18 December 2012

Futures contract :: Business Line


Last week, we saw how a wheat grower can lock-in a price at present and protect his profit margin even though delivery of wheat from his side may take place at a future date.
Like a farmer, a primary producer who is able to protect his profit margin irrespective of the market price at the time of delivery by locking-in a price in advance, anyone who wants to buy a commodity for delivery at a future point of time can buy a ‘futures contract’ to lock-in a price at present in order to secure himself against any adverse price movement at the time of delivery.
For instance, someone wants to buy gold at a future point of time, say for a wedding in the family.
In some way, in the above examples, the seller of wheat and the buyer of gold belong to a category of market participants called the ‘hedgers’.

Five tips to choosing health insurance :: Business Line


The need for health insurance is no more a debatable topic. All of us need a health plan to cover any medical emergencies.
Sedentary lifestyles and poor eating habits have also led to a rise in chronic ailments such as hypertension, diabetes, obesity, cardiac diseases and gastrointestinal diseases.
These diseases could require long-term medical attention, resulting in a steep rise in expenses.
While many believe that employer provided health insurance coverage is adequate, a job change or changes in the benefits offered under an employer provided cover could negatively affect one’s family finances.
Here are five basic tenets to consider while choosing the most appropriate health insurance policy for you and your family.

Insure yourself against acts of God :: Business Line


All of us witnessed what a massive disaster Hurricane Sandy was. There was severe damage to property, life, vehicles and other assets and New York City came to a standstill. Natural disasters strike without any forewarning.
To safeguard yourself and your family against such calamities, you should consider taking adequate insurance against such perils. A recent study has revealed that even Governments can reduce their burden of loss arising out of catastrophes through insurance.

ACTS OF GOD

Natural calamities such as earthquake, flood, storm, cyclone (also known as ‘Acts of God’) can be covered through property insurance policies. There are various policies which cover such perils either as an inbuilt cover or as an add-on cover.
The standard Fire and Special Perils policy covers perils such as storm, tempest, flood, inundation as an inbuilt cover, while earthquake can be covered as an add-on cover.
Acts of God perils usually attract higher deductibles vis a vis other normal perils, attributed to potential of colossal damage which may result from occurrence of this sort of peril.

BUY Jammu & Kashmir Bank -Nirmal Bang


Snapshot
Jammu & Kashmir Bank has emerged as one of the handful (quasi) Government Banks to have registered consistent growth in earnings while maintaining the asset quality. We expect this to lead to a re-rating in the stock price.
Investment Rationale Strong performance to lead to re-rating: The Bank has reported a consistent growth in financial performance with Net Interest Income and PAT registering a growth of 19.1 per cent and 24 per cent respectively during FY’07-12 period. The Bank has strong return ratios with a RoE in excess of 20 per cent and RoA in excess of 1.5 per cent.
Play on the economy of J&K: Being a dominant player in the state of Jammu & Kashmir, the Bank should mirror the performance of the state’s economy, which is showing signs of stability.
Adequately funded to pursue future growth opportunities: Jammu & Kashmir Bank is adequately funded to pursue future growth opportunities over the next 2-3 years.
Consistent dividend pay-out ratio: The Bank has a consistent dividend pay-out policy. J&K Bank distributes ~20 per cent of the earnings as dividends. Extrapolating this trend, we expect the dividend to be minimum Rs.40 for FY’13E and Rs.48 for FY’14E.
Valuation & Recommendation
Jammu & Kashmir Bank posted Net Interest Income of Rs.1089 crore compared to Rs.871 crore, an increase of 25 per cent y-o-y. The Bank registered a pre-provisioning profit of Rs.837.8 crore compared to Rs.629.1 crore, an increase of 33.2 per cent y-o-y. Profit after tax for H1FY’13 stood at Rs.515.6 crore. EPS for the half-year stood at Rs.106.4.
Considering the improving prospects, consistent growth in earnings, we expect a strong re-rating in terms of valuation. We value J&K Bank at 1.45x FY’14E adj. book value to arrive at a price target of Rs.1710 over the next nine months (an upside potential of 22 per cent).

Balrampur Chini UNDERPERFORM- HDFC Sec


Higher SAP dents profitability
The UP state govt has increased the sugarcane price
for SS13 by Rs 40/quintal to Rs 275-290/qtl for all
varieties. Average cane variety will cost Rs 280/qtl vs
Rs 240/qtl in SS12.
Sugarcane constitutes 85-90% of total operating cost.
Hence, a higher cane price can significantly dent
EBIDTA. FY13 profitability will be less impacted as
2/3rd of the sales will take place from low cost
opening inventory. However, FY14 profit estimates
are revised down by 83% post the SAP hike,
compounded by the likelihood of another hike next
year (2014 is an election year).
This adverse situation can be possibly countered by
an increase in freesale sugar prices (tight demandsupply,
sugar production set to fall 10% in SS13) and
removal of levy quota (as suggested by the
Rangarajan committee).
BRCM benefits from freesale sugar prices. Co is set
for ~8% higher crushing (9.1 mT) in FY13 and has a
strong balance sheet (D/E 0.5 as at Sep-12).
Downgrade to UPF, TP Rs 52 (0.95x FY14E BV, 50%
discount to 6 yr avg P/BV of 1.9).
 UP’s State Advised Price (SAP) for cane in SS13 has
been set at Rs 280/qtl. This is 65% higher than FRP (set
by the centre) of Rs 170/qntl. Sharp increases during
the exit years of the BSP tenure plus this hike have led
to doubling of cane price in UP over the last 4 years.
 India’s sugar production is likely to fall by 10% in SS13
to 23.6 mT due to a sub-par monsoon. There should be
~20% fall in production in Maharashtra & Karnataka
and 10% increase in UP (UP players should benefit).
 Sugar prices are likely to remain strong in FY13 & FY14
due to tight demand-supply scenario & high cane cost.
 We have decreased our PAT estimate for FY13E/ FY14E
by 4/83% due to higher cane cost. However, if levy
quota is abolished, our earnings can rise significantly.
 Downgrade to UPF with a TP of Rs 52 (0.95x FY14E BV,
50% discount to 6 yr avg P/BV of 1.9).
 Key Risks : Removal of import duty and rupee
appreciation is a key risk (details overleaf). Central
elections scheduled for 2014 may lead to further
increases in cane price (SAP) for SS14