Reliance Capital Ltd: Q4FY17, Result Update

Reliance Capital Ltd (R-Cap) reported a net profit increase of 2% in the March, 2016 quarter from a year earlier after setting aside a special reserve for its insurance unit.

Consolidated net profit for the fourth quarter grew to Rs.415 crore, from Rs.407 crore a year ago, said the company, which is a part of Anil Ambani’s Reliance Group.

The financial services company set aside Rs.111 crore as a special reserve for Reliance Life Insurance Co. Ltd, during the three-month period.

“This is a business reserve due to change in product mix in the life insurance company,” a spokesperson for the company said.

Consolidated revenue in the quarter increased 13% to Rs.2,807 crore from Rs.2,484 crore reported a year ago.

Other income in the quarter dropped to Rs.21 crore from Rs.58 crore a year ago.

As of 31 March 2016, the company’s total assets stood at Rs.67,112 crore, an increase of 40% on a year-on-year basis, it said in a statement.

Group company Reliance Commercial Finance Ltd saw its loan book rise to Rs.10,940 crore, as of 31 March, an increase of 6% from a year ago.

Disbursements for the year were at Rs.8,138 crore, up 17% from last year.

The company’s gross non-performing asset ratio increased to 3.1% of its loan book at the end of the fourth quarter, as compared with 2.6% as on 31 December (marginal rise).

Reliance Home Finance Ltd, a 100% owned subsidiary of Reliance Capital, saw its outstanding loan book increase 34% from last year to Rs.6,792 crore as on 31 March.

For the January-March quarter, the assets under management for Reliance Mutual Fund were at Rs.1.58 trillion, up 16% year-on-year, the company said in its statement.

Reliance Life Insurance reported new business premium worth Rs.1,558 crore, while renewal premium was at Rs.2,840 crore for the year ended 31 March.

For Reliance General Insurance Co. Ltd, the gross written premium was at Rs.2,868 crore, up 4% from a year ago.

As on 31 March, the total investment book was at Rs.5,381 crore, up 7% year-on-year.

Courtesy: Live Mint (edited)

Today's Recommendations

1. Buy Reliance Capital Ltd near the support of Rs.395-396, for a short term target of Rs.414.

The promoters holding in the company stood at 52.13% while Institutions and Non-Institutions held 28.71% and 19.07% respectively.

Reliance Capital, which has completed five years of partnership with Nippon Life, plans to strengthen the association with more products in mutual fund and life insurance spaces going ahead.

Nippon Life’s partnership with Reliance Capital began in 2011 when the Japanese financial services giant picked up 26% stake in Reliance Life Insurance. Subsequently, Nippon picked up 26% stake in Reliance Mutual Fund as well, while the stakes in both the ventures of Reliance Capital have now been hiked to 49% each.

Reliance Capital is a systemically important non-deposit taking NBFC.  Reliance Capital RCL obtained its registration as a Non-banking Finance Company (NBFC) in December 1998.

The company is part of the Reliance group led by Anil Dhirubhai Ambani. It currently operates as the holding company for the group’s entities in the financial services sector.

The book value of the shares of the company is Rs.570.97 and the dividend yield is 2.27%. Its P/E is only 9.11 while the industry P/E 24.10. Hence, a re-rating of the scrip will soon take place, which might take it above Rs.500 in the medium term. 

Max Financial Services Ltd (Rs.484.75) is up 13%, this could have a rub-off effect on all the stocks in this space, including Reliance Capital Ltd.

2. Keep Buying Lanco Infratech Ltd (Rs.4.90) on all declines for targets of Rs.7.5-9. 

3. Buy Adani Power Ltd near the support at Rs.29.80-29.90, SL: Rs.27.50, T: Rs.36.

Rajpura super critical thermal plant owned by Larsen and Toubro is set to have a new owner with Gautam Adani’s Adani Power Limited agreeing to pay Rs.3,300 crore upfront for the 1,400 Megawatt (MW) project and to also bear all loans and debts due on the project.


L&T is one of the largest construction and infrastructure development companies in the country with Adani Power Limited being one of the fastest-growing power generation company.

On a consolidated basis, the company's external debt was Rs.39,000 crore and ICD debt of Rs.6,000 crore. The promoters plan to infuse an additional Rs.1,700 crore in the next one year, which will improve Adani Power's financial metrics.


The Adani Group went on a massive expansion drive in the past two years, buying distressed power plants and ports across India. 

The government of India has recently taken steps to help the companies, who are  having large debts. 

DO YOU KNOW? 

Unlike some investment strategies, value investing is pretty simple. It doesn’t require that you have an extensive background in finance (although understanding the basics will definitely help), sign up for an expensive subscription service or understand how to analyze squiggly lines on charts. If you have common sense, patience, money to invest and the willingness to do some reading and accounting, you can become a value investor.

Photo: Easy Stock Market

Dimensional Emerging Markets Value Fund is one such entity which generally invests in shares, to achieve long-term capital appreciation.

Dimensional Emerging Markets Value Fund which holds 1.09% stake in Unitech Ltd is also holding 1.05% stake in Dishman Pharmaceutical & Chemical Ltd and 1.66% in India Cements Ltd. 

Value investing is always subject to risk, but over a period it gives good returns if right choice is made; while picking up securities, especially in the small and mid cap space.

Once, Kishor Ostwal, chairman and managing director, CNI Research said: “Stock reactions are often a result of the event itself and also speculation by market participants. At times corrections can be steep and the stock price itself falls below the intrinsic value of the business net of the ‘event’ impact. Buying at such low valuations can result in potential multi baggers". 

So, mainly what needs to be looked at, when a corporate disaster strikes a company?

• The first thing to consider is whether, despite going through an extraordinary corporate event, the business has value or not. 
• 2ndly whether the balance sheet of the company will be able to sustain potential losses (penalties and loss of revenue) arising from such an event, and is there enough cash with it,
• Thirdly, what will be the impending impact on future earnings or whether the future looks bright as compared to the present situation.We invest in stocks/shares based on its future growth potential, hence a distant view is more important than past events. 

Thus, while the value in the stock might be attractive, risks to future earnings need to be analysed if you want to buy into it as a long-term investment. 

Brand is perception, and if that is hindered then future sales can suffer. In case of Unitech Ltd (Rs.4.90), the issue is more of its brand getting a hit rather than the debt on the books (which as of now is manageable). But promoters' credibility is slowly limping back to normalcy, after their name came in 2G scam. 

So, what is the land bank of Unitech Ltd? According to an article published in the Business Standard on 8 May, 2014: 

Leading real estate companies like DLF and Unitech, too, have not acquired land for the last five years, though they do not jointly develop housing projects with landowners. They have enough land for new projects over the next 10-20 years, according to experts. These companies have been selling land parcels to reduce their debt.

Developers went on a land buying spree before 2007 during the real estate boom, but the economic slowdown in 2008-09 spoilt their party. DLF has about 10,255 acres of land, mostly in Gurgaon, Bangalore, Chennai, Chandigarh and Hyderabad. Unitech has a bank of 5,500 acres in Delhi-NCR, Chennai, Mohali, Kochi, Kolkata, Hyderabad and Bangalore.

With increasing floor area ratios, many developers are expanding vertically, also reducing their need for land buying.

Photo: Business Standard

The new Land Law is expected to make BUYING LAND, a DIFFICULT PROCESS and joint development might become common.

The passage of the land acquisition Bill is set to make land more coveted. Now, those seeking to buy land and develop it would have to pay at least twice the amount. Analysts say acquisition would become cumbersome and expensive, owing to the passage of the Bill; at the least, the cost of land would rise 30-40 per cent and this might lead to property prices rising two-20 per cent.

The escalating price of land will benefit those Builders/ Real Estate Companies, who have large land banks in Prime Locations, eg. DLF Ltd (Rs.131), HDIL (Rs.95.80), Unitech Ltd (Rs.4.89), Sobha Ltd (Rs.304.15), etc. 

There are also reports that Home Buyers in India are set to get a touch of Chinese realty developers with the country emerging as a major investment destination after government allowed 100% foreign direct investment (FDI) into the real estate industry.

100% FDI in Real Estate sector, will be a positive for developers with existing joint development/investment arrangements with foreign investors — they will gain as their addressable market will expand. Also, developers with large land banks will benefit with potential increase in demand for land.

There cannot be a 2nd opinion, that the scrip of UNITECH LTD (Rs.4.89), is at a deep discount as compared to its Enterprise Value; after a sharp corrections during the last few months, following some extraordinary corporate events - - therefore offers a good VALUE BUY.

Today's Recommendations

1. Buy Union Bank Ltd at Rs.122, T: Rs.130, SL: Rs.118. 

Cabinet today approved a bill seeking to amend the debt recovery laws with an overall objective of improving the ease of doing business. "Cabinet approves ex-facto 'The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Bill, 2016," an official statement said. Introduced in Lok Sabha last month, the bill seeks to amend four legislations -- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002, the Recovery of Debts due to Banks and Financial Institutions Act, 1993, the Indian Stamp Act, 1899 and the Depositories Act, 1996. 

2. Buy SAIL at the CMP of Rs.44.70, T : Rs.47-49, SL: Rs.43.5 (strict). 

Prime Minister Narendra Modi's 'Make in India' programme, which has earmarked $87 billion worth of investment in new infrastructure and manufacturing projects over the next five years, will benefit the country's steel and mining companies, a research report says. 

The initiative is likely to translate into meaningful steel demand after a gap of around 18 months, according to a report by research agency S&P Global Platts. 

The domestic steel sector, which has been plagued by low prices, high-level of imports and muted demand growth is showing signs of an early recovery, according to rating agencies and industry analysts.

The signs of a slow revival in the sector’s fortunes come as the Ministry of Steel prepares to submit a draft report on measures to relieve the financial stresses on the industry to the Prime Minister’s Office.


According to Fitch Ratings, even though challenges remain, the steel sector’s fundamentals have started to improve.

Steel imports by India are expected to reduce significantly in the first half of FY2017 at least once the impact of the minimum import price(MIP) starts to be felt, according to rating firm ICRA.

MIP did not have a material impact on the extent of steel imports till March 2016, due to a lead time of about one-and-a-half to two months for the shipment to arrive in India and the same led to a growth in monthly steel imports in February and March 2016, ICRA said.

Bulk quantities ordered in anticipation of MIP, just before its imposition, could also be a reason behind the same. However, with the full effect of MIP setting in from April 2016 onwards and given the firm international prices, ICRA believes that steel imports are expected to reduce significantly in the first half of FY2017 at least.

Post the imposition of MIP, domestic hot-rolled coil (HRC) prices have witnessed a sharp increase of about Rs 6500/MT which, when compared with the price differential between import offers and MIP in the first week of February 2016 of USD 130-200/MT is still on the lower side.

3. Lanco Infratech Ltd: Buy at the CMP of Rs.4.69, T: Rs.9, SL: Rs.4.20. 

Lanco Group has shortlisted four players for selling its power business.

Reports indicated that Tata Power Company, JSW Energy and Piramal Enterprises are among those who are interested in buying Lanco Group's power assets. 

A meeting of the joint lenders forum is scheduled to meet in the next few days to take a decision on the sale of the power business of Lanco Group. As per reports, Lanco Group, has power assets of about 8,000 megawatts (MW), and is seeking about Rs.4.50 crore per MW while buyers are bidding at about Rs 3 crore per MW. Lanco Group's power business' enterprise value is pegged at Rs.45000 crore inclusive of debt, reports suggested.



Lanco Infratech is one of the India's largest integrated infrastructure developers in India. The company has subsidiaries and divisions across a synergistic span of 5 business verticals viz. engineering, procurement and construction (EPC), power, natural resources, solar and infrastructure.

4. Buy Reliance Infrastructure Ltd at Rs.532, T: Rs.544, SL: Rs.520. 

State-owned institutions Life Insurance Corporation (12.3%), New India Insurance (1.5%) and Oriental Insurance (1.3%) are among the top public shareholders in Reliance Infrastructure Ltd. Apart from this, at least 100 foreign portfolio investors and other institutions hold a little over 20% per cent in the Anil Ambani-promoted entity.

Reliance Infrastructure Ltd reported a 43.7% rise in fourth quarter consolidated net profit helped by lower expenses and a one time gain in its EPC (engineering, procurement and construction) business.


The company has shortlisted two international bidders for monetization of its 11 operational roads assets, said Lalit Jalan, who took over Reliance Infrastructure from 1 January as acting chief executive after heading the company in prior stints for over seven years.

The power business contributes 42% of the total consolidated revenue of R-Infra. The company has said the total enterprise valuation (EV) for the business has been assigned at about Rs.12,000 crore (equity Rs.6,290 crore, debt Rs.5,810 crore). This translates into an EV/sales multiple of around 1.5, in line with peers.

R-Infra has three business segments — electrical energy, EPC (engineering, procurement, construction) and contracts, and infrastructure. Under the first one, engaged in generation, transmission, and distribution of electricity, it has a 500 Mw thermal power station at Dahanu, near Mumbai; a 220 Mw power plant at Samalkot (Andhra), a 48 Mw power plant at Mormugao (Goa) and a 7.6 Mw wind energy farm at Chitradurga (Karnataka). Of the Rs.6,290 crore consideration, Rs.5,580 crore is for the Mumbai division, while the Samalkot and Goa facilities are valued at Rs.560 crore and Rs.110 crore, respectively. The windmill was worth Rs.40 crore.

The EPC and contracts segment is engaged in the business of construction, erection, commissioning and contracting. The infrastructure segment develops, operates and maintains toll roads, metro rail transit systems and airports.


In December, the company acquired management control in Pipavav Defence.

Government to lower spectrum fee for telecom auctions

Photo: The Telegraph

NEW DELHI: The NDA government on Tuesday signaled a shift to lower levies on airwaves used by mobile companies with a panel of top officers recommending 3% spectrum usage charge (SUC) for the upcoming auctions, where the Centre can hope to raise up to Rs.5.5 lakh crore if all the radio waves on offer find takers.

A lower SUC can, in the long run, reduce your mobile bill besides ushering in transparency in the determination of revenues declared by mobile operators such as Reliance Jio and Bharti Airtel.

Photo: The Hindu Business Line

TOI was the first to report on the 3% SUC in its edition dated April 4. Currently, the levy ranges between 1% in the 2,300MHz frequency band and 3-8% for other bands. There was a fear that companies holding spectrum in the 2,300MHz frequency will attribute most of their revenues from the lower-duty band, thus paying the government lower charges. Airtel and soon-to-be-launched Reliance Jio Infocomm hold spectrum in this frequency.

The inter-ministerial telecom commission recommended a weighted average formula for the computation of the SUC for mobile operators, which would mean that they will have to pay charges in line with their spectrum holdings across the various bands.

Photo: The Telegraph India

The panel had earlier recommended that SUC be fixed at a flat 4.5% for all the bands, but the move was rejected by the attorney general who said that the 1% charge on the 2,300MHz band cannot be altered now as there is no provision to make the changes. "The weighted average formula will bring in transparency in the system," a senior official said after the telecom commission's meeting.

The government fetches around Rs 7,000 crore from the SUC annually, and the official said that the measure will be "revenue-neutral". "The obligation of a telco towards SUC cannot go down to what it had paid last year, in case the revenues don't decline," the source said.

For Airtel, the SUC charges are expected to come down to 3.74% from the existing 4.9%, while for Reliance Jio, the actual charge is expected at 2.88%, the official said.

The telecom ministry will approach the Union Cabinet on the issue in the next two-three days, while the notice inviting application (NIA) for the spectrum auctions is expected to be announced over the next fortnight, the source said. "If everything goes as planned, the auctions will be held in July."

The sale will see the auction in the highly-efficient 700MHz band for the first time ever where airwaves will be sold across 22 telecom circles. Also on the block will be airwaves in the bands of 800MHz, 900MHz, 1,800MHz, 2,100MHz, 2,300MHz and 2,500MHz.

Courtesy: The Times of India

DO YOU KNOW?

Courtesy: India Today

Real estate developer Unitech Ltd (Rs.4.90) said that it is committed towards delivering its ongoing projects and has mobilized sufficient resources for it, responding to a clarification sought by the Bombay Stock Exchange on news about Unitech's top executives being sent to judicial custody earlier this week.....

"Unitech remains committed toward delivering its ongoing projects and has renewed its efforts to that end. The company has also mobilised sufficient resources to achieve this," the company said to BSE. 

"We are currently delivering over 300 units a month and expect to increase the pace further substantially. During the first 6 months of the current financial year, the company has already delivered 2.43 million sq ft of area and deliveries are on in 47 projects across regions," the company said.

The company has huge land banks and could be monetized to pay off the debts. 

Also, the real estate sector in India, according to the January 2016 sectoral report of the Indian Brand Equity Foundation, is the second largest employer after agriculture and is slated to grow at 30% a year over the next decade. It is considered to be one of the direct offshoots of the growth of corporate environment in the country. 

Moreover, according to a report by Bain & Company, titled "Residential real estate in India: A new paradigm for success", in 2015, the real estate demand in India amounted to 880 million square meters, with the largest proportion of this (85%) going to retail. 

By 2020, this is projected to grow to 1.35 billion square meters, although the mix of demand will change slightly. Residential real estate will continue to see strong growth at around 9% CAGR, commercial will see 7% to 8% growth rates, while retail will see the fastest paced growth at 25%.

According to the Khaleej Times, June 2, 2016: 

A huge growth potential and a string of investor-friendly legislations offer Indian property buyers an ideal opportunity to be part of the country's growth story, real estate experts said at the opening of the biggest Indian realty exhibition in Dubai on Thursday. 

With the Indian property market poised for a vibrant growth phase to reach $102 billion in 10 years, the time is ripe for investors to enter the market, property pundits said on the sidelines of Sumansa Exhibitions' flagship Indian Property Show, which opened in Zabeel Hall 5 of Dubai World Trade Centre.

Besides the bright growth prospects, the implementation of the long-awaited real estate bill is providing investors greater assurance on the safety of their capital while helping them make more informed decisions, said R. Srividya, General Manager, Corporate Sales & Brand Engagement, Sumansa Exhibitions.

Unitech Ltd is a leading real estate developer in India. Established in 1971 by a group of technocrats, Unitech Limited is one of India's leading Real Estate player. It started business as a consultancy firm for soil and foundation engineering and has grown to have the most diversified product mix in real estate comprising of world-class commercial complexes, IT/ITes parks, SEZs, integrated residential developments, schools, hotels, malls, golf courses and amusement parks.

So far Unitech has built more than 100 residential projects. Unitech continues to build hallmark and luxurious living spaces pan India. The Unitech Golf and Country Club, which offers 347 acres of ultra-luxury living with unparalleled views of a signature golf course, just off the expressway in Noida, is one of the upcoming prestigious address.

Unitech has experience in developing and leasing IT/ITes and commercial office spaces in its Grade 'A' complexes in Gurgaon like Cyber Park, Signature Towers, Global Business Parks, Unitech Business Park, Unitech Trade Centre, Millenium Plaza, Unitech Corporate Park, 

etc. Some recent launches have been Nirvana Courtyards II, Signature Towers II, Uniworld Towers and Infospace in Gurgaon, Bhubaneshwar 1 in Bhubaneshwar etc.

Unitech has also developed world-class malls like Metro Walk in Rohini, The Great India Place in Noida, and Central in Gurgaon have been hugely successful. Currently, 4.5 million sq.ft. of retail space is already under construction in cities like Mumbai, Kolkata, Bengaluru, Hyderabad, Chandigarh, Dehradun, Amritsar, Bhopal, Mysore, Mangalore, Lucknow, Kochi, Trivandrum and Siliguri. Some of the recent launches have been Gardens Galleria in Bengaluru, Noida and Mohali, Great India Place in Bhopal and Dehradun and Downtown in Mohali.

Unitech is continuously making an effort to reduce its debt exposure. The Company is further planning to reduce its debt by 15-20 % in the coming quarters by selling-off some of its non-core land parcel and by monetizing some of its commercial assets. By non-core land parcel, the Company means: the sale of some land for which it has no development plans in the near future.

In India, various factors like rapid urbanization, increase in nuclear families etc. continues to drive the real estate sector. In order to take advantage from the opportunities that the market is offering, Unitech develops properties across wide variety of segments, which extend across:

• Low-rise, mid-rise and high-rise developments
• Suburban as well as city centre developments
• Affordable to luxury housing

The Company has a large diversified land bank which allows it to offer a wide variety of customized and market specific products. Whenever the market conditions improve, Unitech on the back of large and well diversified land bank will be able to develop and increase the speed of new launches and sales. The Company currently has nearly 100 ongoing projects covering to be constructed and delivered in the coming years.

Besides, the Reserve Bank of India (RBI) very recently offered a measure of relief to banks weighed down by bad loans and their stressed corporate clients, seeking to slow the build-up of sticky loans and, at the same time, ease the pressure on company balance sheets.

Reserve Bank of India (RBI) has allowed banks to convert up to half of the bank loans of stressed firms into equity or equity-like instruments. This is a positive for all the companies, who are reeling with debts on the books. 

Meanwhile, the shortage of urban houses stood at 18.8 million units in 2012, and it is expected to grow at a compounded annual growth rate of 6.6% for 10 years till 2022, when it will reach 34.1 million, according to a report by the research and consulting firm RNCOS and cited by the Press Trust of India.

"Rising inventory levels in a country where housing shortage is such a critical issue indicates that the supply that is available is unaffordable to many, according to property consultants. Mumbai has a shortage of more than 2 million homes, but is unable to sell half its inventory pile-up because of unaffordable prices. This means that sales can improve but at the right price. NCR, on the other hand, doesn’t have a price problem but 52% of the housing supply is in uninhabitable areas which doesn’t have adequate infrastructure for people to actually go and live,” said Pankaj Kapoor, managing director, Liases Foras.

The NDA government is trying to do something about reducing the shortage and improving affordability. In June, 2015 the government launched three schemes—the Smart Cities mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Housing for All mission at an expected cost of around Rs.4 trillion.

The Housing for All scheme aims to provide at least 20 million homes to lower-income earners. These apart, a real estate act that is aimed at primarily protecting consumer is likely to make the land acquisitions difficult, pushing its price. 

Currently, the real estate sector, seems to be in a transition stage, where it is gradually moving away from an investor-driven to an end-user-driven cycle. Interest rates are slowly coming down and affordability will improve.

In such a scenario it would be prudent to invest in the stock of Unitech Ltd (Rs.4.90) and keep holding for a target of over Rs.10, with occasional profit booking. The share of Unitech Ltd, has a face value of Rs.2, Market Cap of Rs.1,284.60 Cr and Book Value of Rs.38.37. This is going to give your multibagger returns in the short term. 

GSM subscriber base rises to 77.41 cr in May 

"The GSM subscriber increased by 0.44 million in May 2016, 0.06% increase from previous month" with maximum subscriber addition of 21.2 lakh coming from telecom major Bharti Airtel....

Jun 15, 2016: GSM mobile subscriber base of six telecom operators marginally increased to 77.41 crore in May with net addition of 44 lakh new customers, as per data released by industry body COAI. "The GSM subscriber increased by 0.44 million in May 2016, 0.06 percent increase from previous month" with maximum subscriber addition of 21.2 lakh coming from telecom major Bharti Airtel. 

Vodafone followed Airtel in terms of net subscriber addition with 13.8 lakh new customers. Idea Cellular added 8.6 lakh new customers, Aircel 60,000, Telenor 6.3 lakh and state-run MTNL added 10,000 new customers. The COAI provided September 2015 GSM customer base data of BSNL (7.8 crore), 

Tata Teleservices (4.95 crore), Reliance Communications (8.45 crore) and Quadrant, subsidiary of Videocon Telecom, (29.6 lakh). These companies are not member of COAI and hence the industry body does not report their latest data. After taking in to account these four companies, the total GSM customers base in the country goes above 100.9 crore.

Courtesy: Moneycontrol.com

Today's Recommendations

# Unitech Ltd (Rs.4.80) and Hindustan Construction Company Ltd (Rs.20.50), like many other real estate companies could be benefited by the shortage of homes in major cities, as almost every CEO planning a big infrastructure project which requires large tracks of land, is saying that the land acquisition Bill, passed by Parliament last month, will either make projects unviable or expensive (for large infrastructure or real estate projects) or in other words the Bill is not conducive for investments. This might generate demand for the land and also property pushing the price up. 

Therefore, accumulate the stock Unitech Ltd at the CMP of Rs.4.80, for a price target of Rs.7.5 and HCC Ltd for a price target of Rs.27-29. 

# Lanco Infrastructure Ltd is on a turnaround path. Therefore, we could see upward movement in the scrip in the short term. Buy at Rs.4.95, for a target of Rs.7-8, in the short term. 

# Reliance Telecommunications Ltd  (Rs.47.80), could benefit, as

the NDA government has announced trading and sharing norms for telecom spectrum. Such norms would allow telecom players to transfer their idle spectrum to other service providers who are facing a spectrum crunch, or pool spectrum to bring together their fragmented spectrum holdings, resulting in better spectral efficiency. Buy the stock at the CMP of Rs.47.80 for short term targets of Rs.57-61.

Photo: Business Today

Now according to a report published in Business Today, July 3, Edition, in the telecom sector, the scenario is changing rapidly. Technology - 3G, 4G, WiMAX - is changing fast, and smaller operators are not in a position to invest adequately to upgrade their networks. On the other hand, the strong network holdings and large investments by big telcos have made it difficult for smaller players to survive on their own. As a result, large operators like Bharti Airtel, Vodafone and Idea Cellular are growing their subscriber base at a significant pace, even as most of the smaller ones see their share of the pie shrinking. The impending launch of Reliance Jio's 4G services, expected to be a big draw for consumers, has further queered the pitch for small telecom companies. This will reduce competitions for big players like Reliance Communications Ltd, too. 

Reliance Communications (RCom), is planning a merger with two smaller telcos - Sistema Shyam TeleServices (SSTL) that operates MTS brand, and Aircel. RCom's and MTS's market shares have been dipping for two years whereas Aircel's is showing marginal uptrend in subscriber numbers. If the merger works out, the new entity will have a subscriber base almost on par with the No. 2, Vodafone.

Analysts believe the merger will give a new lease of life to the three operators. "They would have been completely marginalised in the next two to three years," says an analyst. There are other challenges, including the fact that all three entities have significant debt on their books. As on December 31, 2015, RCom had Rs 40,479 crore of debt while Aircel, about Rs,18,000 crore. An analyst points out that Aircel's Rs.3,500-crore deal (for 2,300-MHz spectrum) with Bharti Airtel will help reduce Aircel's debt. The new entity is expected to have debt of around Rs.28,000 crore - with both RCom and Aircel contributing equally - provided RCom successfully reduces its debt by selling tower and optic fibre businesses.

Experts say that RCom's inability to make sufficient investments in its networks can partly be resolved with its impending tie-up with Reliance Jio, which has already spent Rs 1.5 lakh crore in buying spectrum and building an ecosystem of services around 4G. It is expected to use RCom's spectrum as a fallback network.

Today's Recommendations

1. Unitech Ltd (Rs.4.80) and Hindustan Construction Company Ltd (Rs.20.50), like many other real estate companies could be benefited by the shortage of homes in major cities, as almost every CEO planning a big infrastructure project which requires large tracks of land, is saying that the land acquisition Bill, passed by Parliament last month, will either make projects unviable or expensive for large infrastructure or real estate projects or in other words the Bill is not conducive for investments. This might generate demand for the land and also property pushing the price up. 

Therefore, accumulate the stock Unitech Ltd at the CMP of Rs.4.80, for a price target of Rs.7.5 and HCC Ltd for a price target of Rs.27-29. 

2. Lanco Infrastructure Ltd is on a turnaround path. Therefore, we could see upward movement in the scrip in the short term. Buy at Rs.4.95, for a target of Rs.7-8, in the short term. 

Market Mantra: Lack of Follow-on-buying

You must have seen sudden spurt in the stock prices based on the news on a particular sector. The recent fad is to buy the stocks from the NBFC (or to some extent banks) and infrastructure. But what the market is lacking at this point of time is follow on buying or in other words, any short term rally is getting sold. 

It is primarily because of the lack of clarity, in Government of India's policies as the Prime Narendra Modi hops from one country to another burning India's valuable foreign exchange. Mr.Modi is bent on staying as Prime Minister of India, even if he does not understand the difference in governance between 10 crore population and 120 crore. His next aim is to remove another obstacle in his journey, is to promote, Dr.M M Joshi, as a presidential candidate, just on the even of UP elections; instead of his earlier gamble with Mr. L  K Advani. 

Anyway, since this government has been voted to power, we have to bear its consequences, and work according to the given situations. In such a scenario, I find two more stocks attractive, considering that the current trend is towards, Infrastructure, NBFC and to some extent in the banking counters. However, there are some positive news from the shipping sector too. I have chosen two scrips for you, as given below: 

1. ABG Shipyard Ltd: This is a beaten down shipping counter, which is laden with debts. However, there is some good news. Lenders to ABG Shipyard Ltd is looking at the possibility of putting in place a new management but outside the purview of the SDR. Lenders to ABG include State Bank of India (SBI), Bank of Baroda (BoB), Punjab National Bank (PNB), Central Bank, Dena Bank, Yes Bank and ICICI Bank.. The scrip can be bought at the CMP of Rs.32.70 for a short term target of Rs.39-41. 

2. IDFC Ltd: This is a pure chart based call; pivoted on the optimism on the NBFCs (and some extent on the banking counters). The scrip can be bought at the CMP of Rs.49.50, for a short term target of Rs.53.
3. Hindustan Construction Company Ltd: This is also a company which is into infrastructure. The scrip has today given a break out. Buy at the CMP of Rs.20.50, for short term targets of Rs.27-29-31.

Important: Trend Is Your Friend

Friends, my observation on the current trend in Indian stock market/s, is mainly pivoted on two factors:
(i) Small and Mid cap counters are being bought by the investors/traders (after Mr.Shankar Sharma turned bullish),

(ii) An overall Rally is seen in Infrastructure Stocks (not much on real estate counters). 

Therefore, your focus should be in these spaces, in order to make quick money from the Indian bourses. 

Apart from this you can go full hog on the beaten down telecom counters (Idea Cellular Ltd, Reliance Communications Ltd, etc). 

Let me give you some safe stock ideas, where still you can make some money in the next 10-20 days:  

1. Gammon Infrastructure Projects Ltd: The scrip can move above Rs.10, due to positive development regarding its debt reduction. The share can be bought at the CMP of Rs.5.20. According to me the scrip of Gammon Infrastructure Ltd, is better than Gammon India Ltd (Rs.12).

2. Jaiprakash Associates Ltd: This is one of the most undervalued stocks in the infrastructure sector, considering the mammoth-ness of the company and considering the present optimism regarding setting up on an infrastructure fund to take care of the debts of the companies like Jaiprakash Associates Ltd. The circuit limit of the stock has been increased to 20%, today. So, buy this scrip for a target of Rs.17-18 in the next 6-9 months. 

3. Lanco Infratech Ltd: This is one of the beaten down infrastructure counters. It has been recommended earlier also. I still recommend a buy at the CMP of Rs.5.20, for a target of around Rs.9-10, in the next 15-20 days. 

4. Reliance Communications Ltd: Till now the government has stressed more on setting up an infrastructure fund to help the indebted companies in  the infrastructure sector.

However, if like China, India too comes up with an overall mechanism, to help the debt ridden from all the sectors, then Reliance Communications Ltd (Rs.48.20), with a debt of over Rs.39, 000 Crores would be one biggest beneficiaries. 

Buy this share at the CMP of Rs.48-48.20, for a target of Rs.72, in the next 2 months. Along with this you can also buy the stock of Idea Cellular Ltd at around Rs.100. 

Also, you all know that Reliance Communications Ltd (Rs.48.20) will give decent returns, once the deal with MTS and Aircel gets completed; but some of you are still fearful to enter it....why? It is because the so-called analysts, who hop from one TV channel to another, are creating confusions in your minds, isn't it?

If you want to make money, then either you have to do independent research, which is very costly and time consuming or you can depend on someone (or some such chosen investment gurus). Am I right? So, the decision is yours....I can only show the best alternatives, but the choice of picking up your favorable route, depends on you.  

Those who are holding Union Bank Ltd (Rs.123) or Allahabad Bank Ltd (Rs.53.20), can come out of these two counters and go for infrastructure stocks (not real estate per say). 

Moreover, Unitech Ltd (Rs.5.48), basically a real estate counter is near my 2nd target of Rs.6 and hence you can book some profits and enter any of the above mentioned or your choice-able infrastructure counters. 

Also, avoid stocks like IVRCL Ltd (Rs.5.15). Those who have entered McLeod Russel Ltd (Rs.200) can also book profits and wait for dips to enter. 

Gammon Infrastructure Projects Ltd: Bulls On Charge...

CMP: Rs.4.70
P/E: 7.52
Industry P/E: 49.46

Triggers:

The government of India is going ahead with the idea of creating a stressed asset fund, which in the common parlance is called a bad bank; to take care of the bad assets. A bad bank, as is present in China for instance, buys up all bad loans from other banks. This will provide some relief to the companies like Gammon Infrastructure Projects Ltd, who have substantial amounts of debts in the books. 

The company has recently done a strategic deal by sale of fixed assets, which added to the topline in Q4Fy16. It has further cleaned up its balance sheets and so now it is having cash surplus.

Any public-private partnership (PPP) business -- especially for infrastructure development -- is a capital hungry business; which needs large amounts of debt funding. The debt of the company which was initially in the order of Rs.4,500 crore, was reduced by Rs.2,000 crore after selling off six projects. So, now present level it will be approximately Rs 2,500 crore. The company is presently doing debt servicing.

Its asset basket is in order of around Rs.20,000 crore. Once it sells some of the projects it will deplete by another Rs.3,500 crore. The projects under implementation will be two projects which are likely to be completed in two years time - there are some projects; which are on pre-development stage, so that needs to take shape. It still has around two operational projects in road and two operational in port that should give additional size to operate and add more assets as the opportunity comes in to the basket. So, looking forward the asset baskets of Gammon Infrastructure Projects Ltd, should increase.

Last year the Corporate Debt Restructuring Empowered Group-(CDR EG) in its meeting held on November 23, 2015, discussed and noted the invocation of strategic debt restructuring (SDR) in the company by the CDR Lenders, pursuant to Reserve Bank of India (RBI) circular dated June 08, 2015. 

In March, 2016, Gammon Infrastructure said it had completed the first tranche of stake sale in nine projects on approval from National Highways Authority of India (NHAI) and lenders. The infrastructure firm had announced to sell stakes in 9 projects valued at Rs.6,750 crore to Brookfield and Core Infra India Fund, a deal that will fetch Rs.563 crore on completion as well as reduce its debt considerably. The transaction, one of the largest asset sales at one go in the Indian infrastructure space, was announced barely days after the government last year allowed the highways developers to divest 100% equity in projects two years after the completion; by making additional funds available for investment in projects.

Conclusion: Looking at the above points and taking into account the daily candle stick chart pattern, it is safe to assume that the scrip of Gammon Infrastructure Projects Ltd, will give good returns in the short term. Therefore, fresh positions can be initiated in the stock, with short term targets of Rs.5.20-6.30 and Rs.9. A reasonable P/E re-rating can even take the stock above Rs.15, in the medium term.

State Bank of India Ltd: Buy

CMP: Rs.201.70

Earnings being weaker on the back of higher slippages (1.5x of Q3) is not news. What made headlines is the watch-list, a mere 2.1% of exposure with 70% LGD (loss given default) over the next 12 months. The Street gives only one chance for redemption (e.g. BOB’s flipflop between Q3 and Q4). And, this is SBIN’s moment. We hope they are being realistic, neither optimistic nor subjective. Retain Buy, no PT change.

Defining moment: The bank (parent) disclosed only 2% potential stress with min-max LGD of 30-70% in next 12 mths. If this plays out, our book value estimates could rise 30-40%. As unbelievable as it may sound and the stock could be significantly buoyant in the near term, we wish to sensitise that a flipflop on this could be very damaging and hope the bank is being realistic. 

If this is evidenced by better asset quality trend over next few quarters, we think the medium term upside could be significant (better NIM, loan growth, lower credit costs, etc.). For now, we have largely ignored the watchlist, baked in slightly higher provisions, flat NIMs & forecast 14-15% RoE by FY19e. We continue to factor 100% LGD for NPA & 50% across other impaired assets, although have baked in the optimism through higher multiples.

Cut estimates: We cut standalone EPS estimates by 30% & 22% in FY17 & FY18, consol EPS by 15.6% & 18%. We forecast FY16-19 EPS CAGR of 37% for the standalone & 40.7% for the consol entity. For the parent bank, we pencil in ~3.1% NIM, 50% expense ratio, credit costs of 157bps, 137bps & 113bps for FY17-19, with 15.3% loan growth CAGR over FY16-19.

Valuation/Risks: SBIN trades at 1.5x consol trailing BV (Mar16) & 6.7x EPS (12m to Mar17e). 

We value it at R280, implying P/B-P/E multiples of 1.6x (Mar17e) & 7.8x (12m to Mar18e). This compares with 10-year average of 1.5x & 9x respectively. 

Risks: Asset quality, loan growth.

Other Considerations

Largest liability franchise and CASA/deposit growth remains strong. Stealing retail market share in recent times, although incremental revenue impact could be a lot weaker given the various discounts.

Asset quality–Watch-list much lower than feared

SBI disclosed Rs 313.5 bn as additional stressed exposures to be monitored after undertaking increased recognition in H2FY16. Out of this watch-list of Rs 313.5 bn, the bank expects slippages to the tune of 70% in a poor scenario, and 30% in an optimistic scenario.

Adding the watch-list (2.1% of gross advances) to the disclosed gross NPA of the bank (6.5%), we get a total stressed assets figure as per the bank’s disclosures of 8.6% of gross advances. The additional 2.1% comprises 0.8% from the standard restructured book, 0.2% from the non-NPA 5/25 and SDR book and 1.1% from the currently standard book.

Based on our classification of stressed assets for the bank, i.e., gross NPA + restructured + non-NPA 5/25 + non-NPA SDR, we get a total stressed assets figure of 10.3% of gross advances.

Based on the bank’s watch-list disclosure, we find that the bank sees stress in 30% (R116.6 bn) of its currently outstanding standard restructured book (R390.6 bn), and 14% (R25.8 bn) in its non-NPA 5/25 and non-NPA SDR book (R181.4 bn).

Specific to Q4, there was a sharp spurt in slippages (R303.5 bn, implying a slippage ratio of 9.33%), mainly driven by recognition of stressed accounts from the asset quality review of other banks. R10.4 bn slipped from the SME, agri and personal segment, while R92 bn was the result of the residual AQR impact for the bank from its own list of accounts. 

The remaining R200 bn slippage was on account of the bank classifying large and mid-corporate accounts which were on the AQR lists of other banks as NPA. Out of the total slippages, R77 bn came from the previously restructured book, while R59.3 bn and R73.5 bn was from the SDR and 5/25 book respectively. The total 5/25 and SDR cases amount to R190 bn and R110 bn respectively, out of which R63.5 bn and R160 bn respectively have already been recognised as NPA.

—Jefferies

Reliance Infrastructure Ltd: Buy

CMP: Rs.532

The Stock of Reliance Infrastructure Ltd (Rs.532) is trading above its 21D, 100D, 150D, 200D SMA. Recently, a brokerage house and a Bombay based business publication has given a buy on the scrip with the targets of Rs.580-582.

Meanwhile, Reliance Infrastructure Ltd reported a 43.7% rise in fourth quarter consolidated net profit helped by lower expenses and a one time gain in its EPC (engineering, procurement and construction) business.

The company has shortlisted two international bidders for monetization of its 11 operational roads assets, said Lalit Jalan, who took over Reliance Infrastructure from 1 January as acting chief executive after heading the company in prior stints for over seven years.

The Anil Ambani Group-led company’s consolidated net profit rose to Rs.659.85 crore for the three months ended March from Rs.459.11 crore in the year-ago period.

Total income from operations remained almost flat at Rs.4,469.28 crore from Rs.4,596.09 crore a year earlier; hurt by a decline in its largest power business. Power business net sales fell 11.7% to Rs.2,748.14 crore due to lower pricing while those in the EPC and contracts business rose 8.4% to Rs.907.44 crore.

Net sales in Infrastructure and cement business rose 31.8% and 35%, respectively.

What is interesting is that total expenditure during the quarter fell 14.5% to Rs.3,520.97 crore.

On a standalone basis, Reliance Infrastructure’s net profit rose 62% to Rs.728.95 crore during the quarter while total income from operations fell by 0.7% to Rs.2,781.47 crore.

The company is in negotiations with global pension funds and investment companies, including the Canada-based Brookfield Asset Management Inc. and CPP Investment Board (formerly the Canada Pension Plan Investment Board) to sell its portfolio of 11 toll-based road assets, the online financial portal Mint reported on 15 February.

In February, the company said agreed to sell its cement assets to Birla Corp. Ltd for Rs.4,800 crore as part of the its efforts to pare debt and expand its new defence manufacturing business.

As on 31 March, Reliance Infrastructure’s consolidated debt stood at Rs.25,000 crore.

Therefore, Buy the share at the CMP of Rs.532, for short term targets of Rs.580-592. Keep a SL of Rs.497, for any short term trade; though the chance of breaking this level, is very very less.

Investors Needed

I am looking for investors, who is ready to park at least Rs.4-5

crores in various projects, which are listed below: 

1. I am looking for investors of a Bollywood Commercial Film, which is 80% complete and the distributors have verbally agreed to pay around Rs.2-2.5 Cr, upon release. The fund needed is only Rs.30-40 lakhs. The release could be done in two months on getting the funds. The director of the film  is personally to me and his daughter is working with a reputed Film and Television production house. 

Also, I am looking for fresh funds, of around Rs.80-90 lakhs for a feature film, which has a wonderful story to tell; apart from the usual commercial kicks. Its songs have the Lyrics and Music from well known Bollywood celebrities (from the Lyrics and Music Fields). I would be the Executive Producer and one of the Directors, and hence you need not worry about transparency. Expected Gains: 100% within 3-4 months. 

2. Investors are needed for government sponsored Television Serials and Telefilms. The fund needed is Rs.50-60 lakhs, on the basis of works obtained from various government agencies. Since, they are obtained through competitive bidding, from government of India, hence the investors' money is secured. 

3. I have few scrips from the A-group and B-group, which could give you stupendous returns on BUY and HOLD basis, for 1-2 years. I am looking for HNI investors, who can park  at least Rs.1-2 crores or may be more in these scrips. 

The returns after one year, would not attract any Capital Gains Tax and at the same, since they are thoroughly researched, the risk would be limited. The profit would be shared in the ratio of 50:50 basis. 

Also, those who want to maximize their returns from the upcoming bull market, can take the help of me, to trade on their behalf. The profit would be shared in the ratio of 75:25% between you and me. Minimum Portfolio size should be Rs.2 lakhs. 

4. I am looking for investors, for some Real Estate Projects in Assam, Kolkata and Bombay. 

By the way, a land parcel of 100 acres, ideal for setting up resorts, Tea Gardens (with solar projects) and Horticulture Projects, is out for sale at Rs.2 Crore (negotiable), in South Assam. The said land is only 30 minutes drive from a newly constructed Broad Gauge Railway Station; from where long distant trains for Delhi, Kolkata, Bombay, etc, are scheduled. 

If you are interested then kindly mail me at: sumanm2007s@gmail.com / suman2005s@rediffmail.com. 

By the way, I have lost my Tab (mobile) and hence I am cut off from Whatsapp - - the inconvenience caused is regretted.