to-equity ratio considering the period of last seven financial years.Source: Capitaline Databases

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Off Focus

The interventionist government

Back to the old daysAfter opening up in the 1990s to save the economy, demand is

sought to be controlled once again to save the economy

back the license permit raj, which we sought

to get rid of in the wake of economic re-

forms of the early nineties,” he said.

Anyone who lived in the pre-

liberalisation India would be familiar with

the stifling economic environment, which

permeated every aspect of life in the coun-try. People would wait years for a two-

wheeler, months for a telephone connec-

tion, and, sometimes, even weeks for a cook-

ing gas cylinder. Queues for kerosene, sugar

and food grains were the norm. For those

lucky enough to be born in the 1990s, they

can just watch a couple of Hindi movies to

familiarise themselves. It was all the result

of an interventionist government that

wanted to control production, not only

through state industry but also by curbing

private enterprise. Fast-forward to today

and the license raj may have been dis-

mantled but the government’s hold on what

is kosher and what is not seems to be get-

ting stronger.

Last month, when the rupee seemed to

be in a free fall, the government was in a full

damage-control mode. Ideas that flew on tele-

vision screens ranged from truly creative to

half-baked. Shutting down petrol pumps

during the night to conserve oil to help bal-

ance the balance of payments was just one

such idea. Thankfully, that chaotic auster-

Imagine a retailer who wants to give a dis-

count to a customer but is restricted from

doing so. A bit unfair? Now imagine a chain

of cinemas that slashes ticket prices but

faces a ban on screening and the full force

of law because reducing ticket prices is il-

legal. It can no longer operate until itapologises. So the cinema owner has no

choice but to do so. That just happened

last week in Chandigarh because the local

government objected to cinemas offering

discounts to customers.

Intervention of the government in such

matters is bewildering. The reason given

for the closure of cinemas was that lower-

ing ticket prices deprives the government

of tax revenue! When the government in-

tervenes in demand and supply, the casu-

alty is free economy.

Overtly or covertly, the government is

always a player in the market. By imposi-

tion of taxes, it can influence demand and

supply. When the government appears to

have shifted from managing the broader pic-

ture to getting involved in the nitty-gritty is

when alarm bells start ringing, as they should.

In 2011, the prime minister himself was

worried about excessive regulation and ex-

pressed apprehensions of returning back to

the license raj. “It is necessary to ensure

that these regulatory standards do not bring

ity plan was shot down. Then making the

rounds of headlines was the Reserve Bank

of India (RBI) shooting off a letter to vari-

ous temples asking them to account for their

gold. That led to protests, especially in south

India. Many temples have now actually re-fused to even provide an account stating that

the gold they hold is given as a donation by

their devotees and they are not obliged to

reveal anything.

The government now has a certain opin-

ion about consumer activities. It perceives

some of them to be healthy and the others

not so much. It is trying to constrain spend-

ing, particularly by the urban middle class.

For the man on the street, however, efforts

to usher in an era of austerity is not going to

be very palatable. Take the instance of some-

thing as simple as eating out, which is not

only a luxury but also a necessity for thetime-starved working professional. Not only

is food inflation making it more expensive

to order a takeout meal, the government also

has its heart set on adding to the costs. To

add to its kitty an additional Rs 4700 crore

in the form of indirect taxes, the government

brought air-conditioned restaurants under

the service tax net. Service tax is 4.95% and

value-added tax ranges between 12.15-15%

on restaurant bills. This effectively means

shelling out 17-20% on taxes each time meals

are consumed in restaurants.

Compare this with how developed

countries impose tax on restaurants. In theUSA, Minneapolis, Minnesota charges the

highest tax on meals. But that is 10.775%.

In the Netherlands, this is only 6% in res-

taurants and bars. In Japan, there is 5%

fixed consumption tax. The idea behind this

sort of taxation by the Indian government

is that it is a ‘luxury tax’ targeting high-

income individuals. The truth is that it is

more a tax on people who cannot cook or

who have no time to cook, whether they

are well off or poor.

The falling economy of India is a sort of

tragedy for middle-income India. All the

things that they covet, expensive phones

and cars, foreign vacations and colleges, not

to mention even needs like groceries and

homes, are again slipping through their fin-

gers when they had just started getting used

to being affluent. Cutting down unnecessary

consumption now seems to be the corner-

stone of governmental policy considering

India’s feeble manufacturing sector does not

produce enough to actually make the coun-

try an export-driven economic power. So

Off Focus

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Off Focus

the consumer and his interests or aspira-

tions must face the axe.

The actions of affecting consumer

choices are no just limited to adding taxes. It

seems there are other means available as well.

Consider the recent direction of the RBI tobanks to stop all 0% equated monthly in-

stalment (EMI)-based schemes on white

goods such as LCD TVs, mobile phones and

other such gadgets. The reason given for

such a ban has been the fact that banks

have been fleecing customers by hitting

them with a processing fee and, essentially,

these 0% loans were never 0%. That this

directive comes just before the holiday sea-

son is interesting. So customers waiting for

Diwali for many such ‘great’ deals from

lenders or retailers will now just have to

shell out hard cash or pay interest on EMIs.

It could be seen in a way also to dampendemand for these goods, which are essen-

tially imported and cost the country sig-

nificant foreign exchange.

Similarly, there was a trend in the past

when Indian travellers coming from abroad

could bring in a TV worth Rs 35000 with-

out having to pay any customs duty. Trav-

ellers coming from Dubai, Thailand,

Singapore and Malaysia often used this

break due to the price differential between

Gulf and South East Asia. In August, 36%

import duty was slapped on such imported

TVs. Now, the difference has been essen-

tially wiped out. This is just another ex-

ample of how the government is beginning

to influence choices that the customers make

at the micro level.

Indian consumers have always had a

healthy appetite for gold. Gold is the tradi-

tional means by which the average Indian

offsets inflation. The precious metal is also

significant to the average citizen because it

is a gift that is given on weddings and passed

on from one generation to another. The gold-

crazy country is the biggest buyer of bul-

lion in the world. In July, imports of gold

were worth US$ 2.9 billion. To counter these

imports, the government has hiked duty on

gold three times this year. It stands at a record10%. The duty on gold jewellery has been

increased to 15%.

While it is true that gold is not an essen-

tial commodity and its import is not good

for the health of the economy in perilous

times, it is also true that trying to restrict

gold imports is also a problem. According to

one estimate, smuggled gold shipments into

India reached 200 tonnes in 2013 by mid-

August. With the festive season looming,demand for gold will only pick up.

Bollywood might as well discover the good

old gold smuggling villain of the 1980s again.

It is not only gold but also foreign cur-

rency that the aspiring middle class uses in-

creasingly. Resident individuals in the past

could remit up to US$ 200,000 a year. Now

they are curtailed to only US$ 75,000. The

government also banned purchasing real es-

tate abroad, effectively restricting Indian citi-

zens from investing overseas. Resident in-

dividuals are now more locked into the ru-

pee than ever before. These steps of the

central bank indicate a return back to thedays of capital controls.

The government needs to protect the

country’s economy and also take care of the

wider interest of the people. Some of the

measures that have been taking recently ap-

pear to give it a scrooge-like image. It has

been able to justify each of the actions rea-

sonably. But the spirit behind those actions

is questionable. Take, for example, the re-

strictions on gold. The problem is perhaps

more social than economic and should have

been addressed a long ago. Over the course

of time, the government should have pro-

vided effective and simple means of invest-

ments to common people so that they could

benefit from the capital market. Curbing

social ills like dowry and forced marriages

or providing opportunities like less bureau-

cratic court marriages would reduce expen-

diture on ‘arranged’ marriages. If there had

been better public transport infrastructure,

the demand for fuel could have reduced to a

great degree in cities. Similarly, building bet-

ter infrastructure could have encouraged in-

dustry and improved the country’s balance

of trade position.

We have returned back to the era of

stopgap measures to try to avoid rack and

ruin. It is strange that the country seems to

have come a full circle. It was a controlledeconomy that led us to open up and

liberalise in the 1990s. Today, we are re-

sorting to controlling the market, the con-

sumer and demand to save the economy. It

would not be unfair to say that the com-

mon man is being punished for the failings

of the government over the years to pro-

vide effective governance. It would be

equally fair to say that there needs to be a

change in our own behaviour as well. Not

all consumption is necessarily healthy but

this needs to be addressed through social

change. The government might begrudge the

common man a couple of LCD TVs ormobile phones but needs to practice what

it preaches as well.

It is common knowledge in India that

government workers are gas-guzzlers. Un-

fortunately, there are no figures for how much

fuel they use but since the government thinks

of fuel as an office expense, for which the

Central government spent Rs 5200 crore in

the fiscal ended March 2012. An average

minister of the Central government uses over

46,000 litres of petrol a month. In states,

the situation is similar or worse. It is rou-

tine to see convoys of scores of cars on high-

ways and state roads. Government in India

is synonymous with sloth and privilege. The

‘facilities’ that it has extended to itself need

to be cut first before it can point fingers to

anyone else and ask them to get ready for

austerity. After all it is the government’s job

to lead by example. In the last few days it

has done a whitewash of austerity by mak-

ing lowly bureaucrats travel economy class

and banning functions in five-star hotels.

So are we back to the 90s? Not yet.

We are heading there is a more a likely

analysis. The economic situation still re-

mains grim. The market is now dependent

on what the Federal Reserve does and how

the Americans manage their budget. If thecountry is truly to become a financial

power we must put more substance back

into the economy. That means not focus-

ing on these petty restrictions but build-

ing the nation. This in the case of India

needs to be done literally, brick by brick,

road by road. The only problem now is

who is going to bell the cat?

— Shivdeep Singh

Ban on 0% EMI is a festive-shopping spoiler

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EconomyPulse

Inflation reboundsHigher prices of food articles and passthrough of rupee depreciation are boosting inflation. However, core inflation has sharply dipped,indicating weakening of demand. Thus, improving supply of food articles can moderate inflation

BASE YEAR/ PERIOD INDEX/ VARIATION (%)

UNIT PRICE 1-MONTH 3-MONTH 6-MONTH 9-MONTH 1-YEAR 3-YEAR

Wholesale Price Index

All Commodities 2004-05 Aug-13 177.5 1.20 3.56 3.86 5.15 6.10 25.80

Primary Articles 2004-05 Aug-13 247.8 3.77 9.02 10.43 12.08 11.72 39.76

Fuel and Power 2004-05 Aug-13 202.3 1.25 5.42 3.48 7.21 11.34 36.69

Manufatcured Products 2004-05 Aug-13 150.0 -0.13 0.47 0.94 1.35 1.90 16.91

Core Inflation * 2004-05 Aug-13 146.8 0.02 0.53 0.99 1.49 1.97 16.25

Agriculture * 2004-05 Aug-13 237.4 4.44 12.48 17.42 17.31 16.58 42.25

Capital Goods * 2004-05 Aug-13 138.3 -0.55 0.13 1.41 1.80 2.16 9.06

Consumer Durable Goods * 2004-05 Aug-13 123.4 0.16 0.81 0.89 1.74 3.10 9.81

Consumer Price Index

CPI-General 2010 Aug-13 134.6 1.13 4.18 5.90 7.34 9.52 34.60

CPI-Rural 2010 Aug-13 135.4 1.20 4.31 5.70 6.70 8.93 35.40CPI-Urban 2010 Aug-13 133.6 1.14 4.05 6.20 8.27 10.32 33.60

CPI-Industrial Workers 2001 Aug-13 237.0 1.73 3.98 6.33 8.29 10.85 33.15

Real Estate Index

CPI-Housing 2010 Aug-13 132.1 0.92 2.72 5.26 7.92 10.54 32.10

Mumbai 2007 Apr-Jun 2013 221.0 — -0.45 1.84 11.62 12.18 38.13

Delhi 2007 Apr-Jun 2013 199.0 — -1.49 2.05 11.80 15.70 80.91

Chennai 2007 Apr-Jun 2013 303.0 — -2.26 -3.50 -2.88 -1.94 65.57

Kolkata 2007 Apr-Jun 2013 189.0 — -4.06 -9.57 -1.05 -3.57 7.39

Bengaluru 2007 Apr-Jun 2013 108.0 — -0.92 1.89 10.20 8.00 58.82

Commodity Watch

Gold Rs Per 10 Gram Sep-13 30473.0 0.17 12.17 3.26 -1.23 -3.74 59.55

Silver Rs Per kg Sep-13 52250.9 5.67 19.56 -5.05 -13.99 -15.97 59.62

Aluminium Rs Per kg Sep-13 151.9 0.88 6.75 8.32 2.98 4.58 28.61

Steel Rs Per tonne Sep-13 46790.0 0.65 0.21 0.21 0.06 -0.21 6.34

Crude Oil Basket Rs Per barrel Sep-13 7001.6 2.44 18.51 20.93 19.42 14.81 99.77

Diesel Rs Per liter Sep-13 52.0 1.11 3.42 6.78 10.46 17.74 33.50

Petrol Rs Per liter Sep-13 75.1 5.33 13.21 7.97 11.66 9.67 45.48

Cement 2004-05 Aug-13 166.0 -2.30 -2.64 -2.30 -1.31 -3.26 9.64

Sugar Rs Per quintal Sep-13 3300.8 -1.47 -0.56 -3.10 -7.94 -12.72 19.81

Cotton Rs Per quintal Sep-13 13620.3 3.13 18.90 23.85 42.16 25.98 27.40

Currency Watch

Real Effective Exchange Rate (REER) 2004-05 Aug-13 83.5 -5.14 -11.63 -13.10 -11.50 -10.75 -17.53

Nominal Effective Exchange Rate (NEER) 2004-05 Aug-13 68.8 -5.13 -11.84 -12.85 -11.43 -10.85 -25.20

USD Index Index Sep-13 101.9 -0.23 0.29 1.20 2.91 2.72 0.40

Financial Markets

10-year G-sec Yield $ Per cent Sep-13 8.77 0.17 1.33 0.82 0.72 0.62 0.92

5-year AAA Corporate bond yield $ Per cent Sep-13 9.78 -0.30 1.22 0.92 0.86 0.83 1.28

BSE Sensex Index Sep-13 19379.77 4.08 -0.08 2.89 -0.24 3.29 -3.43

Market Capitalisation-BSE Rs lakh crore Sep-13 3263346 5.70 2.27 4.91 2.46 4.97 7.46

Monetary Policy

Repo rate $ Per cent Sep-13 7.50 0.25 0.25 0.00 -0.50 -0.50 1.50

Cash Reserve Ratio $ Per cent Sep-13 4.00 0.00 0.00 0.00 -0.25 -0.50 -2.00

Global indices

IMF Price Index 2005 Aug-13 185.7 1.11 3.57 -2.62 2.78 0.09 25.09

IMF Energy Index 2005 Aug-13 196.9 2.34 6.70 -0.91 4.83 1.07 39.28

FAO Food Price Index 2002-04 Sep-13 199.1 -1.13 -5.08 -6.60 -5.60 -7.74 2.55

CPB World Industrial Production 2005 Jul-13 121.3 0.48 0.54 1.37 2.10 1.80 8.97

CPB World Merchendise Trade 2005 Jul-13 131.9 2.15 0.76 1.16 2.63 3.59 10.89

* indices are developed out of WPI data.

Documents

84679812_1.pdf