StockWatch

StockWatch

Watch list
The following are fundamentally strong companies identified by Capital Market analysts. The list is constantly reviewed and updated,
adding scrips with upward potential and removing those that have, in our opinion, exhausted their run.
COMPANY IND. PRICE (Rs) TTM TTM P/E COMPANY IND. PRICE (Rs) TTM TTM P/E
NO. 02-06-2014 YEAR EPS (Rs) NO. 02-06-2014 YEAR EPS (Rs)
Ador Welding 41 175 201403 6.5 26.9 Jyoti Structures 102 55 201403 3.9 14.1
Andhra Sugars 109 128 201403 20.1 6.4 Kalpataru Power 102 180 201403 9.5 19.0
Apcotex Industri 106 157 201403 12.6 12.5 Kirl.Pneumatic 25 619 201403 30.2 20.5
Astral Poly 75 599 201403 17.4 34.4 KSB Pumps 78 502 201403 17.1 29.4
Auto.Corp.of Goa 10 272 201403 24.7 11.0 L G Balakrishnan 10 609 201403 69.2 8.8
BHEL 39 249 201403 14.2 17.5 Lak. Mach. Works 92 3356 201403 168.1 20.0
Bajaj Auto 8 1976 201403 112.1 17.6 Larsen & Toubro 45 1645 201403 54.4 30.2
Bajaj Electric 36 311 201403 0.0 0.0 LIC Housing Fin. 51 329 201403 26.1 12.6
Bajaj Fin. 50 2086 201403 143.4 14.6 M&M 7 1240 201403 60.3 20.6
BASF India 22 834 201403 31.1 26.8 M M Forgings 17 175 201403 23.3 7.5
Bayer Crop Sci. 68 1624 201403 79.1 20.5 Manjushree Tech. 62 242 201403 19.5 12.4
Bharat Forge 17 522 201403 16.8 31.1 Maruti Suzuki 6 2327 201403 92.1 25.3
Bharti Infra. 102 235 201403 5.8 40.5 McNally Bharat 45 90 201403 0.0 0.0
Bosch 10 12342 201403 287.7 42.9 Modison Metals 39 43 201403 3.6 11.9
Britannia Inds. 54 891 201403 32.0 27.8 Motherson Sumi 10 303 201403 6.1 49.7
Carborundum Uni. 1 166 201403 3.9 42.6 Munjal Showa 10 118 201403 17.4 6.8
Castrol India 22 295 201403 9.5 31.1 Navneet Educat. 77 74 201403 4.8 15.4
Cipla 70 386 201403 17.3 22.3 NBCC 31 299 201403 21.9 13.7
Clariant Chemica 22 709 201403 27.0 26.3 Paper Products 62 116 201403 7.9 14.7
Corporation Bank 11 363 201403 33.5 10.8 Power Grid Corpn 76 125 201403 8.6 14.5
CRISIL 106 1422 201403 30.3 47.0 PTC India 101 88 201403 8.4 10.5
D B Corp 47 308 201403 16.7 18.4 PTC India Fin 50 29 201403 3.7 7.8
DCM Shriram Inds 88 97 201403 16.7 5.8 Punjab Natl.Bank 11 979 201403 92.3 10.6
Engineers India 45 283 201403 14.2 19.9 Rallis India 67 188 201403 7.5 25.1
Ent.Network 47 412 201403 17.5 23.5 Reliance Inds. 80 1082 201403 60.9 17.8
Esab India 41 701 201403 21.1 33.3 SBT 11 534 201403 51.4 10.4
Essel Propack 62 87 201403 3.4 25.6 SKF India 13 948 201403 36.0 26.3
Everest Inds. 20 179 201403 6.0 29.8 South Ind.Bank 12 29 201403 3.8 7.6
Exide Inds. 10 144 201403 5.7 25.3 Speciality Rest. 57 149 201403 4.0 37.3
Fag Bearings 13 2308 201403 79.0 29.2 St Bk of India 11 2644 201403 145.9 18.1
Federal Bank 12 118 201403 9.8 12.0 Sterling Tools 48 175 201403 22.4 7.8
Foseco India 22 575 201403 26.4 21.8 Sundaram Finance 50 886 201403 39.8 22.3
GMDC 59 154 201403 13.8 11.2 Sundram Fasten. 48 84 201403 6.1 13.8
Gateway Distr. 106 226 201403 3.4 66.5 Supreme Inds. 75 508 201403 21.2 23.9
Godrej Consumer 65 786 201403 16.6 47.4 Swaraj Engines 46 860 201403 54.6 15.8
Goodyear India 105 430 201403 43.9 9.8 T.V. Today Netw. 47 149 201403 10.3 14.5
Greaves Cotton 46 100 201403 4.9 20.4 Tata Elxsi 28 512 201403 24.1 21.2
HDFC 51 898 201403 34.8 25.8 TCS 27 2130 201403 89.5 23.8
H T Media 47 115 201403 6.6 17.4 Tech Mahindra 27 1893 201403 111.0 17.1
HCL Technologies 27 1382 201403 75.7 18.3 Thermax 44 898 201403 21.2 42.4
HDFC Bank 12 820 201403 35.3 23.2 Tide Water Oil 22 9252 201403 811.8 11.4
Hikal 71 447 201403 39.0 11.5 TVS Motor Co. 9 130 201403 5.5 23.6
Honeywell Auto 43 4372 201403 109.0 40.1 TVS Srichakra 105 529 201403 61.9 8.6
HSIL 21 219 201403 8.5 25.8 Va Tech Wabag 44 1198 201403 33.2 36.1
IL&FS Transport 45 198 201403 10.8 18.3 Vesuvius India 81 621 201403 31.5 19.7
Indian Hume Pipe 20 204 201403 9.9 20.6 V-Guard Inds. 39 563 201403 23.5 24.0
Infosys 27 2994 201403 166.8 18.0 VST Till. Tract. 7 1270 201403 96.0 13.2
ING Vysya Bank 12 631 201403 37.0 17.1 WABCO India 10 2563 201403 62.0 41.3
Ingersoll-Rand 25 598 201403 21.2 28.2 Whirlpool India 36 296 201403 9.7 30.5
Intl. Travel Hse 104 235 201403 22.7 10.4 Wipro 27 499 201403 29.9 16.7
J & K Bank 12 1505 201403 243.9 6.2 Yes Bank 12 575 201403 43.4 13.3
JMC Projects 31 150 201403 8.8 17.1 Z F Steering 10 361 201403 15.5 23.3
This issue Automobile Corporation of Goa and Modison Metals replace KPIT Technologies and Tata Global. TTM: Trailing 12 months.

Jun 09 - 22, 2014 CAPITAL MARKET 67

StockWatch
Modison Metals
Growth to electrify
The only global single-source manufacturer of electrical contact
materials and finished contacts for the switchgear industry
Modison Metals makes all types of electri-
cal contacts in switchgears used in homes, Eyes acquisition
power plants and the Railways. The con-
sumption of this product depends on the Modison Metals plans to become a Rs
growth of the switchgear industry. 500-crore company by 2017 by organic as
Precision components forming the well as inorganic growth and a global
main active elements of electrical player by capacity and ability to respond
switchgear make or break currents at all
voltage levels in the alternate current and
the double current systems.
Products range from all contact materi-
als made by powder metallurgy or by melt-
ing and alloying and silver refining to fin-
ished contacts for the low-, medium- and
high-tension switchgear industry. Electron
beam welding machines, vacuum induction
melting furnaces, computer numerical con-
trol machining centers and silver plating are
used in the production process. The last couple of years saw the power
The state-of-the-art manufacturing facili- and switchgear industries going through a
ties are complemented by skilled and experi- turbulent phase. The power sector faced
enced manpower. These have added to the reform- and policy-related issues coupled
productivity and, thus, imparted a competi- with fuel shortage. No emerging economy
tive edge in the global market. Plants are at can sustain decent growth without enough
two locations in western India — Vapi and investment in the power sector. So the past
Silvassa — employing more than 350 people. few years of underinvestment in the power
Silver and copper are the key raw mate- sector will have to be compensated by higher
rials. No position is kept open for raw ma- investment in future years.
terials. The electrical contact busi-
ness is custom-made. Electrical con-
Modison Metals: Financials
tacts manufactured for one client will
not suit the other. This ensures cus- 1103 (12P) 1203 (12) 1303 (12) 1403 (12) 1503 (12P)
tomer loyalty. Net sales 148.68 189.68 159.10
Key customers of the organised
OPM % 19.6 16.3 11.8
player in the electrical contact in-
dustry include Areva, Alstom, OP 29.19 30.98 18.81
Crompton Greaves, Siemens, ABB, Other inc. 0.30 0.63 0.67
L&T and other power equipment PBIDT 29.49 31.61 19.48
players. More companies like Areva
Interest 1.18 2.69 3.16
are creating India as a manufacturing
PBDT 28.31 28.92 16.33
base. Areva China is sourcing the
contact requirement for its gas insu- Dep. 4.61 5.26 6.05
lated switchgear business due to the PBT 23.70 23.66 10.28
unsatisfactory quality of Chinese Ta x 7.86 7.68 3.72
contacts. The Chinese and the
PAT 15.84 15.98 6.56
unorganised sector, by and large,
cater to the low-end switchgear mar- EPS* 4.9 4.9 2.0
ket. So even domestic sales consti- * On current equity of Rs 3.25 crore. Face Value: Re 1.
(P): Projections. Figures in Rs crore.
tute indirect exports. This trend is Source: Capitaline Databases
expected to continue.
68
Introducing
Telefolio Gold
Pick right and
enjoy the full ride
see page 7
Despite the downturn of the past
couple of years, investment in capacity
continued so as to take maximum advan-
tage of economic revival, whenever it hap-
pens. The investment was to achieve the
strategic plan of becoming a Rs 500-crore
company by 2017 by organic as well as
inorganic growth. The expansion has brack-
eted the company with leading players in
the world by overall capacity and ability
to respond to the market
Also, international business develop-
ment has been selected as one of the high
impact business strategy to achieve the stra-
tegic plan. Participation in exhibitions in
Istanbul in Turkey and Hannover in Ger-
many is a step towards this direction. The
plan to appoint representatives and agents
in new geographies is in place and will fur-
ther help to achieve the target.
Net sales were up 9% to Rs 49.26 crore
and the opearating profit margin (OPM)
stood at 11.3%, boosting operating profit
(OP) 86% to Rs 5.55 crore in the quarter
ended March 2014 over a year ago. Interest
was lower by 22% to to Rs 0.66 crore and
depreciation 2% to Rs 1.61 crore. After pay-
ing total tax of Rs 1.23 crore, profit after tax
(PAT) stood at Rs 2.11 crore com-
pared with loss of about Rs 2 lakh in
the March 2013 quarter.
Net sales were up 15% to Rs
183.58 214.79
183.58 crore and OPM stood at
13.9%, resulting in OP of Rs 25.52
13.9 15.5
crore in the year ended March 2014
25.52 33.29 (FY 2014) over FY 2013. Other in-
2.06 1.40 come rose 208% to Rs 2.06 crore.
27.58 34.69 Interest costs was down 9% to Rs
2.89 crore and depreciation up 3%
2.89 2.50
to Rs 6.22 crore. Profit before tax
24.69 32.19
surged 80% to Rs 18.46 crore. Af-
6.22 6.50 ter providing total tax of Rs 6.27
18.47 25.69 crore, PAT spurted 86% to Rs
6.27 8.99 12.18 crore.
We expect net sales of Rs 214.79
12.2 16.70
crore and net profit of Rs 16.7 crore
3.8 5.1 in FY 2015, giving EPS of Rs 5.1. At
the current market price of Rs 43,
the share trades at 8.4 times ex-
pected FY 2015 earning. 
Jun 09 - 22, 2014 CAPITAL MARKET
MarketWatch
MarketWatch

High beta stocks score

The market extended gains in the fortnight ended 30 May 2014, triggered by surge in high-beta sectors including realty, power, metals and
capital goods. IT, banking and oil and gas stocks declined, however. While the 30-unit S&P BSE Sensex ended marginally higher, mid- and
small-cap shares spurted, with their respective barometers on the BSE sharply outperforming the Sensex. Among large-caps, Sesa Sterlite
and NTPC clocked major gains, while ITC and Infosys were the biggest losers

MARKET CLOSE FORTNIGHT 52-WEEK DIVIDEND P/BV VARIATION OVER (%)

CAP (VALUE) HIGH / LOW HIGH / LOW YIELD FORTNIGHT QUARTERLY YEARLY 3 YEAR
(Rs cr) (Rs) (Rs)
INDICES
S&P BSE Sensex 4072857.35 24217.34 24717 / 24122 24717 / 17906 1.44 2.80 0.40 14.66 19.80 32.83
S&P BSE 200 7189780.75 2951.21 3014 / 2898 3014 / 2101 1.38 2.53 1.84 18.30 20.13 30.26
S&P BSE 500 7997860.60 9206.01 9398 / 8970 9398 / 6477 1.37 2.07 2.63 19.41 21.38 29.29
S&P BSE Mid-Cap 1327878.17 8467.22 8668 / 7766 8668 / 5224 1.33 0.99 9.03 30.26 30.75 24.74
S&P BSE Small-Cap 488234.30 9015.73 9128 / 7886 9128 / 5101 1.16 1.45 14.33 39.89 49.33 10.56
S&P BSE IT Sector 901621.15 8455.36 8719 / 8214 9792 / 5919 1.61 4.71 -2.16 -13.65 40.62 41.77
S&P BSE FMCG Sector 613122.43 6864.13 6963 / 6685 7548 / 6106 1.53 9.77 -1.42 5.86 -0.88 81.92
S&P BSE Capital Goods 347873.54 14716.81 14914 / 13482 14914 / 6899 0.94 3.45 9.16 41.84 53.74 13.87
S&P BSE Healthcare 402643.36 10315.41 10323 / 9945 10858 / 8398 0.85 4.76 -0.07 -4.84 15.52 64.36
S&P BSE PSU 1811976.81 8054.53 8614 / 7580 8614 / 4908 2.54 1.52 6.26 46.05 18.42 -4.68
S&P BSE BANKEX 866193.19 16953.86 17523 / 16954 17523 / 9871 1.19 2.09 -0.24 38.01 15.96 38.04
S&P BSE Auto 485570.95 14493.77 14795 / 14231 14795 / 9899 1.14 3.29 1.85 15.04 27.48 63.83
S&P BSE Metal 630223.90 12292.69 12550 / 11085 12550 / 6467 2.07 1.35 10.90 41.93 41.85 -18.84
S&P BSE Oil&Gas 969622.24 10854.09 11585 / 10854 11585 / 7785 1.71 1.72 -1.38 28.82 22.02 14.49
S&P BSE IPO 67601.39 1932.98 1977 / 1733 1977 / 1075 1.09 3.23 11.56 21.25 28.14 8.92
S&P BSE Greenex 2108914.82 1943.27 1943 / 1880 1943 / 1421 1.35 2.83 3.36 14.04 19.41 -
S&P BSE Power 493460.97 2166.65 2287 / 1950 2287 / 1355 1.82 1.75 11.09 41.75 21.11 -13.89
S&P BSE Realty Index 88896.13 1894.34 1977 / 1606 1977 / 1151 0.85 0.93 17.99 57.40 8.63 -10.83
LARGE CAPS
TCS 419984.45 2144.20 2159 / 2035 2370 / 1394 1.49 9.53 -0.62 -5.66 43.09 85.93
Reliance Inds. 344332.70 1065.15 1128 / 1065 1128 / 781 0.81 1.75 -1.42 33.27 27.43 13.35
ONGC 323611.03 378.25 416 / 375 416 / 244 2.51 2.39 -1.74 29.74 13.35 35.87
ITC 271601.20 341.50 358 / 338 376 / 297 1.53 10.36 -4.49 4.27 -3.60 82.04
Coal India 234431.70 371.15 401 / 346 401 / 244 3.77 14.26 7.38 52.11 13.21 -6.10
HDFC Bank 190987.90 794.10 823 / 790 823 / 561 0.69 4.39 -1.32 18.97 9.71 72.01
St Bk of India 189770.63 2541.90 2755 / 2414 2755 / 1473 1.50 1.60 5.29 65.95 21.71 13.68
Infosys 168912.70 2941.50 3178 / 2924 3836 / 2342 2.14 4.01 -7.44 -23.00 25.59 5.80
ICICI Bank 163944.11 1418.40 1471 / 1418 1471 / 784 1.41 2.24 -3.17 35.90 19.92 32.13
Larsen & Toubro 143646.38 1548.90 1577 / 1426 1577 / 695 0.79 4.93 8.62 39.75 62.85 42.48
Bharti Airtel 137510.56 344.00 348 / 332 366 / 278 0.28 2.06 3.54 19.65 8.90 -7.59
HDFC 136892.95 876.60 941 / 877 941 / 654 1.41 4.90 -1.00 7.12 -5.30 31.07
Tata Motors 133716.74 415.45 450 / 415 450 / 270 0.48 6.98 -7.64 -0.38 31.10 92.67
NTPC 131803.68 159.85 160 / 132 160 / 112 3.60 1.54 21.24 41.96 1.98 -4.94
Hind. Unilever 129991.96 600.95 601 / 557 719 / 539 3.08 39.67 3.49 9.50 1.08 98.46
Sun Pharma.Inds. 125804.69 607.40 613 / 577 645 / 470 0.41 15.55 -0.95 -5.49 13.24 161.25
Wipro 124591.62 505.00 514 / 482 603 / 326 1.38 4.17 0.43 -15.37 49.79 14.34
HCL Technologies 99175.27 1417.35 1440 / 1304 1576 / 727 0.84 9.69 3.84 -10.07 91.11 178.54
IOCL 87612.58 360.85 371 / 326 371 / 192 1.72 1.33 10.55 45.45 22.41 12.85
Axis Bank 86471.86 1836.15 1874 / 1757 1874 / 783 0.97 2.26 4.51 45.05 28.14 47.39
Sesa Sterlite 82863.37 279.50 280 / 215 280 / 124 0.01 2.46 30.03 57.38 77.18 -0.99
M&M 75784.03 1230.50 1231 / 1099 1231 / 767 1.05 5.17 10.80 26.41 22.49 85.15
Maruti Suzuki 68557.06 2269.50 2385 / 2154 2385 / 1236 0.35 3.69 5.34 43.07 38.58 87.71
NMDC 67479.19 170.20 180 / 162 180 / 95 4.11 2.45 5.29 33.70 42.55 -36.10
Kotak Mah. Bank 66831.75 867.55 916 / 859 916 / 600 0.08 5.44 -4.18 26.98 8.73 98.77

Jun 09 – 22, 2014 CAPITAL MARKET 69

MarketWatch

MARKET CLOSE FORTNIGHT 52-WEEK DIVIDEND P/BV VARIATION OVER (%)

CAP (VALUE) HIGH / LOW HIGH / LOW YIELD FORTNIGHT QUARTERLY YEARLY 3 YEAR
(Rs cr) (Rs) (Rs)
MID CAPS
CRISIL 9969.81 1404.95 1405 / 1345 1405 / 934 1.35 16.37 4.48 24.91 50.37 106.32
Ipca Labs. 9938.25 787.50 802 / 735 900 / 594 0.51 5.02 0.25 -11.25 31.44 139.36
Federal Bank 9934.48 116.15 127 / 107 127 / 46 1.55 1.43 8.10 51.53 28.81 32.50
Tata Comm 9912.30 347.80 348 / 294 348 / 143 0.86 1.29 18.38 25.72 64.25 64.13
Godrej Inds. 9910.67 295.40 313 / 291 329 / 229 0.59 6.90 1.65 6.76 -3.67 59.16
Sundaram Finance 9877.90 889.10 889 / 736 889 / 464 1.01 4.11 20.79 47.62 58.15 261.45
Just Dial 9845.33 1403.10 1428 / 1098 1745 / 605 0.00 18.42 27.77 -1.77 - -
MRF 9635.57 22725.40 23119 / 22258 23749 / 12222 0.13 2.64 2.10 19.13 51.36 240.98
IOB 9536.89 77.20 80 / 67 80 / 39 1.94 0.66 14.88 68.74 24.72 -45.52
Bhushan Steel 9377.10 414.00 463 / 413 497 / 413 0.12 1.05 -10.54 -8.58 -11.01 -5.69
Engineers India 9360.19 277.80 304 / 261 304 / 124 2.16 3.80 6.48 85.32 68.62 5.69
Hind.Copper 9261.45 100.10 105 / 82 105 / 44 1.00 5.06 22.45 69.23 1.88 -64.15
Tata Global 9226.53 149.20 157 / 145 170 / 129 1.44 3.62 3.15 6.76 0.95 71.89
MphasiS 9173.07 436.50 437 / 379 485 / 363 3.89 2.47 13.32 12.21 -9.94 -7.09
Blue Dart Exp. 9155.39 3858.15 3878 / 3440 3974 / 2174 1.84 14.41 12.17 16.07 42.35 188.92
MMTC 9115.00 91.15 96 / 62 228 / 39 0.11 6.79 47.37 96.87 -59.99 -89.98
Apollo Tyres 8900.64 176.60 191 / 173 191 / 56 0.28 3.27 2.05 33.99 96.11 157.06
Syndicate Bank 8806.58 141.00 149 / 121 149 / 63 4.58 0.81 16.19 74.83 7.18 23.09
Biocon 8752.00 437.60 451 / 428 496 / 266 1.71 3.62 2.14 -4.57 60.35 28.35
Ashok Leyland 8594.06 32.30 33 / 27 33 / 12 1.86 2.62 20.07 106.39 32.65 28.69
Berger Paints 8567.02 247.25 253 / 234 253 / 196 0.73 8.71 4.24 16.90 2.21 141.69
Shri.City Union. 8434.37 1422.65 1442 / 1364 1442 / 860 0.55 2.91 4.22 44.70 29.07 155.64
Indian Bank 7916.40 170.30 176 / 146 176 / 62 3.58 0.69 17.04 93.52 15.61 -22.52
Oberoi Realty 7862.75 239.55 247 / 223 247 / 157 0.83 2.88 7.13 26.25 1.85 8.34
Alstom T&D India 7849.21 306.55 318 / 271 318 / 119 0.55 6.29 13.20 65.12 87.09 27.17
SMALL CAPS
Pipavav Defence 4976.78 67.60 68 / 45 70 / 32 0.00 2.14 50.39 100.30 -3.77 -18.36
Tube Investments 4973.84 266.10 272 / 220 272 / 127 0.75 4.01 20.90 41.35 81.82 105.64
Hathway Cable 4949.12 325.60 326 / 250 326 / 228 0.00 4.71 30.14 33.52 15.69 189.17
3M India 4915.97 4362.00 4362 / 3900 4362 / 2966 0.00 7.49 11.85 18.21 21.28 12.40
SKF India 4914.17 931.95 932 / 823 932 / 440 0.80 3.85 13.22 38.23 64.74 51.67
WABCO India 4905.52 2587.30 2587 / 2140 2587 / 1552 0.19 6.50 20.90 46.59 58.73 158.74
Fortis Health. 4880.10 105.45 116 / 103 116 / 85 0.00 1.32 2.58 11.94 15.82 -35.07
Godrej Propert. 4850.35 243.45 251 / 220 265 / 155 0.64 2.71 10.89 45.69 -7.98 -20.87
GMDC 4814.52 151.40 156 / 133 156 / 80 1.98 1.68 13.71 43.78 7.34 4.09
Karur Vysya Bank 4809.61 448.50 463 / 399 464 / 300 3.12 1.45 12.39 43.09 -2.61 9.39
Guj Gas Company 4775.39 372.35 382 / 372 413 / 162 1.88 3.90 -0.79 63.42 57.54 2.17
Arvind Ltd 4736.31 183.45 200 / 179 200 / 66 0.90 2.01 2.72 17.56 123.45 130.32
IL&FS Transport 4714.82 191.10 217 / 157 217 / 96 1.65 1.77 21.99 85.48 11.00 2.53
Alembic Pharma 4638.04 246.05 257 / 234 306 / 125 1.02 7.37 -4.22 -8.07 80.06 -
EIH 4635.27 81.10 88 / 77 88 / 44 1.11 1.93 4.92 25.15 39.71 -1.70
Chola. Invest. 4553.28 317.90 356 / 290 356 / 209 1.04 1.98 9.51 39.37 14.70 110.60
CMC 4545.00 1500.00 1558 / 1369 1734 / 1160 1.17 4.22 7.90 0.23 19.47 25.12
Jaypee Infratec. 4541.80 32.70 38 / 30 38 / 15 3.06 0.75 8.46 77.24 -4.80 -37.89
Akzo Nobel 4521.59 969.05 1005 / 828 1175 / 757 8.26 3.60 17.01 24.85 -14.02 14.68
Indraprastha Gas 4494.70 321.05 339 / 314 339 / 243 1.71 2.55 2.02 26.55 14.35 -3.36
Century Textiles 4448.24 478.10 511 / 417 511 / 199 1.15 2.55 14.58 49.99 64.44 47.47
Dena Bank 4415.47 82.10 85 / 69 87 / 43 3.73 0.70 18.39 58.95 -5.36 -9.88
Guj Fluorochem 4410.29 401.30 401 / 347 401 / 194 0.87 1.75 15.73 69.22 43.04 9.51
Sobha Developer. 4386.22 447.30 449 / 427 449 / 218 1.56 1.96 4.77 52.64 12.49 70.60
Kaveri Seed Co. 4346.32 630.85 656 / 534 656 / 281 0.50 8.37 18.24 14.60 123.21 707.02
Only top 25 companies by market cap selected in each category. Large caps have market cap above Rs 10000 crore. Mid caps have market cap between Rs 5001 crore and Rs 10000 crore.
Small caps have market cap below Rs 5000 crore. Closing value of indices is in points and for stocks in Rs. Stock prices adjusted for stock-splits, bonus and rights issues if any.

70 Jun 09 – 22, 2014 CAPITAL MARKET

ApnaMoney
Taxation
Wealthy and wise
The value of debt owed is to be deducted to arrive at
the value of the net taxable wealth
An individual, a Hindu undivided family
(HUF) and a company whose net wealth on
the valuation date (i.e. 31 March) exceeds
Rs 30 lakh is liable for wealth tax. A resi-
dent Indian citizen, a resident HUF and ev-
ery resident company is liable to wealth tax
of world assets, i.e., assets located in India
as well as outside India.
However, an individual who is not a citi-
zen of India (may be resident and ordinarily
resident or not), a resident but not ordinarily
resident individual or HUF and every non-
resident (may be individual or HUF or com-
pany) is liable to wealth tax only for assets
located in India.
Wealth tax is levied at 1% on net wealth
in excess of Rs 30 lakh. No cess or surcharge
is levied on wealth tax. Wealth tax is not
levied on all assets owned by a person but
is levied only on movable property includ-
ing motor cars (other than those used by the
assessee in the business of running them on
hire or used by the assessee as stock-in-
trade); yachts, boats and aircraft other than
those used by the assessee for commercial
purposes; and jewellery, bullion, furniture,
utensils or any other article made wholly or
partly of gold, silver, platinum or any other
precious metal or any alloy containing one
or more precious metals other than used by
the assessee as stock-in-trade.
Jun 09 – 22, 2014 CAPITAL MARKET
ApnaMoney
Jewellery in excess of Rs 30 lakh attacts wealth tax
Immovable property attracting wealth
tax comprises any building or land appur-
tenant including a farm house situated
within 25 km of a municipality or canton-
ment board excluding any residential prop-
erty that has been let out for a minimum
period of 300 days in the previous year, and
any house occupied by the assessee for the
purposes of any business or profession car-
ried on by him.
Urban land other than land on which
construction is not permissible under any
law for the time being in force, any land on
which construction is done with the ap-
proval of the appropriate authority, or any
unused land held by the assessee for indus-
Investment Strategy
trial purposes will be excluded from wealth
tax for two years from the date of its acqui-
sition. Any land held by the assessee as
stock-in-trade will be excluded for 10 years
from the date of its acquisition.
Cash in hand in excess of Rs 50000 in
case of an individual and HUF and any
amount not recorded in the books of account
case of a company will attract wealth tax.
Assets belonging to a minor child will be
clubbed along with the net wealth of parent.
Clubbing provisions will not apply on any
asset acquired by the minor out of income aris-
ing to the child by application of skill, talent
or specialised knowledge and experience.
A person can claim exemption from
wealth tax on one house, part of a house or
a plot of land (not exceeding 500 sq mt).
The value of debt owed for taxable assets is
to be deducted to arrive at the value of the
net taxable assets.
The due dates for filing the return of
wealth tax are same as due dates for filing
the return of income specified under Sec-
tion 139 of the Income Tax Act, 1961. If the
assessee is liable to audit, due date will be
30 September in other cases the due date
will be 31 July.
A belated return or revised return can be
filed within one year from the end of the as-
sessment year or before completion of assess-
ment, whichever is earlier. Interest at 1% per
month or part of the month is levied for de-
lay in filing the return of wealth tax. Penalty
up to 100% of the amount of tax in arrears
can be levied for non-payment of wealth tax.
Penalty for concealment of wealth can be up
to 500% of the tax sought to be avoided.
— Tushar Doctor
71
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InFocus
ApnaMoney
Investment Strategy
Dark clouds
Contingent liabilities and non-provisioning could hit the balance
sheet and the P&L account of some companies
A critical feature to take into account while
analysing the financial results of compa-
nies is the presence of contingent liabilities
and non-provisioning for potential liabili-
ties. Materialisation of this crucial omis-
sion can make or break the books of ac-
counts in subsequent years. Companies
with sizable contingent liabilities should be
explored with caution.
If investors are serious about such com-
panies it is essential to look at the quantum
of contingent liabilities and non-provision-
ing. As a second step, they should examine
the major contingent liabilities and non-pro-
visioning and check if there is a probability
of these liabilities hitting the balance sheet
and profit and loss (P&L) account going for-
ward. Though difficult, this is essential.
In a major development, the Competi-
tion Appellate Tribunal (Compat) in May
2014 dismissed DLF’s appeal against the
Rs 630-crore penalty imposed by the Com-
petition Commission of India (CCI).
Compat upheld certain findings of the ear-
lier orders of the CCI. DLF will be challeng-
ing the order passed by the tribunal in the
Supreme Court (SC), for which it has been
given 60 days. As per the company, it has
successfully delivered Park Place, Belaire and
Magnolia projects in Gurgaon, which were
the subject matter of the appeals.
74
On a complaint filed by the Belaire and
Park Place owners’ associations, the CCI
had in August 2011 imposed a penalty of
Rs 630 crore on DLF. The CCI restrained
the developer from formulating and impos-
ing allegedly unfair conditions on buyers and
ordered suitably modification.
The orders of the CCI were challenged
by DLF by filing appeals with the Compat,
which granted a stay against the order of the
CCI imposing penalty and ordered that the
directions of the CCI for modifications of
the terms of the agreement be kept in abey-
ance. In the latest development, DLF has
lost its case with the tribunal. Now it has no
option but to knock the doors of the SC.
This is one of the most important ver-
dicts by the tribunal since the formation of
the CCI in 2012. The CCI has imposed pen-
alty on several cement companies alleging
cartelisation. The cement producers have
treated the possible penalty as contingent
liability and have not made provision for it.
In this context, the verdict of the tribunal in
DLF’s case is important.
Likewise, CCI has imposed a penalty
of Rs 1175.5 crore on the country’s largest
cement manufacturer for alleged
cartelisation. UltraTech Cement has filed
an appeal with the Compat. The order of
the CCI has been stayed on the condition
Investment Strategy
that 10% of the penalty amounting to Rs
117.6 crore is deposited by the company.
As the matter is pending, no provision has
been considered necessary (see box:
Ganging up).
In several cases, contingent liabilities
and non-provisioning are overhangs on com-
panies’ P&L account for years. However,
this does not mean such liabilities should
be shrugged off as old issues. Such liabili-
ties could materialise and hit the balance
sheet in future.
Ramalinga Raju and family, the erstwhile
promoters of IL&FS Engineering & Con-
struction Company, earlier known as
Maytas Infra, had placed Rs 362.3 crore as
inter-corporater deposits (ICDs) at the
standalone level and Rs 343.8 crore at the
consolidated financial statement level with
various companies. Documentary evidence
established that the then Satyam Computer
Services was the ultimate beneficiary of Rs
323.8 crore at the standalone level and Rs
342.1 crore on consolidated basis. A claim
together with interest receivable had been
lodged by the company.
Satyam is now merged with Tech
Mahindra pursuant to a scheme of arrange-
ment under Sections 391 to 394 of the
Companies Act, 1956. As per the scheme
of merger approved by the High Court
(HC) of Andhra Pradesh, this amount in
the books of Satyam was transferred to
Tech Mahindra.
In the meantime, IL&FS Engineering
through its subsidiaries preferred an appeal
with the division bench of HC of Andhra
Pradesh against the single judge’s order ap-
proving the merger scheme of Satyam. This
suit is pending. Tech Mahindra has been
showing this amount of Rs 1230.4 crore
under ‘Amounts pending investigation —
suspense account’.
The claim made by IL&FS Engineering
& Construction is included in this account
by Tech Mahindra. The company is confi-
dent of recovering the ICDs together with
interest. As earlier, the statutory auditors
continue to qualify the books of account on
this count.
In another instance, Sterlite Technolo-
gies continues to fight its matter related to
excise duty in the Supreme Court (SC). The
Customs Excise and Service Tax Appellate
Tribunal (Cestat) in FY 2006 had upheld a
demand of Rs 188 crore including penalties
and excluding interest in the pending excise
matter. The company’s statutory auditors
Jun 09 – 22, 2014 CAPITAL MARKET
ApnaMoney
InFocus Investment Strategy

have expressed qualification on this matter.
Sterlite is contesting this case in the SC and
the matter continues to be under litigation.
There are several instances where non-
provisioning is a serious matter. Tayo Rolls
received a jolt when the HC of Jharkhand
delivered a judgment against it in May 2013.
This verdict was about the applicability of
power tariff-rectified energy bill of Rs 272
crore issued in June 2013. This judgement
has been challenged on various legal grounds
with the HC of Jharkhand. The appeal was
admitted on merit in July 2013. Tayo is a
Tata Steel subsidiary manufacturing cast and
forged steel rolls.
Maruti Suzuki remains engaged in liti-
gation over its land in Haryana. The SC has
set aside the judgment of the Punjab &
Haryana HC. The SC directed the HC for
fresh determination of the compensation
payable to the landowners. This is based
on an appeal filed by the Haryana State
Industrial and Infrastructure Development
Corporation (HSIIDC) demanding addi-
tional compensation for land acquired at
Manesar in Haryana for industrial purpose.
Maruti has filed an impleadment applica-
tion with the HC and HSIIDC has revised
the demand on the company to Rs 749.5
crore from Rs 501.2 crore.
Further, Maruti received a demand of
Rs 137.5 crore for the remaining part of the
land at Manesar from HSIIDC in the fiscal
ended March 2013 (FY 2013). This is based
on the order of the HC. The company’s ap-
peal is pending adjudication with the HC.
The amount ultimately payable to land-
owners is not ascertainable at this stage.
Hence, Maruti considers that no provision
is required at present. Any additional com-
pensation, if payable, will enhance the value
of the freehold land. The penal interest pay-
able, if any, will be charged to the P&L ac-
count. The company has made a payment
of Rs 370 crore to HSIIDC under protest.
SRF had received demand notices from
the commercial tax department of the gov-
ernment of Madhya Pradesh (MP) for pay-
ment of Central sales tax (CST), value added
tax (Vat) and entry tax aggregating to Rs 94.9
crore including interest and penalty for the
period 2007 to 2013. These demands are for
sales from its manufacturing facility in the
special economic zone (SEZ) in MP to the
domestic tariff area (DTA).
In terms of the policy of the govern-
ment of MP and Madhya Pradesh SEZ Act,
2003, the unit of SFR was exempt from lo-
cal state taxes and levies. The company paid
additional countervailing duty (ACVD) ag-
gregating to Rs 48.3 crore to counterbalance
CST and Vat for the period 2007 to 2013 on
sales from the SEZ to the DTA under the
customs laws, as per the the SEZ Act, 2005;
MP SEZ Act, 2003; and the policy of the
Central government and MP state. It had
filed a writ petition with the Indore bench
of the HC of Madhya Pradesh against the
demands. SRF contended that while the state
is demanding local taxes, the Central gov-
ernment in its response has stated that
ACVD is payable. Therefore, this amounts
to double taxation.
The court has directed the state govern-
ment not to take any coercive steps for re-
covery of demand. The matter is sub-judice.
Based on the facts and opinion from legal
experts, SRF is confident of getting a relief
from the court. Thus, no provision for the
disputed demands has been made in the
books of accounts.
Mahindra Lifespace Developers’s
loans and advances include project advances
of Rs 100 crore pending for over two years
to a project whose commencement has been
delayed due to non-performance by vendors.
The company in the March 2014 quarter
initiated action against the vendors to pro-
tect its interest and for resolving the dispute
to enable commencement of the project.
In another instance, Mahindra
Lifespace’s construction work-in-progress
(WIP) includes Rs 7.6 crore, short-term loans
of Rs 42 crore and advances and interest
accrued of Rs 21.7 crore on project advances.
The commencement of construction of this

Ganging up deposit of 10% of penalty amount by

the company till the final disposal of
The CCI has imposed penalty on several cement manufacturers appeal. The company deposited Rs 12.8
The Competition Commission of India For instance, the CCI has imposed a crore in the form of fixed deposit (FD)
(CCI) had upheld the complaint of the penalty of Rs 128.5 crore on JK favouring Compat. Based on expert legal
Builders’ Association of India alleging Cement. The firm filed an appeal advice, the company believes it has fair
cartelisation by some cement manufac- against the order with the Competition chances with Compat. Accordingly, no
turing companies. The CCI has Appellate Tribunal (Compat). Compat provision has been made.
imposed penalty on several cement has stayed the penalty imposed by the Similarly, the CCI imposed a penalty
manufacturers. CCI in an interim order following of Rs 1147.6 crore on ACC in June 2012
owing to alleged contravention of the
COMPANY CMP MARKET 52-WEEK YEAR NET PENALTY PENALTY OF provisions of the Competition Act, 2002.
CAP LOW HIGH ENDED WORTH NET WORTH The CCI has imposed a penalty of
(Rs) (Rs cr) (Rs) (Rs) (Rs cr) (Rs cr) (%) Rs 274 crore on Century Textiles
ACC 1379.9 25907.6 912.1 1460.0 201312 7813.4 1147.6 14.7 and Industries. Based on legal
Ambuja Cements 219.4 33933.0 147.5 241 201312 9461.9 1163.9 12.3 opinion, the company believes it has a
Century Textiles 482.5 4489.5 195.0 522.4 201303 1,805.0 274.0 15.2 good case. It has filed an appeal
India Cements 96.8 2972.0 43.0 110.0 201303 3560.1 187.5 5.3 against the order with Compat. In FY
J K Cements 345.5 2416.1 148.2 360.0 201303 1463.3 128.5 8.8 2014, as directed by Compat, Century
Ramco Cements 255.2 6073.8 136.0 290.7 201303 2370.8 258.6 10.9
Textiles deposited 10% of this
Shree Cement 6993.3 24364.7 3412.7 7128.7 201306 3843.6 397.5 10.3
demand. Consequently, an amount of
Rs 27.4 crore was deposited as FD
UltraTech Cement 2375.3 65139.5 1405.0 2465.0 201303 15229.6 1175.5 7.7
CMP: Current market price is as on 28 May 2014. Consolidated financials considered wherever available
with its bankers in favour of Compat.
Source: Capitaline databases, company results

Jun 09 – 22, 2014 CAPITAL MARKET 75

ApnaMoney
InFocus
particular project had been delayed on ac-
count of a dispute between the landowner
and the company, which has been referred
to arbitration. Post FY 2014, Mahindra
Lifespace and the landowner entered into
mutually-agreed consent terms and the arbi-
tration award was issued in accordance with
the consent terms. As a result of this devel-
opment, these amounts are expected to be
recovered either by sale or joint develop-
ment of the property.
Petrochemical and oil refining major
Reliance Industries (RIL) continues to face
contingent liabilities arising from its explo-
ration block in the Krishna-Godavari basin.
Through letters issued in May 2012 and
November 2013, the Union government has
disallowed certain costs. According to the
company, it is eligible to recover the cost as
per the production-sharing contract signed
with the Central government. Based on legal
advice received, RIL maintains that a con-
tractor is entitled to recover all costs and
there are no provisions that entitle the gov-
ernment to disallow the recovery. RIL has
referred the issue to arbitration.
A rap on the knuckles
Balancesheet numbers such as net worth could witness a downward revision
due to non-provisioning for liabilities
The statutory auditors of companies
have drawn attention to non-provision-
ing for liabilities. If the auditors’
concerns are taken into account,
balancesheet numbers such as net worth
could witness a downward revision.
The statutory auditors of Emkay
Global Financial Services have drawn
attention to non-provisioning for loss
due to fat finger error. ‘Advances
recoverable in cash or kind or for value
to be received’ under ‘Short-term loans
and advances’ in the balance sheet end
fiscal year ended March 2014 (FY 2014)
and FY 2013 include Rs 51.9 crore paid
to the National Stock Exchange (NSE)
for pay-in obligation raised by the
exchange on account of loss.
This loss was due to a manifest
material mistake that occurred in October
2012 while executing a sale order on the
cash segment of the NSE. The loss was
discharged wholly and exclusively for
protecting and continuing the business.
Emkay made an application for annul-
ment to the NSE, which was not accepted
76
Shrugging off
Bharti Airtel received demand for
Rs 5201.3 crore from the DoT
in January 2013 for levy of one-time
spectrum charge
Relative performance of
Bharti Airtel v BSE Sensex
Base=100 as on 30 May 2013 * 30 May 2014
Face Value: Rs 5.
Premier had paid Rs 49.3 crore excise
dues, as per the SC order in FY 2013. Fur-
ther, it received letter from the excise de-
partment demanding Rs 3.9 crore as interest
on the excise duty paid. The company has
filed a writ petition with the Mumbai HC
favourably. In response, it has preferred
an appeal with the Securities Appellate
Tribunal, which is pending.
Emkay has sought opinion of legal
experts. According to these experts, the
case is fit for annulment. Considering
this view, the company feels there is no
probability of outflow of resources and,
therefore, no provision has been made.
Punj Lloyd is another company
with significant non-provisioning. First,
there have been certain cost over-runs
amounting to Rs 733.9 crore. The cost
over-runs are due to changes in designs
and consequent changes in the scope of
work on the Heera redevelopment
project off the Mumbai coast of the Oil
& Natural Gas Corporation (ONGC).
This has resulted in disputes between
Punj and ONGC.
Several rounds of discussion were
held between Punj and ONGC to explore
the possibility of amicable resolution.
For mutually agreeable solution, the
matter has now been referred to a new
outside expert committee. Punj is
Investment Strategy
challenging the demand. Premier has been
legally advised that it has a good case and,
thus, this amount is considered as contin-
gent liability.
Also, Premier has paid Rs 21.1 crore to
the government of Maharashtra under pro-
test towards unearned income on sale of land
and compulsory acquisition of land. Its ap-
peal is pending with the government. This
forms part of loans and advances and is con-
sidered as contingent liability. The company
is in three segments of automobiles, machine
tools, and engineering.
Gateway Distriparks (GDL) and sub-
sidiary Gateway Rail Freight (GRFL) are
involved in an arbitration proceeding with
Container Corporation of India (Concor) for
agreements entered into by parties for op-
eration of container trains from the inland
container depot and rail on siding of the com-
pany at Gurgaon. Concor has raised claims
on GDL and GRFL on various issues of
these agreements. According to GDL, these
claims are at a preliminary stage and the
question of maintainability of the alleged
disputes raised by Concor are yet to be de-
confident of a satisfactory settlement of
the disputes and recovery of the dues.
Accordingly, no adjustments have been
made in the financial results. The
auditors have emphasised this matter in
the financial results for FY 2014 and FY
2013 as well.
In he second instance, the auditors
have drawn attention to recoverability of
claims from a contract amounting to Rs
389.8 crore. The auditors at the Thailand
branch of Punj have emphasised the
matter in their report on the branch’s
financial statement end 31 March 2014.
The company is taking appropriate
steps for recovery of this amount.
Last, the auditors in their report on
financial results for FY 2014 and FY
2013 have invited attention to deduc-
tions made and amount withheld,
aggregating to Rs 53.9 crore, by some
customers. Punj offers engineering,
procurement and construction services
in the energy and infrastructure sectors.
The auditors have the first look at
the books of accounts and other related
documents such as contracts signed with
customers and suppliers. Thus, their
comments should be taken seriously by
investors and the market.
Jun 09 – 22, 2014 CAPITAL MARKET
ApnaMoney
InFocus Investment Strategy

termined and not sustainable. Both the
groups are maintaining status quo of the
operations at Gurgaon.
The Deputy Commissioner of Income
Tax (IT) had issued orders for assessment
years (AYs) 2008-09, 2009-10, 2010-11 and
2011-12, disallowing the claim of deduction
and other expenses, and issued notices of
demand for recovery of additional income
tax, dividend distribution tax and interest
aggregating to Rs 92.3 crore and initiated
proceedings to levy penalty. GDL has gone
for appeal against the assessment orders. In
response, the Commissioner of IT (Ap-
peals) (CIT-A) had allowed the deductions
except for claim of deduction of other ex-
penses aggregating to Rs 30 lakh for AYs
2008-09 to 2010-11. The Deputy Commis-
sioner of IT has appealed with the Income
Tax Appellate Tribunal (ITAT) against these
orders of the CIT-A. The appeal for AY
2011-12 is pending with the CIT-A.
Based on the opinion of legal and tax
consultants, GDL is of the view that it is
entitled for deduction under the IT Act, 1961,
for AYs 2004-05 to 2011-12. Therefore, no
provision for the demand has been made.
The company has split its revenue segments
into container freight station, rail logistics,
and cold chain and related logistics.
Bharti Airtel received a demand notice
for Rs 5201.3 crore from the Department of
Telecommunications (DoT) in January 2013
for levy of one-time spectrum charge. Based
on a petition filed by the company, the HC
of Mumbai directed DoT to respond and
not to take any coercive action. Based on
independent legal opinions, the country’s
largest wireless communication company
has not given effect to the one-time spec-
trum charges in the books of accounts.
In FY 2014, JM Financial received a
notice of demand from the IT department
after completion of fresh adjudication by
the assessing officer for AY 2008-09. The
additional tax liability based on the notice,
net of relevant deferred tax liability, is Rs
372.8 crore. This is inclusive of interest of
Rs 155.8 crore. According to the company,
the demand is mainly on account of IT de-
partment treating the long-term capital gain
on sale of equity shares held in joint venture
with Morgan Stanley as taxable under the
head ‘Business income’ and not ‘Capital
gain’. JM Financial has challenged the as-
sessment order with the ITAT.
ITD Cementation continues to face
challenges on multiple fronts. Its trade re-
ceivables include variation claims aggregat-
ing to Rs 27.7 crore recognised by the com-
pany but disputed by the customer. Out of
this, claims amounting to Rs 22.6 crore are a
subject matter of arbitration. The company
has received arbitration award in its favour
for the balance amount of Rs 5.1 crore. This
order has been challenged by the customer.
Based on legal opinion, ITD is reasonably
confident of recovery of these amounts.
Further, ITD’s trade receivables include
Rs 40.8 crore representing interim work bills
for work done but is not certified by cus-
tomers beyond the normal periods of certi-
fication. The company is reasonably confi-
dent of the certification and recovery of the
dues progressively based on its past experi-
ence, assessment of work done, and the fact
that these dues have not been disputed by
the customer.
Also, ITD’s trade receivables include Rs
11.4 crore relating to price escalation claims
disputed by a customer. The company had
received an arbitration award in its favour,
which has been upheld by the HC. The cus-
tomer has challenged this HC order. Based
on the arbitration award, the HC order, and
legal opinion, it is reasonably confident of
recovery of these amounts.
Trade receivables of ITD also include
variation claims of Rs 3.1 crore, for which
it had received an arbitration award in its
favour. This was subsequently upheld by
the district court. The customer has chal-
lenged this court order. Trade receivables
include Rs 11.4 crore and unbilled WIP of
Rs 27.5 crore for a contract rescinded by
the company. Also, trade receivables in-
clude Rs 6.9 crore and unbilled WIP of Rs
59.2 crore for another contract for which it
has received a notice from the customer
withdrawing from the balance work to be
executed. For this work, ITD had issued
guarantees aggregating to Rs 22.2 crore. The

Future shocks
Contingent liabilities and non-provisioning are unique items that do not form part of the balance sheet and P&L account but
could have a significant adverse impact on the financials of companies
COMPANY INDUSTRY CMP MARKET 52-WEEK YEAR NETWORTH CONT. LIABILITIES NON PROV.*
CAP LOW HIGH END OF NET WORTH
(Rs) (Rs cr) (Rs) (Rs) (Rs cr) (Rs cr) (%)
NRB Bearings Bearings 89.4 866.29 26.5 94.7 201303 198.0 16.4 8.3
SRF Textiles 451.2 2590.5 125.6 459.9 201303 1939.3 94.9 4.9
Mahindra Lifespace Devel Construction 432.5 1766.69 327.2 472 201303 1293.1 100.0 7.7
Gammon Infra. Projects Engineering 13.5 988.03 6.1 16.43 201303 712.7 135.1 19.0
Sterlite Technologies Cables 44.5 1750.44 15.8 45.7 201303 1159.3 188.0 16.2
Tayo Rolls Castings 59.1 60.59 37.3 72.5 201303 -39.5 272.0 NA
Orient Paper Cement Products 27.8 568.6 4.3 30.4 201303 432.1 359.0 83.1
IL&FS Engineering Construction 67.1 602.04 19.4 76.1 201209 154.2 362.3 235.0
JM Financial Finance - Investment 32.5 2459.96 17.9 38.05 201303 2050.6 372.8 18.2
Century Enka Textiles 167.5 365.99 92.0 177.4 201303 643.2 458.4 71.3
Maruti Suzuki India Automobiles 2311.5 69824.3 1217.0 2505.3 201303 19027.8 887.0 4.7
Bharti Airtel Telecommunications 341.8 136611 274.5 373.5 201303 50321.7 5201.3 10.3
* Contingent liabilities / non provisioning. CMP: Current market price is closing as 28 May 2014. Consolidated financials considered wherever available. NA: Not applicable
Source: Capitaline Databases

Jun 09 – 22, 2014 CAPITAL MARKET 77

ApnaMoney
InFocus
company has made claims against the cus-
tomer to recover these amounts and has
initiated legal action.
Last, trade receivables include Rs 9.7
crore and and unbilled WIP Rs 168.3 crore
for certain road contracts currently executed
by the company. The customer has already
granted two extensions of time and ITD’s
request for further extension is under con-
sideration. It has made claims on the cus-
tomer for recovery of these amounts and
has initiated legal action.
The status in all these cases is as on 31
March 2014. In all these cases, no provi-
sion has been made by ITD based on legal
opinion, contractual terms and the merits
of each case.
The Mormugao Port Trust (MPT) in
the March 2014 quarter unilaterally sought
to terminate the concession agreement with
a subsidiary of Gammon Infrastructure
Projects. The agreement was based on non-
compliance with certain terms of the con-
cession agreement. Also, MPT en-cashed the
bid security bank guarantee of Rs 2 crore
despite the stay-order issued by the district
court of Goa. The court had passed an order
to stay carrying into effect the termination
of the agreement. The subsidiary has already
taken further action including contempt pe-
tition. Its exposure including investments
and loans and advances is around Rs 3.4
crore. Gammon believes that it has a strong
case and no provision is made in the books
of account.
Also, Gammon’s subsidiary has initiated
correspondence with the National Highway
Authority of India towards closure of its
projects on mutually acceptable terms pri-
marily due to non-availability of right of way
to the site and forest clearances. Its expo-
sure to this project includes investments and
advances of Rs 78.6 crore and guarantees of
Rs 56.5 crore. No provision has been made
in the books of accounts.
Century Enka received an order from
the excise department in December 2013
denying the applicability of notification is-
sued in March 2000, which allowed pay-
ment of duty at specific rate instead of
advalorem basis. The department has raised
a demand Rs 229.2 crore plus interest and
penalty of Rs 229.2 crore. The company
has filed an appeal with Cestat against this
demand. Century Enka has been advised
by legal experts that it has a strong case
and, thus, no provision has been made in
the accounts.
78
Pending dues
Century Enka received an order for
Rs 229.2 crore plus interest and penalty
of Rs 229.2 crore from the excise
department in December 2013
Relative performance of
Century Enka v BSE Sensex
Base=100 as on 30 May 2013 * 30 May 2014
Face Value: Rs 10.
The statutory auditors of Orient Pa-
per & Industries have referred to the in-
adequate provision against demand for wa-
ter tax in their report on accounts for FY
2014. According to the company, it has
paid and/or provided for water tax to the
extent of liability admitted by it for the
period up to April 2009, i.e., the period
prior to the new agreement effective from
May 2009 entered into with the water re-
sources department of the government of
MP. No provision against the balance de-
mand of Rs 359 crore including com-
pounded interest and penalty has been
made as Orient Paper’s application for
waiver of water tax is under consideration
of the government of MP.
Initiatives have been taken by NRB
Bearings to increase sales and profitability
of wholly owned subsidiary NRB Bearings
(Thailand). The company has overall invest-
ment exposure of Rs 16.4 crore to this sub-
sidiary. It believes that the erosion in net
worth does not constitute a permanent dimi-
nution in the value of investment.
The Central Building Research Insti-
tute (CBRI) has been directed by the SC to
conduct the study of impact of Birla
Corporation’s Chanderia mines in
Rajasthan on the Chittorgarh fort. CBRI
was supposed to complete the study by
end March 2014, but has sought extension
of time up to 30 September 2014 for
completion. The SC has fixed the next date
of hearing on 13 October 2014.
Furher, Birla Corporation’s coal blocks
in MP were de-allocated by the Ministry
of Coal based on the recommendation of
Investment Strategy
the inter-ministerial group in January
2014. The company has filed writ peti-
tion in the HC of Jabalpur challenging the
de-allocation. The HC has permitted Birla
Corporation to move the court if any
steps are taken by the government for re-
allocation of the block and stayed
encashment of bank guarantee. The case is
pending for further hearing.
KEC International’s Libyan opera-
tions continue to suffer. The execution of
the construction works under contracts of
KEC International with General Electric
Company, Libya, a government of Libya
undertaking, is disrupted since February
2011. This is owing to civil and political
unrest in Libya. The net assets including
fixed assets and trade receivables relating to
these contracts aggregated to Rs 63.7 crore
end 31 March 2014. The situation in Libya
is returning to normal and the company is
confident of completing these projects.
Shalimar Wires Industries’s pro-
visions against certain amounts consid-
ered doubtful of recovery have not been
considered in the accounts. These sums
include long-term lonas and advances of
Rs 4 crore and short-term loans and ad-
vances of Rs 1.6 crore. Further, no pro-
vision has been made for trade receivables
of Rs 33.2 lakh and claim receivables of
Rs 26.9 lakh. These have been consid-
ered as contingent liabilities.
Also, Shalimar Wires has made no pro-
visions for demands of Rs 90 lakh against
it by various government taxes like sales
tax, excise, and municipal tax aggregating
to Rs 46.5 crore, which are under appeal;
demands for non-fulfillment of export ob-
ligation of Rs 5.7 crore; and liability likely
to arise on re-opening of cases by various
authorities but not ascertainable at this
moment. All these liabilities are treated as
contingent liabilities.
Conclusion
Contingent liabilities and non-provisioning
are unique items that do not form part of
the balance sheet and P&L account but
could have a significant adverse impact on
the financials of companies. Annual re-
ports, presentations and quarterly results
are important sources of information. In-
stances of contingent liabilities and non-
provisioning should be monitored on a regu-
lar basis. This is because these elements
could be a source of shock and disappoint-
ment for investors in future. 
Jun 09 – 22, 2014 CAPITAL MARKET
 ApnaMoney
Investment Strategy
Highway to growth
M&As could boost business growth but risk window-dressing,
integration problems and intermediate hiccups
Mergers and acquisitions (M&A) are cru-
cial for any company that wants to grow at
a faster pace and outperform its competi-
tion. The inorganic route can provide sev-
eral advantages such as quick access to mar-
ket, increase in market share, access to su-
perior technology, portfolio of products and
services, marketing muscle and distribution
reach, brands and goodwill, and talent. The
businesses that could consume years to take
shape can be added to the portfolio in a
matter of months through acquisitions.
M&As could be also due to business
and strategic compulsions as well. Acquisi-
tion of assets and businesses by competi-
tion could, in turn, make the businesses of
the existing players that have preferred to
remain on the fence vulnerable.
In a stunning deal, country’s most valu-
able drug company Sun Pharmaceutical In-
dustries acquired Ranbaxy Laboratories from
Japan-based Daiichi Sankyo Company. This
is the largest deal in the domestic pharmaceu-
tical industry in recent years and can provide
a glimpse of the advantages of M&As.
In April 2014, Sun and Ranbaxy entered
into definitive agreements for Sun to acquire
100% equity in Ranbaxy. What is unique is
that it is an all-stock deal. Ranbaxy will re-
ceive 0.8 share of Sun for each share held in
Ranbaxy. This implies valuation of Rs 457
per share at the time of announcement and
Jun 09 – 22, 2014 CAPITAL MARKET
translates into overall valuation of US$ 4
billion or 2.2x of sales. In comparison with
peers, this is value buy for Sun. Post merger,
Daiichi will emerge as the second largest
shareholder of Sun. Daiichi will get to nomi-
nate one director on the board and will work
as a strategic partner of Sun.
The deal creates a win-win situation for
Sun and Ranbaxy. The merged firms will
emerge as market leader in the domestic mar-
ket, with share of 9.2%, ahead of Abbott,
which commands 6.5% share. Currently, Sun
is in the second position and Ranbaxy fifth.
There is minimum overlap in the therapeutic
segments between Sun and Ranbaxy. The
combination will emerge as a leader in 13
therapeutic segments. At present, Sun is the
leader in seven therapeutic segments. The deal
will improve the rural reach and network of
Sun. Also, its over-the-counter business will
get major boost with this acquisition.
Sun will further strengthen its position
as the fifth largest global specialty generic
pharmaceutical company in the world, with
sales of US$ 4.2 billion. It will become num-
ber one Indian drug company in the US, the
world’s largest pharmaceutical market. Be-
sides, the company largely depends on the
US markets for business, while Ranbaxy’s
revenue is fairly dispersed across geogra-
phies. No wonder, the market has given a
thumbs up to Sun for this mega deal.
Investment Strategy
In another instance of consolidation in
the domestic pharmaceutical market, Tor-
rent Pharmaceuticals in December 2013
entered into a definitive binding agreement
with Elder Pharmaceuticals to acquire its
identified branded formulations business in
India and Nepal. The business will be ac-
quired on a going-concern basis for Rs 2004
crore. Torrent and Elder are in the process
of seeking necessary regulatory approvals
and satisfying with various conditions.
Elder’s domestic business comprises a
portfolio of 30 brands including leading brands
in the women’s healthcare, pain management,
wound care and nutraceuticals therapeutic seg-
ments. Torrent Pharmaceuticals will be fund-
ing the acquisition through a mix of internal
accruals and bank borrowings.
The board of directors of pharmaceuti-
cal company Wyeth approved the scheme
of amalgamation with Pfizer in November
2013, The board approved a share-swap
ratio of seven equity shares of face value
of Rs 10 each of Pfizer for every 10 equity
shares with face value of Rs 10 of Wyeth.
The appointed date is 1 April 2013. The
scheme of amalgamation has been ap-
proved by a majority of the equity share-
holders represented by three-fourths in
value of those present and voting at the
court-convened meeting in April 2014, The
scheme has also been approved by a ma-
jority of the minority shareholders through
postal ballet and e-voting in terms of the
Securities and Exchange Board of India
(Sebi) circulars, A few statutory approv-
als are pending and, thus, no effect to the
scheme has been given in the results for
the March 2014 quarter.
Just like pharmaceuticals, financial ser-
vices and insurance are other sectors that
have seen consolidation. Industrial Invest-
ment Trust (IITL) entered into a share-
purchase agreement with Pantaloon Retail
India, now known as Future Retail, to ac-
quire 22.5% stake in Future Generali India
Life Insurance Company. After receiving the
approval of the Reserve Bank of India (RBI)
and Insurance Regulatory and Development
of India (Irda), the deal was consummated
for Rs 340 crore in December 2013. With
this transaction, Future Generali has become
a joint venture of the company.
According to IITL, this investment is
positive as insurance plays a crucial role in
the growth and development of the overall
economy. There is a huge potential to be
tapped across the country for life and mi-
79
 ApnaMoney
cro insurance. Though the net worth of Fu-
ture Generali has substantially eroded, there
was no diminution other than temporary in
the value of investment of the company in
Future Generali end March 2014. Apart from
the future potential of the industry, this view
is based on the future projections made by
Future Generali.
Dewan Housing Finance Corporation
(DHFL) acquired 50% equity stake in DLF
Pramerica Life Insurance Co from DLF at a
deminimus value of Re 1 in the fiscal ended
March 2014 (FY 2014). DLF Pramerica is a
registered life insurance company regulated by
Irda. Delhi-based real estate developer DLF is
in the process of divesting non-core businesses
to trim debt, while housing finance company
DHFL is looking at aggressively grow its fi-
nancial services business across spectrum.
DHFL had capitalised Rs 6.94 crore,
being expenses incurred on the acquisition,
as cost of investment. Subsequently, the
company subscribed to 72.87 lakh equity
shares at Rs 10 each for Rs 7.29 crore to
maintain holding at 50% and to augment the
resources of DLF Pramerica. Post acquisi-
tion, the name of the company was changed
from DLF Pramerica to DHFL Pramerica
Life Insurance Co with the approval of Irda
and Registrars of Companies.
JM Financial acquired 100% equity
stake in FICS Consultancy Services in the
March 2014 quarter. JM Financial is into
investment banking, securities, fund-based
activities, alternative asset management, and
asset management.
Motilal Oswal Financial Services’s
subsidiary MOPE Investment Advisors Pvt
Ltd, formally known as Motilal Oswal Pri-
vate Equity Advisors Pvt Ltd, acquired 100%
equity stake in India Business Excellence
Management Co, rendering investment man-
agement and investment advisory services in
Mauritus, in the March 2014 quarter.
Apart from insurance and financial ser-
vices, information technology is another in-
dustry that has seen multiple instances of
M&As over the last one year. Thinksoft
Global Services became a subsidiary of
SQS Software Quality Systems, AG, in the
quarter ended 31 March 2014. SQS Soft-
ware acquired 0.28% stake in Thinksoft
through an open offer, as per the terms of
the Sebi (Substantial Acquisition of Shares
and Takeovers) Regulations, 2011.
As the aggregate shareholding of SQS
Software after the completion of the open
80
Latin synergy
Through its stepdown wholly
owned subsidiary, UPL increased its
stake in UPL do Brazil to 73% in the
March 2014 quarter from 51%
Relative performance of
UPL v BSE Sensex
Base=100 as on 29 May 2013
Face value: Rs 2.
offer and the overall acquisition was less
than 51% of the paid-up capital of the com-
pany, erstwhile promoters Asvini Kumar,
Vanaja Arvind, Mohan Parvatikar, AK
Latha, AK Krishna and Aarti Arvind sold
their equity shares to make up for the short-
fall in accordance with the share purchase
agreement. These transfers took place in
April 2014. Now SQS Software has con-
trolling interest of 53.35% in Thinksoft.
The business assurance and testing spe-
cialist works exclusively with financial sec-
tor clients, with delivery centers located in
Chennai and Mumbai.
Formally known as Infotech Enterprises,
Cyient through its subsidiary IEAI in April
2014 acquired Softential Inc. Softential is a
US-based firm specialising in service man-
agement and service assurance solutions for
telecommunications and cable operators,
enterprise customers and the public sector.
The acquisition will reflect in the financials
in the quarter ending 30 June 2014. Cyient
is into engineering solutions including prod-
uct development and life-cycle support,
process, network design and optimisation,
and data management solutions.
The agricultural inputs sector is another
that has witnessed multiple M&As. As per
the share- purchase agreement inked in April
2012, Rallis India acquired additional eq-
uity in Zero Waste Agro Organics in the
March 2014 quarter. This has increased Rallis
stake in Zero Waste to 51.02% on 31 March
2014 from 27.75% earlier.
As per the share-purchase agreement
signed in December 2010, Rallis acquired
additional stake in Metahelix Life Sciences
in the December 2013 quarter. Its equity in
Investment Strategy
Metahelix increased to 80.51% at the close
of FY 2014 from 77.02%. Rallis India manu-
factures and markets agriculture inputs such
as pesticides, seeds, and fertilizers.
Coromandel International acquired
Sabero Organics Gujarat in December
2011. The board of directors of Coroman-
del and Sabero in January 2014 approved
the amalgamation under Sections 391 and
394 of the Companies Act, 1956. This is
subject to approvals from the stock ex-
changes, the shareholders, creditors and the
concerned high courts (HCs). Sabero has
received no-objection certificate from stock
exchanges and is in the process of filling
application with the HC. As per the amal-
gamation scheme, the appointed or trans-
fer date of amalgamation is 1 April 2014.
The public shareholders of Sabero will be
issued five equity shares of Re 1 each in
Coromandel for every eight shares Rs 10
each in Sabero.
Earlier known as United Phosphorus,
UPL, through its stepdown wholly owned
subsidiary, increased its stake in UPL do
Brazil to 73% in the March 2014 quarter
from 51% earlier. UPL do Brazil produce
and markets crop-protection products and
specialties in the Brazilian agro-chemical
market. UPL makes generic crop protection
products, chemicals, and seeds.
Broadly, M&As can be seen in several
other industries as well. In a big develop-
ment in the domestic travel and tourism in-
dustry, Thomas Cook (India) acquired Ster-
ling Holiday Resorts (India) for overall valu-
ation of Rs 870 crore. The board of directors
of Thomas Cook, Thomas Cook Insurance
Services (India) (TCISIL), and Sterling Holi-
Jun 09 – 22, 2014 CAPITAL MARKET
 ApnaMoney
day Resorts (India) approved a composite
scheme of arrangement and amalgamation in
February 2014. The scheme involves de-
merger of the resort and timeshare business
from Sterling to TCISIL and amalgamation
of residual Sterling into Thomas Cook.
TCISIL is a wholly owned subsidiary of
Thomas Cook.
A total of 116 equity shares of Thomas
Cook will be issued to the shareholders of
Sterling for every 100 equity shares held
in Sterling as consideration for the de-
merger of the resort and timeshare busi-
ness of Sterling. Further, four equity shares
of Thomas Cook will be issued to the share-
holders of Sterling for every 100 equity
shares held in Sterling in consideration of
the amalgamation of residual Sterling into
the Thomas Cook.
Thomas Cook has agreed to subscribe
up to 3.6 crore equity shares with face
value of Rs 10 each of TCISIL for up to Rs
720 crore at a premium of Rs 190 each.
TCISIL will be primarily using this money
to acquire the timeshare and resort busi-
ness of Sterling.
TCISIL will subscribe to around 2.07
equity shares of Sterling and purchase up to
1.8 crore equity shares of Sterling from cer-
tain existing shareholders. TCISIL will make
the mandatory 26% open offer of the di-
luted share capital of Sterling. The open of-
fer will be as per terms of the Sebi (Substan-
tial Acquisition of Shares and Takeovers)
Regulations, 2011.
To partly fund the investment by TCISIL
in Sterling, parent company Fairbridge Capi-
tal (Mauritius) in March 2014 subscribed to
62.5 lakh compulsorily convertible prefer-
Jun 09 – 22, 2014 CAPITAL MARKET
Poised to take off
UltraTech Cement is acquiring the
Gujarat cement units of Jaypee Cement
Corporation by alloting Rs 150-crore
equity shares
Relative performance of
UltraTech Cement v BSE Sensex
Base=100 as on 29 May 2013
Face value: Rs 10.
ence shares of Rs 10 each (CCPS) at a price of
Rs 800 of Thomas Cook. This includes a pre-
mium of Rs 790. Each CCPS is convertible
into 10 equity shares of Thomas Cook with
face value of Re 1 each.
These transactions are subject to certain
conditions precedent and regulatory approv-
als. Consequent to TCISIL’s purchase of eq-
uity shares in Sterling, TCISIL’s stake in Ster-
ling went up to 33.82% in March 2014.
The board of directors of Siemens in
January 2014 approved the acquisition of
100% equity stake in Siemens Rail Automa-
tion Pvt Ltd from Siemens International
Holding BV Netherlands (99.99%) and Si-
emens AG (0.01%) for Rs 55 crore. The ac-
quisition is yet to be completed. Siemens
operates in various segments of infrastruc-
ture, energy, industry and healthcare.
Tata Metaliks purchased the entire
shareholding of Kubota Corporation and
Metal One Corporation in its subsidiary Tata
Metaliks DI Pipes, formerly known as Tata
Metaliks Kubota Pipes, on 9 April 2013.
Consequently, Tata Metaliks DI has became
a wholly owned subsidiary of Tata Metaliks.
In their meeting on 10 April 2013, the board
of directors approved the amalgamation of
the company and Tata Metaliks DI Pipes
with Tata Steel with an appointed date of 1
April 2013. The scheme is subject to the
approval of the HCs of Mumbai and
Calcutta. Tata Metaliks, in which Tata Steel
holds controlling stake, makes pig iron and
ductile iron pipes.
Godrej Consumer Products in the
March 2014 quarter acquired balance 49%
equity in the Nigerian business of the Dar-
ling Group and additional 4.63% stake in
Investment Strategy
the South Africa and Mozambique busi-
nesses of the Darling Group through sub-
sidiary Godrej Mauritius Africa Holdings.
Godrej Consumer makes household and
personalcare products.
UltraTech Cement is moving close to
acquiring the Gujarat cement units of Jaypee
Cement Corporation. The HCs of Mumbai
and Allahabad have approved Grasim’s
scheme of arrangement for acquisition of
these units comprising an integrated cement
unit at Sewagram and grinding unit at
Wanakbori both in Gujarat, at an enterprise
value of Rs 3800 crore. This is besides the
actual net working capital at the closing of
the deal. The scheme is subject to the final
approval of Sebi. It has received all other
requisite approvals.
As consideration, net of liabilities will
be discharged by allotment of UltraTech’s
equity shares of market value not exceed-
ing Rs 150 crore to the shareholders of
Jaypee Cement.
Country’s largest manufacturer of ce-
ment, with an installed capacity of 57 mil-
lion tonnes per annum, UltraTech has com-
pleted the acquisition of the balance equity
of ETA Star Companies through wholly-
owned subsidiary UltraTech Cement
Middle East Investments. ETA Star Com-
panies has operations in the United Arab
Emirates, Bahrain, and Bangladesh.
Clariant Chemicals (India) acquired
the masterbatches business from
Plastichemix Industries in April 2014. The
business was acquired as a going concern
on a slump-sale basis for Rs 135.4 crore.
The maker of pigments and colors and dyes
and specialty chemicals paid Rs 100 crore
as part of the acquisition cost.
With this acquisition, Clariant has
emerged as one of the leading producers of
masterbatches in the domestic market. It
can offer a wide range of products like
black, white, additive, filler and colour
masterbatches, flushed pigments and
mono-concentrates and engineering plas-
tics compounds.
Aditya Birla Chemicals (AB Chemi-
cals) acquired the assets comprising a chlor
alkali and phosphoric acid plant at Karwar
in Karnataka and salt works at Singach in
Gujarat from 1 September 2013 from
Solaris Chemtec Industries on a slump-sale
basis for cash consideration of Rs 153
crore. The business transfer agreement was
signed in May 2013. The financial results
81
 ApnaMoney
of AB Chemicals for the March 2014 quar-
ter and for FY 2014 include the results of
this acquisition from 1 September 2013.
Hence, financial results are not comparable
year on year.
The assets acquired are recorded in the
books of AB Chemicals based on reports of
independent valuers. Further, the working
capital is recorded in the books based on
certified financial statements received of the
plants acquired from Solaris Chemtec. The
Aditya Birla group company makes chlor
alkali chemicals.
ITC acquired 76% equity stake in North
East Nutrients Pvt Ltd in February 2014.
ITC operates in the cigarettes and non-ciga-
rette segments such as paper, hotel, and fast
moving consumer goods.
ITC is in the process of establishing a
production unit in the north-east region of
the country for packaged food items. The
manufacturing facility is expected to go com-
mercial in 2015 and will be managed by North
East Nutrients.
Essar Oil acquired Essar Oil Trading
Mauritius, Mauritius, formally known as
Steel Trading Mauritius, in March 2014. Post
acquisition, Essar Oil Trading has become a
wholly owned subsidiary company of Essar
Oil. The company is among the leading oil
refining companies in the country.
The board of directors of Motherson
Sumi Systems in January 2014 took note
of the put option exercised by PF
Beteiligungsverwaltungs for 16.28% eq-
uity held by them in SMP Deutschland
GmbH and SMP Automotive Technology
Iberica SL. This is in accordance with the
framework agreement. On conclusion of
the transaction within 210 days from the
date of exercise of option at euro 28.49
million, the proportionate acquisition
price, in addition to interest, MSSL and
SMIL together will hold 100% stake in
SMP Deutschland and SMP Automotive.
Motherson had acquired the Peguform
group companies in 2011, which were re-
named as SMP Deutschland and SMP Au-
tomotive Technology.
Reliance Infrastructure in the March
2014 quarter restored its holding in Reliance
Cement Company Pvt Ltd to 100%. The
company in September 2013 had diluted its
holding in Reliance Cement to 19%.
End September 2013 quarter, Reliance
Infrastructure diluted its holding in SU Toll
Road Pvt Ltd, TD Toll Road Pvt Ltd and
82
Yet to fructify
Lupin entered into an agreement in
March 2014 to acquire Laboratorios
Grin SA de CV Mexico, subject to
compliance to certain conditions
Relative performance of
Lupin v BSE Sensex
Base=100 as on 29 May 2013
Face value: Rs 2.
TK Toll Road Pvt Ltd each to 49% from
100% and in the two joint ventures, BSES
Rajdhani Power and BSES Yamuna Power,
to 28.82% from 49%. Reliance Infrastruc-
ture is awaiting certain approvals for these
proposed dilutions.
Conclusion
There are several risks attached with inor-
ganic growth. First, firms could opt for
window-dressing before putting the busi-
ness on the block. This is something that is
difficult to trace. Also, the projections prior
to acquisition could go terribly wrong, put-
ting the balance sheet of the acquirer in dis-
array, while, in turn, will destroy share-
holders’ wealth.
Integration of acquired asset is another
big challenge. There could be intermediate
hiccups that could result in value erosion.
Besides, M&A is a lengthy process that re-
quires several approvals. Through its sub-
sidiary in Switzerland, Lupin entered into
an agreement in March 2014 to acquire 100%
equity in Laboratorios Grin SA de CV
Mexico. The agreement is subject to com-
pliance to certain conditions, which were
yet to be fulfilled at the close of FY 2014.
Thus, no consideration was paid and no con-
trol established over Laboratorios Grin. Lu-
pin is among the leading generic pharmaceu-
tical companies in the world.
Balasore Alloys continues to be in dis-
cussion for acquiring strategic stake in a com-
pany. Balasore paid Rs 198.7 crore in FY
2012 and FY 2013 as advance towards eq-
uity shares. This payment has been treated
as non-current loans and advances. This ad-
Investment Strategy
vance is significant considering its net worth
of Rs 318.7 crore end FY 2013 and current
market value of Rs 180 crore. The company
manufactures ferro alloys.
Telecom infrastructure company GTL
Infrastructure continues to pursue the
merger process of Chennai Network Infra-
structure (CNIL) with itself. Formed to ac-
quire the tower portfolio business of Aircel,
CNIL is in the business of shared passive
telecom infrastructure and has a portfolio of
over 17,000 towers.
The funding of acquisition is another
concern. Companies can go for debt if cash
hoardings are not sufficient. This could be
risky if a company plunges into the debt
trap. Issuing fresh equity is another option.
Out here, dilution could hurt valuation and
interest of the existing shareholders. More-
over, this option is not available if the mar-
ket is in a bearish mode.
It is difficult to comment if a particular
acquisition is good or bad for a company.
Deals that look impressive in the short term
could turn out to be a nightmare over the
medium to long term. Investors need to fo-
cus on valuation. The right asset at the right
price is something that companies should
look for. Impulsive acquisitions could de-
stroy shareholders’ wealth.
Acquirers have to pay premium to ac-
quire assets. This should be kept in mind
while assessing the impact of acquisition on
companies. Essentially, investors should
take a long-term view of the M&A strategy.
Assess the management’s performance on
this front over the years while exploring
companies for investment. 
Jun 09 – 22, 2014 CAPITAL MARKET
ApnaMoney
Money Matters
Why do AMCs
shun NRIs from
US and Canada?
I am an NRI, working in the US. I have
some rental income in India. I want to
invest it in a mutual fund through the
systematic investment plan route. I ap-
proached an asset management company
(AMC) in India but it refused saying
that it does not accept investment from
US-based NRIs. Why do AMCs in India
deny investments from US- and Canada-
based NRIs? Is there any way I can in-
vest in Indian mutual funds with my
current NRI status?
Most AMCs do not accept investment from
investors based in the US and Canada. This is
because the AMCs may come under the pur-
view of laws in the US if they accept invest-
ment from more than a specified number of
investors from the US. The Dodd-Frank Act,
2010, in the US makes it mandatory for fund
managers to register with the US regulator, the
Securities Exchange Commission, if the AMC
is managing asset of more than 15 investors
from the US. Thus, to avoid dual regulation,
most AMCs prefer not to accept investment
from investors residing in the US.
But not all AMCs refuse to accept in-
vestment from US residents. AMCs such as
Birla Sun Life Mutual Fund and Kotak Mu-
tual Fund do accept investment from US resi-
dents. Also, there are a lot of India-oriented
funds in the US. You can take exposure to the
Indian market by investing in these funds.
For instance, Franklin India Growth Fund in
Neutralising volatility
Top five balanced funds by assets under management
SCHEME LATEST BASE
CORPUS NAV
(Rs cr) (Rs)
HDFC Prudence Fund - (G) 5362.06 312.97
UTI-CCP Bal Fund (G) 2919.67 15.93
UTI-Unit Linked Insur Plan 2592.48 18.34
ICICI Pru Bal Advt Fund (G) 1874.07 21.36
HDFC Balanced Fund (G) 1373.63 84.02
UTI-Retire Benef Pension Plan 1111.50 18.98
NAV as on 30 May 2014. Expense ratio date is 31 March 2014.
Jun 09 - 22, 2014 CAPITAL MARKET
Investment Strategy
funds. You should stick to diversified funds as
a good fund manager will increase exposure to
sectors likely to give better return in the coming
days as he has access to a lot of data and re-
search. Also, he has expertise and experience to
pick and chose the best stocks available.
So instead of sector funds chose dynamic
or balanced schemes. Apart from taking
sectoral calls, these funds also take asset al-
location call of 35% of their corpus. Thus, if
the market look overvalued, fund managers
decrease the exposure to equities and increase
exposure to debt and vice versa. You may
FMPs, too, can be volatile
also look at contra funds. They focus on
the US collects subscription in the US and stocks that are out of favor but have the po-
invests in India. Thus, as a US resident, you tential to bounce back into the limelight go-
may invest in funds that either take invest- ing ahead. Value funds is another category of
ment from US residents in India or collect diversified funds investing in stocks that still
money in the US and invest it in India. hold value at the current market level.
The second option is to route the money Should I invest in open-ended debt funds
received as rent through some other family or in fixed maturity plans (FMPs)? I am
member who is a resident individual in In- confused. Open-ended funds give flex-
dia. But before taking this step you should ibility of entry and exit but come with
consult your tax advisor as this may lead to volatility, while FMPs offer stable return
complications if proper care is not taken. but are rigid as they are open for a lim-
I have missed the current rally in the ited period and do not offer exit window.
equity market. I want to invest in equity You have rightly pointed out the advantages
funds. But as there has been a sizable and disadvantages of both types of funds.
run-up in indices I want to invest cau- Choosing the category of fund depends on
tiously. Which funds should I choose in your investment horizon. For instance, if
the current market? Should I go for de- you have a defined horizon, then FMPs can
fensive sectors such as pharmaceuticals be a good choice. They provide stable re-
and FMCG or for balanced funds? turn. On the other hand, if you are not sure
Timing the equity market is impossible. So you when you will require the money, then open-
need to understand that you are among the many ended funds are a better choice.
people who missed the rally. Do not invest It is a myth that FMPs are less volatile
with the intention to make up for the notional than open-ended funds. Volatility depends on
loss of not being a part of the latest rally. The the interest rate movement and liquidity con-
market offers opportunities at every moment. ditions in the debt market. Investors do not
If you check last year’s statistics, you will find track FMPs regularly as there is no exit op-
that pharmaceutical, IT and FMCG stocks have tion, no matter what the NAV is. On the other
gained substantially. Also, investing in sector hand, open-ended funds are monitored more
funds is riskier than investing in diversified often than close-ended ones as investors like
to keep themselves abreast of the return on
their investment. You just need to make sure
that the average maturity of the fund’s portfo-
EXPENSE MAX EXIT RETURN (%) lio is in line with your horizon. For instance,
do not invest in a fund that has invested in a
RATIO(%) LOAD(%) 1-YR 3-YR 5-YR
portfolio of papers with five-year maturity if
ANNU- CAGR CAGR you need money in two years.
ALISED — Rahul Mantri
...................................................................
2.22 1.00 33.72 14.02 18.48
The queries have been answered keeping in mind
1.79 3.00 15.55 11.26 11.33 that the investors understand the risks involved in
2.00 2.00 10.76 9.77 10.63 various investment options discussed in the col-
2.57 1.00 23.18 15.49 15.18 umn. Capital Market or the writer cannot be held
responsible for any loss arising due to the invest-
2.30 1.00 33.96 14.29 18.77 ment descision taken by investors based on the
2.17 5.00 12.52 9.06 9.20 solutions given. Readers may e-mail their queries
to: money-matters@capitalmarket.com
83
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Scrip Rec. Rec. Cur. Price % Sensex Scrip Rec. Rec. Cur. Price % Sensex
Date Price 30-05-14 Var Var(%) Date Price 30-05-14 Var Var(%)

TVS Motor Co 30-Aug-13 31 130 319.4 30.1 TVS Srichakra 16-Oct-13 225 512 127.6 17.9
VST Tillers Tractors 3-Jul-13 367 1,246 239.5 26.3 National Bldg Const 6-Nov-13 135 301 123.0 15.9
Monsanto India 26-Jun-13 603 1,819 201.7 30.5 Fiem Industries 18-Oct-13 206 452 119.4 16.0
Va Tech Wabag 9-Aug-13 409 1,174 187.0 28.9 Bharat Forge 14-Aug-13 229 502 119.2 25.0
Suprajit Engineering 1-Oct-13 32 90 181.3 24.1 L G Balakrishnan 15-Jan-14 275 598 117.5 13.8
Kalpataru Power 26-Jul-13 63 175 177.8 22.6 Motherson Sumi Sys 7-Aug-13 139 298 114.4 29.8
Gujarat Pipavav Port 30-Oct-13 50 126 152.0 15.1 Sundram Fasteners 29-Nov-13 40 85 112.5 16.5
Jyoti Structures 8-Nov-13 25 61 144.0 17.2 MM Forgings 27-Dec-13 90 174 93.3 14.3
AIA Engineering 13-Sep-13 318 752 136.5 22.7 PTC India Financial 5-Jun-13 14 27 92.9 23.8
Essel Propack 25-Sep-13 37 86 132.4 22.0 Isgec Heavy Engg 12-Feb-14 880 1,645 86.9 18.4

For complete list of recommendations visit http://www.telefolio.com (Past performance is not an indication of future trends)
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ApnaMoney
Debt
As exciting
as equities
Timely entry and exit based
on economic indicators
to maximise return
Investing in debt funds can be as interesting
as investing in equities. Most investors feel
investment in debt does not require research.
Also, there is a misconception that timing is
not the key to invest in the debt market. If
analysed and timed properly, investors can
generate decent return from the debt mar-
ket, much more than traditional instruments
like fixed deposits and postal saving schemes.
The net asset values (NAVs) of debt
funds are inversely proportional to the in-
terest rates in the economy. So when inter-
est rates go up the market value of debt in-
struments fall as demand for paper with
lower coupon rate drops. Investors have the
option to invest in instruments promising
higher coupon rates. Similarly, when inter-
est rates fall, older instruments with higher
coupon rates are in demand, driving up the
market price of these instruments. Interest
rates depend on various factors such as the
fiscal health of our country, liquidity condi-
tions in the financial system, and inflation.
The fiscal health of the country is one
of the key drivers of interest rates in the
economy. Like any company, a country with
good financial health gets investment-grade
credit rating, boosting the ability to borrow
Benefit of capital gain, too
Top five debt funds by assets under management
SCHEME AUM NAV
(Rs cr) (Rs)
ICICI Pru Liquid - Retail (G) 22716.04 304.29
ICICI Pru Liquid - Retail (G) 22716.04 304.29
SBI Premier Liquid Fund (G) 21851.83 2045.60
Birla Sun Life Cash Plus -
Retail (G) 20840.50 338.92
HDFC Liquid Fund (G) 20305.62 25.69
UTI-Liquid - Cash Plan (G) 17583.89 2053.39
NAV as on 30 May 2014.
86
Investment Strategy
Measuring health
an investor keeps pace with the rising cost
of living. For instance, when inflation in the
A smaller fiscal deficit, high GDP growth
and low inflation mean more money
flows into the financial system, allowing
economy stands at 7%, investors expect at
least 9% yield on their debt investments so
that they earn positive return on their in-
borrowers to access credit cheaply vestment. Thus, when inflation drops, in-
7
Fiscal deficit as a % of GDP
terest rates, too, may drop. This is a favor-
able investment scenario for debt market in-
vestors. When interest rates drop investors
6
invested in bonds benefit as their holding
5 gets a premium in the open market.
Liquidity in the financial system is a
4
major culprit behind the distorted return
3 from debt funds. Events such as advance
2
tax payments and outflow of money from
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15* the country affect yields on debt instru-
Fiscal year ended March. * As per Interim Budget FY2015 ments in the short term. For instance,
corporates borrow from the debt market to
at a cheaper rate in the market. Thus, a smaller meet their tax payment deadlines. Supply
fiscal deficit, high GDP growth and low in- of bonds is higher than normal. In such a
flation can lead to soft interest rates. This situation, issuers of bonds try to attract
means more money flows into the financial buyers by either offering a discount on
system. The liquidity allows borrowers to prices or a higher coupon rate.
access credit cheaply. Any upgrade in credit Thus, it is a good time to get into the
rating means that interest rates may drop debt market when the fiscal position of
and vice versa go up. the country shows improvement. Also,
A good GDP growth, too, attracts a lot bonds or debt funds can be bought when
of money from investors which, in turn, the inflation graph shows a downward
points to a cheaper credit regime. Thus, trend. Similarly, short-term events such
when investors sense a recovery in economic as advance tax payments can be tracked
activity and see fiscal deficit narrowing, they and buying near the advance tax dates may
can commit money to debt funds as, along give a slight edge to the debt portfolio. If
with interest income, investors can also notch investors are sure of the long-term down-
capital gain as the market value of the bonds ward trend of inflation or expect good fi-
they hold will rise. nancial health of the country, they can take
Inflation is another factor which drives aggressive buy calls on long-term bonds
interest rates. Higher the inflation, higher or long-term debt funds as these instru-
will be interest rates and vice versa. Infla- ments react sharply to any change in in-
tion is a key factor that the government and terest rates. Thus, the quantum of capital
the Reserve Bank of India watch while tak- gain on long-term bonds will be higher than
ing policy decisions. Interest rate is one way on short-term bonds.
In the current scenario, there is a lot
of expectation from the new government
of containing inflation and fiscal deficit.
Investors can closely watch the macro
EXPENSE MAX EXIT RETURN (%) numbers on a regular basis to take a call
RATIO LOAD 1-YR 2-YR 3-YR on long-term bonds. Since the short-term
yields in the current scenario are very a
(%) (%) ANNU- CAGR CAGR
lose to long-term yields, it makes sense
ALISED to hold on to the less volatile short-term
0.00 0.12 8.46 8.27 8.45 funds and shift to long-term funds once
0.12 0.00 8.46 8.27 8.45 there are clear signs of lower fiscal defi-
0.17 0.00 9.39 9.22 9.37 cit, higher GDP or lower inflation. Inves-
tors will also have to closely watch ex-
0.27 0.00 9.09 8.79 8.88 port numbers and oil prices as these will
0.15 0.00 9.47 9.24 9.34 directly affect the fiscal deficit and have
0.09 0.00 8.71 8.52 8.68 an indirect effect on inflation.
— Rahul Mantri
Jun 09 - 22, 2014 CAPITAL MARKET
ApnaMoney
Tax Matters
Is undertaking redevelopment
liable to service tax?
By T K Doctor & Zankhana P Mehta
Our residential building is being redevel-
oped by P Developers. According to the
agreement entered, the developer has to
incur all the expenditure. The builder has
now approached us to make payment to
him for service tax. Is the builder liable
under service tax as we are not making
any payment?
— Pravin Boatwala, e-mail
Prior to 1 July 2010, construction as well
as reconstruction services provided by a
builder would not be taxable circular dated
29 January 2009.
From 1 July 2010 to 30 June 2012, re-
construction services provided by the build-
ers to the building society would not be tax-
able because the reconstructed flats are for
the personal use of society/its members.
Earlier, the definition of residential complex
provided that it does not include a complex
which is constructed by person directly en-
gaging another person for designing or plan-
ning a layout and the construction of such
complex is intended for personal use as resi-
dence by such person. Construction of ad-
ditional flats undertaken as a part of recon-
struction for sale to the second category of
service receivers is a taxable service if any
payment is made to the builders before the
issuance of completion certificate.
Between the period 1 July 2010 and 30
Jun 09 – 22, 2014 CAPITAL MARKET
June 2012, services of redevelopment of
existing building to the original owners of
the land were not subject to service tax be-
cause of specific exclusion provided in
Section 65(a1a) of the Finance Act, 1994.
However, from 1 July 2012, these services
have become taxable. This is because the
definition of the term ‘residential complex’
has been changed from 1 July 2012. The
specific exclusion for the personal use of
residence is no longer available.
In your case, the builder is liable for
service tax from 1 July 2012. The terms of
agreement will have to seen if the same can
be recovered from you.
I am providing property-related services
to clients who are in Delhi, Dubai and
Bangalore. One client is a non-resident.
Other clients are residents of Mumbai,
Kolkata and South Africa. I am in
Mumbai but I do not want to go for
centralised registration. Where will I have
to register for my Indian clients and for
my non-resident client?
— Mahesh P, e-mail
From 1 July 2012, services of redevelopment of
existing building have become taxable because of
change in definition of ‘residential complex’
Tax Matters
As per Rule 5 of Place of Provision Rules
(PoPR), the place of provision of service in
relation to immoveable property will be the
place where the immoveable property is lo-
cated or is intended to be located.
As per Rule 7, where any service for
which Rules 4,5,6 of PoPR apply and is
provided at more than one location includ-
ing location of taxable territory, the place
of provision is the location of taxable terri-
tory where the greatest proportion of ser-
vice is provided.
As per Rule 8, if the service provider
and the service receiver are located in tax-
able territory, thus the provision of service
is the location of service receiver.
Rule 14 provides that if the provision
of a service is, prima facie, determinable in
terms of more than one rule, it will be de-
termined in accordance with the rule that
occurs later among the rules that merit equal
consideration. This rule covers situations
where the nature of a service or the busi-
ness activities of the service provider may
be such that two or more rules may appear
equally applicable.
For example, an architect based in
Mumbai provides his service to an Indian
hotel chain, which has business establish-
ment in New Delhi, for its newly acquired
property in Dubai. If Rule 5 (property rule)
were to be applied, the place of provision
would be the location of the property, i.e.,
Dubai (outside the taxable territory). With
this result, the service would not be tax-
able in India.
As both the provider and the receiver
are located in taxable territory, by applica-
tion of Rule 8, the place of provision would
be the location of the service receiver, i.e.,
New Delhi. Place of provision being in the
taxable territory, the service would be tax-
able in India. By application of Rule 14, the
later of the Rules, i.e., Rule 8, would be
applied to determine the place of provision.
Thus, applying these provisions in your
case, if both you and your client are lo-
cated in taxable territory, then Rule 8 will
prevail even though property is located
outside India. But if your client is non-resi-
87
ApnaMoney
dent and property is also located outside
India, then there is no service tax implica-
tion. For service tax to be levied, the place
of provision has to be within the taxable
territory. Your non-resident client is not
required to get registered.
Every person who has provided taxable
service of value exceeding Rs 9 lakh, in the
preceding financial year is required to reg-
ister with the service tax office having ju-
risdiction over the premises or office of such
service receiver.
From the taxpayers’ perspective, the ju-
risdiction of the field formation, which is rel-
evant for compliance with registration for-
malities, filing of return, and refund claims
by the person liable to pay tax will be the
‘location’ of the service provider or receiver.
Basically, the location of the service re-
ceiver or provider is the place where he has
obtained single registration or centralised reg-
istration under the service tax. If the service
provider is not registered under service tax (or
has obtained multiple registrations at differ-
ent places), then the location of his business
establishment will be his ‘location’. However,
if the service is obtained or provided at some
other place (which is a fixed establishment),
that place will be treated as his location.
We are representing a foreign service pro-
vider who provides online information
and database access or retrieval services
to various Institutions including educa-
tional bodies. Bill is raised by us without
levying service tax. The actual service
provider is outside India but the amount
charged is in Indian rupees. What are the
of the payer obligations tax deduction at
source (TDS) and service tax angle?
— Kanak Mukhi, e-mail
Online information and database access or
retrieval services are services provided in
electronic form through computer network.
Thus, these services are essentially deliv-
ered over the Internet or an electronic net-
work, which relies on the Internet or simi-
lar network for their provision. The other
important feature of these services is that
they are completely automated, and require
minimal human intervention.
Examples of such services are online
information generated automatically by soft-
ware from specific data input by the cus-
tomer, such as web-based services provid-
ing trade statistics, legal and financial data,
matrimonial services, social networking
sites; digitised content of books and other
electronic publications, subscription of
88
Service will be taxed in a country from where the service
is provided or sourced. If provided from outside India and
received in India, then it will be exempt in India.
online newspapers and journals, online
news, flight information and weather re-
ports; and web-based services providing
access or download of digital content.
Services not treated as online informa-
tion and database access or retrieval ser-
vices include sale or purchase of goods,
articles etc over the Internet; telecommu-
nication services provided over the
internet, including fax, telephony, audio
conferencing, and video-conferencing; a
service rendered over the Internet such as
an architectural drawing, or management
consultancy through e-mail: repair of soft-
ware, or of hardware, through the internet,
from a remote location; and Internet back-
bone services and internet access services.
As per Rule 9 of Place of Provision of
Service (POPS) Rules (specified services),
the place of provision is the location of the
service provider. The specified services
where the place of provision is the loca-
tion of the service provider are services
provided by a banking company, a finan-
cial company, a non-banking financial
company to account holders; online infor-
mation and database access or retrieval ser-
vices; intermediary services; and service
consisting of hiring of means of transport,
up to a period of one month.
This means the service will be taxed in
a country from where the service is provided
or sourced. If provided from outside India
and received in India, then it will be exempt
in India. The earlier import of service rules
taxed these transactions but not the new
POPS Rules. It does not matter whether the
payment is made in foreign currency or not.
‘Intermediary’ means a broker or any
other person, by whatever name called, who
arranges or facilitates a provision of service
(main service) between two or more persons
but does not include a person who provides
the main service on his account [Rule 2(f)
of the PoPS Rules]. In case of intermediary
of services, the place of provision of ser-
vice is the location of service provider
[(Rule 9(c) of PoPS Rules)].
Under the reverse charge mechanism,
the recipient of service is liable to pay tax if
Tax Matters
the provider of service does not have any
established business or fixed establishment
in India. However, a person carrying on
business through a branch or agency in any
country is treated as having a business es-
tablishment in that country [Explain 4 to
Section 65B(uu) of the Finance Act, 1994].
In your case, the foreign service provider
is not registered under service tax. You are
representing him in India and hence, he is
said to have business establishment in India.
Basically, the location of the service
provider is the place where he has obtained
single registration or centralized registration
under service tax. If the service provider is
not registered under service tax, then the
location of his business establishment will
be his location (as per the PoPS Rules).
Thus, locations of the non-resident ser-
vice provider will be the location of his busi-
ness establishment (which is in India), i.e.
in taxable territory and also foreign loca-
tion (in non-taxable territory).
Proviso to Section 66B of Finance Act,
provides that establishments in a taxable and
non-taxable territory are to be treated as dis-
tinct person. Moreover, the definition of
location of the service provider states that
‘where the services are provided from more
than one establishment, the establishment
most directly concerned with the provision
of service will be the location.
In your case, it is the foreign establish-
ment that is most directly concerned with
providing services. The Indian establish-
ment only raises bills. Therefore, the for-
eign establishment will be the location of
the service provider. Hence, you need not
charge service tax on the bill raised. (loca-
tion being in non-taxable territory).
However, you are an intermediary. As
per the PoPS Rules, your location is in tax-
able territory. Hence, you will be subject to
service tax on commission received from the
foreign service provider.
...................................................................
The replies are only in the nature of guidelines. The tax
counsellors and the publication are not responsible for
any decision taken by readers on the basis of the same.
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Jun 09 – 22, 2014 CAPITAL MARKET
CommodityWatch
Castor seed
Beaten down,
turns tasty
The recent wave of correction
is seen triggering
bargain buying
The recent drop in prices of castor seed is
likely to be followed by some upside move-
ment. Bargain buying is likely to emerge in
castor seeds from the lower level on the heels
of weak production estimates in the domes-
tic market coupled with strong export de-
mand of castor oil and meal.
The National Commodity and Deriva-
tives Exchange (Ncdex) June 2014 futures
declined by almost 8% in the past one month
to reach Rs 3976 per quintal on 20 May
2014 due to fresh supplies in local mandies.
Therefore, further selling in the commodity
from the current level will restrict farmers’
liquidation and allow stockists and millers
to initiate some bargain buying.
Castor is recognised under the category
of perennial crop but grown annually for
commercial reasons. Castor grows well in
tropical conditions. It grows best in heat
and humidity. The crop duration is four-
five months. In India, it is sown in July-
August. Harvesting commences around Oc-
tober in Andhra Pradesh and February to
March in Rajasthan and Gujarat. Crop re-
quires three growing periods of 140-192 day.
As per the latest crop survey report re-
lease by Solvent Extractors’ Association Of
India (SEA of India), the total area under
castor crop in India was down 16% to 9.16
lakh hectares in March 2013-April 2014
compared with the previous year. The esti-
mated total production of castor seeds fell
17% to 11.20 lakh tonnes in 2013-14 com-
pared with the previous year. The average
yield decreased 1% to 1,223 kg per hectare
in 2013-14 as against 1,229 kg per hectare in
2012-13 compared with the previous year.
The total area under castor crop in
Gujarat slipped 14% at 5.73 lakh hectares
in 2013-14 compared with the previous year.
This was mainly on account of decline in
total acreage in districts Banaskantha,
Mehsana and Rajkot. Most of the area has
been shifted towards cotton crop. There-
Jun 09 – 22, 2014 CAPITAL MARKET
Record exports on low prices
fore, the estimated total production of cas-
tor seeds in Gujarat declined 14% to 8.28
lakh tonnes in 2013-14 compared with the
previous year. The crop yield reported a
negligible drop at 1,445 kg per hectare as
against 1,452 kg per hectare a year ago. Sur-
vey data suggest that water logging due to
heavy rainfall in the firstweek of October
damaged crop productivity.
Survey data reveal that total area under
castor crop in Rajasthan decreased 6% to
1.48 lakh hectares in 2013-14 compared with
the previous year. The estimated total pro-
duction of castor seeds in Rajasthan was
down 7% to 1.66 lakh tones in 2013-14 com-
pared with the previous year. This was
mainly on account of major decline in Jodh-
pur (-38%) and Sirohi (-43%). The average
yield of the crop also reduced 12% to 1,122
kg per hectare.
As per the survey report, the total area
under castor crop slumped 31% to 1.53 lakh
hectares in 2013-14 compared with the pre-
Shedding gains
The Ncdex July 2014 futures shrugged
off by almost 8% from their peak of
Rs 4305 per quintal to trade at Rs 3996
per quintal on 22 May 2014
Rs per quintal
vious year. This was mainly on the account
of poor crop sowing in areas like Nalgonda
(-63%) and Rangareddy (-33%). The esti-
mated production also fell 32% to reach 1.02
lakh tonnes. The overall productivity of the
crop declined to 668 kg per hectare from
674 kg per hectare.
As per the latest data compiled by SEA
of India, there was record export of 4.72
lakh tonnes, ie, Rs 3658.24 crore in value
terms, of castor oil in 2013-14. Due to lim-
ited supplies in international market along
with strong demand from China, Europe,
and the US. This is estimated to be a record
in the last five years. Market sources pre-
dict that improvement in global industrial
activity will support castor oil demand in
the coming days. Total castor oil exports are
likely to touch five lakh tonnes in 2014-15.
As per the latest data compiled by SEA
of India, there was record export of castor
meal at 5.33 lakh tonnes in 2013-14 as against
3.83 lakh tonnes in the previous year. Data
reveal that South Korea and Taiwan resorted
to bulk of their purchasing from India. To-
gether, they accounted for around 99% of
total exports. Market sources indicate that
lower prices of castor seed in local mandies
will keep export demand of meal buoyant in
the coming days.
Outlook
Spot and futures prices of castor seed have
witnessed a sharp correction in the past
one month on the heels of new supplies in
local mandies along with limited offtake by
meal exporters at elevated level. The Ncdex
July 2014 futures shrugged off by almost
8% from their peak of Rs 4305 per quintal
to trade at Rs 3996 per quintal on 22 May
2014. Traders expect prices to witness
some bargain buying from the Rs 3800-3850
level on receding arrivals at the lower level
coupled with strong demand of castor oil
and meal exporters.
The Ncdex July 2014 benchmark prices
are likely to garner some support from the
Rs 3800-3850 per quintal level, while resis-
tance is likely at Rs 4350-4450 per quintal
in the near term. Spot prices have already
corrected a bit, easing to Rs 3900 per quin-
tal from Rs 4450 per quintal, since the start
of the year. Seasonally, we are entering into
a period when castor prices normally tend
to edge higher. The massive drop, expected
in local output by SEA of India, could see
this pattern unfold in the current year, too.
— Prashant Kapoor
89
 Introducing
CapitalineCorner Telefolio Gold
Pick right and
enjoy the full ride
Automobile Corporation of Goa
see page 7

Can board this bus

The Tata group company is well-placed to capitalise on the growth in the bus industry
Automobile Corporation of Goa (ACGL), body division jumped 73% to Rs 17.50 crore
the first major engineering unit to be set up but that from the pressing division slipped
in Goa, was jointly promoted by Tata Mo- 45% to Rs 3.44 crore.
tors (formerly known as Tata Engineering & The attention is on obtaining orders
Locomotive Company), the largest automo- for buses through own efforts. The bus
bile manufacturer in the country by volume, business is to be de-risked by strengthen-
and EDC (formerly known as Economic ing the internal marketing department and
Development Corporation of Goa, Daman
& Diu) in 1980.
The product range includes sheet metal
components, assemblies and bus coaches at
factories situated at Honda and Bhuimpal http://www.telefolio.com
villages in Goa. The sheet metal division at
FOR MORE DETAILS ON PAGE 85
the three units has high tonnage presses with
output of more than 17,620 tonnes. Since
beginning operations in 1982, the major sup- In the right direction
plier of pressings and assemblies to Tata Automobile Corporation of Goa’s bus
Motors’ Pune factory has set up a press body division is set to accelerate
shop at Jejuri in Pune to meet the just-in- growth and the pressing division is
time supplies. tipped to post a recovery in FY 2015
In 1987, a technical collaboration agree-
ment was entered with Subaru car maker
Fuji Heavy Industries (FHI), Japan, for vari-
ous models of chassis-mounted bus bodies.
A full-fledged bus-body-building division
was set up. Another agreement was signed
with FHI to build Monocoque buses in 1995.
Though orders from Tata Motors form a
major portion of the buses manufactured,
the marketing department has been contrib-
Share price on BSE in Rs
uting in a significant way over the last couple
of years.
Sales grew 15% to Rs 302.98 crore Automobile Corporation of Goa: Financials
and the operating profit margin im-
proved 30 basis points (basis points) 1203 (12) 1303 (12) 1403 (12) 1503 (12P)
to 8.0% from 7.7%, which boosted Sales 332.74 263.37 302.98 354.49
operating profit 19% to Rs 24.09 OPM (%) 10.0 7.7 8.0
crore in the fiscal ended March 2014 OP 33.32 20.32 24.09
(FY 2014). Other income fell 5% to Other inc. 8.33 8.55 8.09
Rs 8.09 crore and interest cost surged PBIDT 41.65 28.87 32.18
83% to Rs 20 lakh. As deprecation Interest 0.14 0.11 0.20
stagnated at Rs 5.40 crore, profit be- PBDT 41.51 28.76 31.98
fore tax increased 14% to Rs 26.59 Dep. 4.73 5.38 5.40
crore. Provision for taxation was up PBT 36.78 23.39 26.59
17% to Rs 9.11 crore. Finally, PAT PBT after EO 36.78 23.39 26.59
surged 12% to Rs 17.48 crore. Tax 11.95 7.75 9.11 10.79
Sales from the bus-body division, PAT 24.83 15.63 17.48
which accounts for 84% of total sales, EPS (Rs)* 38.7 24.3 27.2
grew 25% to Rs 256.49 crore. How- *Paid up Equity capital of Rs 6.42 crore. Face Value Rs 10.
ever, sales from the pressing division EO: Extraordinary Items. EPS is calculated excluding EO.
fell 20% to Rs 48.63 crore. Profit be- Figures in Rs crores. (P): Projections.
Source: Capitaline Databases
fore interest and tax from the bus-
focusing on state transport units, fleet op-
erators, and city buses for various mu-
nicipal corporations.
The pressing segment is operating as a
tier-I supplier of stampings and assemblies
to original equipment manufacturers (OEM)
such as commercial vehicle and engine manu-
facturers. Decline in demand for OEM cus-
tomers’ products affected production of this
division. However, it should perform well
in FY 2015 on recovery in the user segments.
Participation in the Busworld Exhibi-
tion 2013, held in Mumbai in February 2013,
was a grand fleet of state-of-the-art prod-
ucts. Five buses were displayed, including a
sleeper coach, classic bus, and buses with
new face. The sleeper coach, manufactured
for the first time, was a star attraction.
The government is moving towards
implementing a ‘bus code’ aimed at strict
adherence to the Central Motor Vehicle
Rules for enhancing safety of passengers.
The design and manufacturing capabilities
of all body builders across the country
has been assessed through various insti-
tutions. While many body builders did not
come up to the level desired by the gov-
ernment, the company has received ‘A’
grade accreditation for its bus manufac-
turing facility. It is expected that bus or-
ders will improve once government man-
dates bus manufacturing to be made
only by accredited body builders.
We expect ACGL to register net
sales of Rs 354.49 crore and PAT of
Rs 21.24 crore in FY 2015. This gives
8.3 an EPS of Rs 33.1. At the current
29.42 market price of Rs 273, the share
8.49 trades at 8.2 times its expected FY
37.91 2015 earning.
0.22 While near-term earnings growth
37.70 will come on sustained demand for bus
5.67 bodies from Tata Motors, medium-
32.03 term earning growth will be from the
32.03 strengthening of the internal market-
ing department and focusing on STUs,
21.24 fleet operators, and city buses for vari-
33.1 ous municipal corporations. Gradual
recovery of OEMs will help bounce
back of the pressing segment. The
stock deserves a higher P/E due to the
strong Tata pedigree. 

90 Jun 09 - 22, 2014 CAPITAL MARKET