15 May 2013

IDFC Asset Allocation Fund - Moderate Plan: Invest ::Business Line


Parag Parikh Financial Advisory Services - Long Term Value Fund ::Business Line


Financial services players who offer equity broking and portfolio management services are increasingly exploring the mutual fund space. Motilal Oswal, for instance, just launched an actively managed fund.
The latest entrant is Parag Parikh Financial Advisory Services (PPFAS), which has a long track record in portfolio management services. PPFAS is launching its ‘Long Term Value Fund’.
The fund’s investments in Indian equities would be to the tune of 65 per cent of the portfolio, with the rest being invested in international equity and/or debt.
The scheme emphasises on two important aspects of investing — a value focus and a long-term perspective.
PPFAS is targeting those interested in staying invested for a period of at least five years, for meaningful capital appreciation. Also, its focus seems to be on value investing and traditional parameters such as price-earnings multiple, return on capital, cash flows and debt equity ratio, among others, to identify stocks. In other words, ‘flavour of the month’ or momentum stocks and sectors may not find a place in the portfolio unless valuations are compelling.
There are many advantages to the fund’s intended investing style.

KEY POSITIVES

Remaining firmly anchored to value means that there is greater scope for capital appreciation over the long term of five- seven years, though it may mean missing out on some short rallies.
PPFAS Long Term Value does not have any specific bias towards stocks based on their market capitalisation and is likely to be a multi-cap fund. This could help the fund rove across the market for suitable choices, widening its universe.
The scheme would stop accepting lump-sum investments when it feels that the markets have become overheated, though it will continue to accept investments through the SIP (systematic investment plan) route.

COST ASPECT

Another attractive aspect of the scheme is that it would not pay its distributors any upfront commission, but only trail fees.
Interestingly, for a fund that seeks to keep its investors hooked for the long term, it does not intend to charge exit loads across any timeframe. The AMC has indicated that its senior management team would invest a ‘substantial’ portion of their personal investible surplus in the fund.

THE INTERNATIONAL PORTION

The fund will also invest in international equity, which can be as high as 35 per cent of the portfolio. This will help in portfolio diversification.
Templeton India Equity Income has a similar mandate that enables it to invest locally and in other emerging markets. It has delivered quite well over the past five years.
With returns of 7.3 per cent annually, it has leveraged well its substantial experience in investing in emerging markets.
Of course, PPFAS’ track record in overseas investing is untested and hence may be a tad risky.
But in recent times, Birla Sun Life International Equity, a fund that invests entirely overseas, has done quite well without any entrenched experience in investing overseas. This would be encouraging for the likes of PPFAS. The fund may also invest up to 35 per cent in debt.
But 65 per cent of investments would be in Indian equities so that it gets tax exemption on long-term capital gains. It remains to be seen how the value focus, alongside international diversification, pays off for the fund.

10 warning signs that your business is failing ::Business Line


This article is inspired by the Ten Commandments for Business Failure — an interesting book written by Donald Keough. Don is on the board of Berkshire Hathaway, Allen & Company and The Coca Cola Company (where he worked for over four decades).
He has also been on the boards of Columbia Pictures, McDonald’s Corporation, The Washington Post Company, H. J. Heinz Company, and The Home Depot.
In our obsession with success, we often forget that it is equally, if not more, important to avoid failure.
This article is in the spirit of Charles Munger, who says, “All I want to know is where I'm going to die so I'll never go there.”
Here are the Ten (plus one bonus) commandments, that share the wisdom and business insights gathered over several decades and of immense value to any manager, businessman or investor.
Companies/executives displaying early warning signs of any of these are bound to fail:
Quit taking risks: As companies become large and have been in existence for a long period, their appetite for risk reduces.
There’s a reputational issue if their experiments fail in public, making it easy for companies to fall into the trap of not taking risks.
For example, most of the inventions in computers such as the graphical user interface or the mouse came out of Xerox, but the company never risked taking them public — as a result forgoing the success that it could have had to Apple and Microsoft.
As finance professors say, without risk there is no reward — no free lunch you see. In fact, the very reason that these companies grew to be so big in the first place was because they made few risky bets that paid off handsomely.
Be inflexible: It’s a cliché, but in today’s world of creative and technology driven disruptive innovation, change is the only constant. Companies that are not agile and quick to react can easily perish. Don mentions the case when Coke lost market to Pepsi during the 1940s because the company fell in love with its six-and-a-half ounce bottle, while Pepsi had launched a 12-ounce package.
Coke refused to change and it took them over a decade to realise their blunder.
Isolate yourself: It is easy for successful companies and people to get into a bubble, making them insulated from the real state of affairs and easy prey for companies that are hungrier.
Signs of isolation can be visible in something as benign as the office layout where senior executives disconnect themselves from the rest of the organisation by having separate floors for themselves, direct elevators, and all the other indulgences that come with position and power.
It also displays itself, when bosses surround themselves with yes men, breeding a culture of sycophancy where no one has the guts to face facts. This is a particularly easy trap for firms in financial services business.
Who knows, maybe this too is one of the reasons why big financial institutions go bust.
Assume infallibility: Success breeds over-confidence, which is the beginning of downfall.
Companies and leaders, who do not accept problems or mistakes, miss the opportunity to fix them until it becomes too late. Humble leaders who consider their companies larger than themselves and the society larger than their companies are the ones that are truly infallible.
Play the game close to the foul line: Trust is the key for any business venture to survive and thrive in the long run. It is hard to retain customers, employees and investors when there is sense of trust deficit and foul play.
In tennis, when you play too close to the line, you are bound to be out of bounds part of the time.
For example, when companies become more interested in managing the stock rather than managing the business, it is easy to do what one could get away with rather than what is right for the business.
Don’t take time to think: These days, companies are flooded with data and it becomes easy to get lost in the details without taking time to think. Data are not necessarily information and can’t replace intuition.
Put all the faith in experts and outside consultants: Consultants are best equipped to advice on select matters, but when you have an entire company being run by consultants, it is a cause for concern.
Love your bureaucracy: Processes and segregation of duty are expected to help achieve efficiency.
But sometimes, too many processes and layers/silos within the organisation (especially common in large companies/MNCs) could stifle decision making.
Then you end up with a company working for the processes rather than the processes working for the company
Send mixed messages: This is the case where the leadership does not send clear messages to other stakeholders of the firm.
Such lack of clarity is usually early warning for losing focus.
Be afraid of the future: When caution becomes the over-riding way of work in a business, it can lead to failure.
The warning sign for over-cautiousness is when companies get into analysis paralysis without taking timely decisions. Sometimes any decision is better than none.
And the bonus Commandment…
Lose your passion for work — for life: For a company to go from good to great it needs passionate people driving it.
This can be best seen in immensely successful tech companies such as Apple, Facebook and Google — where the founders brought immense passion to work and helped shape the companies into what they are today.
It is easy for companies and its employees to lose the passion once the founder retires or the founding team moves on, unless a concerted effort is made to address the challenge.
‘Passion’ is probably the most easy to observe amongst all the attributes — because it shows!

Worst is yet to come Info Edge:: Centrum


Worst is yet to come
Info Edge posted Q4FY13 results below our expectations with revenue growth of 9.9%YoY with mere 4.4%YoY growth in recruitment business, 621bps fall in EBIDTA margin and 11.5%YoY de-growth in Adj. net profit. The company has also written-off Rs293mn investment in 99labels.com in the quarter. We expect challenges ahead for its core recruitment businesses and hence maintain Neutral view on the stock.

Results below expectations: Info Edge posted Q4FY13 results below expectations with topline at Rs1171mn (v/s est of Rs1182mn), up 9.9%YoY on the back of mere 4.4%YoY growth in the recruitment vertical while new businesses grew by 35% YoY. Operating profit was down by 7.1%YoY on the back of 621bps drop in margins as the company had 44.7%YoY increase in admin and other expenses and 15.7% increase in A&P and employee cost. During the quarter, the company wrote off Rs293mn investment in 99labels.com impacting profitability. Adjusting for it, PAT was at Rs356mn (v/s est. of Rs388mn), down 11.5%YoY.

Recruitment business continues to be under pressure: During the quarter recruitment business growth was mere 4.4% as the company serviced 26K unique customers against 25K in Q4FY12. Also for FY13, the company added mere 2K unique customers while pricing was flat in the past 15 months as the company could not hike prices due to the economic slowdown. Margins for the recruitment business during the quarter were at 49.1% (down 580bps YoY) on the back of low revenue traction. Though collection growth for the quarter was 3.8% YoY, for Naukri corporate sales continued to remain flat. The management continued to maintain caution and did not expect the business to improve over the next two quarters unless economic sentiments improved drastically.

Apollo Tyres - Trade-off between volumes and margins to continue -LKP


Volumes decline yet again in Q4, falling NR prices save the day
Apollo’s standalone net sales de-grew by 10% yoy and remained flat qoq to Rs 20.4bn on the back of weak OEM volumes and flat realizations. The entire 10% drop in sales has come on the back of volume decline mainly at the OEM side, both trucks as well as cars segments. Replacement demand showed some signs of improvement but could not make a meaningful impact on the topline. The company had also taken a price cut of c.1% in March on the back of falling NR prices. At the EBITDA levels, profits grew by 13.4% yoy to Rs2.46 bn and EBITDA margins firmed up to 12.1% from 9.6% yoy and 10.1% qoq as natural rubber prices moved down in the range of Rs150-160/kg. Other expenses increased as a % of sales to 14.4% from 13.6% qoq and 11.5% yoy as the company has initiated an ad campaign on TV last quarter which led to higher ad spend. Other income moved up to Rs247 mn as it included a one-off insurance claim writeback and recovery from certain employees for misappropriation of accounts. Depreciation expenses have remained flattish once again at Rs 556mn. Interest costs went down to Rs 628mn, 16% down yoy and 5.9% down qoq, while tax rate was at 42% which includes one off MAT credit. On margin accretion, PAT increased by 22.1% yoy and 34.1% qoq to Rs 882 mn.
Consolidated net sales de-grew by 6% both yoy as well as qoq to Rs 30.3 bn as overall volume growth remained weak and realizations remained flattish in all the three geographies. However, at the EBIT levels India performed well, while Europe showed a seasonal drop in margins at 11.73% from 17.2% qoq. South Africa reported a loss of Rs73 mn. Consol EBITDA margins came in at 11.7% slightly down from 11.9% qoq while up from 11.1% yoy as other expenses went up as a new R&D division was started at Netherlands to cater to their Vredestein business. Consolidated PAT adjusted for an exceptional item of Rs 168mn came in at Rs1.24bn, 28% qoq and 21% yoy drop on weak Europe and SA operations.
Outlook and valuation
Apollo’s Q4 results were a bit subdued because of the volume decline in India, weak margins in Europe in a seasonally weak quarter and continuation of underperformance from South Africa. Going forward, we believe Indian operations will continue to benefit from the tailwinds of natural rubber prices softening. Also downward movement of crude is expected to soften the prices of other crude based derivatives like synthetic rubber. Getting behind the capex cycle and reduction of debt will help to reduce interest costs and support the bottomline. The company is also free from the overhang of fund raising as these plans are postponed as of now. Overall demand improvement still seems to be far-fetched as we expect it to come only in H2 of FY 14 onwards. We believe that European operations will put up a strong margin show with Vredestein’s  speciality in the high margin winter tyres business and proliferation of the Apollo brand in newer countries like Austria, Denmark and Switzerland. Scrapping of the plans for new plant in Eastern Europe comes on the back of availability of enough capacities (utilization rate of 85% in Europe) on weak demand. This will provide the company with ample scope for improving profitability through operating leverage when demand comes back. On account of unpredictable and volatile nature of SA operations, we believe this operation will not breakeven before FY 15 and will continue to be a drag on the consol business till then. In view of the weak overall demand, and uncertainty in the SA operations, we have cut our FY 14E earnings estimates by 12% to Rs15.2 and have introduced FY 15E estimates while rolling over our target price to the same. We now value the stock @ 6x times FY 15E earnings of Rs 18.7 and arrive at a target price of Rs 112, which is an upside of 19% from CMP of Rs94. Maintain BUY mainly on the domestic and European margin performance and rolling over of estimates to a new year.


SHOPPERS STOP Loosening purse strings spur sales:: Edelweiss


Shoppers Stop’s (SSL) Q4FY13 sales jumped 15% YoY with PAT increasing
10.4% YoY. Key positives include: (1) departmental store like-to-like (LTL)
sales at 10% YoY despite high base of 10% and economic slowdown; and
(2) surge in HyperCity’s LTL gross margin to 21% (20.7% in Q4FY12) and a
significant rise in LTL sales growth to 11% (3% in Q3FY13). Key negative
was 53bps YoY decline in EBITDA margin. Expansion momentum
continued with a net addition of seven stores (five in Q3FY13). With
restoration of zero excise duty on branded apparel, we anticipate
recovery in SSL’s sales volume as gross margin benefit is passed on
partially to consumers. Also, with a robust expansion plan (to add 8
departmental stores and 2 HyperCity stores in FY14) mostly funded by
internal accruals, we maintain ‘BUY’.
This report also contains Q4FY13 conference call highlights.
Gross margin expands, but high expenses dent EBITDA margin
SSL’s standalone revenue surged 15% YoY aided by LTL volume growth of 1% YoY and
9% increase in ASP. Gross margin expanded 121bps YoY in Q4FY13. However, EBITDA
margin declined 53bps YoY due to rise in staff cost (up 69bps YoY), electricity (up 15bps
YoY) and other expenses (up 67bps YoY). Net profit grew 10.4% YoY to INR152mn.
HyperCity sales recover; LTL maintained
Average selling price in the departmental store format rose 9% YoY to INR1,028,
though LTL volumes increased a mere 1% YoY (LTL volume had increased 3.5% YoY in
Q3FY13 aided by the festive season). First Citizen members club touched 2.888mn,
which contributes 69% to sales. HyperCity reported a net loss of INR218.7mn, though
store level profit surged for the seventh consecutive quarter.
Outlook and valuations: Consumer sentiment improving; maintain ‘BUY’
On FY15E, we assign EV/sales target of 1x to HyperCity business and 1.2x to SSL
departmental business arriving at target price of INR498. With recovery in sales due to
reduction in apparel prices and likely recovery in discretionary spends, we maintain
‘BUY’ and rate it ‘Sector Performer’.

ABB, union bank, Corporation Bank, SIB, Angel Broking - Multiple Scrips - Result Updates


Forwarding you the Multiple Scrip’s Result Updates. Kindly click on the links to view the report.