>STRATEGY: THE POWER OF EQUITIES- 16 companies' dividend in FY2011 was greater than their market value in FY 2002

Investors have several instruments to invest their surplus funds. Some of the popular avenues include bank fixed deposits (FDs), gold, postal saving schemes, mutual funds, real estate, insurance, and equities. A comparison between these set of instruments on the basis of risk and reward is common. For instance, over the last 10 years, bank FDs would have generated a return of 115.9% (point to point gain) assuming interest rate of 8% per annum and the principal amount plus interest earned for one year is reinvested at the end of every year. As against this, investment in gold would have returned 458.9% over the last 10 years.


In comparison, the Indian stock market barometer, the BSE Sensex, would have provided return of 400% during the same period. Now for small and retail investors, the relevant question is whether it is sensible to take the plunge in equities for the extra gain of 285.8% compared with FDs where returns are almost certain. Measured against the second option, that is gold, equities have underperformed by 57.2%. Does equity investment make sense?


First of all, as a basic principle, one instrument of investment cannot be pitted against another. Each of these investment instruments has its own pros and cons. In fact, different features and risk and return profile make them complementary rather than competing investment instruments. The real question should be how much of surplus funds should be invested in each of these instruments.


How much to invest in which the instrument is governed by factors like risk profile of the investor, which largely depends on his age and objective of investment, future fund requirement, and investment horizon. Equities have their own charm as they have the potential to generate manifold gains over the long term.


To read report in detail: POWER OF EQUITIES

>Tribhovandas Bhimji Zaveri: IPO FACTSHEET

Objects of the issue
The company is mobilising funds to establish new showrooms (with Rs19.2 crore), finance incremental working capital (with Rs160.5 crore) and for other general corporate purposes.


Company background
TBZ is a well-known and trusted jewellery retailer in India with 14 showrooms in nine cities across five states, with an aggregate carpet area of approximately 48,818 square feet (sq ft). The company primarily sells gold jewellery and diamond-studded jewellery. It also sells other products, including platinum jewellery, jadau jewellery and silverware. The design and manufacture of its products including silverware is done either in-house or by third parties. The company has its flagship showroom in Zaveri Bazaar, Mumbai, which has been in existence since 1864. Since 2001 it has opened 13 showrooms, including the seven showrooms opened between August 2007 and October 2008.


Investment positives
A play on the growing organised jewellery retailing in India: TBZ is a play on the growing organised jewellery retailing market in India. With volume of about 567 tonne, India is the largest gold jewellery market in the world with a 29% global demand for CY2011. The country’s investment-related gold demand in CY2011 was 366 tonne, which was 25% of the global demand at that time. According to the Centre for Monitoring Indian Economy (CMIE) estimates, the overall gold demand, including the demand for jewellery and investment, is likely to expand at 29% to 1,200 tonne in FY2021. With the exception of 2009, India has registered a strong value growth in the last decade despite an over 450% surge in the price of gold.


Strong brand equity and trust enjoyed in western India: TBZ has very strong presence in western India with its base in Mumbai, Maharashtra (it started its first showroom at Zaveri Bazaar, Mumbai, in 1864). The company has many firsts to its credit, like the introduction of 100% pre-hallmarking system and providing the 100% gold buy-back facility to customers. Around more than 50% of its stores (eight stores) are present in the western region, predominantly Mumbai where it has five stores. Owing to its strong heritage, the company enjoys strong brand equity, and trust and brand recall amongst its customers.


Balanced business model with sufficient back-end integration and complete control of front-end: TBZ’s business model is balanced on the back end as well as the front end. The company sells diamond as well as gold jewellery. In case of gold jewellery, it has over the years built strong relationships and repute with around 150 wholesalers and jewelers. Through them it procures gold on an outright sale basis which provides it economies of scale and reduces the making charges. In the diamond and studded jewellery segments, the company has its own manufacturing facility at Kandivali with capacity of around 1 lakh carat, enabling it to benefit in various ways, like saving on making charges and allowing it to charge a premium on superior designs. At the front end of the system, all its 14 retail showrooms are run and managed by the company itself with no franchisee involvement. This, the company believes, helps in maintaining the brand image and the trust of the consumer.


To read report in detail: TBZ

RISH TRADER

>RELIANCE INDUSTRIES LIMITED: RIL to set up a petcoke gasification plant (4QFY2012 Results)

For 4QFY2012, Reliance Industries (RIL) reported 17.2% yoy growth in its top line. However, EBITDA and PAT declined by 33.3% yoy and 21.2% yoy, respectively, due to a decline in KG-D6 gas production and lower gross refining margins (GRMs).


Lower gas production leads to a decline in bottom line: RIL’s net sales increased by 17.2% yoy to `85,182cr, in-line with our estimate of `84,669cr. However, EBITDA decreased by 33.3% yoy to `6,563cr on account of lower profits from all its three main segments. GRM stood at US$7.6/bbl in 4QFY2012 compared to US$9.2/bbl in 4QFY2011 and US$6.8/bbl in 3QFY2012. Production from KG-D6 stood at 35mmscmd in 4QFY2012 compared to 41mmscmd in 3QFY2012 and 51mmscmd in 4QFY2011. Other income increased by 150.3%
yoy to `2,295cr and depreciation expenses decreased by 21.5% yoy to `2,659cr. Hence, despite the 33.3% decline in EBITDA, PAT decreased by only 21.2% yoy to `4,236cr (slightly above our estimate of `4,177cr).


RIL to set up a petcoke gasification plant: During 4QFY2012, RIL finalized its plan to set up a petcoke gasification plant for a capex of US$4bn. The company also downgraded its KG-D6 reserves by 12-15% due to reservoir complexity.


Outlook and valuation: RIL’s refining and petrochemical segments’ profits declined during 4QFY2012. Going forward, although there are some concerns on the KG basin gas output, we believe RIL along with BP will optimize its producing blocks in KG-D6. Moreover, the stock is currently trading at a PE of 11.1x FY2013E and 10.4x FY2014E, compared to its past five-year trading average of 17.0x forward PE. Thus, we maintain our Buy recommendation on RIL with an SOTP target price of `872.


To read report in detail: RIL
RISH TRADER

>MULTI COMMODITY EXCHANGE LIMITED: Initiate at Buy; Scarce Commodity

■  Initiate at Buy: Structural growth opportunity — We initiate on MCX at Buy with a Rs1,580 target price based on 22x 1yr fwd PE. MCX is the dominant exchange (over 86% market share) for commodity derivatives trading in India. It has a highly scalable business, high returns and strong execution track record, and it looks well positioned to benefit from the industry’s strong growth potential long-term.


■ India’s unique, competitive industry structure — a) Commodity exchanges distinct from stock exchanges with a separate regulator; b) Multiple competitors (five national exchanges); c) Closely regulated list of products and participants; and d) Pricing is low and based on turnover rather than number of contracts. It is still evolving in structure (regulations, products, competition) and has high growth potential. While this is likely to throw up significant opportunities, there will also be some challenges.


■ Why we like MCX? — We believe MCX management is a step ahead in innovation, product mix and business volumes, and should retain its potent mix of high returns and potentially high growth. Key reasons for our positive bias: a) Rise in market share to 86% (FY12) from 45% (FY06) despite increase in competitive intensity; b) Strong turnover growth (59% CAGR over FY06-12) even amid declining commodity prices; c) High profitability (EBITDA margins of 59% in 9MFY12) and profit growth (36% CAGR over FY06-12); and d) Cash surplus, with no debt/capex requirements in near future.


■ Key stock drivers — We believe key catalysts for the stock could be: a) Continued high turnover growth (we believe 20-25% growth sustainable without regulatory opening up); b) Hike in dividend payout; c) Regulatory changes allowing new products (options, indices, intangibles) and participants (FIIs, domestic institutions) – though timing is uncertain; and d) Potential value unlocking from strategic stakes in DGCX, MCX-SX (we assume nil value currently).


■ Key risks — a) Cyclical business; b) Mono-line business segment and high concentration; c) High commodity prices; d) Competitive industry; e) Regulatory changes, and f) Potential conflicts of interest with parent and technology provider, FT.


To read report in detail: MCX
RISH TRADER