Saturday, June 23, 2012


ICICI bank has demonstrated prowess in improving ALM, asset quality & funding mix, conserving capital along with containing overall risk.

 ICICI bank has reported improvement in its ALM with increase in share of deposits in <1 Yr bucket from 44.1% in FY11 to 54.5% in FY12, which bodes well for the bank in the falling interest rate environment.

 Even though system was facing migration of CASA deposits to term deposits during FY12, its CASA share remained stable at 43.5% at the end of FY12, which is key to the likely improvement in its future NIM, in our view. We are modeling NIM to come at 2.85% during FY13 as compared to 2.73% achieved during FY12.

 Asset quality continued to improve - net NPA declined to 0.62% at the end of Q4FY12. This has come along with decline in credit costs (73bps in FY12 as compared to 126bps in FY11 and 201 bps in FY10) and improvement in coverage ratio (PCR has reached to 80.4% at the end of FY12).

 With easing credit costs, expanding CASA and curtailed operating expenses, RoA has improved to 1.5% in FY12 from 1.35% in FY11. We are factoring lower credit costs (66bps in FY13 as compared to 73bps in FY12 and 126bps in FY11) due to decline in delinquencies in last couple of quarters.

 We are modeling earnings to grow 18.5% CAGR during FY13-14E and expect bank to focus on liability franchise (CASA mix) and profitability (RoE is likely to improve further with increase in leverage in next 2-3 years); loan growth target would track the deposit mobilization with CASA share being maintained at 40%+ levels. We reiterate BUY on the stock with the TP of Rs.1108 (Rs.1103 earlier) using SOTP method, where the value of its standalone business comes to Rs.886 (1.6x FY13E ABV) and the value of subsidiaries at Rs.223 (holding company discount: 20% to the fair value of its subsidiaries at Rs.278).

Improvement in the ALM; bodes well for the bank in the falling interest rate environment ICICI bank has reported improvement in deposit maturity profile - its share in <1 Yr bucket has increased from 44.1% in FY11 to 54.5% in FY12. In falling interest rate environment, a rising share of shorter maturity deposits implies a larger amount of deposits would come for re-pricing at lower rates, thus helping the bank in containing its cost of funds.


>ELECTROSTEEL CASTINGS LTD: Mining its way ahead

Kolkata-based Electrosteel Castings Ltd (Electrosteel) is a market leader in the ductile iron (DI) pipe industry; these pipes are used for water transportation. Though the industry is facing tough times due to overcapacity and increasing input cost, Electrosteel is better placed than peers owing to product quality and vast clientele especially in export market. With its steel project near completion and mining of coking coal and iron ore making progress, we expect considerable improvement in the earnings. We reaffirm a fundamental grade of 3/5, indicating that company’s fundamentals are good relative to other listed securities in India. Thrust on water infra to boost demand but overcapacity will constrain profitability

Electrosteel is expected to benefit as the new 12th plan is expected to increase allocation for water infrastructure. The demand for DI pipes is likely to increase at a CAGR of 15-17% over FY12-14. The domestic DI pipe industry is reeling under significant capacity additions by existing and new players. The total installed capacity for DI pipes is expected to increase to ~1.8 mn TPA in FY13 (vis-à-vis 1.2-1.3 mn TPA demand). But profitability will remain under pressure. Electrosteel’s strong presence in the export market (~50% of sales during 9MFY12) has helped it perform better compared to its peers.

Captive mines-Coking coal and Iron ore to improve margin in the medium term
Electrosteel’s captive coking coal mine has started production and is expected to ramp up over the next two years following the degassing of its underground reserve. The iron ore mine has received stage one clearance after a long wait and we expect the same to be operational by Q4FY13. Overall, we expect the full benefit of the two mines to accrue from FY14 after which the company’s margin will increase significantly.

Substantial investment in Electrosteel Steel (ESL); stabilisation a key monitorable
With cost overruns and project execution delays, the steel project through ESL has witnessed some hiccups. However, as the project is to be completed by H1FY13, the company’s ability to stabilise such a large capacity and market products in a new business is a key monitorable now.

Standalone revenues to increase at a CAGR of 9% in FY11-14
We expect standalone revenues to increase to Rs 22 bn in FY14 from Rs 17 bn in FY11. EBITDA/tonne declined in FY12 owing to increasing input cost and competition. However, profitability will improve by FY14 due to cost benefits from captive mines and better industry scenario. Also, adj. PAT will increase in FY14 to Rs 2.7 bn. ROE is expected at 13.5% in FY14, up from 2.5% in FY12.

Valuations – the current price has ‘strong upside’
CRISIL Research has used the sum-of-the-parts method to value Electrosteel and arrived at a fair value of Rs 45 per share. At the current market price of Rs 17, our valuation grade is 5/5.

>RELIANCE CAPITAL: Recent stake sale in life (NIPPON) insurance and asset management businesses

Recent deals ease pressure on capitalization, accounting practices overhang persists.
Reliance Capital made capital gains of Rs34 bn from the recent stake sale in life insurance and asset management businesses. The significant capital increase (42% of FY2011 net worth) due to these transactions eases its leverage. Revaluation of its existing investment in the life insurance business boosted the reported net worth by an additional 28% (Rs22 bn). We are not comfortable with the accounting practice of boosting net worth through asset revaluation; expect stock performance to remain muted despite inexpensive valuations and successful completion of these deals.

Leverage under control after recent deals though accounting practices concern continues
High leverage at Reliance Capital (RCAP) has been a cause for concern in the past though recent deals with Nippon Life provide solace. We are, however, not comfortable with the recent revaluation of its investments in the life insurance business which boosted FY2011 net worth by 28%, i.e. Rs22 bn. The loan book of the NBFC business (operated from the balance sheet of the parent company) increased by 23% yoy and had an effective leverage (after adding the realized capital gains) of 5X as of March 2012.

Investments exceed net worth in 2011
In March 2011, RCAP’s equity investments (and NCD/ preference share exposures to group companies) exceeded its reported net worth. Thus, the residual economic capital (available to the NBFC business, had this been a separate subsidiary) was negative. We note that some of the investments in group companies are made through preference shares or convertibles and can hence be considered as quasi equity.

As of March 2011, RCAP’s reported investments stand at Rs122 bn of which the aforesaid (equity/group company) investments were Rs82 bn—higher than the consolidated net worth of Rs78 bn. In addition, RCAP’s NBFC business had a loan book of Rs123 bn which effectively did not have any equity support (had the NBFC been a separate company).

In the past, RCAP had carved out the NBFC businesses in distinct subsidiaries. Notably, over the past 4-5 quarters, RCAP has merged the NBFC businesses back into the parent company.

Strong brand name and strength of the Reliance group provided comfort to rating agencies even as effective leverage was high. Currently, the bonds of RCAP carry AAA and AA+ ratings.

Leverage reduces post recent stake sale
We calculate capital gains (not factoring tax liability) of Rs34 bn for Reliance Capital from recent deals with Nippon Life:

􀁠 RCAP made capital gains of Rs19 bn in the recent 26% stake sale in Reliance Life. 

􀁠 RCAP will also make capital gains of Rs14.5 bn by selling 5% stake in Reliance AMC; the transaction was approved by the regulators last week.

After adjusting these transactions, we estimate consolidated net worth of RCAP at Rs112 bn.
After reducing the adjusted investments of Rs82 bn, the core residual capital is Rs30 bn. As of March 2012, RCAP’s NBFC business had a loan book (including loans securitized) of Rs151 bn. Thus, the NBFC business already has asset to adjusted equity ratio of 5X (4.5X if we exclude securitized loans). We are not considering RCAP’s other debt investments and loans in our leverage calculation. In the past, the management had highlighted these are non-core debt investments and can be divested to fund its core business.

Recent accounting of merger boosted reported net worth
Prior to the stake sale to Nippon Life, RCAP had 100% economic interest in the life insurance business though about 84% stake in the life insurance was held by two of its affiliate companies (Viscount Management Services and Viscount Management Alpha Services).

While selling stake to Nippon Life, Viscount Management Alpha Services’ investments (48% in Reliance Life) were revalued upwards. In 4QFY12, Reliance Life itself realized the gain made by Viscount Management Alpha Services. Thus, RCAP’s consolidated net worth increased by Rs41 bn as compared to capital gains of Rs19 bn from the transaction, thereby boosting its net worth by Rs22 bn.



Significant Revenue Pickup in FY13

 Reiterate Buy — We maintain a Buy on Sunteck Realty given its city-centric asset base (~90% of NAV is from Mumbai). With revenue recognition based on the conservative project completion method and ~1 msf projects coming on stream in FY13, we expect a significant pickup in revenues.

 Increasing TP to Rs455 — We incorporate some execution delays and roll forward our NAV to Mar'13E (Sep'12E earlier) – increasing base NAV marginally to Rs650 (from Rs647). In light of the continuing strategy by the company/competitors to sell selectively at premium realizations, we reduce the probability of price cuts to nil. Our TP continues to be at ~30% discount to NAV.

 Update on BKC Assets — BKC residential projects account for ~44% of gross NAV. Signature Island – 14th habitable floor completed and 3 more slabs remain to be completed. Sales have been slow in this project – management commented that it is not pushing sales here (following more of a pull-strategy, given the project stature). Targeting project completion in FY13 – minor delays v/s earlier target of FY12.

 Gearing up for launches in FY13 — (1) Goregaon – Management expects to receive the commencement certificate for its Sunteck City project (~0.65msf) shortly and is planning to launch the project in July. (2) Sunteck hopes to launch ~10msf in Thane/Mulund over FY13, post receipt of necessary approvals. (3) Strategic acquisitions on the anvil – ~30 proposals from various developers under consideration.

 Other key updates — Rentals are expected to be stable (strategy is to have rentals cover the total overheads) with Grandeur/Kanaka expected to be on the sale model. The company is not looking to change its revenue recognition policy with recent ICAI guidance note – it believes the current policy is conservative. Sunteck has aggressively ramped up its leasing/sales team from ~40 employees in 2010 to ~65 now – plans to increase overall employees to 250 by 2014.

 Limited track record — Given Sunteck's limited execution/management track record, we prefer Phoenix Mills and Oberoi Realty. Potential downside risks also include (1) potential conflict of interest with JV/JD partners – e.g. Piramal Group's 3-year non-compete agreement expired early 2010 and could impact future growth through their JV (2) lumpy earnings due to project completion accounting (3) sedate sales in some projects nearing completion (4) sector-wide risks.



Stay Selective: Improving Execution Is Key

 Valuations limit downside; focus on visibility. B/S strength — With the real-estate sector having underperformed the Sensex by 40% in the past two years, we believe that most of the sector challenges are priced in. We see the most significant upside in stocks where 1) large part of NAV is front loaded and transparent 2) balance sheets are healthy 3) micro market demand and pricing are healthy. Our top picks are (1) Phoenix Mills (~80% of NAV on the ground and rental annuities are steady); and (2) Prestige Estates (Bengaluru exposure, good execution/disclosures).

 Pockets of resilience amid broader slowdown — The sector has been out of favour in the past 3-4 years due to execution delays, stressed balance sheets, increasing interest burdens, cost inflation and slowing absorption. While these headwinds will still take time to resolve, the landscape has its bright spots e.g. resilient prices (especially in Mumbai) and steady absorption in Bengaluru/Chennai on higher end-user demand.

 Higher asset turnover is key to longer term — On our analysis, lower RoE for leading Indian developers (DLF/Unitech) compared to peers in Brazil and China (~3% v/s 15%) is mainly due to lower asset turnover ( ~17% v/s ~45%+). But large land banks and approval/execution delays in India constrain any pick-up in the near term.

 DLF downgraded to Neutral (from Buy) — DLF has outperformed BSE Realty over the past year on hopes of debt reduction and a turnaround. But non-core asset sales over the next 5-6 months will likely help only at the margin (~Rs48bn over FY10-12 has not cut debt materially due to continued capex of ~Rs3-4bn/qtr). We downgrade to Neutral − and await a pick-up in execution/sales/margins to become more constructive.

 Adjusting NAVs — Our NAVs now (1) roll forward to Mar'13E (Sep'12E earlier) (2) do away with our earlier probability-weighted blended NAV methodology (assuming 15% price cut) given recent price hikes, partly inflation-led (3) factor in further execution delays (4) marginally adjust cost of capital assumptions (in some cases).

 Transfers of coverage — With the report, we transfer coverage of Ascendas India
Trust, DLF, Oberoi Realty, Phoenix Mills, Prestige Estates, Sunteck Realty and Unitech to Atul Tiwari from Surendra Goyal.



Savings deposits growth has been exceptional
During FY12, Axis Bank witnessed a strong of 27% in savings deposits. This was despite increased rate differential on retail term deposits (TDs) and savings rate de-regulation induced rate competition from smaller private banks. Amongst the larger banks, the second highest savings growth was 17% for HDFC Bank. Axis Bank attributed robust savings traction to improving maturity of branches added during 2009 and 2010. Over FY08-11, the bank grew its branch network 2.2x by adding 746 branches; of these 516 branches were opened in new centers thereby widening distribution. A bulk of the addition was in semi urban areas
which have higher savings concentration. In the past two years, bank has opened 3.8mn savings account.

Axis Bank is confident of at least 20% growth in savings deposits in the current year. The bank would continue to add 200-250 branches per annum with focus on widening the network further by improving penetration in Tier 3-6 cities. According to the bank, smaller private banks have reported significant savings ratio improvement on a miniscule base and therefore incremental improvement would be much slower. Axis Bank also does not expect large banks to increase rate as savings deposits mobilization has been decent. Management believes that savings growth in future would be determined by reach and service levels.

Deposits mix to strengthen; steady increase in CASA and retail TD share
Terminal CASA ratio has been stable near 41% over the past eight quarters. On daily average basis (DAB), it has moved in a narrow range of 37-39% supported by robust savings balance mobilization. As per the bank, decline in retail term deposit rates would not necessarily drive an improvement in the CASA ratio. Bank would be content even if the ratio improves by 15-25bps every year. Axis Bank has witnessed robust growth in retail term deposits on the back of higher interest rates being offered. Within term deposits, its share increased from 33% to 37% during FY12. The term deposits mix is expected to gradually move in this direction in the longer term.

Unlike HDFC Bank, Axis Bank has a higher share of wholesale deposits at 37%. Bank attributes its higher dependence to the ALM requirement ie need to resort to bulk borrowings to meet large corporate disbursements. The large and mid corporate (LMC) loans comprise 54% of advances and about 30-35% of these loans are short term (<1year maturity) working capital loans. Bank expects the share of wholesale funding to remain near 35%. Presently, the cost of borrowing is in the range of 9.5-10%, lower by 50bps since March.

Loan growth to be a function of CASA growth; segmental mix to shift towards retail After growing balance sheet significantly faster than system in the past five years (36% CAGR), Axis Bank intends to enhance focus on profitability and building predictability in growth. In line with this strategy, bank’s loan growth would be a function of CASA growth. Bank is unwilling to grow balance sheet ahead of CASA deposits. As Axis Bank is confident of achieving 20% savings growth, we expect similar loan growth for the year.

Retail advances of the bank grew by strong 35% in FY12 with the share improving to 22% from 19% as at the end of FY11. The retail asset portfolio is dominated by housing loans (75%); auto loans (13%) being the second largest component. Axis Bank’s strategy is to increase the retail share to 28-30% by FY15; a significant 200-250bps increase pa. Mortgages would remain the largest piece in the portfolio but its concentration would likely decline. Loan against property (LAP) within mortgages is expected to grow very fast but on a small base. Within auto loans, passenger car financing would continue to grow at brisk pace. Bank intends to expand presence in Commercial Vehicle (CV) financing by entering into funding of new CVs, HCVs, fleet operators and small road transport operators (SRTO). As per the bank, CV financing is not only one of the most profitable segments but also has lower asset quality risks. Competition is expected to intensify in this space but remain healthy ie differentiation not based on rates but
service levels. Personal loan portfolio is estimated to grow faster than overall retail book over the next three years with contribution increasing from current 6% to 10-12%. The bank is more confident about growing this segment aggressively having learnt from the mistakes incurred during 2008-09.

NIM may decline further in Q1 FY13; expected near 3.5% for full year
There is a structural annual seasonality in Axis Bank’s NIMs; it is stronger in Q2 and Q3 while it is weaker in Q1 and Q4 of a fiscal. This seasonality is a function of the movement in loan mix. The proportion of low yielding agri/PSL loans is higher during Q4 and Q1 while higher yielding SME loans are mainly disbursed in Q2 and Q3. Further, banking system liquidity tends to get tighter towards the end of fiscal affecting banks such as Axis having relatively significant dependence on bulk deposits. For aforementioned reasons, NIM is expected to correct sequentially by 15-20bps in Q1 FY13. Given the inelasticity in reducing deposit rates, Axis Bank has not cut its lending rates post the 50bps repo rate cut by RBI in April. As per the bank, lending rate reduction in unlikely to happen in the near term. Bank’s loan portfolio would re-price faster in interest rate down cycle as ~85% of the book is floating. The structural maturity of the loan book is 3-5 years with mortgages averaging around seven years and long term loans having 7-10 years maturity. Axis Bank is confident of achieving NIM near 3.5% for FY13, at the higher end of its stated guidance. Key drivers of higher margin would be favorable shift in loan mix and gradual improvement in CASA.

Fee income to track loan growth; C/I ratio to increase slightly
Axis Bank’s fee income has witnessed a robust CAGR of 40% in the past five years. In FY12, it grew by resilient 25% despite slowdown in new project investments. Retail fees grew by 30%, ahead of the strong growth in retail advances. Enam would be financially merged with the bank after the receipt of shareholders approval. Considering the current state of capital market, bank believes that the merger is unlikely to provide a big boost to fee income. With moderation in corporate fees expected, Axis Bank expects its fee income to track balance sheet growth in FY13. With substantial addition to network over the past three years and moderation estimated in revenue growth, the C/I ratio is likely to inch up marginally.


Pricing shows deep scars globally, margin pressure to resurface for producers

Global steel prices corrected further and benchmark HR price fell below US$575/tonne in CIS markets, down by ~5% MoM and ~12% from their CY12 highs. Global steel production run rate stood at 4.2 MT/day with capacity utilization of 79.6%. Steel production and exports remained high from China but is expected to come down going forward as sharp steel price correction is expected to remove marginal producers from the market. Raw material prices have remained stable to positive due to high steel production led demand (especially from China). Domestic steel prices have remained stable due to weak rupee and import duty cushion but we expect them to come under pressure with sharp fall in global steel prices. We see earnings and margin pressure resurfacing for producers from Q2FY13E and maintain our cautious stance on the steel space.

Monthly steel production stood at 130.6 MT in May-12, up ~0.7% YoY with a daily run rate of 4.2 MT/day and a capacity utilization of 79.6%, down by 170bps MoM. Supply from marginal producers remained high and China’s production stood at 61.2 MT with a daily run rate ~2 MT. Several steel producers announced production cuts due to the sharp fall in prices and low demand and production is expected to soften in June.

HR coil prices corrected sharply in the last few weeks (we had anticipated steel price correction in our last few monthly reports citing rise in production and lackluster global demand) and steel prices in CIS markets slipped below US$575/tonne, down by ~5% MoM. Prices in China also corrected by ~3% MoM and those in Europe and US fell sharply too.

Domestic steel prices have remained flat on account of rupee depreciation and better demand scenario and imports in India jumped ~33% YoY in Apr-May’12. We expect domestic steel prices to come under pressure and global steel prices to remain soft going ahead due to slow uptick in demand. However, production cuts from steelmakers globally would limit the steel price fall from hereon.

Raw material prices have remained stable and iron ore prices hovered in the range of ~US$135-137/tonne for 62-63% Fe grade; hard coking coal contracts for Q2FY13E got settled at US$225/tonne, higher by 7% QoQ.

Iron ore mining in Karnataka is expected to restart from July-12 after CEC started approving the R&R plans of the miners. This is expected to bring ~12 MT iron ore production in H2FY13E and be positive for JSW steel.

Among base metals, LME average prices dropped by 2-6% MoM as demand remained lackluster. Current LME prices remain below marginal COP and we expect limited downside going forward. Inventories remained high overall despite some supply cuts by producers.

Shareholder votes on approval of Sesa Sterlite merger has been cast in the EGMs and the outcome is expected on 25 June 2012.

We remain positive on mining stocks based on strong balance sheets and attractive valuations. HZL remains our top pick in the mining space followed by Coal India and NMDC. We maintain our cautious stance on the steel space and retain sell calls on SAIL and Tata steel as we remain concerned on the sustenance of steel prices in domestic market going ahead. We remain positive on the non-ferrous space due to our expectation of reversal in LME prices and maintain buy on Sterlite.


>Siyaram Silk Mills Limited

Suited for growth…
We met the management of Siyaram Silk Mills Ltd (Siyaram) to understand the company’s business and its plans, going forward. Siyaram, a mid-segment textile player, commenced operations in 1978. The company, promoted by the Poddar group (comprising companies like Balkrishna Tyres and Siyaram Silk Mills), started off as a fabric manufacturer and later forward integrated into ready-made garment manufacturing. The fabric segment (primarily polyester blended fabrics) comprises ~80% of the total turnover. The current fabric capacity stands at 50 million metre and the company plans to add another 22.5 million metre over the next two to three years. Siyaram has strong brands like Siyaram, MiStair, J Hampstead, MSD, Oxemberg, Featherz and Little Champ in its portfolio. Over the years, the company has improved its operational performance significantly (the operating margin improved from 8.0% in FY09 to 12.1% in FY12) and has been able to increase the return on equity from single digits to over 20%. Also, considering that the company is a textile player having its own manufacturing facilities, the leverage at sub 1.0x seems quite comfortable.

Healthy improvement in operational performance
Over the years, Siyaram has managed to increase the operating margin from ~8% in FY09 to 12.1% in FY12. This has been possible on the back of lower fixed expenses (branding costs, employee costs, etc). Also, an increasing share of ready-made garments (currently ~15% of sales) has aided this margin expansion.

Strong brand portfolio
On the back of strong branding efforts undertaken by the company, Siyaram has been able to build a strong portfolio of brands. Siyaram (the flagship brand contributing ~50% to sales), MiStair and Featherz are its fabric related brands. Even in the ready-made garments segment, the company has built strong brands like Oxemberg, MSD and J Hamsptead. Comfortably leveraged and healthy return ratios Siyaram is comfortably leveraged with the debt to equity standing at 0.8x (FY12E). The company has a conservative approach towards capacity addition and associated leveraging. Hence, Siyaram has lower debt/equity ratio as compared to its peers. Also, with improving operational performance and better utilisation of enhanced capacities, the company’s return ratios are commendable.

At the CMP, the stock is trading at a P/E of 4.3x (FY12 EPS – | 60.5) and 0.9x FY12 book value of | 285.0. Considering the healthy financials and a strong presence in the Tier II and III cities, we believe Siyaram can be a beneficiary of growing rural incomes.



>Know the right cost for calculating tax on rights shares

There are times when companies issue rights shares for their shareholders and this needs to be considered closely for the purpose of the calculation of the capital gains or loss that is earned from the investment. This is possible only when the right cost is allocated to the different purchases made under different conditions as will give rise to varying situations. Here are some of the variations that will be faced by the individual and how they can tackle the position.
Rights issue:There are rights issue made by companies whereby they offer the investors additional shares usually at a lower price than the prevailing market price. The new shares are offered in a specific ratio based on the existing shares that are held in the company.  In such a situation the investor is eligible to make the additional investment and they will then have an expanded holding in the form of the initial shares as well as the additional rights shares.  When these shares are sold the question that arises is with respect to the cost that will have to be taken into consideration for the purpose of determining the exact amount of capital gains that are earned in the process. This is not very difficult to understand but what is needs is clarity on the exact situation and how different amounts are allocated for this purpose.
Cost of shares:There are three possible conditions that the investor will face when they are offered the rights shares depending on whether they subscribe to the shares or not and if they choose to renounce the shares. If the answer is yes then there are two elements that will determine the cost for the individual. The first part covers the initial shares that were bought and the cost price for these shares constitutes the amount that they will consider in the tax workings. For the purpose of the calculation of the cost for the new shares the amount that is actually paid under the rights issue for this purpose would be considered as the cost for the right shares. This part of the working is simple to understand.
If the investor does not subscribe to the rights shares and they hold only the original shares then the cost for this original purchase will remain the cost for the individual. The differentiation of the rights shares are important in the sense that is most likely that these are offered to the investor at a lower cost and  hence this will have a lower cost element wherein the capital gains could turn out to be higher when the calculation is made. In terms of determining the nature of the capital gains the holding period for the original as well as the rights shares will have to be considered separately when they are sold.
Renouncing the shares:Another option that is also employed by the owner of the shares is to actually renounce the rights shares in favour of some other investor and the collect a fee for this purpose. When this step is actually undertaken then the amount that is received by the existing investor from the other investor would be considered as a short term capital gains and the cost of acquisition for this purpose will be taken as nil. The period of holding will be considered from the date of the offer made by the company to the date of the renouncement.
On the other side for the investor who has actually taken the renouncement offer from some other investor the cost element will work out to be slightly different. Here the amount that is paid for the purpose of the renouncement plus the amount that is actually paid to the company for the purchase of the rights shares would be considered as the total cost for the investor. 
The author can be reached at