Manappuram Finalizes Pan-India Forays in Healthcare, Jewellery Retailing

He transformed a 60-year old pawn shop his father founded into a Rs. 6300 crore financial empire. He is VP Nandakumar, former banker, entrepreneur extraordinaire, and one of India’s most successful wealth creators for retail investors, who have seen their investments in Manappuram  General Finance & Leasing Ltd (BSE: 531213, NSE: MANAPPURAM) zoom 35,600% within 15 years. Despite having a posh office in Bandra-Kurla Complex in India’s economic capital, and frequent overseas travels, Nandakumar calls the shots sitting at his original office in his native Valappad, a nondescript village in Thrissur District of India’s southern-most Kerala state. His former and current investors include the who-is-who of international investing like Merrill Lynch, Morgan Stanley, Nomura, Capital World, & Sequoia. Currently Nandakumar is plotting his next success saga - two stories in fact - in jewellery retailing and healthcare, sitting at ‘Manappuram’ which is a namesake for the coastal villages including Valappad. His confidence stems from his experience that Manappuram’s core values of thinking-big, finest quality, and transparency will help them succeed in their new verticals too.  

Seasonal Magazine interviews VP Nandakumar, Executive Chairman of Manappuram Finance, and main promoter of Manappuram Group.

Manappuram Group is now attempting a major diversification into two new verticals. Is this any kind of de-risking strategy for the gold loan business? 

No, this is not about de-risking at all, as the new diversifications into jewellery retailing and healthcare is not undertaken by Manappuram Finance, our listed gold loan business, but by some of our core promoters including myself. These diversifications into healthcare and jewellery retailing are led by our firm belief that Manappuram Group can add much value to these sectors, and thus create new growth avenues for the Group. The listed Manappuram Finance is doing fine by itself, with this year's profit growth expected to be around 140%, and next year also the listed arm might grow its profit by at least 75%. 

You have started the pilot projects for your healthcare foray. Can you elaborate on their functioning?

Yes, what we have done is create two centres - one dental clinic and one clinical lab - here at Valappad, which will function as our pilot projects for our dental and diagnostics divisions. The latest infrastructure and equipments have been provided, so that these centres will serve as models for all involved. Once we have fine-tuned these centres, we will replicate it across the country.

But what about the kind of doctors and dental surgeons who will be required to handle all these? Have they been roped in?

We have already identified the main doctors who will handle each division. For our dental chain, one of the most reputed dental surgeons, currently based in Thrissur has been entrusted the duty of Technical Director. Similarly, a renowned doctor, now based in Thrissur, who is also a highly successful diagnostic chain entrepreneur has been entrusted with the duty of heading our clinical labs division. They have visited our facilities and have expressed full satisfaction with our model, protocols, as well as facilities.

What kind of a business model will you be following for your healthcare expansion? Is this going to be a franchise model or are you planning to do it on your own?

Our initial plan was to expand on our own, and not follow the franchise route. But to fast-track growth, we are now planning to follow the inorganic route too. By inorganic, I mean not outright takeovers of existing dental clinics or labs, but that interested institutions will be brought into our fold on very attractive terms. Anyway, this won’t be a franchise model. Also, wherever there are opportunities to start new clinics or labs, we will start on our own. So, this is going to be a mix of organic and inorganic expansion.

Your model seems unique. Do you have any kind of role models for these healthcare chains?

Well, there are many examples lately I think, starting from Apollo. Of course, our model won’t be an exact replica of any of these, but will be a kind of mix ‘n match of these models to suit our vision. We are impressed by quite a few models, especially of Vasan Eye Care Hospital.

Building up a healthcare operation, especially on this scale that you imagine, will also be about managing large teams of doctors and other professionals. Will your institutions be doctor-led or manager-led?

Healthcare is one sector which should be ideally doctor-led, I believe. But having closely watched various medical institutions expand, I have realized the need for professional management too. So our leadership style will take good elements from both, with the medical leadership led by doctors, and the management run by finance or management professionals. The idea is to leave each one with responsibilities that they only know how to handle best. This demarcation will solve headaches for both, and achieve the needed synergy.

You yourself are from a banking background. And now you have been an entrepreneur for decades in the financial sector. How difficult will it be for you to manage doctors - who are unfortunately known for their egos - or the medical business itself?

I think you are underestimating doctors when you say this. In my opinion, some of the best management experts I have seen are all doctors. By management experts what I mean is experts in their domain, especially in team-building activities concerning doctors, nurses, and other paramedical staff. The best example that readily comes to my mind is of the renowned cardiac surgeon, Dr. V V Bashi, who is now with MIOT Hospitals of Chennai. I had an opportunity to watch he and his teams perform once, and the way he has built up the different cardiac units with different kind of specialists and nurses, and how they all perform synergistically to world-class standards is quite inspiring. Again, we have the case of Fr. Dr. Francis Alappat who built up Thrissur’s Jubilee Mission Medical College quite remarkably. Similarly, there are so many examples. I think the so-called management experts have a lesson or two to learn from these remarkable team builders.

What about managing the medical business itself?

As in all Manappuram ventures, this too will be professionally managed with a qualified and experienced CEO in charge. Though I am new to this line, I have always had an above-average interest in the healthcare sector. I am also an honorary director in a medical college.

Apart from dental and diagnostics, are you planning any other activities in the healthcare sector?

Yes, we also have a couple of additional models in healthcare, one of which is a unique concept of Women’s Wellness Clinics. While diagnostic and dental chains have been attempted before by other healthcare majors, Women’s Wellness will be pioneered by Manappuram. The concept is to serve the wellness needs of women through all core stages - pre-pregnancy, pregnancy, post-childbirth, and during the baby’s growing up phase. Both physiological and psychological elements would be there in these Wellness Clinics, as well as the best elements from traditional care and world-class developments in gynaecology & obstetrics.

Now about your other diversification - into jewellery retailing - which is already on in Bangalore. How has been the performance of Manappuram Jewellery?

Considering that we are a newcomer to retailing, I think we have fared quite good until now. We have 7 showrooms now, 4 in Bangalore and 3 in Kerala. Our fifth shop in Bangalore is all set to open in the New Year. We have set a target of 50 jewellery shops initially, all over India, but mainly in the South, within the next few years. Though our pre-operative expenses have been high, we should be able to break-even and may be post a profit of Rs. 1 crore this year itself. We are facing some challenges in this business, as our margins are lower compared with competitors, as we are selling only BIS Hallmarked gold at non-hallmarked price points, and because we pay 100% of our taxes.

How do you plan to overcome this challenge?

I think this is only a matter of awareness and time. Customers are going to appreciate our real purity proposition over competitors’ claims of purity. But until that happens, we have to match the prices. In any case we will not budge from our stance of selling only BIS Hallmarked gold. Sooner rather than later, customers, especially customers who value gold’s investment value too, will make the switch to hallmarked gold, and then it will be a level playing field for us. We shouldn’t complain too much now, as our mega campaign pitching Manappuram Gold’s purity is yet to commence in the media. You will see a huge jump after that.

But anybody can sell BIS Hallmarked gold, isn’t it? And many are claiming too…

Well, there are two differences here. Though most major jewellers sell some BIS Hallmarked gold, it is not their mainstay. They still focus on plain non-hallmarked 91.6 gold because the margins are high there due to the flexibility possible in purity, if I can put it in a mild way. Secondly, we have already started on an initiative that goes beyond even BIS. Using sophisticated quality control machines, we even double check each of our hallmarked supplier samples, and reject jewellery that doesn’t live up to the standards. There is going to be no compromise on quality, and this is going to be our differentiator in the jewellery business.

Why this obsession with purity? Are the gold generally available that bad?

Yes, you should ask us, of all people, this question. Nobody knows the quality of gold jewellery available in the market better than the gold loan companies. Day in and day out, at more than 1800 branches across the country, Manappuram Finance staff are testing ornaments of all kinds for their real gold value. Often, we have been shocked by the quality of jewellery that passes off as 91.6. We are obsessed with quality because we foresee a day, not very far, when customers too will awaken to this purity consciousness.

You mentioned a tax angle. How much is it affecting your retailing business?

I think we shouldn’t say affecting, as in my opinion, all of us should be paying 100% of our taxes. Of course, if my competition doesn’t pay tax, relatively I am affected, but that is not going to prevent us from being 100% transparent. Sadly, the need for being transparent is the last lesson entrepreneurs learn, and often in a hard way. They don’t realize that Government is also a key stakeholder in any business. After our last QIP, by which we raised Rs. 1000 crore, a few entrepreneurs enquired with me whether they too can raise money like this, and I said why not? But when we look at their balance sheet, it is another story altogether, something that doesn’t match their publicly successful status. But with each passing year, you will see the need for transparency increasing from all stakeholders, and we are anticipating a huge advantage coming to us due to this policy of transparency.    

Do you plan to list your healthcare and jewellery retailing businesses in the future?

Yes, definitely. Both will take a few years to stabilize, and after that we will definitely go for public issues and listing. From day one they are being built up to the standards expected of public companies.

Coming back to our first question of de-risking the Manappuram Finance business, are there any plans for the same in anvil?

The conventional wisdom of banks is that the loan portfolio should be diversified for de-risking. For banks, this is true too, to an extent. But when it comes to non-banking finance companies, the reverse is seen. Niche NBFCs have proven to be the least risky due to their sharp focus on a core competence. Examples are too many, be it Sundaram Finance (BSE: 590071, NSE: SUNDARMFIN), Shriram Transport Finance (BSE: 511218, NSE: SRTRANSFIN) , or Manappuram. This is because, such NBFCs do one thing exceedingly well. In our case, this core competence is gold loans. We know this business inside out. We have kept with it through recessions, gold booms, and gold busts, and we have survived. I will tell you a small instance of how this core competence develops. Manappuram Gold Loans is more than 60 years old, and I have seen this business up-close ever since I was a six-year old kid, when my father used to bring me here during vacations so that I won’t be a nuisance at home! Now, this original core competence is what I have taught my senior colleagues, and what they have taught in turn to this organization which today has an employee strength of over 13,000. That is what enables us to serve over 5 million customers from our over 1800 branches spread across 19 states of India.

But what if the gold prices were to fall drastically?

The biggest gold price fall in Manappuram's history happened in the 90s when it fell by around 50% from $430 per ounce to $220. We were nervous at that time about our repayments falling. But none of that happened. Later, we found out the cause - customers are more interested in getting their jewellery back, even if it is only half the original value. Simply because, what we are lending against is not just the bullion, but something we call bullion plus. Household jewellery has this additional emotional value of bullion plus, as nobody wants to lose household jewellery. Ever since then, we have been very cautious in lending against only household or personal jewellery. Having seen such drastic falls, and having emerged stronger, we don't see much risk from future corrections, if at all it happens. Another point is that we are anyway insulated from long-term corrections as majority of our loans get repaid within 100 days. 

You mentioned an impressive probable growth rate of 140% for this year and 75% for next. How is such momentum possible?

The reason is nothing but the tremendous opportunity still left untapped. Even today, the organized sector including us controls only 25% of all gold loans in this country, with the rest of the business dominated by the unorganized sector comprising mainly of moneylenders. But thanks to Manappuram's awareness campaign, customers are realizing that it is easier, profitable, and safer to take gold loans from the organized sector. Also, the total gold pledged today with both the organized and unorganized sector is nowhere near the gold that is available in households for pledging. Customers are also realising this fact that gold loans are the easiest and safest of all personal or MSME loans. We, in fact, expect Manappuram Finance to grow at 60% CAGR for the next four years.

How do you view the recent stock market correction that also took down your stock from nearly Rs. 190 , which is an all-time high, to Rs. 130 levels?

Fundamentally, there was nothing warranting this correction in our scrip. But then markets often have a collective nature, and when all banking and financial sector stocks corrected, we too lost some gains. That is an unavoidable side-effect of being listed in the bourses. But capital markets have been generally very appreciative of our growth trajectory, and you should not forget that this is a stock that has appreciated by 35,600% in its 15-year old history. Anyway, stability is coming back to the markets, and as you can see, Manappuram has regained much of the lost ground.

10 Changes Indians Demand in 2011

2009 and 2010 had been tumultuous years for India as it battled not only the effects of the worldwide recession, but also its internal demons, scams included. But these years held several lessons for India to improve in 2011. Seasonal Magazine brings 10 of these core lessons for India, inspired from our own pages, and the quantum of reader responses to these lessons,  during these two dynamic years.

1) Big Business Needs Bigger Scrutiny 

In February 2009, at the height of the Satyam crisis (BSE: 500376), Seasonal Magazine made a different point in our article titled, ‘From Business as Usual, to Trusteeship’. Simply put, it called for nobody - absolutely nobody - in big business to be put above suspicion when it comes to furthering their interest at the expense of the public. Specifically, we had mentioned some not-so-comfortable chapters from the early histories of some corporate benchmarks in transparency. Just 2.5 fiscals later, even we are a bit troubled that two of the images we used in that article - of NR Narayana Murthy (BSE: 500209, NSE: INFOSYSTCH) and Ratan Tata (BSE: 500570, NSE: TATAMOTORS) - have been somewhat dented in recent weeks, at least in public perception. While Murthy was caught unawares in the SKS fiasco (BSE: 533228, NSE: SKSMICRO) where lakhs of investors lost significant money, Radiagate may continue to haunt Ratan Tata in the days to come.

But did Seasonal Magazine offer any solutions then? Yes, we wrote back then - “The disease is not skin deep. It is systemic and it is called Capitalism. Once it was a medicine to kill an even deadlier disease – Communism. But now, it is The Disease. Marx had so eloquently explained how capitalists will multiply their tiny original capital to unprecedented heights, solely on the surplus labour of their workforce. The only practical solution, however, seems to be Gandhi’s Trusteeship Model. The Father of this Nation had so elegantly mixed entrepreneurship, Marx’s surplus labour theory, and his own social responsibility framework to reach at Trusteeship, which he termed as the “only way business can be done with morals.” One day, world will turn to it. Inevitably. It has to. There is no other way.”

2) Bring in the Power of Youth

In March 2009, amidst the Obama euphoria, and commenting on our aging political leaders, Seasonal Magazine wrote - “In India, it is as though you have to have 70 years of experience, before you will be entrusted with anything serious. This, in a country, whose only real strength is its mega youthful workforce, made possible by a birth-rate that refuses to fall to the absurd levels of the West. Yet, in a West plagued by a dangerously low youth population, we see a 47-year old Obama becoming the President, and George W Bush and Tony Blair calling it a day before they turned 63 and 55 respectively. Again, we scream, where are our youth leaders? Oh, then comes images of Rahul & Omar. Better we stick with our septuagenarians and octogenarians...Let us patiently wait for our Obama. But by the time we find one, will the original flop in US? God forbid.”

3) Stop Underestimating Pakistan

In the same piece, on the backdrop of Mumbai terrorist attacks, we wrote something, which WikiLeaks proved recently, 21 months later. Seasonal Magazine wrote then - “India is running from pillar to post, trying to garner support for its cause. It is getting plenty. But support against Pakistan? Aah, that is another story altogether. As India is realising gradually and painfully, US, UK, & China still have plenty of use left with Pakistan.”

4) Ban Politics for a Living

In the same month, in another article titled ‘Politics for a Living‘, in the backdrop of the upcoming general elections, we took a strange view on the parliament aspirants - “Take a cursory glance at this list of 5000. What is common? Many things, but what strikes most is that most of them are unemployed. Yet, living an affluent life. How do they live? 500 of them will, anyway, go on to become MPs. Though it will be difficult to continue their lifestyle with the around 20k monthly salary, the nearly 3 lakh worth of monthly allowances, perks, & freebies should be enough for the sober among them. That is, to meet the basic expenses. To accumulate wealth, they too have to look elsewhere.”

Thankfully, within months, they unanimously gave themselves a massive increment. But that was not our main concern. We had asked several questions in that article - “…And what about the rest 4500? They will continue to live even more stylishly. Do these parties pay them regularly? Not really. Whether it is party functionaries, MPs, or MLAs, politicians are expected to come up with their own revenue models. Party will just be a facilitator. Share the moolah with party, and party will continue to share the infrastructure with you. Politics for a living. Are our politicians so busy with social work that they can’t earn a decent living for themselves? Gandhi was even busier with social work, but could find time regularly to earn his living by weaving khadi. Even Nehru earned his living from the royalties of his books. When did this rot begin?”

Still, we have no idea really when it began, but now its contemporary symbols include a guy called A Raja and his always-calling-the-shots party DMK. But needless to say, if we dig deep, most parties are going to blush on this issue.

5) Public Disinvestment Should Put Public Interest First

In November 2009, that is around a year back, Seasonal Magazine wrote an article titled, ‘Can Public Make Money From the Coming IPOs’ on the topic of the massive disinvestment Government was planning through PSU IPOs/FPOs. Back then, we wrote, “Reliance (BSE: 500325, NSE: RELIANCE) and ONGC (BSE: 500312, NSE: ONGC) are in the same industry, both are public limited companies, but there is this huge difference. SBI (BSE: 500112, NSE: SBIN) and ICICI Bank (BSE: 532174, NSE: ICICIBANK) are in the same business, both are public, but again there is this discomforting difference. It can be argued that both sectors run on public money – investors, IPOs, secondary markets etc all apply to both – but companies like RIL & ICICI are always private companies. Call its public investors private investors if you like. They are there by choice. But is it the same with truly public companies like ONGC or SBI? Forget their private investors, but what about us? The taxpayers? Is our money there by choice? Do you personally believe in recapitalizing Andhra Bank (BSE: 532418, NSE: ANDHRABANK) with your money or ONGC drilling that next hole in Iran with your money? Probably not. But you don’t have much choice.”

Commenting further on the dangers of putting stock-market and investor interests first, we continued, “It is easy to confuse things between public and private using stock market lingo. But this is a country where the number of retail equity investors hasn’t reached that high figure - 1% - of the population, still. Agreed, NSDL & CDSL has 1.6 crore demats, but on one end there are significant duplicates, and on the other end a lot of empty accounts. It is not the same as the taxpayer base. Again, there is a riddle. Only 3% of the population pay personal tax in this country. And only 11% of the listed companies pay tax. But that is just the income tax or corporate tax. What about the numerous other taxes, levies, & surcharges that we pay whenever we buy, sell, travel, invest, redeem, or avail a service? PSUs are able to shine only on capital from these kinds of accruals.”

More than an year later, only a few PSU IPOs/FPOs have been able to deliver good, real returns to ordinary retail investors. But they have been anyway better than hyped up private sector IPOs like SKS Microfinance or DB Realty (BSE: 533160, NSE: DBREALTY).

6) Get Ready for a Chinese Crisis

In December 2009, while analysing past financial crises across the world and commenting on the Dubai financial crisis, Seasonal Magazine identified three aspects - hyped up real estate, dollar pegging of the currency, and undemocratic decision making - as three pillars of financial crises, and wondered at how China - that shares all these attributes - will escape a crisis.

We wrote, “Now the only relevant question is whether there are any other markets where both these conditions exist. Eerily, there is one – China. Though the country’s currency is only partially pegged to the US Dollar since 2005, by all practical measures it still remains deeply connected. The Chinese had unofficially strengthened this pegging post-Lehman as a last ditch effort to save its economy from collapse as it battles a real estate splurge that would shame even Dubai on the demand-supply mismatch. If China fails, it has the potential to take the world with it. And not at all comforting is a third attribute that Dubai and China share – non-democratic decision making.”

Now the world’s worst fears are coming true, as WikiLeaks has leaked, even the second-most powerful man in the Chinese power structure admits that Chinese financial numbers are rigged. And needless to say, on a full-blown Chinese crisis, next door neighbours will have to face not only economic heat.

7) Control the Needless Volatility in Stock Markets

Seasonal Magazine also almost predicted the recent stock market correction in that article. We wrote, “Of course, even without a Chinese failure, and even without the rupee being pegged to the dollar, India needs to tread cautiously as it suffers from excess liquidity driven by foreign investments that has overheated the capital markets already, much ahead of the real economy warming up.”

Later, in June 2010, Seasonal Magazine again warned investors and public about the effects of Smart Money. We wrote, “Retail investors would do well to keep in mind that nothing much changes for a business between one quarterly result to the next. Of course, there can be new order wins for the company intra-quarter, but even then there is no need for this daily frenzy. The only thing that changes every day, every minute, and even every second, is the money flow. Smart money flowing in and out, trying to take away your stupid money too, thereby getting smarter.”

8) Understand that Economics is No Substitute for Efficiency

And in last quarter, precisely in August 2010, we wrote about the theme that economics is no substitute for efficiency, which is a theme that refuses to die in India. As scam after scam unfolds, we continue to stand appalled at how systemic inefficiencies are breeding systemic corruptions, taking away the sheen of all economic planning. 

9) Time is Ripe to Bring in Some Direct Democracy

In our last Issue, Seasonal Magazine argued the case for instilling some direct democracy into the system. "The only pill for democratic ills is more democracy. Can technology and manpower prove to be the engines for instilling more democracy? If it can, this will also be bigger than those much-vaunted trillion dollar opportunities in various sunrise sectors. India is today flattered as the largest liberal or constitutional democracy. But the flatterers and the flattered are sitting smug on a belief that constitutional democracy is the ultimate. Or, perhaps on the disbelief whether anything better is indeed possible. Nonsense. Constitutional democracy is, historically speaking, nothing more than a stop-gap arrangement. The real game-changer is something called direct democracy.  Now, before some of you say it is impractical due to the referendums involved, let us remind ourselves that the times have changed, tech has changed."

The need for direct democracy is felt today more than ever, with the parliament in impasse for weeks over a petty quarrel between the ruling and opposition parties. We continued in that article, "Which tech-savvy youngster will buy this reason? He or she is already 3G, living in the post-Facebook, WikiLeaks era. Internet, mobile, and software technologies have advanced to such a stage that holding referendums, as often as needed, should be a snap. That is why UID is such an important step. But better than basking in its glory, the need of the hour is reminding ourselves that it is just an enabling step. The real achievement would be building a platform for referendum-driven direct democracy on UID and tele-density."

10) India Needs Leaders Who Plot Their Own Exit

In the same article, we tried to find out why direct democracy was not picking up steam worldwide. "Now that brings us to the real reason why direct democracy is not taking off. Will politicians plot their own end? Instead, they will guard their fort till the very end. And that is why thriving direct democracies are found only in some local communities in Switzerland, US states like Vermont, and some city states. It is a shame that no direct democracy exists outside the overruling power of a bigger state, province, or nation. Yet, changes are happening like the issue-based referendums in California, which have witnessed massive turnouts."

Focusing on the Indian situation, we continued, "But can’t India ring in the bells of change? If not for the only reason that the biggest democracy should also show the way? We have everything to make a go for it - brains, manpower, tech. And this can be a multi-trillion dollar domestic opportunity for the economy, which is increasingly threatened by a global slowdown. But for that to happen, we should prod our leaders to take that extraordinary step. As Anand Mahindra (BSE: 500520, NSE: M&M) recently put it brilliantly - a true business leader is one who plots his own obsolescence. This should be truer in politics than in any other sector. We sometimes take those steps. Like when we put Nandan Nilekani (BSE: 500209, NSE: INFOSYSTCH) in charge of UID instead of a Congress leader. But we also go backward, when we failed to extend the term to Dr. Kalam. One step forward, two steps backward."

A2Z IPO - Listing Gains or Long Term Value?

By the close of the second day of A2Z Maintenance & Engineering Services Ltd’s IPO, one thing was clear - the Rakesh Jhunjhunwala effect was overpowering.

On these two days when the Sensex lost nearly 700 points, and stocks in A2Z’s prospective listing categories like ‘Engineering’, ‘Power Transmission / Equipment’, and ‘Construction & Contracting - Civil’ got battered badly, A2Z IPO closed somewhat strongly with 81% of its Issue getting subscribed, with heavy oversubscription in the HNI segment of more than 4 times or 400%.

Earlier, A2Z had successfully raised Rs. 125 crore from seven anchor investors at Rs. 400, the lower end of the price band.

With one more day to go, there is no doubt this is going to be subscribed at least a couple of times over.

A2Z, a company promoted by Amit Mittal, a first-generation entrepreneur and IIT-Roorkee trained engineer and former public sector employee, is basically an EPC firm that specializes in providing engineering, procurement, & construction activities for the power sector. As such, its peers in the listed space are Kalpataru Power Transmission (BSE: 522287, NSE: KALPATPOWR), KEC International (BSE: 532714, NSE: KEC), & Jyoti Structures (BSE: 513250, NSE: JYOTISTRUC).

The company that started off with unglamorous maintenance works, got its big business break with the PSU Power Grid, and its big investment break when India’s best known investor, Rakesh Jhunjhunwala agreed to fund it. Later, institutional investors like Beacon and Lexington also became key investors in A2Z.

ALSO READ: PUNJAB & SIND BANK IPO - Valuation Attractive, Momentum Doubtful, Timing Problematic

Coming to core performance, the company has an impressive track-record, especially in recent years. For example, between 2007 and 2010, A2Z has grown its sales at an impressive CAGR of over 89% and profits at a CAGR of over 105%. But during the same period, EBITDA margins have not grown much, and margins may continue to be in pressure going forward, considering the growth plateau expected in Indian EPC sector in the coming years.

To offset this, A2Z has successfully diversified into other innovative industries like managing Municipal Solid Waste (MSW), and later into small-scale power generation activities using biomass. It is also an early entrant into the business of reducing transmission and distribution losses, where it is a partner of Sterlite Technologies (BSE: 532374, NSE: STRTECH). But apart from the EPC business, most of the later day diversifications are yet to contribute much to the topline yet.


Driven by its EPC business, the current order book continues to be strong, at Rs. 1400 crores, with main clients including PSUs like Power Grid (BSE: 532898, NSE: POWERGRID), NTPC (BSE: 532555, NSE: NTPC), and NHPC (BSE: 533098, NSE: NHPC).

Whether A2Z IPO, which has an upper price band of Rs. 410, will provide listing gains seems to be a non-issue, as with the possible overall oversubscription to a few times, high HNI interest, high anchor investor interest, and with the Jhunjhunwala tag, it is highly likely to provide some listing gain.

But whether the listing gain will be much, or whether the A2Z offer has long-term value depends upon the market condition at listing time, as well as on how the market values it vis-à-vis its peers. At a pre-Issue P/E of over 23 and more than 5.5 times its Net Asset Value per share, A2Z is definitely costlier than Kalpataru, KEC, & Jyoti, which are available at 10-15 P/E and 2-3 P/BV. Since the Issue involves dilution, apart from a part stake-sale by early investors like Rakesh Jhunjhunwala, the actual P/E and P/BV will be even high.

In its prospectus, A2Z has also compared itself with the Heavy Engineering major, L&T (BSE: 500510, NSE: LT), and the Electric Equipment major, ABB (BSE: 500002, NSE: ABB). But more than just the favourable valuations compared with these highly-valued companies, it shows the kind of ambition A2Z promoters are having.

Also comforting to IPO investors will be the fact that Rakesh Jhunjhunwala is divesting just 4% of his stake in the company, with the remaining 96% kept safely for possible upside in the future. Also, his remaining shares will have a one-year lock-in now.

PUNJAB & SIND BANK IPO - Valuation Attractive, Momentum Doubtful, Timing Problematic

On a total FY’10 income of over Rs. 4300 crore, Punjab & Sind Bank is slightly smaller than the smallest listed public sector bank (PSB), State Bank of Mysore (BSE: 532200, NSE: MYSOREBANK).

But when it comes to net profit, Punjab & Sind fares better than State Bank of Mysore(SBM), and in 2010, had overtaken somewhat bigger banks by total income like United Bank (BSE: 533171, NSE: UNITEDBNK), Bank of Maharashtra (BSE: 532525, NSE: MAHABANK), State Bank of Bikaner (BSE: 501061, NSE: SBBJ), & Vijaya Bank (BSE: 532401, NSE: VIJAYABANK).

On a pre-Issue EPS of around Rs. 27, the Issue which has an upper price band of Rs. 120 is valued at a tad below 4.50 P/E, which is just around one-third of the PSB industry average of 12 odd. By price-to-book-value it comes around 1.14, which is also fair enough.

ALSO READ: A2Z IPO - Listing Gains or Long Term Value?

Though no PSB is available below 6 P/E, with the cheapest being State Bank of Travancore (BSE: 532191, NSE: SBT), there are good options by book value. For example, small comparable banks like United Bank and Bank of Maharashtra all trade at nearly the same P/BV, and even bigger banks like Indian Overseas Bank (BSE: 532388, NSE: IOB), Syndicate Bank (BSE: 532276, NSE: SYNDIBANK), & Oriental Bank (BSE: 500315, NSE: ORIENTBANK) are available at P/BVs ranging from 1.19 to 1.33.

Now, the problem with PSB IPOs has been that though they have been historically offered at attractive valuations, it has taken much time for them to move into some price momentum, with investors’ money locked-in almost uselessly for many years, with the best examples being small banks like Bank of Maharashtra and Dena Bank (BSE: 532121, NSE: DENABANK).

But once these banks catch the fancy of big institutional investors, they can appreciate like anything, and this is what is happening now with banks like Vijaya Bank and Dena Bank which have an year-to-date price-performance of over 75% and 40% respectively.

But this phenomenon may pose a problem for a new entrant into the listed space like Punjab & Sind Bank, as these banks which have already caught investor fancy and moved into price momentum are still available at comparable and attractive valuations.

Even slightly more expensive banks by P/E like State Bank of Travancore (SBT) are enjoying much momentum having moved up by more than 50% in year-to-date.

Also, Punjab & Sind Bank's IPO comes at a time when the Bankex is under pressure from multiple fronts after having appreciated quite a bit in the last 12 months. The BSE Bankex index had appreciated from 10,100 levels a year back to near 14,800 levels almost a month back, and has since then been on a downtrend, losing over 1700 points during the last four weeks. The housing finance scam and the higher interest regime is expected to continue the pressure on Bankex.

In a scenario like this, investors looking for quicker profits are likely to focus on outperforming PSBs, if they are willing now to bet on this sector at all. Still, on attractive valuations, the downsides in Punjab & Sind Bank IPO is almost nil, even though upsides might take indefinite years to fructify.

Apart from serious damages like a stock market crash or a banking scam, the offer appears good for those investors who are not looking at near-term momentum, but long-term value.

Is Direct Democracy The Pill to India's Scam Ills?

Only Direct Democracy will bring in accountability and transparency, even while presenting a trillion dollar opportunity in its implementation. But for that to happen, first we want leaders who plot their own exit.

With the alleged nexus between big business, bigger politics, & biggest fourth estate, out in open, and the bribe-for-loans in the housing finance sector, the world had indeed come a full circle. Now, the only question before public is whether it is time to call quits in finding at least somebody who is trustworthy. Anyway, one thing is sure, if somebody is caught red-handed these days, his or her time is up. This used to be so in ordinary lives from time immemorial, but now politicians too are included. Congress and BJP are going full blast in eliminating their corrupt - sorry - publicly corrupt. Most parties are expected to follow suit, barring incorruptible setups like the ones headed by Prakash Karat and M Karunanidhi. The real problem is that all of them are hiding. Behind that veil of democracy, and in the cocoons of myriad laws. The fact that a sizable portion of successful politicians are lawyers, doesn’t help either.

The only pill for democratic ills is more democracy. Can technology and manpower prove to be the engines for instilling more democracy? If it can, this will also be bigger than those much-vaunted trillion dollar opportunities in various sunrise sectors. India is today flattered as the largest liberal or constitutional democracy. But the flatterers and the flattered are sitting smug on a belief that constitutional democracy is the ultimate. Or, perhaps on the disbelief whether anything better is indeed possible. Nonsense. Constitutional democracy is, historically speaking, nothing more than a stop-gap arrangement. The real game-changer is something called direct democracy. Now, before some of you say it is impractical due to the referendums involved, let us remind ourselves that the times have changed, tech has changed. But before that, a bit of direct democracy for the uninitiated.

Direct democracy gets its name from the direct powers it gives the voters to do three things, apart from, of course, selecting the rulers. These direct powers are changing constitutional laws, suggesting new initiatives, and thirdly, recalling any elected representative. While the first power makes it difficult for the politicians to hide behind legal status quos, the third gives public the power to vote out, or even prosecute, promise-breakers before their term ends. However, the second power is the most productive - that of suggesting new initiatives. Why? If you think you have been hit by the greatest idea to create a million new jobs or low-cost housing, all you have to do is collect enough signatures from the community around to force a referendum on the nation. But the need for frequent referendums has also been the second biggest hurdle for implementing direct democracy. How can a nation bear the costs and logistics of referendums for every fancy ideas proposed by, say, a hundred thousand citizens?

But this is increasingly becoming an ostentatious reason. Which tech-savvy youngster will buy this reason? He or she is already 3G, living in the post-Facebook, WikiLeaks era. Internet, mobile, and software technologies have advanced to such a stage that holding referendums, as often as needed, should be a snap. That is why UID is such an important step. But better than basking in its glory, the need of the hour is reminding ourselves that it is just an enabling step. The real achievement would be building a platform for referendum-driven direct democracy on UID and tele-density.

Now that brings us to the real reason why direct democracy is not taking off. Will politicians plot their own end? Instead, they will guard their fort till the very end. And that is why thriving direct democracies are found only in some local communities in Switzerland, US states like Vermont, and some city states. It is a shame that no direct democracy exists outside the overruling power of a bigger state, province, or nation. Yet, changes are happening like the issue-based referendums in California, which have witnessed massive turnouts.

But can’t India ring in the bells of change? If not for the only reason that the biggest democracy should also show the way? We have everything to make a go for it - brains, manpower, tech. And this can be a multi-trillion dollar domestic opportunity for the economy, which is increasingly threatened by a global slowdown. But for that to happen, we should prod our leaders to take that extraordinary step. As Anand Mahindra recently put it brilliantly - a true business leader is one who plots his own obsolescence. This should be truer in politics than in any other sector. We sometimes take those steps. Like when we put Nandan Nilekani in charge of UID instead of a Congress leader. But we also go backward, when we failed to extend the term to Dr. Kalam. One step forward, two steps backward.

Let the world flatter India for real achievements, like being the first and largest direct democracy. Otherwise, it will be like Barack Obama or Barkha Dutt flattering Dr. Singh.

Musli Power X-Tra Said to Improve CD4 & Hb Counts in HIV Patients

Musli Power X-Tra, the blockbuster Ayurvedic formulation, which has been caught in a few controversies, has proven to be of use in bettering certain critical blood counts in patients infected with HIV+, the precursor to AIDS, a preliminary study from Kerala has claimed.

The study was done by an NGO, Atmata Kendram, which is a multi-centre organization that is spearheading the health service initiatives of Archdiocese of Changanancherry, a unit of Kerala’s Syro Malabar Church, one of the prominent Eastern Rites of Roman Catholic Church. Specifically, the study was conducted at Accept Kripa Bhavan, a unit of Atmata Kendram in Kerala’s Alappuzha District.

‘Atmata’ stands for Archdiocesan Temperance Movement for Awareness and Treatment of Addicts, and is a registered Charitable Society, noted for its work among HIV infected and patients suffering from various substance addictions.

Musli Power X-Tra, created and patented by Kerala based Kunnath Pharmaceuticals, has in recent years outgrown its original intention as an intimacy enhancer, and proven to be of effect in sports performance and infertility treatment, according to its creator.

The study tried to rope in 618 HIV affected patients registered with four centres of Atmata Kendram, in the districts of Thiruvanathapuram, Kottayam, Pathanamthitta, & Alappuzha. From among this population, around 50% gave their voluntary consent to be part of this study. But finally, 73 patients participated to the full extent, and was taken as the study sample. Of them, results from 27 patients who successfully participated in the study from beginning to end were considered.

The lab tests before and after the study were conducted by Thyrocare Technologies, headquartered in Mumbai.

On an average, CD4 level increased by 34.99% and Hb level increased by 14.39% in the selected study group, the study’s Project In-Charge said.

One interesting aspect of the study is that the study sample contained HIV patients who are both pre and post ART.

Anti Retroviral Therapy (ART), or Highly Active Anti Retroviral Therapy (HAART) as it is commonly known, is the principal treatment in modern medicine for managing HIV infection and AIDS. HAART is also the only approved HIV therapy in the world by medical organizations and governments. Though prohibitively costly earlier, the efforts of various Indian pharma majors have brought down its costs significantly. However, a fringe section of physicians worldwide continue to be sceptic about HAART’s effectiveness.

The study results involving Musli Power X-Tra was presented recently before media and public during an event convened at Accept Kripa Bhavan, Alappuzha to commemorate World AIDS Day on December 1st.

However, how Musli Power X-Tra might be helping to improve CD4 & Hb counts is not clear. Speaking to Seasonal Magazine, KC Abraham, Founder & Managing Director of Kunnath Pharmaceuticals, opined, “Though the exact pathway of action is not known, our hunch is that Musli Power X-Tra’s action of bettering overall health through better immunity might be how this is working.”

This is not the first time that an Ayurvedic formulation has staked its claim in improving counts like CD4. Ayurveda might indeed have a role in managing HIV infection, as Ayurveda’s principal strategy is bettering the immune system. The Human Immunodeficiency Virus (HIV), on the other hand has the principal strategy of debilitating the immune system.

The study was led by CV Vinayakan, a journalist, and supervised by Fr. Thomas KD, Director of Atmata Kendram. The study is not corroborated by any Medical or Government Agency, and was partially supported by Kunnath Pharmaceuticals.

Musli Power X-Tra is a formulation of nine Ayurvedic herbs and minerals. Kunnath Pharma is mulling to deliver it at 50% cost to deserving HIV patients through Atmata Kendram.

Shipping Corporation FPO - Invest or Wait?

 With the Shipping Corporation FPO overcoming the slow start, and getting subscribed 2.46 times by 11 AM, 3rd December, and with today being the last and exclusive day for retail investors, the buzz is now all around this PSU Public Issue.

The FPO of Shipping Corporation of India (SCI) (BSE: 523598, NSE: SCI) was rather overshadowed for two days by the IPO of another PSU, MOIL, which saw oversubscription of more than 50 times.

MOIL’s Public Issue being an IPO, and it being offered at attractive valuations, most investors were scrambling to get in, many for the listing gains alone, which the Issue is sure to have.

But little known, here was the Shipping Corporation FPO at much more attractive terms. At Rs. 140, the upper edge of the price band, the price-to-book-value ratio of SCI is 0.94. In other words, the offer price is around Rs. 10 lower than Shipping Corporation’s book value of Rs. 149.65.

To put this in perspective, no PSU IPOs or FPOs, past or in future are likely to be offered at such a steep discount, as most of them will come with a P/BV of 2 or 3. Private sector IPOs tend to be priced even higher, at 4 or 5 times their book value.

ALSO READ: Punjab & Sind Bank IPO - Valuation Attractive, Momentum Doubtful, Timing Problematic

Even Mercator Lines, a much smaller private sector player than Shipping Corporation is commanding a P/BV of 1.30.

To put this in even better perspective, there is almost no stock in the cross-sectoral BSE PSU Index that is available in the secondary market now, beneath its book value. Of the 56 stocks included in this collection of most-traded of PSU stocks, only one - MTNL - is available beneath its book. But then MTNL has been in deep red for sometime, and is trading on astronomical TTM price-earnings ratio that offsets its P/BV discount.

Shipping Corporation on the other hand is a profit-making entity with a TTM EPS of Rs. 15.71, which translates to an offer P/E of just 8.91. The Shipping Industry’s average P/E is around 16 now, and that leaves much room for SCI to appreciate from the offer price, even without earnings expansion.

Even comparable players like GE Shipping is trading at 14.3 P/E, while Essar Shipping is trading at a high P/E multiple of 42. But Shipping Corporation is a much bigger player in the sector, at almost double the size of GE and thrice the size of Essar.

But of course, the SCI FPO’s very attractive pricing also raises the question of why it is being offered cheap. One reason has been the doldrums facing the international shipping industry that had affected Shipping Corporation also in an equal measure. This was also reflected in the year-to-date price-performance for the scrip which was rather flat.

But with the headwinds facing the industry easing, and SCI demonstrating a decisive turnaround in the first two quarters of this fiscal, the cheap valuations should be encouraging to investors.

Shipping Corporation is also on course for a $1 billion capex within the next couple of years that will enlarge and modernise its fleet to a hitherto unseen scale and quality.

For long-term investors with 2-3 years horizon, the Shipping Corporation FPO presents a unique chance in value investing, if not for the single reason that they would have caught SCI at the absolute bottom.

In the shorter-term, crude moving up can present a good upside for this stock.

The SCI FPO is especially attractive for retail investors due to the 5% discount, as well as the fact that due to the relatively low retail interest, investors are likely to get the quantity that they apply for, unlike in MOIL or Power Grid.