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May 19, 2013

Issue Highlights

Issue Period
20/5/2013-22/5/2013
Issue Type
100% book building
Price Range
Rs. 470-543
Face value
Rs. 10
Market Lot
25 equity shares
Issue Size
1,74,97,458 equity shares
Listing
BSE,NSE,MCX-SX
Registrar
Karvy Coputershare
Maximum Retail Limit
Rs. 1,98,400/ 16 lots
Retail Discount
Rs.47
Industry
Advertising/local search
Safety Net Feature
Yes

The offer

The issue is ‘Offer for Sale’ and no fresh equity will be generated.



  
Industry Profile

Indian advertising market has generated revenue of Rs. 256 billion in 2011 and by 2015 it is supposed to grow to Rs. 370 billion at a CAGR of 9.6 %.
 Local search market comprises of online (localized portals using web, phone and mobile portals)  and offline (print directory and phone based searches) search services.
The players in the local search services include Just Dial Ltd., Asklaila, Burrp,Getit, infomedia18,Metromela,Onyyomo,Sulekaha and Timescity. Many of these companies provide both online and offline search services.
Classifieds is a distinct type of advertising medium and in years to come online classifieds shall surpass their offline counterparts but low presence of vernacular language in online classifieds hinders its growth to some extent.


Company Profile

Just dial, incorporated by Mr. V.S.S Mani in 1993 as A&M Communications Pvt. Ltd., is a leading search services provider in India which provides its services through multiple platforms like internet, mobile internet, telephone (voice), text (SMS).
The company started offering its search services in 1996 under the Justdial brand and launched its internet and mobile services in 2007. Just Dial Ltd. has a database of approximately 7.7 million listings (June 2012 figure).
If someone has to find the umbrella retailers or stationery shops in a new city, he can either call Justdial’s easy-to-memorize no. 08888888888 or make a search at Justdial’s portal; even if one does the Google-search Google usually displays the listings by Justdial on the first page.

Strengths


·              A myriad of Google-searches ‘Just Dial Ltd.’ results on the first page. For Many  key words Justdial tops the result list
·         Just dial is among a few companies that pioneered the business of local search services
·         Just dial provides both online and offline search services efficiently
      Just Dial Ltd. brand boasts  strong brand equity. The company had roped Amitabh bachchan to promote its brand. 

Concerns

1.    Criminal proceeding against the company and some of its employees including MD and a few directors is not a good omen and raise question on its corporate governance. Some grave allegations of unlawfully deducting money and signature forging are worrisome as it could lead to customer dissatisfaction and could end up in a business loss

2.       The company is highly technology-driven and any major technological failure or  company’s inability to keep itself abreast of the latest developments in technology could adversely affect its profitability

3.       This sector is highly competitive – there are many competitors like OLX.in, quicker.com, sulekha.com etc. Some of these names may belong to little different domain but they compete Just Dial Ltd. for the space in the result list of search engines.


4.       Company’s promoters and principal shareholders have a vested interest in a group company called, JD Global, which is involved in the same business in USA and Canada through its subsidiary JD USA. Just Dial Ltd. has sold its equity interests in JD USA and there is no no-compete-clause between the two entities. This may prove as a hindrance to growth in case  Justdial enters this market.
5.       Promoters and principal shareholders own almost 100 % equity in JD Global and this poses following threats-

a.       There may be a  conflict of interests in future due to the absence of no-compete-clause between JD Global and Just Dial Ltd.
b.      There may be a  spooking threat of promoters siphoning money from Just Dial Ltd. into JD Global (also refer point 8) – a deadly vulnerability as promoters hold only 37 %  (post issue 33 %) equity in Just Dial Ltd. while they own quite a chunk in JD Global

7         Just Dial Ltd. depends significantly on search engines that are also its competitors. Just Dial Ltd. has made arrangement with search engines through ad campaigns and pay-per-click programme. Any breach of rapport between Just Dial Ltd. and search engines could wreak havoc on its profitability.

8         Jusdial’s cancelling of its preference shares worth Rs. 72.48 crore in JD Global  followed by adjustments resulting in a decrement in its net worth by Rs. 72.5 crore  in the name of streamlining the business operations (of both entities) raises concerns

9         Recessionary period has seen a  decline in  the ad-spending by Justdial's customers resulting in a loss of income

10     Auditors have found slew of discrepancies in past few years

11     Top 11 largest cities contributed for 85 % of total campaigns with the company and a major chunk of revenue comes from these cities. Mumbai and NCR contribute for around 37 % of campaigns. Any sort of upheaval or turmoil in these cities could adversely affect the revenue of Just Dial Ltd..

12     ESOP to some employees was done at less than one-fifth of the present price band. Amitabh Bachchan, a well-known Indian celebrity who had promoted the brand Just Dial was issued 62,794 shares at just Rs. 10 per share, this shows how steep valuations of this IPO are!

Financial Analysis

# All calculations at the cap-price for retail investors i.e. Rs. 496 (considering the retail discount) and hence are different from the same for other investor categories
## for information purpose only as in FY 12 Just Dial Ltd. sold its shareholding in JD USA  and thus comparison with the past may not be meaningful

Parameter
FY 13 Annualized
FY 12 ##
Basic EPS
Rs. 8.8
Rs.7.2
Book Value
Rs. 57.9
Rs.14.8
P/E
56.6
68.5
P/B
8.6
33.5
NPM
17%
18%
Profit CAGR(3 years) ##
47%
89%
PEG
1.2
.8
Debt/Equity(exhaustive)
.4
1.4
ROE
15.1%
48.9%
EV/EBITDA
37.63
48.3
Current Ratio
3
1.4
M-Cap/Sales
9.6
12.6

The Analysis

·         Believing the authenticity of the financials shown in the prospectus, fundamentals of the company seems satisfactory. But the net worth of the company becoming almost 4 times in FY 13 (in just 9 months) of the same a year ago (FY 12) is difficult to believe.
·         Price to earnings ratio is on higher side but 3-year profit CAGR justifies the PEG ratio. But if in future Justdial  fails to maintain this growth, its valuation shall erode greatly
·         The biggest threat to such companies is from search engines like Google,Yahoo and Bing. An internet user’s first choice for doing a local search will be Google(with around 70 % search share) and presently Google shows the listings from Justdial. But, in future if Google enters in this niche-market or stops showing listings from Justdial or even restricts its listings to later pages, it shall affect Justdial adversely.A Smartphone user is more likely to search his needs on a search engine rather than either opening the portal of Justdial or giving a call to Justdial. There is very high probability that in future Google will try to grab this lucrative market.
·         As more and more SMEs and small traders going for their own web presence,they may not go for paid-advertising with Justdial. Besides, this may also result in the reduction of the site users.
·         Company being an almost debt-free company enjoys an edge over its competitor
·         Related party transactions as discussed in ‘Concerns’ are worrisome
·         The issue being an offer for sale, proceeds of the issue shall not come into the company to benefit it.

Inference

This IPO being highly priced and due to the underlying concerns, is a risky proposition. Though high price-to-earnings ratio can be justified by the present profit CAGR but it is doubtful that this growth shall be maintained in future especially under the looming threat of the growing prowess of search engines. This issue may not be suitable for risk-averse value investors but success of an IPO is determined not only by its underlying value but also by the market sentiment, overall liquidity condition and the euphoria about the issue. Those who have understood the underlying risks and are ready to take the risk may go for the issue as due to retail discount and the prevailing market sentiments there may be chances of listing gains in this issue.

      Disclaimer

Analysis is for the information purpose only. Though due care and caution have been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of this report.

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May 12, 2013


Amid the global financial turmoil Indian economy too is reeling under pressure and the main reason being attributed for the same is higher borrowing cost arising due to higher prevailing interest rates.
Higher interest rates are badly affecting the profitability of Indian companies and forcing them to defer the capacity expansion which is a must for the growth of the economy.
Besides oversees recession, higher interest rates are responsible for the slowing of the Indian economy which is being reflected by falling GDP numbers.

Image source: tradingeconomics

RBI or Reserve Bank of India-the Indian central bank, controls the interest rates in the country by its monetary tools viz. Policy Rates and ReserveRatios.
One of the major constituent of policy rates is the Repo Rate – the rate at which the RBI lends to commercial banks. Reverse Repo Rate –the rate at which commercial banks park their excess capital with the RBI- has been fixed at 100 basis points lower than the repo rate.
1 basis point is equal to .01 percent.
Recently on May 3, 2013, RBI governor slashed the repo rate by 25 basis points to 7.25 % and thus Reverse Repo Rate got automatically calibrated to 6.25 %.
Banks are not only demanding for the further slashing of repo rate but they want CRR to be slashed as well.
CRR or Cash Reserve Ratio is the fraction of deposits that banks need to park with the RBI and no interest is payable on it. CRR too is expressed as a percentage.
The current CRR rate is 4 % that means all banks shall necessarily have to park 4 % of their deposits with the RBI and as there is no interest payable on it, it acts as an idle capital for banks.
Banks want RBI to slash the CRR along with the repo rate so that they can reduce the lending rates.
The other option available with banks is reducing the deposit rates and as banks are already short of the capital this option is not viable.
The reason for the shortage of the capital was due to the fabulous returns that Goldand real estate market generated in past several years pulling investors’ money from the banks and deprived banks of the capital. This is the reason responsible for the higher deposit rates of banks –a measure to attract the deposits.

Now the question is why RBI is not slashing the CRR and Repo Rate?

And the answer is -the fear of raging inflation. The RBI governor is very cautious about it and this is why he is not slashing the rates liberally.
The Indian economy is already under pressure due to the twin deficit- Fiscal Deficit and Current Account Defict (CAD). Higher CAD results in weaker currency and weaker currency further boosts the inflation. When CAD rises beyond a limit, credit-rating agencies downgrade the economy. Lower credit rating means newer debt at higher cost and this is how economy goes into a negative spiral.

Is there any silver line?

The recent fall in Gold was a great solace for the Indian economy as the same helped to tame the increasing twin deficit. In coming years, with more and more power plants adding capacities more imported coal shall be required which might aggravate the deficits.
Indian government needs to decontrol the diesel prices fully and major subsidies (oil, fuel & fertilizer) should be transferred directly into the Aadhar linked bank accounts of beneficiaries so that only genuine and needy people get benefited.
Government should also cut down on its expenses in the name of populist measures. Higher government spending increases the CAD and is responsible for higher interest rates in the economy as it renders lesser borrowable money in the system for the businesses.
The oncoming food security bill is supposed to give food security to 65-70% of the population while only 33 % of people in India live below the poverty line and only these people should be given benefits of this scheme.  In the backdrop of employment guarantee schemes there was no need of extending the benefits to 65-70% of people and unnecessarily strain the economy.
To bring back the Indian economy back on the track a lot of reforms need to be done but having a look at the present political scenario it seems difficult.

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April 16, 2013


  

START A ELEPHANT POO PAPER  MAKING
Animals which eat a lot of vegetable matter and have poor digestive systems generate poo that is suitable for making paper. The animal droppings are washed and boiled for many hours. The solution is then blended or spun to soften and cut the fibers. Other things such as dye and/or other fibrous materials may be be added to give the solution the proper consistency. The slurry is then sifted onto rectangular sieves and allowed to dry. When dry, the thin layer of plant fibers is peeled off the sieve and made into paper and paper products
The method used for making elephant dung paper is more or less the same as making other varieties of handmade paper. There are minor changes we have had to make because of the fibrous nature of the raw material. Making sure that the paper is not harmful for the papermaker as well as the user was our biggest challenge… so disinfectants are used to make the paper as bacteria free as possible.



1. COLLECTING THE POO

Dung Collection - gathering the poo
Dung is collected from various elephant stables. The colour of the dung varies from season to season, as what the elephants eat depends on the crop of the season.

2. CLEANING THE POO

Cleaning the Poo - Elephant Poo cleaning
The cleaning of the dung is one of the important stages… the dung is washed thoroughly with water in large tanks. At the end, all what is left is the fibre. Since this process is water intensive, it is preferably done close to cultivated land… the water acts as a fantastic fertilizer.


3. POO IN THE POT - COOKING!

Cooking the Poo - Softening the elephant dung.
Paper can only be made with this fibre if its soft enough to be beaten into pulp. To get the fibre ready for the next stage of pulping, it is cooked in water for over 4-5 hours with salt and then washed with hydrogen peroxide to complete the first stage of making the paper bacteria free.


4. SORTING

Sorting - Dry elephant poo is sorted.
After cooking, the water is drained out and the dung is left to dry out in the sun. Once its dry, it is sorted and any non-usable fibre is removed.


5. PULPING

Pulping - The softened and sorted Elephant poo is beaten to a pulp.
After the fibre has been softened and sorted, it goes into the Hollander Beater, to be beaten to pulp. This process takes about 4 hours. The fibre goes through the process of being beaten into very fine pulp and also being washed again. Disinfectant is added here to kill any bacteria still in the pulp.


6. LIFTING THE POO PULP

Lifting - pulp through a sieve is paper!
The pulp is then taken to cement/ wooden vats filled with water. Depending on the weight of the paper to be made, the required amount of pulp is mixed with the water. A flat sieve-like mould is used to lift a layer of pulp out of water. A sheet of paper is made.


7. COUCHING

Couching - Piles of sheets pressed together.
The sheet is then placed on a muslin cloth by applying gentle pressure onto the mould. This process continues till there is a heap of about 100 sheets.


8. DRYING THE POOPER

Drying - paper is hung dry in shade.
The heap of interleaved sheets is then placed in a hydraulic press and compressed to drain out as much water as possible. The paper is then dried on lines, in a shady area. Direct sunlight is not good for drying the sheets unless they’re white as the colour fades under the sun.


9. CALENDERING

Calendering - Dry sheets of elephant poo paper are smoothened.
Paper sheets are then calendered to make them smoother and writable. Calendering involves interleaving a bunch of sheets with zinc coated metal sheets and passing them under pressure, back and forth between two rollers.The sheets are then cut to the specified size, packed and sent to their required destinations.


PRODUCT CATEGORIES:

 Bags
Elephant Poo Paper Carry Bags from Haathi Chaap
Elephant poo paper bags certainly add a whacky value to the gifts you’re giving, so you could use these for anything from a book to a blanket and from a perfume bottle to a potted plant (a small one please!!).

Frames

Elephant Poo Paper Photo Frames from Haathi Chaap
Put your favorite photographs in these colourful elephant poo paper frames. We also have a range of collapsible ones which can be used as greeting cards.


Photo Albums

Elephant Poo Paper Photo Albums from Haathi Chaap
Handy pocket photo books and corner-cut albums to store your photographs…. memory books in different sizes to store all your memories…. we try and have them all.

Notebooks

Elephant Poo Paper Notebooks from Haathi Chaap
All kinds of journals… bright and funky for the adventurous, smart and slick for the corporate and handy ones for the travelers. Have a look at the range in our catalogue.

Stationery

Elephant Poo Paper Stationery from Haathi Chaap
Stationery sets for those who still believe in writing letters, notepads to put next to the phone or files to brighten up an office… its all there.


Cards & Tags

Elephant Poo Paper Cards & Gift Tags from Haathi Chaap
Imagine receiving New Year greetings on an elephant poo paper greeting card. Or an ele poo gift tag on the present you’ve just received. Would be something you remember for a while.

Funky Stuff

Elephant Poo Paper Clocks from Haathi Chaap
Here’s something for people with a sense of humour… Our magnetic clocks, calendars as well as the gulel sets are a hit.

Kinck-Knacks

Elephant Poo Paper Knic Knacks, Coasters from Haathi Chaap
Souvenirs these are… a bookmark or a set of coasters!! Can be used as giveaways in school as well as conferences.












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April 09, 2013

Lloyds of London
Insurance is often described as banking without money given it engages in a risk management business model using other people's money. But is it wise to invest in such insurance companies? Definitely Yes ! Many analysts say the insurance market is in better shape than banking, and it may be an ideal time to invest in companies with better fundamentals and history.

Insurance is the transfer of risk from one party to another in exchange for the payment of a premium. The premium, in turn, is invested and used to pay out future claims and to operate the insurance company. In short, insurance companies are engaged in two primary revenue streams:
1. the assumption of other people's risk in exchange for money/premiums.
2. the management of such premiums (asset management).

What should investors look for when investing in insurance companies?

As with traditional metrics of investing stocks, there are some things that investors should look at while investing in insurance companies.
The first and foremost thing would be look at is its business model. As mentioned above it all depends on how well the company is selling its premiums and how well it manages such premiums.A critical piece of an insurance company's operations is to ensure that it always has enough capital to manage all the risk it has assumed.
Premium growth - Premium is the life-line of any insuring company’s growth. Premium growth is so important that commissions paid are generally the largest expense after premiums paid.
Credit rating. All insurance companies have a credit rating which reflects a third parties assessment of their ability to pay policies as they become due. The higher the credit rating the better.
Investment income. Money is made mostly through investment income. Investors have to watch out for, how well the insurance companies manage the investment income and what they are investing in and whether they are engaging in any hedging strategies.

Hence,  insurance companies satisfying the above criteria and with good fundamentals can be considered for investing.  Investors should look at the business side of the insurance companies and good distribution network. For those looking to invest in such insurance companies, you should keep an eye on Lloyds of London , where there is a lot of information on movements within the insurance industry.

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April 04, 2013





Any veteran shall say, just blindly following the big guns of the capital markets will leave you nowhere. And the same comes true when we look at the performance of the big bull Rakesh Jhunjhunwala’s portfolio in the fourth quarter of the last fiscal.


For the aforesaid period Nifty- the benchmark index of the National Stock Exchange, was declined by just 4.5% while some stocks from the Big B’s portfolio declined as much as in the range of 40-70% for the same period.

Small investors often overlook the rationale behind investment, the entry price of the investment and the time-horizon envisaged by these capital market honchos and blindly start buying shares and eventually end up repenting.

Rakesh Jhunjhunwala had recently bought shares of Titan Industries at a price which was about around 150 times of his first purchase(of the same stock). 

This means, the first batch of shares had given him a whopping return of 15,000 % and this is why even a major price-drop from the last purchase price keeps him unperturbed.

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April 01, 2013


Indians are highly perturbed with high interest rates prevailing in the country. From corporates to individual loan subscribers, all are feeling the heat of high interest rates.
Earlier all eyes were on the RBI to cut policy rates but even after it slashing the repo rate by 50 basis points (or .5 %) in this calendar year banks and other financial institutions were unable to cut the lending rates significantly. Higher interest rates are resulting in piling NPAs (Non Performing Asset or bad debt) besides lower NIMs (Net Interest Margin).

Why banks are not slashing interest rates significantly?

Mere RBI slashing policy rates shall not enable banks to drop interest rates significantly but for that deposit rates too need to be slashed. Deposit rates refer to the interest payable on the deposits of the customers- time deposits (FD, RD etc) or demand deposits (saving account etc).

Now the question becomes- why banks are not reducing the deposit rates?

And the answer is-Sluggish growth in bank-deposits prevents banks from cutting deposit rates.
Rising gold and appreciating real estate in the past few years made investors to pull funds from banks to invest in gold and real-estate.Investments in the aforementioned assets being long term created the scarcity of funds for banks and this scarcity of funds prevented banks from cutting deposit rates.
With retail inflation rate hovering above 10 %, Real-Interest Rate from debt instruments (any instrument on which interest is payable like FD, RD etc) turned negative.

Real interest rate is nothing but the interest rate adjusted for inflation.For example, if your FD pays you 9 % interest per annum and inflation rate is 10% per annum, then your real interest return is – 1%.
This means you are not gaining from your investment but losing money on it due to higher inflation.

Why Gold and real estate gave fantastic returns?

Gold being the best hedge against the inflation, investors started hoarding it. Global economic activities like US quantitative easing and similar money printing measures by European and Japanese economies resulted in ample liquidity which when flew into real estate resulted in sky-rocketing prices.  


Is there any remedy?

This scenario shall not change until inflation becomes benign i.e. lower CPI inflation orretail inflation. Besides this, there should be an improvement in bank deposits, and this shall be possible when gold and real estate shall cease to deliver lucrative returns.
Indian government too needs to do the needful to curb the spiralling inflation in India.
When inflation shall be tamed, RBI too shall proactively reduce the policy rates and thus lending rates shall be reduced.
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