FinXpress_1Aug2010

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August 1 , 2010

A FIN – NICHE PRESENTATION

Webmail : [email protected]



FIN-NICHE August 1, 2010

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Investing in an IPO(Initial Public Offering)

-Submitted by: Rohith Shroff

The Indian capital markets have seen a splurge in the number of new public offerings. Even the UPA government is focussing a lot

on disinvestment. PSUs like NHPC, STJVNL, Coal India are

planning or have come out with their public offerings. People

subscribe to these issues with a generally short term perspective,

to encash on the listing gains. Some issues which were

aggressively priced (like Reliance Power) burnt the hands of the investors whereas some

promoters left a lot on the table (eg. Talwalkars , Cox & Kings).

So how will one decide which companies are good to invest and which are not. Here are

some of the parameters which you must look at while choosing an IPO.

1. The industry in which the company operates should be looked at. Try and look to

invest in sectors which are in the limelight and are performing well. For eg. Realty

and Telecommunication are in the downturn and should be avoided.

2. Understanding the market share of the company in which it operates is crucial. A

higher valuation is attributed to a market leader.

3. The future earning capacity of the company. This can be gauged by going through the

“Risk Factors”

4. Compare the P/E, Book Value, ROI (return on investment) with its industry peers.

5. In India many companies are owned and run by family

members. It is highly preferable to choose companies

where promoters don’t act as Board of Directors and are

not involved in managing the company.

6. Avoid companies which are involved in litigation relating to patent infringement and

other serious issues which may hamper the future estimates.

7. The purpose for which the company intends to raise money is vital. Most of the times,

proceeds are used to lower their burgeoning debt book. Look for companies which are

raising money for expansion plans.




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Company in Focus

SKS Micro Finance

by: Rudra chowdary

SKS Microfinance Ltd (SKSML) is the largest Microfinance

Institution (MFI) in India in terms of total value of loans outstanding,

number of borrowers, and number of branches. It is a non-deposit

taking non-banking finance company, or NBFC-ND, registered with and regulated by the

Reserve Bank of India (RBI).

It is engaged in providing microfinance services to

individuals from poor segments of rural India. Its missionis to eradicate poverty by providing financial services to

the poor and by using its channel to provide goods and

services that the poor need. SKSML’s core business is

providing small loans exclusively to poor women

predominantly located in rural areas in India. These loans

are provided to such members essentially for use in their

small businesses or other income generating activities and not for personal consumption.

These individuals often have no, or very limited, access to loans from other sources other

than private moneylenders who charge very high rates of interest. The ultimate goal of

microfinance is to enable the poor to build assets, increase incomes, reduce vulnerability to

shocks and economic stress and improve quality of life by enabling better access to education

and healthcare. The microfinance industry has grown at a rapid pace across the world and has

created a positive impact in the lives of millions of poor people.

SKSML utilizes a village centred, group-lending model to provide unsecured loans to its

members. This model ensures credit discipline through mutual support and peer pressure

within the group to ensure individual members are

prudent in conducting their financial affairs and are prompt in repaying their loans. Failure by an

individual member to make timely loan payments

will prevent other group members from being able to

borrow from SKSML in the future; therefore the

group will typically make the payment on behalf of a

defaulting member or, in the case of wilful default,

will use peer pressure to encourage the delinquent

member to make timely payments, effectively providing an informal joint guarantee on the

member’s loan.




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It also uses its distribution channel to help provide other services and goods that it has found

that its members need. For instance, it distributes and administers life insurance policy

products for its members and has pilot programs to provide loans to its members to purchase

select consumer products that increase their productivity.

In addition to its market leadership position and the expertise in microfinance which it has

developed, its competitive strengths includes its scalable operating model which leverages

technology, diversified product revenues, diversified

sources of capital and its pan-India distribution network. Its

strategy is to further expand its membership, loans and

product offerings by relying on these strengths. It continues

to finance its expansion by accessing multiple sources of

capital, both debt and equity, including listed debentures,

priority sector qualifying loans from banks, and equity

investments from venture capital and private equity investors, institutions and others.

Additionally, it seeks to sell or assign its portfolio loans to banks to improve its financial

position and finance its growth.

Microfinance provides the poor with long-term economic and social

benefits. Sustained access to micro-credit enables the poor to increase

household income. These economic improvements are often

accompanied by wider ranging social developments that improve the

quality of life through improved social standing for women, nutrition,

education and healthcare.




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Markets this Week

by: Srikanth Konduri

Most of the indices ended this week on a positive note. Europe suffered as a result of profit

booking. China was the biggest gainer while India’s benchmark index BSE-Sensex was the

biggest loser.

Majority of the sectoral indices showed a lacklustre performance and closed in red. BSE-PSU

index was the biggest gainer for the week followed by BSE-Consumer Durable index.

Maruti Suzuki was the biggest loser after declaring its disappointing Q1FY11 results. Even

HUL results were disappointed on the bottom line. Reliance industries reported a strong

growth of 87% YoY for its Q1 results.

Key influencers this week:




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NEWS OF THE WEEK by: Srikanth Konduri




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Medical Insurance cos. Stop cashless treatment –

How does it affect you?

-Submitted by: Karan Razdan

There is bad news for people having a mediclaim policy that entitles them to cashless

facilities. They will no longer be able to get these facilities at high-end hospitals like Apollo,

Fortis, Gangaram, Max or Medicity in Delhi, the national capital region (NCR) and the

metros of Mumbai, Bangalore and Chennai.

This move follows the malpractice followed by top

hospitals of overcharging patients. As a result of this

move, direct payment of treatment charges to 150-odd

high-end hospitals in Delhi and NCR has been stopped

from July 1. Now, policy holders will have to pay from

their own pocket despite having a valid mediclaim policy with all premiums paid. They will then have to

reclaim the amount from the insurer, with no guarantee

that the entire amount will be reimbursed.

The insurers have been forced to take this step as they

are bleeding badly. They are making an estimated loss

of ` .1,500 crore annually on a yearly premium

collection of ` .6,000 crore on mediclaim policies

across the country.

The policy holders & industry bodies too have reacted sharply to the development. The

chairman of the Federation of Indian Chambers for Commerce and Industry (FICCI) health

services committee, Mr. Anjan Bose, termed it a retrograde move which will put the policy

holders, particularly the middle class patients, who do not have ready cash available with

them, at a disadvantage

These insurance companies had so far been providing cashless services at over 3,000

hospitals pan-India. But a recent study carried out by third party administrators (TPAs) found

only 350 hospitals, or just 11%, were consuming more than 80% of the total claims. It was

also found that customers were overcharged for each hospitalization, irrespective of

treatment, and were left with very little funds for their next treatment. TPAs have been asked

to convey the fresh list of hospitals to individual policyholders as also the new packages

available which are mentioned below.




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Insurance companies have also started relying on special investigating agencies to verify the

authenticity of many of the claims. Services of super-speciality consultants, auditors and

medico-legal experts are now taken to go into the depth of the matter. The work profile

includes verifying diseases, documents, medical reports and providing clinical judgement on

matters deemed suspicious. Insurance firms pay anything between ` . 8 crore and ` .10 crore

annually and industry experts say business is likely to grow because of the increasing number of referrals.

Some firms also ask these agencies to carry out detailed investigation. In such instances,

specialised doctors’ help is to taken to inquire into the whole gamut of treatment, including

whether the patient had any pre-existing ailment, excess medical bills by hospitals, nature of

ailment, authenticity of medical reports and justification for the treatment.

Meanwhile, insurance watchdog Insurance Regulatory and Development Authority (IRDA)

has washed its hands of the controversy even as industry bodies stepped up efforts to find an

amicable solution to the row. IRDA has the opinion that this is a matter between the

insurance companies and the hospitals and since there is no regulatory issue, IRDA is notlooking into it as of now.




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WORDS OF THE WEEK

C URRENCY C ARRY T RADE : A strategy in which an investor sells a certain currency with a

relatively low interest rate and uses the funds to purchase a different currency yielding a

higher interest rate. A trader using this strategy attempts to capture the difference between the

rates, which can often be substantial, depending on the amount of leverage used.

R EINSURANCE : The practice of insurers transferring portions of risk portfolios to other

parties by some form of agreement in order to reduce the likelihood of having to pay a large

obligation resulting from an insurance claim. The intent of reinsurance is for an insurance

company to reduce the risks associated with underwritten policies by spreading risks across

alternative institutions.

Also known as "insurance for insurers" or "stop-loss insurance".

D ARK P OOL L IQUIDITY : The trading volume created by institutional orders that are

unavailable to the public. The bulk of dark pool liquidity is represented by block trades

facilitated away from the central exchanges.

Also referred to as the "upstairs market", or "dark liquidity", or just "dark pool."

OVERSEAS P RIVATE I NVESTMENT C ORPORATION (OPIC): A U.S. government agency that

assists businesses looking to invest abroad. Operated out of Washington, D.C., the Overseas

Private Investment Corporation (OPIC) helps companies investing overseas analyze and

manage risks and tries to promote development in emerging markets in addition to supporting

domestic foreign policies.

S PICE T RADER: A slang term used to describe an investor who tends to trade in high-risk

investment vehicles or markets. Spice traders prefer to invest in riskier endeavors and seek

higher risk premiums for the risk that they take on.




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CAN YOU SOLVE IT by: Rudra Chowdary

Match the companies in Group A with companies in Group B. The link is

related to Mergers and Acquisitions. Complete the chain with one of the

persons involved.

Group A Group B

A1 : Reliance Industries B1 :Sanyo Electric

A2: ICICI Bank B2: IGF Industries-Arbel Fauvet Rail (AFR)

A3 :Titagarh Wagons B3: Atlas Energy

A4: Panasonic Corp B4: Ocean Sparkle

A5: Eredene Capital B5: Bank of Rajasthan

Group C : Picture Clues

C1 C2 C3 C4 C5

Your answers should be a link between A, B and C. Like A1-B1-C1 etc.

Rush in your answers to: [email protected]

The first five correct entries will be featured in the next issue of FinXpress.

Last Week’s Correct Answerers: (First Five)

Varun Vashishth, 09FT-171

Asmita Singh, 09FN-021

Nakul Agarwal

Prateek Jain, 09IB-038

Shelly Malpani, 10DM-148

mailto:[email protected]




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