TARA JEWELS IPO - Despite Retail, Mainly a Jewellery Exporter

Unlike peers TBZ or Joyalukkas, Tara Jewels Ltd which is expected to hit the market soon with a Rs. 200 crore IPO, is basically a jewellery exporter with almost 98% of FY’10 income coming from its worldwide exports business.

However, over the last three years, Tara Jewels has been creating and expanding a smaller retail business, and the current issue proceeds is expected to contribute also to their plans to open 20 new showrooms by this fiscal and early next fiscal.

This trend by jewellery exporters to diversify into domestic retail operations has been gaining strength over the last couple of years, due to the increasing competition, lower growth rates, and lower margins in the exports business.

Despite their domestic retail plans, due to the overwhelming presence of the exports business in their balance sheet, Tara Jewels will be considered as only an exporter by potential investors.

In FY’10, on a total consolidated revenue of Rs. 816 crore, Tara Jewels delivered an EBITDA of Rs. 68.6 crore, on an EBITDA margin of around 8.5%, which is not extraordinary, but only in line with the export industry standards. The net profit was around Rs. 24 crore, on an NPM of just under 3% which is not very impressive.

A question sent by Seasonal Magazine to ascertain whether Tara Jewels is expecting a better net profit margin in the coming quarters, and what all are being done towards that, remained unanswered at the time of publishing. 

Though Tara’s export revenue grew during the last three years at a CAGR of 12%, which is sort of okay in its industry, the going forward should be expected as tougher as the worldwide jewellery export growth is set to shrink to only 4.6% CAGR from 2010 to 2015.

Tara’s return on equity is also not exceptional at just 13.45%, and will fall short of many institutional investors minimum RoE requirement of 15%.

The problem with companies like Tara is that they were delivering better growth and RoEs a few years back, but it is now that they are tapping the capital markets. For example, Tara’s RoE was an impressive 25-37% in FY’06, 07, & 08.

A query sent to Tara Jewels on whether the company is expecting to deliver a better RoE in the coming fiscals remained unanswered.

Coming to valuations, if Tara is valued at the jewellery export industry average of 14 P/E, the Issue price would come to around Rs. 190, as Tara’s FY’10 EPS is around Rs. 13.60. At this price, the Issue can be attractive, as the share has a pre-issue book-value of Rs. 151.30, and it will translate only to a P/BV of 1.25 times which should come across as reasonable.

But one problem is the valuations of comparable players. Gitanjali  Gems Limited (BSE: 532715, NSE: GITANJALI) is available below its book-value, while another noted player, Renaissance Jewellery Limited (BSE: 532923, NSE: RJL) is available at just 0.60 times its book. Tara Jewels is also comparing itself with Titan Industries Ltd (BSE: 500114, NSE: TITAN), but it remains to be seen how far investors will take that logic.

To its credit, Tara Jewels will be the 8th largest listed player by revenue and the 5th largest by profits after the IPO. But creating headache for Tara Jewels is the quite unimpressive price-performance of the sector within the last three months with 26 out of 30 listed jewellers - dominated by exporters - losing money for investors.

In summary, Tara Jewels needs to price its issue very attractively - somewhere around its book-value - for this to be a competitive offering.

12 Indian Stocks for Dividends Plus Growth

Are there stocks with assured returns? Isn’t that an oxymoron? Well, not if you are a stock picker with an eye for generous, steady dividends. 

But if stock picking is difficult, stock picking for dividends is next to impossible. The reasons are many. Out of India's 111 capital market segments starting from ‘Abrasives’ and ending in ‘Vanaspati’, we couldn’t find barely a dozen companies with consistent dividend returns even while maintaining capital appreciation too. 

Finally, only 12 stocks passed out from our dividend-school with a first-class. That is, 12 out of 3000 stocks, which is a success percentage of not even 0.5%! What made the screening all the more tough was whether the current dividend yield was a one-off phenomenon in FY’10 or a stable track-record of returns during the past five years. 

Of course, current or past track-record doesn’t guarantee anything in the future, but chances are that those players with a consistently good track-record in dividends are highly likely to continue that performance in the coming years. 

Then came the issue of diversification. We didn’t want your portfolio to suffer due to setbacks in one, two, or even half-a-dozen industries. That is why our 12 dividend pass-outs are from 12 different sectors. The basic bet is on the macro of India’s domestic growth, though to balance things properly, we have been careful to include a few stories on the global recovery macro. 

Then came the issue of diversification by capital base, and we have taken care to include heavyweights, mid caps, and small caps, so that you have the best of three worlds - the steady capital appreciation of large caps, the faster appreciation of mid caps, and the risky but sometimes stunning performance of small caps. 

So, we know you are thirsting to know what kind of dividend yields we have targeted. Well, our top dividend yield at current market price is 7.69% in an auto player, and our lowest at 5.06% is by an electric equipment player. However, none of our picks have a dividend yield below 5%, with the average of the pack being an impressive 6.01%. In other words, a Rs. 10 lakh portfolio should yield Rs. 60,100 yearly in dividends alone.

Of course, that is not all. We have taken care to include only those stocks that have a history of capital appreciation as well as a future looking good. For verifying the past track-record we have computed their wealth-creation history and for verifying the future outlook we have provided one of the best indicators, Return on Equity. 

No share with a wealth creation performance less than 200% (except one with 192%) has been included, while no share with an RoE less than 12% has been included. In contrast, there are a couple of powerful players in our list with amazing capabilities like, wealth creation of 30,681% or RoE of 64.41%! 

All these companies for whom paying back their shareholders is a priority are likely to maintain dividend yields, even when the share price shoots up. So, it is basically capital growth plus dividend appreciation. And needless to say investing in a dividend-yielding pack is best done when markets are trying to find new bottoms to consolidate again. So, without making you read more, here is our pack of 12, sorted according to their historic wealth creation:

01) Castrol India Limited (BSE: 500870, NSE: CASTROL)

The absolute leader in the lubricants space by way of sales, profits, and market cap. Sales is 3.7 times higher than the No. 2 player. Profit is 6.6 times higher. And achieves this on just double the asset base of the nearest competitor. The market cap is already huge, but believe it or not, it still has room to improve, if you take this MNC associate's stellar track-record in delivering shareholder value.

-----------------------------------

Dividend Yield:         

5.84%

Past Wealth Creation:     

30,681%

Return on Equity:         

76.98% 

Segment:             

Lubricants                

----------------------------------- 

02) Hero Honda Motors Limited (BSE: 500182, NSE: HEROHONDA)

The undisputed leader in two-wheelers, by way of sales and profits. Delivers this magic on a smaller asset base than No. 2 player, Bajaj Auto. Lags Bajaj only in market cap. Plans to more than offset Honda leaving  the company by entering bike exports, and the booming three-wheeler segment.

----------------------------------- 

Dividend Yield:         

7.69%

Past Wealth Creation:    

8840%

Return on Equity:         

64.41%

Segment:             

Auto - 2 & 3 Wheelers           

----------------------------------- 

03) Kabra Extrusion Technik Limited (BSE: 524109, NSE: KABRAEXTRU)

A medium to small-sized player in the heavy engineering sector. But noted for its profitability. And achieves this on a smaller asset base. Market cap also has good room to improve.

----------------------------------- 

Dividend Yield:         

6.42%

Past Wealth Creation:     

1444%

Return on Equity:         

24.54%

Segment:             

Engineering - Heavy 

----------------------------------- 

           

04) Cosmo Films Limited (BSE: 508814, NSE: COSMOFILMS)

This Jaipuria Group company has been the pioneers in BOPP films in the country, and still continues to be India's largest exporter. With the acquisition of USA based ACCO's world-leading print finishing / thermal films business, GBC Commercial, this polypropylene player looks good. Sales continues to be strong, even while profitability needs to improve. Market cap should improve going forward.

----------------------------------- 

Dividend Yield:         

5.38%

Past Wealth Creation:     

600%

Return on Equity:         

15.70%

Segment:             

Plastics 

----------------------------------- 

           

05) Oil & Natural Gas Corporation Limited (BSE: 500312, NSE: ONGC) 

The undisputed leader in Oil Drilling & Exploration sector. Sales is 2.41 times that of nearest competitor. Profit is even better at 5.34 times the No. 2 player. Achieves this on thrice the asset base, but who cares with its near monopoly status. Market cap is already gigantic, but will continue to keep pace with business growth.

----------------------------------- 

Dividend Yield:         

6.21%
Past Wealth Creation:     

597%
Return on Equity:         

18.48%
Segment:             

Oil Drilling & Exploration 

-----------------------------------  

06) Gillanders Arbuthnot & Company Ltd (BSE: 532716, NSE: GILLANDERS) 

This 76 year old veteran is now a diversified player in tea, textiles, properties, engineering, & chemicals. Sales continues to be strong even though profitability needs to improve. Still, achieves the sales on a much smaller asset base that leaves room for market cap to improve, if profitability improves.

----------------------------------- 

Dividend Yield:         

5.46%Past Wealth Creation:     

349%
Return on Equity:         

15.18%
Segment:             

Plantations - Tea & Coffee 

-----------------------------------  

07) PAE Ltd (BSE: 517230, NSE: PAEL)               

Formerly Premier Auto Electric, this Walchand Doshi Group company is a medium-sized player by sales and profits in the wide ranging auto ancilliary sector of the country. But delivers performance on a lower asset base than comparable peers. Market cap has space to improve. Also in home power solutions and solar photovoltaics.

----------------------------------- 

Dividend Yield:        

6.90%Past Wealth Creation:     

300%
Return on Equity:         

13.05%
Segment:             

Auto Ancillaries    

-----------------------------------  

08) Panasonic Carbon India Co Ltd (BSE: 508941, NSE: PANCARBON)         

An affiliate of Japanese giant, Panasonic. A smaller player in India's Electrodes / Graphite segment. But more profitable than a couple of peers. Market cap reflects profitability, but has some room to improve due to surprises possible due to the international connections.
----------------------------------- 

Dividend Yield:        

5.30%Past Wealth Creation:     

270%
Return on Equity:         

12.06%
Segment:             

Electrodes / Graphite 

-----------------------------------  

09) Mangalam Cement Ltd (BSE: 502157, NSE: MANGLMCEM)        

This BK Birla Group company is a medium-range player among the large cement manufacturers. Slightly more profitable than comparable players by sales, and also achieves this on a slightly smaller asset base. Market cap will rise surely in tandem with cement fortunes.
----------------------------------- 

Dividend Yield:         

5.40%Past Wealth Creation:     

258%
Return on Equity:         

31.12%
Segment:             

Cement - Major    

-----------------------------------  

10) Visaka Industries Limited  (BSE: 509055, NSE: VISAKAIND)           

A major player in the building materials industry. More profitable than comparable peers by sales. Achieves this on an industry average asset base. Market cap has much room to improve.

----------------------------------- 

Dividend Yield:        

5.22%
Past Wealth Creation:     

227%
Return on Equity:         

24.27%
Segment:            

Cement - Products / Building Materials    

-----------------------------------  

11) HCL Infosystems Limited (BSE: 500179, NSE: HCL-INSYS)           

The clear leader by sales and profits, beating No. 2 players in these respects by almost double the size. But achieves this only on around double the asset base than peers. Still, if the Nokia deal is extended in some way, and Nokia's fortunes in India turns around after the Windows tie-up, market cap has room to zoom.

----------------------------------- 

Dividend Yield:        

7.24%Past Wealth Creation:     

223%   
Return on Equity:         

13.73%
Segment:             

Computers - Hardware            
----------------------------------- 

12) Easun Reyrolle Ltd (BSE: 532751, NSE: EASUNREYRL)           

A noted player in the Electric Equipment sector with a diversified product portfolio in generation, transmission, distribution, & industrial products. Noted for its excellent profitability vis-a-vis comparable peers by sales. Delivers the magic also on a smaller asset base. Market cap definitely has some room to grow.

----------------------------------- 

Dividend Yield:        

5.06%
Past Wealth Creation:     

192%
Return on Equity:         

26%
Segment:            

Electric Equipment     

-----------------------------------  

(Editor’s Note: The RoE calculated is for FY'10. The past wealth creation calculated is from their respective listing dates or the year 1991, whichever is later, to today, and takes into account all bonuses and splits, but not dividends and rights. So the actual wealth creation may be higher for some scrips. This article should not be taken as investment advice, and investors should act only according to their further personal analysis and/or further professional help. Investing in any stock carries significant risks including the stocks listed above. To minimise risks, always invest/trade with suitable stop-losses.)

TBZ IPO - Can the Valuation be Attractive?

It is raining jewellery IPOs. Never mind that 26 out of 30 listed jewellers in India have melted the money of investors during the last three months. Ranging from a disappointing 10% to a serious 45%, the losses from this sector have been troubling.

Compared with the losses, the gaining counters have been quite modest in the sector. If you set aside the recently listed C Mahendra Exports, the gains have ranged only from a meagre 4% to a modest 15%. What this simply means is that, the sector is not doing very well.

But that is not preventing players like TBZ, Tara Jewels, Joyalukkas, and Ratanchand Jewellers from creating an impressive line-up of IPOs. Two reasons might be making them bat for it now - the first being C Mahendra Exports Ltd's (BSE: 533304, NSE: CMAHENDRA) 67% gain within weeks after its IPO, and the other reason obviously being the now-or-never thinking due to the newfound bear-market-inside-bull-market.

Among these players, TBZ (Tribhovandas Bhimji Zaveri) is noteworthy for many reasons, if not for the simple fact that they have been around as an unlisted player for long - since 1864 in fact, if their brand tagline is taken seriously.

TBZ’s IPO is fully a new issue of 1.67 crore shares of face-value Rs. 10, which will add up to the existing paid up equity base of 5 crore shares of FV Rs. 10, to create a new paid-up equity base of Rs. 66.67 crore. That this is a fully new issue of shares should be taken as a positive, as the IPO money is coming into the company.

The post-issue promoter holding will come down only to around 74% (from the current holding of around 99%), which also can be taken as a positive.

TBZ’s fundamental performance has also been good, with a consolidated FY’10 RoE of 24.67%, even though for the year ending September 2010, the return on equity has dropped to 20.76% due to a bonus issue to distribute the earlier share premium.

The consolidated EPS for the year ended September 2010 stands at Rs. 3.59, and if the issue is priced at the industry average P/E of 13, it should have a smooth sail. The price then would have to be around Rs. 47 only, and on a book-value (pre-issue) of Rs. 17.30, this will translate to a P/BV of around 3 times.

Industry leader by sales, profits, and market cap, Rajesh Exports Ltd. (BSE: 531500, NSE: RAJESHEXPO) trades at a P/E of 15.42 and P/BV of 3.55. But TBZ being a retail player, is comparing itself with the only listed retail players in the sector like Titan Industries Limited (BSE: 500114, NSE: TITAN) and Thangamayil Jewellery Ltd (BSE: 533158, NSE: THANGAMAYL), and here is where all the valuation risks will arise for potential investors.

Getting Titan / Tanishq's valuations is out of question as it is trading too high, at 35 P/E and 20 P/BV due to its powerful sales and diversified offerings like watches and other accessories. Thangamayil, of course is too small a player compared with TBZ.

Between these two extremes, Tribhovandas Bhimji Zaveri might pitch for a closed-group industry average P/E of 28, but then the Issue becomes expensive at around Rs. 100 with a P/BV of around 6 times, for an industry that is expected to grow only at 10-12% CAGR for the next 4-5 years.  

Indian Economy’s Dirty Little Secret - Inflation is Here by Design

Despite repeated efforts to deflate, prices are getting inflated. Either it shows the incompetence of leaders like Dr. Manmohan Singh, Pranab Mukherjee, & P Chidambaram, as the Opposition says, or there is something else to the economy, something that remains hidden to most of us.

The secret might well be this - nobody in central policy-making really cares a damn about inflation. But not necessarily because of apathy or ignorance. With almost half gone from its second-term, and considering the time taken to turn around economics, UPA clearly cannot afford apathy. And anyone who knows the rudiments of economics knows that inflation can very well be tamed by cutting down on government spending, or specifically in the post-2008 context, rolling back the fiscal stimulus.

But the central policy makers aren’t willing to even consider these steps. Why? Because, they really don’t care a damn about inflation.

Just recall what the other Singh told press recently, “Inflation is one thing I am least worried about…” And it is not just Montek Singh Ahluwalia's take on this. Kaushik Basu, FinMin’s Chief Economic Advisor recently said, “We want to take steps to bring down inflation but we do not want to be so single minded in bringing down inflation…”

The political leadership, on the other hand, can’t be as clear as bureaucrats. But the intentions should be clear to all. Now only the question of ‘why’ remains, given the stark unpopularity of inflation.

Chances are that this team, led by Dr. Manmohan Singh, want to go down in history as the men who finally guided India into the right economic track that a developing nation should take to become a developed nation.

Why, don’t all of us want to live in a developed nation? Don’t we want India to be a developed nation like US or UK? Yes, yes, yes. But, sadly, we haven’t yet understood that this transition, this growing-up is going to be intensely painful.

To give just a glimpse of this pain, it is enough to realize that there is still room for more inflation. Because, for all of India’s high inflation rates now, realize once and for all that the cost-of-living index in USA (computed as consumer prices including rent) is still 177% higher than in India. In UK, it is 236% higher than in India!

Of course, Indians and Americans don’t earn equally. But not only is this difference smaller, but it is getting smaller by the year. For example, the local purchasing power of Americans is now only 98% higher than Indians. And in the case of Englishmen, local purchasing power index is even smaller - only 57% higher than in India now. These numbers are even more significant, taking into account the better savings culture of Indians vis-à-vis Westerners.

Clearly, room for further inflation is there if we want to end up as a developed nation. And the only thing that can offset inflation is earnings growth, and if earnings - of individuals, families, companies, governments, and ultimately of the nation - doesn’t keep pace, any and all of these social units will be in deep trouble.

And for earnings to grow, productivity should grow, and that is why the team led by Dr. Manmohan Singh is madly after GDP growth. That is how USA grew itself in the post-WW2 era, always striving to keep annual GDP at high single digits, if not low double digits, and suffering high inflation as the outcome. And now, with USA and other developed countries growing at low single digits, Dr. Singh and his team rightly thinks that if we continually grow at high single digits, we can successfully play catch up.

In contrast, if growth is slowed down, inflation will in no doubt come down, but so will employment rate, and so will APL percentage. In fact, studies have shown that with each declining growth percentage (that will tame inflation), the country will see unemployment levels inching towards 20%, and the failure to raise another 100 million people from BPL status.

Simply put, the secret is that India has voluntarily opted for high-growth / high-inflation economics. Amongst the BRIC economies, while India and China are following this method, Brazil and Russia have opted for the low-growth / low-inflation route. Only time will tell which route was best, but the bad thing is that our leaders don’t have the guts to announce what they have chosen.

The pains arising from this non-disclosure is apparent. For one, if it were disclosed, people would at least try to earn more rather than wait endlessly for onions to be cheaper. Only God knows what would be the overall hit if and when diesel is de-regulated.

Behind the veil of apparent indecisiveness, the real decisiveness of the Government - may be the only thing it is decisive about - in ensuring a high growth / high inflation cycle is unnerving.

It is slowly becoming clearer that the ongoing equity market correction is not just about interest rates edging higher, but more to do with Government’s subtle unwillingness to control inflation by curbing growth. The high growth / high inflation cycle is clearly not favoured by FIIs, which is clear from the way Indian and Chinese indices have nosedived while indices in other emerging markets like Russia have soared over the past two months.

Will Dr. Manmohan Singh and company eventually succeed as history makers? They may, but if, and only if, they are also willing to admit that development is not only about economics, but about rooting out inefficiencies, bottlenecks, and ultimately, corruption.

For example, despite being the world’s second largest producer of vegetables and fruits, 25% of our produce goes as waste. Coming to cereals and pulses, the waste is smaller but still a sizeable 7%, enough to correct an ad-hoc price hike due to any supply side crunch. It is also highly unlikely that our investigative agencies have uncovered and busted the myriad ways in which hoarding and futures exploit the demand side which is getting stronger in the country.

And if growth is also about empowering the country’s largest profession, farming, the country’s track-record in this is pretty poor, with Indian farmers struggling to get at least one-third of the final retail price.

It is economy that needs to grow, but often it is not only economics that is involved.

Musli Power X-Tra to Power Kerala’s First Formula Car Racing Team

Kunnath Pharmaceuticals, makers of Musli Power X-Tra, creates two-car formula car racing team with Ford engines, motorsport veterans M&N Racing, and two of India’s best drivers, Gaurav Gill and Arjun Balu. 

For car racing enthusiasts in the state, it is a dream come true. Though their state of Kerala is a state of sports and auto enthusiasts, it could never aspire to be a player like Gurgaon or Chennai when it came to formula car racing. Forget even plans for a race track, the state didn’t even have a team to compete in formula car racing, which is a younger sibling of the acclaimed Formula 1 format.

But that didn’t prevent Dr. KC Abraham, a Keralite businessman, to boldly go in for his own team when an opportunity presented itself recently. Dr. Abraham is the founder of Kunnath Pharmaceuticals and the patent-holding inventor of Kunnath’s blockbuster ayurvedic performance formulation, Musli Power X-Tra.

Said Dr. Abraham about his decision to create Musli Power X-Tra’s own team in formula car racing, “Beyond our patronage for various sports, ranging from football to cricket to athletics, here was an opportunity that was synergistic with our own corporate goal - of enhancing performance. Formula racing is all about peak performance, as much as our formulation, Musli Power X-Tra is about achieving peak personal performance.”

Dr. Abraham was speaking to Seasonal Magazine after the launch of the team in Kochi recently. The whole team consisting of managers, drivers, and support team was here on 29th January, together with team’s formula racing car.

Said Jose Pottamkulam, racing enthusiast and promoter of M&N Racing who coordinated the team for Musli Power X-Tra, “The synergy was apparent when I informed our chosen drivers Gaurav Gill and Arjun Balu about Musli Power’s support. They told me that since Musli Power Extra was about power, there was great synergy.”

Jose is a long-term racing enthusiast and has some wins to his credit including one in Maruti Suzuki Cochin Autocross, which is a tarmac race conducted in Cochin International Airport.

With his initiative, Dr. KC Abraham has succeeded in overtaking several older home-grown consumer brands in Kerala in bringing a formula racing team to the state.

No effort has been spared by the team in selecting ace drivers for the team.

35-year old Arjun Balu is one of India’s best known rally drivers, and has to his credit winning the AZRC Rally Of China, and has been five times national runner-up. One of his recent wins has been the K-1000 Rally of Bangalore in 2009. Known for his long experience and steady driving, Balu hails from Coimbatore.

Team Musli Power X-Tra’s other driver, Gaurav Gill is one of India's leading rally drivers. The 29-year old from Delhi is a past winner of India's National Rally Championship, National Road Racing Championship and FIA APRC Rally in Indonesia, and is known as an aggressive driver.

Though both drivers are from outside the state, both share a special relationship with Kerala in that both of them have won major motorsports events in Kochi, which is also the headquarters of Kunnath Pharmaceuticals.

Musli Power X-Tra stands to gain much from the formula race, apart from the extensive brand visibility, as it will be working closely with world renowned auto brands like Ford, which is supplying the engines for the two-car team.

Musli Power X-Tra Racing Team will compete in the MRF Formula Championship 2011 which is an official support race to the 2011 Formula One Grand Prix of India.

The race will be held at Chennai and is schedule to start on 5th and 6th of February followed by races on 12th and 13th February 2011, with a total race of six numbers.

The team is also participating in two more races on 29th and 30th October 2011 in Delhi, prior to the Grand Prix.

Musli Power XTra has always been associated with high value sports promotions. Since its beginning, Kunnath Pharmaceuticals has donated substantial amounts to the promotion and development of sports, youth and cultural activities in the nation.

The company is sharply focused on what will take Indian sport ahead, and at helping individuals realize their sporting ambitions.

Musli Power X-tra was the Official Licensee for Health Power in the 2010 Delhi Commonwealth Games. Apart from this, the brand is the main sponsor of the Indian football club, Churchill Brothers of Goa; title sponsor of Sri Lanka based Wayamba Elevens T20 Cricket team; Kerala State Athletics Association, and Kerala based football team Viva Kerala.