MONDAY N JUNE 25, 2012



TRESS loans increase led by restructuring of state government entities Over last one year, NNPA for PSBs are up ~35bp to 1.45% and OSRL by ~190bp to 5.9% (up ~50bp to 4.5% ex AI and SEB). Thus, overall NSL for PSBs have increased to 7.3% (5.9% ex AI and SEB) v/s 5.1% in FY11. FY10 through 1HFY12, OSRL for PSBs remained relatively constant at ~4%. However, sharp increase in restructuring in 2HFY12 led to significant increase of OSRL as a proportion of outstanding loan. Over past two quarters, OSRL has increased from 4% to 5.9% in FY12.

SBIN's NSL performance better than peers Although SBIN faced higher challenges in terms of significant increase in net slippages over past two years (average of INR126b over FY11/12 v/s average of ~INR43b over FY07-10), 16pp improvement in PCR (+9% improvement in last one year) and the bank's conservative restructuring policy led to 50bp decline in NSL to 5.5% during the same period. Even excluding restructuring of AI and SEB, SBIN's NSL remains the lowest among PSBs at 5.3%. Stress Loan rise significantly for large PSBs. Ex SBIN, stress loans among large PSBs increased 170-450bp (75-

140bp excluding AI and SEB). Among large banks, PNB has the highest proportion of NSL on its balance sheet at 9.4% (1.9x of FY11), of which ~300bp is contributed by SEB and AI. Higher contribution of SEB and AI (400bp of loans) is also leading to significantly higher NSL for OBC (10.7% of loans). BOB's NSL is relatively better than peers at ~5% (ex SEB and AI); but this should also be viewed in the context of strong loan CAGR of 28% over FY1012. Restructuring to increase further; asset quality to drive valuation: Challenging macroeconomic environment is moderating growth and raising NSL in the system. (NMS) I

would never trust tax software over an account for my situation despite the massive initial saving and despite being qualified for the job. Emergency Fund, No Retirement Plan It’s essential these days to have an emergency fund. You need six months to one year of expenses (although how anyone does that in this dire economy, with pay raises not meeting inflation and massive unemployment, is something of a miracle). But you also need to look after your financial future, as you cannot rely on any kind of state pension. If you’re squirreling away money now into an emergency fund or savings account, but you’re not putting money into long-term savings plans, you’re not prepared for something you know is coming — old age. And with compound interest being what it is, every day you put it off, it is thousands of rupees wasted. Be smart, think long term. Once you have that in place, by all means build your emergency fund. Buying Cheap If you buy a pair of shoes for a few

to a store looking for jam, and you see BOGO free on jam, that’s probably a great time to stock up. But if you’re looking for a new pair of sneakers and see BOGO half off, stop and think. You went out looking to spend $60 on sneakers. Now you’re spending about $100 after taxes. Did you even want two pairs? Will you wear them both? Do you even like the second pair you’re buying? Sure, it can be a great deal, but if you really only want, and need, one pair, you should only buy one pair. Also, be careful when exploring the sales. It’s easy to see those 75% off stickers and go crazy, thinking you’re saving money. I know of some people who resell the things they buy on discounts. If you are planning to resell the item for a profit, go for it. But don’t think that you’ll get anything near full price for it somewhere else; there’s a reason it’s on sale. And if you are just tempted to buy it because it’s cheap, ask yourself "would I have bought this if it were more expensive?" I see so many people buying bargains that

Rel Com


ELIANCE Communications' 4QFY12 EBITDA grew 2.5% YoY and 1.3% QoQ to INR16.3b (in line). The company reported net profit of INR3.3b vs our estimate of INR0.4b net loss due to 1) Lower depreciation (down 1% QoQ), and 2) Negative tax rate and minority interest. Net debt stood at INR358b implying annualised net debt/EBITDA of 5.5x. RCom has taken a write-off to the tune of INR11.1b for outstanding from wireless operators whose licences have been cancelled and subsidy claimed from the government which resulted in 27% QoQ decline in debtors to INR35.8b. We are downgrading EBITDA estimates by 4-6% due to lower wireless RPM/margin assumption. Stock trades at EV/EBITDA of 6.4x FY13E and 5.2x FY14E. Neutral with a revised target price of INR65/share.

lower than expected other expenditure at INR28.4b (v/s est of INR37b), partially compensated by higher statutory levies at INR44b (v/s est of INR41b). Other expenditure was lower due to reduced workover well expenses led by decline in rig rates. Since our downgrade post budget, ONGC has underperformed Benchmark indices. At the current price, the stock trades at attractive valuations: a) 16% and 29% discount to last 5 year average P/E and P/B, b) ~45% discount to its global peers on EV/BOE (1P basis) and c) has an attractive implied dividend yield of ~4%. Upgrade to Buy. Rural Electrification Corp URAL Electrification Corporation (RECL) posted PAT of INR7.6b for 4QFY12, largely flat QoQ and 4% below our estimate, on lower than expected topline performance. However, adjusting for bond issue expenses (~INR400m), which impacted margins, performance has been in line with expectations. We expect earnings CAGR of 19%, with average RoA of ~3% over FY12-14. The stock trades at 1x FY13E and 0.9x FY14E BV. Maintain Buy.

FY14 to INR39 to model: a) adverse product mix, b) higher marketing spent c) higher capex in JLR and d) benefit of weak INR on JLR consolidation. The stock is currently trading at 6.9x FY13E consolidated EPS and 14.4x FY13E normalized consolidated EPS. Maintain Buy with revised TP of INR294 (FY13 SOTP based) for ordinary share.

Take Care of Pennies, Pounds Will Follow
I By Shruti Kohli

Coal India



Power Grid Corporation


QFY12 performance better than estimates: PGCIL's adjusted PAT in 4QFY12 stood at INR10.8b (up 45% YoY), higher than our estimate of INR8.8b. Outperformance is driven by 1) higher capitalization and 2) increased other income. Major items in other income comprises of INR1b of interest on delayed tariff order, INR0.4b of dividend income, INR0.6b as surcharge and remaining is interest on FPO money/treasury income. Earnings upgrade of 10% for FY13/14E, Buy: We upgrade our FY13/14E earnings by ~10% to factor in higher capitalization (considered ~85% of current management guidance of INR200b). We expect PGCIL to report net profit of INR40b in FY13E (up 13% YoY), and INR48.4b in FY14E (up 22% YoY). Stock trades at PER of 12.5x and P/BV of 1.9x on FY13E basis. Buy with TP of INR123/sh. HOENIX Mills' 4QFY12 standalone/consolidated results were in line with estimates. High Street Phoenix (HSP) revenue grew 14% YoY to INR531m in 4QFY12. For FY12, HSP rental stood at INR1.98b (v/s our est INR1.97b and management guidance INR1.95b). Standalone EBITDA grew 13% YoY to INR363m (margins at 68% down ~5.5% QoQ), PAT remained flat YoY led by higher other income (largely as interest income from loan and advances given to subsidiaries). The stock trades at P/E of 22.2x FY13 EPS of INR8.3, 1.5x FY13 BV. Maintain Buy. NGC reported 4QFY12 net sales at INR188b (+22% YoY and +4% QoQ), EBITDA at INR111b (+52% YoY and +4% QoQ) and PAT at INR56.4b (+119% YoY and +22% QoQ). Reported numbers were significantly higher than our estimates due to lower share in upstream subsidy. Adjusted for actual subsidy, the net sales were largely inline, but reported EBITDA of INR111b (+52% YoY and +4% QoQ) was higher than the revised est. of INR106b due to

Steel Authority of India


Phoenix Mills


AIL's 4QFY12 adjusted PAT declined 23% YoY to INR10.7b in-line with estimate of INR11b. Reported PAT of INR15.8b included EO income on account of write back of INR5.1b entry tax. Net sales grew 13% YoY to INR137b. Sales volumes grew 2.1% YoY to 3.2m tons. Realization was largely flat QoQ i.e. up only 0.7% to INR42,787/ton. EBITDA per ton at USD130 was on expected lines. EBITDA declined 6% YoY to INR20.9b. Provisioning for wages was lower at INR18.2b (v/s INR22.5b in 1QFY12 and est of INR22b) as no provisions for non-executive wage hike and/or pension liability were made. This was offset by higher other operating expenditure. We maintain bearish view on steel prices due to demand slowdown in China, Europe and India. SAIL is trading at expensive FY13 valuations of 7xEV/EBITDA. On P/BV, the stock is trading 1x but the RoE will fall to 9.8%. We value the stock at INR99 based on SOTP (FY14 EV/EBITDA of 6.5x and 50% discount to CWIP). Maintain Sell. ATA Motors 4QFY12 operating performance was below estimates with consolidated EBITDA margin of 14.1% (v/s est 15.8%). Deferred tax credit of INR18.3b boosted reported PAT to INR62.5b. While domestic business surprised positively with higher EBITDA margins, JLR performance was below estimates. Consolidated sales grew 41% YoY (12% QoQ) to INR509b (v/s est INR510b) with EBITDA margins of 14.1% (-190bp QoQ, +70bp YoY, v/s est 15.8%). Recurring PBT at INR46b (v/s est INR53b) grew by 68% YoY. Valuation and view: We are downgrading our consolidated EPS estimates by ~10% for FY13 to INR36.5 and 4% for

QFY12 performance better than estimates: Coal India reported 4QFY12 PAT of INR40b (down 5% YoY), while adjusted for staff cost provision, the PAT was at INR60b, higher than our estimate of INR44b. Deviation is driven by mix change (higher e-auction volumes) leading to benefit of ~INR6b and higher realization (FSA/ washed coal) contributing ~INR8b. This along with higher than estimated other income (by INR5b) led to higher PAT. Coal India operational numbers strong. Valuations and view: We expect COAL to report consolidated PAT of INR174b in FY13E (up 8% YoY, downgrade of 2%) and INR188b in FY14E (up 9% YoY, downgrade of 5%). Cut in earnings is to factor in no compensatory price hike for wage increase (factored at ~12% on notified coal), which is partially mitigated through operating leverage, increase in dispatch estimates and lower consolidated tax. Stock trades at 11.7x FY13E. Buy. PCL reported 4QFY12 EBITDA higher than our estimate at INR54.7b (v/s est INR52.6b) led by a) forex gain of ~INR9b netted in other expenditure; b) adventitious gain of INR2.8b and b) lower employee cost by INR3b at INR0.7b (-91% YoY and -86% QoQ) due to year-end adjustments, partially offset by a) Petrol losses at INR6.5b, and b) lower GRM at USD3.7/bbl (v/s est USD5.2/bbl). 4QFY12 reported PAT stood at INR46.3b (v/s est INR44.5b). Variation at PAT level was similar to EBITDA as higher interest cost at INR4.3b (v/s est INR3.3b) was offset by a) higher other income at INR3.8b (v/s est INR3.1b) and b) lower tax rate at 6.2% (v/s est 7.2%). Comparative PAT was at INR11.2b in 4QFY11 and INR27.3b in 3QFY12. FY12 consolidated PAT marred by Bhatinda losses: HPCL's FY12 consolidated PAT stood at INR1.7b against standalone PAT of INR9.1b driven by Bhatinda refinery (HPCL stake 49% in JV) losses which came on-stream in FY12. Valuation and view: We continue to believe that over the long term, while reforms in the sector are extremely necessary, in the near-term, price hikes are inevitable. Also, the government is in now more comfortable situation with a) end of parliament session and b) moderation in headline inflation. The stock trades at 8.9x FY13E EPS of INR33 and 0.7x FY13E BV. Key event to watch (apart from subsidy sharing) is the start of commercial production at Bhatinda refinery at full utilization levels and the GRM performance. Maintain Buy. I




Solomon Grundy / Born on a Monday / Christened on Tuesday / Married on Wednesday / Took ill on Thursday / Worse on Friday / Died on Saturday / Buried on Sunday / This is the end of / Solomon Grundy IFE’S short. Yet, most of us spend it being foolish with money. We make choices which cost us dear later. Don’t agree? I have ready instances to prove this. Let me know if I’m wrong. Avoiding the Doc It’s something I did in college when money was tight. “Ah! Who needs to pay money to a dentist to have him tell me I should floss more?” Well, after leaving the dentist alone for a few years, I paid the price. Avoiding the regular cleanings and check-ups left me facing a hefty bill later on when I needed a bunch of costly cleansings. I was lucky that I didn’t need root canals or replacement teeth. Now I have a dental plan that covers free check-ups twice a year, but even if you don’t have a plan, get to the dentist and doctor for health checks. It’s a lot better to pay a co-pay now than pay for major surgery later on. And worse still, it could even cost you your life, especially as so many conditions can be treated if they’re caught early enough. Being Your Own Accountant Many people use various software to calculate taxes, and they do save a bunch on an accountant. These software programs are fine for very basic tax calculations. But if you have anything slightly more complex, it’s well worth your time to hire a professional accountant. These people are trained in the minutia of the lengthy tax codes, and they can find deductions and tax exemptions that you have no idea about. And while the software may be able to take these into consideration, you need to know what you can actually legally deduct before entering it. Tax accountant can save you thousands over years. They ask questions that the software doesn’t, and they know how to get you the biggest possible refund. I

bucks at a flea market stall, the chances are you’ll be buying them again real soon. Cheaply made, poor-quality items may save you a few bucks in the short term, but you’ll only have to pay more later to replace them. And if you replace them with more cheap junk, you’ll be repeating the cycle. You get what you pay for. The only time I would say that this is not true is buying generic brands in the grocery stores. In that case, you’re usually buying the same product that’s in the name-brand tin or packet but for half the price. However, in any case, let it be quality first and cost later. Not Paying for Parking You may be a world-class speedy shopper or errand runner, but you just aren’t that lucky. Sooner or later, and probably sooner, if you try and dodge the parking payments, you will be fined. These days, a parking fine can be anywhere from Rs 300 to Rs 500, depending on which city you live in. Wouldn’t you rather pay that Rs 20 per two hour parking fee? Taking Store Credit Card Offers for Discounts You are probably asked this at times: “Would you like to sign up for our membership today and save xyz percent instantly on your purchase?” It’s a good deal if you pay off the credit card bill in full when you get the first statement. However, when that first statement arrives, many people find it way too easy to avoid the pay-off amount and instead pay the much smaller minimum payment. Before long, you’re paying the minimum every month, adding more to the store card, and you’re suddenly a credit card revolver who is paying hefty interest charges. That initial xyz percent you saved can cost you so much more. Pay it late, just once, and you can add late fees and interest rate hikes to your burden. BOGO Deals & Other Sales Buy One, Get One (BOGO), when it’s genuine, is hard to resist. But even then, whether it’s BOGO free or BOGO half price, you have to stop and ask yourself “would I really have bought this much of this item at this price anyway?” For instance, if you go

just gather dust in the storeroom. And they would happily sell them for the price they paid just to have that money back. Avoiding Routine Car Maintenance Most of us use a car to get to work. It's something that we need to make money. It’s also something that needs regular maintenance, just like your own body. But many of us like to save that money and do only the basics. We’ll take it in for an oil change, run it through the car wash, and that’s about it. Of course, then the time comes to get your next oil change, and the mechanic has to inform you that your tires are worn on one side because you didn’t rotate them. Buying Food in Bulk to see it Rot The vegetable vendor used to laugh when I bought three tomatoes and five potatoes from her at a time. But after all these years, she’s got used to my style of veggie shopping because she knows why I do that. It’s because I have learnt my lessons. Earlier, a couple of times I stocked fruits and veggies when I went to the local wholesale market and got stuff at half the price. I consumed some of it but then I watched the rest of it turn stale in the refrigerator because I bought too many. I’m guilty of this because bargains are so hard to pass up. When you see a whole lot of apples on sale for less than half the price, you grab them. However, now I buy fresh produce and cook it that night. I hardly eat at home during weekdays because I am out for work. So, it suits me to buy in small quantities and finish it immediately. We load up on cheap bulk items and then have no way of using it all. So, now you agree. Yeah, I know you’re nodding and smiling in agreement. Know it now, pennies make pounds. Being foolish with one won’t make you wise for another. All Wise! (The author is Founder, Chairman, & MD, Spink Turtle; Founder-Editor, &; and FounderCEO, Frinky Folks. She is a Mumbaibased Money Psychologist and can be reached at I

I By Vishwanath Nair


ALMAN Sheikh (name changed), 33, who runs a modest leather bag store in the heavily populated slum Dharavi, used to send money over to his family back in Azamgarh, Uttar Pradesh, each month, through a friend. Three months ago, he got a distress call from his wife saying the

id expansion of bank branches, urban inclusion is rarely looked upon. However, now with the urgent need to grow their business and gaining a considerable customer base, banks are finally shifting their focus to this segment through various means. “After a customer acquisition drive and with minimal paper work, a customer is given a cobranded card. This card gives him access to a no-frills savings

Banking: Inclusion goes urban
money had not reached her. The friend, too, was not found thereafter. In his search for a more reliable method to remit money, Sheikh stumbled upon the business correspondent outlet working in the same locality. The outlet required him to register with them and open an account, which would allow him to deposit or even remit money to his wife’s bank account. “This method seems much easier now as all my transactions are recorded and I am assured that the money I send is reaching its destination at a nominal charge,” says Sheikh. While everyone talks about financial inclusion in rural and semi-urban areas through rapbank account where he is entitled to the same interest rate on deposits, as any customer would get,” explains Ashish Ahuja, vice-president- customer acquisition and service delivery, FINO. A no-frills account is basically a zero-balance account with relaxed Know Your Customer (KYC) norms which are intended to improve financial inclusion in the country.The number of no-frills or zero-balance account holders more than doubled to 10.3 crore in the year to March 31, 2012 from 4.9 crore in March 2010, the Reserve Bank of India (RBI) has said in its financial inclusion update in June. FINO, a multi-bank venture, is India’s largest business correspondent company that represents banks to unbanked customers. In the area of urban inclusion, FINO covers some 10 locations, with about 750-800 merchant outlets where customers can go and open their accounts. These locations are chosen on the basis of higher concentration of poor migrant population, living in inner areas of urban locales. Currently, these centres work with Union Bank of India and all new customer accounts are opened with the bank. In the last 12-18 months, these merchant outlets have acquired between 3-3.5 lakh customers, who transact about `100 crore through FINO’s channel every month, according to Ahuja. For effective dis-

Tata Motors




semination of financial services, the RBI has allowed technology partners such as mobile companies to partner with banks in offering the services collaboratively. Also, it has permitted banks to freely open branches in tier 2 to tier 6 centres. It has mandated banks to open 25% of all new branches in unbanked rural centres and relaxed KYC norms for opening small bank accounts. Such urban inclusion outlets also become a good source of income for youngsters who work as the staff helping customers at various points. These youngsters are recruited and trained as business correspondents working at different levels. Some are incharge of maintaining the outlet; some are responsible for sorting the customer database, while a few others are also taken in as supervisors. As the market leader on the business correspondent front, FINO charges `25 per transfer, for intra-bank remittances. While for inter-bank remittances, each transaction costs Rs 40 for the customer. Urban inclusion has become such an important business for banks, that some have even forayed into the space without a business correspondent. I

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