Q1 FY 2012 Earnings review

The First Quarter of Financial Year 2011-12 ended in June, and with nearly all results in, let us see how we fared. I gathered the results of 950 companies, and as an important caveat, used consolidated results where available. *

*  Most companies reveal only standalone results each quarter. Increasingly, companies are moving into a holding structure and own a majority stake in subsidiaries. This calls for consolidated financial results, which many companies now release. For Yahoo, we compiled a list of all results using consolidated data where available (and where Q1 of last year was also available in a consolidated format). Consolidated results number nearly 25% of all companies, and the results are substantially different from using only standalone data.
Overall Results

The 950 companies surveyed have more than 85% of the market cap of the index, with a notable exception of COAL INDIA where we do not have comparable Q1 figures for the previous year and thus has not been included.

With over 28% revenue growth the story has been quite strong on the topline, but bottomlines have grown only 12.5%. Growing inflation and interest costs have started to hurt, but our growth has been remarkably strong in the quarter.

We are seriously top heavy: the top 10 stocks are more than 1/3rd of the total revenue, and the top 100, more than 70%. Organized by profit, the top 100 stocks make more than 85% of the total profits seen.

Did you know, the company with the highest revenue, Indian Oil Corporation at 92,523 cr. in the quarter made the highest loss as well, at -3719 cr? The three petro giants — IOC, BPCL and HPCL, collectively lost over 9,300 cr. in the quarter.
Indexes and Sectors

Let's take a look at major indexes on the NSE — the Nifty (the top 50 stocks by market cap), the Nifty Junior (the next 50 after the Nifty) and the Nifty Midcap (the third rung of broad companies, so to speak)

There are a number of sector indexes, where we have included Financials, Realty, Infrastructure, FMCG, Pharma and so on.

(Methodology: Add all the Nifty stock revenues and profits for the quarters ending June this year and the last, and calculate growth)

And, profits:

The Nifty's performance was buoyed by:

1)      Cairn: the stock grew profits by 800% (from 281 cr. to 2726 cr.)

2)      Tata Steel, which nearly tripled consolidated profits from 1852 cr. to 5347 cr.

Minus these two stocks, profit growth on the Nifty was a meager 5%.

The Junior and Midcap indexes have seen profits dip, as RBI measures to slow down the economy and indeed, inflation, work to hurt margins. Note that both these broad indexes have seen big topline growth — shrinking margins with topline growth is an indicator that costs might be getting out of hand. Big winners and losers in these indexes:

1)      GMR Infra: Went from a 28 cr. profit to a 67 cr. loss.

2)      Ultratech cement: Profits great 181% to 683 cr.

3)      Aurobindo Pharma: booked a loss of 122 cr. against a profit of 51.5 cr. last year.

4)      TTML: Switched to a 119 cr. loss after a 558 cr. profit in Jun 2010.

On a sector basis, the Energy, FMCG and Pharma sectors have done the best, and in general they are defensive sectors. IT, which has been seen negatively due to the slowdown in the west, managed to eke out 20% revenue growth while scaling profits 13%.

Financials have been a mixed bag: While revenues grew over 33%, profits fell 2%, largely on the back of an SBI that shrank profits by over 25% (and it has the highest profits and revenue of the lot, so its performance matters). Most PSU banks shrunk earnings but the worst was a 55% profit shrinkage from Reliance Capital. HDFC Bank and IDBI Bank grew over 33% in near earnings.

All banks grew revenues over 25% - a sign that with increasing rates, banks earn more. But the system hasn't yet begun to see defaults, so the impact of slowing growth on the economy (and thus, on the banks) will only be visible after a few quarter.

Realty was the worst of the lot, with a revenue growth of a meager 4%, while shrinking profits 21% in the quarter as against Jun 2010. Orbit Corp and Godrej Properties saw profits fall over 50%.
The Dam is Holding

On the Nifty 50 stocks, an interesting pattern has begun to emerge: In the Jun quarter, 15 stocks showed a shrinking profit, with 16 showing stellar growth (over 25%). The "good" stocks are offsetting the "bad" ones; but how will this play out?

Interest Costs

To conclude, we must see how interest costs are hurting the economy. How much more interest are our top stocks paying?  The cost implication is obvious:

With another rate increase that came after the quarter ended (0.50% in July), and another one expected in September, where will profits go in the September quarter. I'll keep you posted.

Loan against shares: What should you know?

With consumer spending on rise and loans getting expensive, individuals are finding new ways to fulfill their money requirements. Providing Loans against Gold etc. is one more way in which borrowers are able to procure loans from banks. Yet another way to procure a loan is through LAS (loan against security). A loan against shares would fall under this category. This option is not known to many borrowers as banks do not advertise this often. The loan is granted when you pledge your shares to the bank. More and more banks are offering this option now and also expanding the financial assets that can be used as for a LAS option.

How does this work?

You cannot get a loan against all shares. Banks usually define the shares of the companies which can be pledged against the loan. These shares are very liquid, from high quality companies, and highly valued securities. The amount depends on valuation of shares, margin allowed by the bank, and your past credit history. The amount of loan is about 50% to 70% of the value of the shares pledged with the bank. Hence if your stock portfolio for these shares is 10 lakhs, you can get a loan of 5 lakhs to 7 lakhs against the stock portfolio. This again depends on the liquidity of the stocks in your portfolio.

You can pledge your shares with the bank, which will issue a current account. You can withdraw money from this account. The advantage of loan against shares is that you will be charged interest only on the amount you withdraw from the account and for the span of time the fund is utilized. The other advantage is that you require no personal guarantor for loan against shares.

Banks keep changing the shares against which loans can be taken. This happens at regular intervals. This is done to ensure the stability and liquidity of shares which can be pledged.

If you have shares in the physical form, most of the banks require that you convert them into dematerialized form and then only you can apply for a loan. Dematerializing physical shares is not difficult. Few banks may provide loan against shares in physical form too. However, the interest rate will be higher and also the loan amount as a percentage of the value of the share will be lower.

When should you go for it?

You should opt for loan against shares only when you need instant liquidity and you are sure to pay it back in few months. If you have any doubt on your repayment capability, try other sources.

The interest rate on loan against share depends on the prevailing rate in the market. You should compare the interest rate for loan against shares with other options such as a personal loan or need specific loan. If you find a cheaper option, go for that.

Many borrowers take loan against shares to invest it back in shares. Don't do this. Taking a loan to buy shares is a financially harmful habit. In fact many banks attach the clause that you cannot use it for buying shares.

Important points to keep in mind

Getting a loan against share is hassle free and the borrower is mostly free to spend the money in a manner he or she wishes to. This comes with no strings attached. You should have good and valued shares in your portfolio to get a loan against it. However, you must keep some factors in mind when you opt for this.

The minimum amount of a loan against shares is 1 lakh while the maximum amount is 20 lakhs. You can get the loan for a year and renew it in future. The tenure may vary with individual banks. The maximum amount in the case of physical shares is 10 lakhs.

Don't be tempted to borrow just because you have a good portfolio. You have built this portfolio over a period of time with due diligence. Unless absolutely necessary, don't pledge your shares to obtain a loan. If you do pledge to get a loan against the stock portfolio, make sure that you pay it back at the first opportunity.

Look at the various charges such as processing fees, one-time fee, renewal charges, Government levies, and service taxes. Usually there is no pre-payment penalty but it is advisable to ensure this with the bank. These charges may make the actual cost of loan higher than the interest rate charged.

Shares are valued every week to see the maximum limit of loan available to you. As long as the market is bullish, you will have no problem. In fact if the share prices go up, the banks will be able to give you a higher amount of loan. However, when the value of your portfolio falls, banks ask you to pay the difference using cash or by pledging more shares. This could be potentially dangerous if you do not have any cash available with you or any more shares.  Banks may sell your stocks to recover the loan, if circumstances demand so.

The dividends, bonuses, or any benefit on the pledged shares will accrue to you.

On loan against other financial assets

Banks also provide loan against other financial assets such as mutual funds, insurance, bonds, fixed maturity plans, exchange traded funds, and Government securities. The total loan value against the pledged assets varies with individual cases. The value is higher, almost 80% of the asset value, for Government securities as these are risk free assets.

Youngest Female Sarpanch Makes Her Village IT-Enabled

It's a story that's actually many stories.

A village named Soda didn't have water. So the young sarpanch, Chhavi Rajawat (incidentally a young, female MBA graduate) got inquisitive about the funds allocated to the village. Since more had been spent than allocated, she raised funds on her own.

Money came from family and friends - 20 lakh rupees wasn't enough for the Rs 3.5 crore that the reservoir needed.

So Chhavi Rajawat got more even inquisitive about the funds sanctioned to her village. Files at the district headquarters in Tonk revealed a calculation error. Chavi decided to get proactive about the lack of transparency and accountability. Soda thus became India's first IT-enabled village, after tying up with a German software vendor to set up an internet and intranet portal. along with a technology education lab.

The portal allows Soda's 10,000 strong population 24x7 access to the funds sanctioned for the village.

There's also online postings of birth and death certificates, besides posting land records online.

"A fire in Tonk had destroyed land records of many villages," says Rajawat. "This ERP (enterprise resource planning) application will have an electronic database, and store all land records in servers."

Rajawat recently represented India at a recent UN poverty summit.

alkadwivedi

"Most youth in the village are unemployed, as they don't have higher education due to absence of a college. We want to change that with e-education," says she.

There's even a website, www.soda-india.in where Chavi posts info about funds allocated for projects such as a village bank, community centre for weddings and cataract surgery for the needy.

Theres even plans to link Soda's portal with the state government's websites.This will make Soda the first fully computerized Panchayat in India. While there has been a sanction by the Central government (Rs 4,500 crore) for the e-panchayat project, matters of fund allocation and project monitoring are not clearly mentioned. (MensXP.com)