Three NBFCs to bet on as CV sales recover

Piggy backing on a visible recovery in sales of commercial vehicles, Shriram Transport Finance, M&M Financial and Cholamandalam Finance emerge as favourites

With many quarters of earnings disappointment on account of weak net interest income (NII) growth or elevated non-performing assets (NPAs), stocks such as Shriram Transport, M&M Finance and Cholamandalam Finance have remained under pressure. But now with the better than average monsoon season forecast, sales of commercial vehicles (CVs) are showing steadfast signs of improvement. These stocks have gained 14-30% in the last month. Their March 2016 quarter (Q4 FY16) results too exceeded the Street’s expectations. This too fuelled their stock performance, regenerating interest in these stocks.

For instance, Shriram Transport, which is the market leader in CV lending segment, saw its NII for Q4FY16 expand to Rs 1,273 crore, up 34% year-on-year. However, higher provisioning (Rs 1,073 crore; up 33%) dented net profit to Rs 143 crore, which was down 55% year-on-year. But as this was due to consolidation of its commercial equipment business, analysts regard it as a one-off. In fact, the 23% year-on-year growth in assets under management or AUM (Rs 72,750 crore) and positive surprise from share of new CVs expanding from 8% a year-ago to 10% in Q4FY16 offset the decline in profit. Used vehicles business accounting for the rest of its business grew by 21% year-on-year. AUMs in FY17 are expected to grow by 15%, contingent to monsoon. Consequently, analysts at Jefferies have raised their earnings per share (EPS) target for FY17-18 by 100–200 basis points (bps) as Shriram Transport should benefit from strong CV credit demand and lower borrowing cost.  

Likewise, for M&M Financial Services, after a watered-down December'15 quarter, NII and net profit posted 16% and 12% year-on-year growth in Q4FY16, respectively. Elevated provisioning for bad loans which was the major pain point for many quarters showed remarkable improvement in Q4FY16 as provisioning declined by 23% year-on-year to Rs 116 crore in Q4’FY16. Also, with fairly high levels of repossession and collection efforts in place, analysts at Credit Suisse note that the provision coverage for M&M Financial remains intact at 62%. Though loans grew at 11% year-on-year (versus 18-20% for peers), with the asset quality improving, Credit Suisse has recently upgraded its EPS target for FY17 by 300 basis points to Rs 23.6.

In case of Chalamandalam Finance, too, Phillips Capital has increased its EPS estimate for FY17 by 350 basis points to Rs 48 on the back of strong NII, net profit and disbursements in the March 2016 quarter. While NII at Rs 600 crore grew by 33% year-on-year, net profit expanded by 42% to Rs 192 crore in Q4FY16. Vehicle finance (mainly CVs) account for 67% of Cholamandalam’s assets. In FY17, the company expects to maintain 20% growth in its advances, with higher focus on heavy commercial vehicles.

However, there is a word of caution for all NBFCs. While the asset quality may improve in FY17 with above-average monsoon, the crunching of provisioning norms from 120 and 150 days per dues (dps) to 90 dpd by FY17 (or FY18 in case of Shriram Transport) may put some stress on asset quality. But as this is a structural change, the Street is not too wary of it.

Sebi plans to ease funding, listing norms for start-ups

A revamp of the listing, fundraising norms on the anvil; Sebi to also expand definition of high-tech start-ups

Mumbai: The capital markets regulator is planning to expand the categories of investors eligible to fund start-ups; relax rules for listing shares; and ease promoter-holding and minimum trading-lot norms to help the country’s 3,100-odd start-ups to raise capital, two people directly familiar with the development said.

The Securities and Exchange Board of India (Sebi) also plans to further liberalize the norms related to alternative investment funds (AIFs) introduced in 2012, to increase access of capital to start-ups. The AIF route has made investments in start-ups more transparent and easier for private equity (PE) funds, venture capitalists and high networth individuals.

“Within the existing norms, certain changes in definition of eligible investors could be made to encourage more investors to put money in promising early-stage businesses,” said one of the two people cited above. “We are also examining if the minimum investment amount in the AIFs could be brought down slightly.”

Rules may also be relaxed to allow more early-stage companies to get listed.

The existing norms allow only so-called high-tech and new-age start-ups.

As many as 40 start-ups are ready to get listed either in India or overseas, according to Harish H.V., partner (India leadership team) at Grant Thornton India.

“Sebi’s thinking is in the right direction to liberalize the norms for start-ups, but the regulator should be careful while expanding the definition of a start-up eligible for listing,” said Harish.

“While amending the norms to attract more start-ups to get listed, it has to be ensured that no fly-by-night operator takes advantage.”

In June 2015, Sebi allowed the exchanges’ institutional trading platform (ITP) to be used for capital raising by start-ups which are intensive in their use of technology, information technology, intellectual property, data analytics, biotechnology or nano-technology, to provide products, services or business platforms with substantial value addition.

However, even among these companies, only those that have at least 25% of their pre-issue capital being held by qualified institutional buyers (QIBs) were allowed to access the exchange platform.

For other categories of startups to be eligible for getting listed, at least 50% of the pre-issue capital in the company has to be held by QIBs. Additionally, no person (individually or collectively with persons acting in concert) could hold 25% or more of the post-issue share capital in a listed start-up.

The norms laid down by Sebi, however, failed to attract any start-up to get listed.

The regulator is now considering expanding the definition of so called “high-tech” and “new-age” firms, which could opt for listing on ITP, said the second person. “The definition could be modified to include more categories of start-up companies to be eligible for the platform,” said the second person.

Further, the present norms allow only two categories of investors—institutional investors (with net worth of more than Rs.500 crore) and non-institutional investors (NIIs) other than retail individual investors to access the proposed ITP.

While getting listed on ITP, the minimum application size from such investors cannot be less than Rs.10 lakh and the minimum trading lot post-listing cannot be less than Rs.10 lakh.

These promoter-holding and minimum trading-lot norms are discomforting for startups, if and when they plan to get listed, according to a person associated with Indian Angel Network.

Sebi is planning to relax these norms, said the two people cited above.

“Sebi has received representations that the current cap on promoter holding on the company which is willing to list on the start-up platform, at 25% be relaxed to around 50-75%,” said the second person.

Also, the trading lot size at Rs.10 lakh is too high for any investor, and market participants have requested its reduction to Rs.5 lakh as earlier proposed. The regulator is actively considering these recommendations.

Although Sebi may not explicitly encourage retail investors to buy shares of start-ups, a lower minimum trading lot will enable more investors to invest in these early-stage companies.

“In order to make listing feasible for start-ups, it is very important to keep the minimum trading lot size less than the minimum required subscription amount,” said Harish. “The suggestion we made is to keep the minimum trading lot-size at Rs.2.5 lakh if the minimum subscription amount in the listing issue of the startup is fixed at Rs.5 lakh. Otherwise, if the value of the stock comes down even slightly after listing, it will be difficult for the investor to trade in the start -up stock.”

In January, an advisory panel headed by Infosys co-founder N.R. Narayana Murthy had suggested changes to facilitate capital raising.

Sebi’s latest plans are somewhat in line with the panel’s recommendations.

Th panel had suggested that Sebi change its eligibility norms for investors to put money in alternative investment funds.

The current norms require a person to invest at least Rs.1 crore in an AIF. The rules also say that any individual with total annual income of at least Rs.50 lakh should be allowed to put money in AIFs.

According to market experts who deal with AIFs, Sebi may consider easing some of these restrictions.

“The minimum investment required in the AIFs could be reduced to include more potential investors,” said the first person.

AIFs collect funds from high net-worth investors to invest primarily in unlisted securities and start-ups to promote entrepreneurship.

According to latest available Sebi data, AIFs got funding commitments worth Rs.30,687 crore by the end of December. Of this, at least Rs.14,031.39 crore has been already invested.

According to the Murthy panel, pension funds, insurers, domestic financial institutions and banks should contribute more to develop the AIF industry. Domestic pension funds in India, including the National Pension System (NPS) and the Employee Provident Fund Organization (EPFO) should allocate up to 3% of their assets to AIFs by 2017 and 5% by 2020, the panel had suggested.

Obama: new tax rule will fight corruption, help economy

WASHINGTON - U.S. President Barack Obama said on Friday a long-delayed rule requiring the financial industry to identify the real owners of companies will help fight corruption and tax evasion and boost the economy.

His administration on Friday issued the Customer Due Diligence rule in the works since 2012 and proposed legislation meant to stop prevent criminals from using shell companies to evade taxes, launder money, and finance terror.

"These actions are going to make a difference," Obama told reporters. He said they would help the administration to do a better job of tracking financial flows and making sure companies are "paying the taxes they owe rather than using shell corporations and offshore accounts to avoid doing the things that ordinary Americans are doing every day."

Obama also called on Congress to pass legislation that requires all companies formed in the United States to report information to the financial crimes enforcement network at the Treasury Department.

"That's going to help law enforcement better investigate and prevent financial crimes," Obama told reporters.

Obama also urged Congress to raise the federal minimum wage, pass new trade agreements, and simplify the tax code.

"Only Congress can fully close the loopholes" that wealthy individuals or corporations can take advantage of, Obama said.

He singled out Senator Rand Paul, a Republican and libertarian, who in years past has single-handedly blocked tax treaties or treaty updates between the United States and Spain, Japan, Britain, and other countries. Paul has been "a little quirky on this issue," Obama said, and urged him "to stop blocking the implementation of tax treaties."

Paul's office did not immediately comment.

(Reporting by Timothy Gardner, Jeff Mason and Susan Heavey; Writing by Doina Chiacu; Editing by Chizu Nomiyama)

Sun Capital

Burnpur Cement to invest Rs 500 crore for capacity expansion

KOLKATA: Cement maker Burnpur Cement plans to invest Rs.500 crore for expansion of its production capacity to 3 million tonnes per annum (mtpa) in the next 3-4 years, a company official said on Wednesday.

“Presently, our installed capacity stands at 0.6 mtpa and we are planning to enhance the capacity to 3 mtpa (million tonne per annum) in the coming 3-4 years,” the company’s vice chairman and managing director Ashok Gutgutia said.

He said the investment for capacity expansion would be around Rs.500 crores which will be spent in the next 3-4 years.

The cement producer has two plants, one in Asansol in West Bengal and the other in Patratu district in Jharkhand. Each plant has 0.3 mtpa installed capacity.

The company also aims to increase its sales revenue to Rs.250 crore in the next year from Rs.100 crore in the last fiscal.

The cement producer plans to build a 2 mtpa greenfield plant in West Bengal.

“For which, we are in a process of procuring 100 acres of land. The location for the greenfield project is not yet finalised, it may be in Bankura or Purulia district,” he said.

The company has already bagged two limestone mines through auction mode.

“In addition, we plan to bag 5-6 limestone mines. We are planning to increase the capacity of our Jharkhand plant to 1 mtpa having raw materials reserve for minimum 50 years,” he said.

Sun Capital

RBI releases ‘Quarterly BSR-1: Outstanding Credit of Scheduled Commercial Banks for December 2015'

The Reserve Bank of India today released the web publication ‘Quarterly BSR-1: Outstanding Credit of Scheduled Commercial Banks (SCBs), December 2015’. Under BSR-1, information on occupation/activity and organisational sector of the borrower, type of account, interest rate, credit limit and amount outstanding are collected for each loan account. Such information is aggregated at the bank group, population group and state level using locational parameters of the reporting bank offices. This web publication contains comprehensive quarterly data on gross bank credit of SCBs (other than RRBs) since December 31, 2014. The data can be accessed at http://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications#!12 through the website: Database on Indian Economy (DBIE) (http://dbie.rbi.org.in). Highlights: Bank credit registered a growth of 9.7 per cent in December 2015 as compared to December 2014 largely due to higher credit growth of private sector banks. In terms of total number of credit accounts, banking sector registered a growth of 12.2 per cent. More than four-fifth of the total credit accounts of the banking sector were concentrated in agriculture and personal loan segment. However, the concentration in terms of outstanding credit in these segments was only 30 per cent. The proportion of credit in terms of amount outstanding to industry was highest at 42 per cent in December 2015. Though large credit accounts (credit limit above ₹ 250 million) registered a y-o-y growth of 3.1 per cent in December 2015, their share in total amount outstanding declined marginally to 46.5 per cent from 47.8 per cent registered in December 2014. The weighted average lending rate (WALR) of all rupee loans and advances was estimated as 11.39 per cent in December 2015 as compared to 11.59 per cent in September 2015. The reduction in WALR was observed in all sectors. Sangeeta Das Director Press Release : 2015-2016/2572

Tallest govt building: A 61-storey headquarter for Surat civic body on the cards

SMC officials said that they are checking the feasibility for this project on the 22,000 sq m land on the Ring Road where old sub-jail once stood

SURAT: The Chinese dragon has set tongues wagging in the Diamond City by proposing that it could help build a towering 61-storey headquarters for the Surat Municipal Corporation (SMC).

If the project, which sounds like a fanciful hope for now, is executed this could be the tallest government building in India. SMC has been operating from the historical Mughal Sarai building that was built way back in 1644 during the reign of Shahjahan.

The Chinese delegation comprising government firms that are into construction business had visited Surat last year and claimed that they could construct this fully environment-friendly skyscraper in very short time using pre-fabricated technology.

SMC officials said that they are checking the feasibility for this project on the 22,000 sq m land on the Ring Road where old sub-jail once stood. At least 13 consultants have been asked to prepare designs and submit them to SMC authorities for selection and approval.

Milind Torwane, municipal commissioner, said, "We are awaiting a feasibility report on building a multi-storeyed structure on the chunk of land with us. The mega project of SMC headquarters will take shape through public-private partnership (PPP)."

Standing committee chairman Rajesh Desai said, "We have to take a policy decision on linking the local body's administrative office with commercial establishments. It has not been seen anywhere else." He added, "We will have to shift the site if the 61-storey structure can't be built on the sub-jail land. We will soon take a decision on it."

Sources said that the concept of skyscraper for SMC headquarters was suggested by the Prime Minister's Office following which the Chinese team visited Surat.

Manoj Gandhi, India head of Anuj Infra Tech, which is an associate partner of seven companies of government of China, said, "Prefabrication construction technology means things are prepared in a factory and later assembled at the site.

Sun Capital

Alibaba sales surge as Chinese consumers defy economic gloom

Alibaba is capitalizing on the liquidity of households and expanding into rural areas, helping limit the impact of China growing at the slowest pace in 25 years

Hong Kong: Alibaba Group Holding Ltd. posted a 39% surge in revenue as China’s dominant e-commerce operator shrugged off a slowing economy with promotions to woo cash-rich consumers.

Asia’s largest Internet company posted better-than-expected sales of 24.2 billion yuan ($3.7 billion) in the March quarter and said it will start providing annual forecasts. Its shares rose 5.3% in pre-market trading.

Alibaba, often regarded as a proxy for Chinese consumer spending, is capitalizing on the liquidity of households and expanding into rural areas, helping limit the impact of an economy growing at the slowest pace in 25 years. The company’s platforms, which link buyers and sellers, hit a 3 trillion-yuan milestone of goods sold during the period and the online emporium made more from mobile advertising and expanded overseas.

“Alibaba is still growing very nicely and sustaining very high margins in the face of the concerns about Chinese consumers and the face of competition,” said Gil Luria, an analyst with Wedbush Securities Inc. “It’s good results for Alibaba and it seems like their business is holding up.”

Spending weighs

Net income rose 855 to 5.3 billion yuan, just shy of the 5.4 billion-yuan average of estimates. Affiliate Zhejiang Ant Small & Micro Financial Services Group, which owns Alipay, incurred a net loss after spending to drive user growth. Adjusted earnings-per-share were 3.02 yuan, trailing analysts’ projections for 3.52 yuan.

The marketing push helped spur a 21% jump in active users to 423 million. That in turn underpinned a 41% jump in revenue on Alibaba’s Chinese retail e-commerce platforms. Mobile shopping on local retail sites almost tripled and now accounts for 63% of sales.

Vice chairman Joseph Tsai highlighted the $4.6 trillion of net cash reserves held by Chinese households as a key driver of ongoing spending and growth at Alibaba. After free cash flow reached $8 billion last year, he has pledged to keep investing to pursue growth—despite the potential drag on the bottom line.

“Going forward we are prepared to continue investing in high-potential businesses that are highly strategic to Alibaba, from digital entertainment to local services to international expansion,” Tsai said on Alibaba’s blog Thursday. “These businesses contribute to losses in our current income statement.”

New businesses

Alibaba expects last month’s $1 billion deal for control of Lazada Group SA, which gives it access to six Southeast Asian markets, will help Chinese merchants expand sales in the region.

“Lazada is a very important acquisition, Lazada has a very great brand recognition,” chief executive officer Daniel Zhang said. “This is a good vehicle for us to expand to this area.”

Alibaba has also expanded into on-demand services and entertainment, areas that have shown promise but aren’t expected to yield much profit for now. Its cloud computing business almost tripled revenue to more than 1 billion yuan in the quarter, has more than half a million paying customers and is close to breaking even.

Rural push

The company has also pulled out the stops to get its platforms in front of villagers, setting up free Internet-equipped computers and working with local officials to train potential buyers and sellers. It had a presence in 14,000 villages across the country by the end of March, out of about 600,000. That effort to diversify comes as Alibaba is trying to tap more of the 620 million Chinese who access the Internet from their smartphones and tablets.

“Advertisers are finding efficacy on the Alibaba platforms and they’re putting more money in, that’s a big driver,” said Rob Sanderson, an analyst at MKM Partners LLC. “If you’re an investor that wants them to harvest the assets for near term cash generation, then you should find a different stock, because that’s not what this is.”

Tsai said the company isn’t involved in shareholder Yahoo! Inc.’s potential sale of its core business.

“If they sell the core business, then they’ll continue to be a company that would continue to be a 15% shareholder in our company so nothing will change,” he said.