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Equitorials quoted in Business Today

January 31, 2012

Equitorials quoted in Business Today

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Wizards of the Streets – Jyoti Prakash

January 27, 2012

WoS – 2 Jyoti Prakash                                                                                                                 24-Jan-2012

In the second part of our series of interviews with stock market leaders, we talk with Mr. Jyoti Prakash, Senior Fund Manager with AEGON Religare. A graduate from the prestigious IRMA in Anand, he has worked in renowned organizations like Amul and Sahara India. He is amongst the first batch of graduates of the Indian CFA and has been a money manager for nearly 8 years.

Q     When was your first encounter with stock markets?

A       I did my MBA in 1984-86 when Management as a field in India was still up-coming and the country had only 6-7 institutes. I graduated from the Institute of Rural Management, Anand and worked with AMUL for 3 years before moving into Consultancy. In 1992, after liberalisation era kicked in and financial wave had hit India, I was in the first graduation batch of the Indian Chartered Financial Analyst (CFA). Post that I started working with Sahara India and that’s where I first encountered stock markets. Since then I have remained in the industry.


Q     What attracted you to capital markets?

A       It’s all about being competitive. It’s about efficient allocation of capital.


Q     What has been your learning from stock market over the years?

A       I have been managing public money for 7-8 years now; one of the most important things that I have learned is not to get carried away. You do your own research. Read others’ research, but have your own conviction. Things will not always work the way you want them to, particularly in the short-term. In such cases, it is very important to back your judgement. To give you an example, last Diwali, market was very bearish about Bharti Airtel.  However I had my conviction. I knew the market was overselling it. Since then, over the last one year markets have fallen by around 15%, while Bharti is up by over 20%. If you have a method to this madness and believe in it, even though markets may beat you over 3 months, but over the long-term you will beat the markets.


Q     What’s your philosophy or strategies for stock market? What technique do you use? How has your technique changed over a period of time?

A       It’s all about Margin of Safety. Today what margin of safety Maruti offers compared to, say M&M? I believe Maruti, with its strong Japanese value systems, will learn from its mistakes. Therefore I think we will see a positive outcome of all this, maybe 6 months down the line. I am not at all into momentum play. If something is going up, I don’t blindly get into it only because of that.


Q     How do you typically evaluate a stock? What kind of things do you look at it, in any order? Can you highlight 3-4 key things that every analyst should look at?

A       The most important thing for me is, a company should not come back to shareholders for money all the time. The company should grow from internal accruals. That is one of the reasons why I don’t like financials. For banking to survive and grow, it will need capital all the time and you don’t get capital every time you try to raise funds. The second important thing for me is the kind of recurring income that a company has. Let’s say BHEL is supplying equipment and probably has maintenance contract also. Now if the share of the latter is higher in the total revenue, I would like it. That way, the business model would be more sustainable. Similarly in Exide, replacement market over time would become much bigger than the OEM market. Now that is something that would interest me. Third is of course the free cash flows that the company is generating. That is something to look at as against just book profits, which may not get converted into cash. And finally RoE, that’s what my investor/clients ask me to do.


Q     How do you decide when to sell the stock?

A    As I have said, I work on the rule of margin of safety. So I keep evaluating if the stock has any upside. If not, why should I keep it in the portfolio? Sometimes, people rush to buy a stock because till now they didn’t have it and they believe that’s why they were underperforming and they end up buying the stock when they ought to be selling it. So if you are a bit of contrarian and you bought the stock when everybody was dumping the stock because you had longer time horizon and had faith in management and you knew things would turnaround after sometime.  The whole idea of selling is to buy something that has a higher margin of safety.


Q     How many market cycles have you seen? How was your experience during that time? Can you share anecdotal stories of your success or failure?

A       Today you look at research, where a stock is covered by 30-40 analysts, which was not the case earlier. If you go back in time and look at a stock, let’s say XYZ, with a target price of Rs3,500, it was tracked by 4 analysts. Today the same stock is available at 1/10th the price. So I don’t know what the analysts saw then and what they see now. At Rs3,500, you felt the stock was expensive. Now it has come down to Rs1,800. You get tempted to make money. You think the stock is cheap now. So it is good that you didn’t get carried away by the momentum. However if you bought at Rs2000 you have still lost money. Now let’s say you had only 5 stocks in your portfolio and one of them was this XYZ. Imagine the loss you would have made. However if you had 25-30 stocks in your portfolio, your loss would not be as high. You can cover that loss in some other stock. So, it always pays to diversify wisely. The major change that has happened is that today when you look at a stock, you look at the quality of the research available and then you take far more judicious decision than you would have 3-5 years back.


Q     What makes a successful analyst different from others?

A       Again it is about maintaining balance, not chasing prices. Raising your target price because stock price has gone up or reducing it because stock price has come down – that is something I have never understood. The other problem an analyst has is that he/she is looking at a particular sector. So the overall context may be lost. For instance, he/she might be bearish on a particular sector but in the overall context one need not be bearish about a stock. For example, there are sectors on which all the analysts are bearish. However I find there is a good margin of safety in particular stock. The other thing is that most analysts focus on the income statement aspect. However, they do not focus on the balance sheet.


Q     What are the major misconceptions that people have about stock market in general and about analyst/ fund managers in particular?

A       It might sound odd, but most people think stock market is very risky. It is very risky if you don’t learn you lessons. If you know, market tends to move between 12x to 20x forward earnings. So if you are buying at valuations of 12x it is much safer than buying at 20x. I think debt can be equally risky – recent EU crisis is an evidence of it. I don’t think equity is very risky, if one gets the sector right, the sectoral rotation right, right companies in the portfolio and sticks to it and does not get carried away. Don’t get into momentum, don’t trade and don’t leverage. General public doesn’t like a change in view just because of price movement. That’s where people have lost faith. Analyst and fund managers come on the TV talking positive one day and a few months down the line when prices crash, they turn negative. Then people lose faith. Many big brokerage houses have lost creditability due to such acts. One has to be consistent and stick to one’s conviction.


Q     What do you expect from newcomers to the stock markets? What are the qualities that new participants, especially students should possess for being successful in the stock markets? How should one go about acquiring those qualities?

A       In terms of knowledge of tools, Excel (MS Excel) is something newcomers must know. You have to be very good at it. To become successful in the stock markets, you have to put in extreme hard work – you have to sit and study, sit and study. See what is happening around you, internationally. We might be at a stage where international markets were few years back. See how they have evolved. Continuous reading is the most basic requisite for success in the stock market. Stock market is not just about EPS & P/E multiples. It is much more than that. Try and anticipate things. For example, let’s say monsoon is over. What can you make out of it? The swing pattern, which crops will do good and bad – all this will unfold in 6 months’ time. But if you can anticipate it, you would be ahead of the curve. Another example is that you look at fiscal deficit numbers. The government is hell-bent on doing something about it. So what steps can the government take, how will PSUs get impacted, will minority shareholders get impacted? If you can figure that out, your portfolio would be that much better. Another example is rupee depreciation. If you had looked at the structure of our reserves, structure of debt etc., you could have seen it coming. If you could see that coming and you were geared-up for it, your outperformance would have been unbelievable.  So there are a lot of things that move the markets and their knowledge would come only by studying. Many times you read an article for an hour and you say it was a waste, but how do you in advance without reading that? You would realise it later this is not useful because you have already read it earlier. So read and study continuously. That way you would be less surprised by the market and you would know how to react when a situation arises. I read 10 newspapers daily – 6 Indian and 4 international.

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Equitorials quoted in DNA

January 12, 2012


Equitorials quoted in DNA – 30% local sourcing curbs retailer play



GSFC – Analyst Meet note – AVOID

January 9, 2012







GSFC – Analyst Meet note                                AVOID                                                           9th Jan-2012


Key takeaways from the Analyst meet:

  • From 2006-07 GSFC has a constant dividend pay record of 45% except last financial year when it paid dividend of 70%
  • At present it is a zero debt company
  • As DAP is the major contributor in fertilizer segment, which is subject to raw material availability and international prices, GSFC has engaged in Joint Venture with two Tunisian companies in Tunisia.
  • GSFC has tie-ups with companies in countries like Togo, Uganda, Senegal, Canada etc.
  • It enjoys strong brand image- SARDAR in Fertilizer Business Segment
  • Many products in both segments rely on procurement of raw-material which is subject to availability through import, international prices and government policies.
  • GSFC is exposed to exchange rate related risks, but it has formulated hedging policy to safeguard itself.
  • Cost increase will be passed on to consumers if needed.

Future projects:

Projects that will be completed in near future


Projects under consideration


Since GSFC is a zero debt company and very well equipped with funds, projects will be funded internally but if needed funds can be raised through debt.























Historic average (7 years)











Considering that GSFC is in a capital intensive business, we have chosen P/BV as the valuation technique. GSFC’s long term average RoE stands at around 22%. However GSFC’s historically (7-year) average P/B stands at 0.95x i.e less than 1x. Further prior to 2008 stocks trading range was above 1x (P/B). We believe primary reason for de-rating in valuation is 2008 proposal by Government of Gujarat (GoG), mandatory for State PSU to contribute up to 30% of their annual Profit Before Tax to Gujarat Socio-Economic Development Society (GSEDS) to support weaker sections of the society and this law is still about to pass. Though none of the State PSUs are actually paying the proposed tax but this has remained as the major overhang for the stock. Hence it has been trading at a lower P/BV multiple since 2008. It is uncertain and difficult to estimate whether GoG will successfully implement the proposed law.  Factoring this we have arrived at Target P/BV multiple of 0.8x, giving us fair price of Rs320. Therefore at CMP of Rs340 we recommend AVOID on the stock.

Company overview

In 1962, Gujarat Government promoted Gujarat State Fertilizers and Chemical Limited. Currently it hold 38% in the company. GSFC is the first to manufacture DAP (complex fertilizer), Melamine plant and Caprolactam in India. It operates in two business segments, fertilizers and industrial products. Fertilizers products include Urea, Ammonium Sulphate (AS), Di- Ammonium Phosphate (DAP) and Ammonium Phosphate Sulphate (APS). Industrial products include total of 13 products out of which the main products are Caprolactam, Melamine, MEK Oxime and Nylone 6. The company is the market leader in first 3 product segments.

In 2010-11 business of fertilizer products comprised 69% of total revenue, while the remaining 31% came from the industrial products segment. In the fertilizer business segment DAP contributes around 70% of the revenue and in Industrial Product Caprolatam contributes around 50% of total business.

Following is the market share of major GSFC products.

Fertilizer business

Name of Fertilizer India Demand (in mn p.a.) GSFC share













Industrial Product business

Name of Product India Demand MTPA GSFC share






MEK Oxime



Nylon – 6





Pratik Gohil

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Equitorials quoted by Reuters

January 6, 2012


29-Dec-2011 – Reuters  – SEBI cracking down on IPOs – pdf file

Official Reuters Site – webpage



Equitorials quoted in DNA

December 30, 2011



  28-Dec-2011-DNA Money – GSFC plans Rs7,000cr


  29-Dec-11-DNA – For telcos, it’s reversion to rut as tariff hikes ricochet 

NHAI Infra Bond issues

December 29, 2011


NHAI Infra Bond issues

We recently attended the analyst meet conducted by National Highway Authority of India (NHAI) on 26 Dec 2011, regarding a bond issue. Following are some of the important points.

Object of Issue 

NHAI intends to use the issue proceeds only for part-financing of various projects it has undertaken. It will not utilize the funds for providing loans or acquiring shares or any other activity other than financing its projects, although 1.4% of issue size will used as issue expenses.

Issue Size

NHAI has offered tax-free, secured, redeemable, non-convertible bonds issue of Rs 10,000 cr, to be issued in two portions or two series of bonds, each having a limit of Rs 5,000 cr, with Rs 1,000 per bond in both series.

Issue Program

Issue opening date: 28 Dec 2011

Issue closing date: 11 Jan 2012

Deemed date of allotment: Deemed date of allotment shall be the date as may be determined by the board and committee and notified to BSE & NSE.


  • NHAI is a GoI approved agency for the development of NHs. NHAI infuses and channels private players participation and funds into immediate areas of development bringing about a healthy participatory economy
  • NHAI has a track record of consistent operational performance. It has completed development of above 1,500 km every year.
  • NHAI has initiated several innovative processes over the years which have been different from the existing industry practices. It includes performance based contracts in bonus and penalty provisions, which has resulted in improved construction and service quality and favourable peer review
  • Favourable credit rating by CRISIL, CARE and FITCH


  • Land acquisition risk that includes acquiring requisite land for project highways, which is subject to large number of factors i.e. government policies, social and political environment, funds required and subject to approval of many stakeholders.
  • Approval risk that includes obtaining approvals/permissions of state government, Village Panchayat and Pollution Control Board and Inspector of Factories.
  • Risk from Government as a policy maker.
  • Force Majeure risk includes factors like earthquake, extreme adverse weather conditions, explosions etc.




Particulars Tranche 1 Series 1 Bond Tranche 1 Series 2 Bond
Tenor 10 years 15 years
Redemption Date At the end of 10 years from deemed date of allotment At the end of 10 years from deemed date of allotment
Redemption amount Face Value + interest that may have accrued at the redemption date Face Value + interest that may have accrued at the redemption date
Frequency of interest payment Annually (1 Oct) Annually (1 Oct)
Minimum Application Size Rs 50,000 (50 bonds) Rs 50,000 (50 bonds)
Multiples of Rs 1,000 (1 bond) Rs 1,000 (1 bond)
Face value & Issue price Rs 1,000 per bond Rs 1,000 (1 bond)
Interest rate 8.2% p.a. 8.3% p.a.
Credit rating AAA/Stable by CRISIL


Fitch AAA (ind) with stable outlook by FITCH

AAA/Stable by CRISIL


Fitch AAA (ind) with stable outlook by FITCH


  1. Applicants are categorised into 3 categories, where ratio of allotting bonds would be 4:3:3 to category 1, category 2 and category 3 respectively.
  • Category 1– Authorised Financial Institutions, Statutory Corporations, Commercial and Co-operative Banks, RRBs, Provident & Pension Funds, Insurance Companies, Mutual Funds, FIIs, Corporate bodies, Public/ private charitable/ r religious trusts, Scientific and/or Industrial research organisations and partnership firms.
  • Category 2– Resident Indian Individuals, HUFs and NRIs categorised as High Net-worth Individuals (HNI) where application is for and amount aggregating to above Rs 5 lakh.
  • Category 3– Resident Indian Individuals, HUFs and NRIs categorised as retail investors where application is for and amount aggregating to upto and including Rs 5 lakh.
  1. For categories 1 and 2 bonds will be allotted on a first-come-first-serve basis and for category 3 i.e. retail investors, the allotment will be on a proportionate basis.
  2. Bonds will be allotted in both forms, i.e. according to investor’s preference either in physical or dematerialised form.
  3. Bonds will be listed in BSE and NSE.
  4. The issue is not underwritten.
  5. There is no minimum subscription amount for the issue.
  6. Bonds are tax free and will be redeemed at par on respective maturity dates of each bond series.
  7. SBICAP Trustee Company Ltd has been appointed to act as trustee for bondholders.
  8. NHAI will allot Tranche 1 Series 2 Bond to those applicants who will not indicate their choice of relevant bond series.

NHAI Profile

National Highway Authority of India is a Government of India (GoI) authority which is responsible for the development, maintenance and management of National Highways (NH) in India, for which it outsources design, construction, supervision, operation and maintenance activities of NH.

NHAI receives its funding mainly through cess fund from cess charges on petrol and diesel, toll revenue and premium from investors. Other than this it gets government support in form of capital base, budgetary support, capital and maintenance grants and market borrowings. NHs developed by NHAI carry 40% transport loads out of total transport loads on National Highways.

Out of around 71,500 km of total National Highways/Expressways in India, NHAI has projects for 55,200 km of NHs, out of which it has completed around 16,500 km of projects.Its target for the next year is to reach completion of 20,000 km i.e. constructing 3,500 km of National Highways till FY13 subject to favourable land acquisition conditions. Also NHAI is targeting construction of 20,000 km in next three years by constructing 20 km per working day.


Pratik Gohil

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