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LTIMindtree Case Study: Products, Services, Financials, KPIs, and SWOT Analysis

LTIMindtree stands out as a major player in the Indian landscape. It provides exceptional services and is known for its critical contributions to India’s people and economy. Today’s blog will provide the company overview, business segment, financials, KPIs, and SWOT Analysis.

LTIMindtree Case Study Overview

In the fast-evolving world of technology, LTIMindtree Ltd. has made its name in the game. But that’s not how the company began its operations. LTIMindtree is a merged entity of LTI and Mindtree. The merger happened in 2022 and had its record date as 24th November 2022. As part of the merger, all shareholders of Mindtree were issued shares of LTI in the ratio of 73 shares of LTI for every 100 shares of Mindtree.

Currently, the company holds an important position in the competitive IT services industry. This company specializes in data analytics, cloud computing, and Artificial Intelligence, and also helps its clients overcome complex business challenges and achieve faster growth. The company assists its clients with customized end-to-end solutions tailored to meet specific requirements.

Company Type	Public
Industry	Information technology
Founded	1997
Headquarters	Mumbai, Maharashtra, India
Area served	Worldwide

LTIMindtree Case Study Products and Services

LTIMindtree has a diverse portfolio of products and services. Let’s have a look at some of them:

Data Analytics

The company emphasizes innovation and contemporary technology stacks. It helps accelerate growth and achieve remarkable business results on a large scale. LTIMindtree Products enhances the client’s capabilities and delivers cutting-edge data and analytics services to its clients by utilizing accelerators and platforms to navigate their digital transformation journeys.

Cybersecurity

Cybersecurity helps clients protect their computer servers, networks, and data from malicious attacks. LTIMindtree cybersecurity service is a well-defined cybersecurity model powered by technology-enabled progression towards intelligent and autonomous cyber defense.

Digital Engineering

This service helps customers design and conceive cutting-edge digital

products that offer a seamless customer experience. It helps to gain insights and stores customer data.

Quality Engineering Testing

It helps to improve the client’s software by implementing manual and automated testing processes throughout the entire SDLC (Software Development Lifecycle). The company uses DevOps, Performance, Cloud, and Automation enabling firms in their digital transformation journey.

Canvas

It helps to provide a hassle-free and modern interface platform designed to meet the needs of the remote and hybrid workforce.

Market Data

Market Cap	₹ 139,829 Cr.
TTM P/E	30.42
ROCE	37.7 %
ROE	29.2 %

(As on 24th April)

LTIMindtree Case Study Financial Highlights

Income Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Operating Revenue	33,183.00	26,108.70	12,369.80	10,878.60
Total Income	33,752.90	26,894.60	12,657.30	11,216.70
Total Expenditure	27,088.30	20,880.20	9,657.80	8,858.30
Profit before Tax	5,791.50	5,293.90	2,588.20	2,002.90
Consolidated Profit	4,408.30	3,948.30	1,936.10	1,520.10

(All Values are in Crores)

The income statement shows trending levels of growth at all major lines. Though expenditure increased substantially in the past 3 years, the revenue surge helped continue profit growth.

Balance Sheet

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Non-Current Liabilities	1,033.40	1,158.50	715.10	866.40
Current Liabilities	5,482.60	5,092.30	2,632.30	2,331.20
Non-Current Assets	5,929.40	5,605.10	2,523.20	2,273.70
Current Assets	17,185.80	14,938.60	8,131.30	6,329.00

(All Values are in Crores)

The company showcases a healthy state of balance sheet as non-current liabilities have been kept at a minimum in the past 4 years while showing a consistent trend in increasing assets.

Cash Flow Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Cash From Operating Activities	3,094.60	3,250.70	2,399.60	1,643.50
Cash Flow from Investing Activities	-330.90	-1,645.30	-1,656.00	-652.00
Cash from Financing Activities	-1,931.70	-1,680.40	-508.80	-890.00

(All Values are in Crores)

The cash flow statement indicates a healthy state due to a consistent level of cash from operations. The financing and investing activities show potential as continuous outflow in these fields will yield returns in the long term.

Profitability Ratios

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
ROCE (%)	38.27	49.97	41.73	40.38
ROE (%)	29.20	37.05	30.86	29.92
ROA (%)	20.20	25.32	20.13	20.12
EBIT Margin (%)	16.19	17.74	19.24	16.06
Net Margin (%)	13.07	14.69	15.31	13.56

The business enjoys a consistent margin of profits at both net income level and operating income level.

LTIMindtree Case Study SWOT Analysis

This case study analysis highlights LTIMindtree Ltd’s strengths in brand recall and market diversification, weaknesses like FX risk, opportunities in untapped markets and Generative AI, and threats such as high attrition rates:

Strengths

LTIMindtree Ltd enjoys the position of 5th largest IT service provider in the country.
LTI has a strong brand recall because of its affiliation with the L&T group.
Due to the company’s broad network, it is not heavily dependent on just 1 geography.
The company has a history of providing client satisfaction and creating a culture shift that is guided by the management.

Weaknesses

The company majorly operates in foreign markets. This opens the company to FX risk.
The client base of the company is concentrated in the BFSI market.
The company faces tough competition from larger established companies.

Opportunities

Due to globalization, newer markets are emerging, which opens the possibility of operating in untapped European markets.
The company enjoys a competitive advantage while participating in large deals because it is scaling up cross-sell and up-sell opportunities in the market.
The company made significant investments in R&D and has made significant progress in the segment of Generative AI. This could open up new doors for the company.

Threats

The company currently faces high attrition rates. This can cause long term issues in the company.
Further increase in interest rates can put additional pressure on the clients, thus leading to reduced revenues.

Conclusion

LTIMindtree Ltd., a technology consulting and digital solutions company, has shown steady growth and profitability over the years. With a diverse range of services and a strong client base, the company focuses on innovation and client satisfaction while positioning itself well in the competitive landscape.

However, it is important to perform extensive analysis before investing your hard-earned money.

Also, give this a read – HCL Technologies Case Study

S.NO.	Check Out These Interesting Posts You Might Enjoy!
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2	Asian Paints Case Study: Business Segments, KPIs, Financials, and SWOT Analysis
3	Grasim Industries Case Study: Subsidiaries, Products, Financials, and SWOT Analysis
4	Ola Electric Case Study: Business Model, Financials, and SWOT Analysis
5	Hero MotoCorp Case Study: Business Model and SWOT Analysis

Frequently Asked Questions (FAQs)

What type of company is LTIMindtree?
LTIMindtree is a global company that has expertise in information technology services and consulting.
Where is the headquarters of LTIMindtree?
The headquarters of LTIMindtree is based in Mumbai, Maharashtra, India.
Who is the CEO of LTI Mindtree?
Mr. Deabshis Chatterjee is the CEO of LTIMindtree.
What are the types of products and services LTIMindtree offers?
The products and services offered are: consulting, cybersecurity, data analytics, cloud computing, iNXT, canvas, and many more.
What is the biggest weakness of LTIMindtree?
The company receives a significant portion of its revenue from global companies. This opens the company to FX risks.

April 25, 2024

Simple Interest vs Compound Interest? Definition, Formula, Pros, and Cons Explained

Understanding the difference between Simple and Compound interest is essential when making a financial decision. There are two ways to calculate interest when taking a loan or investing. Simple interest accumulates on the principal balance, whereas compound interest accumulates on the principal balance and the accumulated interest. Today’s blog will explain simple and compound interest definitions, formulas, pros, and cons.

Simple interest

Simple interest (SI) is a fundamental concept in the finance world. It is calculated on the principal amount and does not consider the interest previously accumulated.

It is an easy and direct method of calculating interest and is generally used for short-term loans or investments.

Formula

Simple interest calculates the amount that includes only the principal. The calculation involves the principal amount, interest rate, and duration of the loan or investment. The formula is:

Simple interest (SI) = (P x R x T) / 100,

Where,

P= Principal amount

R= Rate of interest

T= Time

Example

Assume that Mr. Khurana invested INR 2,00,000 in a fixed deposit for four years at a 7% simple interest rate p.a. Using the same formula, we can calculate the interest Mr. Khurana will earn from the investment.

By using the formula of Simple interest,

Simple interest= (2,00,000*0.07*4)/100

Then, SI = Rs 56,000.

At the end of 4 years, Mr Khurana will earn a total of Rs. 56,000 in simple interest.

Pros

Simple interest is easy to understand and implement since it does not provide interest on accumulated interest. Thus keeping the periodical interest constant.
SI allows for transparency to the borrower as the interest payments are easy to calculate and can be understood by all.
SI is very useful in short term investments as compound interest would anyway not be material on short term investments.

Cons

Simple interest leads to slower wealth accumulation, especially for long-term investments.
Simple interest may not be the most efficient option for people seeking high-return investments in the long term.
Simple interest doesn’t allow for the reinvestment of earned interest.

Compound interest

Compound interest involves calculating interests on both the principal amount and accumulated interest. It works on a snowball effect, causing your money to grow faster over time than Simple interest.

The bank or any financial institution allows for compounding daily, monthly, quarterly, half-yearly, or yearly.

Formula

A=P(1+r/n)^(n*t)

CI = A – P

Where,

“A” stands for Total Amount,

“P” stands for Principal Amount,

“r” stands for rate of interest,

“n” stands for the times of compounding in 1 period,

“T” stands for the number of periods

Example

Mrs. Chavi invested Rs 10,000 at the rate of 10% p.a. for five years.

Therefore, A = 10,000*(1+(.1/1))^(1*5)) = 16,105.1

& CI = A – P = 16,105.1 – 10,000 = Rs 6,105

Pros

It allows money to grow exponentially over time, as interest is earned on both the initial principal and the accumulated interest.
Compound interest can maximize your returns by allowing your money to grow multifold over time.
It can lead to substantial wealth accumulation, making it an ideal long-term investment strategy.

Cons

If borrowers are unable to make timely payments or only pay the minimum amount due, compound interest can lead to a debt spiral where the debt grows rapidly, making it increasingly challenging to repay.
Over time, compound interest can increase the total interest paid on a loan. As interest accumulates on both the principal amount and previously accrued interest, borrowers pay more in compound interest than simple interest.
Compound interest calculations can be complex and hard to understand compared to simple interest.

Conclusion

The concepts of simple and compound interest are essential for anyone dealing with investments, loans, and savings. Simple interest provides predictable interest amounts, making it suitable for those who prefer an easy technique, whereas compound interest comes with complexity but can multiply your money quickly. CI is best for long-term investors and has the potential for exponential growth over time. Simple interest is calculated only on the principal amount and does not include interest on interest. In contrast, compound interest includes interest on the total interest as well as on the principal amount.

Frequently Asked Questions (FAQs)

What is Simple interest?
Simple interest is calculated on the principal amount and does not consider the interest previously accumulated.
Which offers a higher return, Simple or Compound interest?
Compound interest provides higher returns than Simple interest in the long term due to its ability to provide interest on interest.
What are Compounding periods in Compounding interest?
Compounding periods in compound interest refer to the frequency at which interest is added to the principal amount, such as annually, semi-annually, quarterly, monthly, or daily.

April 24, 2024

What are Small Cap Mutual Funds? Definition, Advantages, and Risks Explained

Small-cap companies are on a bull run, and so are small cap mutual funds. Recently, they have been in the limelight just because of their higher returns. The Nifty Small Cap 250 index, which measures the performance of small market-cap companies, gave investors a 64% return last year.

But what about the risks involved in small-cap funds & will they offer similar returns in the coming future?

In this blog, we will give you an overview of small-cap mutual funds, the advantages, the risks involved, and answers to the above-mentioned questions.

Overview of Small Cap Mutual Funds

Before jumping into the explanation of small-cap funds, check out our blog on mutual funds, where we have simplified the topic: Mutual Funds: Meaning, Types, Features, Benefits and How They Work.

Based on their market capitalization, companies in India are categorized as Large, Mid and Small-Cap companies. As per SEBI, the definition of Large, Mid and Small-Cap is as follows:

Large Cap: 1^st -100^th companies in terms of Market Cap.
Mid Cap: 101^st – 250^th companies in terms of Market Cap.
Small Cap: 251^st company onwards in terms of Market Cap.

So, small-cap mutual funds invest in small companies. As per rules prescribed by SEBI, at least 65% of their investments are in small cap companies. Most of the small cap companies are generally new and expanding aggressively, but they are technically fragile and might lose money in a volatile market.

Small-cap mutual funds carry high-risk and are volatile in nature. The small-cap companies generally have low market float and have less trading volumes; this makes them vulnerable to adverse events and susceptible to bearish market movements. They have the potential to give higher returns in a bull market. However, they fall at a rapid pace in bearish markets.

Pros of Investing in Small-Cap Mutual Funds

Small-cap companies have the potential to grow rapidly because of their relatively small operating scale. There’s a great saying, “Almost all multi-baggers are small cap companies once.” It allows fund managers of small cap mutual funds to reap the benefit of investing in hidden gems.
Small-cap companies have the potential to capitalize on emerging trends, fostering a sense of agility and innovation and helping to enhance the business.
Small-cap companies are open to pivoting their strategy and business model. It is advantageous when changing economic and technological scenarios compared to large-cap companies.

Points to Consider

So far, we have understood that small-cap mutual funds are considered high-risk in the world of mutual funds. There are a few points that you should consider before investing in small-cap mutual funds:

Small-cap mutual funds indeed have a potential to give higher returns, but you should also consider the expense ratio of the fund before investing. As small-cap funds are actively managed, their TER, i.e., Total Expense Ratio, is generally higher than that of other mutual fund categories. Further, choose a direct route rather than regular small-cap funds.

When the market starts falling, even the top small-cap mutual funds can see erosion in their returns. Therefore, if you are considering investing in small cap funds, invest for the long-term, preferably >5 years.
Investors who are heavily invested in large cap companies and want to diversify their investments can look for small-cap mutual funds.
Investment in small-Cap mutual funds is much riskier and more volatile than large-cap funds. Therefore, it is suggested for investors with a high risk appetite.

Taxation Rules

As mutual funds can be of different types, so is their taxation. However, taxation on all equity mutual funds remains the same, whether it is large, flexi, or small cap. Ignoring taxation can significantly impact your net returns post taxation.

Capital Gain Tax

For small cap funds, STCG (short term capital gain) will apply if the holding period is less than one year and LTCG (long term capital gain) if the holding period exceeds one year.

In the case of LTCG, there is no tax till the income of one lakh; post this limit, a 10% tax is applicable without indexation benefit. In case of STCG in small-cap funds, there is a flat 15% tax on gains without indexation benefit.

If you are curious to learn more about the taxation of Mutual Funds in India, check out our blog: Decoding Mutual Funds Taxation In India

Top Performing Small Cap Funds

Here are some top-performing small-cap funds based on the performance:

Fund Name (Direct Plan)	3-Year Return (%)	5-Year Return (%)	Fund Size (INR Cr.)
Quant Small Cap Fund	41.31%	39.28%	17,348
Tata Small Cap Fund	34.03%	29.02%	6,236
Canara Robecco Small Cap Fund	32.11%	29.1%	9,402
Edelweiss Small Cap Fund	31.63%	29.94%	3,134
Bank of India Small Cap Fund	30.95%	32.97%	939

Key Highlights of AMFI Notice

On 27 February 2023, the Association of Mutual Funds in India (AMFI) sent a notice to All Asset Management Companies (AMCs) in India when the regulator, i.e., SEBI has raised concerns regarding the continuous flow of funds in Mid and small-cap mutual funds. The AMFI has asked fund houses to develop a policy and take appropriate measures to protect investors.

AMFI focuses on the ability of the fund house to face redemption pressure and detect whether any funds has liquidity issue or not.
All AMCs must disclose the outcomes of the Stress test, volatility, liquidity analysis, valuation, and portfolio turnover concerning mid-cap and small-cap equity schemes.
Asset Management Companies will display the stress result within 15 days after the end of each month.
AMFI emphasizes investor protection and enhanced transparency within the mutual fund industry.

Conclusion

In summation, small-cap mutual funds offer the potential for high returns and a great diversification opportunity. However, these funds come with significant risks due to the volatile nature of small-cap companies.

Investors should carefully consider the risks and other relevant factors such as expense ratio, historical returns, fund manager, etc. before investing in small-cap mutual funds. It is suggested to consult with a financial advisor before investing.

Frequently Asked Questions

Are small-cap funds risk-free?
No, small caps are not risk-free, in fact small cap mutual funds carry a higher risk than other category of mutual funds. It is advisable to research before investing in small-cap funds and seek help from your financial advisor.
What is the suitability of small-cap mutual funds?
Small-cap mutual funds are generally suitable for Investors having a high-risk appetite with a time horizon of at least 5 years.
What is the difference between Small-Cap and Flexi-Cap Mutual funds?
A small-cap mutual fund invest at least 65% in small cap companies. In contrast, a flexi-cap mutual fund invest at least 65% in equity & equity related instruments, which means flexi cap funds are more flexible as they can invest in large, mid or small cap companies.
What is a Small Cap mutual fund?
A small-cap mutual fund invest at least 65% in small-cap companies.
Do small-cap funds carry higher taxation?
No, small-cap funds are taxed in a similar manner to any other equity mutual funds.

April 24, 2024

Types of ITR: Which One Should You Choose?

Filing your taxes, a.k.a. Income Tax Return (ITR) in India, can be a tough task, especially with multiple forms to choose from. There are seven different types ITR forms available and each ITR form caters to a specific taxpayer category and income situation. Picking the wrong one can lead to delays, errors, and even penalties.

This blog is your one-stop guide to navigating the world of ITR forms as it breaks down the key features of each form and who should use them. By the end of this blog, you can confidently choose the correct ITR form and file your taxes smoothly.

Overview

ITR stands for Income Tax Return. It is a form you file with the Indian Income Tax Department to report your income earned during a financial year, i.e., April 1^st to March 31^st. There are two things: one is Financial Year (FY), and another is the Assessment Year (AY). The FY is the one in which you earn the income, and the AY is the one in which you have to pay taxes on the income earned in the FY. Confused? Let’s understand through an example:

Suppose, you are a salaried person and earned INR 10 lakhs in the Financial year 2023-24 (1 April 2023 – 31 March 2024). Now, you have to calculate your taxable income and pay taxes for FY 23-24 in the next year, i.e., FY 24-25. This next year is your Assessment Year (AY).

Coming back to the ITR form, it asks about your income sources, any deductions you claim, and the taxes you owe. The ITR lets the government know about your income from various sources like salary, businesses, property, investments, etc.

If you have paid excess tax during the year, you can claim a refund through the ITR.

Read Also: Types of Mutual Funds in India

Types of ITR

There are different ITR forms depending on your income sources and filing category.

Individual ITR (ITR 1)

ITR 1, also known as Sahaj, is the simplest income tax return form in India. It is designed for resident individuals with a specific income profile.

Eligibility

ITR 1 can be filed by a resident individual with income from salary or pension, one house property (excluding cases where loss is brought forward from previous years), other sources excluding lottery winnings and agricultural income up to INR 5,000. Your total income for the financial year must not exceed INR 50 lakhs.

Additionally, ITR 1 cannot be filed by an individual who is:

A Resident Not Ordinarily Resident (RNOR)
Non-Resident India (NRI)
Has a total income that exceeds INR 50 lakhs, along with the taxable capital gains
A director of the company
Owns and has income from more than one house property,

Also, it is mandatory to define the nature of employment while filing of return.

Individual ITR (ITR 2)

ITR 2 is another income tax return form used in India. Unlike ITR 1, it caters to a wider range of income sources.

Eligibility

ITR 2 can be filed by an individual or HUF who is not eligible to file ITR 1 and who:

Does not have income from profit and gains or profession and also does not have income from profits and gains of business or profession like interest, salary, bonus, commission by whatever name called, due to, or received by him from a partnership firm.
Have the income of another person like a spouse, minor child, etc., be clubbed with their income.

Additionally, any individual or HUF who receives income in the such as interest, salary, bonus, commission or remuneration from a partnership firm and whose total income for the year includes profit and earnings from a business or profession is not eligible to file an ITR-2.

From AY 2021-22, you can choose to opt for the new tax regime under section 115BAC in ITR-2.

Individual ITR (ITR 3)

ITR 3 Form relates to income earned via business or profession. It is used by an individual or a Hindu Undivided Family who has income under the head “profits or gains of business or profession” and who is not eligible to file Form ITR‐1 (Sahaj), ITR‐2 or ITR‐4 (Sugam).

Eligibility

Individuals and HUFs who have income from profits and gains of business or profession can file ITR 3.

This includes income from:

Sole proprietorship businesses like shops, consultancy firms, etc.
Professionals like doctors, lawyers, architects, etc.
Partnership firms.
Investments in unlisted shares.
Others such as Fees earned as a director in a company, House Property, Salary, etc.

ITR 3 is often called a master form because it allows reporting income from almost all sources, including business or profession, salary, capital gains, house property, etc.

Furthermore, if your turnover exceeds INR 2 crore or you claim certain deductions or exemptions, you are also required to maintain books of accounts and get them audited.

ITR 4

ITR 4, also known as Sugam, is an income tax return form designed for a specific category of taxpayers in India.

Eligibility

ITR-4 can be filed by a Resident Individual / HUF / Firm (other than LLP) who has:

– Income not exceeding INR 50 lakhs during the FY.
– Income from Business and Profession, which is computed on a presumptive basis u/s 44AD, 44ADA, or 44AE.
– Income from Salary/Pension, one House Property, Agricultural Income (up to INR 5,000)
– Other sources excluding winning from the Lottery and Income from racehorses.

What is the Presumptive Taxation scheme for filing ITR 4?

Section 44AA of the Income Tax Act (1961) mandates that, in certain situations and under certain conditions, an individual involved in business or the profession maintain proper books of accounts. To alleviate the difficulty of compliance for small taxpayers, the Income Tax Act has established a presumptive taxation structure under sections 44AD, 44ADA, and 44AE. A person using the presumptive taxation scheme may report their income at a set rate.

Additionally, a presumptive taxation scheme can be adopted by a resident in India carrying on a specified profession whose gross receipts do not exceed INR 50 akhs in a FY.

ITR 5

ITR 5 is designed for a specific set of entities distinct from individuals and HUFs.

Eligibility

This form is mandated for entities like firms, limited liability partnerships, associations of persons, bodies of individuals, artificial juridical persons, business trusts, corporate societies, etc.

ITR 5 requires detailed disclosure of financial information including income statement, balance sheet and other particulars related to the entity’s income and expenses, and consists of several schedules.

ITR 6

This form used in India by companies for filing their income tax returns.

Eligibility

Companies registered under the Companies Act, 2013 or 1956, are required to file ITR 6 if they do not claim an exemption under section 11 of the Income Tax Act, 1961.

Exemption under section 11 offers a tax exemption for income derived from property held for religious or charitable purposes. Companies claiming exemption would not use ITR 6.

ITR 6 caters specifically to the income reporting needs of companies, with relevant schedules to capture details like business income, expenses, and TDS.

The form consists of various schedules for different aspects of the company’s income.

ITR 7

ITR 7 is the form used for a specific set of entities different from individuals and regular businesses.

The form has been divided into Part A, Part B, and Schedules where Part A includes general information, and Part B includes a statement of the total income and tax computation for income chargeable to tax.

Eligibility

ITR 7 is used by entities that fall under specific sections of the Income Tax Act. These entities include:

Charitable and religious trusts created for charitable or religious purposes under Section 139(4A) of the Income Tax Act.
Political Parties with income exceeding the non-taxable limit come under Section 139(4B).
Research institutions claiming tax exemptions under section 139(4D) can use ITR 7.
Educational Institutions such as universities and colleges can file ITR 7 under section 139 (4D).

The entities mentioned above claim exemptions under several clauses and might not be subject to regular corporate tax filing.

Conclusion

The ITR forms in India report your income earned during a financial year to the Income tax department. There are seven different types ITR forms, each catering to a specific taxpayer category and income situation. Choosing the right ITR form depends on your income profile and the nature of your income sources.

It is suggested to consult with a tax advisor, especially in case of complex situations. Keep in mind that timely filing of ITRs is important to avoid penalties and avail benefits like claiming deductions. For most forms, you can easily file your ITR electronically through the Income Tax Department’s e-filing portal.

Further, if you’re having difficulty in calculating your taxable income, check our free to use Income Tax Calculator: https://www.pocketful.in/calculators/income-tax-calculator

Frequently Asked Questions (FAQs)

What are ITR forms?
ITR forms are used in India to report your income earned during a financial year to the Income Tax Department.
Which ITR form should I use?
The appropriate ITR form depends on your income profile. This includes sources of income and your total income amount.
What if I have income from capital gains or multiple house properties?
You will likely need to file ITR-2 or ITR-3 which caters to individuals and HUFs with these income sources. Further, it is advisable to consult your tax advisor to get a clear picture.
Can I file ITR forms online?
Yes, you can file most ITR forms electronically through the Income Tax Department e-filing portal.
How to calculate the taxable income?
One can use our free-to-use Income Tax Calculator

April 24, 2024

Chart Patterns All Traders Should Know

When analyzing trading charts, certain formations appear repeatedly. Traders use these to identify potential trading opportunities. In this article, we’ll explore various chart patterns crucial for understanding the Indian stock market.

What is a Chart Pattern?

A chart pattern is a specific formation on a price chart that is repeated over time. By studying these patterns, traders attempt to predict future price movements based on historical outcomes. However, it’s important to note that past performance does not guarantee future results.

Types of Chart Patterns

Chart patterns can be broadly categorized into three types:

Continuation Patterns
These patterns indicate that the current trend will continue. Examples include flags, pennants, and triangles.

Reversal Patterns
These suggest that the current trend is likely to change direction. Examples include double tops, double bottoms, and head and shoulders.

Bilateral Patterns
These patterns indicate that the market could move in either direction, often due to increased volatility. Examples include symmetrical triangles.

Common Chart Patterns in Technical Analysis

Ascending and Descending Staircases
These are basic chart patterns that indicate a clear trend. An ascending staircase shows a market moving upward with higher highs and higher lows. Conversely, a descending staircase indicates a downward trend with lower lows and lower highs.
Ascending Triangle
An ascending triangle is formed when a horizontal resistance line meets an ascending support line. It usually signals a continuation of an uptrend.
Descending Triangle
A descending triangle occurs when a horizontal support line meets a descending resistance line. It typically indicates a continuation of a downtrend.
Symmetrical Triangle
This pattern forms when two trend lines converge symmetrically. It can signal a continuation of the current trend or indicate potential volatility leading to a breakout in either direction.
Flag
Flag patterns are short-term continuation patterns that resemble a small rectangle sloping against the prevailing trend. Bullish flags slope downwards, while bearish flags slope upwards.
Wedge
Wedge patterns are similar to flags but have converging trend lines. A rising wedge is a bearish signal, while a falling wedge is bullish.
Double Top
A double top is a bearish reversal pattern that appears after a significant uptrend. It consists of two peaks at roughly the same level, signaling a potential downtrend.
Double Bottom
A double bottom is a bullish reversal pattern seen after a significant downtrend. It features two troughs at similar levels, indicating a possible upward trend.
Head and Shoulders
This is a bearish reversal pattern with three peaks: a higher central peak (the head) flanked by two lower peaks (the shoulders). It signals a trend reversal from bullish to bearish.
Rounded Top and Bottom
These patterns are reversal signals. A rounded top suggests a shift from an uptrend to a downtrend, while a rounded bottom indicates a transition from a downtrend to an uptrend.
Cup and Handle
This bullish continuation pattern resembles a cup with a handle. The cup forms a rounded bottom, followed by a smaller consolidation (handle) before a breakout.

How to Trade Using Chart Patterns

Confirm the Pattern
Wait for a pattern to confirm itself by watching for a breakout in the expected direction. Volume indicators can help confirm the validity of a pattern.

Set Stop Loss
Always set a stop loss to manage risk. Place it at a level where the pattern is deemed to have failed.

Choose a Profit Target
Determine a profit target based on the height of the pattern. For instance, if a flag pattern has a height of 50 points, set a profit target 50 points beyond the breakout level.

Conclusion

Understanding and recognizing chart patterns can significantly enhance your trading strategy in the Indian stock market. By identifying these patterns, you can make informed trading decisions and better manage risks. Remember, while chart patterns provide valuable insights, no pattern is infallible, so always use risk management strategies.

FAQs

What is the most successful chart pattern?
The most successful chart pattern can vary, but many traders consider the head and shoulders pattern to be one of the most reliable.
Which chart pattern is most powerful?
The head and shoulders pattern is often considered the most powerful due to its strong predictive nature for trend reversals.
What is the most accurate trading pattern?
The double bottom pattern is often seen as highly accurate, especially for identifying bullish reversals.
Which chart style is best for trading?
Candlestick charts are generally considered the best for trading due to their detailed representation of price action.
Which is the most accurate chart?
Candlestick charts are regarded as the most accurate for technical analysis and trading decisions.
How many types of chart patterns are there?
There are three main types of chart patterns: continuation, reversal, and bilateral patterns.
How many types are chart patterns?
There are three types of chart patterns: continuation, reversal, and bilateral.
What is the most successful chart pattern?
The head and shoulders pattern is often cited as the most successful chart pattern.
Which chart is best for trading?
Candlestick charts are widely considered the best for trading.
How many types of charts are there in the stock market?
There are four main types of charts used in the stock market: line charts, bar charts, candlestick charts, and point-and-figure charts.
How to use a chart pattern?
To use a chart pattern, identify the pattern on the chart, confirm it with volume and other indicators, set a stop loss, and determine a profit target based on the pattern’s size.
Which chart pattern is best for trading?
The head and shoulders pattern is often considered the best for trading due to its reliability.
What is the chart pattern strategy?
The chart pattern strategy involves identifying specific patterns on price charts, confirming them, and making trades based on the predicted price movement.
Are chart patterns enough for trading?
While chart patterns are valuable, they should be used in conjunction with other technical indicators and risk management strategies for effective trading.
How to read a chart in trading?
To read a chart in trading, understand the basic components such as price action, timeframes, and volume, and identify patterns and trends.
What is a chart pattern analysis?
Chart pattern analysis involves studying historical price movements to identify patterns that predict future price movements.
What is charts analysis?
Chart analysis, or technical analysis, is the study of price charts to forecast future price movements based on historical data.
How do you make a chart analysis?
To make a chart analysis, select a chart type, identify trends and patterns, use technical indicators for confirmation, and interpret the data to make trading decisions.
What are the three types of chart patterns?
The three types of chart patterns are continuation patterns, reversal patterns, and bilateral patterns.
Why are chart patterns important?
Chart patterns are important because they help traders predict future price movements and make informed trading decisions based on historical price behavior.

April 24, 2024

Shriram Finance Case Study: Business Model, Financials, and SWOT Analysis

How would you go about approaching a bank for funding if you wanted to grow your company and needed some extra cash? Is there any option to obtain financing if the bank rejects your application? Indeed, some businesses are registered with the RBI as non-banking financial companies.

In today’s blog, we will be introducing you to a company known as “Shriram Finance Limited”.

Overview of Shriram Finance

The Shriram group, parent company of Shriram Finance, is well-known for its diverse industry expansion, which includes consumer goods, infrastructure, and financial services. Since its founding in 1974, the business has expanded rapidly and made a name for itself as a major force in the non-banking financial institution market. The organization caters to a broad clientele of individuals and businesses by providing tailored financial solutions. R. Thyagarajan, T. Jayaraman, and V.S. Sudarshan started the company’s operations and currently has the headquarters in Chennai. The company has expanded tremendously from a modest loan company to commercial vehicle financing and has emerged as one of India’s top non-banking financial companies (NBFCs).

Business Model of Shriram Finance

The Shriram Finance business model revolves around 3 segments.

1. Retail Financing – The company provides loans for commercial, passenger, and construction equipment as well as other assets to individuals and corporations, ranging from small business owners to major fleet operators.

2. SME Financing – To meet clientele’s operating and working capital requirements, small and medium-sized businesses also look to this corporation for loans.

3. Customized Financial Products – Additionally, the business creates tailored financial solutions to meet the needs of individual clients.

Competitive Edge

1. This organization combines innovation and technology through its digital platform, including an online loan application and a digital payment system.

2. The organization serves customers from both urban and rural areas with its extensive nationwide network of branches.

3. The business is doing its best to manage risk and compliance. It uses a strong risk assessment procedure and an assessment system for credit.

4. The company’s customer-centric strategy, which emphasizes establishing long-term relationships with clients, is the key to its success.

Market Details

52 Week High	INR 2605
52 Week Low	INR 1306
Face Value	INR 10
TTM PE Ratio	13.8
Market Capitalization	91,697 Crores

(As on 23rd April 2024)

Financial Highlight of Shriram Finance

Balance Sheet

Particulars	31st March 2023	31st March 2022	31st March 2021
Current Assets	203615	140442	128368
Non Current Assets	6984	1826	1459
Non Current Liabilities	86751	68119	61258
Current Liabilities	80535	48054	46851

(In Crores)

From the above table, we can say that the company’s current assets have shown a growth on YoY basis while the non-current assets have stayed consistently low. Correspondingly, the current liabilities witnessed a growth of almost 67%, on a YoY basis.

Income Statement

Particulars	31st March 2023	31st March 2022	31st March 2021
Total Income	30508	19274	17436
Total Expenses	9363	5990	5104
Profit before tax	21144	13283	12332
Profit after tax	6011	2707	2487

(In Crores)

The company’s income has increased by almost 58% in the year FY 2023 as compared to FY 2022, although its expenses have increased in the same proportion, leading to a relatively smaller jump in net profit.

Cash Flow Statement

Particulars	31st March 2023	31st March 2022	31st March 2021
Cash flow from operating activities	-17625	-8859	-4239
Cash flow from investing activities	-193	-34	-24
Cash flow from financing activities	11819	8504	12225

(In Crores)

The company’s cash flow from operating activities has been negative for the last three fiscal years. This is a major reason of concern regarding the company’s performance.

KPIs of Shriram Finance

Particulars	31st March 2023	31st March 2022	31st March 2021
Operating Profit Margin (%)	69.38	68.98	70.79
Net Profit Margin (%)	19.72	14.06	14.27
Return on Capital Employed (%)	16.25	14.09	14.86
Debt to Equity Ratio	3.77	4.39	4.89
Current Ratio	2.53	2.92	2.74

SWOT Analysis of Shriram Finance

Strengths

1. The company has a strong brand presence in the country and utilises this strength to its full potential.

2. A wide range of services are available from Shriram Finance, such as building loans, auto loans, and financial support for a range of client needs.

3. The business combines creativity and technology to ensure that its operational activities function smoothly.

Weaknesses

1. The business is heavily exposed to a few distinct industries, such as automotive, real estate, etc. so any downturn in these industries will affect their bottom line.

2. Strict regulatory requirements apply to the banking industry, and any tightening of RBI banking policies will make the business more difficult and risky.

3. The corporation is concentrating heavily on underbanked areas of the country, which may lead to a reduced NPA in the future.

Opportunities

1. They would be able to reach more people in rural India thanks to the government’s financial inclusion plans.

2. Strategic partnerships and acquisitions can help them expand their product offerings even further.

3. By incorporating cutting-edge technology into its online digital products, the corporation may expand its customer base even further.

Threats

1. The financial sector in India is highly competitive, and various companies are offering their services to retailers, hence intense competition could be a major threat for the company.

2. Any major modification to regulatory requirements will result in higher operating costs and lower profit margins for the business.

Conclusion

Shriram Finance Company is an important player in the Indian financial sector and advances the nation’s economy by giving different societal segments access to financing.

To promote growth and profitability, the company has made use of its strong brand, a large range of products, a national presence, and a customer-focused philosophy.

However, before making any investment decisions it is advised that you analyse your risk tolerance.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	Hindustan Unilever Case Study
2	Elcid Investments – India’s Costliest Stock
3	Reliance Power Case Study
4	Burger King Case Study
5	Zara Case Study

Frequently Asked Questions (FAQs)

How old is Shriram Finance Company?
Shriram Finance has been in business for more than 50 years and is one of the top NBFCs in India.
What does Shriram finance do?
A variety of financial services are offered by the firm, including auto and truck financing.
Who is the owner of Shriram Finance?
R. Thyagarajan is the founder of the Shriram Group, while Y S Chakravarti serves as the CEO of the business.
Is Shriram Finance approved by RBI?
Shriram Finance is an NBFC (Non-Banking Financial Company) established under the Company’s Act 2013 and is registered with RBI.
Which companies merged with Shriram Finance?
In 2022, Shriram Finance merged with Shriram Transport Finance and Shriram City.

April 23, 2024

What is Securitization? Methodology, Types, Advantages, and Disadvantages

Ever thought about how a car loan can be turned into an investment? Securitization makes it possible for you! This financial process turns loans into tradable securities and offers various opportunities with risks.

In today’s blog, we will explore the merits, demerits, techniques, and process of securitization.

What is Securitization?

In securitization, financial institutions bundle a group of loans or other income-generating assets together and transform them into a security that investors can trade.

Imagine a bank with a ton of issued car loans. Securitization allows the bank to sell these loans as a bundled security to investors. Investors then earn a return on their investment depending on the interest and principal payments made on the underlying car loans.

How Does Securitization Work?

Origination

Banks or other institutions originate loans, such as mortgages, car loans, or student loans. These are assets that will be securitized and serve as underlying collateral for the securities to be created.

Pooling

Financial institutions group similar loans together into a pool. This diversification spreads the risk in case some borrowers default.

Transfer of Assets to Special Purpose Vehicle (SPV)

The selected assets are transferred to a separate legal entity known as a Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE).

The SPV is generally a bankruptcy-remote entity, which means that the financial health of the originating institution does not affect the assets held within the SPV.

Creation of Tranches

The SPV issues securities backed by the cash flows generated from the underlying assets. These securities are then categorized into different tranches, each with different levels of risk and return.

Tranches are the categorized portions of the overall pool of assets being securitized. They essentially represent different risk-return profiles for investors. Below-mentioned is a breakdown of tranches.

Senior Tranches – these tranches have the highest credit ratings, such as AAA or AA, from agencies like CRISIL. This indicates a very low chance of failure. Additionally, senior tranches receive priority on the cash flow from the underlying asset. They receive interest and principal repayments from borrowers before any other tranche.
Mezzanine Tranches – these tranches hold a middle ground regarding credit rating, such as A and BBB. They absorb some of the risks after senior tranches are paid. Investors in mezzanine tranches are partially protected in default situations because junior tranches are impacted first. Because of their increased risk profile, mezzanine tranches offer a higher return than senior tranches.
Junior Tranches – these tranches have the lowest credit ratings, for example, BB, B, or even unrated. They represent the riskiest portion of the securitization. Junior tranche investors receive payouts only after senior and mezzanine tranches are paid in full. They offer the highest return on investment because of the highest risk borne.

Credit Enhancement

To attract investors, especially for lower-rated tranches, credit enhancement mechanisms may be employed to mitigate risks. These mechanisms can include over-collateralization or adding additional assets to the pool, cash reserves or third-party guarantees.

Issuance and Sale of securities

The securities, representing claims to the cash flows from the underlying assets, are then sold to investors in the capital markets. Investors buy these securities based on their desired risk-return profile.

Servicing

Servicing the underlying assets continues after securitization. A servicer, often the originating institution or a third-party specialist, is responsible for managing the assets on behalf of the investors and handling the day-to-day tasks of collecting principal and interest payments from the original borrowers. The collected funds are then distributed to the tranche holders as per the pre-defined structure. Senior tranches receive payments first, followed by the subordinate tranches.

Risk Management and Reporting of Securitization

Throughout the life of securitization, risk management practices are employed to monitor the performance of the underlying assets and ensure compliance with regulatory needs. Regular reporting to investors regarding the performance of the securities and underlying assets is also essential.

Types of Securitized Securities

Some common types of securitized securities include:

Asset-backed Securities (ABS)

This is a broad category that includes most securitized securities. A pool of underlying assets backs ABS, typically consisting of cash-generating assets like auto loans, credit card receivables, and student loans. Further sub-categorisation of ABS is possible based on the underlying assets.

Mortgage-backed Securities – These are ABS-backed by pools of residential or commercial mortgage loans. Cash flows from the underlying mortgage payments are passed through MBS investors who receive interest and principal payouts.
Auto Loan-Backed Securities – a pool of car loans backs these.

Collateralized Debt Obligations (CDOs)

CDO is a complex type of security that can bundle together different types of collateralized debt. This creates a layered structure with varying risk-return profiles.

Credit Linked Notes (CLNs)

These are structured debt securities that allow investors to gain exposure to credit risk linked with varied underlying assets such as corporate bonds, loans or other structured finance products.

Also Read: Collateral

Credit Enhancement Techniques

Two main categories of credit enhancement are listed below,

Internal credit enhancement

These techniques rely on features built into the structure of the securitization deal itself to improve creditworthiness.

Overcollateralization – this involves structuring the deal so that the value of the assets backing the securities is greater than the total value of the securities issued. This excess collateral acts as a buffer in case of defaults, thus protecting senior tranches.
Excess Spread – this refers to the difference between the interest earned on the underlying assets and the interest paid to investors on the securities. This excess cash flow can be used to cover shortfalls in principal or interest payments if some borrowers default.
Subordination – The securitization structure is divided into multiple classes with varying payment priorities. Senior tranches receive principal and interest payments first, whereas junior tranches get payouts only after senior tranches are fully paid. This hierarchy absorbs losses from defaults.
Cash Reserves – these are the funds set aside from the proceeds of the securitization to cover any shortfalls in cash flows from the underlying assets. These reserves provide a buffer to support payments to investors during periods of financial stress

External Credit Enhancement

These techniques involve bringing in external guarantees or insurance from third parties to increase the creditworthiness of the securitization.

Letters of credit – Banks or other financial institutions can issue letters of credit assuring repayment of principal and interest on the securities in case of issuer default.
Surety Bonds – insurance companies can act as sureties, guaranteeing to cover losses if there are defaults on the underlying assets.
Third-party Guarantees – Guarantees can be provided by corporations or government entities, strengthening the creditworthiness of the securitization.

The choice of credit enhancement techniques depends on various factors, like the type of assets being securitized, the desired credit rating for different tranches, and the overall risk profile of the deal.

Advantages and Disadvantages of Securitization

Securitization offers various advantages and disadvantages to both financial institutions and investors.

Advantages

Reduces Risk: It allows originators to transfer credit risk linked with the underlying assets to investors. This can improve their overall capital adequacy ratios, making them more attractive to lenders.

Diversification: Securitization offers investors access to a wider range of investment opportunities. They can invest in tranches depending on their risk tolerance and desired return.

Increased Liquidity: Securitised assets are generally tradable on the secondary market, offering investors greater liquidity compared to some traditional securities like private loans.

Frees up capital: By selling off assets like loans, banks can free up capital on their balance sheets. This allows them to originate new loans, stimulating economic activity.

Disadvantages

Some significant drawbacks of securitization are as follows

Complexity: The process of securitization can be complex and involves multiple parties, intricate legal structures, and complex risk assessments. This complexity can make it difficult for investors to understand the underlying assets and the risks involved fully.

Transparency: In some cases, the underlying assets in securitization may need to be fully transparent. This can be because several loans from different borrowers are pooled, making it challenging to analyze the creditworthiness of each loan. This lack of transparency can lead to the mispricing of risk.

Increased Costs: The securitization process involves multiple fees linked to legal structuring, credit rating agencies, and investment baking placement. These costs can ultimately reduce investors’ returns.

Reduced Accountability: Securitisation involves numerous parties, making it difficult to identify accountability if something goes wrong, which can pose challenges in addressing problems.

Systemic Risk: If a large number of borrowers default on the underlying loans in securitization, it can trigger a domino effect. The value of the securitized securities can fall, causing losses for investors. This happened in the 2008 global financial crisis when many mortgage-backed securities (MBS) went bad.

Conclusion

Securitization can be a complex financial tool that enables institutions to convert illiquid assets into tradable securities. It plays an important role in modern financial markets by facilitating the efficient allocation of capital, enabling risk transfer and providing investors with a diverse range of investment opportunities. As financial innovation continues, securitization is likely to remain an integral part of the global financial system, albeit with ongoing refinements and regulatory adaptations to address emerging challenges and promote market integrity.

Frequently Asked Questions (FAQs)

Who benefits from securitization?
Securitization benefits financial institutions by providing access to capital and reducing risk exposure. It also benefits investors by offering diversified investment opportunities.
How are securitized securities rated?
Credit rating agencies rate securitized securities based on the credit quality of underlying assets, structural features, and credit enhancement techniques.
What is the role of Special Purpose Vehicle SPV in securitization?
An SPV is a separate legal entity used to hold and manage the assets being securitized.
What are some drawbacks of securitization?
The drawbacks of securitization include complexity, lack of transparency, and risk of crisis if mismanaged.
Is securitization good for the economy?
It depends. It can boost the economy if used well, but poorly structured deals can lead to instability.

April 22, 2024

What are Mergers and Acquisitions (M&A)? Advantages, Disadvantages, and Classifications

Reading newspaper articles about larger companies acquiring smaller ones for strategic purposes is common nowadays. However, have you ever wondered why companies spend millions (or even billions) on acquisitions?

Today’s blog aims to explain mergers and acquisitions to you.

Mergers and Acquisitions Overview

Although generally used interchangeably, mergers and acquisitions have distinctly different meanings.

A merger is the process by which two or more companies come together to form a single new company. The combined entity, led by personnel from both organizations, often adopts a new name. Ultimately, the newly formed organization is stronger as both companies decide to merge.

The term ‘acquisition’ refers to the process of one company acquiring over 51% of another company and becoming its parent. Acquisitions are generally processed as a common decision from both parties, but the output can also be achieved via Hostile takeovers, which are done without the acquiree company’s management approval.

Advantages

Helps the company in expanding its performance and reach.
The newly formed company will help eliminate market competition.
Since a subsidiary firm’s profit and loss get consolidated at the parent level, mergers and acquisitions can occasionally enable a corporation to receive tax benefits.
M&A activities help companies diversify their business.

Disadvantages

Many firms find it difficult to conduct M&A due to the high cost. Failure to draw out the intended value from the M&A can prove fatal for the company in the long run.
Acquiree companies may have to experience mass layoffs in order to generate long term efficiency.
Achieving the intended M&A goals may be challenging if the two merging organizations have different working cultures, which causes coordination issues.
Financial risk can arise during an M&A because target companies are often overpaid and thus experience difficulties in achieving the intended outcomes.

Reasons

There are various reasons for mergers and acquisitions, a few of which are mentioned below-

Growth – This is the primary driver behind corporate mergers and acquisitions, as increasing client base and market share is the main goal of operations.
Expertise – In most cases, established companies acquire innovative startups with cutting-edge technology to incorporate into their own products.
Tax Benefit – M&A between two different companies could potentially help in saving taxes.
Diversification – In order to reduce business risk, companies can diversify their business through mergers.
Competitive Advantage – Businesses engaged in similar types of activities may combine to create a monopoly and drive out competitors.

Classifications of Mergers

Horizontal Merger – In this type of merger, the businesses belong to the same sector and use a similar supply chain.
Vertical Merger – This kind of merger involves businesses operating at different levels within the same industry.
Conglomerate Merger – Conglomerate mergers occur when two unconnected businesses unite. An example would be the merger of a software company and a shoe company.
Congeneric Merger – Two businesses with different customer bases in the same industry merge in a congeneric merger. As an illustration, a congeneric merger occurs when a car manufacturer joins up with a tire manufacturer.
Statutory Merger – Acquiring firms gain control over the target company, which they manage but operate independently.

Classifications of Acquisitions

Asset Acquisition – Instead of purchasing the target company’s shares, the acquiring company purchases its assets, such as buildings, machinery, and intellectual property.
Share Acquisition – Acquiring firms gain control over the target company, which is managed by them but operates independently.

Process of M&A

The process of merger and acquisition in India are as follows-

1. The corporation must first determine whether or not its Memorandum of Association permits it to do so. If not, the MoA must be amended.

2. Listed companies must then notify the stock market of their plans by orders, notices, and resolutions.

3. The company must then develop a document for this purpose, and both companies’ boards of directors must ratify it.

4. Subsequently, an organization must apply to the National Company Law Tribunal to obtain approval for the merger and acquisition record.

5. Following the approval, all shareholders must receive information about the merger and acquisition process within 21 days.

6. The next step in the process would be to take over the assets of the acquiring company or merge the assets and liabilities of both companies.

7. The new company will issue its shares to its shareholders after the M&A activity is completed.

Conclusion

The process of mergers and acquisitions encompasses much more than buying or selling a company; it is complex and multifaceted. While M&A can be a beneficial strategy for some businesses, some find it costly and ineffective.

Gaining a deeper comprehension of the idea will help you understand the world of M&A.

Frequently Asked Questions (FAQs)

What are the famous mergers and acquisitions in India?
A few well-known merger and acquisition deals in India include Walmart’s 2018 acquisition of Flipkart, Reliance Industries’ 2020 acquisition of Future Group, and Tata Steel’s 2018 acquisition of Bhushan Steel.
What will happen to shareholders in case of M&A?
In the case of M&A, the updated quantity authorized by the ratio will be distributed to the shareholders along with the shares of the new organization.
Are mergers and acquisitions good for shareholders?
Yes, if the M&A is successful, the company’s growth will accelerate, which will ultimately raise the share price.
How long will it take to complete the process of M&A?
The duration of the M&A process typically ranges from six months to a year, depending on the deal’s complexity.
What are the major steps involved in an M&A deal?
The M&A process has a lot of steps including identifying the target company, conducting due diligence, negotiating with the company, obtaining regulatory clearance, and integration with the new parent.

April 22, 2024

What is T+0 Settlement : Overview And Benefits

In the evolving world of financial markets, every second counts. From traders seeking to capitalise on fleeting opportunities to investors aiming to swiftly reallocate their portfolio. Efficiency in transaction execution is crucial. This demand has fuelled the evolution of settlement systems in India and the much-awaited T+0 settlement is here, revolutionising the Indian trading landscape with lightning-fast transactions. But is it all sunshine and rainbows?

In this blog, we will explore its benefits for investors along with some important considerations before you jump in.

Overview

T+0 settlement refers to a system where trades in shares are settled on the same day they occur. In simpler terms, when you buy a stock, the shares are transferred to the buyer, i.e., your demat account and the seller receives the money immediately.

SEBI is launching T+0 in a beta version. This allows brokers to offer it optionally alongside the existing T+1 system in India.

Did you know?

As of April 2024, China is the only country with T+0 trade settlement cycle.

If we look back at history, the settlement cycle in the Indian stock market was shortened from T+5 to T+3 in 2002 and then further to T+2 in 2003. In 2021, Sebi introduced the T+1 settlement cycle in a phased manner, which was fully implemented from January 2023.

Currently, India operates on a T+1 settlement cycle, where trades are settled on the next business day.

With the introduction of the T+0 settlement, sellers will receive their money right away, and buyers get the shares they purchase on the same day. This allows for greater liquidity, flexibility, and faster settlement; allowing traders to react to the market movements more quickly.

It is a pilot program, launched on March 28, 2024, and applies to 25 stocks initially.

T+0 Settlement will happen in two phases:

In the first phase, an optional T+0 settlement cycle for trades till 1:30 pm is envisaged, with the settlement of funds and securities to be completed on the same day by 4:30 pm.
In the second phase, an optional immediate trade-by-trade settlement will be carried out for trades till 3.30 pm.

According to SEBI, a shorter settlement cycle can improve efficiency and transparency for investors, while strengthening the risk management for clearing corporations and the entire stock market system.

Operational Guidelines for T+0 Settlement

1. Eligible Investors

All investors can participate if they meet the requirements fixed by the Market Infrastructure Institutions (MIIs) like depositories and exchanges. These requirements could involve factors like risk management capabilities and transaction timelines.

2. Trade Timings

Currently, T+0 trading happens in a single session from 9:15 am to 1:30 pm.

3. Price Band

To manage volatility, T+0 trades occur within a price range of +/- 100 basis points compared to the T+1 market price for the same security. This range will be adjusted whenever the T+1 market price moves by 50 basis points.

4. Index Calculation and Settlement Price Computation

Trades happening within the T+0 settlement won’t influence index calculations or final settlement prices. Additionally, there won’t be a separate closing price specifically for T+0 trades.

Furthermore, the only method of early payment for T+0 sell obligations will be through the use of a locking mechanism. T+0 will not accept early payment via pool or regular pay-in instructions.

5. Fees/ Charges

All the charges/fees like Transaction Charges, STT, and Regulatory Turnover Fees that are applicable for T+1 settled securities will be applicable for T+0 settled securities.

Other key Points

T+0 trades are separate from T+1 trades. There is no netting of obligations between the two cycles.

T+0 trade prices will not be reflected in market indices or settlement price calculations, and separate closing prices won’t be determined based solely on T+0 trades.

There won’t be any Trading in T+0 settled securities on the following days:

On the Ex-date of any corporate action in the corresponding T+1 settled securities (including the scheme of arrangement).
On the day of the index rebalancing of the corresponding T+1 settled securities.
On the settlement holiday.

List of Stocks

As of April 2024, there are a total of 25 stocks available in T+0 settlement cycle:

Name of the Company
Ambuja Cements Limited	LIC Housing Finance Limited
Ashok Leyland Limited	MRF Limited
Bajaj Auto Limited	Nestle India Limited
Bank of Baroda	Nmdc Limited
Bharat Petroleum Corporation Limited	Oil & Natural Gas Corporation Limited
Birlasoft Limited	Petronet Lng Limited
Cipla Limited	State Bank of India
Coforge Limited	Tata Communications Limited
Divi’s Laboratories Limited	Trent Limited
Hindalco Industries Limited	Union Bank of India
The Indian Hotels Company Limited	Vedanta Limited
Jsw Steel Limited	Ltimindtree Limited
Samvardhana Motherson International Limited

Benefits for Investors

With immediate access to funds, investors can react more quickly to market fluctuations. They can sell a stock and use the proceeds to buy another one right away, potentially capturing short-term gains.
The increased ease and speed of transactions under T+0 could lead to higher trading volumes, benefitting investors who enjoy active trading.

Let us understand the T+0 settlement with the help of an example:

Consider a scenario where an investor buys 100 shares of company named “Pocket” through an online brokerage platform. With T+0 settlement, the transaction is processed immediately, and the investor’s trading account is debited for the buy amount + transaction charges while the shares are simultaneously credited to the buyer’s demat account.

Similarly, the seller’s trading account is credited with the proceeds from the sale instantly upon execution, and the shares are debited from the demat account.

Conclusion

To sum it up, T+0 settlement offers investors a faster and more dynamic trading experience, particularly those focused on short-term strategies. The quicker access to funds and reduced settlement risk can be beneficial for navigating the volatile markets and capitalising on fleeting opportunities.

However, investors should also be aware of the potential drawbacks, such as the possibility of increased volatility and the need for stricter discipline to avoid impulsive trades. It is also important to keep in mind that T+0 is a relatively new concept and there may be some unforeseen challenges. Investors should carefully consider the risks before actively trading in a T+0 environment.

Frequently Asked Questions (FAQs)

Is T+0 suitable for all investors?
While beneficial for day traders and short-term investors, it might not suit everyone because of higher volatility.
What are some drawbacks of T+0 settlement?
Some drawbacks are that higher transaction volume might result in increased volatility, and pressure to make decisions more quickly, which can result in impulsive trades and possible technical issues from clearing houses.
How many securities are available for T+0 settlement in the Beta phase?
A total of 25 securities are available in T+0 settlement as of April 2024.
Who can trade in the T+0 settlement?
All members eligible to trade in the Capital Market Segment shall be able to trade in T+0 settled securities.
I have traded in T+0; can I change the settlement type?
No. Orders for T+0 and T+1 settled securities are executed in separate series.

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

April 21, 2024

Grasim Industries Case Study: Subsidiaries, Products, Financials, and SWOT Analysis

Grasim Industries Limited is a flagship company of the global conglomerate Aditya Birla Group. The company started as a textiles manufacturer in India in 1947 and evolved into a leading diversified player with a strong presence across many sectors. Grasim Industries products include viscose staple fiber, filament yarn, cement (via UltraTech), chemicals like caustic soda and epoxy, textiles, insulators, fertilizers, and financial services. Today’s blog will dive into the company overview, business segments, market data, financial highlights, and SWOT analysis.

Grasim Industries Overview

Recognised as ET Sustainable Organization 2023, Grasim Industries has evolved into the true essence of the phrase “World first.” The company draws revenue from its three broad segments: Viscose Fibre and Yarn, Chemicals, and Others.

Of the 3 segments, Grasim Industries generates most of the revenue from the Viscose Fiber and Yarn segment.

Company	Public
Founded at	1947
Headquarters	Mumbai, Maharashtra
Area served	Worldwide
Parent	Aditya Birla Group

Recognition & Achievements

2018 – Forbes ranks Grasim Industries as a Growth Champion 2018.
2021 – Attains the 7th position on the Responsible Business Ranking.
2023 – Work Institute certified Grasim’s Domestic Textile Business.

Subsidiaries

UltraTech Cement

UltraTech Cement holds an iconic position as a major cement manufacturer with an annual production capacity exceeding 100 million tonnes. It has expertise in ready-to-mix concrete, grey cement, and white cement. The business extended its geographical boundaries and expanded its operations to UAE, Bahrain, Bangladesh, and Sri Lanka, making it a global cement manufacturer.

Aditya Birla Capital

Aditya Birla Capital is a financing and advisory solutions provider and has served more than 3.8 million customers. It provides the services of home loans, personal loans, securities against stocks, and much more. It has become an essential player as over 60% of its lending portfolio caters to SME customers and retailers. Aditya Birla ranks among the nation’s top five private life insurance providers.

Major Products

Linen Yarn and Fabrics

The company has a strong brand reputation in linen yarn and fabrics for its elegance, quality, and comfort. The business is renowned for its sophisticated standards of clothing.

Paints

The company is aiming to become the biggest player in the fast-growing decorative paints industry. It provides a variety of decorative and industrial paints known for their durability, quality, and eco-friendly attributes.

Chlor-alkali and Epoxy Products

The company has created a strong footprint and brand reputation in the industry. In addition to offering caustic soda, it also produces chlorine derivatives and epoxy products and has become a market leader in the chlor-alkali industry. These products are essential in different sectors, meeting quality standards and demonstrating versatility.

Birla Pivot

Birla Pivot is a thriving e-commerce platform that penetrates the country’s building materials segment. It is a B2B platform and is Grasim’s flagship. The business is expected to undergo rapid growth in the coming years and aims to overcome hurdles while providing seamless integration with other projects. This platform boasts consumer-friendly features and a complete track-and-trace system for every order.

Viscose Staple Fiber (VSF)

VSF is a biodegradable and versatile fiber and is used for home textiles, dress materials, manufacturing apparel, knitted wear, and non-woven applications. Grasim has become the global leader in this industry by providing quality and sustainability.

Market Data

Market Cap	₹ 1,50,936 Cr.
TTM P/E	26.84
ROCE	12.63 %
Book Value per share	₹ 1,267.63
ROE	8.67 %
Dividend Yield	0.44 %
Face Value	₹ 2.00

(As on 19th April 2024)

Grasim Industries Financial Highlights

Income Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Operating Revenue	1,17,627.08	95,701.13	76,404.29	75,269.48
Total Income	1,21,239.13	96,522.47	77,462.09	76,238.29
Total Expenditure	96,038.03	75,269.76	57,768.95	58,008.38
Profit before Tax	14,726.71	12,626.86	9,771.43	6,491.54
Profit after Tax	11,078.20	10,690.55	6,749.24	6,575.86
Consolidated Profit	6,827.26	7,549.78	4,304.82	4,411.74

(All values are in Crores)

Operating revenue has seen massive growth over the past years, fueled by a corresponding increase in total expenditure. The income jump, however, did not translate to a similar increase in net profit.

Balance Sheet

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Non-Current Liabilities	1,44,376.96	1,15,089.61	1,12,279.37	1,06,625.41
Current Liabilities	69,532.99	57,884.47	51,921.84	46,379.50
Non-Current Assets	2,69,300.41	2,32,381.10	2,07,073.53	1,92,128.52
Current Assets	67,504.34	56,758.16	57,956.43	51,445.38

(All values are in Crores)

The Balance Sheet saw a massive but continuous increase in non-current assets while maintaining a much lower level of non-current liabilities. Such a consistent increase shows a positive trend for the company.

Cash Flow Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Cash From Operating Activities	-12,685.14	7,037.65	15,075.08	16,803.43
Cash Flow from Investing Activities	-13,686.71	-3,543.18	-9,229.49	-11,547.64
Cash from Financing Activities	26,469.13	-6,733.13	-8,003.45	-3,417.93

The Cash Flow Statement signifies a grim state. Operations have consistently declined inflows, with the latest FY witnessing a drastic dive. The investing and financing activities also show a lot of turbulence.

Profitability Ratios

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
ROCE (%)	12.63	11.93	10.97	9.48
ROE (%)	14.41	15.21	11.10	11.52
ROA (%)	3.54	3.84	2.64	2.71
EBIT Margin (%)	14.48	17.00	19.11	17.61
Net Margin (%)	9.14	11.08	8.71	8.63
Cash Profit Margin (%)	12.35	14.35	12.93	12.87

The company’s profitability signifies a healthy state with ROCE seeing a consistent but slow increase in the past 4 years. The company has consistently been able to net a margin of around 9%.

Grasim Industries SWOT Analysis

Strengths

Grasim enjoys an extensive dealer network that helps the company grow globally and deliver efficient services to its customers.
The company enjoys the benefits of a stable brand value in the construction segment as it has a history of 75 years.
The company is currently the largest producer of VSF in the country and is thus able to command significant control over the pricing.

Weaknesses

Grasim industries operates in a cyclical industry and thus experiences volatility in downturns.
The capex heavy business model can lead to increased leverage in the coming years.

Opportunities

Grasim industries has forayed into the paints segment and plans to make a foothold in the industry.
The Indian textile industry is estimated to continue growing in the coming years, and the Grasim industries can benefit heavily from this development.

Threats

The VSF segment generates the majority of the revenue, and demand for this segment is expected to decline in the future.
There is a growing number of global players interested in entering the Indian subcontinent and failure to keep them at bay can result in decreased margins.

Conclusion

In the past few decades, Grasim Industries has become a major player in the Indian market. In addition to extensive dealer networks, the company has skilled employees, contributing to its growth and efficiency. Despite this, seasonality in the industry presents challenges.

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FAQs

What is the full form of GRASIM?
The full form of GRASIM is Gwalior Rayon Silk Manufacturing (Weaving) Company Limited.
What does Grasim Industries Ltd do?
The company started as a textile manufacturer in 1947 but is now involved in various business segments, such as the production of Fabrics, Viscose, Diversified Chemicals, and Linen Yarn.
What are the Grasim industry’s products?
They offer a wide variety of products, such as viscose staple fiber, yarn, pulp, grey cement, white cement, caustic soda, allied chemicals, epoxy, linen, and wool.
What are the major risks faced by Grasim industries?
The company faces issues due to the capex heavy business and high level of seasonality.
When was the Grasim Industries established?
The company was established in 1947, in Mumbai, Maharashtra.
What are the products of GRASIM?
Grasim Industries produces viscose staple fiber, filament yarn, chemicals (caustic soda, epoxy), cement (via UltraTech), and textiles. It also operates in financial services, fertilizers, and power insulators.

April 21, 2024

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