Category: Investing

Explainer on ESG Investing: Overview, Pros, Cons, Background, and Mutual Funds

Imagine investing in companies that prioritize not just profit, but also the planet and its people. That is the core motive of ESG investing, a concept gaining traction as investors seek to make a positive impact alongside financial returns.

Captivated, right? Let us delve deeper into the blog to discover more about ESG investing and how it can shape your investment journey.

What is ESG Investing?

ESG investing, also known as sustainable investing, is an approach that considers environmental, social, and governance factors alongside traditional financial metrics when making investment decisions.

Here is a breakdown of the three areas,

Environmental

This aspect focuses on the company’s environmental impact, including its climate change policies, carbon emission, pollution, resource usage and waste management. Investors might evaluate a company’s commitment to renewable energy, sustainable practices and environmental responsibility.

This aspect examines how a company interacts with its stakeholders, including its employees, customers and communities. Investors may consider several factors, such as diversity and inclusion, level of community engagement, gender equality, and supply chain ethics, before investing in a company.

Governance

This aspect analyses a company’s internal structure and leadership practices, including board composition, executive compensation, transparency in decision-making, risk management and rights of the shareholders. Investors are generally interested in how well a company is governed and its commitment to ethical and responsible business practices.

By incorporating ESG factors, investors aim to align their values with their investments, identify long-term opportunities and mitigate risks. However, you must remember that ESG investing is a complex and evolving field with varying methodologies and ongoing debate about its effectiveness in predicting financial performance.

Is ESG Investing worth the effort?

Whether ESG investing is “worth the effort” depends on your individual investment preferences and goals as an investor.

Let us have an overview of the pros and cons of ESG investing.

Pros of ESG Investing

Invest in companies that share your environmental and social concerns, fostering a sense of purpose and positive impact.
ESG investing might help you avoid companies with environmental or social controversies or negative publicity that could impact their financial performance.

Cons of ESG Investing

Evaluating ESG factors can be complex and requires thorough research and analysis. Be wary of ‘greenwashing’ where companies may overstate their ESG commitment to attract investors.
Depending on your goal, finding suitable ESG investment options might be more limited than traditional investments. Additionally, some ESG-focused funds might have slightly higher fees.
Studies on the relationship between ESG and financial returns are inconclusive. While some research shows equal or even better returns with ESG integration, others show no significant difference or underperformance.

Background of ESG Investing in India

Investors are focusing on ESG considerations, and driving the growth of ESG funds in India over the past three years. This trend has led to regulatory pressure on companies to increase transparency with ESG disclosures, which leads to greater utilisation of ESG ratings for decision-making.

In this regard, the Securities and Exchange Board of India (SEBI) has introduced a regulatory framework for ESG disclosures by top-listed companies. The framework also includes ESG ratings in the securities market and ESG investing by mutual funds. SEBI has also made ESG disclosures mandatory for the top 1000 listed companies by market capitalisation.

Additionally, recognising the growing importance of ESG factors in the financial landscape of India, SEBI established the ESG Advisory Committee in May 2022 to review and recommend improvements to the regulations for ESG disclosures, ratings and investing. The committee had representatives from corporations, investors, rating providers, mutual funds, technical experts and other stakeholders.

To ensure a reliable assessment of key ESG factors, the BRSR (Business Responsibility and Sustainability Reporting) core framework was proposed. As per the regulations, an ESG scheme should invest at least 65% of its assets under management (AUM) in companies reporting on BRSR.

This framework focuses on 9 important ESG attributes and their linked Key Performance Indicators (KPIs) for ESG-labelled mutual funds.

Attributes and KPIs within the BRSR Core framework

Greenhouse Gas emission.
R&D and capex investment in specific technologies to improve the environmental and social impact of products
Total waste generated, waste recycled and waste disposed.
The cost incurred on measures towards the well-being of employees and workers, as a percentage of total revenue.
Gross wages paid to females as a percentage of total wages paid.
Input material taken from MSMEs as a percentage of total purchases and wages paid to people employed in smaller areas.
Open-ness of business i.e., level of buying and selling with trading houses, dealers and related parties.

ESG Ratings

ESG ratings assess a company’s environmental, social and governance performance. These ratings measure a company’s exposure to ESG risks and opportunities and how they manage them. Investors use ESG ratings to analyse the company’s long-term sustainability based on its ESG practices. ESG Ratings will be provided based on the compliance with the following criteria

Environmental parameters such as energy, water, waste management and company operations in or around environmentally sensitive areas.
Socio-environmental parameters such as the amount spent on Corporate Social Responsibility.
Social parameters such as job creation in small towns or job creation for differently abled people.
Governance parameters such as compliance, royalty payments, and related party transactions

MSCI and S&P Global CRISIL offer ESG ratings based on their methodology and criteria.

ESG Funds – An Overview

ESG funds have shown that they can perform just as well, if not better, than traditional funds. Studies have found that companies with strong ESG practices can be more resilient and tend to give better long-term performance. So, you can invest in a way that aligns with your values without sacrificing the returns. It is a win-win.

Additionally, below are some top-performing funds and their returns over the past three years relative to their benchmark.

Fund name	1M	3M	6M	1Y	3Y
Invesco India ESG Equity Reg	3.62	10.5	15.2	29.7	—
SBI Magnum Equity ESG Reg	3.48	10.2	14.1	28	14.8
Quant ESG Equity Reg	13.8	25.3	30.6	54	36
S&P BSE 100 TRI*	5.53	13.9	16.8	32.3	17.4
Equity: Thematic-ESG	5.4	13.5	17.9	32.8	16.4

*(S&P BSE 100 is a benchmark index for the above-mentioned funds and EQUITY THEMATIC is the category).

Conclusion

Deciding whether ESG investing is right for you requires careful consideration of your financial goals, risk tolerance and depth of research you are willing to undertake. Try to understand the specific ESG criteria used by different investment products and their alignment with your values. Discuss your investment goals with a qualified professional who can advise you on incorporating ESG considerations into your portfolio.

Frequently Asked Questions (FAQs)

Why is ESG investing gaining so much traction?
People are increasingly concerned about the planet, social issues and responsible business practices and ESG investing offers a way to address these concerns.
Does ESG investing mean sacrificing returns?
Some studies show that ESG funds offer better returns while others show no significant difference or underperformance. So, it is tough to say if returns must be sacrificed in ESG investing, but the risk of lower returns looms large.
Is ESG investing complicated?
It can be complex since evaluating ESG factors requires research and greenwashing companies can mislead you.
Should I choose ESG investing?
It completely depends on your goals and willingness to research schemes that best align with your ethical values.
What are the challenges of ESG investing?
The link between ESG and financial returns is still debated and evaluating ESG factors can be tedious.

March 13, 2024

Explainer on Portfolio Management Services (PMS): Features, Types, Charges, Taxation, and Risks

If you have accumulated significant wealth during your career and wish to seek professional help in managing the funds, then Portfolio Management Services (PMS) can prove helpful to you.

Today’s blog will focus on individuals who wish to gain more profound knowledge of Portfolio Management Services (PMS).

Portfolio Management Services Overview

Portfolio management services, or PMS, is a financial service offered by financial institutions. This service primarily focuses on investing investors’ funds with a larger portfolio than the average individual. Such investors can invest their money in this service, and a team of qualified fund managers will allocate it to various asset classes based on their investment goals.

Typically, investors allocate a portion of their portfolio to equity but cannot manage it effectively due to a lack of professional knowledge. This is where PMS comes in; with a minimum investment of 50 Lakhs, your entire investment amount will be given to a portfolio management company, and their team of seasoned professionals will allocate it among various asset classes based on market and economic conditions. In exchange, they will charge a fee for their services.

The first announcement of the SEBI regulation for PMS dates back to 1993. All Portfolio Management Companies are required to adhere to the compliance standards established by SEBI.

Minimum Investment Amount

Over time, PMS’s minimum investment amount has undergone modifications. The PMS legislation was first established in 1993, with a minimum investment value of 5 lakh. In 2012, the minimum investment amount was raised to 25 lakh; in November 2019, it was further increased to 50 lakh.

Features of PMS

1. Investment in PMS provides customized solutions as per investors’ objectives.

2. The fund managers have vast experience in managing funds

3. PMS fund managers generally diversify the investment across different asset classes, ultimately lowering the risk.

4. Reports like transactions, profit and loss, etc., will be sent periodically to investors, and they can also check the same on the online platform provided by PMS companies.

5. PMS is a product with a minimum ticket value of 50 lakhs, which is generally suitable for HNI investors.

Types of PMS

A financial institution offers a variety of portfolio management services, including

1. Discretionary Portfolio Management– The portfolio managers make all investment-related decisions under this category of portfolio management services on the client’s behalf. Before making any investments, the fund management is at liberty and is not required to confer with the investor. The majority of the clients choose this type of service.

2. Non-discretionary Portfolio Management– The fund manager must obtain the client’s confirmation before investing in this kind of service. The client receives financial advice from PMS’s investment team but ultimately decides whether or not to act on the advice.

3. Advisory Services – In this arrangement, a fund manager will merely offer advice to investors on various asset classes; the investor will decide whether to follow the fund manager’s recommendation.

4. Active Portfolio Management – The ultimate goal of active portfolio management is to maximize investor return, which is accomplished by actively allocating funds to various asset classes. The fund management actively chooses the allocation of funds and where to invest them.

5. Passive Portfolio Management – The fund manager uses this investment management technique to allocate the funds to stocks that track indexes and increase steadily over time.

Charges of PMS

The charges of PMS can be classified into 3 different categories-

Fixed Charges

This is what every PMS charges as its main fee. This is an ongoing charge that depends on the average value of your investment and varies from 1% to 3%. The fee is due regardless of the fund manager’s performance ratings. This is the minimum amount that must be paid to the PMS firm regardless of the fund’s performance.

Below is the illustrative table of the same.

Fees	2%
Investment Amount	50,00,000
Return on Portfolio	20%
Profit	10,00,000
Portfolio Value at the year-end	60,00,000
Fixed Charges 2%	1,20,000
Net Value of Portfolio after Fees Adjustment	58,80,000

Performance Based

The fund’s returns are used to determine these fees. The fund management will charge a fee based on the percentage of profit made above the minimum rate, also referred to as the hurdle rate.

We can better understand this by using an example. For example, if the hurdle rate is 8% the profit sharing ratio is 20% above the hurdle rate, and your investment of Rs. 50 lakh yields a 20% return on your portfolio, your total profit will be Rs. 10 lakh, of which Rs. 4 lakh is the minimum profit that needs to be delivered. The company will then charge a fee of 20% of the remaining profit of 6 lakhs.

Below is the illustrative table for the same.

Fees	Profit Sharing – 20% above 8% Hurdle Rate
Investment Amount	50,00,000
Return on Portfolio	20%
Profit	10,00,000
Value of Portfolio at the end of the year	60,00,000
Hurdle Rate 8%	4,00,000
Profit over hurdle rate	6,00,000
Profit Sharing 20% of 6,00,000	1,20,000
Net Value of Portfolio after Adjustment	58,80,000

Hybrid Fee Structure

This fee schedule combines a profit-sharing concept with a fixed fee. In this instance, the hurdle rate is typically higher than in a performance fee-based approach, and the fixed charge rate will be lower than in a fixed charge model. This is intended for PMS managers who wish to profit from both fee structures.

Taxation

Equity Taxation – If a portfolio is heavily weighted toward the equities asset class, the tax rate on the profit amount will be 15% if the holdings are sold within a year, and the appropriate rate will be 10% above 1 lakh if the holdings are sold after the year.

Non-Equity Taxation – The portfolio will be considered a short-term gain and included in the investor’s income at their slab rate if it is sold within three years and does not concentrate in the equity asset class. If the units are sold after three years, they will be considered a long-term gain and subject to a 20% tax with indexation benefit.

Dividend Income –All dividend income earned on the investment will be included in the investor’s income and taxable as per their tax slab.

Exit Load – If you withdraw your money before a predetermined amount of time, PMS firms typically charge an exit load, ranging between 1 to 3%.

Risks

The risks investors should consider before investing in PMS are listed below.

1. Performance of Fund Manager – Evaluating the fund manager’s performance before investing is essential. Looking for a fund manager with a stable track record is usually advisable.

2. Market Risk – Due to the investment’s significant exposure to the equities asset class, there is a greater chance of losses and a rise in portfolio volatility.

3. Liquidity Risk – Because certain illiquid securities are difficult to sell, investing in them may affect your portfolio liquidity.

4. Regulatory Risk – As previously stated, the minimum ticket size for investing in PMS has increased from 25 lakhs to 50 lakhs in 2019. Future legislative changes of this nature could affect PMS’s investment strategies and tax consequences.

Conclusion

We’ve gone over the benefits and risks of investing in PMS with you; this service is for high-net-worth individuals (HNIs) who understand the risks involved in this kind of investing. Suppose an investor is willing to assume the risk of this product and is seeking a better return. In that case, they should consider all the important characteristics before making a decision.

Before making any investing decisions, we advise you to speak with your financial advisor to better understand your ability to accept risk.

Frequently Asked Questions (FAQs)

Is PMS investment permissible for NRIs?
Yes, You can invest in PMS as an NRI.
How do I access my PMS portfolio valuation?
In addition to sending clients statements regularly, PMS businesses offer their clients an online portal through which they can monitor their assets, transaction statements, and profit and loss statements.
How can you evaluate PMS performance before purchasing?
Before purchasing PMS, you can evaluate its performance by comparing its returns to the appropriate benchmark and examining the consistency of its returns over an extended duration.
Does PMS have a lock-in period?
PMS offers the flexibility of no lock-in period. However, redeeming your investment before the allotted time will incur an exit load.
Is there a guaranteed return in PMS?
No, PMS company cannot provide investors with a guaranteed rate of return.

March 7, 2024

A Comparative Study on Top 5 Solar Stocks in India

Renewable energy has seen a massive uptrend in the past few years, majorly due to the overwhelming support of international entities. Fortunately, our country, India, has access to abundant solar energy, and a few companies can tap this resource’s full potential.

Today we’ll briefly overview solar firms and a performance comparison in today’s blog.

What are Solar companies?

Solar energy firms engage in various business activities that involve harvesting and converting solar radiation into electrical energy. Typically, solar companies offer a complete solution, including system design, equipment procurement, and plant installation. The businesses in this industry specialize in various areas, including solar panel manufacturing, solar inverter manufacturing, solar financing, battery manufacturing, and solar software preparation.

Reasons for choosing Solar stocks

The government regularly provides incentives to the solar energy industry, which is why investors find them enticing investment opportunities.
With the rising demand for solar energy in the upcoming years, this industry has seen substantial growth in recent years and has excellent long-term performance potential.
Many solar stock companies offer high dividend yields. Hence, investors seeking steady income find them appealing.
Investing money into solar companies gives you the mental comfort of knowing that you are positively impacting the environment.

Risks involved with Solar stocks

The solar sector is subject to significant influence from governmental policies, incentives, and regulations. Any modifications to these factors may impact the company’s growth prospects.
The solar industry is very young compared to other well-established market sectors; thus, any major shift in the market could impact its performance.
Large players are interested in this industry, so the corporation may eventually have to contend with fierce competition.
Small solar companies’ stock may be less liquid, and newly established businesses may have some financial insecurity.

Overview of Best Solar Companies in India.

Urja Global

The business was established in 1992 and initially concentrated on financial services until entering the renewable energy market in 2009. They started a project named “Urja Rath” in 2013 to promote environmentally friendly transportation.

The organization has partnered with several foreign businesses to grow their business, in addition to working on numerous solar projects throughout India.

Products and Services

They develop solar power projects after considering their client’s needs and budgets. They offer every piece of equipment needed for solar power plants. By giving their clients appropriate equipment maintenance, they offer excellent after-sale support.

Suzlon Energy

Established in 1995, Tulsi Tanti launched this worldwide provider of renewable energy solutions, with presence in over 17 countries. Pune is home to the company’s headquarters. Through its creative solutions, the company is dedicated to promoting sustainable energy solutions that lower carbon emissions. Since their entry into the solar energy industry, they have successfully installed and commissioned 340 MegaWatt of solar power across several states. In Rajasthan, the business also built a 1500 MW wind-solar hybrid park.

Products and services

They provide a large selection of wind turbines, as well as installation, upkeep, and replacement parts. Additionally, they also provide a customized selection of products to meet the needs of their customers in any climate—hot, dry, desert, humid, etc.

Sterling & Wilson

It is a multinational engineering, procurement, and construction (EPC) firm with a focus on sustainable energy initiatives. Willison Electric Works and Sterling Investment, a consortium of Shapoorji Pallonji consortium companies, merged to form the corporation in 1927. The company’s headquarters are located in Mumbai. In order to capitalize on the expanding energy industry, Sterling and Wilson Private Limited established a solar business in 2011 and started operations there. The business is present in more than 25 countries worldwide. The organization optimizes renewable energy projects’ performance, efficiency, and reliability by utilizing state-of-the-art technologies and creative ideas.

Products and services

They offer complete EPC services for energy projects, and solar power solutions, including roof-top solar installation solar parks, among other things, and their products are mostly concentrated on renewable energy. It also offers energy storage and wind power solutions to its customers.

Gita Renewable

The company was established in 2008, and its head office is in Chennai, Tamil Nadu. Gita renewable energy is firmly committed to sustainable practices and clean energy production. 2014 saw the company’s first 2 MegaWatt solar power plant successfully come online. It also won many accolades, including the state government’s “Outstanding SME Awards”.

Products and services

Using its own power plants, the company produces and distributes renewable energy. Their 2 MW power plant in Tamilnadu is currently their main source of energy.

Borosil Renewables

Borosil Renewables Limited started off its operations in 2009 to reflect a strategic move toward renewable energy. The company was granted approval in 2010 to establish the first commercial facility for producing tempered solar glass. The business introduced the first fully tempered 2 mm thick solar glass in the world in 2017; it offers exceptional strength and resilience to hail. With its current capacity, the company can produce 450 tons of solar glass per day or 2.8 gigawatts of solar modules.

The business is India’s first and only producer of solar glass.

Products and services

Tempered solar glass, the company’s main product, comes in a range of thicknesses from 2 mm to 4 mm. The company offers a diverse range of products. Additionally, the coating is self-cleaning, anti-soiling, and anti-reflective.

Comparative Study of Solar Companies

Market Capitalization

Company	Market Capitalization
Urja Global	1,388
Suzlon Energy	62,693
Sterling & Wilson Renewable Energy	13,678
Gita Renewable Energy	80.4
Borosil Renewable Energy	7,101

(In crores)

The table mentioned above makes it clear that Gita Renewable has the least market capitalization and Suzlon Energy has the greatest among the companies listed.

52 Week High and Low Prices

Company	52 Week High Date	52 Week High Price	52 Week Low Date	52-Week Low Price
Urja Global	5-Feb-2024	41.65	28-Mar-2023	6
Suzlon Energy	2-Feb-2024	50.6	28-Mar-2023	6.95
Sterling & Wilson Renewable Energy	9-Feb-2024	647	19-Oct-2023	253
Gita Renewable Energy	3-May-2023	70	10-1-2024	310.3
Borosil Renewable Energy	01-Feb-2024	669	28-Mar-2023	380

(As on 17 February 2024)

Income Statement (FY23)

Particulars	Urja Global	Suzlon Energy	Sterling & Wilson	Gita Renewable	Borosil Renewable Energy
Total Income	41.41	5,990	2,125	8.87	707.08
Total Expenses	39.43	5,819	3,304	1.01	587.9
Net Profit	1.97	2,887.29	(1,174)	7.85	88.54

(In crores)

Balance Sheet (FY23)

Particulars	Urja Global	Suzlon Energy	Sterling & Wilson	Gita Renewable	Borosil Renewable Energy
Total Asset	285	6,047.9	3,190	14.19	1,391
Inventory	20	760	1.57	–	174
Trade Payables (Non-current)	65.6	1,061	650	0.41	43.73

(In crores)

Cash Flow Statement (FY23)

Particulars	Urja Global	Suzlon Energy	Sterling & Wilson	Gita Renewable	Borosil Renewable Energy
Cash flow from Operating Activities	0.91	(31.15)	(1829)	15.2	25.64
Cash flow from Investing Activities	0.64	407	(11.78)	6.85	(220)
Cash flow from Financing Activities	(1.09)	(495.51)	1,431.26	(26.44)	184.64

(In crores)

Key Ratios (FY23)

Particulars	Urja Global	Suzlon Energy	Sterling & Wilson	Gita Renewable	Borosil Renewable Energy
Basic EPS	0.03	2.64	-61.65	19.11	6.79
ROCE (%)	1.15	20.69	-210.97	57.15	10.73
3 Year CAGR Sale(%)	-50.81	47.72	-39.87	-23.62	59.31
P/E (x)	228.33	2.99	-4.73	4.69	60.51
P/B (x)	2.14	8.82	-24.62	2.68	6.13

It is clear from the previously described comparative study of the company’s financials that some businesses are currently profitable while others are losing money and the growth in sales of the businesses is uneven.

Read Also: Top Power Companies in India

Conclusion

Investment in the solar energy business carries a high level of risk, but it also has the potential to be very profitable. As with any investment, you must exercise patience and perform due diligence.

This is the industry to choose if you are a long-term investor who has funds for long term investments.

However, before making any investing decisions take your investment horizon and risk tolerance into account.

Frequently Asked Questions (FAQs)

What potential obstacles can solar companies encounter in the present market?
People need to be made aware of the significance of solar energy in order for them to begin leaning toward it, as they are not well-informed about the future of solar companies.
What are some possible avenues for expansion in the solar sector in the future?
The industry might grow significantly as a result of favorable legislation, market expansion, business model improvements, and technological advancements and with the government’s incentive support for the promotion of renewable energy, this all would pave the way for a more sustainable and energy-secure future.
What role do solar companies play in maintaining a sustainable environment?
Solar businesses are important for preserving a sustainable environment because they lower emissions, enhance the quality of the air and water, conserve resources, create green jobs, and advance technology.
Which solar company is the best place to put money?
Every solar firm aims to succeed in its market, but all businesses have strengths and weaknesses. For this reason, before making any investment decisions, it is advised to thoroughly review the business strategy and financial statements of each company.
Are solar companies profitable?
While some solar companies are profitable, many are not. The market for solar energy is still quite small, so many companies have yet to grow to the point where they can profit. Nonetheless, businesses in the market longer are making good profits.

Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.

March 5, 2024

Bharat Highways InvIT IPO: Business Model, Financials, Key Details, and SWOT Analysis

The Indian infrastructure sector, particularly the road network, is rapidly growing. Bharat Highways InvIT, a novel investment opportunity in the Indian infrastructure sector is new to the scene but carries an ability to generate stable income and offers a chance to invest in a portfolio of operational toll roads across India.

Today’s blog aims to provide a comprehensive overview of the Bharat Highways InvIT IPO, including its strengths, risks, and key considerations.

Business Model

Bharat Highways InvIT is an infrastructure investment trust established in India to acquire, manage, and invest in a portfolio of infrastructure assets, majorly focusing on roads across the country. It operates under a Hybrid Annuity Model (HAM), where it receives fixed and variable payments depending on the performance of the project it holds.

The HAM model is used by the Government of India to finance and execute infrastructure projects. It was introduced in January 2016 to encourage investment in road infrastructure projects.

It combines elements of two other models.

EPC Model – The Engineering, Procurement, and Construction Model is the model in which the government pays the private developer for constructing the road but then owns and maintains it themselves.
BOT Model – The Build, Operate, and Transfer model is the model in which a private developer builds, operates and collects tolls on the road for a fixed period before transferring the ownership back to the government.

Under the HAM Model, the government provides 40% of the project cost as construction spend in equidistant instalments, and the private developer arranges for 60% of the funding through a combination of equity and debt.

The company was registered with SEBI on August 3, 2022, and was settled through the Original Trust Deed by GRIL.

GRIL or GR Infraprojects Limited is a private company and a flagship entity of GR group. It is involved in integrated road engineering, procurement, and construction with an experience over 25 years of in the design of several road/highway projects across 16 states in India.

Did You Know?

GRIL has executed more than 100 road construction projects since 2006.

The portfolio assets consist of seven road assets, all operating on the HAM model, in the states of Punjab, Gujarat, Andhra Pradesh, Maharashtra, and Uttar Pradesh. These roads are maintained as per the rights granted by NHAI and are owned and operated by the Project SPVs, which GRIL wholly owns.

The seven projects are as follows:

GR Phagwara Expressway Limited
Porbandar Dwarka Expressway Private Limited
GR Gundugolanu Devarapalli Highway Private Limited
GR Akkalkot Solapur Highway Private Limited
Varanasi Sangam Expressway Private Limited
GR Sangli Solapur Highway Private Limited
GR Dwarka Devariya Highway Private Limited

Additionally, the InvIT has also proposed to enter into a Right Of First Offer (ROFO) agreement with GRIL, which means that GRIL will grant a right of first offer to the InvIT to acquire certain assets owned and developed by GRIL.

Key IPO Details

Bharat Highways InvIT is a book-built issue of INR 2500 crore. The issue is entirely a fresh issue of 25 crore shares.
The IPO will open for subscription on February 28, 2024, and will close on March 1, 2024.
The allotment for the same is expected to be finalised on March 4, 2024.
The temporary listing date is fixed as Wednesday, March 6, 2024.
The price band for the IPO is set at INR 98 to INR 100 per share.
ICICI Securities Limited, Axis Bank Limited, HDFC Bank Limited and IIFL Securities are the book-running lead managers, while K-fin Technologies is the registrar for the IPO issue.

Objectives of the Issue

Providing loans to the Project SPVs for repayment/ prepayment, in part or in full, of their respective outstanding loans (including any accrued interest and prepayment penalty); and other general purposes.

IPO Date	February 28, 2024 to March 1, 2024
Listing Date	Wednesday, March 6, 2024
Price Band	INR 98 to INR 100 per share
Lot Size	150 Shares
Fresh Issue	250,000,000 shares
Issue Type	Book Built Issue InvIT
IPO Type	Main-board InvIT
Initiation of Refund	Tuesday, March 5, 2024
Basis of Allotment	Monday, March 4, 2024

Financial Highlights

Key Metrics	FY 2023	FY 2022	FY 2021
Total income	1,537.47	1,600.18	2170.39
Total expenses	816.48	1,515.68	1,936.07
Net profit	527.04	62.76	139.44
Total Assets	6,056.27	5,536.39	4,943.94
Total Liabilities	4,939.02	4,946.19	4,416.61

*(The figures above are in INR crore)

Strengths

Bharat Highways InvIT owns a portfolio of seven operational toll roads located across five states in India. These roads generate regular revenue in the form of toll collections, providing a stable income stream for the InvIT.
The Indian government is committed to developing and expanding its highway network, which is expected to benefit toll road operators like Bharat Highways InvIT. The growing demand for road transportation in India is also a positive factor for the industry.
Diversification of assets across different regions in India helps mitigate the risk of dependence on any single geographic location.

Risks

Due to the InvIT’s recent establishment, its future growth potential remains unclear, hindering accurate assessment and analysis.
The success of the InvIT relies on finding new infrastructure assets that deliver similar financial performance. Failure to do so could harm the business, finances and ability to distribute returns.
Early termination of InvIT assets could significantly impact the financial health due to non-receipt of payments.
Failure to meet contractual road maintenance standards could lead to penalties, contract termination and harm the reputation, finances and business operations.

Conclusion

Bharat Highways InvIT presents a new investment opportunity in the Indian infrastructure sector and is backed by India’s growing road network and government support. However, investors should carefully consider the challenges linked with its business before making any investment decision.

Frequently Asked Questions (FAQs)

What is the price band of the Bharat Highways InvIT IPO?
The price band for the IPO is fixed at INR 98 to INR 100 per share.
When will the allotment and listing of shares occur?
Allotment of shares is expected to be finalised on March 4, 2024, and shares are expected to be listed on BSE and NSE on March 6, 2024
What is the objective of the IPO?
The objective of the IPO is to raise funds for further expansion.
What risk can I face while investing in this IPO?
The InvIT is new with a limited track record, uncertain future growth and contractual risks.
Should I prefer investing in Bharat Highways InvIt IPO?
We suggest you conduct thorough research and consider your risk tolerance before making any investment decision.

March 5, 2024

Mukka Protein IPO: Business Model, Key Details, Financial Statements, and SWOT Analysis

Embark on an exciting journey into the aqua-culture sector with the initial public offering (IPO) of Mukka Protein Limited, a leading player in the sustainable seafood industry.

In today’s blog, we’ll cover the company’s business model, key details, financial statements, and SWOT analysis.

Company Overview

Established in 2003 as a partnership firm by K. Abdul Razak, the company was renamed Mukka Protein Limited and became a private limited company in 2010.

The company’s corporate headquarters is located in Mangalore, Karnataka, India.

The company mainly focuses on producing fish meal, fish oil, and fish soluble paste, which are used to make aqua food for fish and shrimp, pet foods for dogs and cats, and poultry feed for broilers and layers.

The company has established production facilities around India’s prominent coastlines, with ten global fishmeal factories — four in Karnataka, four in Gujarat, and two in Oman. Each of their units has a technician for quality control management and dedicated in-house laboratories.

Awards and Accreditations

1. India’s growth champion award by Economic Times.

2. Star exporter awards, by Federation of Karnataka Chamber of Commerce and Industry.

3. State export excellence award by the commissioner for industrial development and director of industries and commerce.

4. Certificate of FT High–Growth Companies Asia Pacific 2023 by financial times and statista.

Promoters

The company’s promoters are Kalandan Mohammed Arif, Kalandan Mohammed Haris, and Kalandan Mohammed Althaf; they own 100% of the shares.

Details of the Issue

The company wants to issue 8 crore new shares to raise a total of 224 crore. With a market lot of 535 shares, the IPO’s lower price band is set at 26 INR, while the higher price band is set at 28 INR per share.

Major details

Face Value of Share	1 INR
Price Band	26 – 28 INR
Market Lot	535 Shares
Total Fresh Issue Size	224 Crore
Total Number of Shares	8 Crore

Timeline of IPO

IPO Open Date	29^th Feb 2024
IPO Close Date	4^th March 2024
Finalization of Allotment	5^th March 2024
Initiation of Refund & Credit of shares into demat account	6^th March 2024
Listing Date on NSE & BSE	7^th March

IPO Allotment Size

Applicant	Market Lot	Share	Amount (INR)
Retailer (Min)	1	535	14980
Retailer (Max)	13	6955	194740
Small High Net Worth Individual (Min)	14	7490	209720
Small High Net Worth Individual (Max)	66	35130	988680
Big High Net Worth Individual (Min)	67	35845	1003660

Objective of the Issue

The IPO proceeds will cover the working capital requirements of the company’s associate, Ento Protein Private Limited.

Key Financials of the Company

Balance Sheet

Particulars	31^st March 2023	31^st March 2022	31^st March 2021
Non-Current Asset	111.122	105.911	97.415
Current Asset	464.042	286.385	256.513
Total Asset	575.164	392.296	353.928
Equity	155.845	103.078	69.058
Long Term Liability	16.520	12.806	17.737
Current Liability	402.800	276.412	267.134

(All the above-mentioned figures are in crores, unless stated otherwise)

Income Statement

Particulars	31^st March 2023	31^st March 2022	31^st March 2021
Revenue from operations	1177.122	770.503	603.834
Total Revenue	1183.804	776.145	609.952
Total Expenses	1119.322	741.177	598.317
Profit after tax	47.525	25.819	11.010

(All the above-mentioned figures are in crores, unless stated otherwise)

Cash Flow Statement

Particulars	31^st March 2023	31^st March 2022	31^st March 2021
Net Cash flow from operating activities	(54.395)	4.808	5.949
Cash flow from investing activities	(5.258)	(12.284)	(13.611)
Cash flow from financing activities	74.664	15.858	9.324

(All the above-mentioned figures are in crores, unless stated otherwise)

KPIs

Particulars	31^st March 2023	31^st March 2022	31^st March 2021
EBITDA Margin	8.01%	7.04%	5.27%
Return on Equity	36.71%	30%	17.37%
Debt Equity Ratio	1.64	1.68	2.31
Profit after Tax Margin	4.04%	3.35%	1.82%
Return on Capital Employed	17.62%	13.86%	5.86%

Based on the company’s EPS, the PE ratio on the lower price band will be approximately 13x, and on the upper price band, it will be 14x.

Strengths

1. The industry in which the company works has a high barrier to entry; no new businesses can easily establish themselves in this market.

2. The company has a long history with many of its customers.

3. The business is one of India’s top producers of fish protein products.

4. The company’s management team has extensive business operations expertise.

Risks

1. In FY23, the company’s cash flow from operations was negative. This might come across as a red flag to many investors.

2. The company offers a non-diversified range of products. This exposes the company to the possibility of decreased profitability during unforeseen events.

3. Since the corporation sells goods to multiple nations, it may be exposed to the risk of volatility in exchange rates.

4. Top 10 customers provide the company with 72% of the revenue. Thus, any changes in their contracts could significantly affect their profitability.

Conclusion

We have covered nearly every pertinent aspect regarding Mukka Protein in this IPO blog, including its background and corporate finances. The corporation may see an increase in its market share in the upcoming years due to its expansion ambitions.

If you intend to invest in this firm, please ensure that you have carefully reviewed all of the company’s parameters and considered your risk profile.

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Frequently Asked Questions (FAQs)

When will the Mukka Proteins IPO be listed?
The listing date of the IPO is March 7, 2024.
Is Mukka Proteins a profitable company?
Mukka Protein Ltd. is a profitable business that has consistently reported profits.
Is revenue concentration a major risk for Mukka Protein?
Yes, 72% of the revenue is derived from the top 10 customers. This exposes the company to the possibility of incurring losses if these customers alter their contracts.
How much did the revenue from operations grow for Mukka Proteins?
Mukka Protein’s revenue from operations grew 95% in 2 years. This massive jump in top line figures indicates the company’s strive for growth.

March 5, 2024

Platinum Industries IPO: Business Model, Key Details, KPIs, and SWOT Analysis

Platinum Industries is entering the IPO frenzy and is raising a total of INR 235.32 Crores. Today’s blog will cover the company’s business model, KPIs, and SWOT analysis.

Company Overview

Platinum Industries was founded in 2016 and initially adopted a limited liability partnership status and later transformed into a public limited company.

The company operates in the speciality chemical business and produces lubricants, CPVC additives, and PVC stabilizers.

According to a CRISIL assessment done in 2022–2023, the company boasts a 13% market share in the domestic PVC stabilizer industry. The company’s 21,000-square-foot production facility is located in Palghar, Maharashtra.

As of December 31, 2023, it employed 97 people and served over 273 clients for the fiscal year 2023.

Company Promoters

The company’s founders are Parul Krishna Rana, who holds the executive director position, and Krishna Dushyant Rana, who has the chairman and managing director positions.

Approximately 94.74% of the company is owned by the promoters.

Details of the Issue

Through a new share offering of 1.38 crore, the company hopes to raise INR 235.32 crore. With a market lot of 87 shares, the issue price’s lower price band is 162 INR, while the upper price band is 171 INR per share.

Timeline of IPO

Let’s have a look at the timeline of the IPO

IPO Open Date	27^th Feb 2024
IPO Close Date	29^th Feb 2024
Finalization of Allotment	1^st March 2024
Initiation of Refund	4^th March 2024
The credit of Shares into a Demat Account	4^th March 2024
Listing Date on NSE & BSE	5^th March 2024

Details of IPO

Face Value of Share	10 INR per share
Price Band	162 to 171 INR per share
Market Lot	87 Shares
Total Fresh Issue Size	235.32 Crore
Total Number of Shares	1,37,61,225 Shares

IPO Allotment Size

Applicant	Market Lot	Share	Amount
Retailer (Min)	1	87	14,877
Retailer (Max)	13	1131	1,93,401
Small High Net Worth Individual (Min)	14	1218	2,08,278
Small High Net Worth Individual (Max)	67	5829	9,96,759
Big High Net Worth Individual (Min)	68	5916	10,11,636

A retail consumer can invest a minimum of 14,877 INR and a maximum of 1,93,401 INR, as indicated by the above table.

Objective of the Issue

The business plans to use the proceeds from the issuance to finance the working capital requirements of its Indian units and establish Platinum Stabilizers Egypt LLP, a PVC stabilizer production plant in Egypt.

Key Financials of the Company

Balance Sheet

Particulars	31^st March 2023	31^st March 2022	31^st March 2021
Non-Current Asset	38.94	7.75	6.09
Current Asset	82.221	76.721	26.163
Total Asset	121.168	84.479	32.256
Equity	71.559	22.338	4.47
Long Term Liability	5.524	2.509	2.528
Current Liability	44.086	59.632	25.256

The above financial statement shows that the company’s assets have expanded greatly in the last three years. Still, its current liabilities have dropped in the most recent year compared to the FY ending in 2022.

Income Statement

Particulars	31^st March 2023	31^st March 2022	31^st March 2021
Revenue from operations	231.481	188.156	89.269
Total Income	232.555	189.238	89.530
Total Expenses	181.619	165.278	82.835
Profit before tax	50.936	23.960	6.695
Profit after tax	37.584	17.748	4.815

(In crores)

The revenue statement shows that the company’s profit after taxes increased nearly seven times, from 4.8 crores in 2021 to 37.58 crores at the end of the fiscal year 2023. This increase is also evident in the company’s revenue.

KPIs

Particulars	31^st March 2023	31^st March 2022	31^st March 2021
Current Ratio	1.87	1.29	1.04
Return on Equity	90.02%	132.39%	138.63%
Inventory Turnover Ratio	10.88	17.53	15.33
Net Profit Ratio	16.24%	9.43%	5.39%
Return on Capital Employed	56.85%	52.51%	74.28%

The company’s major metrics are listed above, and they show that, in contrast to 2021, net profit increased significantly in 2023. The return on capital employed also increased during the previous two years, while the return on equity decreased.

Cash Flow Analysis

Particulars	31^st March 2023	31^st March 2022	31^st March 2021
Net Cash Flow from Operating activities	38.355	14.893	3.276
Cash Flow from Investing activities	(36.731)	(4.954)	(1.309)
Cash Flow from Financing activities	0.474	19.001	(1.173)

(In crores)

Based on the company’s EPS from the previous year, the P/E ratio is calculated to be 17.19x on the lower price band of 161 INR and 18x on the upper price band of 171 INR.

Strengths

1. According to a CRISIL report, the speciality chemical sector in the Indian economy is predicted to increase by 8.3% C.A.G.R.

2. The company ranked third in India in domestic sales of PVC stabilizers.

4. Due to the substantial entry barriers in this industry, the risk associated with competition is minimal.

5. The company has more than 400 grades of products specifically designed for PVC applications, which indicates that the company is aiming for a massive increase in the market share.

Risks

1. The company presently operates a single manufacturing facility in Palghar, Maharashtra, and any disruption there will affect its profitability.

3. Their ability to obtain raw materials or pay more for them will affect their profitability in the future.

4. Sales will be impacted by the difficulties a firm faces while expanding into a new area.

5. Few clients account for a sizable amount of the company’s revenue; disagreements among them could cause revenue volatility.

Conclusion

While the company has a strong financial history and plans to expand into other nations strategically, its clientele is relatively small which may worry some investors. Since establishing itself in 2016 and emerging as a major force in India’s stabilizer manufacturing sector, the company has had a lengthy growth narrative.

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Frequently Asked Questions (FAQs)

What is the minimum amount required to participate in the IPO of Platinum Industries?
The minimum investment for the Platinum Industries IPO will be 14877 INR, with a minimum market lot size of 87 shares in the upper price range of 171 INR.
What is the reason behind the Platinum Industries’ IPO?
The company intends to build a manufacturing facility in Egypt. Thus, they want to obtain money through an initial public offering (IPO) to expand its operations.
What is the Platinum Industries IPO pricing range?
The price band of the company ranges from 162 on the lower side to 171 on the upper side.
Is Platinum Industries a profit-making company?
Yes, Platinum Industries has made a substantial profit over the last three years, thus making it a profitable business.
What does the cash flow statement indicate about the company’s operations?
The company’s cash flow statement shows that the management can maintain consistent efficiency while investing the proceeds to expand further.

March 5, 2024

Exicom Tele-Systems IPO: Business Model, KPIs, SWOT Analysis, and FAQs

A pioneer in the EV charging space is leaping forward with its IPO. This marks a pivotal moment for the company and India’s existing and evolving EV landscape.

Today’s blog will explore Exicom’s journey toward clean and sustainable transportation.

Exicom Tele-Systems IPO Company Overview

Exicom was founded in 1994 as Himachal Exicom Communications Limited for manufacturing DC Power Systems, and since then, it has carved out a niche for itself in the Indian market.

Exicom Tele-Systems Limited is a company based in India that provides solutions for powering digital communication infrastructure. The company is headquartered in Gurgaon, India and has a presence in over 50 countries. They are a leading provider of power solutions for the telecom industry.

The company faces tough competition from Amaraja Raja Batteries, Exide Industries, HBL Power Systems, Coslight India, and many others.

Exicom Tele-Systems IPO Business Model

Exicom Tele-systems functions under two business verticals

Electric Vehicle Charger Business

In this segment, the company offers smart charging systems with innovative technology in India for residential, business and public charging use.

The EV Charger Business started in 2019 and provides slow, fast, and Automatic Original Equipment Manufacturer (OEM) solutions. All these products fulfil the Indian certification requirements and global standards.

Additionally, the company aims to accelerate India’s transition to electric mobility by designing and building EV chargers for homes and businesses and laying the groundwork for widespread EV ownership.

The customers of EV Charger Business include Reliance BP Mobility Limited and Fortum Charge & Drive India Private Limited, fleet aggregators such as BluSmart Mobility and Lithium Urban Technologies, and established automotive OEMs like Mahindra & Mahindra Limited, MG Motors Limited, and JBM Limited.

Did You Know?

Exicom has deployed over 35,000 EV chargers across 400 locations in India.

Critical Power Solutions Business

The company designs, manufactures, and services critical digital infrastructure technology in this segment to deliver overall energy management at telecommunications sites and enterprise environments in India and foreign countries. Exicom holds a market share of 16% in the DC Power Systems under Critical Power business and is identified as a leading player in the Li-ion Batteries market.

Furthermore, under this segment, the company offers a diversified portfolio of DC power conversion systems and Li-on-based energy storage solutions to provide backup power during grid interruptions. In this regard, Exicom is deployed in India, Southeast Asia, and Africa. These DC power systems are specially designed and customised according to customers’ preferences for use at telecommunications sites like large offices, renewable hybrid sites, base station sites, and wi-fi sites.

Apart from the business verticals discussed above, Exicom has also established three subsidiaries outside India to capture a share of the global market.

Exicom Tele-Systems Pte. Ltd. in Singapore
Horizon Power Solutions DMCC in U.A.E
Horizon Tele-System SDN BHD in Malaysia

The company holds two dedicated research and development centres and three manufacturing facilities in India with a capacity to manufacture 12,000 DC Power Systems, 44,000 AC Chargers and DC fast chargers.

The business is supported by an employee base of 1,124 in India and 43 employees at the company’s subsidiaries.

Did you Know?

Exicom has deployed 450,000 Li-ion batteries for use in the telecommunications sector.

IPO Details

Exicom Tele-Systems IPO is a book-built issue of INR 429 crores. The issue is a fresh issue of INR 329 crore and an OFS of 100 crore.
The IPO will open for subscription on February 27, 2024, and will close on February 29, 2024.
The allotment date for the IPO is fixed on Friday, March 1, 2024.
The tentative listing date of the company on the stock exchange is Tuesday, March 5, 2024.
The price band for the IPO is fixed at INR 135 to INR 142 per share. The minimum lot size for the application of the IPO is 100 shares.
The minimum amount of investment for retail investors is INR 14,200.
Monarch Networth Capital Limited, Unistone Capital Private Limited, and Systematix Corporate Services Limited are the book-running lead managers.

Objective of the Issue

Repay/prepay the borrowings either in part or in full.
Investment in research & development and general corporate purposes.
Partial funding for the needs of working capital.

IPO Date	February 27, 2024 to February 29, 2024
Price Band	INR 135 to INR 142 per share
Lot Size	100 Shares
Fresh Issue	23,169,014 shares
OFS	7,042,200 shares
Issue Type	Book Built Issue IPO
IPO Type	Main-Board IPO
Allotment Date	Friday, March 1, 2024
Initiation of Refunds	Monday, March 4, 2024
Listing Date	Tuesday, March 5, 2024

Financial Summary & KPIs

Financial statement highlights of the company (Y-o-Y basis)

Particulars	FY 2023	FY 2022	FY 2021
Revenue From Operations	707.9	842.8	512.9
Total Expenses	690.9	809.2	511.5
Net Profit	6.4	5.1	3.4
Borrowings	117.9	107.7	101.7
Total Current Assets	574.5	433.2	528.1
Total Current Liabilities	369.1	277.4	368.4
EBIT Margin (in %)	5.1%	6.2%	3%
Basic EPS (in INR)	0.69	0.56	0.38

*(Above-mentioned figures in INR crores, except EPS and EBIT Margin)

Key Performance Indicators (KPIs)

KPIs	FY 2023	FY 2022	FY 2021
Gross profit (in INR crore)	175.22	179.11	116.24
Gross profit margin (%)	24.75%	21.25%	22.66%
EBITDA (in INR crore)	52.43	67.42	29.51
EBITDA Margin (%)	7.41%	8.00%	5.75%
Profit after Tax from continuing operations	31.02	30.39	12.67
PAT Margin (%)	4.38%	3.61%	2.47%
ROCE (in %)	10.92%	17.66%	5.33%

Strengths

Exicom is a market leader with an early-mover advantage in the Indian EV market, with a market share of 60% and 25% in the residential and public charging domains.
Exicom’s in-house R&D facilities and manufacturing units allow them to control the entire product development process, ensuring quality, efficiency and customisation capabilities.
With over two decades of experience in the power solutions sector, Exicom enjoys established relationships with institutional and corporate clients, showcasing their expertise in timely delivering projects.
The company has a strong track record of financials, and its recent IPO aims to raise capital for further expansion and development, indicating a positive outlook for the company.
As the EV market in India continues to increase, Exicom’s diverse product portfolio catering to the diverse needs of customers positions them to capitalise on the growing demand.

Weaknesses

Besides its strengths, Exicom Tele-Systems also faces several risks that investors should consider before making investment decisions.

The Indian EV charging market is rapidly increasing and becoming increasingly competitive, with established players from the power and automotive industries entering the segment. New startups are also eyeing for market share, thus forcing Exicom to maintain its competitive edge.
The EV technology is consistently evolving with new standards and functionalities emerging. Exicom needs to continuously invest in R&D to ensure its products remain relevant and competitive in the long run.
The company’s recent revenue decline and relatively low-profit margins can be points of concern. However, the company’s ability to manage debt will be crucial for future growth.
The Indian government plays a significant role in shaping the EV Industry through policy decisions and subsidies. Any substantial regulation change could impact Exicom’s business model and profit margins.

Conclusion

Exicom possesses a firm foundation with an early mover advantage, vertical integration, and domain expertise. In the future, their diversified product portfolio and recent IPO position will help them to capitalise on the growing EV market in India.

Exicom Tele-Systems can be a good option for investors interested in the future of the Indian EV landscape. The company’s ability to mitigate risks and capitalise on its strengths will decide its success in the coming years.

Frequently Asked Questions (FAQs)

What does Exicom Tele-Systems do?
The company provides power solutions and EV charging to a diversified customer base.
Exicom witnessed a decline in revenue in FY23; is this a red flag in the IPO?
The company saw a decline in revenue in FY23;. At the same time, this may seem like a major weakness of the management, the decision to invest should be taken after a thorough analysis of the company.
Why is the company going public?
Exicom is going public to raise funds to expand its business operations and repay the borrowings.
What makes the company special?
Exicom got a head start in the EV race. They design and build their chargers through an in-house manufacturing facility and have a proven track record of being a market leader.
Is Exicom Tele Systems a main-board IPO?
Yes, Exicom Tele-systems IPO is raising INR 429 Crores, thus making it a mainboard IPO.

March 2, 2024

Detailed Guide on Bond Investing: Characteristics, Types, and Factors Explained

We all must save some money, but if our risk-taking capacity does not allow us to take exposure in equity, then the option of bonds seems viable.

Today, we’ll explain what bonds are, how they function, and their kinds.

Introduction of bonds

Bonds fall within the category of fixed-income securities. Bonds are debt securities offered by private institutions and federal and state governments to raise funds to cover their costs. An entity issues bonds to investors to raise funds and, in turn, pays “coupon” payments. The payments are based on fixed interest rates, decided at the start of the tenure.

Characteristics of Bonds

Issuer – Bonds may be issued by both private and public institutions, including business houses, state and federal governments, and municipalities.
Face Value – Also referred to as the par value or redemption value. It represents the nominal value of security in the eyes of the issuer. This value, along with the interest component, is returned to the investor on the maturity date of the bond.
Coupon Rate – It is the interest (on face value) paid out periodically to the investor.
Tenure – It relates to the duration of bond issuance; for example, if a bond is issued on January 1, 2020, for a tenure of five years, its maturity date will be January 1, 2025.
Issuance of Bonds – Bonds are initially issued on the primary market and subsequently traded on the secondary market.
Ratings – The task of rating the bond based on the company’s creditworthiness is carried out by several credit rating firms that perform a thorough analysis of both the issuer and the bond itself.
Yield to Maturity (YTM) – YTM is the bond’s internal rate of return (IRR) if the investor holds the bond till maturity.

Bond issuance process

The borrowing entity prepares a bond indenture that contains all the relevant details, such as the par value, coupon rate, maturity date, tenure, and credit rating.
The bond indenture is then circulated in the primary market to accept applications from investors.
The borrower then regularly pays the coupon amount to the bondholder, and the borrower can default only in case of financial turmoil.
The unallocated applications are returned to the investors, and allocated investors are sent the bond confirmation that acts as proof of lending to the issuer.
The borrower then regularly pays the coupon amount to the bondholder, and only in case of financial turmoil can the borrower default.
At the end of the tenure, the borrower pays the face value of the bond and any accumulated interest.

Types of Bonds

Bonds are divided into various groups according to their characteristics.

Treasury Bonds

The central government issues bonds of this kind, with maturities ranging from ten to thirty years. With little to no credit risk, it is considered the safest bond.

Municipal Bonds

The municipal or state governments issue these bonds to generate money for the state’s welfare projects.

Corporate Bonds

Corporate entities issue these bonds to generate money for various operational needs. While they often offer greater yields than government bonds, these bonds also carry a higher risk.

Zero-Coupon Bonds

As the name suggests, Zero-coupon bonds do not make periodic coupon payments but pay the entire interest component at the end of the tenure. These bonds are redeemed at face value and are issued at a discount. Thus turning the discount into the interest component of the bond.

Junk Bonds

The bonds allocated below BBB rating by credit rating agencies are called Junk bonds. These bonds often provide the highest yield but carry the highest risk. These are generally issued by organizations that are prone to default.

Convertible Bonds

This bond has an option to convert the bonds into stocks. These bonds allow the investor to earn greater returns when the company’s shares increase.

Callable Bond

The bond allows the issuer to redeem the callable bonds at a predetermined date before maturity. These bonds protect the borrowers if the interest rate decreases as it allows for refinancing the borrowing at the decreased rates.

Putable Bond

This bond allows the bearer to redeem it at a predetermined date before its maturity. This bond protects the holder from an interest rate increase as it allows the holder to sell the bond back to the issuer at a predetermined price.

Floating Rate Bonds

These bonds’ interest rates fluctuate in line with the repo rates set by the Reserve Bank of India.

Inflation Linked Bonds

The coupon rates on these bonds are typically higher than the overall economic inflation rates. The coupon payments of these bonds are adjusted to preserve their real worth after adjustment of the inflation rate.

Perpetual Bonds

These bonds don’t have a maturity date because the bond’s issuer is not required to pay the par value to the bondholder. As long as they own the bond, the bondholder will continue to receive interest.

CAT Bonds

Insurance companies issue CAT bonds, also known as catastrophe bonds, to investors to help them assume the risk of certain calamities like earthquakes and floods. These bonds typically have a high yield as they come with higher risk.

Capital Gain Bonds

A select few institutions issue these bonds, allowing them to benefit from capital gains made on selling real estate, including buildings and land, under section 54EC.

Advantages of investing in bonds

Regular Income – Bond investments provide consistent income because the bond issuer is expected to make coupon payments regularly.
Less volatile – Bonds are well-liked by investors with low-risk tolerance since they are relatively less volatile than equity investments but offer greater returns than normal bank FDs.
Diversification – Allocating a portion of the portfolio to fixed-income securities lowers the overall risk. Bonds will continue to yield returns even in an equity market decline.
Capital Preservation – If the company becomes insolvent, bondholders have a higher probability of receiving their principal amount than equity shareholders.

Disadvantages of investing in bonds

Credit Risk – The bondholder must bear the risk of not receiving their payment obligations in the case of default.
Lower Return – Historically, in comparison to equity investing, bonds offer a lower rate of return.
Reinvestment Risk – Reinvestment risk arises when an investor cannot reinvest the interest at the same YTM rate as when the bond was first issued. Failure to reinvest the coupon at YTM rate would result in a decreased rate of return over the tenure of the bond.
Inflation Risk – Rising inflation over time may cause the purchasing power of bonds, other than inflation-linked bonds, to decline more than equity shares.

Factors that affect bond prices

Interest Rate – Interest rates and bond prices are inversely correlated. This implies that bond prices may decrease when interest rates rise, and vice versa.
Maturity Date – When investing in bonds, investors must consider their investment duration. Bonds with longer maturity dates are more sensitive to interest rates, whereas bonds with shorter maturity dates are less sensitive.
Credit Quality – The price of high credit-rated bonds will rise due to investor demand outpacing that of lower-rated bonds.
Supply and Demand – Bond price will be impacted by supply and demand; if supply is high and demand is low, bond price will be lower, and vice versa.

Additional factors to be considered

Credit Risk – Risks of issuer not paying the instalments is called Credit Risk. It is advisable to opt for credit-worthy issuers when shortlisting borrowers in order to limit the risk of default.
Liquidity of Bonds – An investor should consider bonds that provide greater liquidity, which generally exists in credit worthy issues.
Investment Goal – When choosing which bond to invest in, you should consider your investment horizon, risk tolerance, and investing goal.
Maturity of Bonds – Bonds with shorter maturities are less susceptible to fluctuations in interest rates; conversely, the prices of bonds with longer maturities are more unstable.
Taxation – Since the interest on bonds is taxable according to the income tax bracket, an investor should think about the tax consequences before investing.

Conclusion

Bonds are typically a good option for risk-averse investors who prefer steady returns on their capital rather than portfolio volatility. It is advisable to do your research to find the right kind of bond to buy because each type has a different risk-reward profile.

Frequently Asked Questions (FAQs)

Q1. What is the primary risk affecting corporate bonds?

Ans. The primary risk connected to corporate bonds is default risk, often known as credit risk.

Q2. What kind of bond is the safest?

Ans. Bonds issued by the Government of India are regarded as the safest kind of bonds available in the Indian market.

Q3. What is the primary distinction between YTM and coupon rate?

Ans. The Yield To Maturity (YTM) is a bond’s internal rate of return (IRR) if the investor holds the bond till maturity, and the coupon rate is the set interest paid by the bond’s issuer on its face value.

Q4. Are bond interest payments taxable?
Ans. Yes, bond interest receipts are taxable according to the investor’s income tax bracket.

Q5. Is it possible to sell the bond before it matures?
Ans. Yes, you can sell the bonds on the secondary market before they mature.

Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.

March 2, 2024

Sectoral Funds Decoded: Riding the Investment Roller-Coaster

Imagine sitting on a steep roller-coaster ride, coupled with the fear of a crash. That is the world of sectoral funds!

If you do not want to end up stranded in the financial cosmos, read today’s blog, in which we will uncover the secrets of sectoral funds and whether they deserve a place in your investment portfolio.

Overview of Sectoral Funds Decoded

Sectoral Funds are a type of equity mutual fund that only invests in companies operating within a specific sector or industry of the economy.

These funds allow the investor to gain concentrated exposure to a particular sector and amplify their returns if that sector outperforms the broader index. However, sectoral funds have increased risks due to a lack of diversification.

These funds focus on various sectors and industries such as technology, healthcare, consumer staples, financial services, energy, and infrastructure.

Benefits of Sectoral Funds Decoded

Sectoral funds can offer tempting advantages to investors. Let us have a look at the benefits of sectoral funds:

When a chosen sector experiences a boom, sectoral funds can outperform diversified funds. Imagine the tech boom of the late 90s; any technology-focused fund would have given incredible returns to investors.
Investing in such a fund offers the investor an opportunity to gain exposure to the sector without analysing each stock within the industry.
Sectoral funds can be used for tactical portfolio diversification, allowing you to capitalise on short-term trends and sector rotation.

Risks

Sectoral funds come with a high probability of losses. If the chosen sector underperforms, sectoral funds will suffer as fund managers will not have room for diversification and protecting the capital.
These funds are inherently more volatile than diversified funds. Therefore, sharp swings in prices/NAVs are more likely to occur.
Understanding the sector dynamics and prospects is essential and complex at the same time before investing. Failure to interpret the sector’s trajectory during the investment horizon could lead to significant losses in the short term.
In the race to earn benchmark-beating returns, choosing the right sectoral fund, after considering the political, economic, and technological landscape, is highly crucial because making the wrong choice might lead to inadequate returns or even losses in the short and medium term.

Performance

The Covid-19 pandemic sent shockwaves throughout the global economy, and many sectors were impacted differently. Sectoral funds felt the heat too.

The Sunny Side

Pharma Funds – As the pandemic raged, demand for healthcare products soared and pharma funds were riding the wave since they delivered consistent returns.

Technology Funds – With the world shifting online, technology companies thrived. Tech-focused funds witnessed exponential growth because of increased dependence on remote work, communication and entertainment platforms.

The Dark Side

If you invested in these sectoral funds, you must have witnessed their consolidation in the past couple of years.

Technology Funds – The initial sector boom, fuelled by the growth of online platforms and digital transformation, faded away when the economies reopened, and offline activities resumed.

Compared to their respective benchmark, some top-performing sectoral funds that doubled their returns during the Covid-19 pandemic were not even at par post-Covid.

As of 23rd February 2024, the broader Nifty 50 index has risen over 91% since November 2020, while the Nifty IT index has risen 82%.

Pharma Funds – Something similar happened with pharma stocks. During the height of the pandemic, these stocks surged due to increased demand for vaccines, diagnostics, and other medical equipment, eventually leading to better pharma funds’ performance. The demand for medical products flattened once the initial panic subsided and vaccine rollouts progressed. This led to a massive correction in the stock prices of the pharma sector.

As of 23 February 2024, the broader Nifty 50 index has risen 91% since November 2020, while Nifty Pharma has only given 64% returns.

Returns Comparison

The table below shows the performance of different sectoral funds in the past 4 years relative to their benchmark.

Technology Sector

Scheme	2023	2022	2021	2020
ABSL Digital India Regular	35.75	-21.64	70.47	59.03
SBI Technology Opportunities Regular	24.82	-15.46	66.43	47.45
ICICI Prudential Technology Fund Regular	27.45	-23.22	75.74	70.59
S&P BSE IT TRI	28.28	-22.70	58.45	60.05

*(S&P BSE IT TRI is the benchmark index for technology funds)

Pharma Sector

Scheme	2023	2022	2021	2020
Nippon India Pharma Fund Regular	39.15	-9.9	23.93	66.44
SBI HEALTHCARE Opportunities Regular	38.24	-6.02	20.15	65.83
ABSL Pharma and Healthcare Regular	37.67	-12.68	19.54	53.84
S&P BSE Healthcare TRI	37.97	-11.5	21.54	62.61

*(S&P BSE Healthcare TRI is the benchmark index for pharma funds)

Example

Let us understand the cycle of sectoral funds with the help of the table.

Suppose investor A invested in technology and pharma funds during Covid 19. Some of the top-performing funds gave massive returns and significantly outperformed their respective benchmark indices, affirming the beliefs of the investor. The table shows that S&P BSE IT TRI & S&P BSE Healthcare TRI gave a return of 58.45% and 21.54% respectively in the year 2021.

However, investor A stayed invested in these funds with the hope of getting more profits. But after the COVID wave subsided, the market witnessed a stark contrast in the performance of both the technology and pharma sector funds, and these funds gave returns of -22.7% & -11.5%, respectively. Thus leading to catastrophic losses.

This example indicates that sectoral funds concentrate their investments in specific sectors. This concentration leads to their performance moving in tandem with the cyclical nature of the underlying sector. Therefore, the exposure of unsystematic (diversifiable) risk increases substantially.

*(The funds mentioned above are for educational purposes only and are not recommendations).

Read Also: History of Mutual Funds in India

Conclusion

After analysing the pros and cons and the recent performance of sectoral funds, the million-dollar question remains: Should you invest? As with most investment decisions, the answer is not a simple ‘yes’ or ‘no’. It depends on your risk tolerance and investment goals. Consider sectoral funds if you are a long-term investor, have a high-risk tolerance, and have a firm conviction in a particular sector. Avoid sectoral funds if you are a short-term and risk-averse investor lacking sector expertise.

Ultimately, the decision is yours. Sectoral funds can be a powerful tool to maximise wealth, but they also need a deep understanding of the sector-specific risks.

Frequently Asked Questions (FAQs)

Why should I invest in sectoral funds?
Sectoral funds offer investors the potential for higher returns (with increased risk). Thus making them a lucrative investment vehicle for those who can take the risk.
Are sectoral funds right for me?
The answer depends on your risk tolerance, investment goals, and knowledge of the chosen sector.
Is there a magic formula for picking the right sectoral fund?
No, there is no guaranteed recipe for success. So, one should evaluate all factors before investing.
Can I time the market with sectoral funds?
Predicting market trends can be tricky. Therefore, performing self analysis is of utmost importance.
Can sectoral funds help me get rich quickly?
Sectoral funds do carry the potential to offer high returns but simultaneously come with amplified risks and volatility. Do not invest in these funds with a get-rich-quick objective!

February 27, 2024

The Art of Value Investing: Meaning and Strategies

In the hustling world of finance, where trends shift and fortunes change quicker than ever, one strategy stands the test of time and is known as value investing.

This approach has guided investors to discover gems in the rough for decades. But is value investing still relevant in an age of instant satisfaction and flashy IPOs?

In today’s blog, we will be analysing the concept of value investing and how to assess a company’s true worth.

Concept

Value investing is an investment philosophy based on buying stocks that are trading below their intrinsic value. Intrinsic value represents the true worth of the company estimated by analysing its fundamentals, such as financial statements, business models, and industry trends.

The concept of value investing functions on the following principles,

Undervaluation:

Value investors generally look for stocks that are trading less than their intrinsic value and offering a discount.

Margin of Safety:

MoS is when an investor buys below intrinsic value, providing a buffer against unforeseen events and protecting against overpaying.

Contrarian Approach:

Value Investors are predisposed to buy stocks out of favour with the market, betting the market will eventually recognise the true value.

Long-term Investing:

Focusing on holding stocks for an extended period and waiting for the market to catch up with their intrinsic value.

Read Also: Intrinsic Value vs Book Value

Benefits

The core advantage of value investing lies in its ability to control market inefficiencies. Recognising and buying undervalued stocks with a margin of safety can help investors achieve returns that exceed the market average over the long term.
Value investing inherently emphasizes on buying stocks trading below their intrinsic value. This helps create a buffer against downturns, which means that even if the market price falls, it is less likely to fall below the intrinsic value.
Value investors generally prefer companies with strong financial health, stable business models and consistent cash flows. This focus on fundamental strength helps preserve capital by investing in companies with a higher chance of fighting market storms and keeping themselves financially sound.
Value investing encourages a disciplined and research-driven approach to investment in the market. The focus is on fundamental analysis, and emotional decisions based on market sentiments are avoided, eventually preventing investors from getting into impulsive trades.
Additionally, value investors often adopt a contrarian approach, which can lead to significant gains if markets correct their mispricing.
Value investing also offers emotional benefits. Investors can avoid the anxiety and stress linked with reactive trading decisions and short-term market noise by focusing on research and analysis.

Risks

The success of value investing hinges on finding market inefficiencies. If the market is truly efficient, recognising undervalued stocks might be difficult.
Value investing demands patience and discipline from the investors. It might take a long time for the market to identify a company’s true value.
Going against the market sentiment and buying unpopular stocks can be emotionally challenging, and investors need to stick to their convictions.
Not every cheap stock is a good investment. Some companies appear undervalued but may have legitimate reasons for low prices, such as poor management, structural decline or hidden liabilities. These value traps can lead to losses and destroy the investor’s confidence if not identified correctly.
Broader economic trends such as regulatory shifts, recession or any industry-specific changes can also impact even the fundamentally strong companies.

Key Metrics

Some of the key metrics that an investor needs to look for are as follows.

Price-to-Earnings Ratio (P/E Ratio)

This ratio tells us how much an investor would have to pay to own a piece of a company based on how much profit the company makes. A lower P/E ratio indicates that a stock is undervalued as we would have to pay less to gain the profit. However, it is essential to analyse and compare the P/E to the company’s industry average and historical P/E ratios.

For example, Consider two companies

Company A

Stock price – INR 50

EPS – 5

PE Ratio – INR 50/5 = 10

Company B

Stock Price – INR 100

EPS – 20

PE Ratio – INR 100/20 = 5

Company A is trading at a higher multiple of their earnings. Thus, Company B is undervalued when compared to A.

Debt-to-Equity Ratio

This ratio compares the company’s total debt to its equity. A lower debt-to-equity ratio shows that a company is less risky in financial terms as they don’t have to worry much during reduced margins.

For example, consider two companies

Company A

Debt – INR 1 lakhs

Equity – INR 2 lakhs

Debt-to-Equity Ratio – INR 1 lakhs/ INR 2 lakhs = 0.5

Company B

Debt – INR 3 lakhs

Equity – INR 1 lakhs

Debt-to-Equity Ratio – INR 3 lakh/INR 1 lakh = 3

With a Debt-to-Equity ratio of 0.5, Company A has less debt relative to its equity, indicating a more conservative financial structure and low financial risk.

On the other hand, Company B has a debt-to-equity ratio of 3, reflecting more debt than its equity, indicating a higher financial risk.

Price-to-Book Ratio (P/B Ratio)

This ratio compares a company’s stock price to its book value per share. A low P/B ratio indicates that the stock is undervalued.

For example, consider two companies

Company A

Stock Price – INR 20

Book Value per share – INR 10

P/B ratio – 20/10 = 2

Company B

Stock price – INR 40

Book value per share – INR 20

P/B Ratio – 40/20 = 2

While Company A trades at INR 20, Company B trades at INR 40. B is expensive and overvalued at a superficial level, but after calculating the P/B ratios, they both seem equally valued in the market.

Return on Equity (ROE)

This metric measures a company’s ability to generate profit from the equity of shareholders. Higher ROE indicates a well-organized use of capital.

Consider a company named ABC Technologies with an income of INR 10 Lakhs and shareholder equity of INR 50 Lakhs.

ROE – Income/shareholder’s Equity = INR 10 lakhs/INR 50 lakhs = 0.2

This shows that for every rupee provided by the shareholders, ABC Technologies generates 20% of profit.

Discounted Cash Flow (DCF)

This model helps estimate the present value of the company’s future cash flow, allowing investors to analyse the stock’s intrinsic value.

For example, to estimate a company’s intrinsic value using a DCF model, an investor needs to forecast the future cash flows, which is the core part of the model, and to forecast the future cash flow, an investor first needs to.

Project financial statements by analysing historical track records.
Use applicable assumptions to predict Cash Flows for coming years and estimate the terminal value of the company using different methods.
Then, determine the appropriate discount rate to reflect the risk linked with the company and the projected cash flows.
Now, the investor can use the chosen discount rate to bring each year’s forecasted Cash Flows back to its present value (PV) and then add the PV of all the future cash flows to arrive at the present value of all future cash flows.
Add the present value of the terminal value to the present value of free cash flows to get the estimated intrinsic value.

*(Remember that real-world DCF models involve complex adjustments and calculations).

PEG Ratio

This ratio compares the company’s P/E ratio to its expected earnings growth rate. A lower PEG ratio indicates that a stock is undervalued relative to its growth potential.

For example, Consider 2 companies

Company A

P/E Ratio – 20

Expected EPS growth rate – 10 %

PEG Ratio – 20/10 = 2

Company B

P/E Ratio – 15

Expected EPS growth rate – 5%

PEG Ratio – 15/5 = 3

A PEG ratio closer to 1 indicates undervaluation relative to the company’s growth potential (like company A).

Additional Tips for Value Investing

Do not choose cheap stocks, look for quality companies with strong financials that are trading at a discount.
Understand and analyse the company’s business model and competitive landscape before investing.
It may take time for the market to identify the worth of an undervalued company. So, patience and confidence in our choices are extremely important.

Value Investing v.s. Growth Investing

Value investing seeks stocks currently trading below their intrinsic value, whereas growth investing seeks stocks with high growth potential, irrespective of the current valuation.
Value investing uses fundamental analysis, including metrics like P/E ratio, P/B ratio, etc., while growth investing uses growth metrics like revenue and sales growth, market share, etc.
The former is used for longer time-frames and needs patience, while the latter can be used in medium timeframes.
Features of value investing include reduced downside risk and capital preservation, whereas features of growth investing include the potential for significant returns with comparatively higher risk.

Value Investing for Beginners

Grasp the core principles and understand the philosophy of value investing along with the metrics used to identify them.
Make financial statements a friend and analyse the industry trends carefully.
Beginners should avoid making impulsive decisions and should stick to their investment goals.

Conclusion

To wrap it up, only invest money you can afford to lose because past returns do not guarantee future success, and not every cheap stock is a good investment. Value investing isn’t a get-rich-quick scheme fuelled by speculation. Instead, it is a research-driven approach built on patience and deep fundamental analysis.

Frequently Asked Questions (FAQs)

Why should I consider value investing?
Value investing focuses on strong fundamentals and protects from market downtrends.
Isn’t the concept of value investing outdated in the fast-paced market?
No, because value investing helps you discover undervalued gems.
Is value investing risky?
Remember that every investment comes with a risk. Every investor needs to focus on thorough research and diversification of their portfolio.
How do I get started with value investing?
Practice fundamental analysis and gradually add individual stocks to your portfolio while analysing their trends.
Is value investing right for me?
It depends on your specific risk tolerance and investment goals.

February 19, 2024

Category: Investing

What is ESG Investing?

Environmental

Social

Governance

Is ESG Investing worth the effort?

Pros of ESG Investing

Cons of ESG Investing

Background of ESG Investing in India

Attributes and KPIs within the BRSR Core framework

ESG Ratings

ESG Funds – An Overview

Conclusion

Frequently Asked Questions (FAQs)

Why is ESG investing gaining so much traction?

Does ESG investing mean sacrificing returns?

Is ESG investing complicated?

Should I choose ESG investing?

What are the challenges of ESG investing?

Portfolio Management Services Overview

Minimum Investment Amount

Features of PMS

Types of PMS

Charges of PMS

Fixed Charges

Performance Based

Hybrid Fee Structure

Taxation

Risks

Conclusion

Frequently Asked Questions (FAQs)

Is PMS investment permissible for NRIs?

How do I access my PMS portfolio valuation?

How can you evaluate PMS performance before purchasing?

Does PMS have a lock-in period?

Is there a guaranteed return in PMS?

What are Solar companies?

Reasons for choosing Solar stocks

Risks involved with Solar stocks

Overview of Best Solar Companies in India.

Urja Global

Products and Services

Suzlon Energy

Products and services

Sterling & Wilson

Products and services

Gita Renewable

Products and services

Borosil Renewables

Products and services

Comparative Study of Solar Companies

Market Capitalization

52 Week High and Low Prices

Income Statement (FY23)

Balance Sheet (FY23)

Cash Flow Statement (FY23)

Key Ratios (FY23)

Conclusion

Frequently Asked Questions (FAQs)

What potential obstacles can solar companies encounter in the present market?

What are some possible avenues for expansion in the solar sector in the future?

What role do solar companies play in maintaining a sustainable environment?

Which solar company is the best place to put money?

Are solar companies profitable?

Business Model

Did You Know?

Key IPO Details

Objectives of the Issue

Financial Highlights

Strengths

Risks

Conclusion

Frequently Asked Questions (FAQs)

What is the price band of the Bharat Highways InvIT IPO?

When will the allotment and listing of shares occur?

What is the objective of the IPO?

What risk can I face while investing in this IPO?

Should I prefer investing in Bharat Highways InvIt IPO?

Company Overview

Awards and Accreditations